A Shifting Supply Chain Focus to Mexico: What Do You Need to Know?

There is a new focus on Mexico as it becomes a key player in the global supply chain.

Mexico is the latest to join a slew of countries imposing new legislation against forced labor, similar to the United States’ recent implementation of the Uyghur Forced Labor Prevention Act (UFLPA). At the same time, many Chinese companies are also setting up shop in Mexico to limit supply chain disruptions and keep production closer to its market in the US. Both of these come in part as a result of the United States-Mexico-Canada Agreement (USMCA), which went into effect in 2020 and aims to level the trade environment between the countries.

Why is this important? This shifting focus to Mexico will also bring to light some of its potential sourcing risks, which are vital to mitigate if you currently have or will have operations there.

The New Forced Labor Ban

Mexico’s new forced labor ban, taking effect in May, will allow the government to detain and block imports into the country suspected to be produced with forced labor.

If goods are determined to be produced with forced labor, the government will post the findings or “resolutions” on their website, similar to the CBP’s current strategy for Withhold Release Orders (WROs).

More details on the ban are expected to be published in the coming days but beginning in May, companies will need to have documentation and proof that imports into the country are not tied to any form of forced labor to avoid detainments or import bans.

Rising Interest in Mexico

As the pandemic exasperated supply chain disruptions and posed significant problems for shipping and shortages, some American and Chinese companies have been moving operations to Mexico in a new strategy called “nearshoring.”

The shift comes down to proximity and companies wanting to limit shipping times to a key market like the US.

While it is expected China will still remain a major hub for production, monitoring potential supply chain risks as sourcing increases from Mexico could help your program stay ahead of the curve.

Mexico’s Supply Chain Risk Factors

Every sourcing region comes with its own set of potential labor risks.

Based on our extensive data from on the ground assessments combined with civil society data from sources like the UN and ILO, the supply chain risk score produced in our supply chain platform EiQ for Mexico does indicate it is a higher risk country for potential labor issues.

The main factors for this include issues surrounding humane treatment violations and health and safety instances flagged from audit data. Mexico also has higher risk related to forced labor and child labor instances. The role of Mexico in the USMCA free trade agreement and the historically lower labor costs, plus the immigration of central American citizens trying to reach the US, exacerbate the forced labor risks along with child labor and other labor risks in the country.

How does this compare to that of China? Our risk scores indicate China and Mexico comparatively share similar high-risk scores- but the driving factors for China’s risk come from vulnerabilities for domestic migrant workers and potential wages and working hours violations.

When monitoring how the landscape could be shifting global supply chain, the conversation for risk monitoring and mitigation should immediately come to the forefront for your program. By noting where potential risks could arise, especially as there is a shift in trends and sourcing regions, you are better equipped to stay ahead of potential violations or be armed with more in-depth knowledge when making sourcing decisions from different regions.

Curious how your current program is stacking up against those in the industry? Learn more about our program benchmarking in EiQ.

These blogs are written by ELEVATE staff members or associates and the views and opinions expressed are not necessarily those of ELEVATE.