U.S. asks Mexico to review GM plant labor in first test of new trade deal

WASHINGTON — The Biden administration on Wednesday asked Mexico to examine alleged labor rights violations at a General Motors pickup truck factory in Mexico, a move that could lead to tariffs on some of GM's most profitable vehicles under the new U.S.-Mexico-Canada Agreement (USMCA) on trade.

U.S. Trade Representative Katherine Tai said that her agency and the U.S. Department of Labor have received "information appearing to indicate serious violations" of worker rights in an April union contract vote at GM's Silao factory in central Mexico.

The request for review marks the first time any country has used the Rapid Response Labor Mechanism in USMCA, which allows countries to target labor rights violations at specific factories. Tai helped negotiate the labor enforcement mechanism on behalf of Democrats in the U.S. Congress.

Tai told the U.S. Senate Finance Committee in prepared testimony that she will partner with the Mexican government in trying to "a race to the bottom" for U.S. and Mexican workers.

Mexico's labor ministry on Tuesday said it found "serious irregularities" in the union-led worker vote at the GM factory and ordered a new vote to be held within 30 days.

The Mexican ministry's decision followed pressure from U.S. lawmakers on GM after some Mexican officials had said some ballots were destroyed during the vote, which was intended for the Silao plant's 6,000 union workers to ratify their labor contract.

A key U.S. goal for the USMCA, negotiated by the Trump administration, was to strengthen Mexican unions to help drive up wages and slow the migration of U.S. auto production to Mexico. GM won key changes to USMCA that allowed it to continue to build hundreds of thousands of high-profit pickups in Mexico for export to the United States annually.

In a statement, Tai praised Mexico "for stepping in to suspend the vote when it became aware of voting irregularities" and said the U.S. action "will complement Mexico’s efforts to ensure that these workers can fully exercise their collective bargaining rights.

Representative Bill Pascrell, a New Jersey Democrat and staunch union advocate, praised the Biden administration for swiftly acting on "reported acts of bullying" of workers at the GM plant.

"Our trade agreements aren’t worth the paper they’re printed on if they are not enforced to defend workers in Mexico and here in the United States," Pascrell said.

Profit center

GM's Silao plant https://www.reuters.com/article/us-trade-nafta-autos/game-of-chicken-gm-bets-on-mexican-made-pickup-trucks-idUSKBN1F42G7 is a lynchpin of its North American truck strategy, producing more than 339,000 Chevrolet Silverado and GMC Sierra full-sized pickup trucks in 2019 -- more than a third of the company's total of 906,000 that year.

GM said it would cooperate with both the U.S. and Mexican governments in the matter and that it condemns violation of labor rights and actions to restrict collective bargaining.

"We do not believe there was any GM involvement in the alleged violations or that any government-approved inspectors were denied access to the facility, and have retained a third-party firm to conduct an independent and thorough review," the company said in a statement.

USTR's request comes days before U.S. President Joe Biden travels to Dearborn, Michigan to tour a Ford Motor Co electric vehicle plant to highlight his push for $174 billion in government funding to expand electric vehicle production and charging infrastructure.

Ford builds all of its U.S. full-size pickup trucks in the United States but both GM and Ford are investing in electric vehicle production in Mexico, prompting the United Auto Workers union to call for tax incentives to apply only to U.S.-assembled EVs.

White House spokeswoman Jen Psaki declined to say Tuesday if Biden supported limiting EV subsidies.

The USMCA trade deal was rewritten to require that effectively 40% of the value of all Mexican-made vehicles be made in the United States or Canada.

Warning shot

Tai's request warns all automakers — including Ford, Volkswagen and Chrysler parent Stellantis — that the Biden administration won't tolerate past Mexican labor practices that critics say kept wages depressed.

"In requesting this review, the United States clearly sends the message that worker rights must be respected," U.S. Labor Secretary Marty Walsh said in a statement.

If the United States and Mexico cannot reach an agreement to resolve the matter, Tai can request a dispute settlement panel to review the matter, with the entire process meant to take about 90 days from the initial request.

Labor remedies under USMCA include revoking tariff-free access for the violating factory's goods. In GM's case, that could mean applying the normal 25% U.S. pickup truck import tariff on Silao-made trucks, a painful move that could add thousands of dollars to the cost of each vehicle.

Tai has requested that the U.S. Treasury immediately suspend final settlement of customs accounts for U.S. border entry of GM's Silao trucks, a move that preserves the option to apply tariffs to them later.