Fourteen months ago, I described on this blog a bit about the labor provisions in the pre-scrubbed USMCA language. With yesterday’s Protocol of Amendment, we have a lot more text to discuss – including changes that make one wonder whether the old reference to the “May 10[, 2007]” bipartisan compromise language will be replaced with a(n equally obscure) reference among trade practitioners to this new “December 10[, 2019]” compromise language. Sixteen of the 26 pages of the Protocol are directly relevant to labor. What follows are some preliminary highlights and quick reflections.
First, I congratulate the USMCA negotiating teams from across both branches of government on breaking out of the path dependence we had seen previously in labor chapters in U.S. free trade agreements. The Protocol walks a delicate line in the interest of pleasing various constituencies across three countries. As for its finality, I’m not sure if there is a scrub underway even after signing or if we will just work with the small handful of typos and inconsistencies, but no need to get into those here.
On to the substance: In the labor chapter itself, there have been a handful of changes and nearly all are significant. I have done a markup where you can see the changes as applied to the chapter text. The most important change here is the reversal of the burden of proof on the issue of “manner affecting trade.” As I have previously recommended, shifting the burden to the respondent to show that its breach was not in a manner affecting trade helps avoid the problems faced by the United States in the Guatemala case. The chapter also removes a requirement of “sustained or recurring” action in one provision: lowering the threshold of what is needed to show that a party is in breach with respect to violence, threats, and intimidation in a workplace.
Changes to the dispute settlement chapter detailed by Simon and Inu are of course relevant to labor enforcement and so are two other provisions there: (1) the removal of an intermediate step of convening the Commission (high-level representatives from the three countries) before proceeding to a dispute settlement panel and, perhaps most important, (2) the addition of rules of evidence to the Rules of Procedure for panels. The Protocol even provides some specifics such as ensuring that the parties have the right to submit anonymous testimony, among other provisions that some of us have suggested be added. The more disappointing part is that the Rules themselves are yet to come. Putting off important drafting such as of Rules has been a problem for the U.S. in past instances with FTA partners. Given their importance, it would be good to see these draft provisions at the earliest possible stage going forward.
The bulk of the Protocol is comprised of an addendum to the dispute settlement chapter that lays out a “Facility-Specific Rapid Response Labor Mechanism”. As the reader will see, there are in fact two annexes here with rapid response mechanisms: one to address issues between the U.S. and Mexico and another to address issues between Canada and Mexico. The two annexes appear to be the same with only the smallest of adjustments in the footnotes to accommodate the two countries’ different domestic processes. I suppose this construction of the two parallel annexes was used to be able to avoid any U.S.-Canada interaction on these issues, perhaps among other reasons, but it of course adds a few more pages to cover what is otherwise identical language. It also would appear that the result is that Mexico could face actions by two different rapid response panels about the same facility: one complaint raised by the U.S. and the other raised by Canada.
The Rapid Response Mechanism (RRM; NB – my acronym, not an official Protocol term) is incredibly involved. Its statement of purpose captures what it seeks to achieve: to ensure remediation of a denial of collective bargaining rights. Unlike the regular state-to-state dispute settlement process for violations of the labor chapter such as a failure by one of the three governments to effectively enforce labor laws through a sustained or recurring course of action or a failure to address violence against workers, the RRM is a way to handle a specific denial of the right of free association and collective bargaining by a private entity at a particular worksite. To be sure, it still turns on engagement between the two governments and the use of a panel, but it is far more incident-specific than the traditional labor enforcement mechanisms we are used to. Further, the role of the panel (notably, of labor experts – something else some of us have suggested in recent months) is different in that it is not determining whether a government breached the agreement; rather, it is determining whether workers are being denied their rights.
I would just note here that a footnote (to Article 31-A.2) limits the scope of the RRM even further. It provides that with respect to the U.S., “a claim” can be brought only with respect to an alleged denial of rights owed to workers at a covered facility “under an enforced order” (sic?) of the National Labor Relations Board. There is likewise a restriction on Mexico for which “a claim” may be brought only with respect to an alleged denial of rights “under legislation that complies with Annex 23-A”. So, there’s a lot there in that footnote: first, only in one other place does the Annex use the word “claim” (in Article 31-A.12 about “Expansion of Claims”) because it seems the idea is that the RRM is not so much a claims process but rather a quick way to deal with a “belief” by a government that there is some denial of rights underway. It might have been better for the footnote to maintain that precision by using the same language as in the main text of Article 31-A.2. In any event, the limitation on the possible actions against Mexico is interesting because it brings us back to that original annex to the labor chapter called Annex 23-A that required Mexico to take a number of labor reform steps by January 1, 2019. Annex 23-A provides considerable detail of its own about collective bargaining laws that were to have been enacted by Mexico, but we know Mexico did not meet the January 1, 2019 deadline so one wonders if the U.S. considers that all of those steps have been met now.
Finally, with respect to additional limitations of application, the definitions in the RRM annex indicate that the RRM only comes into play when we are dealing with workers being harmed at “covered facilities”. The annex does not define the word “facility” but a “covered facility” is one that is in a “priority sector”. Here again, “sector” is not defined but a “priority sector” “produces manufactured goods, supplies services, or involves mining.” More priority sectors can be added (not much left!), although it seems they cannot be removed and we are not given a clear sense of how the Parties would “determine” whether to add any according to Article 31-A.13.
As noted above, the RRM ultimately turns on the determination of a panel of experts. The Parties commit to putting together lists of possible labor experts to be called upon and this is one of the instances where the yet-to-come Rules will have to fill in some of the blanks for how the list process and logistics will work. The debate over whether the Protocol empowers inspectors is understandable given the sort of hybrid model that was adopted of allowing these experts – non-government officials – to visit the worksite in question as I describe below.
This blog post is already long enough, but it would be much longer if we went through all the steps in this so-called rapid review in detail. Having laid out the foundation of the RRM, I am going to do my best to be brief in the presentation of a hypothetical example to try to understand how this works. These articles of the annex are a bit like a choose-your-own-adventure book so I am going to largely take the shortcuts to resolution.
As a preliminary matter, the U.S. has committed to “strive to complete initial reviews” of any complaints it gets about facilities in Mexico in 30 days -- at least, that’s what I think footnote 2 is saying, but it could be clearer and one hopes that the domestic process the U.S. is setting up for this clearly indicates where one sends complaints like the labor chapter does for other types of labor-related submissions from the public; indeed, it will need to be made clear how these complaints intersect with the public submission process and contact points set out in the labor chapter itself (e.g., does one flag somehow that this is an RRM-relevant complaint?).
So, let’s say the AFL-CIO complains to the U.S. Department of Labor about a shoe factory in Mexico where a group of workers has been denied the ability to unionize contrary to the Mexican laws per Annex 23-A. There is no minimum number of workers that needs to be involved other than the use of the word “workers” in plural from what I can see, but maybe Mexican collective bargaining law would provide a relevant floor. Within five business days of receipt, the U.S. must tell Mexico that it has begun its less-than-30-day initial review of the complaint from AFL-CIO.
If the U.S. has a “good faith basis to believe” that the shoe factory is denying the workers their rights, it must first ask Mexico to review the situation. Here, the text would be helped if it introduced in Art. 31-A.4(2) a defined term of “Request for Review and Remediation” for this request to Mexico as per the article title. Mexico has ten days to say whether it will review the matter. If it says it will not review the matter or does not reply, we proceed to call in the experts in the form of a panel. Note that “upon delivering” its Request for Review and Remediation to Mexico, the U.S. is entitled to “delay final settlement of customs accounts related to entries of goods” from that shoe factory. I take that to mean that in the implementing legislation we will see a mandate to U.S. Customs to suspend liquidation. That suspension would stay in place until the U.S. and Mexico agree that the workers are not/no longer being denied their rights or a panel so finds. I will now skip the more than seven possible alternate or additional steps on how Mexico might engage with the U.S. in trying to resolve the matter.
If Mexico and the U.S. are not able to agree or resolve the matter, the U.S. then “petitions” the USMCA Secretariat to establish a panel (no deadline for the U.S. to do so and no clarity on which national Section of the Secretariat acts here), which the Secretariat would do within three business days. The panel has five business days to confirm that the petition falls within its jurisdiction, so-to-speak. It is not stated, but we should I suppose assume that the panel would tell the Parties and perhaps the public what it concludes in that respect.
Next the panel is to ask Mexico for “verification”. This seems to be one place where no deadline is put on the panel, surprisingly. It is later illuminated that verification is some sort of visit that the panel conducts. We are not told what the verification involves, though. Where does the panel go and what does it do? One presumes it at least goes to the worksite in question to learn more about the alleged denial of rights. “Observers” from both the U.S. and Mexico may join the panel “in any on-site verification”. Will the details about the powers of the panel in this respect be set out in the Rules? Mexico has an opportunity to consent to the visit - can the panel still go if Mexico refuses? The text is not really clear on that point. If there is interference or the panel cannot conduct the verification in a manner it believes “most appropriate,” the panel is permitted to take Mexico’s conduct “into account,” but what is attributable to Mexico in that situation? The verification process seems a bit underdeveloped, which I hesitate to say given the verbosity of the article, although I understand that it is intended to give the panel some flexibility. There is a 30-day timeline in there for verification to take place.
Also described in this article titled “Verification” is a submissions process that is unrelated to verification. It seems that before the verification visit, the panel ought also to request that Mexico submit within 10 business days the results of any investigation Mexico has done and the U.S. may respond (no specified deadline).
Thirty days after verification, and after providing both Mexico and the U.S. an (additional?) opportunity to be heard, the panel determines whether there is a denial of rights. It does not appear that the denial necessarily be the one that the U.S. originally raised, in fact (indeed, what if the panel discovers something else during verification?), but again, one assumes.
Throughout this process there is another assumption that Mexico is able to facilitate all this interaction with the factory, but even if it doesn’t or is not able to do so, the penalty is not on Mexico, but rather on that worksite. Where the panel identifies that the factory is denying workers’ rights, Mexico gets yet another chance to hold consultations with the U.S. before the U.S. then “impose[s] remedies.”
Within a few guidelines related to proportionality, the U.S. can then choose a remedy which “may include” suspending preferential tariff treatment for the shoes made at that factory or other “penalties” on the shoes. One presumes that the penalties intended here are fines along the lines of those typically imposed by CBP but one could imagine a host of other types of penalties and again, the remedies listed are only illustrative. The text specifically notes that the complaining Party may deny entry in instances of repeat offenders. The “remedy” continues to be applied until the denial of rights has been “remediated.”
In trying to figure out just how rapid this is, it is quite hard to put together a clear timeline. There are the handful of steps that have no deadline where the language seems to expect the complaining Party to move expeditiously and others where the Parties can agree to certain new timelines such as where the responding Party tries to remediate the situation. There is a possibility for slippage at the panel stage as well. But it appears we could move from initial complaint stage to the imposition of a “remedy,” to use this term from the annex, in four months or 120 days by one reasonably generous count.
Missing from the Protocol are a few changes that the Ways & Means fact sheet and Speaker Pelosi’s side-by-side comparison sheet touted that I am guessing will come in the implementing legislation as they are U.S. internal commitments: establishing a labor attaché in Mexico, an interagency committee, and ongoing reporting requirements to Congress. The sheets also mention “key [enforceable] benchmarks” for Mexico’s labor reform; that sounds like what was in Annex 23-A, but I’m not sure if that’s what is meant since of course that annex was already there before the Protocol.
There is surely more that could be said. For example, take a look at the “good faith use” article (11) and the “expansion of claims” article (12) for more interesting yet vague or potentially problematic features not yet discussed! They seem to incorporate or reverse incorporate the rest of the labor chapter’s access to regular dispute settlement and its additional non-implementation options.
But I hope we can talk (rapidly?) about whether the RRM will have its intended effect. Apart from possibly overwhelming the U.S. Department of Labor or the USMCA Secretariat and apart from providing a new source of income for labor experts, it may actually deter bad actors through its focus on individual worksites. Maybe companies operating in Mexico will see this as a real danger. On the other hand, maybe they will blow it off as a low risk. There’s the temporary stay on entry, but there are a lot of ways to avoid reaching the imposition of a tariff or other direct financial penalty. It may encourage creative business practices as a result of its pretty open language on facilities especially those that are related to one another. Or a determined business might just leave the NAFTA region for other shores. It might motivate better labor law enforcement as has been hoped either simply through the many steps Mexico would need to undertake to address each complaint or if Mexico is nervous about certain businesses getting angry when their goods are detained at the border. To be sure, we seem here to be in an area where state and private action intersect. The way the RRM is structured really emphasizes that Mexico should be able to resolve situations like this. Mexico is in some ways representing the factory and could end up defending the situation there but if Mexico has done everything it can and there is still no change, then the RRM results in the factory facing the price so in that sense it shifts from a state-to-state cooperation mechanism to a supranational labor enforcement mechanism using U.S. Customs as the enforcer. That seems to be really what the RRM sets up.
I am sure there are still other possible outcomes and issues that we will continue to discuss, but trying to understand this new and creative enforcement system seems like step one and I hope this analysis helps to serve that end.
