USMCA: The Bridge Differing Priorities in Western Environmental Social Governance Policy

Alyssa Santiago and Erika Tavarez

Cheap production methods, deceptive business practices, and rampant laborer exploitation have fueled the deteriorating state of the workplace and the environment globally. [1] In the United States, there is an intrinsic need for legal regulation to be beneficial to businesses to advancing goals concerning profit margins and better reputations. The rise in Environmental, Social, and Governance (ESG) policies has not been any different; in fact, such a push for this form of litigation domestically is entrenched in the capitalist necessity of maintaining public appearances whilst satisfying shareholders with company decisions, holding true to American values. Although the movement focuses on resolving three prominent issues–companies' contribution to worsening climate change, worker exploitation, and executive malpractice–the legal responses from countries in the Western hemisphere have greatly varied in terms of priorities and execution, with stark contrasts between America’s focus on corporate governance and Mexico’s prioritization of labor protections. These differences are particularly evident in trade dynamics, where The General Motors dispute at the Silao plant exemplifies the tension in the agreement and highlights the challenges of reconciling these priorities under the United States-Mexico-Canada Agreement (USMCA).

Although conservative pushback frames ESG policies as ineffective and economically harmful,[2] along with the potential for intensified opposition during Trump’s upcoming second term, tensions between the United States and Mexico demonstrate the necessity of reconciling the differing priorities within this movement. These clashes, while contentious, serve as a foundation for refining competing interpretations of ESG standards within the USMCA framework. By balancing trade equity with corporate accountability, this framework can set a global precedent for progressive policy and equitable international relations, even amid conservative attempts to stifle progress. 

There is a divergence in the policy implementation and prioritization of the social and governance sectors within ESG, with both countries already working towards developing comprehensive environmental regulations. When examining environmental policies, the U.S. Environmental Protection Agency’s (EPA) Emission Reduction and Reclamation Rule [3] emphasizes limiting environmental degradation by minimizing pollution. Article 4 of Mexico’s Federal Constitution [4] establishes a constitutional mandate to preserve the environment and enforces liability for its mistreatment. Outside of this, the United States emphasizes corporate governance by aligning ESG initiatives with decentralized enforcement mechanisms. This case-by-case approach allows for variability, allowing companies to innovate or neglect compliance. While some choose to exploit regulatory gaps due to inconsistent oversight, other companies have become pioneers in this field. In contrast, Mexico prioritizes the social aspect of ESG, particularly labor protections, through a centralized system that ensures uniform compliance is mandated nationwide. This system reduces discrepancies in enforcement while limiting flexibility for businesses operating in various regions. 

Given their different perspectives, it is imperative to understand the underlying reasons behind their divergence in priorities, reflected in their distinct socio-political and economic histories. At the beginning of the 21st century, Mexico’s ESG policies are shaped by a legacy of systemic inequality and labor exploitation, with policies focused on indigenous sovereignty and reforming corruption. Article 123 of the Mexican Constitution reflects the government’s commitment to equity and labor reform by providing robust protections for workers while addressing long-standing corruption and worker disenfranchisement. [5] Recent labor reforms under the USMCA further illustrate this shift, as they have mandated independent union representation and aim to dismantle corrupt labor practices (USMCA, art. 23), [6] prioritizing better conditions for vulnerable groups, including indigenous communities. As a nation not yet recognized as a global superpower, Mexico has less of a need to prioritize business profit over people’s livelihoods. 

In contrast, the United States prioritizes corporate governance focusing on promoting transparency and protecting shareholders, aligning with the capitalist principles the country was built upon. Since its inception, the United States has anchored its economic structure in capitalism, backed by a Constitution crafted to serve capitalist interests prioritizing profit and returns. [7] The empirical motivation behind the “American dream,” centered on achieving both financial stability and surplus, is intrinsically linked to ideologies that view compensation as the primary measure of success, with social status as a key driver of innovation. Mechanisms such as the Securities and Exchange Commission's (SEC) Regulation S-K illustrate this focus by requiring companies to disclose material risks and governance structures, further reinforcing accountability to investors. [8] The United States has historically valued its economic success and independence over other factors, the country is driven by private enterprises that can only be influenced through financial incentives.

With such intrinsic differences, the USMCA serves as a necessary impartial third party, where representatives from the United States and Mexico collaborate to find mutually beneficial solutions, without favoring one country’s interests over the other. Formerly known as the North American Free Trade Agreement (NAFTA), the agreement was replaced due to the decline of domestic manufacturing in the U.S., and outsourcing gaining popularity due to its reduction in production costs. The USMCA was then established to address the imbalance in trade relations, focusing on fostering economic growth in all three countries, rather than viewing the region as a singular economy. [9] Through the Labor Chapter, the USMCA introduced The Rapid Response Labor Mechanism, [10] a process designed to ensure objective dispute resolution between the United States and Mexico. This mechanism was first invoked when an American automobile manufacturing company, General Motors, faced a workers’ strike at one of their production plants in Silao, Mexico–demonstrating the practical application of the agreement in improving labor conditions and upholding workers’ rights.

General Motors has long outsourced labor to Mexico, a practice that has allowed for lower production costs in the U.S. while providing job stability in Mexico. However, tensions escalated in August 2021 when workers at the Silao plant accused the Confederation of Mexican Workers (CTM) of tampering with the results of a union election to legitimize the collective bargaining agreement, effectively stripping workers of their right to freely choose their representative. Allegations included destroyed ballots and pressure on workers to vote for a corrupt union that had repeatedly failed to adequately represent them. General Motors, by not intervening, was entirely complicit in these exploitative practices, hence the strike. The management’s denial of union rights and numerous labor violations prompted a formal complaint under the USMCA’s Rapid Response Labor Mechanism. [11] Resulting in the establishment of the National Independent Union for Workers in the Automotive Industry (SINTTIA) [12] at the Silao manufacturing plant. This intervention, enabled by the Labor Chapter of the USMCA, allowed U.S. Trade representatives to advocate for the rights of Mexican workers, ensuring they had a voice in their labor contracts. 

Had the USMCA not intervened, General Motors would likely have remained silent in the face of its Mexican workers’ fight for fair treatment and safe working conditions. As the first case under the Rapid Response Labor Mechanism, this incident set a critical precedent for future complaints, especially in the automotive industry. Companies such as Panasonic and Teksid were subsequently reviewed, [13] establishing a framework for ensuring labor rights and promoting unionization in Mexico. This intervention allowed the USMCA to hold global corporations accountable for adhering to labor standards, even if they were not based in the United States. Following the case, General Motors committed to ethical oversight both domestically and abroad, reflecting a renewed focus on ESG policies that prioritized worker safety, and environmental sustainability, in addition to transparent profit analysis. 

The USMCA’s role in upholding these ESG values reflects its broader goal of ensuring an equal playing field in trade, not only among North American countries but also with global partners. While this development suggests the potential for alignment in ESG policies between the U.S. and Mexico, that has remained untrue, especially with the influence of conservative policies, and the upcoming republican term. 

Despite the enactment of ESG laws in 41 U.S. states, these policies continue to face significant conservative opposition. “Anti-ESG” advocacies highlight the economic drawbacks of adhering to burdensome regulations, [14] with business owners and investors prioritizing financial returns over environmental and labor regulations. The lack of federal enforcement makes it harder for the United States to facilitate a switch to better methods of production, whether that be preventing the usage of unsustainable fuels or emphasizing the necessity of strong labor rights. This struggle for implementing effective ESG practices parallels challenges in Mexico, where entities under the federal government are allowed to act independently, so long as they roughly abide by the general regulations in place, [15] leading to inconsistent enforcement.

Nevertheless, both nations are steadily making incremental progress. The United States continues its effort to implement “accountable capitalism” which incentivizes companies to comply with ESG regulations, in fear of divestment from shareholders or other financial penalties that could impact their business. Although we have highlighted that the United States’ sole focus on governance policy isn’t productive, there are benefits; one being the increased transparency between businesses and shareholders which triggers other progressive changes. With more communication between boards of directors and those who fund companies, businesses can better understand shareholder values and adjust their leadership to reflect those priorities, which generally improves business practices and may lead to other progressive changes if their shareholders see fit.[16] Mexico has shown similar commitment, particularly through labor movements that have persisted, advocating for worker dignity and respect, and not stopping until litigation is passed. 

Though both nations face challenges in fully realizing all ESG goals, the USMCA remains essential in bridging the gap, holding both nations to non-negotiable standards. With Donald Trump's return to office, concerns have emerged that a conservative administration and senate may roll back existing ESG policies, particularly regarding fossil fuels and his advocacy against global warming. Despite these apprehensions, Mexico remains confident that it will come ahead, even with a potentially combative government in the United States. As tensions rise, the USMCA and their representatives have become more necessary than ever, their role in providing fair dispute resolution becoming crucial. Empirical evidence demonstrates that ESG policies contribute to stronger trading networks and international relations, while also benefiting domestic companies by ethically stabilizing outsourcing practices, a necessity we must maintain going into the future. As the U.S. administration shifts, the responsibility lies in the hands of advocacy groups, policymakers, and the representatives within the USMCA to ensure that the movement’s three core ideals–environmental sustainability, social responsibility, and governance–are addressed and advanced.

[1] Thea Lee, A Deep Dive into the Labor Exploitation Behind Everyday Products, U.S. Department of Labor Blog (Sep. 28, 2022), https://blog.dol.gov/2022/09/28/a-deep-dive-into-the-labor-exploitation-behind-everyday-products.

[2] ESG Backlash in the U.S. and Europe: Shifting Sentiments and Regulations, Bradley Report (Mar. 5, 2024), https://www.bradley.com/insights/publications/2024/03/esg-backlash-in-the-us-and-europe-shifting-sentiments-and-regulations.

[3] Phasedown of Hydrofluorocarbons: Management of Certain Hydrofluorocarbons and Substitutes Under the American Innovation and Manufacturing Act of 2020, 89 Fed. Reg. 70112 (Oct. 11, 2024) (to be codified at 40 C.F.R. pt. 82). 

[4] Constitución Política de los Estados Unidos Mexicanos [CPEUM], tit. VI, art. 108,

Diario Oficial de la Federación [DOF] 05-02-1917 (Mex.), translated in Constitute Project, https://www.constituteproject.org/constitution/Mexico_2015.

[5] Id.

[6]  United States-Mexico-Canada Agreement, Chapter 23: Labor, Office of the United States Trade Representative, https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/23-Labor.pdf.

[7] James Parisot, Capitalism and the Creation of the U.S. Constitution, 37 Stud. Am. Pol. Dev. 199, 211 (2023),

https://www.cambridge.org/core/journals/studies-in-american-political-development/article/capitalism-and-the-creation-of-the-us-constitution/1B6AF0EBDA49D689BACDBC3B5EBAB354.

[8] U.S. Securities and Exchange Commision, Report on Review of Disclosure Requirements in Regulation S-K, https://www.sec.gov/files/reg-sk-disclosure-requirements-review.pdf (Dec. 2013).

[9] United States-Mexico-Canada Agreement, Off. of the U.S. Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement (last visited Nov. 27, 2024). 

[10] Fact Sheet: USMCA Rapid Response Mechanism Delivers for Workers, Off. of the U.S. Trade Representative (Feb. 2024), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/february/fact-sheet-usmca-rapid-response-mechanism-delivers-workers. 

[11]United States Seeks Mexico's Review of Alleged Worker's Rights Denial at Auto Manufacturing Facility, Off. of the U.S. Trade Representative (May, 2021), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/may/united-states-seeks-mexicos-review-alleged-workers-rights-denial-auto-manufacturing-facility-0.

[12] Danielle Noel, GM Silao Facility Workers Vote Overwhelmingly in Favor of the SINTTIA Union, AFL-CIO (Feb 4, 2022), https://aflcio.org/2022/2/4/gm-silao-facility-workers-vote-overwhelmingly-favor-sinttia-union.

[13] Chapter 31 Annex A; Facility-Specific Rapid-Response Labor Mechanism, Off. of the U.S. Trade Representative, https://ustr.gov/issue-areas/enforcement/dispute-settlement-proceedings/fta-dispute-settlement/usmca/chapter-31-annex-facility-specific-rapid-response-labor-mechanism (last visited Nov. 27, 2024).

[14] Mana et al., ESG Investing: The US Regulatory Perspective, Morgan Lewis (Mar. 12, 2024), https://www.morganlewis.com/pubs/2024/03/esg-investing-the-us-regulatory-perspective#:~:text=Some%20anti%2DESG%20bills%20require,and%20disclosures%20about%20such%20intent.

[15] Sustainable Governance Indicators, Mexico: Environmental Policies, https://www.sgi-network.org/2016/Mexico/Environmental_Policies (last visited Nov. 27, 2024).

[16] Shankar Parameshwaran, How Accountable Capitalism Can Help the ESG Movement, Knowledge at Wharton (Sep. 12, 2023), https://knowledge.wharton.upenn.edu/article/how-accountable-capitalism-can-help-the-esg-movement/#:~:text=The%20panelists%20defined%20accountable%20capitalism,%2C%20managers%2C%20and%20workers.%E2%80%9D.