Free rade Agreement does not protect workers’ rights: AFL-CIO

April 9, 2003
Singapore Democrats

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Below is an excerpt of the report on the US-Singapore Free Trade Agreement compiled by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)

The Singapore and Chile FTAs combination of unregulated trade and increased capital mobility not only puts jobs at risk, it places workers in all three countries in more direct competition over the terms and conditions of their employment.

High-road competition based on skills and productivity can be positive for workers, but low-road competition based on low wages, poor working conditions, and weak workers rights drags all workers down into a race to the bottom. Congress recognized this danger in TPA (Trade Act 2002), and directed USTR (United States Trade Representative) to ensure that workers rights would be protected in new trade agreements.

One of the overall negotiating objectives in TPAs section 2102 (a)(6) is to promote respect for workers rights consistent with core labor standards of the ILO in new trade agreements. TPA also included negotiating objectives on the worst forms of child labor, non-derogation from labor laws, and effective enforcement of labor laws.

By focusing exclusively on enforcement of domestic labor laws, the Singapore and Chile FTAs end up creating a perverse incentive. Under the Chile and Singapore FTAs, a country that is challenged for failing to enforce its existing labor laws could simply weaken or eliminate those laws to avoid dispute settlement. A country could amend its laws to ban unions, allow child labor and force labor, and invalidate agreements. This makes a mockery of the agreements one enforceable labor provision, essentially gutting the entire labor chapter of both agreements. This is an absurd and self-defeating policy that would not be tolerated in an area of concern to business.

Even for the one obligation that is subject ti dispute resolution the requirement to effectively enforce domestic laws the procedures and remedies for addressing violations are significantly weaker than those available for commercial disputes in the agreements. This directly violates section 2102 (b)(12) (G) of TPA, which instructs our negotiators to seek provisions in trade agreements that treat United States principal negotiating objectives equally with respect to (i) the ability to resort to dispute settlement under the applicable agreement; (ii) the availability of equivalent dispute settlement procedures; and (iii) the availability of equivalent remedies. The Chile and Singapore FTAs do not treat all negotiating objectives equally, and they do not provide equivalent dispute settlement procedures and equivalent remedies for all disputes.

The labor enforcement procedures allow parties to opt for longer timelines for consultations, cap the maximum amount of fines and sanctions available at an unacceptable low level, and allow violators to pay fines to themselves with little oversight.

These provisions not only make the labor provisions of the agreements virtually unenforceable, they also differ dramatically from the enforcement procedures and remedies available for commercial disputes. The following examples from both agreements demonstrate the disparate treatment accorded to disputes regarding the enforcement of labor laws:

Parties must first go through 60 days of consultation under the labor chapter before they can report to dispute resolution. Parties can further delay resolution of a dispute by going through a second round of consultations under the dispute settlement chapter before finally proceeding to an arbitral panel. While this second stage of consultations is not required, parties are free to choose the second stage of consultations in order to slow down labor disputes and delay the availability of remedies.

Under the rules governing commercial disputes, the suspension of trade benefits authorized to sanction a violation should have an effect equivalent to that of the disputed measure [i.e., the measure that violates the agreement], Yet under the rules governing labor disputes, the amount of a monetary assessment is not just based on the harm caused by the disputed measure. Instead, the panel also takes into consideration numerous other factors, many of which could be used to justify a lower, and thus less effective, sanction. These factors include the reason a party failed to enforce its labor law, the level of enforcement that could be reasonably expected, and any other relevant factors.

In commercial disputes, the violating party can choose to pay a monetary assessment instead of enduring trade sanctions (the sanctions are supposed to equal the harm caused by the offending measure, as explained above), and in such cases the assessment will be capped at an absolute level, no matter what the level of harm caused by the offending measure.

Not only are the fines for labor disputes capped, but the level of the cap is so low that the fines will have little if any deterrence effect. The cap in the Chile agreement is $15 million (the amount of the cap is not finalized in the version of the Singapore agreement available to the LAC). This amount to less than three percent of the import charges we collected on Singaporean products in 2002. As a percentage of total bilateral trade volume, the cap is less than 0.24% of our trade with Chile and less than 0.05% of our trade with Singapore last year.

Not only are the caps on fines much lower for labor disputes, but any possibility of trade sanctions is much lower as well. In commercial disputes, a party can suspend the full original amount of trade benefits (equal to the harm caused by the offending measure) if a monetary assessment (capped at half that value) is not paid. In a labor dispute, the level of trade benefits a party can revoke if a monetary assessment is not paid is limited to the value of the assessment itself, or $15 million.

Finally, the fines are robbed of all punitive or deterrent effect by the manner of their payment. While the LAC supports providing financial and technical assistance to help countries improve labor rights (and all members of the LAC were appalled to see the funds for such activities in the administrations budget for 2004 slashed from $148 million to just $12 million), such assistance is not a substitute for the availability of punitive sanctions in cases where governments refuse to respect workers rights in order to gain economic or political advantages. In commercial disputes under the Chile and Singapore FTAs, the deterrent effect of punitive sanctions is clearly recognized it is presumed that any monetary assessment will be paid out by the violating party to the complaining party, unless a panel decide otherwise. Yet for labor disputes, a monetary assessment is automatically paid into a fund to improve labor law administration in the violating country, thus compensating the violator for its failure to effectively enforce its own laws. There are no explicit provisions to prevent a violator from simply shifting its budgeting, and thus no assurance that the assessment will actually provide additional money for enforcement. Whether money will actually be spent on enforcement, rather than the kinds of conferences and seminars that have failed to improve workers rights under the NAFTA labor side agreement, is also not addressed.

The labor provisions in the Chile and Singapore FTAs are woefully inadequate. They fall short of the Jordan FTA and GSP. They also clearly fall short of the TPA negotiating objectives. They will be extremely difficult to enforce with any efficacy, and any monetary assessments that are imposed will be inadequate to actually remedy violations. In sum, the Chile and Singapore FTAs will do very little to actually ensure that core workers rights are respected and improved in the U.S., Chile, and Singapore.