Banner Ad
AQ Feature

Getting to Win-Win: FTAs in the Americas

Labor and capital could share the benefits of expanded trade—if everyone followed the rules
Getting to Win Win

Share Lines

Labor and environmental provisions in FTAs have been unevenly enforced and implemented.

Over the past several decades, many of the hemisphere’s trade agreements have included impressively robust provisions on labor and the environment, but gaps in both implementation and enforcement have raised concerns about their effectiveness. Those concerns are especially timely as the region’s economic policymakers begin discussing efforts to facilitate greater international trade and investment, such as the 12-country Trans-Pacific Partnership (TPP).1

The stakes have never been higher. Well-conceived free trade agreements (FTAs) can be powerful mechanisms for improving labor conditions and for enhancing environmental protection. But without close attention to regulatory details and enforcement, increased trade and investment can also generate what some critics call a “race to the bottom,” in which competition for capital and economic advantage puts downward pressure on wages, working conditions and environmental regulations.2

A review of how countries have complied with (or sidestepped) the labor and environmental provisions of the region’s major trade accords to date provides invaluable lessons that can help negotiators of the TPP and other treaties shape favorable outcomes in the critical months and years ahead.

LABOR AND ENVIRONMENTAL RULE-MAKING IN THE HEMISPHERE

The North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada, which came into force in 1994, set the standard for ensuring that labor concerns are reflected in modern trade accords in the region. A labor cooperation agreement was concluded as an annex to the treaty.3

That notable, though controversial, innovation integrating labor issues into a trade treaty includes a commitment by the NAFTA states to effectively enforce their domestic labor laws in 11 areas, including freedom of association and protection of the right to organize, nondiscrimination, equal pay for equal work, minimum wage and other labor standards, and workers’ compensation. The cooperation agreement also established a mechanism that allows unions and other individuals and groups to initiate complaints arguing that a NAFTA state has violated its commitments. Yet only violations of three of the 11 areas—enforcement of occupational safety and health, child labor and minimum wage laws—carry the possibility of actual sanctions.

A subsequent FTA between the U.S. and Chile (2004) contains a specific labor chapter integrated within the text of the main agreement. Both countries would “strive to ensure” that internally recognized labor rights were protected under their domestic laws and would enforce the labor rights recognized under these laws.4

Since then, the U.S. negotiated similar agreements with the Dominican Republic and the five members of the Central America Free Trade Agreement—Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua—(CAFTA-DR, 2006–2009); Peru (2009); Panama (2012); and Colombia (2012).5

Of the above FTAs, the three agreements that entered into force during or after 2009—the FTAs with Peru, Panama and Colombia—include the strongest and most specific language regarding labor rights.

These three agreements require each party to:

• Adopt and enforce laws protecting core labor rights and principles established in the 1998 International Labour Organization (ILO) Declaration of Fundamental Principals and Rights, namely: a) freedom of association and collective bargaining; b) elimination of forced labor; c) elimination of child labor; and d) elimination of discrimination in labor and occupations.

• Uphold and enforce existing domestic labor laws, whether governing those four core ILO rights or other domestically recognized protections.6

The U.S. agreements with Peru, Panama and Colombia also make those commitments fully enforceable under the same interstate dispute settlement mechanisms—state-to-state consultations or, if those fail, arbitration—that are used for enforcing commercial commitments.

With respect to environmental issues, NAFTA also ushered in new practices and approaches that have since been included in other agreements between the U.S. and Latin American countries.

The FTAs with Chile, CAFTA-DR, Peru, Colombia, and Panama all contained environmental chapters addressing such issues as strengthening environmental protection, expanding interstate cooperation on environmental issues and increasing public participation in environmental decision-making.

Some agreements between Latin American countries and other states in the Americas and elsewhere similarly address environmental and labor issues, but take widely different approaches. The FTAs that Canada has concluded with countries in Latin America appear most similar to agreements between the U.S. and Latin American countries. FTAs between Canada and Panama (2013) and Canada and Honduras (2014), for instance, address labor and environmental issues through side agreements on cooperation.

In contrast, other agreements, such as the FTA between Colombia and members of the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland)7, contain only a few provisions generally affirming the importance of adhering to ILO standards and ensuring consistency with environmental protection and sustainable development. But they do not include detailed obligations or mechanisms for enforcement.

Compared to the agreements with the U.S. in particular, the hemisphere’s intraregional trade and investment agreements appear to be significantly less focused on labor and environmental issues.

The 2011 FTA between Mexico and Central American states (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), for example, simply contains a provision recognizing that it is “inappropriate” to encourage investment by reducing environmental protection, and declares that the countries may “consult” with each other regarding conduct that violates that principle.8 The Mexico-Central America FTA contains no language regarding labor laws or rights.

Based on these patterns, when assessing the impact trade and investment agreements may have on improving labor and environmental conditions in Latin America, the most relevant existing texts appear to be agreements that Latin American states have concluded with the United States.

MECHANISMS TO MONITOR AND ENFORCE COMMITMENTS AND STANDARDS

Trade and investment agreements between the U.S. and Latin American countries use varying combinations of cooperation, interstate consultation, interstate dispute settlement, and stakeholder complaint processes to achieve their aims. Here are some examples of how these mechanisms have been deployed.

1. COOPERATION

FTAs typically call for the states involved to collaborate through technical, economic or technological support on a range of relevant issues that can be tailored to the particular needs and interests of each country.

In connection with the U.S.-Colombia FTA, for example, the U.S. Government Accountability Office (GAO) reports that the U.S. Department of Labor is funding “a five-year (2011–2016), $7.82 million technical cooperation project implemented by the ILO” that aims, among other objectives, to strengthen the ability of the “Colombian government to protect union leaders, [union] members, activists, and organizers” and prosecute those who use violence against them.9

The U.S.-Chile FTA illustrates the range of environmental issues parties can agree to cooperate on. The treaty sets out a list of priorities—such as building capacity to monitor industrial use of chemicals; reducing pollution from mining and agriculture; improving compliance with, and enforcement of, domestic laws and regulations; phasing out certain ozone-depleting chemicals; improving protection and management of wildlife; and increasing the use of cleaner fuels.10

In connection with the U.S.-CAFTA-DR treaty, the U.S. Environmental Protection Agency provided assistance to El Salvador in setting standards for detecting lead contamination, establishing a national water quality reference laboratory; establishing government units for investigation and enforcement of environmental laws; and establishing a special domestic court to handle environmental cases.11

And the U.S.-Peru FTA concluded a separate Annex on Forest Governance that aimed to combat illegal logging and trade in endangered species. Indeed, given the breadth of commitments and cooperative activities envisioned in that Annex, it is often described as a groundbreaking initiative. The obligations Peru assumed as a condition of concluding the FTA are numerous and relatively specific, and required Peru to make a number of changes in its domestic legislation. Among other actions, Peru committed in the FTA to increase the number and effectiveness of staff, develop and implement an anticorruption plan for relevant officials, enact laws establishing criminal penalties for illegal logging, and implement and monitor obligations under the Convention on International Trade in Endangered Species.12 The FTA required Peru to comply with all of those commitments within 18 months of the treaty’s entry into force. The U.S., in turn, committed to collaborate with Peru in complying with those requirements.

From 2001 to 2013, the U.S. spent roughly $275 million for cooperation on labor issues with its FTA partners.13 The vast majority of that money went to Latin American states, with $222 million—or over 80 percent—going to the CAFTA-DR countries ($170 million), Colombia ($24 million) and Peru ($28 million).

In terms of U.S. funding for environmental cooperation with Latin American countries, the CAFTA-DR countries and Peru accounted for about 90 percent of the roughly $151 million in U.S. funding provided for environmental cooperation between 2009 and 2013.14

Yet the total amount of funding and the amount going to those Latin American states have both dropped in recent years. In 2013, funding for CAFTA-DR countries was just 18 percent of the 2009 amount; and for Peru, it was 41 percent of 2009 funding levels. GAO has noted that this is due to “shifting priorities.”15

2. CONSULTATION AND DISPUTE SETTLEMENT

The interstate consultation process allows states to raise concerns about noncompliance with environmental and labor commitments. If state-to-state consultations fail, a state can launch a formal dispute against its treaty partner. For some agreements, only certain provisions are enforceable through these processes. Among the labor provisions in the U.S. -Chile and U.S.-CAFTA-DR FTAs, for example, only the requirement that states “shall not fail to effectively enforce” their labor laws is actually enforceable through state-to-state dispute resolution.

In contrast, later agreements between the U.S. and Colombia, Peru and Panama have stronger enforcement mechanisms. This is because those treaties are covered by the so called “May 10 Agreement.”16 According to that agreement, which was agreed to by members of the U.S. Congress and the George W. Bush administration on May 10, 2007, all labor and environmental obligations in U.S. FTAs are to be enforced according to the same procedures and employing the same remedies and sanctions that are used to enforce the treaties’ commercial obligations. This means that if a state is found to have violated its commitments under the environmental or labor chapters, it will have to remedy the situation, pay compensation, or have its benefits under the FTA suspended.

Yet despite the existence of those enforcement mechanisms, there is only one example to date of states using formal dispute resolution proceedings for labor or environmental issues. In August 2011, the U.S. called for the establishment of an arbitration panel to address allegations that Guatemala had violated its obligations under the U.S.-CAFTA-DR by failing to enforce its labor laws.17

The arbitration was suspended from 2012 to 2014 while the U.S. and Guatemala attempted to resolve the issues and developed an 18-point enforcement plan to address concerns. But in September 2014, the U.S. reactivated the arbitration after determining that Guatemala had not met the terms of that plan.18 A decision from the arbitration panel is expected this year.

Some enforcement and compliance mechanisms are not contained within FTAs themselves, but instead are included in pre-ratification conditions. In this approach, compliance with certain labor or environmental criteria is required of the countries that wish to become part of the treaty. The treaty can be ratified only when the criteria are met.

The U.S.-Colombia FTA is a key example of this approach. Although the U.S.-Colombia FTA was signed in 2006, the agreement’s entry into force stalled as politics shifted in the U.S. and concerns regarding labor issues in Colombia gained heightened attention. To help pave the way to ratification, the U.S. and Colombian governments agreed to a Labor Action Plan in 2011 that set out certain steps for the Colombian government to take before the treaty would enter into force. The Labor Action Plan addressed issues such as reducing violence against union members, prosecuting those who had committed crimes against union members and protecting workers’ rights. In April 2012, the U.S. administration certified that Colombia had taken necessary steps to comply with the plan, enabling its entry into force—a move some members of Congress, unions and other civil society organizations have criticized as premature.19 In addition to setting certain conditions for entry into force, the Labor Action Plan forms a basis for ongoing cooperation between the U.S. and Colombia on labor issues.20

3. STAKEHOLDER ENFORCEMENT

Treaty commitments on labor and environmental issues provide stakeholders with a benchmark against which to judge the conduct of the government parties. After the Labor Action Plan was signed by the Colombian government in 2011, for example, trade unions have been evaluating it annually, publishing results that can be used for improving compliance.

In addition to those strategies, some treaties also have built-in mechanisms for the public to bring complaints alleging that an FTA party is violating its labor and/or environmental commitments. Under the U.S.-CAFTA-DR and the FTAs between the U.S. and Colombia and the U.S. and Peru, for instance, if an individual or organization such as a union believes that a treaty party is not fulfilling its labor obligations, it can file a complaint or “submission” with one government, requesting that it investigate the other government’s noncompliance. The government receiving the submission then decides whether and how to raise the issue with its treaty party.

For environmental issues, those treaties give stakeholders a different mechanism, permitting them to bring claims before an intergovernmental body established in the treaties that can then investigate the allegations.

Concerns have been raised about the effectiveness of these provisions. Some critical observers, such as the U.S. GAO, have noted that relevant stakeholders are often unaware of the mechanisms and means of using them.

More fundamentally, however, there are questions about whether using the mechanisms adequately affords relief. The U.S. government has routinely violated its timeline for reviewing and reporting on submissions. Moreover, if the U.S. government accepts the submission and decides to consult with its treaty party regarding the issue, these consultations can last years before the issues are resolved. The arbitration currently pending between the U.S. and Guatemala relating to violations of labor commitments in Guatemala began after a submission in 2008 by the AFL-CIO and six Guatemalan labor unions to the U.S. government.

Seven years later, the submission is still open and the unions’ concerns remain unresolved.

ARE THE LABOR AND ENVIRONMENTAL CHAPTERS IN FTAs EFFECTIVE?

Trade and investment agreements—including pre-ratification commitments and conditions—can improve environmental and labor standards; yet critics assert that progress has been inadequate. In Peru, for instance, environmental organizations have argued that despite the progress to date of the U.S.-Peru Forest Governance Annex, trade of illegally harvested timber from Peru continues to be pervasive.

In Colombia, one of the major labor-related issues the Labor Action Plan sought to address was, and continues to be, violence against union leaders and impunity for the offenders. Yet while murders of trade unionists have dropped over the past 15 years, these homicides continue to occur at high rates, and perpetrators are rarely convicted. According to Colombia’s Escuela Nacional Sindical (National Union School—ENS), 105 trade unionists were murdered between the date the Labor Action Plan was signed in 2011 and March 31, 2015, and the number of murders each year showed no general downward trend.21

Moreover, the AFL-CIO reported in 2014 that the impunity rate for these murders remained high, at 87 percent.22

Based on these experiences and others, various observers—including labor unions, environmental organizations and the U.S. GAO—have argued that, although the language in the treaties, and the laws based on them, may be good and result in some strengthening of environmental and labor standards, monitoring and enforcement of commitments is still lacking.

For instance, a 2009 U.S. GAO report faulted U.S. agencies for failing to actively monitor compliance with labor commitments and for having only limited post-ratification interactions with U.S. treaty parties on labor issues.23 The U.S. agencies, the GAO found, assigned labor commitments a low priority and typically addressed labor issues in partner countries only when the media raised them.

In response to that report, the relevant U.S. agencies announced they would adopt reforms to address those weaknesses.24

Five years later, in 2014, the GAO completed another assessment.25 Although it found some improvements, the GAO concluded that U.S. government monitoring and enforcement of its FTA partners’ labor commitments still “leave important gaps.”26 As a result, weaknesses in enforcing labor laws continue to exist and “problematic labor conditions persist.”27

The GAO found similar problems in the area of environmental commitments. It highlighted a range of faults in its 2009 report; when revisiting the issues in 2014, it concluded that although U.S. agencies had made some improvements to their monitoring and enforcement practices, work still needed to be done.

Experience indicates that trade and investment agreements—including pre-ratification requirements—can have important impacts on improving environmental and labor standards in law and in practice. FTAs such as the U.S.-Peru Forestry Annex and associated agreements such as the Labor Action Plan between Colombia and the U.S. have triggered the implementation of new laws and regulations, as well as improved enforcement through the creation of new institutions and the strengthening of existing ones.

Nevertheless, a common critique is that implementation is lacking and that the promises of FTA provisions have not been fulfilled. Targets and commitments are not clear; priorities tend to shift away from labor and environmental issues; enforcement action is only very rarely taken by the state parties; and stakeholders are inadequately informed of or responded to in the complaint process.

These experiences, however, provide lessons for future agreements, such as the TPP.

Until the draft text of that treaty is made public, it is impossible to assess whether it places sufficient emphasis on monitoring, implementation and enforcement of provisions that can ensure trade and investment and advance rather than hinder efforts to further strengthen environmental protection and labor rights. The region’s record on FTAs shows the importance of transparent and enforceable rules developed through a multi-stakeholder process.

If our governments pay close attention to those lessons, the labor and environmental chapters of the TPP can be a landmark achievement.

Endnotes

Like what you've read? Subscribe to AQ for more.
Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: TPP, Free Trade Agreement, trade




Like what you're reading?

Subscribe to Americas Quarterly's free Week in Review newsletter and stay up-to-date on politics, business and culture in the Americas.