SUGAR WORKERS APPARENTLY ACCEPT A DEAL THAT IS NOT

UNCLAS SECTION 01 OF 02 MEXICO 000352 SIPDIS SIPDIS DEPT FOR DRL/AWH AND ILCSR, WHA/MEX AND PPC, USDOL AND ILAB, AGRICULTURE FOR USDA/FAS/OGA E.O. 12958: N/A TAGS: ELAB EAGR ECON PGOV PINR MX SUBJECT: SUGAR WORKERS APPARENTLY ACCEPT A DEAL THAT IS NOT AS SWEET AS THEY HAD HOPED REF: MEXICO 0278 MEXICO 00000352 001.2 OF 002 ¶1. SUMMARY: Mexico,s largest sugar workers union and sugar mill operators appear to have reached a deal that for now has averted a strike scheduled to begin on January 21. Although the two parties negotiated several topics, the main issue was a disagreement over retirement benefits. The union was insisting on the terms of a 1998 labor agreement allowing workers to retire at age 60 and that required the sugar industry to pay long term benefits. The mill operators fell back on a 2002 federal ruling which they claimed exempted them from paying long term benefits and raised the retirement age to 65 years. The tentative agreement the two sides ultimately reached was brokered by Mexico,s new Secretary of Labor, Javier Lozano, based in part on current Mexican federal labor law, and required both the union and the industry to compromise. If eventually accepted the agreement generally settles the retirement question for the sugar union but its basis in Mexican federal labor law may make it difficult for the GOM to enact reforms affecting the broader Mexican labor market. This could ultimately have unintended consequences in both the areas of public finance and job creation. END SUMMARY. -------------- SUGAR WORKERS, STRIKE AVERTED AT LAST MINUTE -------------- ¶2. Late in the evening of January 20, Mexico,s sugar mill operators and the country,s largest sugar workers union apparently reached an agreement that for now has averted a strike scheduled to begin one minute after mid-night on January 21, 2007. The union, the Workers Unions of the Mexican Sugar Industry (STIASRM),had been prepared to launch a strike that would have shut down 51 of Mexico,s 58 sugar mills. The STIASRM and mill operators negotiated a number of outstanding items but the real issue was the question of retirement benefits (REFTEL). Had the strike taken place, it would seriously have impacted the 2006-2007 sugar cane harvest and could well have lead to sharp increases in the cost of sugar. ¶3. According to the STIASRM, a 1998 labor agreement reached with the sugar industry authorized worker retirement at age 60 and required mill operators to match 100 percent of the pensions received by retiring employees from the Mexican Social Security Agency (IMSS). For their part the mill operators argued that the terms of a 2002 federal arbitration ruling exempted them from having to pay additional retirement benefits since the industry was already paying into a national pension plan administered by IMSS. The sugar workers (and most other industrial employees) were placed under the IMSS national pension plan in 2002. Consequently, the mill operators argued, they had no legal obligation to pay a private pension on top of an IMSS pension. In addition, they averred that sugar workers should retire at age 65 like all other Mexican workers enrolled in the IMSS administered retirement plan. -------------- LABOR SECRETARY BROKERS A SETTLEMENT -------------- ¶4. Owing to the possibility of a strike and a rise in the cost of sugar at a time when many Mexicans are already upset over recent increases in the price of such basic items as tortillas and milk, Mexico,s recently appointed Labor Secretary, Javier Lozano, personally intervened in the SIPDIS negotiations between the union and mill operators. Following a period of protracted discussions, Lozano convinced both sides to relinquish their initial hard line negotiation positions. The STIASRM agreed to it would no longer insist on the terms of the 1998 labor agreement and the mill operators accepted that the 2002 federal arbitration ruling did not completely exempt them from any responsibilities toward retiring sugar workers. Both sides then agreed to work together to come up with what the press called a &third8 solution. -------------- THE TENTATIVE DEAL -------------- ¶5. The deal the two parties tentatively reached required concessions on both sides. The union held firm on its insistence that workers be able to retire at age 60. They MEXICO 00000352 002.2 OF 002 also insisted that the mill operators could not totally push all of its responsibilities for the workers, retirement benefits onto IMSS in violation of a previously negotiated agreement. ¶6. The mill operators gave ground on the issue of retirement age and agreed to meet the union,s demand on this point. The agreed retirement age for sugar workers will now be age 60 and not 65 as the mill operators had wanted. However, the sugar industry representatives were unprepared to commit to matching 100 percent of the IMSS retirement benefits since they have already been paying into the national pension plan. Instead they offered to make a single payment to all retiring workers based on federal labor law entitlements for employees fired without just cause. ¶7. Under the regulations of Mexico,s federal labor law employees dismissed from their jobs without just cause are entitled to a significant severance package based on a standard formula. This formula states that each fired employee is entitled to three months pay plus an additional 20 days salary for every year of full employment. As is stipulated in federal law, this severance package is a one time only payment. The mill operators offered to make the payment immediately to just under 3000 workers whose retirement was pending. All current and future employees would be entitled to the payment once they worked a minimum of 15 years and the payment would be made regardless of whatever pension benefits retiring workers received from IMSS. ¶8. After considerable discussion and some public expressions of concern, the STIASRM tentatively accepted the mill operators, offer. In addition to the question of retirement benefits the parties also agreed to a 4 percent salary increase for currently employed workers. The also agree to work together to submit a proposal to the Secretariat of Labor for a national plan to modernize Mexico,s sugar industry in terms of competitiveness and productivity. -------------- COMMENT -------------- ¶9. The tentative agreement between the STIASRM and the mill operators has for now avoided an untimely strike and apparently settled the question of retirement for sugar workers. The retirement package the parties agreed will be expensive for the sugar industry but (based as it is in federal labor law) the severance package given to retiring workers will be a one-time only payment. Once these payments are received the workers will be significantly dependent on the IMSS administered national pension system for their retirement. If the tentative sugar workers deal becomes more widely accepted as the standard for retirements benefits, it will mean that all employers will have to plan on large severance payments for retiring employees. In addition, for the employees themselves, it will mean greater dependence on a pension system whose solvency is often questioned. ¶10. One of the goals of recently inaugurated Mexican President Felipe Calderon is to reform the country,s federal labor laws in order to help facilitate job creation. Many observers have commented that Mexico,s laws need to be reformed so that it is easier (i.e. less expensive) to dismiss unsatisfactory or unnecessary employees. Should the sugar workers, tentative agreement become the standard for the broader Mexican labor market, it will be very difficult for the current administration to change this portion of federal labor law in order to facilitate job creation. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity GARZA