For many companies that supply goods and services in North America, that have set up all or part of their production process in Mexico, the entry into force of the United States- México-Canada Agreement (USMCA) last July 1st, was a welcome sign of continuity of their operations to supply one of the world's biggest markets.

It is important to point out, however, that there are some very different aspects of the USMCA with regards to its predecessor, the North American Free Trade Agreement (NAFTA). It is noteworthy that the USMCA has a lengthy labor and employment chapter and several related annexes that could generate a possible risk for companies that do not undergo a serious due diligence to make sure they are in compliance with all labor aspects covered by the USMCA, particularly the legitimization process for Collective Bargaining Agreements (CBA) that is a new legal obligation provided by the USMCA and through the labor reform enacted on May 1st, 2019 in México.

The different procedures in the dispute resolution chapter include the possibility to carry out ordinary panels and rapid response panels that could entail suspension of special tariff treatment or prevention from goods of specific work sites to cross the border if it is found that the work site had labor violations pertaining to the freedom to create and be part of a union and to get a CBA in place.

This threat is especially important for all companies that have not yet undergone a process to legitimize their CBA.

Businesses that produce or commercialize goods related to aerospace products and components, autos and auto parts, cosmetic products, industrial baked goods, steel and aluminum, glass, pottery, plastic, forgings, and cement, are particularly susceptible to analysis as they are within the priority sectors considered this year by the USMCA to be checked to be compliant of labor rights through rapid response mechanisms. Nevertheless, all export-oriented enterprises can be subject to review for labor rights violations under the dispute resolution chapter of the USMCA.

The department of labor is already carrying out inspections geared at gaging compliance with freedom to form and be part of unions, as well as to have a CBA in force at the workplace, so IT IS NOW A RECOMMENDED BEST PRACTICE TO CARRY OUT A DUE DILIGENCE AND AN AUDIT TO CHECK FOR FULL COMPLIANCE WITH LABOR RIGHTS AND TO CARRY OUT THE LEGITIMIZATION PROCESS FOR EXISTING CBAs.

Do reach out to our firm in case this article has struck interest for your operations in Mexico, we will be glad to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.