Maquiladora System and Labor Unions in Mexico
March 13, 2020
Is your business seeking to take advantage of the maquiladora system and IMMEX program by expanding manufacturing operations into Mexico? If so, your success will depend upon your ability to cooperate with the local communities, organizations, and the government.
In particular, building relationships with the labor unions—organizations that help employers create healthy work environments and who push for employee rights—is a crucial aspect of running a good maquiladora system.
Below, we’ll discuss everything you need to know about the maquiladora system, the ongoing fight over labor unions, and the benefits of a working relationship with labor unions in Mexico.
Maquiladora System and Labor Unions in Mexico
The globalization of the world economy, especially in regard to manufacturing production across national borders, has completely shifted the way businesses operate and where they conduct their operations. While almost every country has been impacted by this changing tide, few have responded with the same alacrity and enthusiasm as Mexico did with the creation of its maquiladora system. This system is defined as:
A maquiladora is a Mexican assembly plant where materials and equipment are imported duty-free and tariff-free. Maquiladoras receive raw materials from U.S. companies to assemble and export back as finished products. Maquiladora plants are generally owned by U.S. companies that are incentivized to build Maquilas in Mexican border towns in return for low-cost labor and savings.
In addition to the duty-free and tariff-free status, companies that are recognized as operating a maquiladora program enjoy several tangible benefits such as access to a skilled labor force, cheap labor, and a streamlined transportation process. But, to successfully apply for and then maintain maquiladora status, a company has five primary obligations it must fulfill:
- Have an annual sales export that is either greater than $500,000 or 10% of total sales.
- Keep a detailed inventory record in an automated inventory control system (under the Anexo 24 statute).
- Once temporary import parts are assembled into finished goods, they must be exported within the appropriate time frame.
- Submit a yearly digital report on total exports and sales.
- Provide monthly reports on business and labor statistics.
Conflicts Between Workers and Labor Unions
Throughout the past few decades, the relations between Mexican workers and maquiladora owners, labor leaders, and Governmental officials was contentious to say the least. Mexico’s economic model hinged upon low-cost labor, and it was enforced by unions. Per Bloomberg Business:
Low pay has been central to Mexico’s economic strategy in the quarter-century since the beginning of NAFTA, boosting its appeal as a cheap base for exports to the giant consumer market up North. Many foreign companies that took advantage of cheap Mexican labor were American, turning the wage gap into a bone of contention between the countries.
For years, workers’ complaints of low wages and unsafe working conditions fell on the deaf ears of the Mexican government. Although they technically had labor unions, workers were given little to no say over negotiations and couldn’t even decide for themselves which union would be in control of their fate.
Workers were disheartened by this decades-old system that many felt was rife with political favoritism and corruption. Put simply; their voices weren’t being represented at the negotiation table. The Guardian writes, “Workers complain that union leaders are good at collecting membership dues, but not so efficient when it comes to sharing information or even copies of their collective contracts.”
In fact, according to the Wall Street Journal, approximately 90% of all collective-bargaining contracts were agreed to without the consent of the company’s workers. So, when soon-to-be president Andrés Manuel López Obrador (AMLO) campaigned on the promise of improving working conditions, promoting independent unions, and doubling minimum wages to 176.2 pesos a day ($9.28), maquiladora workers were primed to act.
It was his inauguration that triggered the initial walkouts of what would become the Matamoros strike.
Labor strikes and Updated Labor Laws
The Matamoros Industrial Workers and Labourers’ Union strike, also known as the “20-32” strike, spread throughout the city of Matamoros with workers demanding a 20% pay increase and a one time 32,000 peso bonus. In practically no time, more than 48 maquiladoras had joined the movement, which resulted in the near or total shutdown of dozens of assembly plants. In the end, the union successfully brokered a new collective-bargaining deal.
Further fuel was added to the fire by the US, Canada, and Mexico Commercial Agreement (USMCA) which included provisions that:
Prohibits the party members from engaging in operations that would interfere with or influence labor union activities and the discrimination against or coercion of workers for engaging in such activities. It also forecasts the creation of an independent entity to verify that union agreements abide by all legal requirements and that they support their workers.
By early 2019, president AMLO was under serious pressure by both the Mexican people and U.S. and Canadian governments to change the system. So, he set out a law that guaranteed workers the right to decide who would represent them. First, he immediately raised the minimum wage from $4.60 per day to $5.40 per day. In addition, he enacted labor laws that created several other changes, including:
- Unions would have to have at least 30% of worker support before they were formally recognized.
- Local labor boards would be replaced by specialized courts and a national registry.
- New contracts would include protections against workplace harassment and unjust employee termination.
- More than a half-million existing contracts would be reviewed by the labor ministry.
Stronger worker protections and increased transparency within labor unions are promising indicators that the conditions for the Mexican labor force will continue to improve.
Mexican Labor Unions
Because this reshuffle of the relationship between workers, labor unions, and the government is still so fresh, the waters surrounding labor unions remain muddied. Understandably, you may be unsure how to approach a labor union or which one is right for your business. Because the answer to this depends heavily upon your industry and area of operation, it’s difficult to make a general list of labor unions in Mexico that you should be aware of.
Generally speaking, it’s more effective to work with recognized unions, particularly those that are under the auspices of The Congress of Labor (Congreso de Trabajo), which manages the majority of labor unions and represents more than 85% of Mexican union workers. The two largest reputable labor unions in the country are:
- Confederation of Mexican Workers (Confederación de Trabajadores Mexicanos – CTM) – The largest and oldest confederation of labor unions in Mexico, the CTM was first founded in 1936 as a pillar of the Institutional Revolutionary Party (PRI). It still holds significant sway over the country’s various labor unions.
- Revolutionary Confederation of Mexican Workers and Peasants (Confederación Revolucionaria de Obreros y Campesinos – CROC) – The CROC was founded in the early ‘50s when the Mexican economy was experiencing one of its first foreign investment booms. Today, it represents millions of workers from professionals, to artisans, to factories.
Because the manufacturing industry requires workers with specialized talent and expertise, cooperating with labor unions is one of the main ways your business can negotiate job placement and positions.
Tips for Working with Labor Unions in Mexico
Before you begin reaching out to unions, it’s important to remember that the best way to treat a labor union is as an associate of your business. They can work alongside you to enact policies and create working conditions that are in the worker’s best interest and help their workers adapt to your business culture.
Because there are treaties and regulations coming in the near future, Mexico’s labor relation and union laws are expected to continue to change. If you have already established a foothold in Mexico, your HR team should be updating its operating procedures and reviewing your current union agreements.
Even then, you need to be prepared for further upheaval.
If you want to facilitate a healthy working relationship between your business and labor unions, your approach to employee relations will play an essential part in your ongoing strategy. With workers and unions’ happiness in mind, tips you should consider include:
- Review your benefits, policies, and wages to ensure that they are in alignment with not only current laws but with market trends. Competitive wages make for happy workers.
- Install policies and labor practices that create a positive work environment and stimulate communication between employees and their employers. These include:
- Leadership programs
- HR training
- Social benefit systems
- Perform regular self-audits to ensure that your business is complying with existing Mexican labor laws.
- Create systems where employees can speak anonymously and truthfully about working conditions or other concerns.
Manufacturing with NAPS
Operating in a foreign country is a difficult enough task without having to navigate the intricacies of labor unions, regulations, and foreign laws. Fortunately for you, NAPS has spent nearly three decades helping foreign manufacturers successfully enter the Mexican economy and navigate the IMMEX decree.
Over the years, we’ve established relationships with communities, labor unions, and governmental branches to ensure a more sophisticated and transparent business model for maquiladora operations. We make it our business to identify trends and industry demands so that your business is best positioned for success.
Interested in seeing what NAPS can do for you?
Contact us today to find out more.