Katherine Tai and Game-changing Labor Mechanism Take Center Stage

Katherine Tai’s confirmation hearing before the Senate Finance Committee this week promises to put a spotlight both on Ms. Tai’s historic nomination and one of her signature achievements: the U.S.-Mexico-Canada Agreement’s (USMCA) unprecedented Rapid Response Labor Mechanism (RRLM).

Respected by Republicans and Democrats in Congress, Ms. Tai is poised to make a rare leap from Congressional staff to Cabinet-level post. If confirmed as United States Trade Representative (USTR), she would be the first woman and color and first Asian American to serve as the nation’s top trade negotiator. Once on the job, Ms. Tai’s skills and experience will put to the test on multiple fronts. Fluent in Mandarin, she will play a critical role navigating the tense relationship with Beijing. She will also be expected to help the Biden administration push for resolution to the 16-year-old U.S.-EU aircraft dispute that has produced cycles of tariffs and countermeasures. And, of course, there are high expectations that Ms. Tai will devote time to USMCA investment and environmental protection measures.

But perhaps most significant for the future of U.S. trade policy will be how USTR Tai and the Biden administration oversee the first-of-its-kind RRLM that allows anyone to trigger site-specific investigations with the click of a mouse.

Labor protections in USCMA

Investment protection and free trade considerations are powerful precedents for the USMCA. But, from a U.S. political perspective, USMCA was really born from a belief that the North American Free Trade Agreement (NAFTA) had failed American workers. Mexico’s lack of real collective bargaining meant that wages remained low even as productivity and development increased, giving Mexican producers an unfair advantage, U.S. labor leaders argued.

As the Trump administration dove into negotiations, the new Democratic House majority – counseled by Ms. Tai – flexed its muscle. Chief among the Democratic demands: labor reforms in Mexico and a stronger, faster labor standards enforcement mechanism.

The final USMCA included a dedicated labor chapter that demands parties comply with minimum standards based on the core International Labor Organization’s labor rights. This includes:

• Acceptable work conditions and minimum wages;
• Freedom to form and join a union;
• Recognition of a right to collective bargaining;
• Freedom from forced and child labor; and
• Freedom from workplace discrimination.

Critically, the agreement also contained a bilateral annex between the U.S. and Mexico establishing the RRLM to expedite enforcement actions against individual sites in Mexico determined to be denying freedom of association and collective bargaining rights to workers.

Several key components make the RRLM a game-changing for U.S. trade policy. First, it lowers the bar to bringing grievances. Anyone can file complaints via an online portal. Second, instead of focusing on broad, national compliance, it allows the specific practices of individual facilities in priority sectors to be questioned. Finally, it moves quickly. Investigations can conclude with determinations within 120 days of an initial complaint.

Ultimately, Rapid Response Panels (comprised of US, Mexico and outside experts) have authority to impose remedies in response to violations that include suspension of preferential tariff treatment and goods blocking from noncompliant facilities.

The AMLO factor

While USTR Tai is expected to take a personal interest in implementation and effective enforcement of the USMCA’s labor provisions, Mexico and President Andres Manuel Lopez Obrador (AMLO) are unlikely to welcome outside challenges to domestic policies. This is evident in investment protection and environmental considerations. But, much less discussed, is also very relevant from a labor angle.

Though Mexico passed significant labor reforms in advance of USMCA enactment, its will and ability to fully enforce these measures remains a concern for many U.S. labor unions, including the AFL-CIO, which has vowed to bring complaints via the RRLM in the months ahead. A December report by an independent panel established by the USMCA “identified a number of serious concerns” with Mexican labor law enforcement.

Pushing AMLO faster or further than he’s willing is likely to result in further bristling. Mexico City is already embroiled in a spat over moves that favor state-owned energy companies in potential violation of the USMCA.

From a USMCA labor perspective, what does this mean for companies operating in Mexico?

The USMCA’s low bar to filing complaints, unprecedented site-specific focus, and fast-track RRLM poses significant reputational and regulatory threats. Combined with broader political uncertainty, these challenges should prompt companies operating in Mexico to begin mitigation planning now. The following guiding principles can help.

• Know your employees and their representatives. Maintain a regular pulse on both your workforce and the community in which you operate. Effective two-way communications programs establish trust to identify and address issues before they before they grow into problems.
• Prepare for scrutiny. If and when allegations arise, a timely, integrated response will be critical. Any claim should be treated seriously. Employees, customers, supply chain partners, media and political stakeholders will expect accurate and consistent communication.
• Strengthen relationships with key stakeholders. Companies can’t afford to wait until crisis hits to introduce themselves to trade organizations, academics, lawmakers, and other influencers. Understand the political and regulatory landscape on both sides of the U.S.-Mexico border. Leverage digital content and advocacy programing to make connections and tell your positive story.

From its environmental and investment protections to its labor chapter, USMCA seeks to set a higher bar for future trade agreements that create reciprocal trade, sustainable growth and good-paying jobs. When companies encounter issues, a combination of public affairs and organizational communications experience will be key to executing on engagement and communication strategies that are responsive to concerns, correct the record, and ensure freedom to operate.