Trade and Labour in Free Trade Agreements An Exploration of the Evolution Draft for comments Biswajit Dhar Genesis of the Issue of Labour in the Global Trading Regime Trade and labour related issues have been inextricably linked to one another since the inception of the multilateral trading system that was established with the adoption of the General Agreement on Tariffs and Trade (GATT) in 1947 1. The GATT was adopted to counteract the rise in restrictive trade barriers leading to the decline in world trade during the interwar years, so as to ensure that trade could recover with expanding production and full employment. The Agreement emphasised in its preamble that relations in the field of trade and economic endeavour [between the Contracting Parties] should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand... Importantly, the GATT resulted from the discussions that were initiated under the aegis of the United Nations Conference on Trade and Employment 2. Trade was therefore seen as a critical means for achieving full employment and to augment the productive resources in the global economy. The GATT was seen as an interim arrangement that was expected to be replaced by the proposed International Trade Organization (ITO) after the adoption of the Havana Charter in 1948. The Havana Charter, which provided the underpinnings of the ITO, made explicit the importance of realising the goal of what it called useful employment opportunities at its very outset. Article 2 of the Havana Charter elaborated on the Importance of Employment, Production and Demand and reflected a broad agreement among the potential members of the ITO that the avoidance of unemployment or underemployment, through the achievement and maintenance in each country of useful employment opportunities for those able and willing to work and of a large and steadily growing volume of production and effective demand for goods and services, is not of domestic concern alone, but is also a necessary condition for the achievement of... the expansion of international trade, and thus for the wellbeing of all other countries. 1 23 countries endorsed the GATT 2 Economic and Social Council of the United Nations, by a resolution dated February 18, 1946, resolved to call an International Conference on Trade and Employment for the purpose of promoting the expansion of the production, exchange and consumption of goods.
Perhaps more importantly, the Havana Charter expressed the need to follow fair labour standards 3. This was done in three parts. In the first instance, it stated that measures relating to employment must take fully into account the rights of workers under intergovernmental declarations, conventions and agreements. Secondly, it emphasised that all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit. And, finally, it expressed the common view of the participating countries that unfair labour conditions, particularly in production for export, create difficulties in international trade, and, accordingly, each Member shall take whatever action may be appropriate and feasible to eliminate such conditions within its territory. Potential members of the ITO were expected to give effect to the aforementioned objectives together with the International Labour Organisation (ILO). The ITO could not be established because the United States Congress refused to ratify the Havana Charter. The GATT, therefore, remained an ad hoc agreement that was entrusted with the responsibility of putting in place multilaterally agreed set of rules for the conduct of global trade. However, some of the broader objectives enunciated by the Havana Charter remained as the guide posts for the multilateral trading system. Contracting Parties to the GATT recognised that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods... Thus, ensuring fair conditions for labour was a key objective, although, the GATT Contracting Parties rarely gave it serious consideration. The only exception was made in the form of a provision that allowed a Contracting Party to use trade restrictions against another Party that was trading in products of prison labour 4. The issue of labour standards was discussed within the framework of the GATT for the first time in the meeting of the Consultative Group of Eighteen 5 in 1978. Representative of one member expressed the view that his government was concerned with internationally accepted standards in the area of forced labour, child labour and worker exposure to toxic substances 6 ; a statement that was interpreted by other members as a suggestion to link trade and labour standards. However, this representative clarified that he recognized that it was difficult to segregate unfair labour standards from prevailing socio-economic conditions and emphasized that his government was not proposing to penalize poverty. 3 Article 7 of the Havana Charter. 4 Article XX(e) of GATT 5 This group was established in July 1975 as a result of a recommendation of the Committee of Twenty Finance Ministers after the breakdown of Bretton Woods System in 1973. The Group had three functions: (i) to maintain trade policies consistent with the objectives and principles of the GATT; (ii) to forestall sudden disturbances that could threaten the multilateral trading system and to act if such disturbances do occur; and (iii) improve coordination with the International Monetary Fund. 6 GATT (1978), Note on the Seventh Meeting of the Consultative Group of Eighteen: 8-9 June 1978, Consultative Group of Eighteen, Seventh Meeting, paragraph 22, page 7. 2
Other members argued that the proposals to enforce labour standards through import restrictions were often driven by pure protectionist sentiments. They expressed their scepticism regarding the feasibility and appropriateness of defining and implementing fair labour standards in the framework of GATT rather than the International Labour Organisation. 7 These contending positions regarding the linkage of trade rules with labour standards were the forerunner to more intense discussions that the successor organisation to the GATT, the World Trade Organization (WTO), has witnessed in the more recent decades. Arguments for linking trade and labour standards were made more explicitly by the United States in a submission to a subsequent meeting of the Consultative Group of Eighteen. In its submission, the United States opined that the GATT should consider the possibility of implementing some Minimum International Labour Standards (MILS) with respect to traded goods since many countries do not provide minimum standards on safety and health in the work place, besides offering wages lower than the statutorily agreed minimum 8. These conditions faced by the workers, according to the United States, militated against the objectives of the GATT, which was to improve the living standards. The GATT cannot afford to ignore this perception, since it weakens support for trade liberalization and may even lead to demands for additional barriers to trade. In the run-up to the Uruguay Round of multilateral trade negotiations, the United States made a strong pitch for introducing the issue of workers rights as a part of the GATT disciplines, while suggesting the language to be included in the draft declaration of the negotiations 9. Justifying its position, the United States argued in its submission that trade distortions can arise if workers are denied their rights, especially when differentially lower standards are officially sanctioned in particular sectors or industries. The submission made two specific points in support of its position. First, [I]nadequate worker rights or standards in one country, through their effect on trade, can influence conditions in other countries, and two, artificially low standards in an exporting country can lead to declining standards in an importing country, thereby creating pressure for trade-restrictive actions. These effects of denying workers their rights, according to the United States, could adversely affect standards in competing exporting countries and therefore, international trading patterns should not be determined by failure to respect worker rights. 7 GATT (1978), Note on the Seventh Meeting of the Consultative Group of Eighteen: 8-9 June 1978, Consultative Group of Eighteen, Seventh Meeting, paragraph 22, page 7. 8 GATT (1979), Minimum International Labour Standards, Consultative Group of Eighteen, 11 October, CG.18/W/34, p. 1. 9 The United States proposed the following language: Ministers recognize that denial of worker rights can impede attainment of the objectives of the GATT and can lead to trade distortions, thereby increasing pressures for trade-restrictive measures. Accordingly, the negotiations should review the effect of denial of worker rights on contracting parties, and the relationship of worker rights to GATT Articles and objectives and related instruments, and consider possible ways of dealing with worker rights issues in the GATT so as to ensure that expanded trade benefits all workers in all countries. See, GATT (1986), Worker Rights, Preparatory Committee, PREP.COM(86)W/43, 25 June, p. 1. 3
During the Uruguay Round negotiations, the United States provided a further elaboration of its position regarding inclusion of labour standards within the ambit of the multilateral trading system, while requesting the setting up of a working party to examine this issue. United States view was that the working party should explore the possible relationship of internationally-recognized labour standards to international trade and to the attainment of the objectives of the General Agreement. The international labour standards should include, freedom to organize and bargain collectively, freedom from forced or compulsory labour, a minimum age for the employment of children, and, measures setting minimum standards in respect of conditions of work. Although the United States proposal was supported by the developed countries, including the Nordics and the European Communities 10, consensus on the issue could not be reached because of the strong opposition of the developing countries. The primary concern of these countries was that labour standards could be used as discriminatory barriers to trade since the GATT did not have the competence to deal with this issue. India s opposition to the inclusion of labour standards in the GATT was two-fold: one, the ILO was the organisation responsible for issues relating to labour standards, and two, there was no case for linking trade and labour standards, because many other issues could then be linked to international trade, such as factors of production. 11 A second dimension of the linkage between trade and labour developed in the Uruguay Round negotiations through the inclusion of trade in services in the multilateral trade negotiations. Until the Uruguay Round negotiations, the GATT was entrusted with the responsibilities for developing the rules only for the trade in goods. Trade in services was brought under the ambit of the GATT along with a number of other issues during the Uruguay Round. In the discussion preceding the negotiations on this issue, it was recognised that temporary movement of personnel would have to be an integral part of the services trade 12. In their submissions during the negotiations for developing a structure trade Developing countries emphasised the importance of movement of personnel for their economies. In a joint paper in which they spelt out the Multilateral Framework of Principles and Rules for Trade in Services, a group of developing countries, including India and China, pushed for the GATT Contracting Parties to recognise that the export potential of developing countries Parties depends largely on the liberalization of cross-border movement of personnel covering the 10 GATT (1989), Minutes of Meeting held in the Centre William Rappard on 21-22 June 1989, C/M/234, 31 July, pp. 75-76. 11 GATT (1989), Minutes of Meeting held in the Centre William Rappard on 21-22 June 1989, C/M/234, 31 July, p. 75. 12 This point was made by the European Community in the discussion held in preparatory meetings for the Uruguay Round. See for details, GATT (1985), Services: Minutes of the Meeting held on 17 October 1985, MDF/26, 13 October, p. 14. 4
entire spectrum of skills from unskilled or semi-skilled to high-skilled professionals. 13 These countries therefore sought a commitment from the developed countries Parties that they would liberalize their national regimes so as not only to enable developing country firms supplying services abroad to recruit personnel from their own domestic sources, but also to permit service firms to recruit personnel from the source which is economically most advantageous. A second submission was made by another group of developing countries that proposed the inclusion of an Annex on Temporary Movement of Services Personnel, specifying the rights and responsibilities of the personnel who crossed international boundaries for rendering commercial services 14. This development became the basis for the consensus to include in the General Agreement on Trade in Services, movement of natural persons as one of the four modes through which services trade could take place, namely, Mode 4. The end of the Uruguay Round was but the first phase of the efforts to bring about a more comprehensive linkage between trade and labour, in particular, through the inclusion of labour standards. As we shall see below, the establishment of the WTO in 1995 saw the continued efforts by the advanced countries to have labour standards included in the trade rules. Labour Standards and WTO Discussions on the inclusion of labour standards within the multilateral trade rules began with the establishment of the WTO. The trigger for these discussions was the preambular language of the Marrakesh Agreement Establishing the WTO, which had, like the GATT, emphasised that relations [between WTO Members] in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand... The first Ministerial Conference of the organization that took place in 1995, considered the issue and decided against decided against dealing it in the WTO, acknowledging the competence of the ILO to deal with it. The decision taken by the Ministers is selfexplanatory: We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must 13 GATT (1990), Communication from Cameroon, China, Egypt, India, Kenya, Nigeria and Tanzania: Multilateral Framework of Principles and Rules for Trade in Services, MTN.GNS/W/101, 4 May, p. 8. 14 GATT (1990), Communication from Argentina, Colombia, Cuba, Egypt, India, Mexico, Pakistan and Peru: Annex on Temporary Movement of Services Personnel, MTN.GNS/W/106, 18 June. 5
in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration. Inclusion of labour standards in the WTO disciplines became a key issue dividing the membership of the organization in the run-up to the third Ministerial Conference in Seattle in 1999. Three prominent positions were taken. First, the United States maintained its past position arguing that WTO should deal with labour standards since it was entrusted with the responsibility of raising standards of living. It therefore sought the establishment of a WTO Working Group on Trade and Labour, which would address the following specific issues: (i) trade and employment; (ii) trade and social protections; (iii) trade and core labour standards; (iv) positive trade policy incentives and core labour standards; (v) trade and forced or exploitive child labour, and, (vi) trade and derogation from national labour standards. A second position was taken by the European Communities which argued for the setting up of a Joint ILO/WTO standing working forum on trade, globalization and labour issues. Further, the European Communities expressed their firm opposition and rejection to any sanction-based approach or to any use of labour rights for protectionist purposes. It was of the view that the comparative advantages of countries, particularly low-wage developing countries, must in no way be put into question. A third position was taken by a large number of developing countries, which, like their pre-wto stance, did not favour inclusion of labour standards in rules of the multilateral trading system. While the Seattle Ministerial Conference could not take any decision due to its premature closure, the issue of trade and labour standards being considered by the WTO was set at rest by the Doha Ministerial Conference in 2001. The Ministers took the following decision in this regard: We reaffirm our declaration made at the Singapore Ministerial Conference regarding internationally recognized core labour standards. We take note of work under way in the International Labour Organization (ILO) on the social dimension of globalization. The focus of the trade and labour standards issue thus shifted to the bilateral free trade agreements (FTAs). The more contemporary among these agreements have not only followed the template provided by the WTO in terms of the coverage of the issues by including services and intellectual property rights, but have also gone beyond to include labour standards. In these agreements, therefore, the issue of labour figures in two ways: first, in the services agreement, through the inclusion of movement of natural persons, or Mode 4, and secondly, through stand-alone provisions on labour standards. In the section below, we shall discuss the manner in which the labour issue has been dealt in several trade agreements, especially those that have been established over the past five years. Labour in Free Trade Agreements In this section, we examine the provisions relating to labour in the free trade agreements (FTAs) that have been signed by two countries, namely, the United States and India, a 6
customs union, namely the European Union (EU), and the members of the ASEAN. Our focus has been on the provisions that have introduced to labour standards, including those that form a part of the Core Convention of the ILO and the treatment of movement of natural persons, market access under Mode 4, in the services agreements of these FTAs. European Union and its Partners We have examined 4 FTAs that the EU members have entered into with partner countries. Of these agreements, 2 agreements, with Chile and Mexico became operational in 2005 or earlier, while the remaining two, with South Korea and Central America, became effective after 2010. In the earlier group, the EU-Mexico FTA covering goods has been in place since 2000 and the corresponding agreement in services became operational in 2001, while the FTA with Chile has been in force since the year 2003. In the latter group, the FTA with South Korea became effective in 2011, and the agreement with Central America became effective in 2013. There are clear variations in the two sets of FTAs that the EC has entered into. The FTAs that became effective in the year 2000 have narrowly defined provisions relating to labour, in sharp contrast to the more recent FTAs, which have more extensive provisions. The provisions in each of these agreements are spelt out below. EU-Mexico FTA in Goods (2000) and Services (2001) The EU-Mexico FTA in goods includes a solitary provision covering labour. This pertains to the restrictions that the partner countries are allowed to impose on prison labour. In the services agreement, except for a few EU members who provided limited Mode 4 access, commitments of market access under Mode 4 (movement of natural persons) was not provided by either partner. EU-Chile FTA (2003) This FTA, a comprehensive agreement covering both goods and services, includes an understanding between the partner countries on Social Cooperation and provisions relating to movement of natural persons under Mode 4 of services trade. In the understanding on Social Cooperation, the two partners recognise the importance of social development, which, in their view, must go hand in hand with economic development. They agreed to give priority to the creation of employment and respect for fundamental social rights, notably by promoting the relevant conventions of the International Labour Organisation covering such topics as the freedom of association, the right to collective bargaining and non-discrimination, the abolition of forced and child labour and equal treatment between men and women. The FTA partners also agreed to give priority to measures, among others, for (i) countering social exclusion involving vulnerable and marginalised social sectors, (ii) promoting the role 7
of women in the economic and social development process and promoting specific programmes for youth; (iii) developing and modernising labour relations, working conditions, social welfare and employment security; (iv) developing an efficient and equitable health system, based on solidarity principles; (v) promoting programmes of land management with special attention to areas with higher social and environmental vulnerability; (vi) promoting respect for human rights, democracy and citizens participation. As regards trade in services, both EU and Chile agreed to allow movement of natural persons under Mode 4 from their respective jurisdictions, subject to a number of sectoral and other regulations. In most sectors, market access in Mode 4 in the EU was subjected to the economic needs test. EU-South Korea FTA (2011) The two partners recognised the value of international cooperation and agreements on employment and labour affairs as a response of the international community to economic, employment and social challenges and opportunities resulting from globalisation. The Parties reaffirmed their commitment, under the 2006 Ministerial Declaration of the UN Economic and Social Council on Full Employment and Decent Work, to recognising full and productive employment and decent work for all as a key element of sustainable development for all countries and as a priority objective of international cooperation and to promoting the development of international trade in a way that is conducive to full and productive employment and decent work for all, including men, women and young people. They expressed their commitment to respect, promote and realise, in their laws and practices, the principles concerning the fundamental rights, namely: (i) freedom of association and the effective recognition of the right to collective bargaining; (ii) the elimination of all forms of forced or compulsory labour; (iii) the effective abolition of child labour; and (iv) the elimination of discrimination in respect of employment and occupation. In the services trade, EU and South Korea have agreed to temporary stay in, their territories of natural persons from each other s territories, a category that includes key personnel, graduate trainees, business services sellers, contractual service suppliers and independent professionals, subject to a number of limitations, both in terms of the sectors and other regulations. It may be noted that the definition of natural persons agreed to in the agreement is limited broadly to professionals and not the entire work force. EU-Central America (2012) EU and six Central American countries, namely Panama, Guatemala, Costa Rica, El Salvador, Honduras and Nicaragua, entered into an Association Agreement, which includes a number of provisions to promote employment and social protection. The two partners agreed abide by the principles identified by the International Labour Organization's Conventions, the so-called Core Labour Standards, in particular as regards the freedom of association, the right to collective bargaining and non discrimination, the abolition of forced 8
and child labour, and equal treatment between men and women. EU and the Central American countries reaffirmed their will to promote the development of macroeconomic policies in a way that is conducive to full and productive employment and decent work for all, including men, women and young people, with full respect for fundamental principles and rights at work under conditions of equity, equality, security and dignity. In agreeing to the FTA, the two partners have reaffirmed their commitments to the core conventions of the ILO by effectively implementing them in their laws and practice, namely, (i) the freedom of association and the effective recognition of the right to collective bargaining; (ii) the elimination of all forms of forced or compulsory labour; (iii) the effective abolition of child labour; and (iv) the elimination of discrimination in respect of employment and occupation. As in the case of the EU-Korea FTA, provisions relating to trade in services in the EU- Central America FTA allow temporary stay in their territories of natural persons that are restricted to key personnel, graduate trainees, business services sellers, contractual services suppliers and independent professionals. Again, following the EU-Korea FTA, market access for the aforementioned natural persons are limited to specific sectors and are subjected to specific conditions. The provisions on labour standards that the EU has agreed to with its partners are in the nature of non-binding provisions. This feature of the provisions is more explicit in the EU- Central America agreement, which, the two partners agree, embodies a cooperative approach based on common values and interests, taking into account the differences in their levels of development and the respect of their current and future needs and aspirations. Further, both recent agreements, EU-Korea and EU-Central America, the partners have recognised their rights to regulate in order to set their own levels of domestic social protection, and to adopt or modify accordingly their relevant laws and policies. United States and its Partners FTAs formalised by the US with its partners have similar provisions dealing with labourrelated issues ever since the first set of FTAs were signed in the early 2000s. Each of the FTAs includes two sets of provisions that are contained in a chapter on labour related issues that has several legally binding provisions and an Annex on Labor Cooperation Mechanism. The latter includes mechanisms to improve labor standards and to further advance common commitments with respect to labor matters. In the chapter on labour, the two partners make explicit their commitments to labour rights in keeping with the Core Conventions of the ILO, stipulated in the FTA as the following: (i) the right of association; (ii) the right to organize and bargain collectively; (iii) a prohibition on the use of any form of forced or compulsory labour; (iv) labour protections for children and young people, including a minimum age for the employment of children and the prohibition and elimination of the worst forms of child labour; and (v) acceptable conditions 9
of work with respect to minimum wages, hours of work, and occupational safety and health. While the agreement recognises the right of each Party to establish its own domestic labor standards, and to adopt or modify accordingly its labor laws and regulations, it also stipulates that each Party shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights (the Core ILO Conventions). These internationally recognized labour rights are to be enforced by the partners in a manner that does not affect their bilateral trade. Importantly, the enforcement of the labour rights, or the lack of it, can be dealt with under the dispute settlement provisions of the FTA. Movement of natural persons required for transacting business in services is allowed is subject to the economic needs test. The FTA provides a mere framework for the services trade, which implies that the market access under Mode 4 is to be solely governed by domestic considerations. ASEAN and its Partners ASEAN has entered into a number of FTAs, including the three we have examined, namely ASEAN-China and ASEAN-Australia/New Zealand. Each of these agreements is minimalistic as far as labour related issues are concerned. ASEAN-China FTA The goods agreement between ASEAN and China that is being implemented since 2005 has a solitary provision relating to labour. The two partners have agreed that they would be free to impose restrictions on products that use prison labour. The services agreement, effective since 2008, includes provisions on movement of natural persons that are based on the General Agreement on Trade in Services of the WTO. The Mode 4 commitments relating to market access are varied across countries. Broadly, ASEAN members, except Indonesia, have imposed relatively few limitations on market access under Mode 4, while China has kept its market largely closed to natural persons from its partner countries. China has specified that it would allow natural persons from ASEAN members as Contractual Service Suppliers in nine sectors, including accounting, medical, tourism, construction, education, computer architectural, engineering and urban planning. ASEAN-Australia/New Zealand ASEAN and Australia-New Zealand adopted an FTA (ASEAN-ANZ FTA) that is operational since 2010. The only reference to labour-related issues is in respect of Mode 4 market access, which is limited to the following categories, business visitors; b) installers and servicers; executives of a business headquartered in a Party establishing a branch or subsidiary, or other commercial presence of that business in another Party; (d) intra-corporate transferees; and contractual service suppliers. However, none of the parties to the FTA had made specific commitments in respect of Mode 4 in their schedule of commitments. 10
India and its Partners India s FTAs with its partners includes provisions on temporary movement of natural persons under Mode 4. This is the only reference to labour-related issues in the four FTAs that we examined, namely, India-ASEAN, India-Japan, India-Korea and India-Malaysia. Although these FTAs use a broad definition of natural persons, i.e. persons who are nationals and have rights of permanent residence, the market access opportunities under Mode 4 are defined only for specific sectors and service providers. Market access opportunities under Mode 4 in different sectors are also subjected to regulations. Conclusions 11