North American Trade Policy – Considerations for Industrials

Boards’ responsibilities for non-conformance to USMCA requirements

While direct legal action against governance boards for USMCA non-compliance is uncommon, directors are responsible for ensuring their companies adhere to applicable laws and trade agreements. Non-conformance can result in tariff penalties, fines, retroactive duties, trade sanctions, legal actions, and reputational damage.

Industrial companies will face increasing pressure and opportunity with the pending regulatory overhaul and will need to mitigate labor risks. Ongoing vigilance and training, including for directors, are essential to maintain compliance. For instance, Caterpillar, which recently has been accused by the United Automobile Workers (UAW) of labor abuses by a Mexican subsidiary of Caterpillar. The UAW has also laid criticism on the Biden administration for not adequately policing such violations. Although the Biden administration would not comment on the complaint, it did point to two dozen other cases it had pursued under the trade agreement

Industrial is not the only industry that is adjusting and mitigating new risks related to USMCA implementation, Consumer Packaged Goods (CPG) has been especially impacted:

• P&G restructured sourcing and manufacturing processes, relocating facilities to reduce costs and lead times while ensuring compliance
• Mondelez established new supplier and manufacturing partnerships in Mexico and Canada, reducing supply chain complexity and ensuring compliance with rules of origin
• Unilever updated data protection policies and adapted digital trade practices, protecting online sales and customer information
• Kimberly-Clark launched comprehensive training programs for employees on import/export operations, reducing delays and errors and ensuring long-term compliance

Changing regulatory environments require ongoing questions from the board

Boards must continually evaluate the impact of USMCA regulatory changes. The questions from the boards of directors need to continue and some of them need to include how the company can take into considerations new provisions like the Inflation Reduction Act (IRA) and Infrastructure Act. Key questions directors should ask include:

• Have we conducted a post-change review to identify any compliance gaps with USMCA?
• How do USMCA provisions apply to new regulations introduced by the Infrastructure Act and the IRA?
• Has USMCA helped manage the supply chain during the pandemic?
• How do digital trade rules and IP protection affect our business?
• How does our long-term strategy align with USMCA regulations? What can we learn from competitors?
• Are employees adequately trained on new regulations, and are these trainings ongoing?
• Do we have sufficient resources and expertise to ensure compliance?
• How will companies continuously self-evaluate and alter supply chain governance to ensure policy adoption?

Boards must ensure that compliance with USMCA and other regulations is integrated into the overall business strategy. This approach mitigates risks, enhances reputation, and creates opportunities for long-term success.

As the November U.S. elections approach, companies and directors must remain vigilant, anticipating potential regulatory changes, and ensuring that their compliance strategies are robust and adaptive to the evolving landscape.

Actions boards can take:

• Ensure allocation of dedicated resources in the company for trade compliance and assessment
• Provide high-level training for the board in terms of exposure to USMCA non-conformance (similar to anti-trust and anti-competition)
• Ensure the board receives an oversight of revenue potential, how trade patterns have changed, and how risks of non-conformance are addressed by the company
• Evaluate revenue-generating opportunities associated with broader industry shifts, supply chain reconfigurations, and new suppliers emerging given the dynamic regulatory context