Frequently Asked Questions
COVID FAQs
The federal government, in addition to the publication of new protocols for the workplace and a check-list for operational compliance, has announced their intention to continue inspections, both random and through a community reporting process.
These inspections seek to protect employees by ensuring safe working conditions, contingency planning and documentation by the company. The government is taking the authority to demand closure of operations found in non-compliance of the protocols, or upon detection of a cluster of infected employees, and an ongoing discussion continues on possible sanctions.
The federal government has not given fiscal support to any type of company at the moment. However, they have granted credit through two programs.
- Solidarity Credit in Good Faith, a personal credit through Social Security. It is necessary to not have been fired in the first trimester of the year.
- Welfare, through the Secretary of Economy, is another personal credit, and the employee must be registered by the Census for Welfare.
In this sense, SMEs (small and medium companies) should look for options at the state level (each state has their own initiatives or support) or through private credits such as private credit institutions or chamber associations. It is important that the SMEs evaluate all options because the interest rates as well as the requirements vary in each case.
Monica Lugo
INSTITUTIONAL RELATION DIRECTOR
Whether an essential company currently operating in Mexico, or a non-essential company planning to re-launch their operations, it is important to comply with key protocols in order to be prepared for an inspection from the Mexican authorities.
First, it is necessary to develop an Infectious Disease Preparedness and Response Plan. This plan should aim to identify where, how and to what sources of the virus SARS-CoV-2 workers might be exposed. It is also important to identify non-occupational risk factors at home and in the community settings, including individual workers´ risk factors (i.e. older age, presence of chronic illnesses, pregnancy, etc).
Lastly, the plan must include the establishment of controls necessary to address each of the identified risks. In addition, companies should prepare and implement basic prevention measures in the workplace. From the way in which employees enter the facility, the frequency they are asked to wash their hands, their work stations and protective equipment, the prevention measures are the keystone to providing safe working conditions that allow employees to feel attended.
It is also important to develop, implement and communicate policies for workplace flexibilities and protections. Develop policies and procedures for the prompt identification and isolation of suspected cases of COVID-19.
It is important to plan alternative scenarios:
- where will the sick individual be taken upon detection?
- If an ambulance service is not available, does the company have a vehicle prepared?
- How will we contact trace any contagions and what will be our isolation policy? Etcetera.
Lastly, it is important to implement workplace controls in the areas of engineering, administration, safe work practices and Personal Protective Equipment. Employees in the workplace should be reminded and guided to make healthy decisions that help to protect the entire workforce and their families.
David Antuñez
EHS DIRECTOR
It is recommended to create a multi-disciplinary Operations Relaunch Committee consisting of middle management and managers. This team will define the relaunch program along with the HR & EHS teams, and will lead the crucial ongoing communication plan.
- The relaunch program should include a scaled plan to reincorporate workers: planning shifts to avoid an influx of people, defining priority positions that must return first, and maintain flexibility programs and tools to allow those that can work from home to continue to do so.
- In compliance with new protocols, the plan should include detailed information regarding sanitization procedures in the facility. These procedures should be published and communicated with employees at least one week prior to their return by utilizing digital platforms (broadcast, email, WhatsApp, etc), and the committee should continue to reinforce the plan, the company´s commitment to employee safety, and the disposition for an open dialogue to freely express any concerns.
Lastly, it is important to share with the highest frequency possibly (preferably daily) the tracking of cases of COVID-19 in the community and state, and how the organization is preparing for what is happening. A solid program for the relaunch of operations, in addition to leadership, order and planning, is crucial in order to transmit the message that the safety of employees is the priority of the organization.
Elisa Villarreal
Benjamin Bocanegra
The law specifically mentions two scenarios that allow the legal reduction of salaries of employees.
- In case of the declaration of a “sanitary contingency” by the Federal Government, it is possible to send workers home and pay 1 minimum salary for up to 30 days. This was not the case during the declaration of the Federal Government for the COVID-19 crisis at the beginning of April.
- In case of a declaration of a “sanitary emergency” by the Federal Government, the current COVID-19 case, it is possible to make a salary reduction due to an emergency condition declared by the Federal Government, as long as:
- All of the employees and the employer agree to the terms and conditions for such a temporary salary reduction.
- The resulting written agreement (collective or individual) must be safely kept at the labor center and registered in front of the Labor Court as soon as it is open due to the COVID-19 crisis.
There are other interim mechanisms such as giving vacations in advance to somehow gain time whenever the activities return to “normal”, but this does not represent real cost reduction.
It is also very important to preserve the social mandatory benefits (such as Social Security) unchanged as much as possible, due to the risk of potential audits or affecting other current benefits or an employee (such as INFONAVIT loans for a particular employee).
In the case that an employee does not accept the salary reduction, the employer may proceed to full termination of the employee, incurring all corresponding payments of severance, as marked by law.
Jorge Ortega
ASSOCIATE AND STRATEGIC ADVISOR
The economic and pandemic crisis area creating delays at the borders, International Trade Compliance professionals must react and take action immediately, for example:
- Streamline processes such as prior inspections at Customs Broker warehouse
- Review customs clearance documents prior to importation
- Evaluate cost-effective practices such as import duty rate analysis These practices can prove helpful to support the supply chain and avoid any risk or situation with Customs authorities and other federal authorities. From the import/export and trade compliance standpoint, it is important to consider the following topics:
- Detect in real time the areas of opportunity through a root cause analysis before they appear
- Measure and monitor in a standardized methodology the KPI´s of the operation including parts, HTS classifications, import/export data, regulations, etc
- Create a continuous improvement culture in Trade Compliance. Remember: risk assessment, a formal writing compliance program, training, recordkeeping and audits are the best practices to ensure compliance!
Manuel Ponce
INTERNATIONAL TRADE COMPLIANCE DIRECTOR
The first step to protect your supply chain is to evaluate the health, considering the current situation as well as the future sustainability based on different scenarios.
How healthy are your supply chain partners?
- Supply Base including capacity, 3rd tier suppliers, visibility and supplier alternatives
- Transportation Partners including origin capacity, visibility, customs brokers and transportation partners Am I reducing risk in my supply chain with necessary adjustments and protections?
- Demand Planning including pull/push/cancel of your customer forecast ensuring your minimum/maximum levels first
- Safety Times with the reevaluation of ABC classifications and safety stocks
- Ensure Inventory accuracy to avoid surprises
- Consumables / MRO geared toward new demand including newly required PPE materials
Am I considering my supply chain blind spots?
Double-check your internal capacity considering an audit to identify any gap or weakness in inventory management, communication, errors, delays, planning parameters, lead times, etc. It is important to have visibility into every mode and stage of your supply chain.
Kurt Schmidt
CONSULTING DIRECTOR
The reputation of your company matters now more than ever! Strengthening your relationship with your workforce, community and the government is the key to success.
- Be the best place to work for your employees. Increase the wellness of your workforce. Your people need to know that you care for them.
- Be a socially engaged company. Identify the needs of your community and establish programs to help the community and the environment. By helping the community you can also reinforce your relationship with the government.
- Communicate internally. You need to constantly communicate with your people about internal programs. You can find many tools to communicate, the key is identifying the main message that is adapted to your audience.
- Choose your spokesperson wisely. Identify the most reliable and charismatic person in the company and work on a script. This person will represent your company in media interviews and Government Affairs.
- Pay attention to your social media. It is a good image of how your people and the community perceive your company. A crisis management plan must be developed that tailors specifically to your social media campaign and audience.
Yoelle Rojas
DIRECTOR OF PUBLIC AFFAIRS AND COMMUNICATION
USMCA FAQs
Under Annex 23-A of the USMCA workers in Mexico are encouraged to have a more active role in union matters that in the past were either conducted by union leaders or by a committee of designated workers. These rights are reiterated in the Mexican Federal Labor Law which came into effect in 2019 in alignment with the USMCA terms of labor. Additionally, new labor value content rules in the USMCA require changes to some automotive companies and suppliers.
Workers are expected to actively participate in key annual activities including voting for their leaders, approving the contents of the Collective Bargaining Agreement and approving subsequent negotiations. These newly established rights give workers a louder voice in Mexico, but also create risks for businesses, especially in the way they communicate new opportunities and protocols to employees. Relationships with union leadership will be of the utmost importance as well. The labor conciliation protocols have been a key focus as these new regulations are being implemented in Mexico.
Generally speaking, the USMCA shifts the burden of proof by stating that a panel shall presume a violation affects trade and investment unless otherwise demonstrated. Dispute settlement panels will investigate practices through on-site inspections and rules of evidence.
There are two new oversight bodies that will monitor the implementation of the Mexican Federal Labor Law:
- Independent Mexico Labor Expert Board
- Interagency Labor Committee for Monitoring & Enforcement
Read more about Annex 23-A in our blog.
Benjamin Bocanegra
Alvaro García
The labor value content creates opportunities and challenges for North America. The LVC requires that 40% of the value of automobiles and 45% of the value of light trucks are made by workers earning a wage of $16 US dollars per hour.
| Passenger Vehicles | Light Trucks | |||
Costs | 2020 | 2021 | 2022 | 2023 | 2020 |
Materials & Manufacturing | More than 15% | More than 18% | More than 21% | More than 25% | More than 30% |
Research & Development; Information Technologies | Up to 10% can be applied as LVC | ||||
Assembly Costs | Granted credit equivalent up to 5%* | ||||
|
|
|
|
|
|
Total LVC | 30% | 33% | 36% | 40% | 45% |
Sources in Spanish: (1) (2) (3) (4)
In the case of Assembly Costs, an organization has to comply with the condition that the automobile producer demonstrate that they have a motor assembly plant, transmissions (more than 100 million units) and lithium battery (more than 25,000 units).
*Example: An passenger vehicle assembly plant in Mexico should ensure that at least 25% comes from establishments where $16 US dollars / hour wage is paid to workers directly involved in the production, as long as they are taking maximum advantage of the 10% R&D and the 5% Assembly Costs and comply with the mentioned conditions.
The LVC is part of the automotive rule of origin that states that at least this percentage of labor value comes from operations where the wage is paid, being in North America. It therefore allows the United States and Canada to concentrate much of that value while for Mexico it would allow the analysis to contribute to this value in areas such as R&D. The LVC has a transition period for compliance. For passenger vehicles and light trucks it is a 3 year transition with a scheduled, gradual increase.
Alvaro García
Benjamin Bocanegra
The USMCA and especially the new Mexican Federal Labor Law require that unions equally permit the freedom of association of the workforce.
- Unions must strengthen their internal practices of democracy, and
- Workers must participate more actively in the decision related to their collective contract
Companies should establish solid relationships with the union in Mexico that the majority of the workers support and said relationships should be concentrated on the respect of the freedom of the workers to choose their representatives.
Challenges and opportunities for risk mitigation may include:
- Employer branding and social media storytelling to promote positive market exposure
- Management of the communication of the freedom of association to employees
- Emotional compensation and wage analysis
- Union relationships and negotiations
Prodensa´s Employer of Choice™ program provides the best practices for the USMCA transition with a focus on compliance in Mexico and employee satisfaction that promotes the retention of top talent.
Alvaro García
Benjamin Bocanegra
The USMCA includes two mechanisms to enforce the labor rights obligations of the agreement:
- Chapter 23 – adds protection to workers from violence, and bans forced labor
- Chapter 31 – adds a dispute resolution mechanism to cases on freedom of association as well as penalization procedures
Within the USMCA, the public can submit complaints in addition to employees, trade union, worker rights and other civil society organizations. Panels are responsible for carrying out independent investigations, including on-site verifications, resolutions, and the application of remedies or trade penalties. Sanctions could ultimately be placed on exported goods made at the facility under review, and last until the dispute has been resolved. These procedures, although mostly speculative at the moment, could easily amount to months of delays while the panel renders a verdict.
It is imperative that your organization in Mexico complies with the Mexican Federal Labor Law that came into force in 2019 as a precursor to the USMCA terms of labor. It is recommended to make an internal diagnostic analysis, or an auto-evaluation. This allows you to identify opportunity areas or in the case of non-compliance, take preventative measures to avoid being subject to complaints or labor claims in front of the USMCA dispute panel.
Benjamin Bocanegra
Alvaro García
At this moment during the implementation of the USMCA in Mexico, it is important for companies to be a proactive voice. Now more than ever they need to be a part of the solution, advocating for positive outcomes for the business sector, which has increasingly felt its vulnerability under the current administration.
It is time to design new strategies, build new relationships and find new ways to relate positively and honestly with this administration.
- Map out your stakeholders, considering all possible allies and detractors.
- Reconsider your Social Responsibility programs and practices, and understand how to be aligned to the vision of the current administration.
- Speak out against policies that may affect investors and that are contrary to the USMCA and Mexican Law, and when elaborating future laws and regulations. Ensure these new regulatory practices do not become trade barriers.
- Request that the government respect the policy space and independence of regulatory bodies such as COFECE, IFT, CONAMER and sectoral regulations such as CRE in Mexico.
- Revise all horizontal chapters that may have an effect on your business, not only to see if you are in compliance with the USMCA, but also because there are many benefits that businesses can take advantage of that you may be currently unaware.
An Institutional Affairs strategy as part of a greater Business Continuity strategy provides responsiveness and agility. Give Mexico´s current complex social and political scenario, companies should not see themselves as mere economic entities but public, active members well embedded within the communities they serve.
Mónica Lugo
First, it is important that you do not assume compliance under the USMCA automatically because your products were compliant under NAFTA. It is important to make a dedicated review of the rules of origin applicable to your products in the new agreement. The criteria is as follows:
- Goods wholly sourced or produced in the USMCA region
- Goods produced entirely in the USMCA region exclusively from originating materials
- Goods meeting the applicable requirements of Annex 4-B (Product Specific Rule Origin with HTS Code) while produced in North America territory using non-originating materials, and
- Goods classified with the materials/parts which do not meet Annex 4-B rule of origin, but that contain 60% regional value content using the transaction method, or 50% regional value using the net cost method.
If your final product includes materials/parts that are made outside of the North American region, a product-specific rules of origin analysis is recommended.
*Minimum North America regional content value is required for the automotive industry, please refer to special rule of origin for automotive.
Xu Yu
The former document referred to as “certificate of origin” under NAFTA rules is no longer needed. As stated in Annex 5-A of the USMCA there is no official template for certificate of origin, however there is a set of information that may be contained within another document such as a commercial invoice, or any other trading document. Invoices from other countries other than members of the USMCA are not allowed. The files and signatures can be produced and transmitted electronically, and can be produced in any of the three official languages of the USMCA (English, Spanish, or French).
The information requested in order to cohere to regional origin is as follows:
- Declaration of origin by producer or exporter. Importer will be able to declare origin in 3 years
- Information of the certifying body
- Exporter data
- Producer data
- HTS Code of the product and description
- Origin criteria
- Coverage period (up to 1 year)
- Authorized signature and date
Previous NAFTA certificates are no longer valid as of July 1st, 2020 and importers can always claim benefits of USMCA of imported goods not properly classified under USMCA with a grace period of up to 1 year.
Jorge Ortega
If the goods intended to be imported do not comply with the USMCA regulations, the tariffs that will come into effect are the ones of the General Importing Regime of each sovereign country. Normally these tariffs are aligned with the tariff agreements on the World Trade Organization (WTO).
For instance, if an auto part or passenger car does not classify under the NAFTA regulations, the tariff that will apply are the ones of WTO, that for auto parts or passenger cars are 2.50% import duty tariff, but for trucks its 25% . Bear in mind that there are non-tariff regulations and restrictions that importers must consider.
On the other hand each country has defined sensitive sectors or restrictions to protect its own industries or national security grounds, depending on the country of origin. For instance, steel raw materials coming from China to the United States are subject to a 25% import duty. Mexico charges for the same material 15% general import duty (IGI), a measure taken to protect the Mexican industry from the trade war , and that gradually will fade out by 2024.
Jorge Ortega
The USMCA has entered into force and is now a reality, which leads to various implications, opportunities and challenges for the industry in Mexico. Above all, it brings legal certainty with its specific rules for the region.
Mexican companies have the possibility of taking advantage of the opportunities this new commercial agreement has to offer. IMMEX is a program that previous Mexican government implemented to promote export and foreign investments. Companies in this program can make temporary importations and have other fiscal advantages but must thoroughly comply with payments of international trade fees in addition to all the applicable regulations as any other industrial sector in Mexico. The compliance of IMMEX under the USMCA is the same; temporary imports and normalities must continue as usual. Import duty rate impact, origin determination & origin certification remain, but with applicable adjustments from the implementation of the USMCA.
It is important to keep in mind that your products do not automatically qualify for the USMCA country of origin requirements if your company operates under the IMMEX program in Mexico. Most IMMEX companies import parts or materials from outside of the North American region, so it’s critical to understand the specific rule of origin that applies to your products. Finally, it is equally important to also comply with the EHS and Labor requirements stated in the USMCA.
Standardized international trade databases amongst other manufacturing systems (MRP) are key to identifying materials and part numbers for importation, costs and country of origin for a correct determination of origin analysis of your finished goods. Additionally, it is important to make a formal request for a certification of origin from your suppliers which must be properly documented and kept compliant under the USMCA.
Manuel Ponce
In all practical terms, although NAFTA obligated those that pollute to pay, the USMCA levels the playing field and unites North America in a common responsibility. Additionally, it includes new provisions related to protection of coastal and marine environments, air quality and conservation.
Although there are relatively few technical changes to the USMCA related to Environmental Health and Safety regulation for manufacturers, the compliance and enforcement arms of the agreement were completely overhauled. Whereas before, country-specific organizations held responsibility for compliance and reporting of their country´s compliance, now a regional panel is built under the USMCA to attend complaints and ensure accountability.
This provides a new aspect of compliance- the burden of proof. Simply being compliant is not sufficient unless your stakeholders trust that you are compliant. Inspections, fines or cancellation of preferential tariff treatment is at risk, and your employees, industrial neighbors, and community players are important stakeholders that will hold you accountable.
David Antuñez
The new USMCA, under Article 4.B-6, created the requirement for OEM automakers to comply with sourcing 70% of their aluminum and steel from North America, including direct purchases, purchases through service centers, and through suppliers. The requirement is applied on a fleet-wide company/account-basis for OEM automakers.
Although not implemented currently, under the USMCA the US continues to have the right to impose tariffs to steel and aluminum imports under Section 232 on the grounds of national security, and both Mexico and Canada will have the right for a consultation period of 60 days before tariffs are applied. Light trucks are exempt from this measure.
Carlos Loyola
Although there are relatively few technical changes to the USMCA related to Environmental Health and Safety regulation for manufacturers, the compliance and enforcement arms of the agreement were completely overhauled. Whereas before, country-specific organizations held responsibility for compliance and reporting of their country´s compliance, now a regional panel is built under the USMCA to attend complaints and ensure accountability.
This provides a new aspect of compliance- the burden of proof. Simply being compliant is not sufficient unless your stakeholders trust that you are compliant. Inspections, fines or cancellation of preferential tariff treatment is at risk, and your employees, industrial neighbors, and community players are important stakeholders that will hold you accountable.
David Antuñez
In order to provide flexibility to automotive companies to comply with the new rules of origin, the Alternative Staging Regime (Regimen de Transición Alternativo – RTA) was established. The alternative staging regime provides additional time and a different phase-in of the new requirements and rules of origin implementations for automotive companies. It provides an alternative to certain rules of origin requirements for passenger vehicles and light trucks, but does not replace any other rules of origin or any provisions of general applicability for these goods to claim preferential treatment under the USMCA.
Under the alternative staging regime, importers of certain passenger vehicles and light trucks will have an additional 2-5 years instead of 3 years to meet the requirements, and the vehicles will have different RVC (regional value content) and LVC (labor value content) thresholds.
Carlos Loyola
As the new USMCA became effective, there has been a good amount of information that has already been shared on the specific requirements for the automotive industry, both for the automotive OEM’s and its supply chain. These specific requirements are in line with the focus on this industry’s main contribution to the overall trade and economic activity, not only for Mexico, but to the three countries participating in this new trade agreement.
As many of our clients pertain to other industries, we continually analyze the applicable implications and requirements in the USMCA. There are additional industries or sectors that will have specific implications, or even their own chapter within the USMCA.
- Electronic Industry, mostly flat screens and monitors
- Chemical Industry
- E-Commerce
- Agriculture
- Telecommunications
- Textile
For non-automotive industries, I offer two main recommendations. First, take the time to thoroughly review the requirements of the USMCA and its corresponding Uniform Rules. This is a new trade agreement and there is a learning curve on the actual application of the new rules. Second, review your current supply chain. The USMCA has a focus on increasing regional content, and a localized supply chain will be advantageous in order to make the flow of materials more efficient among the members of the USMCA and comply with its requirements.
Carlos Alvarado