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2019 LABOR LAW SOLUTIONSWHAT EMPLOYERS NEED TOKNOW ABOUT THE UNITEDSTATES–MEXICO–CANADA (TRADE)AGREEMENT (USMCA) Rodolfo R. (Fito) Agraz – Ogletree Deakins (Dallas/Raleigh)Stephen Shore – Ogletree Deakins (Toronto)Pietro Straulino-Rodríguez – Ogletree Deakins (Mexico City)Lucie Guimond – Ogletree Deakins (Montréal)OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-1

2019 LABOR LAW SOLUTIONSEXECUTIVE SUMMARY The USMCA is not a done deal and is awaiting implementation by the participating countries(the United States, Mexico, and Canada). There is no set date for when the USMCA will come into force, but it is unlikely to beimplemented prior to the 2020 U.S. election. Still, companies can trust that NAFTA will bein effect until the election. The purpose of this document is to discuss the provisions of the USMCA that employersshould be aware of, pending the implementation of this trade agreement. At a high level, the global economy benefits working families and employers by openingborders and creating more jobs in export sectors. Free trade agreements, such as NAFTA, facilitate trade and seek to remove trade barriersbetween countries. The USMCA was created to modernize trade in response to concerns about the effectivenessof NAFTA. The agreement looks to rebuild confidence in workers and communities in theway the participating nations manage globalization. The USMCA contains “Made in North America” provisions that will, in theory, bring automanufacturing work back into the United States and Canada. These provisions also look toincrease wages in Mexico by a large sum. There is a chapter in the USMCA dedicated to labor. The labor rules are contained in themain text of the agreement and not addressed in a side agreement like NAFTA. The new labor provisions cover areas such as sex-based discrimination, migrant workers, andviolence in the workplace. There are also rules to ensure for enforcement and cooperationbetween the participating nations. While already in action on a federal level in Mexico, there is an annex to the USMCAdiscussing worker representation in collective bargaining in Mexico.OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-2

2019 LABOR LAW SOLUTIONSDISCUSSION1. WHAT IS A FREE TRADE AGREEMENT? A free trade agreement (“FTA”) is a treaty between two or more nations to foster tradeand remove trade barriers. FTAs work to create a competitive and open internationalmarketplace. The North American Free Trade Agreement (“NAFTA”) is a FTA. FTAs can impact an employer’s ability to operate within a specific country. In addition,FTAs can also have the effect of shifting where employers decide to do business aroundthe world.2. A GLANCE AT THE USMCAWhat is the USMCA? The United States-Mexico-Canada Agreement (“USMCA”) is a FTA announced onSeptember 30, 2018. The USMCA changes the current rules governing North American trade contained inNAFTA. It modernizes the free-trade system between Canada, the United States, and Mexico,which works to address significant issues such as labor. The USMCA is a complex document consisting of 34 chapters, in addition to sideagreements and sector specific sections.Why was the USMCA negotiated? The USMCA was negotiated as an effort to modernize trade and address outstandingconcerns with NAFTA. It addresses issues of wage stagnation in Canada and the United States, and wage declinein Mexico. The USMCA works to remedy deficiencies surrounding labor rules under NAFTA, whichwere largely ineffective and unenforceable. Of critical importance, the USMCA brings labor into the main body of the agreement;whereas, under NAFTA, labor was only addressed in a side agreement.OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-3

2019 LABOR LAW SOLUTIONS3. THE USMCA VS. NAFTA The USMCA and NAFTA are quite similar documents. Many of the USMCA provisionsare pulled from the original body of NAFTA. Similar to NAFTA, parties are not allowed to craft rules that interfere with cross-borderactivities and are required to engage laws that facilitate these activities. Yet, a large portion of the USMCA was also taken from the Comprehensive andProgressive Agreement for Trans-Pacific Partnership (“CPTPP”). The CPTPP is a free trade agreement between Canada and 10 other countries in the AsiaPacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,Singapore, and Vietnam. The United States was a participant until it pulled out of theaccord in January 2017.The Auto Sector: “Made in North America” Rules The USMCA contains more demanding “Made in North America” rules, which willimpact employers in the automotive sector and supporting industries. These can be foundin the “Rules of Origin” of the USMCA (Chapter 4). Cars must now contain 75% North American content, instead of the 62.5% requiredunder NAFTA. Automotive manufacturers are also required to follow more strict rules on a lengthy listof auto parts. Whereas under NAFTA, parts content ranged from 50 to 60%, under theUSMCA it ranges from 50 to 75%. Under the USMCA, there is a requirement that 70% of all aluminum and steel used in theproduction of automobiles be sourced in North America. There are also “Labor Value Content” rules, which require proof that at least 40% of thecontent of a car is sourced from “high-wage facilities” (i.e., facilities that pay workers onaverage 16 USD per hour). There is a credit of up to 15% of this “Labour Value Content” that can be provided toauto manufacturers for wages paid in activities such as research, development, andengineering. Lastly, the USMCA contains a Side Letter (Canada-US Section 232) where Canadaprotects up to 2.6 million in vehicle exports destined to the United States from anypotential tariffs on an annual basis. These protections exceed Canada’s historical exportlevels to the United States.OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-4

2019 LABOR LAW SOLUTIONSImpact on labor rights and principles (Chapter 23) The fundamental labor rights under Chapter 23 are reflective of the ILO Declaration onFundamental Principles and Rights at Work and its Follow-up (1998). Thesefundamental rights include: freedom of association, eliminating compulsory labor,abolishing child labor, and eliminating discrimination in employment and occupation. The new labor chapter contains rules addressing sex-based discrimination, migrantworkers, and violence against workers. For example, the section on “sex-based discrimination in the workplace” requiresparticipating nations to engage policies that:o “Protect workers against employment discrimination on the basis of sex, includingwith regard to pregnancy, sexual harassment, sexual orientation, gender identity, andcaregiving responsibilities, provide job-protected leave for birth or adoption of achild and care of family members, and protect against wage discrimination.”Implementation and enforcement of labor rules In order to allow for a smooth implementation of the labor rules, the parties have agreedto engage in activities that foster cooperation. One example of this is bringing worker andemployer representatives together to identify areas for cooperation. In terms of enforcement, the parties have agreed they will enforce their national laborlaws to ensure they respect the obligations set out in the USMCA, Chapter 23. Unions will be able to file public submissions and request an official consultation onissues related to the labor chapter. Within one year of the USMCA’s coming into force and thereafter, every two years, alabor council will meet to consider any issues contained in the labor chapter.Special Annex (Mexico) It is important to understand that this effort is already in progress on a federal level inMexico. The USMCA labor chapter contains a Mexico specific annex (Annex 23-A, “WorkerRepresentation in Collective Bargaining in Mexico”). This annex looks to adjust Mexico’s protection contract system. Under this annex of the USMCA, all Mexican collective agreements must be renegotiatedwithin four years to address salary and working conditions and must receive majorityOGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-5

2019 LABOR LAW SOLUTIONSsupport from the members through a “personal free and secret vote.” There will also be aseparate and independent body to regulate collective agreements.4. IMPACTCross-border impact The USMCA seeks to establish a level playing field for workers to prevent declines inwages that can create doubt that trade is fair to all parties involved. However, toaccomplish this goal, it will require strong enforcement tools and the effectiveimplementation of the new labor provisions and related sections.Impact: United States Lower disparity in wages between U.S. and Mexican autoworkers will, presumably, helpdrive investment back into the United States. Changes in Mexico labor law driven by USMCA may ultimately result in a labor unionenvironment that is more similar to the U.S. experience.Impact: Mexico The USMCA will create a positive impact by increasing worker participation in thecollective bargaining process through encouraging worker directed unions. The outcome of improve wages will help reverse the trend of wage depression in Mexico. Higher wages in Mexico are not only good for the country and workers, they are arequired outcome of a successful USMCA.Impact: Canada The USMCA will help drive auto work back into Canada, and provide advantages forautoworkers in Canada. It will also provide protection of Canadian imports from being subject to high tariffs as aresult of the negotiated Side Letter between Canada and the United States. Also in Canada, the USMCA will help foster a more positive relationship with the labormovement and better union-management relations.OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-6

2019 LABOR LAW SOLUTIONS5. NEXT STEPS The question remains of when we can expect the USMCA to come into force. The futureof USMCA is uncertain as a result of politics in Mexico and the U.S. Congress. It is notexpected that the implementing legislation will pass soon, and it will likely remain stalleduntil after the November 2020 U.S. election. However, companies can expect NAFTA toremain in force through ds-commerciaux/agracc/cusma-aceum/index.aspx?lang -what-you-need-know-about-newnaftaUSMCA (NAFTA 2.0): tightening the constraints on the right to regulate for public health,Ronald Labonté, Eric Crosbie, Deborah Gleeson & Courtney McNamara (Globalization andHealth volume 15, Article number: 35) (2019).OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.9-7

What Employers Need to Know About theUnited States–Mexico–Canada (Trade)Agreement (USMCA)PRESENTED BYRodolfo R. (Fito) Agraz (Dallas/Raleigh), Stephen Shore (Toronto),Pietro Straulino-Rodríguez (Mexico City), and Lucie Guimond (Montréal)Agenda What is a free trade agreement?What is the USMCA?Why was the USMCA negotiated?USMCA vs. NAFTASector Spotlight: AutoLabor under NAFTA and USMCASpecial Annex: MexicoImpact and ImplementationLabor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville Downtown1

What is a free trade agreement? Treaty between two or more countries to facilitatetrade and eliminate trade barriers. Goal – Create an open and competitiveinternational marketplace. Challenge – Potential impact on an employer’sability to operate within specific jurisdictions.Labor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville DowntownWord Cloud Obviously, USMCA stands for the United StatesMexico-Canada Agreement or the “new” NAFTA but in one word, describe what it means toyou?Labor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville Downtown2

A New NAFTA The United States-Mexico-Canada Agreement(USMCA) is a trade treaty announced onSeptember 30, 2018. Replaces the existing rules of NAFTA (*once ineffect) Modernizing the free-trade system A complex legal treatyLabor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville DowntownWord Cloud In one word, why do you think the USMCA wasnegotiated?Labor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville Downtown3

Why was the USMCA negotiated? A few considerations:––––Difficulties enforcing labor rules under NAFTAWage stagnation and declineA push towards a more “level” playing fieldRebalancing corporate and social interestsLabor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville DowntownUSMCA vs. NAFTA High degree of similarity, yet, several importantdifferences Many provisions lifted from Comprehensive andProgressive Agreement for Trans-PacificPartnership (CPTPP)Labor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville Downtown4

USMCA vs. NAFTA Key questions to be addressed:– What are the differences between USMCAand NAFTA?– What are the cross-border impacts?– What should employers know about thechanges?Labor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville DowntownSector Spotlight: Auto Rules of Origin (Chapter 4) USMCA More stringent “Made in North America” rules– Rules on an expanded list of auto parts– Steel and aluminum sourcing New “Labor Value Content” rules– Credits for auto manufacturesLabor Law Solutions: Practical Solutions for Today’s WorkplaceDecember 4–6, 2019 – Hilton Nashville Downtown5

Labor Standards Under NAFTA How NAFTA impacted your wor