Q&A: Mexico auto assembly plants to comply with USMCA

The US-Mexico-Canada agreement (USMCA) calls for large auto assembly plants in Mexico to comply with new labor and production rules. These include that Mexico ensures its unions are democratic and gives workers greater ability to organize and bargain. It also mandates an increase in North American content in vehicles to 75pc from 62.5pc. Jose Zozaya, president of Mexico's industry association representing auto assembly plants (Amia), spoke with Argus about his sector's efforts to fulfill these new requirements, as well as the prospects for boosting investment in the industry.

How is the Mexican auto sector adjusting to the USMCA's labor provisions?

This is an issue between the workers and their unions. Companies should not intervene; they should facilitate. That is very important. What the companies are doing is making sure the workers have conditions so they can freely elect the unions they want. But we are worried about what some of the auto sector's suppliers are doing. These labor requirements must be followed across the entire supply chain.

Do Mexico's large auto assembly plants already follow these new labor rules?

Yes, the assembly plants do. They do not interfere in union activities. They all have collective bargaining agreements and they respect them.

Are smaller companies, perhaps in the auto parts sector, up to speed with the requirements?

That is where we have to be careful. The assembly plants are recommending that their suppliers live up to these requirements.

Are you worried about the possibility that the US could pursue legal action against Mexican companies for potential USMCA labor violations?

I am not worried that such legal action would be against the auto assembly plants. I am sure it would not. But if it is within our supply chain, it would harm us. If a labor violation is detected at a supplier, they would have to pay tariffs and would not get the benefits of USMCA. This worries me because it would affect all of us.

What are auto assembly plants in Mexico doing to comply with the agreement's stricter regional content rules for auto production?

Auto assembly plants in Mexico are looking for supply sources in the region to accomplish this. There is a period of three years for this to be achieved and we will be doing it gradually.

Could these new rules bring more investment?

We are insisting on working with the authorities to attract foreign investment — primarily among auto parts companies in Asia that could be interested in coming to Mexico. Mexico has to show that it is friendly to business, respects the rule of law, sends clear signals in that sense. The first step to attracting foreign investment is to take care of the investment you already have in the country.

Are the decisions of the current government, such as the recently passed electricity law reform, putting new investment at risk?

I was very clear and expressed the auto sector's concern with [Mexican] senators. The auto sector has global commitments to transition to clean energy by 2035, or at the very latest 2050 — not only for our vehicles but also our plants. I told Mexican lawmakers there is a big risk. I said, "Be careful. This law appears to go in the opposite direction. You could chase away the plants that are already in Mexico, and they could go to other countries that do use clean energy so that they can meet their global objectives."

Does Mexico have an opportunity to attract more investment not only because of USMCA, but also because of Covid and US-China trade conflicts?

That is how I see it. But I feel the moment is passing and we are not doing the work quickly to attract and promote investment. We would have to speed up that process.

By Jens Erik Gould

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