On August 22, 2023, the United States made the first-ever request for the formation of panel under the United States-Mexico-Canada Agreement's (USMCA) facility-specific Rapid Response Labor Mechanism (RRM) panel.1 The case concerns a labor dispute at Grupo Mexico's San Martin Mine in Zacatecas. While the United States has previously filed several petitions under the mechanism, this is the first RRM labor proceeding to go all the way to a dispute panel, and an affirmative determination could lead to penalties for the covered facility. In previous cases, Mexico has either successfully resolved the complaint during the initial investigation stage or negotiated remediation plans.
Overview of the Case
On June 16, 2023, the United States requested under the USMCA's RRM that Mexico review whether a denial of rights was occurring at the San Martin lead, zinc and copper mine, located in the area of Sombrerete, Zacatecas, owned and operated by the Grupo Mexico conglomerate.2 At the same time, the United States Trade Representative (USTR) directed the Secretary of the Treasury to suspend liquidation of entries of goods from the facility until the procedure is complete.
The petition, submitted by a group of trade unions in the United States and Mexico, alleged that, despite a lack of lawful resolution to an ongoing strike, Grupo Mexico resumed operations at the San Martin mine and engaged in collective bargaining with a coalition of workers ("Los Trabajadores Coaligados") rather than negotiating with the union "Los Mineros," which the United States identifies as the authorized labor organization to represent the workers.
Upon receipt of the US request, the Government of Mexico had to determine whether it would accept the request and conduct its own review into the alleged denial of labor rights. The Government of Mexico rejected the US request on August 1, 2023, arguing that the case is out of scope because the dispute predates USMCA and that products from the mine are not exported to the United States.3
The Government of Mexico further noted in its statement that the matter is already being resolved through the domestic court system. In its response, the Government of Mexico stated that a strike took place in 2007 on behalf of Los Mineros, and that on June 9, 2023, the Mexican Labor Court:4 (i) overturned a previous agreement, dated August 23, 2018, that recognized the conclusion of the strike through a settlement signed between Grupo Mexico and a coalition of workers; although afterward (ii) the same court issued an award on June 14, 2023, under which Los Mineros is recognized as the legitimate holder of the Collective Bargaining Agreement, ordering Grupo Mexico to pay back wages and benefits and ending the strike, and declares the strike as concluded.5
In response to the Government of Mexico's rejection of the United States' petition,6 the United States filed a request to form a Rapid Response Labor Panel (RRLP) to investigate the ongoing labor dispute in accordance with the USMCA7 to determine whether a denial of workers' rights exists.8
In a public statement dated August 22, 2023, both Mexican Ministries of Economy and Labor acknowledged the receipt of the US panel request, reiterating their previous arguments in rejecting the initial petition, and stating that the Ministry of Economy will lead the Mexican defense in coordination with the authorities from the Ministry of Labor.9
In accordance with the USMCA provisions under Annex 31-A, the USCMA Secretariat10 shall, within three business days from the date of the request, establish a three-member panel from the Lists of Panelists.11
About the RRLP
The RRLP was established under the Annex to the Dispute Settlement Chapter (Chapter 31), after the USMCA negotiations were concluded.12
A basic description of the RRLP proceedings is as follows:13
- Under the RRLP, the first step is for a complainant Party, which has a good-faith basis to believe that a denial of rights is occurring at a covered facility, to submit a request that the respondent Party conduct its own review of whether such situation exists. If the respondent Party determines that there is a denial of rights, it shall attempt to remedy any issues it finds within 45 days of the request.
- The complainant Party may request the establishment of a RRLP to conduct a separate verification and determination if (i) the respondent Party does not choose to conduct a review or (ii) if, having accepted to do so, the Parties cannot agree that the issue has been resolved.
- If an agreement on remedies of a Denial of Rights is not reached, any determination by the panel (after providing opportunity for both Parties to be heard), confirming a Denial of Rights, which shall be public, may include recommendations on a course of remediation if requested by the Respondent Party.
As a result of the panel determination, in this particular dispute,14 the complaining Party may impose remedies on the Denial of Rights, which may lead to the suspension of USMCA tariff benefits "for goods manufactured at the covered facility" or the imposition of other penalties on goods from the Facility.15
In accordance with the request made by the United States, once established, the panel may seek to verify the covered facility's compliance (for example, by verifying information directly from the company officials, representatives of the union and the coalition of miners), to determine whether there has been a Denial of Rights.
The USMCA does not provide clear procedural guidance for the verification process, including timelines, other than imposing the obligation of the panel to conduct such verification within 30 days after receipt of the request by the respondent (or 30 days after the panel is constituted if there has not been a verification).16
Another peculiar aspect of this dispute relates to the "out of the scope" arguments made by Mexico, which questions the panel's jurisdiction due to (i) the fact that the dispute predates the USMCA; and (ii) that products from the mine are allegedly not exported to the United States. Annex 31-A-5 is silent on how the panel should address such arguments. There is also a question of whether, if indeed the covered facility does not export into the United States, any remedies ordered against the covered facility would have any effect.
1 USTR's August 22, 2023, announcement of the panel request is accessible here.
2 USTR's June 16, 2023, announcement of the review is accessible here.
3 Mexico's August 1, 2023, response to USTR's request is accessible here (in Spanish). USMCA allows investigating facilities that not only produces goods or supplies traded between the Parties, but also if it produces goods or supplies that compete in the territory of a Party with a good of the other Party (See USMCA Annex 31-A definitions here).
4 Junta Federal de Conciliación y Arbitraje.
5 Grupo Mexico, which is also the owner of Mexican Railroad Group, recently clashed with Mexican President Andrés Manuel López Obrador, who through a Decree published May 19, 2023, sent Navy officials to take temporary control of three railway sections concessioned to Ferrosur (a company owned by Grupo Mexico), in favor of Ferrocarril del Istmo de Tehuantepec, S.A. de C.V. arguing national security (See "Grupo México y Gobierno llegan a acuerdo sobre ocupación de vías de Ferrosur" (forbes.com.mx)).
6 The reasons for the United States' disagreement with Mexico's determination can be found under Annex A of the panel request here.
7 The RRLP can be established either to "allow the panel an opportunity to verify the Covered Facility's compliance with the law in question and determine whether there has been a Denial or Rights" or simply to "determine whether there has been a Denial of Rights" (USMCA Article 31A.5). The US requested the panel under this first modality.
8 The US request identifies non-compliance with Articles 449, 935, 133.IV and 133.VII of the Mexican Federal Labor Law.
9 Mexico's public statement is accessible here (in Spanish).
10 Established under Article 30.6 to provide administrative assistance to panels established under the Facility-Specific Rapid Response Labor Mechanism.
11 The lists of Rapid Response Labor Panelists is accessible here.
12 USMCA, dated November 30, 2018, and the protocol of Amendment to the USMCA, dated December 10, 2019, are accessible here.
13 Chapter 31 Annex A of USMCA Chapter 31 (Mexico and United States) is accessible here. Chapter 31 Annex B sets out the rules for the RRM between Mexico and Canada.
14 USMCA provides additional consequences to "repeat offenders."
15 See Article 31-A.10:2.
16 See Article 31-A-8.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2023 White & Case LLP
