On April 16, 2024, USTR requested composition of an RRM panel, only the second such panel requested under the USMCA. This case centers on labor issues at two Atento Services call centers in Hidalgo, Mexico, which the U.S. asserts provide services to BBVA Mexico, a subsidiary of the Spanish multinational financial services company BBVA Group.

As explained in greater detail below, the Atento case is highly significant for the RRM, for services companies in Mexico, and for U.S. trade policy writ large.

What is the RRM?

The RRM requires individual companies operating in Mexico to comply with certain Mexican labor laws as designated by the USMCA. The RRM applies to all companies operating in a priority sector in Mexico – defined broadly to include all manufactured goods, mining, and services – that produce a good or supply a service traded between the U.S. and Mexico, or that compete with a U.S. good or service within Mexico. Petitioners can initiate a proceeding by requesting that the U.S. government review a matter, or the government can self-initiate a review.

The U.S. government has brought 22 RRM cases since the USMCA entered into force in July 2020, with 15 of these occurring in the last 11 months. USTR reports that 17 cases have resulted in comprehensive remediation plans or were otherwise successfully resolved to the satisfaction of the U.S. government. Also according to USTR, these cases have resulted in US $5 million in backpay and benefits to workers, reinstatements of dozens of terminated workers, and elections in which workers selected independent unions to represent them at nine facilities. Sixteen cases have focused on auto or auto parts facilities, two on mines, one on garments, and one on processed foods. Atento is the second case focused on a service provider.

Companies targeted in an RRM enforcement action and found in violation by the Parties (the U.S. and Mexican governments) or an RRM panel – a finding called a “denial of rights” – are subject to trade sanctions on a “three strike” basis, whereby the remedies become more severe for repeat violations, including:

1. Strike 1 – suspension of preferential tariff treatment for goods manufactured at the facility (loss of USMCA tariff preferences for goods from a facility and reversion to the MFN tariff rate) or the imposition of penalties on goods manufactured at, or services provided by, the facility;
2. Strike 2 – application of a remedy available for Strike 1 against all same or related goods or services, from all facilities in Mexico owned or controlled by the same person; and
3. Strike 3 – denial of entry into the U.S. of such goods.

Upon initiating a case, the U.S. government also issues a press release naming the company, and, for goods cases, usually suspends settlement of customs accounts from the facility.

As a key enforcement piece of the Trump Administration’s USMCA trade package and a priority for Congressional Democrats and the Biden Administration’s “worker-centered trade policy,” the RRM has achieved unique bipartisan support in Washington and is widely considered to be a model – or at least a jumping-off point – for future trade agreements.

Why is the Atento case significant?

Much of the RRM caseload to-date – 20 of 22 cases – has focused on trade in goods. This makes sense, as the remedies specifically spelled out in the USMCA focus on approaches that create significant penalties for non-compliant facilities engaged in goods trade, like increasing tariff rates or prohibiting importation of goods. It seems that service providers in Mexico and RRM petitioners have viewed potential RRM services cases as a bit of an afterthought. However, by requesting composition of an RRM panel in the Atento case, the U.S. government is clearly signaling that it disagrees. The U.S. government could have taken an off-ramp before it issued this panel request – it could have agreed to a settlement, for example, or taken the Mexican government’s announced actions to purportedly remediate the issue as sufficient to close out the matter – but instead it elevated the case in a way that has happened only once previously. This tells me two things about the government’s views of this case: (1) the U.S. government thinks its case is strong enough to win at panel; and (2) the U.S. government has a plan for the services-related remedies it will impose if it does.

Much of the attention on Atento has focused on the first point, and that makes sense. As the U.S. and Mexico both approach Presidential elections this year that re-emphasize political touchpoints around economic protectionism and sovereignty, and with the expiration of Mexico’s legitimation vote deadline that makes remediating RRM cases harder than just re-running a vote, and with the influx of Chinese electric vehicle investments in Mexico that has been called “an extinction level event” for the U.S. auto industry, the second RRM panel is a big deal.

But an analysis that stops with that first point misses the forest for the trees, because the implications of the second point are profound and could have ramifications for much of the Biden Administration’s trade policy, not just the RRM. The Biden Administration has sought to frame its trade policy as distinguishable from past approaches in a number of ways, but one notable distinction comes from its decision not to pursue negotiation of traditional market access, tariff-lowering, trade agreements. Since typical trade agreement enforcement in cases of non-compliance is conducted by taking away the market access that the agreement conferred, critics of the Biden Administration’s trade policy question whether the reportedly ambitious commitments it seeks in negotiations with Taiwan, Kenya, the EU, the UK, and 13 Indo-Pacific countries are actually enforceable. Without lowering tariffs, the critique goes, how will the U.S. make sure that its “worker-centered” trade policy is more than just words on paper?

It may be that the Atento RRM case is about to give us the U.S. government’s answer to that question. If the panel agrees with the U.S. government in Atento and permits the U.S. to impose remedies against the call centers involved in the case, we could gain concrete insight into what sorts of trade enforcement remedies it may be contemplating in each of the other trade agreements it is negotiating.

What are the next steps in the case?

The immediate next step in the case is that the USMCA Secretariat (the Mexican section, as the respondent Party) has until April 19 to select by lot the three panelists that will make up the RRM panel. One panelist is selected from Mexico’s list of panelists, one from the U.S. list, and one from the joint list. The three lists were established when the USMCA entered into force in July 2020, so it’s worth noting that the U.S. chose its own panelists and agreed to the joint list during the Trump Administration.

Once constituted, the panel has five business days to confirm that the petition meets basic threshold requirements and then will issue to Mexico a request for verification. Unless Mexico objects to the verification request (in which case the U.S. would ask the panel to find a denial of rights), the panel is to conduct the verification within 30 days of Mexico’s receipt of the request. The panel then has an additional 30 days from the verification to determine if there has been a denial of rights.

However, these timelines should be taken with a grain of salt. In the first case to go to an RRM panel – concerning labor issues at a Grupo Mexico lead, zinc, and copper mine in Zacatecas, Mexico – the panel proceedings have taken much longer than provided for in the USMCA. In that case, the U.S. requested composition of an RRM panel on August 22, 2023. The panel reportedly did not conduct its verification until February 26, 2024, and heard oral arguments from the parties from February 28-29, 2024. The delays in the case have been ascribed to additional time needed by the Mexican secretariat to translate documents. The Grupo Mexico panel’s decision is expected soon, but the panel process has evinced some operational delays in the panel process that the Parties may want to address in their 2026 review of the USMCA.

The instructions provide a rules of origin definition to determine whether a good qualifies as an “originating good” under the USMCA, such that it is eligible for preferential tariff treatment. Under USMCA a good is “originating” in the United States, Mexico, or Canada when:

a) The good is wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.3 of the Agreement;

b) The good is produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of product- specific rules of origin;

c) The good is produced entirely in the territory of one or more of the Parties exclusively from originating materials; or

d) Except for a good provided for in Chapter 61 to 63, HTSUS:

the good is produced entirely in the territory of one or more of the Parties, is classified with its materials or satisfies the “unassembled goods” requirement, and meets a regional value content threshold of not less than 60% if the transaction value method is used or not less than 50% if the net cost method is used (not including RVC for autos); and

e) The good satisfies all other applicable origin requirements.

USMCA includes substantial new rules governing the rules of origin for automotive goods. The agreement increase the RVC rule for automotive goods by requiring that 75 percent of auto content be made in North America. At least 70 percent of an auto producer’s use of steel and aluminum must also originate in North America. The interim instructions further explain the alternative staging regime included in USMCA that implements the new auto goods rules. It provides that a passenger vehicle or light truck may be considered originating until the later of January 1, 2025 or five years after entry into force of the agreement. To be eligible for the alternative staging regime, the passenger vehicle or light truck must be numerous requirements, including a RVC that is not lower than 62.5 percent (using the net cost calculation method) and must be 75 percent by the later of January 1, 2025 or five years after entry into force of the agreement. Appendix 1 of the interim instructions includes certification procedures for automotive goods.

The instructions indicate that the U.S. Department of Labor will issue separate regulations regarding certain components of the labor value content requirements.

When the USMCA will enter into force, and officially replace the 1994 North American Free Trade Agreement (NAFTA) between the three countries, remains unclear. The USMCA was signed into law on January 29, 2020, and was ratified on March 13, 2020. Currently, the Administration plans for the agreement enter into force on June 1, 2020. However, a number of parties in all three countries, including a group of U.S. senators, is calling for a delayed entry into force of the agreement in light of the COVID-19 pandemic.

* The interim instructions are advisory only. They are not final, not legally binding, and are subject to further revision.

With the revisions in these areas included in the updated USMCA, Democrats have expressed support for the agreement. Indications are that it will be put up for a vote in Congress in the near future. USMCA will replace the North American Free Trade Agreement (“NAFTA”) that was implemented by the three governments in 1994.

Check back here for updates on USMCA, including an analysis of the revised USMCA once the text is released.

The deal does not impose quotas – which the United States had sought – but does requires the parties to develop and implement surge-monitoring procedures. In the case of a surge “beyond historic volumes of trade over a period of time,” the exporting country faces the risk of reimposed tariffs. In monitoring surges, however, steel that is “melted and poured in North America” may be separately counted.

The deal also requires Canada and Mexico to adopt anti-circumvention enforcement measures to avoid transshipment of non-Canadian and non-Mexican steel and aluminum across their borders.

Eliminating the Section 232 tariffs for Canada and Mexico removes a major hurdle to Congressional approval of the U.S.-Mexico-Canada Agreement (USMCA). Senator Grassley (R-IA), chairman of the Senate Finance Committee (with jurisdiction over international trade issues), has repeatedly tied ratification of USMCA to lifting the tariffs for Canada and Mexico.

The announcement comes in response to a Department of Commerce investigation initiated a year ago under Section 232 of the Trade Expansion Act of 1962. The Department submitted its statutorily-required report to the President on February 17, 2019, concluding that imports of automobiles and certain automobile parts threaten to impair the national security of the United States. Specifically, the Department highlighted the importance of domestic R&D expenditures and innovation in ensuring “long-term automotive technology superiority” that is critical to the defense industry.

The President’s proclamation highlighted a near-doubling of automobile imports into the United States from 1985 to 2017 and the declining share of the U.S. automobile market held by American-owned producers during the same time period (now 22% vs. 67% in 1985). Additionally, the proclamation cites the difficulty of U.S. producers to export as a result of protected foreign markets – specifically in the European Union and Japan.

In directing the trade negotiations, the proclamation specifically mentions the European Union, Japan and “any other country the Trade Representative deems appropriate.” The President highlighted the potential benefits of the renegotiated United States-Korea agreement and the new United States-Mexico-Canada Agreement (USMCA) in addressing the national security threat.

Under the statute, a decision was required by the President within 90 days of receiving the Department of Commerce report. The decision to enter into trade negotiations was one option. Alternatively, in concurring with the Department’s findings, the President could have announced more immediate action to adjust imports (e.g., tariffs or quotas), or could have asked for additional analysis or review.

If agreements are not reached by November 13, 2019, the President will determine whether and what further action needs to be taken to address the national security threat.

According to the Office of the U.S. Trade Representative (USTR), the trade policy agenda underscores three main points. First, the agenda notes that this Administration inherited a “deeply flawed global trading system” that it is striving to improve. The agenda calls out the primary targets of the Administration’s trade efforts to date: overhauling the North American Free Trade Agreement (NAFTA) into the United States-Mexico-Canada Agreement (USMCA), the overreach of the World Trade Organization’s (WTO) Appellate Body, and unfair trade practices from U.S. trading partners, such as China’s non-market policies.

Second, the Administration continues efforts to improve domestic trade policies to better serve U.S. workers. While the agenda reviews a number of the Administration’s recent achievements, it highlights that a primary goal of 2019 is to obtain Congressional approval of the USMCA, which the President has touted as better serving the interests of U.S. workers, farmers, and businesses than NAFTA. Trade issues with China are unsurprisingly a significant focus, with USTR highlighting its negotiations with China to eliminate a range of unfair trade policies and practices. The Administration’s concern that the WTO Appellate Body’s decisions are overreaching is well-known, and the agenda promises a commitment to WTO reform efforts.

Third, the Administration intends to pursue new trade deals and to continue its enforcement of current trade laws. Here, the Administration highlights its focus on efforts to preserve U.S. national security and national defense, a nod to its current use of Sections 232 and 301 to impose tariffs on a broad range of global imports. The agenda also notes USTR’s intent to pursue new trade deals with Japan, the European Union, and the United Kingdom, as well as to concentrate on trade and investment with Kenya.

In sum, the 2019 agenda focuses on the ongoing goals of the Administration to improve conditions for American workers, to strictly enforce U.S. trade laws, and to encourage U.S. economic growth. We continue to monitor the Administration’s efforts and initiatives as they unfold in 2019. Please contact the international trade group with any questions.

The changes in existing law are largely customs related, the bulk of which involve implementing market access commitments, including lowering tariffs and creating new tariff rate quotas, as well as updating provisions related to duty drawback, merchandise processing fees and customs enforcement. For example, while USMCA preserves duty free treatment for industrial goods and textiles under NAFTA, the United States and Canada negotiated additional access on certain agricultural products. Accordingly, modifications must be made to eliminate U.S. tariffs on such products from Canada, including dairy, sugar, sugar-containing products, peanuts and peanut products and cotton.

Changes are also required to implement rules of origin, origin procedures and customs measures to provide preferential tariff treatment for eligible goods. The most significant and notable changes involve automotive goods. Necessary legal revisions will end NAFTA’s tracing and “deemed originating” requirements and increase the required regional value content for vehicles and vehicle parts. Changes are also needed to implement a new “Labor Value Content” rule, which for the first time requires that a minimum amount of car content be produced by North American workers earning an average of $16 per hour. Modifications must also be made to satisfy a steel and aluminum minimum region content requirement for autos. The list further indicates that rule of origin modifications must be made for other products, including optical fiber, certain steel, glass, titanium, certain chemicals and textiles.

The notice also indicated a few areas where further consultation with the House Committee on Ways and Means and Senate Committee on Finance would be necessary to determine whether amendments are necessary to implement USMCA provisions related to trade remedy duty evasion, express shipments and the United States Annex II, which addresses sector-specific obligation carve outs, generally concerning trade in investment and cross-border services.

The legal changes described in the list will be the basis of the implementing bill the Administration sends to Congress for approval of the agreement. Several steps remain under TPA, however, before the vote can occur procedurally, including publication of an ITC report due in March and a “mock” mark-up of the draft legislation where Members may suggest changes before the Administration submits the final bill. TPA provides “fast track” authority for trade agreements, which means they are subject to deadlines for consideration once introduced and are subject to and up-or-down vote with no amendments allowed. TPA procedures aside, the Administration typically will not send a bill to Congress without consultation and until concerns that can be included in either a side agreement or through changes to U.S. laws are satisfied.

There are practical considerations, however, for seeking Congressional approval in advance of submitting implementing legislation because Congress can remove “fast track” through provisions set forth in TPA and under its own legislative authorities. Such action can be taken under TPA by Congress as a whole through an Extension Disapproval Resolution, or one chamber can hold up an implementing bill through a Consultation and Compliance Resolution. Moreover, any chamber can over-ride TPA procedures through its general rules, as was done in 2008 when the House, acting under then Speaker Pelosi, approved a rule change removing fast track for the Colombia FTA. Addressing congressional concerns in any trade agreement tend to be largely political in nature and can take some time to resolve – and particularly even more so in a divided government. As such, timing for a USMCA vote remains uncertain.

Kelley Drye’s government relations professionals and international trade attorneys are closely following USMCA developments. If you have any questions, please contact Jennifer McCadney or Greg Mastel.

The three parties have spent the last 15 months negotiating the final text of the USMCA, with a deal reached first between the U.S. and Mexico at the end of August, and Canada signing onto the agreement with additional tweaks a month later. We have covered the USMCA in previous blog posts (here, here, here, here, and here).

Each country’s legislature must now approve the agreement for it to take effect. In the United States, the USMCA was negotiated under Trade Promotion Authority, or “fast track” legislation, meaning that the agreement is subject to an up-or-down vote and Congress cannot modify or amend the agreement itself. Instead, the hurdles involve the implementing legislation that will be required to give effect to the deal under U.S. law. The Administration has 60 days to submit to Congress a list of changes to U.S. law that will be required to implement the USMCA, and then must prepare a draft implementing bill and “statement of administrative action” at least 30 days before the bill is actually introduced in the House and Senate. The House must vote first before the bill moves to the Senate for consideration and a vote.

Given this timetable, the USMCA and its implementing legislation will almost certainly be considered next year in a Democratic-controlled House. Many Democrats have already expressed concerns about labor and environmental provisions in the USMCA and their enforceability, even though the Office of the U.S. Trade Representative has stated that the USMCA comports with the standards of the May 10^th Agreement – a 2007 set of terms on labor, the environment, investment, government procurement, and access to medicines, authored by House Democrats, that appear in the United States’ trade deals with Peru, Panama, Colombia, and Korea. House Republicans are also critical of certain aspects of the agreement, including provisions addressing non-discrimination on the basis of sexual orientation and gender identity.

In the meantime, other work related to the USMCA is being completed. The U.S. International Trade Commission is preparing its analysis on the deal’s potential economic impact, due in about 100 days. The Trump Administration also continues to negotiate with both Canada and Mexico on exemptions from the Section 232 steel and aluminum tariffs imposed earlier this year.

The intellectual property (IP) chapter of the new U.S.-Mexico-Canada Agreement (USMCA), in particular, reflects significant updates. While NAFTA included IP provisions – and was, in fact, the first trade agreement to do so – the USMCA reflects a more comprehensive approach to ensuring the United States’ most important trading partners respect and enforce IP rights at a high level.

The IP chapter of the USMCA is largely aligned with the IP terms agreed to by the United States, Canada, and Mexico in the Trans-Pacific Partnership (TPP) negotiations in 2016. Although the United States withdrew from the TPP, Canada, Mexico, and the 9 other remaining TPP countries ultimately adopted a modified version of that agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in March 2018. The USMCA builds on the updated terms reached by the United States, Canada, and Mexico as part of the TPP negotiations and final CPTPP agreement. Read More...