DR-CAFTA Labor Rights Issues

DR-CAFTA Labor Rights Issues

Order Code RS22159
Updated January 26, 2006
CRS Report for Congress
Received through the CRS Web
DR-CAFTA Labor Rights Issues
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Summary
The U.S.-Dominican Republic-Central America Free Trade Agreement (DR-
CAFTA, (P.L. 109-53, August 2, 2005) is the eighth free trade agreement to include
labor protections.1 Implementation, scheduled for January 1, 2006, has been postponed
because no DR-CAFTA country has completed internal legal and regulatory changes
required, although several are close. Meanwhile, the countries’ goods entering the
United States will continue to receive preferential tariff treatment under the Generalized
System of Preferences (GSP). Labor concerns focused on three main questions: (1)
How strong are labor laws in DR-CAFTA countries?2 (2) Are those labor laws being
adequately enforced? and (3) Does DR- CAFTA comply with the principal negotiating
objectives for trade agreements outlined in the Trade Act of 2002? This report will not
be updated.
Background
Congress has linked labor protections to trade promotion vehicles for at least two
decades, for two purposes: The first is to help “level the playing field” by protecting U.S.
jobs and wages from what some consider unfair competition from low-wage foreign
producers. The second is to help improve working conditions in developing countries.
To this end, in a 1984 amendment to the Generalized System of Preferences (GSP),
Congress prohibited preferential tariff treatment to developing countries “not taking steps
to afford their workers internationally recognized worker rights.” This was extended to
the Caribbean Basin Initiative (CBI), which covers all DR-CAFTA countries, in 1990.
In the 1984 GSP amendment, Congress defined “internationally recognized worker
rights” [GSP Sec. 502(a)(4)]to include the following basic protections: (1) the right to
associate, to form unions, and to bargain collectively; (2) a prohibition of forced or prison
labor; (3) protections against child labor; and (4) minimum standards for wages, hours,
1 The first seven are the North American Free Trade Agreement (NAFTA) and five U.S. bilateral
trade agreements with Jordan, Chile, Singapore, Australia, Morocco, and Bahrain (proposed).
2 DR-CAFTA countries are the Dominican Republic, Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua.
Congressional Research Service ˜ The Library of Congress

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and occupational safety and health. Meanwhile, the International Labor Organization
(ILO) set out to promote a similar list of “core labor standards” which includes items (1)
— (3) above, but substitutes for item (4), freedom from employment discrimination.
The first worker rights protections were in U.S. tariff preference laws. However,
since 1993 the United States has also linked worker rights protections to free trade
agreements (FTAs) using three basic models. The first model, The North American Free
Trade Agreement (NAFTA, P.L. 103-182), includes worker rights provisions in a side
agreement with sanctions limited to failure to enforce standards for occupational safety
and health, child labor or minimum wages. The second model, the U.S.-Jordan FTA,
placed labor provisions in the body of the agreement and made them subject to sanctions
via the FTA’s dispute resolution procedures. The third model is reflected in DR-CAFTA
and the other five FTAs since Jordan, which include worker rights provisions in the body
of the agreement, but permit sanctions only if a country fails to enforce its own labor laws.
Commitments under DR-CAFTA are as follows: Each country pledges: (1) to “not
fail to effectively enforce” its own labor laws in a manner affecting trade; (2) to strive to
ensure that both ILO core labor principles and internationally recognized worker rights
are recognized and protected by domestic law; (3) to strive to “not waive” or “derogate
from” its own labor laws to encourage trade or investment; (4) to respect the sovereignty
of the other countries; and (5) to establish mechanisms for cooperative activities and
labor-related trade capacity building with the other countries. Of these shared
commitments, only sustained failure to enforce one’s own labor laws is subject to binding
dispute settlement and ultimately to fines or sanctions. The maximum fine in a particular
dispute is set at $15 million per year per violation, a sum of which may be directed
towards remedying the labor violation. (See Table 1 for more detail on labor provisions.)
Table 1. Labor Provisions Included in DR-CAFTA
Each Party (Chapter 16, Labor):
1.
Shall not fail to effectively enforce its own labor laws in a manner affecting trade;
2.
Shall strive to ensure that ILO labor principles and internationally recognized worker rights are
recognized and protected by domestic law;
3.
Shall strive to ensure it does not to “waive or derogate from” domestic labor law in order to
encourage trade or investment;
4.
Has the right to establish its own domestic labor standards and adopt or modify its labor laws;
5.
Retains the right to exercise discretion in allocating enforcement resources;
6.
May not undertake labor law enforcement in the others’ territories;
7.
Shall ensure procedural guarantees for enforcement of the its labor laws;
8.
Shall establish a Labor Affairs Council of cabinet-level or equivalent representatives, and an
office in its labor ministry to serve as a point of contact for carrying out the Council’s work;
9.
Shall be guided by a detailed mechanism for cooperative activities and trade capacity building.
10.
May request consultations with another party on any matter under the labor chapter.
Sanctions and dispute settlement provisions for violations. (Chapter 20):
11.
Sanctions under DR-CAFTA labor provisions are authorized only for failure to
effectively enforce one’s own labor laws through a sustained or recurring course of action
or inaction in a manner affecting trade between the Parties. An annual monetary
assessment could be imposed for failure of the disputing parties to reach a resolution or failure
of the defending country to observe the terms of the agreement.
12.
The maximum penalty for such sustained failure is $15 million annually, which shall be
paid into a fund established by the DR-CAFTA Free Trade Commission and expended at its
direction for appropriate labor initiatives in the defending country including efforts to improve
or enhance labor law enforcement. If a country fails to pay the assessment, the complaining
country can take other steps to secure enforcement, including suspending DR-CAFTA tariff
benefits.

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Connected with DR-CAFTA are three main issues discussed below. These stem
from critics’ perceptions that the countries have weak labor laws that are not adequately
enforced, and their preference that all DR-CAFTA labor provisions and ILO core labor
standards be fully enforceable.3 The four issues are: (1) How strong are labor laws in DR-
CAFTA countries? (2) Are DR-CAFTA country laws being adequately enforced? and (3)
Does DR-CAFTA comply with the principal negotiating objectives for trade agreements
outlined in the Trade Act of 2002? Many arguments on both sides are derived from three
studies, which are themselves controversial and subject to interpretation. They are the
State Department’s Country Reports on Human Rights Practices, the ILO’s Fundamental
Principles and Rights at Work: A Labor Law Study, and The Labor Dimension in Central
America and the Dominican Republic: Building on Progress, prepared by the Vice-
Ministers of Trade and Labor in DR-CAFTA countries with the Inter-American
Development Bank (IDB).4
Issue #1: How Strong Are Labor Laws in DR-CAFTA Countries?5
The first issue relates to the DR-CAFTA requirement that each country shall strive
to ensure that ILO labor provisions and internationally recognized worker rights are
recognized and protected by domestic laws and regulations. Much of the debate focuses
on how strong these labor laws are in DR-CAFTA countries, because if they are
inadequate, critics argue, DR-CAFTA would only reinforce weak laws.
The Administration argues, based on the above reports, that DR-CAFTA country
constitutions and laws generally reflect the eight core ILO conventions (two for each of
the four core labor standards) that have been ratified by all DR-CAFTA countries except
El Salvador, which has ratified six. The Administration also argues that within the last
decade, all of the DR-CAFTA countries except Honduras have carried out major revisions
3 For discussion of other issues relating to DR-CAFTA, see CRS Report RL32322, Central
America and the Dominican Republic in the Context of the Free Trade Agreement (DR-CAFTA)
with the United States by K. Larry Storrs et al., and CRS Report RL31870, The Dominican
Republic-Central America-United States Free Trade Agreement (DR-CAFTA), by J.F. Hornbeck.
4 Country Reports on Human Rights Practices, published annually by the U.S. State Department,
reports on labor law provisions and enforcement by each country, and within countries by each
of the basic worker rights. Fundamental Principles and Rights at Work: A Labour Law Study
(Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua), prepared by the International
Labour Office (ILO), 2003, examines CAFTA country promotion of core labor standards before
the Dominican Republic was added. The Labor Dimension in Central America and the
Dominican Republic: Building on Progress: Strengthening Compliance and Enhancing Capacity,
was prepared by the Vice Ministers for Trade and Labor in DR-CAFTA countries under the
sponsorship of the Inter-American Development Bank. This study examines implementation of
the labor standards and trade capacity building in the DR-CAFTA countries.
5 Administration arguments are taken from the U.S. Trade Representative (USTR) website at
[http://www.USTR.gov:] Labor Laws in Central America and the Dominican Republic: The ILO
Report. Critics’ arguments are taken from: paragraph 1: April 4, 2005 letter to Acting U.S.
Trade Representative Peter Allgier from four Members of the House Ways and Means
Committee, (Representatives Cardin, Rangel, Becerra, and Levin and attachment. U.S. State
Department and International Labor Organization Reports Confirm Deficiencies in DR-CAFTA
Labor Laws, 10 p; paragraph 2: AFL-CIO Global Fairness 2004. USTR Misleads Congress on
DR-CAFTA Labor Provisions (no date).

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of labor codes; that Honduras is working on its revision; and that DR-CAFTA will help
raise standards further. The Administration acknowledges, however, that there are some
coverage gaps in worker rights legislation, as identified in the ILO report.
Critics, from their analysis of the ILO and State Department reports, argue that they
have identified at least 20 issue areas where DR-CAFTA labor laws fail to comply with
ILO core labor standards — especially the basic right to organize and bargain collectively.
They claim that some laws contain onerous strike requirements; inadequate protection
against anti-union discrimination; limitation on the number of unions; restrictions on
union leadership; and procedural impediments to calling a strike.
Critics also argue that DR-CAFTA would not mandate needed labor law reforms,
and that most of the labor reforms carried out by DR-CAFTA countries in the past decade
were the direct result of pressure from the U.S. government, tied to the threat of sanctions
for failure to respect internationally recognized worker rights under the GSP. In addition,
they argue, DR-CAFTA does not actually prohibit (backed up by sanctions) any country
from adopting weaker laws in order to attract trade and investment, and then enforcing
those.
Issue #2: Are DR-CAFTA Country Laws Being Adequately
Enforced?6
The second issue relates to the only sanctionable labor requirement in DR-CAFTA
— that each country “shall not fail to effectively enforce” its own labor laws in the
production of goods for trade. Generally speaking, both the Administration and critics of
DR-CAFTA agree that the three studies referred to above find that DR-CAFTA countries
have inadequate resources, and perhaps a weak political will to enforce their laws.
The Administration’s position, however, is that DR-CAFTA creates the strongest
mechanism to make countries comply with FTA requirements of any trade agreement
negotiated so far because it creates a three-track labor strategy specifically designed to
address enforcement issues: Track 1, if a country fails to enforce its own labor laws, it is
subject to monetary fines of up to $15 million annually, or potential loss of trade benefits
if a country fails to pay the fine. The Administration points out that relative to the
economic size and level of income of DR-CAFTA partners, a fine of up to $15 million
per year per violation is not small. Track 2 is voluntary labor law enforcement. The
6 Administration arguments are taken from USTR website: CAFTA Facts: The Case for
CAFTA, and CAFTA Facts: Real Results on Labor Rights, and The Facts About CAFTA’s Labor
Provisions: Answering the Allegations of CAFTA Critics. Critics’ arguments are taken from
paragraph 1: The Washington Post. CAFTA’s Profit Motive, by Harold Meyerson, March 30,
2005. p. A-15; paragraph 2: Inside U.S. Trade. CAFTA Countries to Unveil Labor Initiative
to Thwart Congressional Critics. December 17, 2004; and Washington Trade Daily. U.S.-
CAFTA Chances Iffy. April 27, 2005; paragraph 3:AFL-CIO Global Fairness. USTR Misleads
Congress on CAFTA Labor Provisions. No date; and U.S. Department of Labor. Budget
Justifications of Appropriation Estimates for Committee on Appropriations, Administration
requests for FY2001: $167 mil.; FY2002: $72 mil.; FY2003: $55 mil.; FY2004: $12 mil.;
FY2005, $31 mil.; and FY2006: $12 mil.; and paragraph 4:Labor Advisory Committee for
Trade Negotiations and Trade Policy. The U.S.-Central America Free Trade Agreement. March
19, 2004, p.9; and The Dispatcher. CAFTA: The NAFTA Nightmare Returns. March, 2005.

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Administration argues that countries in the region have already taken numerous concrete
steps to improve labor law enforcement, and are looking at additional specific
recommendations from the IDB report to improve such enforcement. Track 3 is U.S.
assistance for labor cooperation and trade capacity building supported by a $20 million
appropriation for the region for FY2005 to promote “labor cooperation, capacity building
for worker rights, and improvement in labor administration.” The Administration states
it will work with the Inter-American Development Bank (IDB) and others to target these
funds toward areas of greatest need.
The Administration also argues that the enforcement is enhanced by the dispute
settlement mechanism under DR-CAFTA, which is more targeted and thus likely to be
more effective, than that which exists under GSP or CBI, where the remedy is suspension
of benefits until the problem is resolved. Under DR-CAFTA, they point out, if the
country is failing to effectively enforce its labor laws, the government would pay a stiff
fine which will recur until the situation is remedied, and those fines could be directed
toward solving the specific problem identified in the dispute.
On the other hand, critics argue that DR-CAFTA is technically less stringent than
GSP, CBI, and other trade preference laws which go beyond asking whether a country
is enforcing its own labor laws, and look to whether partners are actually taking steps to
afford their workers “internationally recognized worker rights.” They also argue there is
no specific DR-CAFTA requirement that fines be directed to solving the enforcement
problem.
Critics maintain that if DR-CAFTA laws do not adequately meet ILO standards,
efforts to better enforce these laws would merely strengthen enforcement of “bad” laws.
They argue that DR-CAFTA could be re-negotiated to address these concerns.
Critics also assert that the administration has consistently reduced budget requests
for the Department of Labor’s Bureau of International Labor Affairs (DOL-ILAB), which
has funded many of the technical labor assistance programs. Critics further argue that the
Administration is shifting funding for trade capacity building away from a worker rights
focus to programs only tangentially related to worker rights — programs focusing on
worker training, productivity, and corporate codes of conduct, which are not designed to
improve labor standards.
Finally, critics argue that the potential maximum fine of $15 million per year per
violation — a sum that the offending party essentially pays to itself — is “so low that the
fines will have little if any deterrence effect,” and may simply be offset by shifting other
funds away from labor programs.

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Issue #3: Does DR-CAFTA Comply with the Principal Negotiating
Objectives of the Trade Act of 2002?7
The Trade Act of 2002 extended Presidential “fast track”trade promotion authority
to negotiate trade agreements which Congress must then consider without amendment and
under limited debate. That legislation (P.L. 107-210, Sec. 2102) set out enforceable
“principal negotiating objectives” to guide the Administration as it forges trade
agreements. At issue is whether DR-CAFTA complies with those objectives.
The Administration’s position is that DR-CAFTA fully meets the labor objectives
set out by Congress in the Trade Act of 2002 which include (1) to ensure that a party to
a U.S. trade agreement “does not fail to effectively enforce its labor laws;” (2) to
recognize that parties to a trade agreement retain the right to make decisions regarding the
allocation of resources to enforcement; and (3) to strengthen the capacity of trading
partners to promote respect for core labor standards.
Critics argue that while DR-CAFTA may meet the labor negotiating objectives of
the Trade Act of 2002, it does not meet negotiating objectives for dispute settlement and
enforcement which instruct negotiators to seek provisions in trade agreements that “treat
U.S. principal negotiating objectives equally” with respect to: (a) the ability to resort to
dispute settlement; (b) the availability of equivalent dispute settlement procedures; and
(c) the availability of equivalent remedies. Critics point out that while virtually all
provisions in non-labor (and non-environment) chapters of DR-CAFTA are eligible for
dispute settlement procedures and possible sanctions, only one provision in the labor
chapter is so eligible: the provision that each country “shall not fail to enforce its own
labor laws in a manner affecting trade.” Therefore, critics argue, under DR-CAFTA U.S.
principal negotiating objectives for labor are not treated equally with principal negotiating
objectives for such subjects as trade barriers, trade in services, foreign investment,
intellectual property, etc., and as a result violate the principal negotiating objectives of the
Trade Act of 2002.
Congressional Action
On June 30, 2005, the Senate passed S. 1307, the Dominican Republic-Central
America-United States Free Trade Agreement Implementation Act, by a vote of 54 to 45.
Contributing to the passage was a June 28 letter from U.S. Trade Representative Rob
Portman to Senator Bingaman (D-NM and Member of the Senate Finance Committee),
indicating that the Administration would propose and support the earmarking of $40
million in appropriations for each of four years: FY2006-FY2009, for labor and
environmental enforcement capacity-building in CAFTA-DR signatory countries. Of this,
$3 million annually would go to the ILO to fund a “transparent public report” every six
months on ILO findings of progress by DR-CAFTA governments in their efforts to
improve labor law enforcement and working conditions. On July 28 the House passed
H.R. 3045, with the same language, by a vote of 217 to 215. H.R. 2045 became law as
P.L. 109-53 on August 2, 2005.
7 Administration arguments are taken from USTR. The Facts About CAFTA’s Labor
Provisions. op. cit. Critics’ arguments are taken from AFL-CIO Global Fairness 2004. USTR
Misleads Congress on CAFTA Labor Provisions. (No date.) p. 1.