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News Article

Reforms, USMCA Force Employers to Rapidly Adapt

By Miriam Bello | Wed, 10/13/2021 - 13:17

The USMCA led Mexico to review its labor practices to fulfill the responsibilities it agreed to. Since the US is Mexico’s largest commercial partner, compliance with the agreement plays an important role in their relationship.

Mexico’s 2019 labor reform responds to the obligations the country agreed to when it signed the USMCA. It aims to enforce adherence to fundamental labor rights and legislation, guarantee the protection of migrant workers, promote a cooperative agenda that allows the application of fundamental labor rights and foster dialogue to address differences in the application of Chapter 23’s commitments.

“Chapter 23, Annex 23.A includes elements of regulation of labor aspects, that were firstly triggered by Mexico’s labor reform in 2019 and that incorporates ILO recommendations,” says Carlos Zurita, Human Capital Director and Compliance of Unicarplastics. The chapter seeks to improve working conditions and wages of workers in Mexico to prevent companies from Canada or the US from transferring jobs south to take advantage of Mexico’s lower wages.

The USMCA came into force on July 1, 2020 and, while it was the major force behind the labor reform, it was not the only one. “Mexico had ratified the International Labor Organization’s (ILO) Convention 87, relating to freedom of association. During the early days of this administration the country ratified Convention 98, relating to recognition of effective rights in collective negotiation. To acknowledge the country’s obligations, the country needed to change its practices, the federal law and the constitution,” said Luis Monsalvo Duclaud, Co-Managing Partner and Director at Monsalvo Duclaud.

Both the USMCA and the reform aim to transform labor practices through five principles: “Freedom of association, effective negotiation, elimination of forced and child labor, minimum working conditions and the establishment of autonomous labor courts.” The latter led to the creation of Federal Center for Labor Conciliation and Registration, which aims to offer a public conciliation service to resolve labor disputes between workers and employers, individual or collective. This organization offers both parties an efficient and expeditious solution that provides certainty and legal security. The institute will be in charge of the registration of the administration agreements of the contracts-law, collective bargaining agreements and agreements related to them, internal labor regulations and union organizations and of the administrative processes related to the registration powers.

This reform “will transform the labor relationships that we know now, this will mean not only to change the law, but to change every company in Mexico,” says Alfredo Kupfer Domínguez, President of Human Capital and Labor Affairs Committee of American Chamber of Commerce of Mexico. According to Kupfer Domínguez, the worker’s ability to unionize freely and anonymously will make them more involved and aware of their rights.

The reform also seeks to prevent violations of workers’ rights and tax evasion, the latter led to measures to regulate outsourcing. Although subcontracting labor structures were prevalent in Mexico for many years and even regulated under the former regulation, several outsourcing schemes were also used to pay less taxes and contribute less to workers’ social security. This led to tax frauds and reduced employee’s pension and compensation.

“Outsourcing has been associated with dirty practices like reducing salaries and preventing payments, even wage theft. However, there are many outsourcing companies that follow the rules and pay well, including benefits,” said Guido van der Zwet, General Manager of IPS Powerful People. The “prohibitive” approach to outsourcing reflected in recent regulatory changes can be too radical considering the number of contracts managed through those means, he added.

The reform still lacks of clarity. “Mexico’s labor conditions were significantly differently from international standards and the reform needs to be clearer on its deadlines so every company is able to comply,” says Monsalvo. Immediate compliance is utterly important to companies because the Ministry of Labor and Social Prevision (STPS) announced that it will constantly visit businesses to supervise their compliance with the reform.

“The overall changes on the reform are expected to increase wages in Mexico by a 17 percent but this is a gradual change that will only occur if we are able to generate better labor conditions,” warns Kupfer Domínguez. In the last three years, Mexico has experience large general wage increases, especially in cities near the Mexico-US border, which has significant costs for companies, he added.

Increasing the minimum wage is positive but it pressures companies, said Zurita. “The minimum wage must be agreed with the business sector so that increases are measured and calculated and do not to cause a strong impact. Hand on hand with this increase, the government should encourage business growth and job retention with an accompaniment in production and generation of wealth.”

The sector that is dealing with these labor reforms more strongly is the automotive industry. Earlier this year, the US announced the conclusion of the labor complaint that reviewed whether workers at a General Motors facility in Silao, Guanajuato, were being denied their freedom of association and collective bargaining rights.

Workers at a General Motors plant in Silao, Mexico, voted on the approval of their existing collective bargaining agreement under free and democratic conditions after the US requested a review on May 12, 2021. Complying with USMCA’s commitments during remediation, workers voted in August to reject their collective agreement. Inspectors from the Ministry of Labor and Social Welfare (STPS) supervised voting, while INE and International Labor Organization representatives worked as observers. STPS later confirmed the voting results. The US Trade Representative (USTR) Katherine Tai and Labor Minister Marty Walsh noted the “successful conclusion” of the first labor complaint under the Rapid Response Mechanism (RRM) of USMCA.

Photo by:   Mexico Business News
Miriam Bello Miriam Bello Senior Journalist and Industry Analyst