Mexico lower house approves diluted labor reform

MEXICO CITY Fri Sep 28, 2012 9:43pm EDT

MEXICO CITY (Reuters) - Mexico's lower house of Congress on Friday gave provisional approval to a bill that would mark the biggest shake-up of the country's labor market in four decades.

In a show of cooperation between the outgoing and incoming administrations, the Institutional Revolutionary Party (PRI) of president-elect Enrique Pena Nieto backed the bill, which the PRI had gutted of measures aimed at curbing the power of unions.

The draft law to soften antiquated labor rules was put forward by outgoing President Felipe Calderon, whose conservative National Action Party (PAN) wanted to weaken unions that have long formed a keystone of support for the PRI.

Critics say abuses by corrupt unions affiliated with the PRI have been bad for democracy and economic development.

The bill will make it easier for employers to hire and fire workers, streamline the settlement of time-consuming labor lawsuits and formally regulate outsourcing.

Sergio Martin, chief economist of HSBC in Mexico, said even without the union reform measures the bill would help create jobs and attract investment to Latin America's second-biggest economy.

"And it's a good sign that the parties are cooperating and negotiating in Congress, which is really positive for the pending energy and fiscal reforms," Martin said.

Pena Nieto, who takes office on December 1, has vowed to increase employment in Mexico, whose population is growing fast.

Economists and politicians have forecast Calderon's bill could create upwards of 150,000 jobs a year, but that may not be enough to meet the demands of the labor market.

In his first five years in power, Calderon created fewer than 2 million jobs, well short of his promise of 1 million annually.

Despite being watered down to appease unions, the labor bill met with strong opposition on the left and protesters barricaded the entrances to the lower house during the last few days.

Before it reached a vote, a PRI-dominated congressional working group stripped out measures mandating that the election of union leadership be free, direct and secret, and that union members receive information on how their funds are spent.

The bill also excluded provisions that would have made unions submit to public audits, and set time limits on strikes.

Every year, tens of millions of dollars pass through the hands of bosses from the biggest unions without them having to account for how the money is spent.

ANGER OVER REFORM

The lower house must still debate some points on the bill but this is expected to be a formality. It then passes to the Senate which will have 30 days to approve or reject it.

During the debate on Friday, leftists occupied the dais of the lower house, prompting the speaker, Jesus Murillo of the PRI, to suspend the session and relocate to a balcony. Some carried placards that read "Traitor."

Workers have been angered by reports that the labor reform could force Mexicans to work for as little as 8 pesos ($0.62) an hour. The PRI and the PAN have denied this.

Fernando Escamilla, a 35-year-old employee at a chemicals firm demonstrating outside Congress, said the bill would strip Mexican workers of rights they had fought dearly for.

"I think there will be another Mexican revolution, otherwise we're going to be returning to slavery here," he said.

Business leaders say an overhaul of Mexico's labor regulations is needed to make the economy more competitive, and Pena Nieto himself made labor reform one of his priorities in his campaign for the July 1 presidential election.

In addition, Pena Nieto has said Mexico must widen the tax base to improve government revenues, as well as open up state-owned oil giant Pemex to more private investment - steps he is likely to need support from the PAN to achieve.

Pena Nieto is going to have to steer a difficult course between pro-business reformers and left-leaning elements in his party to enact the reforms, aimed at boosting economic growth.

Officials close to Pena Nieto say Calderon's labor proposal offered him a chance to wring concessions from traditionalists within the PRI, which is anxious to present a united front upon its return to the presidency after 12 years on the sidelines. ($1 = 12.8572 Mexican pesos)

(Reporting by Dave Graham and Miguel Gutierrez; Editing by Richard Chang and Eric Walsh)