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Legal Memorandum - Business

In: Business and Management

Submitted By xxsabrinaxx
Words 1750
Pages 7
Introduction:
Designer jean company, Narcissus Denim Co, is looking to either move or expand it's manufacturing to the Mexico. The jeans are “made in the USA”, but currently the raw material, and the majority of the jeans are currently fabricated in the United States. They employ 75 people. The company was started five years ago in Nashville, TN, and has seen steady growth in the United States. Narcissus Denim currently fabricates its denim jeans in the USA, with only some of the materials coming from China. The cost of raw materials and manufacturing domestically have become too expensive, so Narcissus needs look outside of the USA. Narcissus is aware of other creators of designer apparel that have gotten bad press for using the “Made in the USA” label because the brands only make a portion each piece of their apparel in the USA. The purpose of this memorandum is to examine the possibility of bringing to the USA neighbor by working with “Maquiladora”, the Spanish word for manufacturer, in Mexico. Aspects of US law, international legal implications, as well as the ethical implications of moving this portion of the company to Mexico are the primary focus areas of research.

Domestic Legal and Ethical Implications:
Narcissus Denim was founded and gained success because of the quality of the product, in great part because the apparel is “made in the USA”. In order to create a portion of the product in Mexico and keep the “made in the USA” label, Narcissus Denim must ensure at least a portion of jeans be manufactured in the United States. The Federal Trade Commission is the governing body and requires certain standards be met.

These standards are also monitored by the commission, “The Federal Trade Commission (FTC) is charged with preventing deception and unfairness in the marketplace. The FTC Act gives the Commission the power to bring law enforcement actions against false or misleading claims that a product is of U.S. origin. Traditionally, the Commission has required that a product advertised as Made in USA be "all or virtually all" made in the U.S. After a comprehensive review of Made in USA and other U.S. origin claims in product advertising and labeling, the Commission announced in December 1997 that it would retain the "all or virtually all" standard. The Commission also issued an Enforcement Policy Statement on U.S. Origin Claims to provide guidance to marketers who want to make an unqualified Made in USA claim under the "all or virtually all" standard and those who want to make a qualified Made in USA claim.” (www.ftc.gov) Narcissus should have pieces of the jeans made in Mexico to be assembled in the USA in order to follow the FTC Act.
Recently two class action lawsuits were filed against high-end apparel designers who claimed that their items were “made in the USA”, but weren’t entirely made in the USA. “In June, two class actions were filed in California (Paz v. AG Adriano Goldschmied & Nordstrom, and Clark v. Citizens of Humanity & Macy's), by the same attorneys, challenging jeans labeled "Made in USA." The near-identical complaints allege the labels are misleading because the fabric, thread, buttons, subcomponents of the zipper assembly, and/or rivets in the jeans were partially manufactured outside the United States.” ("Made in USA" Class Actions Target The Apparel Industry) According to the Department of Commerce, International Trade Commission, “The Annex 401 origin criteria aim to ensure that most of the production relating to textiles and apparel occurs in North America. The basic rule of origin is "yarn forward," which requires that the yarn production and all operations "forward" (i.e., fabric production through apparel assembly) occur in the United States, Canada and/or Mexico operations "forward" (i.e., fabric production through apparel assembly) occur in the United States, Canada and/or Mexico.” (www.ita.gov) If too many pieces of the product is made outside of the USA, Narcissus could lose that key “made in the USA” label, which consumers are accustom to.
Narcissus wants to be sure to follow the letter of the FTC “all or virtually all” standard, while saving as much money on manufacturing as possible in order to remain a viable brand. Keeping costs down creates an ethical issue for it’s employees.
A glaring ethical implication of moving or expanding manufacturing to Mexico is the potential loss of US jobs. It is the hope of Narcissus Denim that expanding production will not force current employees to be laid off, but rather shift those workers into different positions. Unfortunately, there are no guarantees since many of the workers are considered “low skill”. If the company moves manufacturing completely to Mexico there will definitely jobs lost, and it will likely lose it’s “made in the USA” label status, but it will save money on production.

International Legal and Ethical Implications:
Narcissus denim is primarily interested in using both Mexican raw materials and manufacturers called maquiladoras, and in doing so must adhere to international trade regulations. The North American Free Trade Agreement first introduced in 1992, was created to encourage trade between the United States, Mexico and Canada. It set standards for international trade and tariffs on products and manufacturing, including textiles, raw materials, and manufacturing.
Since its inception, NAFTA has had a negative public perception because of so many companies shifting manufacturing to Mexico. In the 20 years since existence, millions of jobs have moved into Mexico because of the cheap labor force. There are ethical concerns and implications regarding wages, labor conditions, and safety. Even though Mexico’s labor laws have changed over the years, and formal legal labor laws were created originally created in 1917 and updated in the 1970’s, and the 1990’s by Article 123 of the Mexican Federal Constitution, they have been poorly enforced. (Oliver, R)
The North American Agreement on Labor (NAALC), a supplemental agreement appended to NAFTA agreement in 1994, was created to protect the workers of Canada, United States, and Mexico. The primary function of NAALC is to ensure that workers get goals were to create new employment opportunities and improve both “working conditions and workers’ living standards” in the United States, Canada, and Mexico; “to protect, enhance and enforce basic workers’ rights”;and for each NAFTA member to promote compliance and effective enforcement of its own labor laws.Thus, through NAALC, each signatory committed to promote and enforce its own labor laws and standards, in part by accepting the duty to cooperate, exchange information, and establish and enforce domestic labor laws. “NAALC includes eleven “Labor Principles,” which the three signatories commit to promote through enforcement of their own labor laws: (1) freedom of association and protection of the right to organize, (2) right to bargain collectively, (3) right to strike, (4) abolition of forced labor, (5) abolition of child labor, (6) minimum wage, hours of work, and other labor standards, (7) non-discrimination, (8) equal pay for equal work, (9) occupational safety and health, (10) workers’ compensation, and (11) migrant worker protection.” (Oliver, R)
The best way to do that is to enforce and encourage better working conditions for Mexican people is to go above and beyond the Mexican labor laws. Narcissus Denim should have a team prepared to travel to and from Mexico to check quality of construction as well as labor conditions within a maquiladora to ensure workers rights and safety.
One way to ease into this transition is to hire a company that specializes in creating partnerships between US and Mexican companies. TACNA is a company dedicated to encouraging and supporting United States companies to set up partnerships with Mexican manufacturers. Their website lists all of the ways that working with Mexican manufacturers benefits US companies. According to the website, “Intellectual property is protected and Mexican courts typically respect and enforce companies’ rights to intellectual property.”, as well as the various ways the manufacturers are socially responsible — all things that are important to Narcissus Denim. (www.tacna.net)
The US Department of State has a page dedicated to the cases filed against each of the NAFTA member-states. While none were specific to the apparel industry, this is a good resource to refer to when looking for NAFTA violations. (www.state.gov)When working with a manufacturer in Mexico, it is important for the US company to maintain a good reputation in the United States. It is already risky to move operations overseas, so the risk of this move must be fully assessed. One of the biggest international issues to consider, is the public perception of Mexico’s working conditions and internal struggle with drugs, and trafficking. The Mexican cartels place American companies and employees at risk. Drug trafficking is spreading throughout the country and proving to be very dangerous for everyone. “The drug cartels challenge the viability of safe and secure business environments not only for large companies such as Pemex but also for small business owners and average citizens. In July 2010, gunmen ambushed a birthday party in the Mexican state of Coahuila, killing 17 people and injuring many more. Some sources believe these mass killings were the result of the innkeeper’s not paying the extortion fees that had been demanded of him.” (Drug Trafficking, Violence and Mexico’s Economic Future)

Summary:
There are many things to consider when taking an American Company into Mexico. Narcissus Denim Co, is proud of its “made in the USA” label, but the cost of making the products in the USA have gotten too high, so it has got to consider other options. The potential of working with a NAFTA partner country has many pros and cons. This memo just touches the surface by exploring aspects of US law, international legal implications, as well as the ethical implications of moving this portion of the company to Mexico.

Works Cited

Cases Filed Against the United Mexican States. (n.d.). Retrieved February 28, 2016, from http://www.state.gov/s/l/c3742.htm

Free Trade Agreements (OTEXA). (n.d.). Retrieved February 26, 2016, from http://web.ita.doc.gov/tacgi/fta.nsf/FTA/NAFTA

"Made in USA" Class Actions Target The Apparel Industry. (2014, August 25). Retrieved February 28, 2016, from http://apparel.edgl.com/news/-Made-in-USA--Class-Actions-Target-The-Apparel-Industry94754

Mexico vs. China Manufacturing. (n.d.). Retrieved February 26, 2016, from http://tacna.net/mexico-vs-china/

Oliver, R. S. 9/10/2012 195 Mexico’s Dilemma: Workers’ Rights or Workers’ Comparative Advantage in the Age of Globalization?

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