New Articles

Post-COVID Resilient Supply Chains in North America: The Role of Mexico


Post-COVID Resilient Supply Chains in North America: The Role of Mexico

If we’ve learned anything after surviving 2020, it’s that no industry will return to its affairs as if the pandemic simply did not happen.

Regarding the post-pandemic supply-chain transformation in North America (Mexico, the United States, and Canada), we at Foley & Lardner have received the same message from both the U.S. President[1] and our clients[2]: resilient supply chains are the new name of the game, and they are to be secure, redundant and diverse; also, they will be more transparent regarding purchaser’s needs and the supplier´s ability to fulfill them, will favor provider adaptability over lean inventories, and preapprove alternate purveyors over a race to the bottom.

With the aforementioned in mind, we should begin by laying out the known truths by which Mexico has historically contributed to strengthening the North American supply chains:  (i) the country provides quality manufacturing at the lowest costs in the region, (ii) it benefits from free trade agreement provisions with more than 60% of the world´s Gross Domestic Product (52 countries); (iii) almost all of the favorable factors when considering near-shoring, are present in Mexico, (iv) 25+ years of NAFTA experience created a skilled workforce whose numbers will grow as Mexico´s population ages, (v) intellectual property rights are duly protected, and (vi) trade promotion programs (i.e. IMMEX) are well known and have been running smoothly for years.

Said truths, however, could be hampered by a number of matters that we should keep a close eye upon, namely:

I. COVID-19 Vaccination

Both the Mexican federal government and individual States have concurrent jurisdiction regarding mandatory health measures, including vaccinations.

In December 2020, the federal government´s National Vaccination Policy set the goal to immunize the entire population within 18 months, firstly with frontline health care workers, followed by those 60 and older, those in their 50s, 40s, and lastly, 18 and older. Largely to scarce vaccine supplies and a rocky organizational start, progress to date casts doubt upon whether the 18-months goal is achievable.

In January 2021, the Mexican Ministry of Health issued high-level guidelines for individual Mexican states and private entities to acquire and administer vaccines, as long as they follow the National Vaccination Policy; operational details are still needed.

Furthermore, compliance with fluid COVID-related health and labor regulations in manufacturing facilities is still a major issue, both in terms of being able to continue production, as well as preventing lawsuits due to real or imaginary risk of exposure.

II. Outsourcing & Insourcing Ban

Due to his Political Party´s (MORENA) control of both Houses of the Mexican Congress, the President´s initiative to ban the current practice of outsourcing and insourcing will likely enter into effect on May 2021 (with an apparent 3-month vacatio legis).

But for “specialized services”, meaning those that are not part of the economic activity of the intended beneficiary, all workers will have to be in the payroll of the employer, which will entitle them to profit sharing provisions.  Simulating receiving specialized services would constitute elements of proof towards the commission of criminal tax fraud.

Since most manufacturing operations in Mexico currently rely on outsourcing operations, incoming law will force reassessing and restructuring a number of labor, corporate and tax present-day structures.

III. VAT-Certified IMMEX Benefits Diluted

Mexican IMMEX (aka Maquila) companies operate under a governmental authorization that includes preferential conditions, both operational and fiscal.

The highest degree of preferential treatment conditions is granted to companies that are VAT (Value Added Tax)-certified, which allows them to avoid paying otherwise applicable VAT upon the importation of goods used in their manufacturing operations.

Such preferential treatment will automatically be diminished as soon as each VAT certification is renewed by individual IMMEX companies, which should occur every one to three years depending on their current authorization.

Upon VAT certification renewal, companies will, most importantly: (i) operate under a reduced time frame to utilize most temporarily imported goods (from 36 months to 18 months), although longer periods apply to products such as containers, machinery and equipment; (ii) no longer will be automatically enrolled in Sectorial import programs which allow for reduced duty imports on steel, textiles, others; (iii) have to file weekly import documents, instead of monthly; (iv) will not be able to temporarily import products without declaring serial numbers; (v) and will no longer have the ability to obtain expedited 16% VAT refunds on their operational balance (capacity to continue temporarily importing without paying VAT remains, however).

IV. Mandatory Technical Standards (NOMs) No Longer to be Exempted

Prior to October 2020, importation of certain materials, i.e. those to be utilized in production processes, were permitted to enter Mexico under “exemption letters” that would allow them to be imported without proof of NOMs compliance (note that not all imports are subject to NOM compliance, in accordance to their relevant Harmonized Tariff Schedule classification).

Even though little is still known in the importing community, importers are no longer allowed to use such exemption letters and, upon bringing goods into the country, are obliged to demonstrate compliance with relevant NOMs, either prior to the importation process or afterward.

In addition to evolving administrative application criteria, a number of procedural rules must be pursued for each of the aforementioned venues.

V. Labor Enforcement of USMCA (United States-Mexico-Canada Agreement) Obligations

As was required in USMCA, Mexico has already amended its labor laws to guarantee the basic rights of freedom of association and collective bargaining (with the non-stated objective of increasing wages in the country).

In accordance with such amendments, (i) effective immediately, existing collective labor contracts shall be free of “interference” from employers (this is, under their dominance or control), and (ii) in the medium term, labor contracts need to be “legitimized” by May 1, 2023 at the latest, in accordance with the July 2019 process issued by the Mexican Labor Secretary.

Due to the foregoing, there will be real, working unions, and current collective contracts signed with employer-friendly unions (commonly known as “protection” contracts or contracts with “white unions”) will soon be eliminated; it is probable that this will bring new leadership and more than one union to a company.

As per USMCA, determination of denial of freedom of association and collective bargaining rights may be made by a Facility-Specific Rapid Response Labor Mechanism; if such a determination is made, the covered facility´s goods or services could face a suspension of preferential tariff treatment or the imposition of penalties.

One thing is certain: labor relations in Mexico are changing rapidly, and now is the time for employers to preventively look into these issues.

VI. Tax Rules Regarding Permanent Establishment

Recent tax reforms have expanded the scope of permanent establishment rules in Mexico. As it is known, if a foreign company is deemed to have a permanent establishment for tax purposes in the country, it shall be subject to levies with respect to the relevant revenue of said establishment.

Thus, companies already doing business, or that are considering setting up operations in the country, should evaluate these recent changes to assess potential risks of being considered to have a local taxable presence.


Alejandro Nemo Gomez Strozzi, a partner at Foley & Larder, focuses his practice on providing advisory and consulting services related to international trade compliance, antidumping, customs, foreign trade and Mexican administrative law. As a top international trade lawyer, he has advised major multinational companies in the automotive, steel and consumer products sectors.

Fernando Camarena Cardona, a partner at Foley & Lardner, is a senior business and legal advisor on international and domestic tax issues in Mexico, providing both tax counseling and assistance with litigation. He represents small companies to Fortune 500, FTSE 100 and other global and brand name corporations in the energy, manufacturing, nutritional supplement, insurance and other industries. 

Marco Najera Martinez, a partner at Foley & Lardner, is a recognized go-to transactional and regulatory lawyer representing global companies doing business in Mexico. With particular experience in the Mexico antitrust laws, he represents Fortune 500 corporations, as well as Mexico companies, in this highly specialized area. 


NAFTA to USMCA: A Brief Overview of Significant Changes

The United States-Mexico-Canada Agreement (USMCA) became effective on July 1, 2020, 26 years after its predecessor, the North America Free Trade Agreement (NAFTA). While NAFTA was originally conceived during the 1980s, the free-trade block did not materialize until the early 1990s, in part as a result of the perceived need to counterbalance the effects of the then–recently created European Union (1993). Mexico was experiencing unprecedented economic growth under the administration of President Salinas de Gortari (1988-1994), an economist and the first non-lawyer elected into the Mexican presidency since 1958, while President Bill Clinton (1993-2001) was driving sustained economy growth in the United States that ultimately led to a US federal budget surplus from 1998 to 2001. Canada, on the other hand, had just elected Prime Minister Jean Chrétien (1993-2003), who had run, at least partly, on a promise to renegotiate NAFTA within six months, as he believed that the new free trade agreement negotiated by then–Prime Minister Brian Mulroney (1984-1993) made too many concessions to the Mexicans and Americans.

In contrast, the USMCA comes into effect in what undoubtedly are unprecedented times in modern history. Although there existed a consensus among member states that the tri-lateral agreement needed an update, no one could have predicted that its successor would be greeted by an economic downturn caused (or accelerated) by a crippling pandemic that has forced an almost complete shutdown of the Mexican and United States economies.

In addition, while the US-Mexico relationship appears relatively strong, the US relationship with Canada has been more strained, marked by intermittent friction between the two countries on a variety of trade-related issues, such as steel tariffs in the United States and dairy tariffs in Canada. Given this backdrop, it is hard to predict how smooth the implementation of the USMCA will be. For example, in late-July hearings in the US House, both parties’ lawmakers exacted promises from the US Trade Representative’s office that it would quickly and aggressively use the USMCA’s enforcement mechanisms, with those representatives revealing that some cases were “ready to go” and would be on file by this autumn.

The general consensus is that the USMCA achieves some notable changes and a number of incremental improvements. A full description of these changes is beyond the scope of this discussion, but the changes that will likely have the greatest impact relate to a few, select industries, and certain procedural changes, including the following:

Domestic Content Rules for Automobiles

Auto content rules were a major issue throughout the USMCA negotiations. The USMCA includes two significant changes to how cars will be made and when they can be declared as made in the United States. First, the USMCA increases to 75% (from 62.5%) the percentage of a vehicle’s parts that must be manufactured in North America. Although the 75% number has garnered most of the attention, the USMCA (as did NAFTA) actually includes different rules: Part content is divided into core, principal, and complementary parts with content requirements of 75%, 65%, and 60%, respectively. The content calculations will also be subject to the USMCA’s rules of origin, which do away with NAFTA’s tracing scheme as well as the concept of “deemed originating.” These changes will affect the automotive supply chain. For example, the USMCA introduces a new rule requiring that 70% of the total steel and aluminum used in an automobile must be sourced from North American suppliers. Combined with the elimination of the tariff shift rules for stamped products, this will require supply chain changes for a number of auto producers.

While there are broader labor rules incorporated into the USMCA, the primary focus is on the agreement’s new requirements that workers earning at least $16 per hour make 40% to 45% of a vehicle’s components.

In keeping with the findings of Section 232 of the Trade Expansion Act of 1962 relating to automobiles, the USMCA incorporates quotas for Canadian and Mexican auto imports. Although the quota is well above current rates, this provision likely will morph into an issue in future years.

Labor Laws

The USMCA includes an array of labor-focused provisions. One example is a requirement that the countries adopt and enforce labor laws consistent with the International Labor Organization. The signatories also agreed to effectively enforce labor laws, and not to waive or derogate from them. The USMCA also requires the countries to: (1) take measures to prohibit the importation of goods produced by forced labor; (2) address violence against workers exercising their labor rights; (3) address sex-based discrimination in the workplace; and (4) ensure that migrant workers are protected under labor laws.

The USMCA also includes an Annex on Worker Representation in Collective Bargaining in Mexico, under which Mexico commits to specific legislative actions to provide for the effective recognition of the right to collectively bargain. To fulfill this commitment, 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 and impartial labor courts to adjudicate disputes.

The agreement also requires all businesses in Mexico to ensure that they are in compliance with all aspects of the USMCA, including the collective bargaining provisions. The United States and Mexico have established a Facility-Specific, Rapid Response Labor Mechanism (Labor Mechanism) to enforce the collective bargaining obligations through the imposition of remedies, which may include the suspension of the preferential tariff on goods manufactured by a breaching facility. The countries have already begun their appointments to these dispute-resolution bodies, and the US Trade Representative has testified that cases are already being identified for action in the fall of 2020.

Other Notable Changes

While NAFTA had no provisions relating to dairy, the USMCA increases the opportunity for dairy exports to Canada, long a contentious issue between the two countries, making the US Dairy industry a winner in the deal. As Alan Ross of Canadian law firm Borden Ladner Gervais LLP states “Under the new agreement, US dairy farmers receive access to about 3.5% of Canada’s $16 billion annual domestic dairy market. Operationally, Canada will provide new tariff rate quotas exclusively for the United States and eliminate certain milk price classes, changes which have proven unpopular with the Canadian dairy industry.”

Also, the USMCA (1) includes environmental obligations to, among other things, combat wildlife trafficking, address air and marine quality, and protect marine life and, as part of its environmental efforts, the USMCA provides funds for monitoring these environmental efforts; and (2) prohibits customs duties on digital products (i.e., products that are transmitted electronically, such as computer programs, videos, or music). This last issue alone merits further analysis and consideration, as digital taxes become de rigueur in Europe and elsewhere. Finally yet importantly, unlike NAFTA, the USMCA includes a sunset clause. The countries settled on a 16-year term for the deal, with a review to identify and fix problems and a chance to extend the deal after six years.

Monitoring and Enforcement

The signatories countries are to make every endeavor to arrive at a mutually satisfactory resolution of all disputes arising out of the USMCA.  However, if they are not able to reach a resolution, Chapter 31 of the USMCA provides the framework for dispute settlement. In it, the parties will first consult with technical experts in the hopes of resolving the dispute. Should that fail, a ministerial panel will review the dispute and submit a final report. If the final report finds that (1) the measure is inconsistent with a party’s obligation; (2) a party has failed to carry out its obligations under the USMCA; or (3) the measure is causing nullification or impairment of the scope, the disputing parties must try to agree on the proper resolution for the dispute within 45 days. If the disputing parties are unable to resolve the dispute within 45 days, the complaining party can suspend the responding party’s benefits of equivalent effect to the dispute.

The USMCA retains the binational panel reviews of unfair trade law matters. These include customs determinations, antidumping and countervailing duty determinations, government procurement, breach of the most-favored-nation treatment for investors (noting that Canada has opted out of the investment provision of the USMCA), and disputes involving public telecommunications services, digital trade, intellectual property, labor rights, and environmental obligations.

In a significant change from NAFTA, the investment chapter (Chapter 14) of the USMCA (1) only applies to the US and Mexico (given Canada’s withdrawal from investor-state dispute settlement regime – ISDS), and (2) narrows the circumstances under which cross-border investors can bring actions under the general rules of ISDS. For instance, the USMCA prevents many US and Mexican investors from asserting claims under the “fair and equitable treatment” standard, which is included in most international investment treaties and is a frequent basis for such claims. Exactly how this will impact cross-border activities remains to be seen.

Generally speaking, Chapter 14 provides access to international arbitration for general investments and covered government contracts subject to satisfaction of certain pre-arbitration conditions and limitations (including the exhaustion of local remedies and certain statutes of limitation). Investors (post—established investment) may seek protection for breach of national treatment and most-favored-nation treatment under the general investments protections. Further, under the government-covered contracts protections, investors in oil and gas production, telecommunications, transportation, certain infrastructure, and power generation may also be entitled to protection under the USMCA. Lastly, it should be noted that (1) the participation of Mexico and Canada in the Trans-Pacific Partnership (otherwise known as the CPTPP) will force all investors to take a fresh look at their options when seeking relief from wrongdoing by another state, and (2) the consent by Canada to ISDS for legacy investment claims will elapse three years after NAFTA’s termination.

As mentioned above, the USMCA also created the Labor Mechanism as a way to deal with labor disputes. In particular, the Labor Mechanism enables the United States and Canada to bring a dispute against a facility in Mexico that they believe is not in compliance with Mexico’s new labor laws. The Labor Mechanism permits the suspension of the preferential tariff as a remedy, the imposition of penalties on goods or services from the violating facility, or the denial of entry of goods from the violating facility.

* * *

While we remain confident that member states are invested in the growth of the North America region as a whole, and the consensus is that the USMCA does address some of the most relevant concerns of the parties to the tri-lateral agreements during the NAFTA years, it will be hard to really measure the USMCA’s true effects (whether positive or adverse) in the short and possibly mid-term given, among other things, the political and economic turmoil that has seen it take its first steps.

working conditions

Working Conditions High on the EU’s Priority List in Recent Years

In recent years, the EU has made a strong commitment towards improving working conditions which is excellent news for employees. So, what exactly is meant by working conditions, and what steps is the EU taking to improve these conditions for workers? Read on to find out more.

Working Conditions Defined

Working conditions is a broad term that covers a lot of bases. Essentially, working conditions refer to both the working environment provided to employees by the business along with terms and conditions of employment – this means that everything including the organization of work activities, health, safety, wellbeing, work-life balance, training, and skills all fall under the term working conditions.

Benefits of Good Working Conditions

Having good work conditions is important for a number of reasons. Obviously, from the European worker’s perspective, it contributes to the physical and mental wellbeing and will help to provide overall work and life satisfaction. It is also beneficial for the business because it ensures that staff are happy, engaged, and will perform to a high standard each day. Plus, from an economic standpoint, high-quality work conditions will drive economic growth in the EU so it is a win-win situation for all.

How They Have Improved

Understandably, improving work conditions is a core issue for the EU and they have been working closely with national governments to improve the workplace environment for European workers. This has been achieved by determining what the main characteristics of a favorable work environment look like and what the criteria to meet is. EU labor laws and regulations have been established to set the minimum requirement for a sustainable working environment for EU workers and these are now applied to all Member States.


These laws have strengthened worker’s rights in recent years and it is one of the main achievements of the social policy of the EU, but compensation claims are still high with workplace accidents often being inevitable. The European Framework Directive on Safety and Health at Work was established to set general principles related to minimum health and safety requirements and applies to practically all sectors.

Working with Social Partners

The EU also works with social partners such as trade unions and employer organizations via social dialogue and consultations which is key in the shaping of various different EU social and employment policies, including working hours, workers’ mobility within the EU, health, and safety, and promoting work-life balance.

Working conditions have been high on the EU’s priorities for a few years now and there have been major strides in recent times in terms of protecting EU workers. While these policies obviously help workers and provide important protection, it is also important to realize that they are beneficial for individual businesses as well as the economy as a whole so it is certainly an area that is worth focusing on.