Order Code RS22823
Updated April 17, 2008
Overview of Labor Enforcement Issues in
Free Trade Agreements
Mary Jane Bolle
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Since 1993, the Administration has negotiated and Congress has approved 10 Free
Trade Agreements (FTAs) that contain labor provisions with different degrees of
enforceability. Three more (with Colombia, Peru, and South Korea) await congressional
consideration. This report identifies two types of labor enforcement issues: (1) those
that relate to the FTA provisions themselves, including their definitions and their
enforceability, and (2) those that relate to executive branch responsibilities, such as
resource availability and determining dispute settlement case priorities. This report will
be updated as events warrant.
Background
The inclusion of enforceable labor provisions — that is, those subject to dispute
resolution procedures — in various trade promotion authorities and free trade agreements
negotiated under them, has evolved slowly.1 At first, U.S. trade policy focused on
lowering tariffs on goods. It was later extended to various types of non-tariff barriers.
Labor provisions have not been part of multilateral trade agreements because the
regulation of labor was generally considered to be a domestic issue and not applicable to
trade. Early on, the responsibility for monitoring labor protections fell to the International
Labor Organization (ILO), founded in 1919 and now an arm of the United Nations (UN).
For nearly 90 years, the ILO has been working to create, through adoption at its annual
International Labor Conferences of Member countries, Conventions, which set
international standards.
The ILO has adopted at least 183 Conventions, eight of which reflect four “core
labor standards.” This occurred when first, a UN Social Summit in Copenhagen Denmark
1 Trade promotion authority refers to presidential authority to negotiate trade agreements that
Congress then considers without amendment and under limited debate (most recently in Title
XXI of the Trade Act of 2002, P.L. 107-210).

CRS-2
in 1995 declared that four categories of principles and rights at work are fundamental: (1)
freedom of association and collective bargaining, (2) the elimination of forced labor, (3)
the elimination of child labor, and (4) the elimination of discrimination in respect of
employment and occupation.2 The ILO then responded by pulling these together as the
1998 ILO Declaration on Fundamental Principles and Rights at Work and its Follow-Up.
The Declaration commits all ILO member States, whether or not they have ratified the
specific Conventions, to respect the labor principles in these four key areas. The Follow-
Up
, among other things, calls for reports by developing countries that have not ratified
one or more of the core Conventions, on the status of implementing the various rights.3
Meanwhile, on a separate track, the United States had unilaterally promoted the
development of a list of standards similar to those in the ILO Declaration through its
trade preference laws for developing countries. These trade preference laws cover four
programs: the Generalized System of Preferences (GSP), 1975; the Caribbean Basin
Initiative
(CBI), 1983; the Andean Trade Preference Act (ATPA), 1991; and the African
Growth and Opportunity Act
(AGOA), 2000. These laws all require that as a condition
of obtaining and maintaining program eligibility, beneficiary countries must be taking
steps to afford their workers “internationally recognized worker rights.” These rights are
listed in Trade Act of 1974 as amended, Sec. 507, as similar to ILO core labor standards
listed above, except the U.S. list substitutes for (d) above: labor standards relating to
minimum wages, maximum hours, and occupational safety and health.
In 1996, backed by the United States and other developed countries, the then124-
member WTO debated whether to form a committee to look into the relationship between
trade and labor standards. Developing countries, in the majority, were concerned that
even studying the relationship between trade and labor standards could affect their
comparative advantage in low-cost labor. Ultimately they prevailed. The Singapore
Ministerial Declaration reporting on what they decided, stated that the ILO (rather than
the WTO) would be the “competent body to set and deal with ... internationally
recognized core labor standards.”4 The ILO has no enforcement tools, but rather promotes
labor standards through consensus, moral suasion, and technical assistance.
Inclusion of labor (and environment) provisions in bilateral U.S. trade agreements
came about incrementally. The first two U.S. FTAs with Israel, 1985, and Canada, 1988,
did not include labor provisions, even though such provisions already existed in the GSP
and CBI legislation. This pattern began to change after 1993 when a number of factors
came into play. First, the United States began to undertake FTA negotiations with lesser-
developed countries. Second, it became increasingly accepted that labor issues were
related to trade and trade policy. Third, consensus broadened that globalization had both
costs and benefits. The benefits tend to be broadly dispersed and include relatively higher
economic growth and productivity and greater access to lower-priced goods. The costs
tend to be concentrated in import-competing sectors where there may be downward
pressure on wages and job displacement. In developing countries, pressures to become
2 United Nations World Summit for Social Development, Copenhagen. March 6-12. 1995.
3 ILO Declaration on Fundamental Principles and Rights at Work and its Follow-Up: About the
Declaration
. From the ILO website, at [http://www.ilo.org].
4 See [http://www.wto.org/english/theWTO_e/minist_e/min96_e/wtodec_e.htm].

CRS-3
a low-cost producer can lead to diminished working conditions and diminished worker
rights. Fourth, business groups have increasingly been willing to make some concessions
to labor groups in order to promote trade agreements and pave the way for greater trade
with and investment in developing countries.
Labor Enforcement in U.S. Free Trade Agreements
Since 1993, the United States has negotiated 13 FTAs that include 19 countries.
These are, chronologically, the North American Free Trade Agreement (NAFTA) with
Mexico and Canada; bilateral agreements with Jordan, Chile, Singapore, Australia,
Morocco, Bahrain, and Oman; a regional agreement known as CAFTA-DR, with the
Dominican Republic and the five Central American Countries (Costa Rica, El Salvador,
Guatemala, Honduras, and Nicaragua); and bilateral FTAs with Peru, Colombia, Panama,
and South Korea. The last four agreements reflect a bipartisan compromise on labor
language as delineated in the New Trade Policy With America. Jointly agreed to by the
leadership in Congress and the Administration on May 10, 2007, this policy calls for,
among other things, two key labor provisions in FTAs: The first is a fully enforceable
commitment that FTA countries will adopt, maintain, and enforce in their laws and
practice, the basic international labor standards as stated in the 1998 ILO Declaration.
The second is the use of identical enforcement provisions for labor and commercial
disputes. Labor and enforcement provisions in these various trade agreements can be
categorized into four different models.
Model 1. For NAFTA, labor provisions are included in the North American
Agreement on Labor Cooperation (NAALC), a side agreement, rather than in the main
agreement. Under NAALC, countries agree to enforce their own labor laws and standards.
However, under NAALC, the only provision enforceable with sanctions is a Party’s
“persistent pattern of failure ... to effectively enforce its occupational safety and health,
child labor or minimum wage technical standards,” where that failure is trade-related and
covered by mutually recognized labor laws (Article 29). By comparison, all provisions
relating to commercial operations are enforceable under the NAFTA. Furthermore, the
labor side agreement has different enforcement procedures than does the main agreement,
and places limits on monetary enforcement assessments, with suspension of benefits for
noncompliance. There are no monetary assessments under the NAFTA.
Model 2. In the U.S.-Jordan Free Trade Agreement, labor provisions and
commercial provisions share the same dispute resolution procedures. Among labor
provisions, Parties agree to “not fail to effectively enforce its labor laws ... in a manner
affecting trade” (Article 6.4). Under the Jordan agreement, labor laws are defined as U.S.
internationally recognized worker rights. All labor provisions and commercial provisions
are equally enforceable. If the dispute is not resolved under procedures specified, the
affected Party shall be entitled to take “any appropriate and commensurate measure”
(Article 17.2(b)). However, in an exchange of letters between the USTR Robert Zoellick
and Jordanian Ambassador Marwan Muasher before Congress considered the
implementing legislation in 2001, the governments reportedly agreed to resolve any
potential disputes without resorting to trade sanctions.5
5 Governments: “would not expect or intend to apply the Agreement’s dispute settlement
(continued...)

CRS-4
Model 3. Seven trade agreements with 12 different countries (Chile, Singapore,
Australia, Morocco, Bahrain, Oman, and the six CAFTA-DR countries) include only one
enforceable labor provision: each country “shall not fail to effectively enforce its labor
laws ... in a manner affecting trade between the Parties.” The agreements define labor
laws
as “a Party’s statutes or regulations ... that are directly related to” the list of U.S.
internationally recognized worker rights. All provisions in these agreements relating to
commercial operations are enforceable. The seven trade agreements share many of the
same procedures for labor and commercial disputes. Procedures for labor disputes place
limits on monetary penalties, whereas those for commercial disputes do not. Suspension
of benefits is a “last recourse” option for both types of disputes.
Model 4. On May 10, 2007, the Democratic leadership in Congress and the
Administration agreed to a New Trade Policy for America. It included four enforceable
labor concepts, which pending free trade agreements (with Peru, Colombia, Panama, and
South Korea) would be amended to include. These are (1) a fully enforceable
commitment that Parties to free trade agreements would adopt and maintain in their laws
and practices the ILO Declaration; (2) a fully enforceable commitment prohibiting FTA
countries from lowering their labor standards; (3) new limitations on “prosecutorial” and
“enforcement” discretion (i.e., countries cannot defend failure to enforce laws related to
the five basic core labor standards on the basis of resource limitations or decisions to
prioritize other enforcement issues); and (4) the same dispute settlement mechanisms or
penalties available for other FTA obligations (such as commercial interests.)6
The four concepts have been inserted into all four agreements as “template language”
— agreed to by the Administration and congressional leadership and then inserted into
all four agreements in virtually identical form. The template language appears to limit
item (1) in the New Trade Policy, described above, by including two footnotes to the key
provision: that each Party shall adopt and maintain in its statutes, regulations, and
practices, the rights as stated in the ILO Declaration and its Follow-Up. The first
footnote limits obligations of Parties to those specified in the ILO Declaration (i.e.,
without also including the Follow-Up, described on p. 2). The second footnote requires
that a party seeking to challenge violations must demonstrate that the failure to adopt or
maintain ILO core labor standards has been “in a manner affecting either trade or
investment between the two countries,” (Article 17, footnote 1 of the FTA with Peru.) In
Model 4 agreements, there are no caps on penalties. Only the agreement with Peru has
been approved by Congress at this time (P.L. 110-138, December 14, 2007).
Enforcement Issues
Based on the differences between labor and commercial FTA provisions articulated
in the four models, policy issues can be divided into two categories: (a) the differences
in labor vs. commercial provisions themselves (issues 1-3 below); and the differences
stemming from the agencies charged with that enforcement (issues 4 and 5 below).
5 (...continued)
enforcement procedures . . .in a manner that results in blocking trade.” Jordan Free Trade
Agreement Approved by Finance and Ways and Means, Inside U.S. Trade, July 27, 2001.
6 Text: Congress Administration Trade Deal, Inside U.S. Trade, May 11, 2007; and Trade Facts:
Bipartisan Trade Deal
. Office of the USTR. Bipartisan Agreement on Trade Policy, May 2007.

CRS-5
1. Only Some Labor Provisions Are Enforceable. Under Models 2 and 4,
all labor provisions in trade agreements are enforceable. In Models 1 and 3, only certain
labor provisions in trade agreements are enforceable. All commercial provisions in trade
agreements are fully enforceable under all models. Under NAFTA, covered by Model 1,
the labor side agreement, NAALC, as mentioned, includes one enforceable provision: a
country must enforce a few of its labor standards — those relating to child labor,
minimum wages, and occupational safety and health. A country is not required to enforce
its laws relating to the most basic core labor rights — the right to organize and bargain
collectively — issues which account for 16 out of the 21 labor submissions filed with
NAALC.7 The FTAs covered by Model 3 also include only one enforceable labor
provision, but it is broader in scope than that in the NAALC: countries must enforce all
of their own laws relating to internationally recognized worker rights in a manner
affecting trade between the Parties.
2. Different Enforcement Procedures for and Caps on Penalties for
Labor Provisions. Model 1 has separate and dissimilar enforcement procedures for
labor as opposed to commercial disputes. Model 3 has relatively similar procedures for
both types of disputes. However, both place caps on potential maximum monetary
penalties for labor disputes, but place no caps on penalties for commercial disputes.
Models 2 and 4 have the same enforcement procedures for labor and commercial disputes
and place no caps on penalties.
3. Limits Placed on Scope of Definition of a Term in Labor Provisions.
Labor provisions in Model 4 agreements are “fully enforceable” through the same dispute
resolution procedures available for commercial disputes. However, a footnote limits a
key labor provision — that countries adopt and maintain in their laws and practices, the
rights as stated in the ILO Declaration. The footnote limits the scope of the definition,
as mentioned, by saying, “The obligations set out in Article 17.2, as they relate to the ILO,
refer only to the ILO Declaration.” This would suggest that trading Partners could be
held to the principles of the Declaration, but not the details of the Conventions and not
the Follow-Up procedures. The House Committee Report on the U.S.-Peru Trade
Promotion Agreement Implementation Act
, H.Rept. 110-421, is silent on the issue. The
U.S. Council on International Business (USCIB), the American Affiliate of the
International Chamber of Commerce, argues that if trading partners were held to the
details of Conventions supporting the standards, a number of U.S. labor laws could need
to be changed to comply with the ILO core labor standards as defined and clarified by
the various Conventions.8 The Department of Labor argues, and a USTR statement
reiterates, that while U.S. labor laws could be challenged under the agreement, a
challenge could not force a change in U.S. labor laws. Rather, the ultimate recourse under
an FTA would be a suspension of trade benefits.9
7 See [http://www.dol.gov/ilab/programs/nao/submissions.htm].
8 See CRS Report RL33864, Trade Promotion Authority (TPA) Renewal: Core Labor Standards
Issues
, by Mary Jane Bolle.
9 See USTR Trade Facts. Labor. May, 2007, which says, in part, “As with commercial
provisions, panel decisions are not self-executing. That is, they would not alter U.S. law.”

CRS-6
4. Differentials in Federal Resources Available for Labor as Compared
with Commercial Disputes. In the U.S. government, there appears to be a sizable
differential between support available to enforce labor provisions and support available
to enforce commercial provisions of trade agreements. For non-agricultural commercial
provisions, monitoring and enforcement activities are centered in the Department of
Commerce (DOC) International Trade Administration (ITA)’s, Office of Market Access
and Compliance (MAC). MAC has a budget for FY2008 of $46 million within the ITA’s
budget of $412 million. For labor provisions, these activities are centered in the
Department of Labor (DOL) Bureau of International Labor Affairs (ILAB)’s Office of
Trade and Labor Affairs (OTLA). The OTLA, does not have a budget line item. It is one
of three offices in ILAB, whose budget for FY2008 is $81 million, after the President
initially requested $14 million. Congress restored the difference up to the $81 million,
for international labor-related grants and contracts. The Department of Labor states that
while the DOL budget for monitoring and enforcement may seem small compared with
the DOC budget, it is large in proportion to the relative number of provisions in the trade
agreements for labor vs. commercial operations.
The DOC receives complaints about compliance with trade agreements from the
MAC’s Trade Compliance Center (TCC) “hotline,” industry groups, trade associations,
Congress, U.S. Foreign Commercial Service officers, the USTR National Trade Estimates
Report
, and other sources. It uses its many resources to conduct research on compliance
cases.10 For the DOL, there is no comparable “hotline” for reports of alleged labor
violations in other countries. The DOL states: (1) that its core mission is primarily to
protect the needs of U.S. workers, rather than those of other countries, which is where
complaints about labor conditions related to trade agreements typically arise; and (2) that
its international responsibilities include ensuring compliance with labor provisions of
trade agreements and trade preference programs. The DOL receives information on
foreign labor conditions from a number of sources including trade unions, Congress,
Department of State labor officers at U.S. embassies, and the State Department’s Country
Reports on Human Rights Practices
. The DOL, like the DOC, may take action to resolve
an issue at any stage prior to dispute resolution.11 Any case not so resolved, may be
referred by the respective agency to the Office of the USTR.
5. Priorities for Disputes to be Pursued by the USTR. To date, no labor
dispute under any of the free trade agreements has reached the USTR. Therefore, this
discussion is purely hypothetical. Should a case not be resolved short of dispute
resolution, the USTR must decide which cases it will pursue based on priorities. The
USTR is a small operation. Entering into the dispute resolution process is a lengthy,
involved, expensive process in terms of both personnel and resources. The USTR
typically chooses cases to pursue based on a number of factors. These may include cases
that could showcase or clarify particular issues, strengthen support of U.S. positions,
reflect political considerations, and/or be cases the USTR believes it can win.
10 Phone conversation with Skip Jones, Deputy Assistant Secretary for Trade Agreements and
Compliance, Department of Commerce, February 15, 2008.
11 Phone conversation with Carlos Romero, Deputy Director of OTLA, and Lewis Karesh,
Assistant USTR for Labor, April 4, 2008.