The new USMCA: labor controls and tariffs

The new USMCA: labor controls and tariffs
The flags of Canada, Mexico and the U.S. are seen on a lectern – Photo: Edgard Garrido/REUTERS

The new USMCA: labor controls and tariffs

Mexico City
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The USMCA, which replaces NAFTA, was signed on December 10, paving the way for ratification by lawmakers

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On Wednesday, Mexico’s Foreign Minister Marcelo Ebrard said that under changes to the United States-Mexico-Canada Agreement (USMCA), Mexico will be able to bring labor complaints against companies and workplaces in the United States.

Speaking to a Mexican journalist, Ebrard said the formation of panels to address labor complaints would be “identical” in the United States as in Mexico.

The trade pact, which replaces the North American Free Trade Agreement (NAFTA), was signed on December 10 by the three countries, paving the way for ratification by lawmakers.

Did you know Mexico, the U.S. and Canada signed the new USMCA trade agreement?

U.S. Trade Representative Robert Lighthizer made a last-minute demand to restrict the definition of what would constitute North American steel and aluminum under automotive rules of origin, calling for the metals to be “melted and poured” only in North America.

“Mexico has shared that this would bring lots of problems,” Ebrard told reporters, adding that Jesús Seade, Mexico’s top negotiator for USMCA, would travel to Washington within hours to present Mexico’s terms.

“We will tell (the United States) that we will not accept, in any form, for this obligation to take effect the moment the treaty is ratified,” Ebrard said.

Mexico would allow the rule for steel to be enforced after at least five years but not accept the tighter rule for aluminum because the country does not produce the metal’s raw materials, Ebrard said.

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The new USMCA deal will allow Mexico to make claims before international panels that will solve conflicts regarding abuse or discrimination from American companies, according to Ebrard.

He added that one of the most relevant topics addressed in the last round of negotiations is to implement a system of panels for the resolution of conflicts.

“In the panel, it means that you admit that an organism, made up of five members, half of them appointed by Mexico and the other half by the U.S., with a referee, can resolve controversies.”

Although these mechanisms already existed in NAFTA, they could not be used because of “the U.S. always blocked them.” Ebrard asserted that both countries will now be able to use this system with the new USMCA.

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For his part, Jesús Seade has said that the new deal could enter into force in Spring 2020, for it would take three months after the three countries involved ratify it.

The USMCA opens the door to the biggest economy in the world to impose tariffs on national products if it detects a company incurs in labor infringements. The new signed rules allow the application of tariffs as punishment if companies do not comply with two commitments: the right to freedom of association and to collective work agreement, for they consider these topics can affect commerce.

Seade said that before resorting to a controversies panel, companies will have 85 days to amend any labor infringement.

When a country has evidence that a company does not comply with the before mentioned commitments, the country to which it belongs will be informed an inquiry will be opened.

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That nation will have up to 10 days to determine if the company will be inspected, but in case the country does not answer or does not consider necessary a Rapid Response Labor Panel will be created.

If the country accepts to perform the inspection, it will have 45 days to do so and it will have to present a written report. Given the case an agreement is not reached, a panel will be created as follows:

Three countries will have to establish three lists of panelists, one of the experts of each nationality and one of experts from any nation, so that they are ready in case the group needs to be created.

Once the creation of the panel is notified, the countries have three days to establish it and define the list and names of who will be part of it. The third participant will be selected by mutual consent. Mexico has proposed the members of the World Trade Organization.

In the next five days after the constitution, the request must be confirmed; the notification will take 10 business days, and then there will be 30 days for the panelists to verify.

After that, there will be another 30 days to determine the final verdict or 30 days after the constitution in case there is no verification. Where necessary, tariffs may be imposed.

The tariffs will be imposed on the products or services exported by the infringing company. Some cases contemplate the interruption of commerce and the obligation to pay customs taxes.

If the defending party solves the problem, the plaintiff must immediately eliminate the tariffs.

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