Free Trade Agreements with Singapore and Chile: Labor Issues

Free Trade Agreements with Singapore and Chile: Labor Issues

Order Code RS21560
Updated September 12, 2003
CRS Report for Congress
Received through the CRS Web
Free Trade Agreements with Singapore and
Chile: Labor Issues
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Summary
Singapore and Chile are the fourth and fifth countries to sign trade agreements
with the United States that include labor provisions. The first three were Canada and
Mexico under the North American Free Trade Agreement (NAFTA), and Jordan under
the U.S.-Jordan Free Trade Agreement. These agreements build on historical U.S.
support and promotion of worker rights through the International Labor Organization
and U.S. trade laws. Major issues for Congress are: (1) do these agreements balance the
promotion of worker rights with trade and investment opportunities for businesses; and
(2) are these agreements appropriate role models for future trade agreements? The U.S.-
Chile Free Trade Agreement (H.R. 2738) was implemented by P.L. 108-77, and the
U.S.-Singapore Free Trade Agreement (H.R. 2739) was implemented as P.L. 108-78,
both on September 3, 2003.1 This report will be updated as events warrant.
U.S. Historical Policy on Worker Rights
For many years, Members of Congress have heard arguments for and against linking
worker rights protections to trade promotion vehicles. In favor of the linkage are human
rights activists who argue that some workers in developing countries are being denied
protections available to U.S. workers; and labor rights activists who argue that labor
protections are necessary to help “level the playing field” against low-wage foreign
competition. Against the linkage have been some business interests arguing that worker
rights provisions in trade promotion vehicles are a disguised form of protectionism.
Congress has responded to these concerns by promoting worker rights in three ways.
First, it has supported the International Labor Organization (ILO), a United Nations
organization chartered in 1919 to promote worker rights through voluntary compliance,
1 For details on other aspects of the agreements and legislative tracking see: U.S. Singapore Free
Trade Agreement by Dick. K. Nanto (CRS Report RL31789) and U.S.-Chile Free Trade
Agreement: Economic and Trade Policy Issues, by J.F. Hornbeck (CRS Report RL31144).
Congressional Research Service ˜ The Library of Congress

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technical assistance and moral suasion. ILO members are obligated to uphold a handful
of “core labor standards” which are listed in table 1.
Second, Congress has promoted worker rights through U.S. trade laws which tie
preferential trade treatment to adherence to “internationally recognized worker rights.”
These rights (similar to ILO core labor standards, but grounded in U.S. labor law), are
referenced in a variety of U.S. statutes — primarily those offering trade preferences to
countries taking steps to afford their workers these rights. Such statutes and programs
include the Generalized System of Preferences (GSP), the Andean Trade Preference Act
(ATPA), and the Caribbean Basin Initiative (CBI).2 The extent to which ILO and U.S.
standards duplicate each other is evidenced in table 1. The combined lists include six
rights, of which four (the right of association, right to organize and bargain collectively,
prohibition of forced labor and child labor protections) are virtually identical. ILO core
labor standards additionally include freedom from employment discrimination, while the
U.S. list includes acceptable conditions of work relating to minimum wages, maximum
hours, and occupational safety and health protection.

Table 1. Definition of Core Labor Standards and Internationally
Recognized Worker Rights
U.S. Internationally Recognized Worker Rights
ILO Core Labor Standards
1. The right of association;
1. (1 and 2 are combined)
2. The right to organize and bargain collectively;
2. Same
3. Prohibition of forced labor;
3. Same
4 . Minimum age for the employment of children and protection
4. Same
from the “worst forms of child labor” (i.e., drug trafficking,
prostitution, and soldiering);
5. Acceptable conditions of work with respect to minimum
5. Freedom from employment
wages, hours of work, and occupational safety and health.
discrimination.
Sources: ILO and Trade Act of 1974 (P.L. 93-618 as amended by Sec. 503 of P.L. 98-573).
The third way the United States promotes worker rights is through trade agreements
which include pledges to uphold both ILO core labor standards and U.S. internationally
recognized rights. Promotion of these rights is mandated by trade promotion authority
(TPA), previously known as “fast-track” authority, whereby Congress agrees to consider
trade agreements the President has negotiated on a “fast-track” basis — voting them up
or down without amendment and with limited debate. Since 1993, four trade agreements,
the North American Free Trade Agreement (NAFTA), the U.S.-Jordan Free Trade
Agreement (FTA, adopted without TPA) and now the pending U.S.-Singapore FTA and
the U.S.-Chile FTA pledge partner countries to adhere to standards on both lists.3
Labor Provisions: NAFTA, Jordan, Singapore and Chile FTAs
Table 3 shows how the four FTAs that include labor provisions — NAFTA, Jordan,
Singapore, and Chile — compare in this regard. Between NAFTA, (implemented by P.L.
2 Internationally recognized worker rights are included in the 1984 amendments to the Trade
Act of 1974 (P.L. 93-618, amended by Sec. 503 of P.L. 98-573). See also CRS Report 96-661E,
Worker Rights Provisions and Trade Policy: Should They Be Linked? by Mary Jane Bolle.
3 The most recent TPA was included in the Trade Act of 2002, P.L. 107-210.

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103-182, 1993) and the U.S.-Jordan Free Trade Agreement (implemented by P.L. 107-43,
2001), the location of the labor provisions shifted from a side agreement into the body of
the agreement, where they have remained in the Chile and Singapore FTAs. The basic
labor provisions have remained consistent through the four trade agreements. Under
them, each Party (country): (a) agrees to support ILO core labor standards and
internationally recognized worker rights; (b) agrees to effectively enforce its own labor
laws in trade-related matters; and (c) retains discretion in allocating enforcement
resources. NAFTA, Singapore, and Chile FTAs also provide for domestic remedies and
procedural guarantees.
The NAFTA and Jordan FTAs differ from the Chile and Singapore FTAs in terms
of labor provisions subject to dispute panel proceedings, sanctions and maximum
penalties. Under NAFTA only failure to enforce occupational safety and health, child
labor, or minimum wage standards is subject to these remedies.4 Under Jordan, violation
of any labor provision is subject to any “appropriate and commensurate” action if the
dispute cannot be resolved.5 Under the Chile and Singapore FTAs, only the sustained
failure of a Party to enforce its own laws in a matter affecting trade may be subject to the
above-mentioned remedies.
Maximum penalties for sanctionable offenses also differ among three of the four
trade agreements: NAFTA’s maximum penalty is $20 million for the first year, and failure
to pay could result in suspension of NAFTA benefits to the amount of the monetary
enforcement assessment. Maximum penalties under the Chile and Singapore agreements
are $15 million annually, with failure to pay, as under NAFTA, leading potentially to
suspension of benefits to the equivalent dollar volume. (Jordan lists no maximum.)
Singapore and Chile FTAS: Labor Advisory Committee Issues
The Labor Advisory Committee (LAC), a U.S. trade advisory committee of 58
members representing unions from every economic sector, evaluated the Chile and
Singapore agreements against NAFTA and the U.S.-Jordan FTA and came out against
them on three points.6 First, the LAC argues that the Chile and Singapore FTAs represent
a big step backwards from the Jordan FTA and largely replicate NAFTA which permits
only communication, investigation, and recommendations to resolve most complaints.
Second, the LAC argues that the Chile and Singapore FTAs will not protect the core
rights of workers in any of the countries involved for several reasons: First, they argue,
the dispute settlement process may not be used to challenge whether a Party is “striving”
to meet ILO standards and to “not derogate from” domestic laws, even though failure in
effort may be arguably hard to prove. Second, they argue that either country, if it were
4 For more detail, See Enforcement Aspects of Labor and Environment Provisions of U.S. Free
Trade Agreements with Jordan, Singapore, and Chile: Summary and Chart, by Jeanne J.
Grimmett, July 1, 2003, CRS general distribution memo.
5 However, before Congress approved the implementing legislation, the United States Trade
Representative and Jordan’s ambassador exchanged letters pledging to resolve any differences
that might arise by avoiding “traditional trade sanctions.”
6 The U.S.-Chile Free Trade Agreement. Report of the Labor Advisory Committee for Trade
Negotiations and Trade Policy, February 28, 2003.

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challenged for failing to enforce its existing labor laws, could simply weaken or eliminate
those laws to avoid dispute settlement. Finally, they argue, labor enforcement procedures
allow parties long timelines for consultations and cap the maximum amount of fines and
sanctions available at an unacceptably low level.
Finally, the LAC argues, the Chile and Singapore FTAs neither fully meet the
negotiating objectives laid out by Congress for trade agreements nor promote the
economic interests of the United States, while potentially threatening job loss. They
argue that the labor enforcement provisions of the Singapore and Chile FTAs are weaker
than in the Jordan FTA because labor and commercial obligations which were treated
identically in the Jordan FTA are treated differently from each other in these most recent
trade agreements. This, they argue, violates the TPA legislation on dispute settlement
as a principal negotiating objective.7 Principal negotiating objectives of the TPA
legislation call for trade agreements that treat all complaints (e.g., labor and commercial)
equally with respect to the ability to resort to dispute settlement, the availability of
equivalent dispute settlement procedures, and the availability of equivalent remedies.
Perspective of the USTR and the USITC
The U.S. Trade Representative (USTR) responded to the concerns of the LAC, citing
the larger benefits of more open trade — that reducing foreign trade barriers increases
economic growth, stimulates job growth, and makes consumer products more affordable.
The USTR also emphasized that Chile and Singapore already have strong labor rules
consistent with ILO core labor standards (see table 2), and that Chile amended its labor
laws to ensure that its standards meet the benchmarks set out in the FTA.
In addressing specific concerns of the
Table 2. Core Labor Standards and
LAC, the USTR focused on LAC charges that
Internationally Recognized Worker
the FTAs failed to protect core rights of
Rights Adopted by Chile and Singapore
workers. In response to LAC criticism that
Chile and Singapore might be tempted to roll
Core Labor Standards:
Chile has ratified all core labor standards;
back their labor laws if their enforcement of
Singapore has ratified one (out of two) in each
them were under challenge, the USTR replied
of the four categories: freedom of association
that (1) Chile had strengthened its labor laws
and collective bargaining, elimination of
in anticipation of the inclusion of
forced labor, elimination of employment
enforceability issues in the FTA; (2) under
discrimination, and abolition of child labor. It
has denounced convention 105 on forced
the Chile and Singapore FTAs a system of
labor.
labor consultations, available for addressing
any matter arising under the trade agreement,
Internationally Recognized Worker Rights:
creates a forum for discussing any labor
Both Chile and Singapore have laws covering
disputes; and (3) the U.S. Department of
all five internationally recognized worker
rights.
Labor has already embarked on a cooperative
Sources: ILO and Department of State.
program with Chile to improve the
administration of its labor laws and enhance
labor justice.
LAC concerns about potential job loss from the U.S.-Singapore and U.S.- Chile
FTAs are addressed in U.S. International Trade Commission (USITC) reports on the
7 Trade Act of 2002, P.L. 107-210, August 6, 2002, Sec 2102(b)(12)(G).

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economic effects of the U.S.-Singapore and U.S.-Chile free trade agreements,8 based on
the Global Trade Analysis Project (GTAP) modeling framework.9 These studies
estimated that the employment effects of the Singapore and Chile FTAs would be quite
small. Few of the sectoral impacts are estimated to exceed one-tenth of one percent of
sector employment through 2016. This is because tariffs and trade barriers to be removed
are generally small and trade with Singapore and Chile, the United States’12th and 36th
trading partners, accounts for 1.7% and 0.3% of total U.S. trade (exports and imports
combined.) The larger potential job effects are with Chile, where, by 2016, net imports
of vegetables, fruits, and nuts could cause U.S. production to decline by 0.05 to 0.08%,
and U.S. production of machinery and equipment to expand by 0.02 to 0.05%.
Chile and Singapore FTAs as Potential Role Models
There was much debate when the U.S.-Jordan FTA was being approved about
whether it should be a role model for other agreements. Some argued that the Jordan FTA
should be a one-time case because it already had strong worker protections; others argued
that trade agreements to follow should be further strengthened. The U.S. has begun FTA
negotiations with (1) Morocco; (2) five nations in Central America (the Central America
Free Trade Agreement, CAFTA, which includes Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua); (3) five nations in the Southern African Customs Union
(Botswana, Lesotho, Namibia, South Africa and Swaziland); and (4) Australia.
Some argue that the Chile and Singapore FTAs, which authorize dispute resolutions
leading to possible sanctions only if a country fails to enforce its own labor laws, would
be inadequate as a template for FTAs with certain developing countries — (1) if the text
does not address egregious conditions for workers; (2) where a country’s laws do not
reflect international standards; and (3) where there is a history of non-enforcement and/or
a hostile environment toward the rights of workers.
Others argue that the United States is working closely with a number of countries to
improve their labor laws and enforcement efforts in anticipation of entering into trade
agreements with them. However, certain developing countries, they point out, may lack
the funding and resources to adequately enforce their laws, and might balk at pressure
from the United States to overhaul existing legislation or introduce new measures.
Therefore, it might be difficult for such countries to agree to a trade pact that attempts to
go above the Chile/Singapore standard.
Conclusion
Achieving economic growth, better jobs, and improved labor standards are some of
the goals of modern-day trade agreements. A challenge in further removing barriers to
international trade is to balance the objectives to achieve trade and investment
opportunities and worker protections at the same time.
8 USITC. U.S.-Singapore Free Trade Agreement: Potential Economywide and Selected Sectoral
Effects, (USITC Publication 3603), and U.S.- Chile Free Trade Agreement: Potential
Economywide and Selected Sectoral Effects, (USITC Publication 3605), both dated June 2003.
9 This model was based on 1997 data with forecasts from the World Bank.

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Table 3. Key Labor Aspects of Four Trade Agreements
Agreement
NAFTA
U.S.-Jordan
U.S.-Chile
U.S.-Singapore
Location of
In a side agreement.
In the body of the agreement
Same as Jordan.
Same as Jordan
provisions
Basic labor
Each Party:
Each Party:
provisions
1. Strives to improve domestic
1. Strives to ensure that ILO labor
1. Same as Jordan
1. Same as Jordan
standards along 11 labor principles
principles and internationally recognized
(which include ILO core labor
worker rights are protected by domestic law
standards and U.S. internationally
recognized worker rights);

2. Agrees to effectively enforce its own
2. Shall not fail to enforce its own labor
2. Same as Jordan
2. Same as Jordan
labor laws in a manner affecting trade;
laws in a manner affecting trade;
3. Retains discretion in allocating
3. Retains discretion in allocating
3. Same as Jordan
3. Same as Jordan
enforcement resources;
enforcement resources;
4. No similar provision to item 4 in
4. Agrees not to waive or derogate from
4. Agrees not to waive or
4. Agrees not to waive or
Jordan, Chile, and Singapore;
domestic labor law to encourage trade;
derogate from domestic labor law
derogate from domestic labor
to encourage trade or investment.
law to encourage trade or
investment.
5. May not undertake labor law
5. No provision.
5. Similar to NAFTA.
5. Similar to NAFTA.
enforcement in the other’s territory;
6. Is entitled to private remedies and
6. No provision.
6. Similar to NAFTA.
6. Similar to NAFTA.
procedural guarantees.
Labor
Sanctions are authorized for failure to
Sanctions are authorized for all labor
Sanctions are authorized only for
Sanctions are authorized only
provisions
effectively enforce one’s own
provisions
sustained failure to enforce one’s
for sustained failure to
subject to
occupational safety and health, child
own labor laws in a manner
enforce one’s own labor laws
panel
labor, or minimum wage standards in a
affecting trade.
in a manner affecting trade.
proceedings
manner that is trade-related and
and sanctions
covered by mutually recognized labor
laws.
Maximum
During first year of agreement: $20
The affected party may take any
$15 million annually; for failure
$15 million annually;
penalty
million; thereafter .007% of total trade
appropriate and commensurate measure.
to pay: suspension of benefits to
for failure to pay: suspension
between parties; maximum penalty for
the equivalent dollar value.
of benefits to the equivalent
failure to pay fine: suspension of
dollar value.
NAFTA benefits to the amount of the
monetary enforcement assessment.
Source: Congressional Research Service.