Does the USMCA Mean What It Says? The Disputes Panel Hearing on the Auto Core Parts Rules of Origin

In recent weeks we saw Canada, Mexico and the United States present their respective positions and legal arguments, often in sharply worded exchanges, about how the Auto Core Parts rules of origin under the U.S.-Mexico-Canada Agreement (USMCA) should be interpreted. It is a high-stakes issue because assembly operations for vehicles and their “Core Parts” (engine, transmission, etc.) inevitably involve lengthy bills of materials with components from many countries, and what is being disputed is whether Core Parts once found to meet the USMCA requirements to be “originating” can then have their value counted as originating value (i.e., “rolled up”) in the calculation of the regional value content (RVC) of the vehicle as a whole. 

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Annual H-1B Visa Lottery Will Open on March 1, 2022

For employers who need to hire foreign national talent for STEM or other hard-to-fill positions, an important immigration deadline is around the corner.

The electronic H-1B lottery application window starts on March 1 and ends on March 18 at 12 noon EST / 9 am PST. If you desire to have one or more candidates entered into the H-1B lottery, please let immigration counsel know before March 1.

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Sheppard Mullin Travel Checklist ‒ New Vaccination Travel Restrictions for Entry Into the United States: Air and Land Rules Effective November 8, 2021

Prior COVID-19 Travel Bans Repealed as of November 8, 2021

On October 25, 2021, President Biden announced the suspension of the COVID-19 travel bans from Brazil, China, India, Iran, Ireland, the Schengen Area, South Africa, and the United Kingdom.  Previously, a National Interest Exception waiver was required.  With this new Proclamation, the White House announced a global vaccination requirement for all adult foreign national air travelers and authorized the Centers for Disease Control (CDC) to provide specific regulations.  The White House announcement can be found here.

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Does Your Trade Policy Support Your Company’s Values?

If your company is like many, your board of directors may be demanding that you put more effort into environmental, social, and governance issues, which have become known by the now-ubiquitous acronym “ESG.” Those demands don’t come from nowhere: consumers are demanding transparency and social responsibility. In addition, if your company does business internationally, regulators are now focused on international social justice issues (such as the use of forced labor) more than ever.

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NIE’s Now Good for 1 Year, More on Navigating the Travel Ban Jungle: National Interest Exception Checklist for the U.S. COVID Travel Bans

On July 6, 2021 the U.S. State Department publicly announced that the travel ban waivers related to the world-wide pandemic will now be good for 1 year and multiple entry.  The effective date of this new decision is June 29, 2021.  Previously they were only good for 30 days and a single entry.  In addition, those that have received a waiver in the past may now use it for 12 months if it was granted after June 29, 2020.  See:

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Navigating the Travel Ban Jungle: National Interest Exception Checklist for the U.S. COVID Travel Bans

The travel bans imposed by the U.S. Government during the COVID-19 national pandemic created enormous logistical challenges for anyone seeking to fly to the U.S. from a country on the travel ban list.  Even today, there is still a great deal of confusion regarding who is subject to the travel ban, what are the exceptions, and how to go about applying for a National Interest Exception (NIE) waiver.  The checklist below is intended to help simplify an albeit complicated process.  Of course, most U.S. Consulates are still operating at limited capacities so significant delays for waivers and visa stamping is still the norm.

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New Labor Obligations Contained In USMCA Present Risks for Covered Employers

In effect since July 1, 2020, the United-States-Mexico-Canada Agreement (“USMCA”) replaced the North American Free Trade Agreement (“NAFTA”).  Although the worldwide COVID-19 pandemic largely overshadowed the effective date of this new international agreement, its new labor provisions should not go overlooked.  While the USMCA retains most of the NAFTA commitments, it revamped the old agreement in key areas — including labor.  Unlike NAFTA that included some labor commitments in a side agreement, the USMCA provides labor standards in the core text of the agreement (Chapter 23, Labor), making them fully enforceable.

The commitments on labor are not only relevant to manufacturers located in one or more of the USMCA countries, but also companies that rely on these goods as inputs into their supply chains.  This article provides a broad overview of the labor standards contained in Chapter 23 of the USMCA — with a particular emphasis on the Facility-Specific Rapid Response Labor Mechanism.

Labor Standards in the USMCA

Article 23.3 of the USMCA requires that each party adopt, if applicable, and maintain laws that protect the following labor rights:

  1. The freedom of association and collective bargaining;
  2. The elimination of all forms of forced or compulsory labor;
  3. The effective abolition of child labor; and
  4. The elimination of discrimination in respect of employment and occupation.

The USMCA also requires each country to take measures to prohibit the importation of goods produced by forced labor, to address violence against workers who exercise their labor rights, to address sex-based discrimination in the workplace, and to ensure that migrant workers are protected under labor laws.

Indeed, as between these three parties, Mexico will likely be making the most changes to its laws and regulations in order to comply with its USMCA labor commitments.  To that end, Mexico enacted historic labor reforms on May 1, 2019, and is implementing transformational changes to its labor regime, including new independent institutions for registering unions and collective bargaining agreements and new labor courts to adjudicate disputes under the judicial branch that were previously part of the executive branch.

The Rapid Response Mechanism and the Rights of Free Association and Collective Bargaining

With respect to the rights of freedom of association and collective bargaining noted above, the novel Rapid Response Mechanism (“RRM”) allows persons in the United States, Mexico and Canada to lodge complaints against “covered facilities” when there is a good faith basis that workers are being denied the right of free association and collective bargaining (collectively, “denial of rights”).  Under the USMCA, a “covered facility” is a facility that either: (1) produces a good or supplies a service traded between the countries; or (2) produces a good or supplies a service that competes in the territory of a Party with a good or a service of the other Party.[1]

From a U.S. perspective, at a high level, the RRM allows U.S. persons to file petitions on a public docket alleging the “denial of rights” by Mexican covered facilities.  The petitions are reviewed by the Interagency Labor Committee for Monitoring and Enforcement (“Labor Committee”), which has 30 days to determine whether the petitions have “sufficient, credible evidence of a denial of rights.”  If the petition satisfies this criteria, a complex process ensues, which includes government-to-government engagement; possible inspections of the target facility; and the potential formation of a USMCA Panel to resolve the disputes.

During this process, the United States may suspend liquidation of goods entered by the facility subject to the complaint until:

  • a labor panel under the RRM determines there is no denial of rights;
  • a course of remediation for a denial of rights has been agreed to and completed within the agreed-upon timeframe; or
  • the denial of rights has been otherwise remedied.

A determination that there has been a denial of rights may be costly to facilities as penalties may include:

  • suspension of preferential treatment for goods manufactured at the covered facility;
  • imposition of “penalties” on covered facility; or
  • denial of entry for such goods.[2]

Labor and trade experts predicted that the RRM would open the floodgates to a “flurry” of petitions against Mexican covered facilities.  However, to date, there have not been any petitions filed, even though certain labor organizations publicly announced their intention in 2020 to employ the RRM.  One potential reason why petitions have not yet been filed is that the “sufficient, credible evidence of a denial of rights” standard will likely require significant corroborating evidence to meet the threshold.  In other words, plain allegations of denial of rights will likely be dismissed by the Labor Committee.

Takeaways for Covered Employers

The following list of “best practices,” which is not exhaustive, should be considered by employers on both sides of the border seeking to reduce the likelihood that they will become USMCA enforcement targets.

  • Wage and hour audits, including issues of calculating workers’ overtime rate of pay, issues of meal and rest period compliance, and sufficient rest and recovery periods when working in heat, for example;
  • Equal Pay Act audits;
  • Updated employee handbook, to include clear written anti-harassment/discrimination policies to which employees agree to adhere;
  • Anti-harassment training;
  • Child labor law compliance; and
  • Health and safety compliance measures in the workplace, which have elevated in importance on both sides of border due to COVID-19.

Sheppard Mullin has a bilingual, interdisciplinary team of lawyers with backgrounds in Labor, International Trade, and Corporate law that stand ready to assist your team on these complex international issues involving the USMCA.  Please do not hesitate to reach out to any member of this team for further information.


[1] A covered facility must also be in a “priority sector,” such as sectors that manufacture goods, supply services, or involve mining.  Manufactured goods include, but are not limited to, “aerospace products and components, autos and auto parts, cosmetic products, industrial baked goods, steel and aluminum, glass, pottery, plastics, forgings, and cement.”

[2] This is the most egregious penalty and can be invoked if a covered facility has received at least two prior denial of rights determinations.

The New Anti-Money Laundering Act of 2020 and Potential Effects on Foreign Businesses and High Net Worth Individuals

On January 2, 2021 the National Defense Authorization Act (“NDAA”) became law.  Importantly, the NDAA included sweeping legislative reforms to anti-money laundering (“AML”) laws, which are now codified in the Anti-Money Laundering Act of 2020 (“AMLA”) (NDAA §§ 6001-6511). Designed to enhance national security concerns, these AML amendments will significantly impact financial institutions, certain types of businesses—both domestic and foreign, and High Net Worth Individuals (“HNWIs”).  While HNWIs legitimately seek to maintain confidentiality in their corporate entities or wealth management structures, the AMLA will make that more difficult and potentially more dangerous. Continue Reading

Visas and Immigration in 2021 Under the Biden Administration

The Biden Administration took office on January 20, 2021. Many executive orders have been executed since that date, some of which directly change the manner of handling immigration matters.  However, the U.S. and the world are still dealing with the global pandemic and this directly affects submissions, filings, and consular appointments.  This update provides a list of the latest updates to U.S. visas and immigration matters, as well as what we forecast for the months to come. Continue Reading

The Next Four Years in International Business

Over the past few weeks, we have been speculating on the international trends and tides we expect to see in the next four years under a new U.S. presidential administration. So that you can enjoy our prognostications (before our program gets greenlighted as a Netflix special) we provide here:

  1. A recording of our webinar, entitled “The Four Years in International Business Webinar
    (for those playing along at home, see if you can spot the part where Scott’s power goes out while we’re discussing tariff reductions!)
  1. A bulleted summary of the key takeaways of our webinar.

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