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USMCA update puts Canada in the role of labour watchdog for Mexico

John Irwin, Automotive News Canada
March 2, 2020

Late changes made to the new North American trade pact place Canada into the role of an “honest broker” to assess whether Mexico’s manufacturing operations comply with new labour standards, a trade expert says.

In late 2019, Democratic legislators in the United States sought new provisions that would make it easier to enforce higher labour standards in Mexico as part of the new United StatesMexico-Canada Agreement, which is set to replace the North American Free Trade Agreement.

After balking at the proposal to allow for increased oversight, Mexico signed on after being assured that Canada would assist to sort out remedies for Mexican auto facilities deemed out of compliance with the USMCA.

“What the Mexicans really feared was that, because they didn’t trust the Trump administration to, in essence, not put their thumb on the scale and use what they would see as spurious grounds to justify imposing tariffs or other measures against certain facilities,” said Eric Miller, president of the Washington-based Rideau Potomac Strategy Group and a fellow at the Woodrow Wilson Center Canada Institute.

“They wanted to have mechanisms that were rules-based, and they wanted Canada to come and look at the situation as need be,” said Miller, who sits on the Canadian deputy minister of trade’s external advisory committee on international trade policy.

The USMCA boosts labour standards and oversight at Mexican plants and requires 40 per cent to 45 per cent of a vehicle’s parts to be made with labour making at least US $16 an hour. While the United States and Mexico have ratified the USMCA, that process is just beginning in Canada.

RILED OVER LABOUR RULE

As part of the deal, Mexico will overhaul its labour code. Its legislature has followed suit, voting, for instance, to allow workers the right to secret-ballot votes on labour contracts and union representation.

House Democrats in the U.S. Congress, in turn, sought additional oversight to make sure the reforms were enacted at Mexican plants. A provision also was added to USMCA legislation in the United States that allows the country to designate labour attaches to Mexico to do just that.

This briefly led to a dispute in December, when Mexico signaled it had issues with the move, seeing it as an unnecessary infringement on its sovereignty.

The dispute was resolved days later when Robert Lighthizer, the U.S. trade representative, clarified in a letter to his Mexican counterpart that the attaches would not act unilaterally, and an independent panel would look over any labour violations found.

The attaches would “work with their Mexican counterparts, workers and civil society groups on implementation of the Mexican labour reform, including by providing technical assistance and disbursing capacity-building funds, and provide assistance to the new U.S. government interagency labour committee,” Lighthizer’s Dec. 16 letter reads.

“These personnel will not be labour ‘inspectors’ and will abide by all relevant Mexican laws.”

EASING MEXICO’S WORRY

Miller, who has been involved in the development of six international trade pacts and has advised 40 countries on trade and economic policy, said Mexico likely felt comfortable resolving that dispute in part because it had agreed to separate “facility-specific, rapid-response labour mechanisms” with Canada and the United States. In essence, that means Mexico agreed to two bilateral deals outlining the process for dealing with automotive facilities, including factories, found to not be in compliance with the USMCA’s labour standards, he said.

Separating Canada and the United States on this issue was crucial to Mexico, Miller said.

“Canada, in some ways, is being brought in as a bit of an honest broker. Canada and Mexico have had their differences over time, but fundamentally, Mexicans feel that within the Canadian DNA is an orientation toward living by the rules. So Canada isn’t going to go up and say that facility violates rules unless it violates rules.”

Having attaches in Mexico will likely lead to more compliance, Miller said though he cautioned that surprises “inevitably pop up” when enacting new rules.

“It’s kind of like when you post a police officer by the side of the highway. Everybody slows down,” he said “The idea of being able to do it, at leas for a while, is likely to push people to ensure that they are being more careful than they might have been about how these things will play out.”

Canada’s reputation as a country that can “broker peace rather than imposing it” proved to be crucial to getting the USMCA passed, said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA).

“Canada’s brand and reputation has not suffered through this process,” Volpe said.

Miller said the deal will increase manufacturing in Canada and the United States, with the APMA estimating up to $8 billion in new annual parts orders in Canada.

“There is actually truth behind the claim that this deal succeeds in delivering more purchases for manufacturing,” he said. “You’re looking at a significant increase in purchases [of auto parts] in Canada, and it increases purchases in the United States.”

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