Trade Talk: Should Labor Standards be Included in Free Trade Agreements with the United States? Implications for Asia

This Asia Program event, co-sponsored with Wilson Center's Program on Science, Technology, America and the Global Economy, and with the Solidarity Center, explored the politically sensitive issue of labor standards in Free Trade Agreements (FTAs). Asian economic regionalism is driven by active FTAs with the U.S.—Asia's largest trading partner. In recent years, there has been a proliferation of FTAs between the U.S. and Asian countries—such as Korea, Malaysia, Singapore, and Vietnam. Recently, in May of this year, Congress made a trade policy agreement with the Bush administration concerning new labor and environmental standards in all bilateral trade deals with the goal of enforcing labor and environmental standards in FTAs.

Katrin Kuhlmann stated that the inclusion of labor standards in FTAs presents both an opportunity and a challenge for women. Labor standards are critical to improving the quality of jobs in developing countries, particularly for prohibiting discrimination against women in the workplace. However, Kuhlmann highlighted that a central challenge is the fact that women's groups in developing countries do not feel that FTAs represent their interests, because the trade agreements are "completely removed from their reality." Bridging this gap between good labor standards in an agreement and their enforcement at every level, ranging from government, companies, and individuals, is essential, Kuhlmann emphasized. She proposed that FTA consultations should invite broader participation, focus on capacity building programs, and assess how the poorest populations can benefit from free trade through such tools as the Trade Impact Review, which looks at the development impact of trade policy on both women and men. A pioneering example of how trade agreements have benefited women is provided by the Better Factories program in Cambodia, where the U.S. signed a bilateral textile agreement in 2001 that gave Cambodia greater market access for textiles and apparel if it could show a demonstrable push to improve labor standards. The program has worked, said Kuhlmann, and it "serves as a great model" for the effective incorporation of labor standards in trade policy.

Jeff Vogt provided two justifications for the inclusion of labor standards in trade agreements. First, the absence of labor standards is as much a legitimate violation of trade rules as is the lack of intellectual property enforcement or the provision of state subsidies. Second, Vogt stressed that there are "valid distributional and human rights concerns that justify" the imposition of labor standards on sovereign governments. Vogt argued that labor standards in FTAs are not protectionist because developing country products do not compete with products of industrialized countries. Furthermore, the enforcement and sanctions are determined "by a neutral international dispute-settlement panel." In 1987 and 1988, the AFL-CIO began filing Generalized System of Preference (GSP) reports detailing labor rights abuses in Asian countries such as Indonesia and Malaysia—where workers are not allowed the freedom to organize unions or to collectively bargain—in order to prompt the U.S. administration to act on these violations. It had an impact in Indonesia, Vogt stated, as the GSP reports led to USTR reviews that, in turn, prompted the Indonesian government to recognize the importance of "polishing its tarnished reputation" in labor rights. The Indonesian government introduced a higher minimum wage, changed its national labor code to allow independent unions to operate, albeit to a limited extent, and reduced the army's role in labor surveillance.

Lewis Karesh observed that the current inclusion of labor rights in the FTA template goes beyond previous FTAs with Singapore and Jordan, in that for the first time "fundamental labor rights in an FTA are subject to the same dispute settlement procedures and remedies as commercial provisions." Karesh pointed out that the Asian region is no stranger to addressing worker's rights issues through trade agreements with the U.S., as Korea and Singapore already have FTAs with labor provisions and FTA negotiations with Thailand and Malaysia have included candid discussions on labor rights. The GSP and Trade and Investment Framework Agreements (TIFA) templates also incentivize worker's rights enforcement, as they are solid building blocks toward the commitments asked for by the USTR in FTAs. While it is unclear how labor standards will evolve in legislation such as Trade Promotion Authority (TPA), Karesh noted that there is a visibly increased focus by Congress to encourage stronger labor and enforcement efforts. Ultimately, Karesh stated that the inclusion of labor standards acknowledges the role of workers in the global flow of goods and services, and the imperative now should be to "move on to how we can best work together to use deepening trade relationships to move worker's rights forward."

The positive aspects of export-driven production and trade in developing countries were offered by Theodore Moran. He pointed out that although foreign direct investment (FDI) in developing countries is typically conceived as flowing into low-skill and low-wage sectors such as garments and textiles, it actually flows to advanced industrial sectors such as electronics. The challenges of how the World Trade Organization (WTO) might enforce labor standards are serious, argued Moran. The enforcement mechanisms would range from "targeted sanctions" to "revoking trade concessions across the board." However, who should be the recipient of the potential punishment, asked Moran. If the plant owner who has violated labor standards is targeted, this "runs the risk of hurting the very workers who are being abused, while not providing a deterrent to the host country." Thus, a more effective enforcement mechanism might be to apply sanctions across an entire sector where enforcement is weak. However, this would punish plants and workers that are both abiding by as well as violating labor standards. Moran warned that such sanctions would thereby introduce new obstacles in the process through which developing countries have traditionally improved labor standards—that of the globalization of FDI-led, high-skill supply chains across the globe.

Drafted by Bhumika Muchhala, Asia Program Associate
Robert M. Hathaway, Director, Asia Program, Ph: (202) 691-4020