The USMCA and the Rapid Response Enforcement Mechanism - Enforcing Compliance with Labor Laws through Free Trade Agreements?

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Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Nick Marr:   Welcome, everyone, to The Federalist Society’s Teleforum conference call as this afternoon, December 16, 2020, we’re discussing the “USMCA and the Rapid Response Enforcement Mechanism - Enforcing Compliance with Labor Laws through Free Trade Agreements.” I’m Nick Marr, Assistant Director of Practice Groups here at The Federalist Society.

 

As always, please note that expressions of opinion on today’s call are those of our experts. And I’ll also note that this is a members’ only call and Chatham House Rules program. So please keep that in mind.

 

I’ll be just introducing our moderator, and then he’ll introduce the rest of our speakers on today’s call and continue with the discussion. So we’re very pleased to have join us as moderator Stefan Marculewicz. He’s shareholder and Co-Chair of Business and Human Rights Practice Group at Littler Mendelson P. C. So thank you very much for being with us here, Stefan. I’ll hand the floor off to you.

 

Stefan J. Marculewicz:  Great. Thank you very much, Nick. I appreciate it and I appreciate The Federalist Society for giving us the opportunity to talk about this extremely important issue, really unprecedented. I suggested that The Federalist Society have a program on the U.S.-Mexico-Canada Agreement, or the USMCA -- the Free Trade Agreement and the labor provisions it contains because the USMCA contains a labor law enforcement provision that is unprecedented in international law. I do an awful lot of international labor work, and this is really one of sort of the few mechanisms that is really, I think -- has not existed thus far in our legal vernacular.

 

So Mexico’s labor laws as they relate to unions have historically been criticized for the structure. Although our speakers are going to cover this in greater detail, just to give you a quick summary of it, essentially the system is one that has existed in Mexico for many years, has been one where employers and labor unions enter into agreements, which in turn serve as a protection against independent labor unions and independent organizing by the workers. These what are called protection unions are typically known to the workers -- typically unknown to the workers they ostensibly represent and do not actively engage in any representation of those workers. In fact, there’s a strong belief that the system has led to the suppression of wages in Mexico, and that in turn has created an unfair competitive advantage against U.S. business and particularly under the North American Free Trade Agreement.

 

The International Labor Organization, the U.S. agency that deals with international labor standards, has for decades tried to get Mexico to change this system with little effect. And as an example of the power trade with the United States can be, in the face of termination of NAFTA a number of years ago, Mexico finally reformed its labor laws in 2019 after amending its constitution the year before and adopting an ILO Convention, 98, dealing with collective bargaining. Changes to the law on paper are one thing, but actually changing the practice is quite another. As such, under the USMCA there now exists an enforcement mechanism called the rapid response dispute resolution process.

 

Under that process, claims for failure to comply with the reformed Mexican labor laws can be brought directly against facilities in Mexico. Following investigation and adjudication, these cases can result in the loss of preferential tariffs accorded under the USMCA for goods or services coming from that facility. In other words, for the first time in history, there is an international process that will hold an individual business accountable for its failure to comply with the labor laws of another country. For many of you with operations in Mexico or who source products from Mexico this is going to be a reality in the coming years. It is also likely to be something that becomes part of all free trade agreements in the future.

 

Today, we have with us a terrific panel of key players in the process to share with you some insight into the process and what to expect. Our first speaker will be Lewis Karesh. Lewis Karesh currently serves as the Assistant U.S. Trade Representative for Labor Affairs. In this capacity, he oversees trade and labor issues for the USTR, including negotiation of labor provisions in multinational, regional, and bilateral free trade agreements, monitoring and enforcement of those labor provisions, countries’ adherence to workers’ rights provisions of U.S. trade preference programs, and development of U.S. positions on the relationship between trade and labor in international fora, including the International Labor Organization, the World Trade Organization, Organization for Economic Cooperation and Development, and the Asian Pacific Economic Cooperation. Mr. Karesh began his work on trade and labor issues in 1994 with the negotiation and implementation of the North American Agreement on Labor Cooperation, the labor supplemental agreement to the North American Free Trade Agreement, and previously worked for the International Labor Affairs Bureau of the U.S. Department of Labor. A terrific knowledge and authority on this topic as there is.

 

Our second speaker will be Matt Levin. Matt Levin currently serves as the Director of the Office of Trade and Labor Affairs in the International Labor Affairs Bureau of the U.S. Department of Labor. Actually, Matt and I go back a long time. We worked together closely in 2006 when we were part of the U.S. delegation to the International Labor Organization. Matt was representing the Department of Labor, and I was representing the Employers Group.

 

The Office of Trade and Labor Affairs exists to ensure that U.S. trade agreements are fair for American workers and workers around the world. The Office is involved in negotiating labor provisions and trade agreements and preference programs, monitoring for compliance, enforcing trade agreement and preference program commitment, and sharing technical expertise to make sure that U.S. trade partners fulfill their promise and play by the rules and that American workers are able to compete on a level playing field. Matt participated in the negotiation of the USMCA labor chapter and rapid response mechanism, about which he’ll speak today.

 

Finally, Phil Miscimarra -- you all know Phil who’s a familiar participant in our labor and employment practice group, so he probably needs no introduction. Phil is the former chairman of the National Labor Relations Board and is now a partner at the law firm of Morgan, Lewis & Bockius. He represents clients on a wide range of labor and employment issues with a focus on labor management relations, business acquisitions, and restructuring and employment litigation. Phil and I are currently the lone business representatives on the USMCA’s Independent Mexico Labor Expert Board where we were both appointed by House Minority Leader McCarthy to serve six-year terms.

 

The Board was created by Congress to monitor and report annually on the progress Mexico is making on its labor law reforms. Yesterday, the Board submitted its first interim report, with a supplemental statement submitted by Phil and myself, to Congress Labor Secretary Scalia and the United States Trade Representative Lighthizer. So with this great panel, I’m going to turn this over to Lewis, and we’ll hear your remarks. Lewis?

 

Lewis Karesh:  Stefan, thank you very much. Good afternoon, everybody. I appreciate the opportunity to speak to The Society. I think it’s actually the first time I’ve had this opportunity for us to do this. That’s unfortunate because I think we’re going to talk about some issues that should be of interest to your members.

 

What I’ll try to do in fairly short order is go through a bit of the history for those who aren’t familiar with the labor provisions in our trade agreements and then kind of bring it up to where we are today with USMCA, kind of how we got there, and a bit of kind of the sense out there among stakeholders who pushed for some of the changes in USMCA and pushed for some of the evolution of the labor provisions as part of our trade policy over the years, and then turn it over to Matt and the others to talk more about some of the specifics in USMCA. Really, these provisions go back to the North American Free Trade Agreement in 1994. For those who recall that agreement had been negotiated by George H.W. Bush administration. And then when President Clinton was running for office, he basically indicated that he could support it, but there had to be labor and environmental issues addressed in some fashion.

 

So after the Clinton administration began, almost immediately there was negotiation on labor and environment, which I think is really why we ended up with a supplemental or side agreement on the North American Agreement on Labor Cooperation and the labor issues were not in the actual NAFTA itself. And the focus there mainly was the idea of promoting a list of internationally recognized labor rights, fundamental labor rights but principally, the idea of effectively enforcing labor laws and then some procedural guarantees in that agreement.

 

There was the dispute settlement sometimes. You heard people talk about that there were no teeth. There was no dispute settlement. There was a type of dispute settlement, but it was limited to certain labor rights and certain types of remedies.

 

Subsequent to that, the next most important I think was the Trade Promotion Authority Act of 2002. And that resulted in negotiation of several agreements during the George W. Bush administration, seven agreements with Singapore, Chile, Australia, Morocco, Central America, Bahrain, and Oman. And there were several provisions in there with regard to labor, but there was only one enforceable obligation, which was basically not to fail to effectively enforce labor law. And I mention that because that became subject of criticism and later action by Congress.

 

Some of you may have heard of something referred to as the May 10 Agreement, so named because it was agreed to on May 10, 2007 between members of Congress -- Democratic members of Congress and the Bush administration. Principally, this occurred after the November 2006 elections when Democrats took control of the House and indicated they were not going to support trade agreements negotiated by the Bush administration unless there were some changes. And it led to a bit of a new template.

 

Instead of just a notion of promoting certain labor rights and effectively enforcing them, it’s the first time that the attempt was made to kind of set a bar or a standard. And the idea was to require trade agreements to have provisions where the parties would have to adopt and maintain in their law and practice the fundamental labor rights as recognized by the International Labor Organization in a 1998 declaration that was agreed to by the membership. Another key aspect was the notion of having the same dispute settlement procedures and remedies as other aspects of the trade agreement would have.

 

It’s interesting because this really came about after some other agreements had been negotiated. And it got applied to four FTAs with Peru, Panama, Colombia, and Korea. And in pretty much all of those we had to go back to the countries because the agreements had been concluded. And in fact, in some instances, the countries had actually ratified the agreement, and we had to update and make changes to put those new labor provisions in. It was not exactly the normal way to approach a negotiation with another country. But as we’ve seen, subsequently to that in some ways it’s become the norm in some of these trade negotiations if you want to get them approved by the Congress.

 

In 2015, there was a new trade promotion authority by the U.S. Congress which basically codified the changes from the May 10, 2007 agreement and put them into the law where Congress basically authorizes and gives guidance and direction to the Executive Branch on negotiation of trade agreements and the notion being that the Executive Branch is given authority to negotiate the trade agreements. And if those agreements include and are consistent with the direction by Congress in trade promotion authority, then the Congress will take up an agreement on basically a yay or nay vote. It will not amend the agreement. It’s not able to amend the agreement.

 

The next big negotiation after that was the Trans-Pacific Partnership negotiation during the Obama administration. Basically everything in FTA 2015 became part of that agreement. In addition to the actual provisions in the agreement, the United States negotiated three bilateral -- what we refer to as labor consistency plans. But three of the Trans-Pacific Partnership countries where there was particular concerns that there were large gaps in their labor law and their enforcement and the notion was that these were agreements with those countries as specific steps that they would have to take, changes in their law, change in administrative practices and regulations. That was with Vietnam, Malaysia, and Brunei.

 

There was also discussion with Mexico at the time. Stefan mentioned about constitutional changes in Mexico. Those constitutional changes actually took place around that time as Mexico understood that if TPP was going to be approved by the United States and Mexico was going to be part of it these were changes in its system that had to take place. Now, of course, in the end of the current administration, we pulled out of TPP. We did not join it, and so those consistency plans kind of went by the wayside.

 

However, the other 11 countries did continue with what they now term to CPTPP, Comprehensive and Progressive Trans-Pacific Partnership. Seven of those countries have actually ratified, and that agreement is enforced. And it maintained the later provisions that had been negotiated when the United States was part of it. Although, it did not maintain the bilateral consistency plans with the three countries that I mentioned.

 

So that basically then brings us to USMCA negotiation. We pulled out of TPP. We start what at the time was referred to as NAFTA 2.0 negotiations. And the later provisions that were negotiated there basically incorporated this entire evolution that I mentioned. Mostly the same as what May 10 called for, mostly what was in TPP, but there are a few additional tweaks to the text. Let me talk a little bit more about those, and then I think Matt Levin will probably give a little more specifics on them.

 

But in addition to the general notion of adopting and maintaining internationally recognized labor rights, effectively enforcing your labor laws, same dispute settlement procedures and remedies, there were additional tweaks. Principally, the countries agreed to prohibit the importation of goods produces by forced labor. There’re also provisions to address concerns about violence against workers who are exercising their labor rights, provisions related to gender discrimination, protection for migrant workers. There were also some other tweaks in the agreement trying to deal with some concerns that had arisen with regard to language that required the violations to affect trade and to be sustained to occurring because we had had some issues about interpretations and applications of that, even in actually one particular dispute settlement case.

 

I think the essence for some of the changes here probably began with Ambassador Lighthizer’s view that NAFTA had been bad for the United States and that a lack of respect for labor and environmental rights were part of the reason, with a particular focus on low wages in Mexico and the idea that low wages and low protection on labor rights had led to moving a production from United States to Mexico. In particular, there was a sense -- and Lighthizer heard from stakeholders -- both congressional stakeholders and labor union stakeholders that a big reason for the low wages was these protection contracts that Stefan mentioned and the way the system operated in Mexico. Lighthizer wanted broader bipartisan support for the agreement. He knew he was not going to get it unless there was engagement on the labor issues and there was progress on labor issues.

 

And then, I think, in 2018 when the Dems took control of the House it was very clear the agreement was not going to move without additional efforts on the labor provisions. I’d say many of the Democrats in some ways kind of revolted against the agreement as it was drafted, but they agreed to engage. And in fact, Speaker Pelosi put together a working group that worked not only on labor issues but several other issues.

 

I think principally the Democratic view was that USMCA incorporated labor rights into the main agreement but otherwise was basically the same as TPP and previous agreements out there and that that wasn’t sufficient. Yes, it added an annex. The notion behind that was to lock in the Mexican labor reforms, and if Mexico did not see the labor reforms through the constitutional and legislative reforms that it was undertaking -- did not see those through, then they could be subject to dispute settlement. But again, I think the thought was that in and of itself was not sufficient, even though Mexico was already moving forward on those reforms.

 

Now, really, principally folks were concerned about enforcement and a view that previous administrations -- frankly, I think both Republican and Democrat in their view had not sufficiently enforced the labor provisions and that, when there was attempts to enforce it, the process took too long. And so they wanted more enforcement. They wanted a faster enforcement process. And I think they also wanted to mandate enforcement by the Executive Branch as much as might be possible. And really, I think they asked for a lot. But in the end, they got much of what they asked for.

 

I mean, one thing in particular — and Stefan mentioned this — this rapid response mechanism, which basically provides the ability for certain remedies and action against employers who are determined in a sense to be denying freedom of association and collective bargaining rights to their workers, which was kind of the crux of the concern about the system in Mexico that was not sufficiently protecting those rights of workers and was not leading to really genuine collective bargaining and hence the reason for low wages for a long period of time in Mexico and the fact that wages really did not rise in the way you might expect with productivity and economic development.

 

In addition to the actual language in the agreement, which added this rapid response mechanism, which added an annex and the other provisions I mentioned, Congress also put some additional efforts into enforcement through the implementing bill. It called for the establishment of an interagency labor committee, which is co-chaired by the USGR and the Secretary of Labor -- basically responsible for monitoring and enforcing the labor provisions. It required posting of labor attaches in Mexico, which our Labor Department has undertaken. It required the establishment of an electronic hotline where anyone out there basically confidentially could report concerns about enforcement to the Interagency Labor Committee, and the U.S. government would have a responsibility to do its due diligence in reviewing those.

 

It also established that independent Mexico Labor Export Board that was mentioned. And then Congress provided a large amount of funding over a four-year period, both to USGR and to the Department of Labor, for personnel to focus on enforcement of the labor provisions, specifically with regard to Mexico and the concerns there. I think one of the big questions is why was this enough to get such bipartisan support for the agreement. It’s hard to be sure about that. I think only the members of Congress who voted could say exactly what their thought process was.

 

I think a couple of key aspects are that Democrats asked for a lot. They asked for a lot of changes, including the rapid response mechanism and potential remedies against specific employers. And they got it. If you combine that with a sense that there was a potential threat to pull out of NAFTA, which I think probably most people out there, including members of Congress, didn’t think necessarily was going to be a good idea, played part of it.

 

But I think the reality is now that it’s enforced you do have both the Democrats and the current administration want to show the rapid response mechanism will work and do want to show that the mechanism they’ve set up and that the funding that’s been provided can make a difference on labor rights. Is this a new paradigm for the future? That’s hard to tell. It obviously got broad bipartisan support.

 

I think the aspect of the enforcement mechanisms of the implementing bill, including the large amount of funding, is significant in that regard. Whether that would happen with each trade agreement is a question. And the other big one is if this rapid response mechanism and if the change in the labor justice system in Mexico really works and is seen to be different than the past, then that is another aspect of whether this will become part of future agreements.

 

Is it easy to translate it to other agreements? I think probably that will depend upon the countries involved, and it might the view they agree with the UK. You don’t need to have this agreement with Kenya. Or if we get back in the negotiations with some of the countries in Southeast Asia, then my guess is that these issues will be of importance again for those who want to support the agreement. So let me stop there and let Matt provide you some more of the specifics on what’s actually in the agreement thinking.

 

Matthew Levin:  Yeah. Thanks, Lewis. That is a really good setup of where we are and what we’re doing now. And as Stefan mentioned, we’re in an interesting time, and normally when folks like Lewis and I talk about trade agreements, we are quick to remind anyone listening to us that in trade it’s a state-to-state agreement. And a lot of labor attorneys -- they understand the components of the customs effect, but usually labor doesn’t bother them because, as I said earlier, it’s a complaint from the United States to Mexico or Mexico against Canada or some form where it’s a government’s practice in question.

 

So what I’d like to do is maybe just focus on three good reasons why labor lawyers should think that the USMCA labor provisions matter to them in particular. As Lewis and Stefan touched on, the labor chapter now is fully enforceable within the agreement of the USMCA. And as both the earlier speakers mentioned, Mexico has gone to just historic lengths to address concerns that we outline very clearly in the labor chapter annex.

 

And again, as Stefan mentioned, they, being Mexico, through their labor reform in May of 2019 have completely restructured how labor is handled in Mexico to the point where the government of Mexico is setting up two full new institutions, both of labor courts in all 32 states, both at the state and the federal level, and maybe more importantly a federal Center for Conciliation and Labor Registration, again, at the federal and state levels. They just opened the federal center last month. Just to give you some context, I think the new budget for labor in Mexico is $176 million or so, which is by far the most money I think that’s ever gone to the labor institutions in Mexico.

 

These institutions will handle complaints that come out, both individual and from unions but most importantly going to verify the collective bargaining agreements are legit. There’s some statistics that indicate that as many as -- somewhere above 90 percent of current collective bargaining agreements in Mexico are protection contracts and, as Stefan said, often negotiated and agreed to without the workers even understanding that such agreements are in place. So this is an historic time in Mexico, a real point where all possibilities are in play.

 

But the Mexicans understand that they need to take labor very seriously and are saying and doing all the right things to start enforcing real labor laws in Mexico. I mean, we all know what enforcement in Mexico is like. And the bar is set real low, but at this point, as I said, there’s a lot of impetus, a lot of assistance from the United States and other places to assure that these new laws are in place and enforced.

 

Those of you who are representing companies in Mexico, this is real. Enforcement at the Mexican level is going to be happening. It’s not going to be without its bumps in the road, but, as I said, for at least the first eight of 32 states the game is on. Federal centers are already registering unions, and collective bargaining agreements are being verified throughout the country, even during this COVID period.

 

So all collective bargaining agreements need to be verified within the first -- I guess within three years from now. So there’s really nowhere to hide. The notion, as Lewis mentioned, is that protection contracts be weeded out and real collective bargaining take place. So the fact that Mexico’s going to be for maybe the first time legitimately enforcing labor laws across the board is certainly one reason to take interest.

 

The second -- and both the previous speakers mentioned rapid response. I think Stef did a real good job explaining kind of the basics of it. But for the first time, the U.S. and Mexico -- Mexico can file complaints as well, can file complaints, again, state to state but focus on individual what are called “covered facilities.” So it’s a little odd, the rapid response. It is not in the labor chapter. It is in the dispute resolution chapter as an annex, and it’s really a bilateral annex because the agreement is only between Mexico and the United States.

 

Just as a side note, Canada has an agreement with Mexico as well with basically the same language. But the notion behind rapid response is that a complaint can be filed based on the actions of one covered facility. And the assertion needs to be that workers are being denied their right to freedom of association and collective bargaining.

 

So while when we talk about the labor chapter generally we’re talking about labor rights — and that’s a broad bucket of rights that start with the five fundamental rights from the ILO, which include child labor and forced labor and discrimination and also now include what are called acceptable conditions of work that get to OSHA and overtime — but for the purposes of rapid response, we’re only talking about freedom of association and collective bargaining. And as Lewis mentioned, that’s really what the focus of a lot of the negotiations we had with Mexico in response to the longstanding concerns with protection contracts.

 

So the United States can file a complaint with Mexico about a particular facility and the facility is defined in rapid response basically to be manufacturing, mining, or services. And there’s a footnote explaining manufacturing further. That action by the United States sets off a number of potential concerns if you’re representing clients in Mexico.

 

So essentially, a rapid response complaint can start in a couple of ways. The Department of Labor and USTR through interim guidelines last -- beginning, I guess, on June 30 and entering into force on July 1, set up a portal whereby petitions can be submitted with essentially complaints about specific factories under rapid response. If that complaint is accepted — and what I mean by accepted, meaning that it’s about collective bargaining, and it’s about a covered facility — it starts an expedited process. The government has 30 days to decide whether that complaint is worth pursuing.

 

If it is deemed to be worth pursuing, the complaint will be filed with the government of Mexico, and Mexico has a number of options. All are quickly tied, if the United States is not satisfied, to a potential dispute settlement panel. Panelists have already been selected. There’s a roster that’s public, and that roster would consist of one U.S. panelist, one Mexican panelist, and one non-national panelist.

 

And a case can go to a panel as quickly as somewhere around 90 days -- 30 days, while Lewis’ office and mine decides the merits of the complaint. Then, after we have informed Mexico of our concerns, there are essentially 60 days built in to either address the concern or try to engage or negotiate with the other government. But after a total of 90 days, USTR’s ambassador can go direct -- needs under statute to decide whether to go directly to a panel.

 

This is unprecedented. There is one case in labor history and trade, and the number of years is took to get to a panel is somewhere around eight. So the idea that you could be at a panel inside of 100 days is quite shocking and quite concerning if one is representing the business that is under scrutiny.

 

Now, again, it’s a government-to-government agreement, so the United States will not be dealing with potentially your client. We’ll be dealing with the government of Mexico, so more reason for concern. Certainly the filing of any complaint has certain reputational damage to it, and then the fact that we could theoretically go to a panel on a case which may find -- if the panel finds for, in this case, the United States, the remedies could be up to dismissal of potential tariff benefits.

 

So if a company is benefiting from 3, 5, 7 percent tariff benefits, those benefits can quickly go away. If the company or a controlling company producing similar goods does this a second time, all of those -- all of that company’s goods could suffer the same penalty. And I don’t know how this is feasible, but if by some chance that same company or controlling company is found a third time to have committed what’s called a denial of rights, goods could then be blocked. I don’t want to stress that because that is an unlikely and obviously severe penalty, but that is the third-strike-you’re-out kind of a possibility under rapid response.

 

Just for those who are curious as to what their clients’ liability might be, if you’re a U.S. company and complaints come to my office as to actions by companies in the U.S., there is an interesting footnote that limits liability to U.S. based companies to plea only where there is an enforced order of the NLRB, which narrows the playing field dramatically. This is something that we worked on right to the very end when we were crafting the language for the rapid response. And quite frankly, the liability under U.S. law for U.S. companies in the United States is demonstratively less than for Mexican companies or companies in Mexico.

 

And before I move on, I would just say the focus for any of these complaints is whether the company in question is living up to domestic law. So the focus on a complaint that the United States may file is whether the company in Mexico is living up to their obligation under the new laws that were just passed last year in Mexico. And similarly in the United States would be under the National Labor Relations Act. So that’s a second very good reason why labor lawyers in the United States should care about USMCA.

 

And the third reason — and Lewis did a really good job explaining this — is the United States is watching a lot more carefully than I think we’ve ever had before. Lewis can tell you that the thing that I -- that we are constantly getting scrutiny from our Congress and from our stakeholders about what we’re doing and why we’re not enforcing more -- certainly with a lot of money, which both USTR and my office has received through the USMCA implementation plan, comes a lot of responsibility and a lot of action. I think we all know building a case is not an overnight exercise, particularly in this COVID environment. But there seems to be a strong expectation that our offices will be out filing cases right now, which as you can imagine is quite difficult.

 

And as Lewis mentioned, my office and now, I think, Lewis’ office has an individual done. My office will have as many as five people in Mexico as labor attaches to not only engage with the government but with stakeholders, with businesses, with unions, and to provide us the best knowledge we have to pursue enforcement where we can. So maybe I’ll wrap up there, Stefan, just noting that, unlike any agreement we’ve had before, there’s a lot of reasons that even domestic lawyers should be interested in what the text of USMCA is on the labor front. So I’m certainly happy to answer questions at the end, but maybe I’ll stop there.

 

Philip A. Miscimarra:  And I’ll pick up. Matt, thanks very much. I have three quick comments — this is Phil Miscimarra — and then we’ll turn to some questions. My first comment is for U.S. companies with operations in Mexico, the USMCA has promised to improve some of the challenges that have confronted them for a long time, namely many union relationships by and large have lacked any connection to employees in the workforce, which would be a foreign concept — no pun intended — to employers that do business in the U.S. Also, the pressure imposed by the protection unions in Mexico has often been very unpredictable, and any consistent enforcement of labor standards in Mexico has been lacking. And I think that puts it generously.

 

My second comment is this. The jury is still out regarding whether there will be true, meaningful reform -- labor reform and labor law enforcement in Mexico or how long that will take. And the other question I think that remains to be seen is how consistent will the rapid response mechanism be, and will it function in a uniform way? Or will the rapid response enforcement feel selective for those employers who get involved in particular cases?

 

And then my third comment relates to the independent Mexico Labor Expert Board whose members include Stefan and me. And the Board issued an interim report yesterday, which included a separate statement from the two of us. And one of my questions towards the end will be to ask Stefan to comment on the report, including our own statement.

 

So I’ll turn to questions. Let me just ask Lewis or Matt, before NAFTA and the USMCA, what was the biggest difference back then when U.S. employers had operations in Mexico, and what was the biggest thing that NAFTA and then the USMCA changed for companies that had Mexican operations?

 

Matthew Levin:  I was just going to say I was just turning to Lewis because he actually was involved in what the now -- which was the side agreement to NAFTA, the negotiation of that, I think, in the early ‘90s. So I will defer to Lewis on what the biggest change, and maybe I can help out on the second half of that question.

 

Lewis Karesh:  Yeah. Sure. I mean, that’s a tough question, Phil. Certainly U.S. companies were in Mexico prior to NAFTA, but the agreement did lead to a lot more manufacturing, I think -- a lot more trade between the countries. Certainly, even though there was a lot of criticism of the labor side agreement, it certainly did lead, I think, to more cooperation and coordination across borders, not only for companies who were doing business across the borders but for labor unions and NGOs and worker groups. There was a lot more kind of coordination, discussion about issues of interest to them, recognition that companies were operating across borders and that that had an effect on the work forces on both sides of the border.

 

So I think there were those aspects, certainly, with NAFTA itself. I think the labor provisions themselves, other than a few instances that raised concerns about labor law enforcement involving certain corporations -- other than those corporations or companies that got dragged into some of those, I don’t think there was a lot of focus. So I think the big difference is the things we’ve been talking about here and the potential remedy of actually loss of NAFTA benefits or even potentially denial of entry of goods from specific enterprises where the view is that freedom of association and collective bargaining rights are being denied workers. Sometimes in situations where the employer might be complicit in that denial, but there could be situations where the employer’s not complicit -- where it’s a corrupt labor union or there’s local officials who aren’t doing their job.

 

So I think those aspects are going to be of much greater interest and potentially areas of concern for companies doing business in Mexico in ways that perhaps they had not been under NAFTA or any other trade agreement that we have with other countries. It remains to be seen precisely what this will mean and how it will be treated and what the reaction of Mexican government officials and other officials in Mexico will be when these issues get pointed out. There’s plenty of opportunity for consultation and remediation when concerns arrive before you could end up before any kind of a panel. But I think there is a potential for that. So I don’t know if that exactly answered your question.

 

Philip A. Miscimarra:  Yeah. It does. Go ahead. And Matt, can you address the latter part of that? What was the biggest thing that USMCA really changed for NAFTA from your perspective?

 

Matthew Levin:  Well, I mean, gee. There is so much I’d like to say, and it’s not just because people like Lewis and I were involved in this. But this is absolutely the strongest labor provisions in the history of trade. So there’s a lot there.

 

But the notion that you can have an annex that basically directs another country to change the very core of how they do labor in a country over 100 years is pretty startling. For folks on the phone, I think the rapid response mechanism is surprising. It brings labor right to individual factory front doors.

 

But I think Lewis touched on something very valuable, which is there are a lot of companies -- and I’ve met with them. I think Stefan and I were at an event in Miami about a year ago. A lot of Fortune 500 companies that were like, “Hey, Matt. We would love -- we would like to have regular negotiations. We’re forced to have these agreements with corporatist unions. We’re wide open to having regular collective bargaining. We don’t feel good about having our employees kind of be in the dark about things.”

 

And sure, there are certain advantages for businesses. Absolutely. I get it. Absolutely true. But a lot of U.S. businesses, I think, would welcome the opportunity to have open fair collective bargaining.

 

We at the Department of Labor have already invested a lot of money and not just to the worker side. But we just did a $3 million grant to educate business about how to do collective bargaining and what the rights are and what the new rules of the road are. So to answer your question, Phil, there’s a lot. There’s a lot to be satisfied with in this agreement and a lot of change.

 

Philip A. Miscimarra:  Well, thanks. And let me direct this to Stefan. Employers are in an interesting position because the cornerstone of the USMCA labor provisions is that Mexico has very significant responsibilities and commitments in terms of it’s not evolutionary change. It’s really turning, in some respects, upside down the structure of labor relations and collective bargaining agreements in Mexico.

 

But the extent to which Mexico as a country is successful or unsuccessful has very significant consequences for particular employers at particular locations. And how much of a risk is there that employers can really in some instances find themselves squeezed by the requirements of the USMCA, which are imposed on Mexico, and the rapid response mechanism, which has really significant consequences for particular employers on the ground?

 

Stefan J. Marculewicz:  Yeah. Phil --

 

Philip A. Miscimarra:  Fun.

 

Stefan J. Marculewicz:  Yeah. That is a really significant issue, frankly. This -- when I said at the outset of the conversation that this is so -- this is unprecedented, think about having a process where in the United States a company can have -- or in the United States -- in an international body a company’s compliance with labor laws in another country can be second guessed, and penalties can flow if that compliance with the law is called into question or found to be noncompliant. That’s a really big deal. And I think there’s a big -- one thing that people have to understand, there is sort of this preconceived notion that the protection union model is somehow like an employer dominated Section 882 labor union situation.

 

And in many, many situations in Mexico that’s just simply not the case. These are very well-funded, large, independent institutions that are labor unions. And they benefit from the historical system that has existed. And they are known by very well-known acronyms and all the rest of that. So they’re very well known. So it’s not really an employer dominated model in the same way that one might view sort of a similar kind of situation in the United States. So that’s one big issue.

 

The second big issue that I think that is really critical is that anyone can file one of these rapid response complaints. There is no bar to entry. Although, there’s a series of proposed rules or procedural guidance that will be coming -- they put out for comment back in the middle of the summer. And hopefully in the not-too-distant future we’ll get some guidance from the government on as to what that looks like.

 

But there’s a fairly low barrier to entry in terms of bringing a complaint against a particular facility or a covered facility for denial of rights. And then there’s an investigation that ensues, and there’s a determination of whether or not there is enough to establish a denial of rights. And then it goes to this rapid response panel, and then they make the determination one way or the other as to whether there is a denial of rights or not.

 

This is a fairly easy, I think — and it’s presumably designed to be fairly easy — process to raise a complaint. And I think that with that low barrier to entry in terms of from the complainant’s perspective really should give companies significant cause for concern about what this might look like with their operations in Mexico because they don’t necessarily have complete control over the relationship with that union because that union isn’t employer dominated as may be stereotypically perceived. And so it’s -- companies right now are really struggling to try to figure out what it is now.

 

Fortunately, this is going to be -- the implementation of Mexico’s labor law reforms is going to be implemented in three phases. Three different tranches of states will adopt the labor laws and create -- establish the relative government agencies to manage the process. So there will be a little bit of a runway to see how this actually plays out. But a lot of companies are still sort of trying to figure out what to do and are largely guessing. And yet, this rapid response mechanism is currently in place, enforced, and could be deployed at any moment under those circumstances.

 

So it’s a really big deal, and I look at this and talk to a lot of companies about this situation. And there’s a lot of concern, but it’s also -- at the same time, it’s very difficult to really, truly understand what they need to do next and how they need to do it.

 

Philip A. Miscimarra:  And I guess, Lewis and Matt, by design on one hand many U.S. employers welcome the changes associated with USMCA in relation to labor reform in Mexico. On the other hand, employers to some degree -- and this is reflected in the rapid response mechanism. Employers to some degree are the means by which Mexico really is made to have a heightened incentive to make good on its labor reform commitments reflected in the agreement, right?

 

Lewis Karesh:  Yeah. Absolutely. The interesting thing is you have a current administration in Mexico which seems committed to labor reform, and it had always been kind of part of their interest. There’s a labor secretary who I believe is committed to the reform.

 

There are some limitations, right? There’s financial limitations in Mexico as far as funding for the Labor Department and other aspects of the government. We currently have the global pandemic, which is making it difficult to implement. But this isn’t something that just happened overnight. It’s something that had been talked about for a long time in Mexico that the system needed to change, needed to get rid of these local conciliation arbitration boards that were not impartial.

 

That is all happening. It’s going to take some time. This administration in Mexico will be there for several more years to see this through. You have aspects of the employer community in Mexico -- and I don’t necessarily mean the multinationals -- outside multinationals. I mean Mexican employers who recognize that there’s got to be a change in the system and are supportive. Their wages need to go up. The system needs to operate differently. There has to be genuine collective bargaining and things of that sort.

 

So I think there definitely is incentive in the government. The idea that there could be action under the agreement adds to that. But my sense is that even without that there’s a commitment there, not from all parties involved obviously, never is. But there’s a commitment in the government, and there’s commitment from key aspects in society to see this through.

 

Philip A. Miscimarra:  And Matt -- oh, go ahead, Lewis.

 

Matthew Levin:  No, this is Matt. Why don’t you ask your question, Phil?

 

Philip A. Miscimarra:  Yeah. I was going to ask who are the U.S. panelists on the rapid response labor mechanism, and what can you say about them and that their function will be?

 

Matthew Levin:  So I think there are six U.S. panelists that were selected a few months ago. Their role will be to serve on any of these given cases. They’re selected by lot. To be as candid as I can, we at one point were expecting a lot of these cases to come rolling in. So the concern at one point was that six was going to be enough. In retrospect, that was kind of a miscalculation because, of course, these cases take a while to develop. COVID has not helped certainly in development, and a lot of the process in Mexico that might normally led to a case hasn’t happened because of the same reasoning.

 

Off the top of my -- if you’re interested in names, I think off the top of my head I could do most of them -- Ed Potter, who is quite well known from his time both at Coca-Cola and USCIB, as well as leading the employer group at the ILO, is there. I think Janice Bellace, who’s at University of Pennsylvania -- is well known in labor circles -- is there. Kevin Kolben from Rutgers University is on that list. One of your friends, I think, Peter Hurtgen is on that list. Lewis, is it Lance Compa, maybe, is the last one?

 

Lewis Karesh:  Yeah. Lance Compa and Ira Jaffe.

 

Matthew Levin:  Ira Jaffe, who’s a very well-respected arbitrator in Washington, is on that list. So those are the six that the U.S. put forth as U.S. potential panelists.

 

Lewis Karesh:  Yeah. This is Lewis. Just to add to that, there’s six U.S. There’s six Mexican, and then there’s six non-nationalists of either. So it should be a three-member panel. But I think what’s the aspect here that was agreed to is that they have labor expertise and experience.

 

So all the members have labor expertise, among other expertise. They need to have labor expertise. The one panel we had had three members, one who had labor expertise, two who were more trade folks. It was not a good decision that came out of that panel, and they got hung up on a trade question rather than the labor question. Again, I think that was an important aspect of changing that to make sure that these panels understood labor law and worker rights issues.

 

Philip A. Miscimarra:  And that’s definitely true with respect to the six panelists that have been appointed on the U.S. side. We’re getting close to our time, but let me just ask Stefan why don’t you make a comment or two if you have one on the Independent Mexico Labor Expert Board that was released yesterday? And then we can go to Lewis and Matt for any closing comments.

 

Stefan J. Marculewicz:  Sure. I’ll be very brief on that, Phil. You know, yesterday the Independent Board sent to, as I said earlier, Secretary of Labor, U.S. Trade Representative, and the relevant members of Congress in the House and the Senate an interim report, the gist of which largely was sort of setting the stage or setting the foundation for future reports and -- basically a report on Mexico’s progress thus far. And obviously, everything is very early and very early in the process. And that was duly noted.

 

I would say a couple of things -- that Phil and I are a minority in the employer group of this board, and we felt it was important to point out a couple of different things, notably the fact that -- so we filed a separate submission that set forth kind of our position on things. It really wasn’t a dissent as much as it was a parallel statement related to the issue. We largely agreed with the gist of the focus and the direction of the report. However, we wanted to draw a couple of very significant distinctions, one of which had to do with the fact that I think some of the characterizations and rhetoric might have been a bit misguided and a little strong.

 

The second point was that the report provides for a certain number of recommendations to the various parties or to Congress or to whomever. And we just didn’t feel that the board was authorized by Congress to have the mandate to actually make such recommendations. And so we wished to point that out to the members of Congress and those who would look at this.

 

And then ultimately, we wanted to highlight the magnitude of the change that was at hand. Mexico is going to undertake a change in their labor laws and practice that has been going on for years. This practice has been in existence long before NAFTA. The protection union’s been around for a very long time. And to change this overnight or even in the course of comparatively small period of time of three, six years is a really significant undertaking. And I think that needs to be pointed out because these kinds of changes don’t happen overnight. It’s not realistic. So we wanted to point that out as well in the report.

 

Philip A. Miscimarra:  Thanks. And why don’t we go -- Matt, do you have any closing comments? And then we can tie things up with Lewis.

 

Matthew Levin:  Yeah. Thanks. And only to thank everyone who set up this call and happy to follow up if anyone has any questions down the road. As I noted earlier, this is real. This is coming. It’s worth understanding for the benefit of your clients and for business. But I’d also like to trumpet the point that Stefan made. We follow Mexico every day.

 

Both Lewis’ office and my office have a bunch of folks who that’s all they do is follow USMCA labor. And the commitment in Mexico, I think, is, as I mentioned earlier, historic. There are going to be a lot of steps backwards, but there seems a real interest, a real effort -- a sincere effort to make these changes permanent and legitimate. I have a lot of confidence that that is going to be where we’re headed in the years going forward.

 

Philip A. Miscimarra:  Thanks very much. And Lewis, any closing remarks?

 

Lewis Levin:  Sure. Thanks. Just one thought, which I think as we move forward it’s a new administration coming in. There’s going to be a keen interest in USMCA and these labor provisions in particular. I think, obviously, because of the interest of President-elect Biden, his indication of his intent to nominate Katherine Tai, who’s very familiar with these issues -- has potentially some personal interest in seeing them through considering her involvement on the Hill during negotiation.

 

She understands the issue. She understands how USGR and the government works in engagement with foreign governments on these types of issues. So I think there will be that keen interest, and there’ll be players involved who have the personal interest and the desire to see this through.

 

Philip A. Miscimarra:  Thanks very much. And Stefan, do you want to take us home?

 

Stefan J. Marculewicz:  Sure. I want to thank everybody for participating:  Phil, Lewis, and Matt. And I also want to thank The Federalist Society for giving us the opportunity to participate in this program and share some of this insight and information with you all. Unfortunately, we don’t have time today for questions from the audience. But if there’s somebody who has an interest in some more pointed guidance or questions related to the subject, I think you can reach out to our contact or maybe Nick at The Federalist Society and get in touch with us. We’re obviously available on the internet, as well, as you can find us. So thanks, everybody, for participating. I really enjoyed it and look forward to seeing what happens next.

 

Nick Marr:  Thanks, Stefan. This is Nick. I’ll just say a quick closing and thanks on behalf of The Federalist Society to our panelists for the benefit of your valuable time and expertise today. Thanks for a great discussion. Thanks to the audience for calling in. Of course, if you’re interested, as Stefan said, in getting in touch with them or more info, feel free to email us at [email protected]. And as always, be keeping an eye on your emails and our website for announcements about upcoming Teleforum calls. Thank you all for joining us this afternoon. We are adjourned.

 

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Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.