December 18, 2020
The Biden Presidency will bring changes to U.S.-Mexico relations on labor and employment issues, including the USMCA’s Rapid Response Labor Mechanism, labor costs, and investment risks.
Labor mechanism: President-elect Biden supported the USMCA based on labor unions' endorsement of the agreement. The AFL-CIO's backing was essential in passing the USMCA. The U.S. union federation recently announced its plans to file a labor case against Mexico under the In-Facility Rapid Response Labor Mechanism. It would not be surprising that unions seek the Biden administration’s support when it comes to enforcing the new procedure. Rep. Andy Levin (D-Mich.), a potential Biden pick for Secretary of Labor and former union organizer, indicated that Biden will be proactive in bringing cases under the new enforcement mechanism and hold Mexico accountable for its labor reforms promises. Employers need to understand the content for compliance.
Automotive industry cost concerns: Automakers with Mexican operations are mandated to comply with certain labor provisions in the USMCA such as minimum wage requirements (40% to 45% of the auto content must be made by workers earning at least $16 per hour). Those provisions, in conjunction with rising steel and aluminum tariffs, might add labor costs in the country. However, things might change under Biden’s government. The multilateral Trans-Pacific Partnership (TPP) deal brokered by President Obama, which was later abandoned by President Trump in early 2017, could be revisited. The other 11 countries, including Mexico and Canada, reached an agreement, with less stringent labor protections, without the U.S. called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Should the U.S. join the CPTPP, automakers would have another route to manufacture less-expensive vehicles. Biden could also decrease tariffs on key materials.
Additionally, a recent key development on subcontracting labor has signaled a change towards making the Mexican labor market less predictable. If this change is implemented, global employers might seek support from the Biden administration to influence Mexico’s policies on such issues.
Outlook: The Biden administration will receive mounting political and corporate pressures to reinforce the implementation of the USMCA labor chapter and to mitigate the labor cost and investment concerns for U.S. companies’ Mexican operations. The outlook is relatively optimistic as the former Vice President is expected to be more proactive and tactful than his predecessor, but companies still need to stay vigilant for any changes.