The US-Mexico-Canada Agreement (USMCA) introduced a new compliance institution for labor rights in trade agreements: the facility-specific Rapid Response Labor Mechanism (RRM). The RRM was developed to tackle one particular thorn in the side of North American integration—labor rights for Mexican workers—which had had detrimental, long-term political-economic consequences for the two countries’ trade relationship. This paper reviews the unique political-economic moment in the United States and Mexico that prompted the creation of this tool. It describes how the RRM works and the considerable financial and human resources the two governments have brought to bear to operationalize it. The paper then reports a number of stylized facts on how governments used the RRM during its first three years, largely in the auto sector. It proposes paths of potentially fruitful political-economic research to understand the full implications of the RRM and concludes with preliminary lessons as well as a discussion of the potential for policymakers to transpose facility-specific mechanisms for labor or other issues, such as the environment, into future economic agreements.
In 2019, Congressional Democrats announced the creation of a new tool—the facility-specific Rapid Response Labor Mechanism (RRM)—in the revised North American Free Trade Agreement (NAFTA), known in the United States as the US-Mexico-Canada Agreement (USMCA). The tool allows a government to take action against a worksite in the territory of another if it believes that workers are being denied their right to organize and bargain collectively. Proponents saw its inclusion as the primary reason for the broad bipartisan support the USMCA garnered. They proclaimed the commencement of a new era for trade and an important step forward for progressives—who had been increasingly critical of US trade agreements—as even organized labor in the United States supported the USMCA.
This paper investigates the RRM and is organized as follows. Section 2 begins with the perfect storm of political-economic events in the United States and Mexico that allowed the countries to agree to this unique tool. It describes the importance of the North American automotive supply chain, a sector that largely drove the Trump administration’s renegotiation of the NAFTA—over the sector’s protests—and that became the target for almost all early uses of the RRM.
Section 3 reviews the underlying problem the RRM is purportedly designed to tackle: the inability of Mexican workers to unionize and bargain collectively to overcome monopsony power. It explains the importance of Mexico’s labor reform to the renegotiation of the NAFTA and to the first few years of the USMCA, a reform process that policymakers could ultimately use the RRM to support.
Section 4 describes how the RRM works and analyzes the penalties the RRM sets out that may incentivize actors in Mexico that otherwise may be reluctant to go along with the labor reforms. It also documents the considerable financial and human resources the US and Mexican governments have deployed to operationalize the RRM and complement the Mexican government’s own efforts on labor reform. To the extent that the RRM improves political support for open trade between the two countries, the tool and these expenditures share some similarities with policies of trade facilitation.
Section 5 presents some stylized facts on the RRM during its first three years. The RRM started slowly, with the US government investigating situations at just 10 different facilities in Mexico in this period. Unsurprisingly, most of these investigations were of the automotive sector. Nevertheless, there were some interesting and important differences across the situations.
The last two sections look to the future. Section 6 turns to the political-economic literature on trade agreements and issue linkages and proposes additional research needed to understand the implications of the RRM, including the need to assess its impact on workers and Mexican suppliers at facilities affected and unaffected by RRM situations. Section 7 draws lessons learned so far and examines the potential for transposing facility-specific RRM– like structures for labor or other areas, such as the environment, into future economic agreements.
Chad P. Bown is Reginald Jones Senior Fellow at the Peterson Institute for International Economics.
Kathleen Claussen is Professor of Law at Georgetown University Law Center.USMCA RRM
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