Although it has been approximately one year since the three North American countries agreed on the terms of the United States-Mexico-Canada Free Trade Agreement (USMCA), it appears that ratification by the US and Canada will be delayed.
More than a year has passed since the three countries in the North American region, the United States, Mexico, and Canada reached a new trade agreement. Despite this fact, ratification by all of the countries that are party to this trilateral accord may be something that is delayed until the distant future.
In addition to the fact that Canada is in the midst of its campaign season for the election of its prime minister, the government of US president Donald J. Trump involved in a political feud with the Democrat Party. Because of this, there is uncertainty in some of North America’s industries. The delay of the ratification of the United States-Mexico-Canada Free Trade Agreement has particular effect upon the automotive sector.
Among the provisions of the major trade agreement signed by the United States, Mexico, and Canada (USMCA) on September 30, 2018 are the regional content rules governing commerce in the North American automotive sector. Newly agreed upon content rules will require that, in order to receive duty-free treatment, passenger vehicles must be made of 75% regional content. In addition to this requirement, the United States-Mexico-Canada Free Trade Agreement also stipulates that North American workers earning sixteen dollars, or more, must be responsible for producing 40% of the value of light vehicles and 45% of that of pick-up trucks.
Other USMCA changes that will affect the North American automotive sector include:
- A provision that states that 70% of all steel, aluminum, and glass used in the production of automobiles must originate in North America;
- The establishment of quotas totaling 2.6 million Canadian and Mexican vehicles, which is well above the current quota of 1.8 million;
- The implementation of US $32.4 billion in Canadian auto parts imports and US $1.8 billion in auto part imports from Mexico.
In an industry such as the automotive sector, in which planning takes place years in advance, knowing when changes such as these will take effect is of critical strategic and operational importance. Although the United States-Mexico-Canada Free Trade Agreement establishes transition periods for up to three years in areas such as this, the uncertainty over when changes are going to be implemented creates certain industry challenges.
The United-States-Mexico-Canada Free Trade Agreement will also affect labor relations in Mexico
The negotiation of the United-States-Mexico-Canada Free Trade Agreement has led to reforms related to Mexican labor relations. These changes to labor law in Mexico have been enacted because US critics of the NAFTA have argued that lower Mexican labor standards was one of the principal factors that led companies to migrate from the US to Mexico in order to take advantage of lower-cost labor.
The new environment in this area modifies the model of justice that has prevailed in Mexico since the twentieth century. With the reforms that have been made, the country has enacted modern legislation that respects freedom of association, attempts to end corporatism, establishes labor courts and conciliation centers that will accelerate the resolution of conflicts between employers and workers.
The changes to Mexican labor laws passed by the nation’s Senate address four major areas that include:
- The disappearance of conciliation and arbitration boards;
- The establishment of labor courts that will belong to the Judiciary of the Federation, and to the judiciary of federal entities;
- The creation of a Federal Labor Reconciliation Center and Conciliation Centers in the states;
- The introduction of democratic principles into the collective bargaining process.
These items are expanded upon in Annex 23-A of the United-States-Mexico-Canada Free Trade Agreement. This portion of the USMCA text requires Mexico to pass legislation that improves the collective bargaining capabilities of labor unions. The specific standards Mexico is required to comply with are detailed in the International Labor Organization’s Convention 98 on freedom of association and collective bargaining. The administration of Mexico’s President, Andrés Manuel López Obrador, introduced legislation in late 2018 which pursues compliance with these international standards.
Under Article 23-A, Mexico has also committed to its trading partners the establishment and maintenance of independent and impartial bodies to record trade union elections, and to resolve disputes related to collective bargaining. Finally, the legislation prohibits employers from taking actions or omissions that violate the right of workers to decide who should represent them in collective bargaining activities.