Overview of Labor Enforcement Issues in Free
Trade Agreements
Mary Jane Bolle
Specialist in International Trade and Finance
January 29, 2014
Congressional Research Service
7-5700
www.crs.gov
RS22823
Overview of Labor Enforcement Issues in Free Trade Agreements
Summary
Since 1993, the Administration has negotiated and Congress has approved 13 free trade
agreements (FTAs) that contain labor provisions with different degrees of enforceability. 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 does not address other labor issues in the various free trade
agreements, including cooperative consultation provisions.
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Overview of Labor Enforcement Issues in Free Trade Agreements
Contents
Background ...................................................................................................................................... 1
Labor Enforcement in U.S. Free Trade Agreements ........................................................................ 2
Model 1 ...................................................................................................................................... 3
Model 2 ...................................................................................................................................... 3
Model 3 ...................................................................................................................................... 3
Model 4 ...................................................................................................................................... 3
Enforcement Issues .......................................................................................................................... 4
1. Only Some Labor Provisions Are Enforceable ...................................................................... 4
2. Different Enforcement Procedures for and Caps on Penalties for Labor Provisions............. 5
3. Limits Placed on Scope of Definition of a Term in Labor Provisions ................................... 5
4. Differentials in Procedures for Considering Disputes on Labor vs. Other Provisions .......... 5
5. Priorities for Disputes to be Pursued by the USTR ............................................................... 6
Contacts
Author Contact Information............................................................................................................. 6
Congressional Research Service
Overview of Labor Enforcement Issues in Free Trade Agreements
Background
The inclusion of enforceable labor provisions—that is, those subject to dispute resolution
procedures—in various trade agreement authorities and related reciprocal trade agreements has
evolved over time.1 At first, U.S. trade policy focused on lowering tariffs on goods. It was later
extended to various types of nontariff barriers.
Labor principles and standards are not subject to World Trade Organization (WTO) rules and
disciplines. The International Labor Organization (ILO), an arm of the United Nations founded in
1919, is the multilateral organization with responsibility for labor issues. 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, 8 of which define 4 “core labor” principles. This
occurred when first, a U.N. Social Summit in Copenhagen, Denmark, 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 their implementation of the various
rights.3
The United States had unilaterally promoted the development of “internationally recognized
worker rights,” principles similar to those in the ILO Declaration, through its trade preference
laws for developing countries. These trade preference laws cover five main 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; and the Haiti Opportunity through Partnership Act (HOPE), 2006. These laws all
require that as a condition of obtaining and maintaining program eligibility, beneficiary countries
must take steps to afford their workers “internationally recognized worker rights.” These rights
are listed in Trade Act of 1974, as amended (Section 507), as similar to ILO core labor principles
listed above, except the U.S. list substitutes for the fourth principle listed above: “acceptable
conditions of work with respect to minimum wages, hours of work, and occupational safety and
health.”4
1 Trade promotion authority refers to presidential authority to enter into trade agreements that Congress considers under
expedited procedures (most recently in Title XXI of the Trade Act of 2002, P.L. 107-210). For more information, see
CRS Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, by William H.
Cooper.
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 Trade Act of 1974 (P.L. 93-618 as amended), Sec. 507 (4)(E).
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Overview of Labor Enforcement Issues in Free Trade Agreements
In 1996, backed by the United States and other developed countries, the then-124-member WTO
debated whether to form a committee to look into the relationship between trade and labor
standards. Developing countries, in the majority, argued that the issue had no place in the WTO
framework; was little more than a smokescreen for protectionism; and was a bid by industrial
nations to undermine the comparative advantage of lower-wage trading partners.5 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.”6 The ILO has no enforcement tools, but rather promotes labor
standards through consensus, moral suasion, and technical assistance.
Inclusion of labor provisions in bilateral U.S. trade agreements has evolved. The first two U.S.
FTAs with Israel, 1985, and Canada, 1988, did not include labor provisions. 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 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.7 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 “Bipartisan Trade Deal” (popularly
known as the “May 10th Agreement,”) jointly agreed to between the leadership in Congress and
the Administration on May 10, 2007. This agreement calls for, among other things, two additional
labor provisions in FTAs: (1) 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; and (2) the use of identical enforcement provisions for labor and the
other provisions in the agreements. Labor and enforcement provisions in these various trade
agreements can be categorized into four different models.
5 World Trade Organization, Singapore Ministerial Declaration, adopted December 13, 1996, Sec. 4, Core Labour
Standards.
6 See WTO press brief on Trade and Labour Standards,
http://www.wto.org/english/thewto_e/minist_e/min96_e/labstand.htm.
7 The U.S.-Israel Free Trade Agreement, which went into effect in 1985, did not contain any labor provisions.
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Overview of Labor Enforcement Issues in Free Trade Agreements
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, each Party agrees 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.8
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 bipartisan leadership in Congress and the Administration agreed to a
Bipartisan Trade Deal to include, among other things, provisions in pending FTAs: with Peru,
Colombia, Panama, and South Korea. These are (1) a fully enforceable commitment that Parties
8 Governments: “would not expect or intend to apply the Agreement’s dispute settlement 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.
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Overview of Labor Enforcement Issues in Free Trade Agreements
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).9
The four concepts were incorporated into all four agreements in virtually identical form. The
language appears to limit item (1) in the May 10th Agreement, 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). The second footnote requires that a party seeking to challenge violations must
demonstrate that the failure to adopt or maintain ILO core labor principles has been “in a manner
affecting either trade or investment between the two countries.”10 In Model 4 resolution of
disputes may involve monetary assessments (with no dollar limits) and, if they are not paid,
suspension of benefits until the non-conformity is eliminated. The most recent agreements were
approved by Congress in the following implementing bills: with Peru, in 2007 (P.L. 110-138);
with South Korea in 2011 (P.L. 112-41); with Panama in 2011 (P.L. 112-43); and with Colombia
in 2012 (P.L. 112-42).
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: 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).
1. Only Some Labor Provisions Are Enforceable
Under Models 2 and 4, all labor provisions in trade agreements are technically enforceable.11 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
9 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.
10 Labor chapter of each of the four FTAs, footnote 2.
11 Under the two-page dispute settlement section in the U.S.-Jordan FTA, which includes much less detail in its
procedures than do Model 4 FTAs, if the Joint Committee does not resolve the dispute within 30 days after the
presentation of the panel report, the affected Party shall be entitled to take “any appropriate and commensurate
measure.” However, the dispute settlement, begins with language specifying that “the Parties shall make every attempt
to arrive at a mutually agreeable resolution through consultations,” and, as mentioned earlier, this provision was
reinforced by a mutual exchange of letters between the two countries before Congress considered the implementing
legislation.
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Overview of Labor Enforcement Issues in Free Trade Agreements
its laws relating to the most basic core labor rights—the right to organize and bargain
collectively—issues which account for the majority of the labor submissions filed with NAALC.12
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 violation of labor as opposed to
other provisions. Model 3 has relatively similar procedures for violations under both types of
provisions. However, both Models 1 and 3 place caps on potential maximum monetary penalties
for violation of labor provisions, but place no caps on penalties for violations of other provisions.
Models 2 and 4 have a single set of enforcement procedures covering labor and other provisions
and place no caps on penalties. However, as mentioned, under the Model 2, U.S.-Jordan FTA, the
Parties agree to make every attempt to arrive at a mutually agreeable resolution through
consultations and without application of the FTA’s dispute settlement procedures.
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 other 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.13 Some observers have
raised concerns that some of the details in some of the ILO core labor standard conventions
conflict with some U.S. labor laws, particularly state laws.
4. Differentials in Procedures for Considering Disputes on Labor
vs. Other Provisions
Differences in the way that commercial and labor disputes are considered by the Department of
Commerce (DOC) and the Department of Labor (DOL) can be summarized as follows: The DOC
receives complaints about compliance with trade agreements from the Market Access and
Compliance Office’s Trade Compliance Center “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.14
The DOL does not have a comparable “hotline,” but does have procedures for receiving
12 U.S. Department of Labor, Office of Trade and Labor Affairs.
13 The United States has ratified only two of the eight ILO core labor principles, although most of their substance is
covered by U.S. law.
14 Phone conversation with Commerce Department officials February 15, 2008.
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Overview of Labor Enforcement Issues in Free Trade Agreements
complaints about labor violations under a free trade agreement.15 The DOL also 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.16 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
Labor submissions have been filed with the DOL alleging violations of the labor provisions of the
FTAs involving a number of countries, including Guatemala, Bahrain, Honduras, the Dominican
Republic, Mexico, and Peru. However, to date, none of these disputes has resulted in formal
consultation between the USTR and a foreign government, potentially leading to dispute
resolution. Two cases currently pending are: one involving Guatemala, on which negotiations are
still proceeding short of formal consultation; and another involving Bahrain, on which the
Department of Labor has recommended to the USTR that the United States launch formal
consultations.17
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 involve clear violations, could clarify particular issues and/or be cases the
USTR believes it can win, based on evidence and facts.
Author Contact Information
Mary Jane Bolle
Specialist in International Trade and Finance
mjbolle@crs.loc.gov, 7-7753
15 Procedural guidelines for submitting complaints to the DOL, Office of Trade and Labor Affairs (OTLA) under a
labor chapter of a free trade agreement are located in the Federal Register, Vol. 7, p. 245. December. 21, 2006.
16 Phone conversation with USTR officials, April 4, 2008.
17 World Trade Online, U.S., Guatemala Takes Another Stab at Resolving CAFTA Labor Fight, December 22, 2011;
and DOL Report Recommends Bahrain Consultations Over FTA Labor Violation, January 3, 2013.
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