Franz C. Ebert Anne Posthuma. Labour provisions in trade arrangements: current trends and perspectives

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1 Franz C. Ebert Anne Posthuma Labour provisions in trade arrangements: current trends and perspectives

2 The International Institute for Labour Studies was established in 1960 as an autonomous facility of the International Labour Organization (ILO). Its mandate is to promote policy research and public discussion on issues of concern to the ILO and its constituents government, business and labour. The Discussion Paper Series presents the preliminary results of research undertaken by or for the IILS. The documents are issued with a view to eliciting reactions and comments before they are published in their final form.

3 Labour provisions in trade arrangements: current trends and perspectives Franz Christian Ebert Anne Posthuma INTERNATIONAL LABOUR ORGANIZATION INTERNATIONAL INSTITUTE FOR LABOUR STUDIES

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5 Copyright International Labour Organization (International Institute for Labour Studies) Short excerpts from this publication may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Editor, International Institute for Labour Studies, P.O. Box 6, CH-1211 Geneva 22 (Switzerland). Web/pdf: First published 2011 The responsibility for opinions expressed in this paper rests solely with its author, and its publication does not constitute an endorsement by the International Institute for Labour Studies of the opinions expressed. Requests for this publication should be sent to: IILS Publications, International Institute for Labour Studies, P.O. Box 6, CH-1211 Geneva 22 (Switzerland). v

6 Table of Contents Preface... v Introduction A variety of approaches regarding labour provisions in trade arrangements The quantitative significance of labour provisions in trade arrangements Normative content and legal implications of the labour provisions Labour provisions in unilateral systems of trade preferences The United States Generalized System of Preferences (GSP) and other unilateral instruments The European Union s General System of Preferences Labour provisions in trade agreements Trade agreements concluded by the United States Trade agreements concluded by Canada Trade agreements concluded by the EU Trade agreements concluded by Asian and African countries and areas Trade agreements concluded by Latin American and Caribbean countries What are the practical implications of labour provisions? Experiences with the sanction-based elements of labour provisions Sanction-based labour provisions as an instrument for the implementation of labour standards Cases filed Evidence of impact of the sanction-based labour provisions on the situation of workers Experiences with the incentive-based elements of labour provisions Experiences with the promotional elements of labour provisions Concluding remarks References... 31

7 Preface The global crisis which was triggered by the collapse of the financial system in 2008 has led to renewed debate on how to improve the distribution of the gains from glob-alization. Prior to the crisis, income inequalities had grown in the majority of countries. In some developing economies, for example, economic growth associated with freer trade and investment had mainly benefited certain groups. These benefits did not suf-ficiently trickle down to the rest of the population and did not translate into much greater investment in education, health, infrastructure or other public goods which pave the way for sustainable prosperity. In some developed countries, pre-crisis eco-nomic growth went hand-in-hand with a disproportionate increase in the income share of the richest people. Meanwhile, real median wages stagnated. This, combined with dysfunctional financial practices, contributed to excessive recourse to debt among households. Therefore, the issue arises as to how to make globalization fairer. The present paper examines a specific dimension of this debate, namely the inclusion of labour provi-sions which aim at promoting respect for worker rights along with greater economic integration in trade arrangements. As the paper shows, the number of bilateral and regional trade agreements which include labour provisions has grown spectacularly over the past two decades. Attention is devoted to both the normative contents and the legal consequences of the labour provisions. Also, a preliminary account of the application of trade-related labour provisions in practice is provided. Interestingly, the paper documents an increasing incidence of labour provisions in South-South trade agreements. The study, based on an in-depth examination of over 150 trade agreements, provides an important empirical contribution to the debate on the rebalancing of the world economy. Raymond Torres Director International Institute for Labour Studies v

8 Introduction Numerous approaches have sought to ensure trade liberalization will contribute to improved social conditions, including the insertion of so-called labour provisions in international trade law instruments. 1 A debate arose in the 1990s over the efforts to integrate labour provisions into the multilateral legal framework of the World Trade Organization (WTO), led by the United States and various trade union organizations. 2 This movement was accompanied by the development of a uniform standard of reference consisting of the four Core Labour Standards (CLS) 3 embodied in the ILO Declaration of However, agreement on a possible labour dimension of the WTO framework has proved to be difficult to achieve (see e.g. Servais, 2008). 5 In light of the deadlock at the multilateral level, efforts to build a labour dimension into international trade relations have continued to unfold through various other channels. Basing themselves on the WTO Enabling Clause, 6 a number of countries have since the seventies created unilateral systems of preferential market access for developing countries subject to normative conditionality (Vincent, 2005). At the same time, bilateral and regional trade agreements have proliferated considerably during the last 1 In this paper, the term labour provisions is defined as comprising (i) any labour standard which establishes minimum working conditions, terms of employment or worker rights, (ii) any norm on the protection provided to workers under national labour law and its enforcement, as well as (iii) any regulatory framework for cooperation in and/or monitoring of these issues. Where reference is made to the standards established by the ILO, the terms international labour standards (ILS) or ILO instruments will be used. 2 This has been studied extensively: see Charnovitz, 1987; Meng, 2004; McCrudden/Davies, 2005; Supiot, In addition, there is a discussion as to whether the existing WTO law framework does at least allow the Contracting Parties to impose trade sanctions on countries with severe labour rights violations (Robert, 1996; Blüthner, 2005; Chatton 2006; Marceau 2008). 3 As will be seen in this chapter, the CLS have been a point of reference in the elaboration of labour provisions within many trade agreements. More recently, the ILO s 2008 Declaration on Social Justice for a Fair Globalization has further elaborated the implications of these fundamental labour standards. This Declaration states, among other things, that the violation of fundamental principles and rights at work cannot be invoked or otherwise used as a legitimate comparative advantage and that labour standards should not be used for protectionist trade purposes (ILO, 2008). 4 This instrument, which is further specified in the eight ILO Fundamental Conventions, requires ILO member States to comply with and promote rights and principles in four areas: Freedom of association and the effective recognition of the right to collective bargaining; elimination of all forms of forced or compulsory labour; effective abolition of child labour; and elimination of discrimination in respect of employment and occupation. This applies regardless of whether the Member State has ratified the eight relevant ILO Fundamental Conventions (No. 29, 87, 98, 100, 105, 111, 138, and 182). 5 See in this regard the Singapore Ministerial Declaration, WTO Ministerial Conference, Singapore, 9 13 December 1996, available at: which states as follows: 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 in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration. 6 See WTO, Decision of 28 November 1979 (L/4903), Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries. 1

9 two decades. 7 Numerous states have taken these decentralized approaches as an opportunity to include a labour dimension into their trade relations. 8 So far, the debate on labour provisions in trade arrangements has mainly focused on the arrangements included in US and EU trade instruments. However, beyond that, numerous other trade arrangements involving labour provisions have emerged over the last decades, including by trade actors such as Chile, New Zealand and various regional integration organizations. These labour provisions are often based on diverse approaches to integrating labour concerns into trade relations that vary considerably concerning their nature, scope, and leverage. This paper proposes to widen the scope of the debate by offering a comprehensive account of the old as well as of the new models of labour provisions currently included into trade arrangements. Hereby, the focus is both on unilateral systems of trade preferences and on bilateral and regional trade agreements. The paper proceeds in four steps: First, an overview of the different conceptual approaches vis-à-vis labour provisions in trade arrangements is provided. Second, we analyze the quantitative significance of the phenomenon, arguing that the incidence of labour provisions in trade agreements has significantly risen in the last two decades. Third, an analysis of the normative content and the legal consequences of the different labour provisions is provided. Fourth, given its importance for practice and policymaking, the paper undertakes an analysis of preliminary evidence available on the practical implications of these labour provisions, highlighting the need for further research in this area. 1. A variety of approaches regarding labour provisions in trade arrangements Labour provisions have been included in numerous trade arrangements, which can be characterized as either unilateral trade arrangements or trade agreements concluded by two or more parties, which will be examined in this section. While many trade agreements only cover trade-related aspects, other so called integration agreements also deal with broader economic issues, such as infrastructure programmes. Labour provisions may be included into the trade instrument itself, or in accessory documents, such as side agreements or memoranda of understanding, the latter often being not legally binding. Labour provisions themselves differ considerably in various regards. In terms of legal implications, they may entail legally binding normative standards or remain at the stage of simple political commitments. With regard to their normative content, labour provisions differ firstly in terms of the standards to which they refer: some of these provisions commit countries to adhere to certain international labour standards, referring either to the CLS defined in the 1998 Declaration, to ILO Conventions, or to the less clearly defined internationally-recognized workers rights. The parties may also commit to enforcing labour standards under their own national labour law. As regards the nature of the engagements subscribed, some labour provisions commit the parties to raise the level of protection of their 7 This has led to a growing number of trade agreements which are increasingly less geographically bound and has also resulted in an increasing number of South-South trade agreements (Fiorentino et al., 2006). 8 See also Siroën et al., 2008; Lazo Grandi, 2009; Lukas/Steinkellner,

10 labour laws progressively, while others only require that countries refrain from engaging in regulatory competition, i.e. the downgrading of labour regulation standards with a view to promoting exports or investment. Labour provisions may also provide for or encourage cooperation and technical assistance on labour issues, in the form of exchange of information and technical or financial assistance. The scope of the application of labour provisions in trade agreements also varies considerably. This may be restricted to labour issues concerning trade relations between the parties, or apply to trade issues more generally. Labour provisions may even apply more broadly to all labour issues within and between the parties, regardless of their being or not linked to trade. Importantly, labour provisions also differ according to the mechanisms established to ensure the effective application of the norms. For the purposes of the present chapter, a distinction is made between promotional labour provisions, focusing on supervision and/or capacity building, and conditional labour provisions, which provide additionally or exclusively for incentive or sanction-mechanisms. 9 One can thus distinguish between incentives, sanction mechanisms as well as dialogue and monitoring. Some trade arrangements thus provide positive incentives for countries to comply with certain labour standards, for example in the form of additional trade concessions. Conversely, the breach of labour provisions may allow the parties to withhold trade advantages provided for by the arrangements (such as tariff preferences), 10 or to resort to non-trade-related sanction mechanisms (such as monetary fines or the suspension of cooperative activities). In this regard, it should be noted though that the sanction-based labour provisions typically encourage prior consultation in order to avoid recourse to sanctions (Bourgeois et al., 2007). Finally, labour provisions may provide for regular dialogue among the parties, monitoring conducted by expert bodies, and/or cooperation activities (e.g. knowledge sharing and development cooperation). Importantly, labour provisions can either combine (some of) the above elements or focus on one of them. 9 While a large proportion of trade agreements contains references to labour concerns in their preamble or in their general objectives, this study remains limited to labour provisions that contain specific labour standards and/or a framework for cooperation, monitoring or consultation on this issue. For an analysis of the labour dimension of the preambles of selected trade agreements see Bourgeois et al. (2007). Also, the vast number of provisions on human resource development and labour migration lies outside the scope of the study. 10 Some trade agreements exempt the parties from the obligations under the trade agreement for certain labourrelated reasons. However, these provisions differ from others in that they do not contain requirements in the area of labour which a state has to comply with, but rather an exception to the obligations of the trade agreement. They are therefore not considered a labour provision for the purpose of this study. Most of these provisions are very limited, referring only to prison labour. Only one agreement refers to child labour (the Agreement on the Caribbean Community and Common Market of 1997). 3

11 Figure 1: Different implementation mechanisms used in labour provisions Mechanisms used in trade-linked labour provisions Conditional elements Promotional elements Sanction-based Incentive-based Dialogue-based Cooperationbased Elimination of trade preferences Increase of trade preferences Bilateral/plurilat eral dialogue Knowledgesharing Fines/Reduction of technical assistance Increase of development cooperation Monitoring through treaty body Development assistance 2. The quantitative significance of labour provisions in trade arrangements The quantification of trade arrangements, in particular trade agreements, is a difficult task, considering their decentralized character and the speed of their proliferation in recent years (Fiorentino et al., 2006). The following calculations are based on the data provided as of December 2009 in the WTO Regional Trade Agreements Information System, 11 which lists trade agreements notified to the WTO, and on the UNCTAD website, which lists General System of Preferences (GSPs) currently in force. 12 In 2009, two of the eleven existing GSPs included conditional labour provisions while 37 of the 186 trade agreements in force at that time and notified to the WTO, had included 17 conditional and 20 promotional labour provisions (see table 1). 13 As shown in Figure 2, Panel A, this was preceded by a steep rise of the number of trade agreements with conditional and promotional labour provisions during the past 20 years. While no agreement containing 11 See at 12 There are currently eleven unilateral GSPs, adopted by Australia, Belarus, Canada, the European Union, Japan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey and the United States, see See further Melchior (2005). 13 This figure refers to the so-called integrated trade agreements notified to the WTO. According to this method of calculation, trade provisions negotiated between the same parties on goods and services, respectively, are counted as one trade agreement regardless of whether they are strictly contained in the same agreement (which is most frequently the case) or not. Also, mere acts of accession to already existing trade agreements are not counted. 4

12 labour provisions had entered into force in 1990, the number had risen to 14 promotional and seven conditional provisions, respectively, by 2005 and increased again in the following four years to 20 promotional and 17 conditional labour provisions in Total number Table 1. Incidence of trade arrangements with labour provisions in 2009 Generalized systems Trade agreements of preferences Number including Total Number including Number including conditional labour number conditional labour promotional labour provisions provisions provisions Source: IILS, based on information collected on trade agreements and policies as of December Figure 3 compares the share of such agreements that came into force over three successive periods. While only four percent of the trade agreements that entered into force in contained labour provisions, this share rose to eleven percent for More recently, the incidence of labour provisions in trade agreements was again multiplied by 3 for , so that it comprised nearly one-third of all trade agreements which entered into force over that period Note that the earlier Accession Agreements concluded by the EU are not included in these figures. 15 The percentage refers to integrated trade agreements (see above) without the accession agreements and preceding agreements with states that are meanwhile EU member states. Where the labour provisions were added to the trade agreement after the agreement s entry into force, the figure refers to the date of entry into force of the trade agreement. 5

13 Figure 2. The rising trend in the number of trade agreements with labour provisions* Panel A. Evolution in numbers of labour provisions in bilateral and regional trade agreements between 1990 and 2009 Panel B. Evolution in numbers of labour provisions in bilateral and regional trade agreements concluded between developing economies between 1990 and Conditional Pr omotional Note: * The data on 2009 refer to the period from 1 January of 2009 to 29 October of Source: IILS estimates based on the WTO Regional Trade Agreements Information System and information of national governments and treaty bodies. Furthermore, the research revealed an important and under-researched trend: labour provisions are involved not only in North South trade agreements, but also in a growing number of agreements between developing economies themselves. Indeed, there has been an increase in the number of agreements to which only developing economies are parties (Fiorentino et al., 2006). Figure 1, Panel B shows that while no South-South trade agreements contained labour provisions in 1990, nine trade agreements including labour provisions have been signed in 2009 between developing economies. 16 An analysis of these provisions indicates that with one single exception, only promotional labour provisions have been involved in these cases. 17 This finding raises an important consideration as regards the apparent preference for using promotional labour provisions and exchange of information between trading partners in developing and emerging economies, rather than conditional provisions. 16 In light of the fierce competition among developing countries, some academics see a need for a labour dimension in South-South trade relations in order to prevent a race to the bottom in terms of labour standards among these countries (see e.g. Chan/Ross, 2003). 17 Of these agreements, only the Taiwan, China-Nicaragua Trade Agreement contains a labour provision that can, in principle, lead to the suspension of trade benefits. 6

14 Figure 3. Share of trade agreements with labour provisions compared to the total number of trade agreements entered into force from * In percent Note: * The data on 2009 refer to the period from 1 January of 2009 to 29 October of Source: IILS estimates based on the WTO Regional Trade Agreements Information System and information from national governments and treaty bodies. The normative content of labour provisions in trade agreements has also evolved. About 60 percent of the labour provisions in trade agreements in force by the end of 2009 and examined in this study had made specific reference to the ILO 1998 Declaration or to ILO Conventions. As seen in this section, the research reveals that labour provisions have become an increasingly common element of trade agreements. However, as shown in the following section, the normative content and the legal implications of these labour provisions has varied significantly, warranting a closer analysis of the individual provisions. 3. Normative content and legal implications of the labour provisions Labour provisions in unilateral systems of trade preferences The United States Generalized System of Preferences (GSP) and other unilateral instruments The incorporation of conditional labour provisions into the United States GSP dates back to 1984 and has not undergone fundamental reforms since then. This arrangement establishes as a condition for eligibility in the system s trade preferences, that the candidate country must have taken or is taking steps to afford internationally recognized worker rights. To support the enforcement of this condition, submissions alleging a breach of this provision may be filed by the social partners or relevant civil society organizations. The US administration 18 The following discussion of bilateral and regional trade agreements draws upon the 186 trade agreements which were in force and notified to the WTO by 29 October In addition, ten agreements which had not been notified to the WTO by the end of December 2009 are taken into account for illustration purposes. 7

15 retains, however, a margin of discretion regarding the application of this provision. 19 Similar labour provisions have been inserted by the United States into further-reaching preferential trade arrangements, such as the Caribbean Basin Recovery Act (1990), the Andean Trade Preference Act (1991) 20 and the African Growth and Opportunity Act (2000) (Greven, 2005) The European Union s General System of Preferences In 1995, the European Union (EU) 22 followed and introduced conditional labour provisions into its GSP, which has then considerably evolved though successive reforms (Novitz, 2005), as outlined in table 2. Table 2. Evolution of labour provisions in the EU GSP, from 1995 to 2002 Generations Reference to ILO instruments Enforcement mechanisms 1 st Generation (1995)* 2 nd Generation (1999)* 3 rd Generation (2002)* Conventions No. 29 and 105 Conventions No. 29 and 105 (for sanction-based labour provisions) Conventions No. 87, 98, and 138 (for incentive-based labour provisions) 1998 Declaration, all Fundamental Conventions Withdrawal of trade preferences in the case of systematic and serious violations of these Conventions Withdrawal of trade preferences in case of systematic and serious violations of ILO Conventions No. 29 and 105 Additional preferences for effective implementation of ILO Conventions No. 87, 98, and 138 Withdrawal of trade preferences in case of systematic and serious violations of the ILO Fundamental Conventions Additional preferences for effective implementation of the ILO Fundamental Conventions** Notes: * Dates refer to the year in which the EU regulation entered into force. ** Since 2006, countries additionally must have ratified all ILO Fundamental Conventions in order to be eligible for the additional preferences. Source: IILS, based on information collected on EU trade arrangements. Particularly noteworthy in the evolution of the EU GSP is the shift from a merely sanctionbased approach to a twofold carrot and stick approach, involving both sanctions in the event of systematic and serious violations of the labour provisions, and additional 19 For instance, the application of the labour provisions of the US GSP can be waived for reasons of national economic interest, leaving authorities a significant margin of discretion (Greven, 2005). 20 The Andean Trade Preference Act was subsequently amended by the e Andean Trade Promotion and Drug Eradication Act of In addition, the US Congress enacted trade regulation, which makes the continuous denial of labour standards covered by the GSP labour provisions subject to trade sanctions, including the withdrawal of trade benefits (Section 301(b) and (d) of the US Omnibus Trade and Tariff Act 1974, as amended in 1984) and banning from the US market goods produced by child labour (Bonded Child Labour Elimination Act 1930, as amended in 1997). However, as this study only deals with labour provisions in trade agreements and unilateral systems of trade preferences, these instruments are beyond the scope of this chapter. 22 After the entry into force of the Treaty of Lisbon on 1 December 2009 the European Union replaced the European Community (EC), which was until then the legal entity dealing with the trade issues of the EU Member States. Where this paper refers to specific legal acts, the original titles (referring to the EC) will be used. 8

16 preferences in the event of full implementation of these rights. 23 Rather than developing its own criteria for labour standards, the EU has increasingly and consistently referred to the relevant ILO conventions (Dispersyn, 2001, 2005). Though initially, the EU GSP only referred to some of the ILO Fundamental Conventions, the EU has, following the 1998 Declaration, successively increased the scope of its two labour provisions so that since 2002, all eight ILO Fundamental Conventions are covered Labour provisions in trade agreements Trade agreements concluded by the United States The Unites States have been the main proponent of conditional labour provisions in bilateral and regional trade agreements. The first agreement which linked labour provisions to economic consequences was the 1994 North American Agreement on Labor Cooperation (NAALC), a side agreement to the North American Free Trade agreement (NAFTA) concluded between the United States, Canada and Mexico. The United States developed this approach further in later trade agreements (see also Elliott, 2000; Rogowsky and Chyn, 2007), an overview of which is provided in table 3. Table 3. Evolution of labour provisions in US trade agreements from 1994 to 2009 Reference Scope and content of labour provisions Enforcement to ILO mechanisms instruments Name and date of entry into force of the trade agreements NAFTA/NAALC (1994) Trade Agreement with Jordan (2001) Trade Agreements with Chile (2004), Singapore (2004), No ILO 1998 Declaration ILO 1998 Declaration, Convention Strive for a high level of national labour laws in the area of CLS, as well as minimum working conditions** and migrant rights Enforcement of labour laws in these areas*** Strive to ensure CLS (except nondiscrimination) and minimum working conditions Enforcement of labour laws in these areas*** No encouragement of trade or foreign direct investment through weakening labour laws Strive to ensure CLS (except nondiscrimination) and minimum working conditions Fines up to US$ 20 million /0.07 of total trade volume (goods) (only in the case of non-application of national labour law in the field of child labour, occupational safety and health and minimum wage) Regular trade sanctions under the regular dispute settlement mechanism of the agreement Fines up to US$ 15 million in the case of non-application of 23 The latter is commonly referred to as GSP+. 24 Since 2005, the labour provisions have been integrated into a more comprehensive arrangement, which also covers a broader range of human rights, environmental and good governance instruments, see Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme of generalised tariff preferences, OJ L 169, , pp and Council Regulation (EC) No 732/2008 of 22 July 2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to 31 December 2011, OJ L 211, , pp

17 Australia (2005), Morocco (2006), Bahrain (2006), Central America - Dominican Republic (CAFTA-DR) (2006), Oman (2009) Trade Agreements with Peru (2009), Panama, Colombia, and the Republic of Korea (not yet into No. 182** ILO 1998 Declaration, Convention No. 182* Enforcement of labour laws in these areas*** No encouragement of trade or investment through weakening of labour law in contravention of the labour principles contained in the agreement Ensure respect of CLS as contained in the ILO Declaration, and enforcement of related national laws*** No weakening of labour law in a manner affecting trade or investment if this contravenes CLS national labour law in these areas (to be paid into a special labour rights fund) Regular trade sanctions or monetary assessment under the regular dispute settlement mechanism of the agreement force) Notes: * Promoting compliance with Convention No. 182 is mentioned as a possible priority for labour cooperation. The United States Australia Trade Agreement does not refer to this Convention. ** For the purposes of this table, the term minimum working conditions is used to describe minimum standards regarding hours of work, minimum wages and occupational safety and health. *** This applies to the extent that it affects trade or is (in the case of NAALC) trade-related. Source: IILS, based on information collected on US trade agreements. While they advocate a high level of protection, early US trade agreements focus on the obligation to enforce national labour law in specific areas. Though all agreements posterior to the ILO 1998 Declaration refer to its standards, labour provisions of early trade agreements did not incorporate all CLS. 25 This approach, however, has recently changed. The 2009 US trade agreement with Peru requires the parties to comply with all principles of the ILO s 1998 Declaration without restrictions, in addition to enforcing their national labour laws. 26 The labour provisions of US trade agreements also provide for an institutional framework that generally includes a consultative committee at the ministerial level and a national contact point with the administration of the respective parties. 27 In addition, depending on the specific agreement, the labour provisions may also provide for a labour committee or labour council or, in the case of the NAALC, a Commission with its own Secretariat dealing with cooperation and dialogue activities relating to labour issues. All of these US agreements provide for follow-up mechanisms to deal with differences over the labour provisions, which may ultimately lead to economic consequences for the party in breach of the labour provisions. The NAALC thus allows fines up to a ceiling of US$ 20 million. 28 However, these fines only apply to three out of the eleven areas of labour law mentioned in the agreement. With the notable exception of the United States Jordan Trade Agreement, 29 later agreements 30 opted for fines. These fines are intended to be paid 25 A number of US trade instruments adopted after 1998 differ from the usually accepted CLS by excluding nondiscrimination and yet including others such as occupational safety and health, hours of work, or minimum wages. 26 See further on the new approach of the US-Peru Trade Agreement and its limitations Cabin (2009). A similar approach has also been used in the Trade Agreements between the United States and Colombia (signed in 2006) and the Republic of Korea (signed in 2007), respectively, which have yet to enter into force. 27 An exception to the latter is the US-Jordan Trade Agreement, which does not provide for the establishment of a national contact point nor for the submissions of complaints by third parties. 28 In cases where the fines are not paid, equivalent trade sanctions may be imposed. 29 In the case of the United States Jordan Trade Agreement, the parties exchanged side letters prior to the adoption of the agreement, according to which no sanctions were to be used in the case of differences arising 10

18 into a fund designed to address the labour rights violations concerned, capacity building and other measures (see van der Laat Echeverría, 2006, for CAFTA-DR). This approach has been reversed again in the most recent generation of US trade agreements, which makes breaches of labour provisions subject to the regular dispute settlement mechanism in charge of resolving trade disputes under these agreements. That said, however, the amicable resolution of disputes is always emphasized as preferable and dispute settlement mechanisms usually provide for numerous stages of consultation and reviews through panels and/or other neutral bodies before any economic disincentives can be undertaken. Distinguishing itself from the above models, the United States Cambodia Textile Agreement from 1999 has taken a unique approach based on positive incentives rather than sanctions. Under this sector-specific agreement, enhanced market access was offered in exchange for compliance with certain labour standards. For this purpose, a number of targets in terms of compliance with labour standards were defined. For example, the quota for market access would be increased if the companies within the apparel sector which account for 90 per cent of all Cambodia s exports met the criteria (Polaski, 2009) Trade agreements concluded by Canada Similar to their US counterparts, labour provisions in trade agreements concluded by Canada are conditional in nature and have evolved from a focus on the enforcement of national labour law to requiring compliance with minimum internationally recognized labour standards (see table 4). Labour provisions have generally not been included in the texts of Canadian trade agreements themselves but in dedicated side agreements, as in the case of NAFTA/NAALC. between the parties. However, the option of what other measures should be taken in the event of a breach of the labour clause was left open (Bolle, 2003). 30 Notably those between the United States and Australia, Bahrain, the Central-American countries and the Dominican Republic (CAFTA-DR), Chile, Morocco and Singapore, respectively. 11

19 Table 4. Evolution of labour provisions attached to Canadian trade agreements from 1997 to Name and Reference Labour obligations Enforcement mechanisms* date of to ILO entry into instruments force of the agreements Trade Agreement with Chile (1997) Trade Agreement with Costa Rica (2002) Trade Agreements with Peru (2009), Colombia, Jordan, and Panama (not yet in force) No ILO 1998 Declaration ILO 1998 Declaration, Convention No. 182*** Strive for a high level of national labour laws in the area of CLS, as well as minimum working conditions** and migrant rights Enforcement of national labour laws in these areas Strive for a high level of national labour laws in the area of CLS, and to promote minimum working conditions** and migrant rights Enforcement of national labour laws in these areas Respect for CLS, minimum working conditions** and migrant rights Enforcement of national labour law in these areas ***** Fines up to US$ 10 million (for the non-application of national labour law in the area of child labour, occupational safety and health and minimum wages) Only modification of labour cooperation activities (in the case of the non-application of national labour law in the areas) Fines up to US$ 15 million (in the case of Jordan: unlimited) for violations relating to issues covered by the ILO 1998 Declaration; to be paid into a special labour rights fund Notes: * The enforcement mechanism only applies to trade-related matters. ** For the purposes of this table, the term minimum working conditions is used to describe labour standards regarding hours of work, minimum wages and occupational safety and health. *** The Convention is mentioned in the context of labour cooperation under this agreement. **** These agreements additionally preclude the Contracting States from encouraging trade or investment through weakening of labour law against the labour principles contained in the agreement. Source: IILS, based on information collected on Canadian trade agreements. Labour provisions in Canada s trade agreements, except the 2002 treaty concluded with Costa Rica, provides for fines in the case of non-compliance. These fines are to be gathered into a fund for the enhancement of labour rights and the remediation of implementation deficits. 32 The maximum value of fines ranges from US$ 10 million in the older trade agreements, to US$ 15 million in more recent trade agreements. These arrangements are largely reproduced in the Trade Agreement between Canada and Colombia and Panama, respectively, signed in 2008 and By contrast, in the case of the Trade Agreement between Canada and Jordan, also signed in 2009, no ceiling is fixed to the fines for noncompliance with labour provisions. All Canadian agreements provide for dialogue between the parties and include technical assistance mechanisms. These activities are handled by a ministerial council for each agreement, assisted by national offices for each country. With regard to the enforcement 31 All agreements referred to are side agreements dedicated to labour issues which were concluded in the context of the respective trade negotiations. 32 See also Bakvis and McCoy (2009). 12

20 mechanism, the emphasis is also placed on the amicable resolution of the dispute through consultation, rather than on the imposition of sanctions Trade agreements concluded by the EU Most labour provisions in the EU trade agreements are only promotional in nature emphasizing technical assistance and development cooperation (Bartels, 2008). Also the labour provisions of the trade agreements concluded by the EU and its member states have undergone considerable evolution (Grynberg and Qalo, 2006; Bartels, 2007) with a tendency to a broadening their normative content and the scope of application. 34 However, the EU has used various approaches depending on the trade partners (Orbie/Gistelninck/Kerremans, 2009). The main patterns at play are presented in table Canada has also concluded a memorandum of understanding with Brazil on labour cooperation which is, however, not linked to a trade agreement, see Canada-Brazil Memorandum of Understanding on Labour Cooperation Memorandum of Understanding in the Area of Labour and Employment between the Labour Program of Human Resources And Skills Development Canada and the Ministry of Labour and Employment of the Federated Republic of Brazil, 2004, available at: 34 The EU itself is based on a treaty which, among other things, extensively regulates the internal and external trade of the EU and also contains provisions on labour issues. The EU institutions have also adopted highly comprehensive labour legislation, including on minimum working and employment conditions and workers consultation (Bercussion, 2009). However, the EU s stage of integration by far exceeds that of other integration agreements and EU legislation increasingly resembles national federal law in terms of its contents, scope and legal effect within the legal orders of the EU member states. For this reason, the EU labour legislation is not considered a labour provision for the purpose of this study. The same applies, for similar reasons, to the European Economic Area. 35 For an overview about the different trade agreements concluded by the EU see also Francois/McQueen/Wignaraja (2005). 13

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