Labor Enforcement Issues in U.S. FTAs

Updated August 23, 2019March 2, 2020 Labor Enforcement Issues in U.S. FTAs Background Labor provisions in free trade agreements (FTAs)—both in the U.S. and globally—were first included in the North American Agreement on Labor Cooperation (NAALC), the side agreement to the 1994 North American Free Trade Agreement (NAFTA). Since then, provisions have evolved from commitments not just to enforce a country’s own domestic labor laws, but also to adopt and enforce core principles of the International Labor Organization (ILO). As mandatedrequested by Congress through trade promotion authority (TPA), recent U.S. FTAs also subject labor chapters to the same dispute settlement (DS) procedures as all other obligations, although with minor modifications. Some Members of Congress view strong labor . Some Members view strong worker rights provisions in U.S. FTAs as an important issue and they have raised concerns over FTA partner compliance with labor commitments and the U.S. record of enforcement. These issues were part of the debate over the proposed Trans-Pacific Partnership Partnership (TPP) and in the NAFTA renegotiation, signed in 2018renegotiation of NAFTA as the U.S.-Mexico-Canada Agreement (USMCA), for which Congress passed implementing legislation in early 2020. Labor standards are not part of World Trade Organization (WTO) rules; in 1996, members reaffirmed the ILO as the competent body to deal with labor issues, while denouncing the “use of labor standards for protectionist purposes.” Limited progress at the WTO led several countries to include labor commitments in FTAs. The United States and others also include worker rights as and in the eligibility criteria for developing countries to receive criteria of unilateral trade preferences programs. U.S. FTAs have set precedents both in terms of the scope and enforceability of labor provisions. An ILO report found as of 2016, 77 out of 267 FTAs globally included labor provisions, compared to 21 in 2005. Unlike U.S. practice, the majority of agreements do not subject labor provisions to dispute settlement. Most provide a framework for dialogue, capacity building, and monitoring, rather than link violations to economic consequences, such as trade sanctions. In cases where dispute settlement is applicable, such mechanisms have been rarely invoked; countries largely aim to solve disputes via cooperative consultations. Enforcement Mechanisms in U.S. FTAs The U.S. has brought complaints over FTA partners’ compliance with labor commitments under five FTAs listed below. Among these agreements, provisions subject to dispute resolution procedures and remedies may differ:  NAALC provisions were subject to dispute settlement procedures separate from those applicable to the main NAFTA. NAALC aimed to settle labor complaints primarily via dialogue and consultations. If consultations were unable to resolve a complaint, certain issues could be referred to other mechanisms. The full spectrum of dispute procedures, including an arbitral panel and dispute procedures, including an arbitral panel and limited monetary penalties, applies to allegations applied to limited set of allegations/obligations involving: a “persistent pattern of failure” to enforce “occupational safety and health, child labor or minimum wage technical labor standards,” where the matter is trade-related and covered by mutually recognized labor laws. Other issues, such as freedom of association and right to organize are the right to organize, were limited to ministerial consultations.  Dominican Republic-Central America FTA (CAFTA-DR) and U.S.-Bahrain FTA labor chapters include one provision subject to enforcement—a party “shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade.” Procedures related to labor disputes may include limits on monetary penalties. Parties may impose monetary penalties in limited circumstances. Creation of a labor cooperation mechanism, in addition addition to a capacity building mechanism and labor affairs affairs council in the case of CAFTA-DR, were intended to to oversee review and implementation of the labor obligations. CAFTA-DR was the first U.S. FTA to include measures in support of labor capacity building.  U.S.-Peru, U.S.-Colombia FTA and USMCA labor labor chapters reflect provisions required by the “May 10th Agreement,” a 2007 bipartisan deal between congressional leadership and the Bush Administration. The agreement called for: (1) an additional enforceable commitment that FTA parties adopt and maintain core labor principles of the 1998 ILO Declaration; and (2) the same dispute settlement procedures and remedies, including recourse to trade sanctions, for FTA labor provisions provisions, as applied to other obligations. A party alleging alleging a violation of the provision on ILO commitments must demonstrate that failure to adopt or maintain ILO principles has been “in a manner affecting trade or investment.” USMCA, which revised the NAALC, also reflects updated negotiating objectives on labor within TPA-2015 and covers new commitments. For Colombia, a labor action plan was also negotiated, requiring that certain commitments be met prior to FTA ratification. Enforcement Mechanisms in U.S. FTAs Summary of U.S. Labor Disputes Complaints over U.S. FTA partners’ compliance with labor commitments have been brought under five FTAs. Among these agreements, provisions subject to dispute resolution procedures, and remedies may differ:  NAALC contains 11 “principles” on worker rights, subject to separate dispute settlement procedures from the main NAFTA. NAALC aims to settle complaints regarding labor enforcement primarily via dialogue and consultations, through the national administrative offices and at the ministerial level. If consultations are unable to resolve a complaint, certain issues can be referred to other mechanisms. The full spectrum of investment.” Colombia agreed in a separate bilateral labor action plan to meet certain commitments prior to FTA ratification. Some expect future labor complaints under the USMCA, which revised NAFTA to include a labor chapter in the main text, and goes further than the Peru and Colombia FTAs, reflecting updated negotiating objectives within the latest version of TPA (enacted in 2015), by imposing additional substantive commitments and creating a new enforcement mechanism for facility-specific violations of labor rights (see below). Notably, USMCA shifts the burden of proof by creating a rebuttable presumption that an alleged violation of labor commitments affects trade and investment, unless demonstrated otherwise. Summary of U.S. Labor Disputes The Office of Trade and Labor Affairs (OTLA) within the U.S. Department of Labor receives and reviews complaints (termed “submissions”) of alleged violations of FTA labor commitments. The DOL consults and coordinates with the U.S. Trade Representative (USTR) and State Department on labor enforcement. Per OTLA, a submission must “raise issues relevant to the labor provisions in the NAALC or FTA and illustrate a country’s failure to comply with its https://crsreports.congress.gov Labor Enforcement Issues in U.S. FTAs obligations.” If the submission is accepted, OTLA does a review and issues a public report onwith its findings, with and recommendations to the FTA partner. OTLA may also recommend further actions, including that the U.S. request https://crsreports.congress.gov Labor Enforcement Issues in U.S. FTAs bilateral consultations—if these are unsuccessful, dispute settlement may be invoked in certain cases. Under NAALC, OTLA received more than 20 submissions. It has accepted and issued reviews for 13, with one under review; all involved Mexico (Table 1). Among U.S. FTAs with labor chapters, the OTLA has issued seven reviews involving six countries. The Guatemala dispute involved the led to the first formal consultations requested by the United States, although submissions under other U.S. FTAs have resulted resulted in ministerial or informal consultations. It is also the only case to have proceeded through dispute settlement. Table 1. Labor submissions reviewed by OTLA Country Mexico Filed 19942015 Petitions 13 Guatemala Peru 2008 2010; 2015 2011 1 2 1 Status * 1 case under review; * 11 reports issued; 8 ministerial agreements * Panel decision in 2017 * Reports issued in 2012 and 2016 * Consultations in 2014 Dominican Republic Honduras 2011 1 * Report issued in 2013 2012 1 Colombia 2016 1 * Monitoring and action plan adopted in 2015 * Report issued and consultations with contact points held in 2017 Bahrain Source: U.S. Department of Labor. Guatemala Labor Dispute In April 2008, the AFL-CIO and six Guatemalan labor unions filed a complaint under CAFTA-DR alleging that Guatemala failed to effectively enforce its labor laws with respect to freedom of association, rights to organize and bargain collectively, and acceptable conditions of work. The OTLA report in January 2009 raised several concerns and recommendations. The United StatesUSTR and DOL initiated consultations in 2010, amid concerns Guatemala had “not undertaken effective steps to correct systemic failures” in labor law enforcement, and then in late 2011, requested establishment of an arbitral panel. It wasPanel proceedings were suspended while the two sides negotiated an 18-point labor enforcement plan in April 2013. After Guatemala allegedly failed to implement the plan, the panel resumed in 2014 and issued its decision in June 2017. It found that, while Guatemala failed to enforce certain laws, the evidence did not prove it was “sustained or recurring” and “in a manner affecting trade,” and thus did not violate FTA provisions. Issues for Congress The enforcement of labor provisions has been scrutinized by some Members of Congress and labor groups as “slow and cumbersome,” and relying “on the political will of governments.” They call for greater monitoring and oversight of labor practices. Other analysts argue that the debate and scrutiny over labor provisions in FTAs, coupled with robust consultative mechanisms, have led to greater cooperation and helped countries to improve standards. U.S. FTA Partner Compliance The effectiveness of FTAs in raising labor standards, the extent to which countries comply with labor provisions, and , and the most effective approaches to improve compliance are widely debated issues. In a 2014 review, the Government Accountability OfficeGAO concluded that U.S. FTA partners had taken several steps to improve worker rights pursuant to FTA obligations; at the same time, concerns were raised over gaps in protections, attributed to lack of enforcement capacity and limited public awareness of petition processes. Other observers point to the success of FTAs in creating new avenues for cooperation on trade-related labor issues. More broadly, some question whether FTAs are appropriate or the most effective vehicles for addressing the crosscutting issue of worker rights. Most experts agree technical assistance and capacity building are critical tools. Among U.S. agencies providing trade capacity building, an estimated 209% of funding went to labor issuestrade-related labor issues in FY2018; this compared to a 20% share in FY2017. U.S. Track Record of Enforcement Some U.S. stakeholders contest the outcome of the dispute with Guatemala and question whether FTA dispute provisions require reforms. Critics view the number of petitions accepted for review, review delays, and only one case processed through dispute settlement, as shortcomings in U.S. practice. Other experts view the first labor dispute as an important precedent and evidence that trade-related labor issues are taken seriously by the U.S. government. Labor Chapters in U.S. FTAs  TPP: A New Template? TPP was widely viewed as setting new precedents for U.S. FTA labor chapters. To address concerns over labor standards and enforcement, the United States had negotiated three bilateral labor plans, subject to greater monitoring and dispute settlement for the first time. While the United States is no longer a TPP party, USTR indicated TPP may serve as a baseline for future FTAs, including the USMCA.  USMCA. Strong labor provisions are seen as a key factor for securing Democratic congressional support for the proposed USMCA. USMCA incorporates a labor chapter into the main body of the agreement, which reflects key components of TPP and also covers new areas. The chapter includes footnotes clarifying some FTA language that related to the U.S. loss against Guatemala. It has an annex committing Mexico to take legislative actions to protect the right to collective bargaining. Some Members have called for major improvements to labor practices in Mexico, as well as stronger enforcement mechanisms. Some advocate fixes to USMCA dispute settlement, which effectively allows a disputing party to block formation of a panel via lack of consensus over panelist appointments. USTR is reportedly working on a supplemental “rapid-response” enforcement plan to address congressional concerns.  U.S.-Colombia FTA up Next? U.S. and Colombian officials met in 2018 to review FTA implementation, with a view to potentially “modernize” the agreement. Worker rights and unresolved issues from the OTLA report were discussed. In August 2019, U.S. officials met in Colombia to assess labor compliance. For more, see CRS In Focus IF10046, Worker Rights Provisions in Free Trade Agreements (FTAs) and In Focus IF10645, Dispute Settlement in U.S. Trade Agreements. Cathleen D. Cimino-Isaacs, Analyst in International Trade and Finance https://crsreports.congress.gov Labor Enforcement Issues in U.S. FTAs IF10972FTAs TPP. The proposed TPP was widely viewed as setting precedents for FTA labor chapters, and largely reflected U.S. approaches. While the United States is no longer a party, USTR indicated TPP was a baseline for USMCA. USMCA. USMCA goes beyond TPP labor provisions, and some question whether it will serve as a new U.S. FTA template. Strong labor provisions were a key factor for securing Democratic congressional support, amid calls for improvements to Mexican labor practices and enforcement. Several USMCA provisions were motivated by enhancing enforcement. An annex commits Mexico to take specific legislative actions to protect the right to collective bargaining. The labor chapter includes new text clarifying language that related to the U.S. loss against Guatemala. Changes to USMCA DS provisions also aim to prevent panel blocking in dispute cases. Further, a new “rapid response” mechanism provides for an independent panel investigation of denial of certain labor rights at “covered facilities,” with the potential to block imports. Some observers expect these changes could spur new complaints, but questions remain on the mechanism’s implementation. Other FTAs. U.S. and Colombian officials met in 2018 and 2019 to review implementation and potentially “modernize” the FTA. Labor compliance was a top issue discussed.  For more, see CRS In Focus IF10046, Worker Rights Issues for Congress Some Members of Congress and labor groups have scrutinized enforcement of labor provisions as “slow and cumbersome,” and relying “on the political will of governments.” They call for more monitoring and oversight of labor practices. Other analysts argue that the debate and scrutiny over labor provisions in FTAs, coupled with robust consultative mechanisms, have led to greater cooperation and helped countries to improve standards. Provisions in Free Trade Agreements (FTAs) and CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Ian F. Fergusson. Cathleen D. Cimino-Isaacs, Analyst in International Trade and Finance https://crsreports.congress.gov IF10972 Labor Enforcement Issues in U.S. FTAs Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material. https://crsreports.congress.gov | IF10972 · VERSION 67 · UPDATED