VZCZCXRO7430
PP RUEHCD RUEHGD RUEHHM RUEHHO RUEHJO RUEHMC RUEHNG RUEHNL RUEHRD
RUEHRS RUEHTM
DE RUEHME #0352/01 0241527
ZNR UUUUU ZZH
P 241527Z JAN 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5067
RUEHC/DEPT OF LABOR WASHDC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHXI/LABOR COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHDC

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