North America has consistently economically integrated since the 1980s, when Mexico entered the General Agreement on Tariffs and Trade and the maquila regime. The integration was boosted with the entry into force of the North American Free Trade Agreement ("NAFTA") in 1994. The NAFTA accelerated the process of integration by eliminating tariffs for goods originating from North America, opening the services sector to foreign investment, and providing businesses with a rules-based system including a binding dispute settlement mechanism for investor-State disputes. After over 25 years of operation, the NAFTA needed to be reviewed and updated to reflect the circumstances of the XXI century, which resulted in the negotiation of the United States -Mexico-Canada Agreement and is scheduled to enter into force on July 1, 2020.1
This integration process has resulted in the creation of value and supply chains that span the entire North America region. Businesses have looked for efficiencies within the region and set up production facilities accordingly. Goods are produced and traded freely, crossing the border a number of times, gaining value at each production stage, before finally being offered to final consumers. The free movement of goods and services is fundamental for an efficient supply chain, but freedom of movement has been fundamentally altered by the pandemic.
On March 19,2020, the Mexican General Health Council, in extraordinary session, determined that the disease caused by the virus SARS-CoV-2 would be considered as a critical illness in Mexico, deserving priority attention.2 On March 24, 2020, the Ministry of Health published an executive order establishing preventive measures to control the illness. These measures, which were sanctioned by Presidential Decree published on the same date3, included mandatory social distancing and the temporary suspension of activities that require the gathering, transit or movement of people, in the public, private, and social sectors until April 19, 2020.
The executive order allowed certain industries to continue to operate, so long as these activities did not result in large gathering of people. These industries included hospitals, clinics, pharmacies, laboratories, medical services, finance, telecom and information services, hotels, restaurants, gas stations, supermarkets, and transport.
Thereafter, on March 30, 2020, the General Health Council declared the epidemic as a force majeure sanitary emergency. As a result, the Ministry of Health established a series of extraordinary measures through an executive order published on March 31,20204, which include the suspension of nonessential activities for the public, social, and private sectors until April 30,2020.
This executive order defined essential activities as those in industries that participate in the supply of goods and services related to health activities, such as the pharmaceutical sector, including production, distribution (pharmacies), manufacture of materials, equipment and technologies related to health, disposal of biological hazardous materials, and cleaning and sanitization of medical units are considered essential sector. Furthermore, the activities considered as fundamental for the economy were the financial sector, tax collection, distribution and sale of energy, gas stations, drinkable water, food and non-alcoholic beverage industries, markets and supermarkets, convenience stores, sale of prepared meals, transport of persons and goods, agriculture, cattle and fishing industries, chemical industry , cleaning products, courier services, private security, child care, senior citizen homes, telecommunications and information services, storage and cold chain off essential materials, logistics (airports, ports, and trains).
On April 21,2020, the Ministry of Health amended its executive order, extending the suspension of non-essential activities until May 30,2020.
Similar decrees and executive orders have been issued by the United States government. So one might think that the Mexican and U.S. administrations coordinated on the concept of "essential services." Surprisingly, this was not the case. As it turns out, the Mexican and U.S. administrations have different definitions of what essential and industries mean.
The Guidance on the Essential Critical Infrastructure Workforce: Ensuring Community and National Resilience in COVID-19 Response, issued by the U.S. Department of Homeland Security´s Cybersecurity and Infrastructure Security Agency ("CISA"), mentions a number of industries and sectors that are similar to those included in the Mexican emergency health decrees.5 However, the CISA guidance includes other industries, such as "critical manufacturing" which includes the manufacturing of metals (like steel and aluminum), industrial minerals, semiconductors, materials and products needed for medical supply chains and for supply chains associated with transportation, aerospace, energy, communications, information technology, food and agriculture, and chemical manufacturing. Additionally, the guidance refers to workers needed to maintain the continuity of these manufacturing functions and associated supply chains, in addition to the workers necessary to maintain a manufacturing operation in warm standby.
The difference between the U.S. and Mexican definitions of "essential" has effectively severed the supply chains of a number of industries across North America. Industries that are fully integrated throughout the region, such as the automotive and aerospace industries, now face extreme challenges to keep up with demand and fulfill contractual obligations. Although Mexico has not closed its borders or restricted the movement of goods or persons, the suspension of production and distribution in sectors deemed nonessential means that many production lines are simply unable to continue working, due to lack of materials.
This was evidenced by a letter sent by the National Association of Manufactures ("NAM") to President López Obrador on April 22,2020.6 In the letter, executives of over 300 manufacturing companies expressed concern about Mexican federal and state health emergency decrees, which had resulted in the forced or threatened shuttering of supply and manufacturing facilities, imperiling their ability to deliver critical supplies and daily essentials to people in Mexico and across North America.
Similarly, on April 29,20207 a bipartisan group of eleven senators wrote to U.S. Secretary of State Mike Pompeo, urging him to work with the Mexican government to prevent disruptions in the U.S. supply chain by clarifying what Mexico considers "essential". In particular, the senators urged Secretary Pompeo to press his Mexican counterparts to incorporate industries providing components to the food, medical, transportation, infrastructure, aerospace, automotive, and defense sectors.
As the situation evolves, there is no certainty as to when the restrictions on production will be lifted and if any steps will be taken to open the North American supply chains. It is clear that the health and wellbeing of workers is the principal concern of governments. However, it is of the utmost importance that the U.S. and Mexican administrations find common ground on the definition of "essential" to help businesses reopen and to help the region regain its competitiveness in the global arena. If they do not, the health crisis will result in an economic catastrophe of enormous proportions.
Originally published by ABA Mexico Update.
1. www.gob.mx/se/prensa/t-mec-entrara-en-vigor-el-1-de-julio-de-2020 reviewed on May 8, 2020
2. www.dof.gob.mx reviewed on May 8,2020
5. www.cisa.gov reviewed on May 8,2020
6. www.nam.org reviewed on May 8,2020
7. www.mema.org reviewed on May 8,2020
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