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Certifying International Workers Rights—A practical   alternative (EPI Briefing Paper)

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Briefing Paper
CERTIFYING INTERNATIONAL WORKER RIGHTS

A Practical Alternative

by Jerome Levinson

Free trade among countries with very different domestic practices requires either a willingness to countenance the erosion of domestic structures or the acceptance of a certain degree of harmonization (convergence).
– Dani Rodrik, Has Globalization Gone Too Far? (p. 37)

The effort to incorporate core worker rights into multilateral trade and investment agreements and thereby achieve, in Rodrik’s words, “a certain degree of harmonization,” has failed. There are two major reasons why. First, despite the support for worker rights in U.S. legislation, the American negotiators of these agreements have not been willing to give worker rights as high a priority as they do the protection of investors. Second, sensing that reluctance, domestic and foreign opponents of worker rights have been able to muster majorities against them in multilateral negotiations.

The objective of incorporating worker rights into the main body of such agreements remains valid, but for the above reasons the route of multilateral negotiations has reached a dead end. Paradoxically, the only path to progress now – and the only way of eventually forcing open the closed door of multinational negotiations – is to pursue a policy that forces a greater priority for labor rights and relies on unilateral action by the U.S. government, with respect both to bilateral agreements and to its participation in international trade and finance agencies. Without such unilateral action, our own domestic social compact represented by U.S. domestic labor legislation, imperfect as it is, will continue to erode.

A dead end
The first serious attempt to link core worker rights to a multilateral trade and investment agreement occurred in connection with the North American Free Trade Agreement (NAFTA). Although described as a trade agreement, NAFTA is a trade and investment agreement – indeed, from the Mexican point of view, the investment provisions were more important than the trade provisions. Mexico already had favorable tariff and customs access to the U.S. market through the maquiladora program; by eliminating Mexican restrictions on foreign direct investment (FDI) (Chapter 11) and revamping Mexico’s intellectual property laws (Chapter 17), NAFTA created a powerful incentive for FDI. At the same time, Mexico’s coercive labor relations regime assured a docile labor movement, thereby enabling the government to advance its objective of attracting FDI. Since 80% of Mexico’s exports are destined for the U.S., such a strategy meant increasing manufacturing exports to the U.S. market. American capital could be wedded to a low-wage workforce with relatively high productivity, particularly in the export sector, kept in line by a repressive labor relations system.

Presidential candidate Bill Clinton recognized in his October 4, 1992 Raleigh, N.C. speech that NAFTA without a modification of the labor relations regime in Mexico could constitute an unfair magnet for FDI, to the disadvantage of American workers. Companies could relocate production to Mexico, Clinton noted, or, even if they did not, use the threat of such relocation in collective bargaining negotiations for the purpose of intimidating their workers. He therefore conditioned his approval of NAFTA upon the negotiation of a complementary labor agreement (the North American Agreement on Labor Cooperation or the NAALC, also referred to as the Labor Side Agreement) that would assure effective implementation of core worker rights in Mexico, including, most importantly, the right of free association, which is the foundation for all other worker rights. Over time, the Mexican worker would then be enabled to bargain for a fairer share of productivity gains. An egregiously unfair advantage – repressive labor practices – in attracting FDI would be eliminated.

However, at the behest of the Mexican authorities and the Business Roundtable, the lobbying group for U.S.-based multinational corporations (MNCs), President Clinton agreed to delete from the NAALC provisions that provided for the possibility of trade sanctions and monetary penalties for a persistent failure of a party to the NAALC (read Mexico) to enforce its own labor laws with respect to freedom of association, collective bargaining, and the right to strike. The result is that the NAALC has been ineffective in assuring that the Mexican government allow workers to effectively exercise their constitutional rights of free association and collective bargaining through independent unions of their own choosing.

Nevertheless, the bureaucracy in charge of investigating and exposing labor rights violations has performed ably and professionally. The United States National Administrative Office (USNAO), which administers the NAALC and is part of the Department of Labor (DOL), in a series of remarkably candid and courageous reports, has extensively documented how the Mexican authorities have used Arbitration and Conciliation Boards (CABs), a form of labor tribunal, to deny Mexican workers the right of free association, particularly in the maquiladora sector.

For example, in a 1998 report on the attempt of workers in the Han Young maquiladora manufacturing facility in Tijuana, Mexico to form a union independent of government control, the USNAO observed: “[t]he placement by the Tijuana CAB of obstacles to the ability of workers to exercise the right of free association, through the application of inconsistent and imprecise criteria for union registration and for determining union representation, is not consistent with Mexico’s obligation to effectively enforce its labor laws on freedom of association in accordance with Article 3 of the NAALC.” It further noted that “not one independent union had been registered or had obtained collective bargaining representation rights in Tijuana and only one other exists in the entire maquiladora sector.”

The USNAO Han Young report echoes a conclusion reached three years earlier by the USNAO in the Magnetico de Mexico (Sony) maquiladora case, where workers were also frustrated by the local CAB in attempting to exercise their right of free association.

Five years after the signing of the NAALC, according to the Clinton Administration’s own USNAO, there has been virtually no progress in assuring that Mexico will enforce its own law and constitution guaranteeing Mexican workers their most basic labor right, the right of free association.

Nor has the Clinton Administration, despite its rhetorical commitment, been any more successful in its initiative to balance the World Trade Organization (WTO) agreement for a more open global trading and investment regime with complementary provisions assuring core worker rights. Indeed, the first WTO ministerial meeting in Singapore in December 1996 declined to form a working group to even begin discussing the issue of how worker rights are to relate to the emerging trade and investment order. The Singapore Ministerial Communiqué merely referred the matter to the International Labor Organization (ILO), declaring that the secretariats of the two organizations should consult each other. Even that token gesture has not been made; two and a half years later, no such consultations have taken place.

In December 1994, 34 leaders of the Western Hemisphere, at the first Summit of the Americas, in Miami, agreed that the assembled countries should conclude negotiations by the year 2005 for an
agreement for a Free Trade Area of the Americas (FTAA). Eleven working groups on technical questions to be resolved have been formed but, as occurred with the WTO, U.S. initiatives to include a working group on worker rights were rejected by the other countries. A more modest U.S. proposal to establish a “study group” for this issue was also denied. Worker rights were relegated to a Committee on Civil Society, whose purpose, as House Democratic Leader Richard Gephardt observed, is vague and undefined.

U.S. negotiators in both cases made efforts to persuade other nations to agree to stronger action on labor rights, but in no case have they been willing to make it a priority objective. While successive U.S. administrations have made clear that inadequate protection of corporate property rights in international trade and investment agreements is a “deal-breaker,” they have made it equally clear that a failure to assure core worker rights in such agreements carries no such penalty. Thus, other negotiators, particularly those representing the developing countries, have concluded that, so long as they accommodate American corporate interests, they need engage in no substantial negotiations with respect to linking core worker rights to international trade and investment agreements. Not surprisingly, then, the Clinton Administration initiatives, however modest, for merely initiating discussion with respect to core worker rights in the context of trade and investment agreements have failed.

This failure does not mean that labor rights advocates should abandon their opposition to fast track authority that fails to specifically direct the Administration to incorporate core worker rights in the main body of such agreements. The inability of the Administration to assemble a majority in Congress in 1997 for fast track authority that did not include such negotiating instructions is what made possible the inclusion of a worker rights provision in the 1998 International Monetary Fund (IMF) legislation. However, to achieve their ultimate goals, labor rights advocates need to go beyond this essentially defensive strategy and propose more far-reaching changes in U.S. trade and investment policy. And the most effective way to do that is to resort to aggressive unilateral action. Paradoxically, such a resort to a unilateral action strategy may be the only way to convince the developing countries to come to the table for serious negotiations over how to balance the emerging trade and investment regime with a commitment to core worker rights.

The case for a new unilateral strategy
Congress has clearly recognized that trade and investment agreements without complementary provisions that assure core worker rights can deform the domestic social compact represented by our own labor relations legislation. It has therefore provided in U.S. trade legislation that recipient countries must effectively assure core worker rights, generally understood to mean the right of free association, the right to collective bargaining, the right to strike, the right to a safe workplace, the provision of a minimum wage, prohibitions on forced labor, and limits on child labor, in the country that is the recipient of the trade preference. (Examples include the Omnibus Trade and Competitiveness Act (1974 as amended, particularly Section 3.01); the General System of Preferences (GSP); and the Caribbean Basin Initiative (CBI). The legislation governing the Overseas Private Investment Corporation, or OPIC, contains similar worker rights provisions.)

Congress has also recognized that worker rights in trade and investment policy cannot be separated from development finance. In the 1995 legislation relating to U.S. participation in the international financial institutions (IFIs) – the World Bank, the IMF, and the regional development banks – Congress passed the Sanders/Frank Amendment. That amendment required the U.S. Treasury to direct the U.S. executive directors (USEDs) in these institutions to use the “voice and vote” of the United States to persuade these institutions, and their borrowing member countries, to respect core worker rights as an integral part of the development program of both the institutions and the policies and practices of the member countries.

In April 1998, in approving an additional U.S. quota increase for the IMF, a Republican-dominated Congress evidenced a renewed commitment to core worker rights. It added the requirement that respect for such rights not be undermined by labor market “flexibility” measures, which is a euphemism for measures that make it easier for firms to fire workers, weaken the capacity of trade unions to negotiate on behalf of their members by limiting collective bargaining to the plant level, and drive down wages.
Congressional policy is clear: core worker rights are to be considered an integral part of U. S. trade, investment, and development financing policy. But despite this comprehensive congressional mandate, the policy has not been effectively implemented. Trade preferences are presently granted indiscriminately to a group of countries on the basis of geography or income standards. Once granted, reversing the preference is virtually impossible.

Both trade legislation and the rules governing U.S. participation in the IFIs make the protection of core worker rights a priority. Trade legislation directs the special trade representative (STR) to determine whether core worker rights are effectively implemented in the country and, if they are not, whether trade preferences ought to be withdrawn. The specific language differs in the individual legislation, but the congressional intent is that the trade preference be dependent upon effective implementation of core worker rights. With respect to the IFIs, the implementation of the Sanders/Frank Amendment is left to the determination of the Treasury Department, which has overall responsibility for U.S. policy with respect to these institutions. The record demonstrates that the STR and the Treasury sacrifice core worker rights to other priorities: in the case of the STR, promoting trade and investment abroad by U.S.-based MNCs; in the case of the Treasury, assuring the security and mobility of capital. Within the present institutional framework, core worker rights, despite some rhetorical flourishes, are consigned to orphan status. We need to recast the institutional framework and the policy priorities.

With respect to such unilateral trade preference programs as the GSP or CBI, or the negotiation of the FTAA, trade preferences should no longer be extended generally to a group of countries defined by per capita income criteria or geographic location alone. Such a program should be offered only to countries that, as a precondition to being eligible for the tariff preferences in any one of these programs, demonstrate that their labor legislation and practices enable workers to effectively exercise core worker rights. Instead of the situation that presently exists, where the burden of proof is upon a party trying to reverse a trade preference already granted, the burden would be upon the country seeking the preference to demonstrate that its legislation assures core worker rights and that, in practice, workers can exercise such rights. A country that is unable to demonstrate that its workers can effectively exercise their rights would be ineligible for the trade preference.

We would reverse the incentives that perversely militate against core worker rights. Countries presently engage in a brutal competition to attract the same pool of limited FDI and, as part of that competition, often feel compelled to repress worker rights. Instead of reinforcing a race to the bottom to degrade worker rights for the purpose of attracting FDI, we would be encouraging a race to the top, since only the country that assures that workers can exercise core rights would be entitled to the trade preference.

To effectively implement
such a change of policy, the determination as to whether core worker rights are, in fact, accessible to workers has to be taken out of the hands of the Treasury and the STR, both of which have an institutional interest in relegating worker rights to a secondary status. The Department of Labor is the logical institution to make such a finding. Therefore, U.S. trade law should be changed to require that the secretary of labor certify that a country’s workers can exercise core worker rights before the STR can grant a trade preference. Without such certification, the Treasury could not instruct the executive directors in the IFIs to vote in favor of proposed financing for a particular country.

The USNAO, which can consider a labor matter submitted to it by unions, workers, and nongovernmental organizations (NGOs), provides a possible model for how such a process might function. The agency makes an initial determination as to whether to accept a submission, rejecting obviously frivolous ones. Once it accepts a submission, it may schedule public hearings or make a determination based upon written submissions. The USNAO regulations governing the proceedings, published in the Federal Register and adopted after public comment, establish time limits within which hearings must be scheduled, the proceedings concluded, and a report published, thus assuring a prompt conclusion of the proceeding. The determination of the USNAO must be in writing and must be made public.

In examining allegations that Mexico has not enforced its own laws guaranteeing the right of free association, the agency has heard from workers and NGOs; the companies concerned have been offered the opportunity to be heard but have generally confined their submissions to the USNAO to written statements. The proceedings have been open to the media and the public. Simultaneous translation facilities have made the proceedings accessible to workers who may not be fluent in English.

A similar process could be followed by the Department of Labor in connection with the administration of the worker rights provisions of trade legislation and that governing the IFIs. A country would apply to the STR for eligibility under any of the trade preference laws. If it met the initial qualifying criteria (for example, income and geography), the STR would immediately request a determination by the Department of Labor as to whether workers in the applicant country (1) are legally accorded core worker rights and (2) can effectively exercise such rights.

The Department of Labor would publish a notice to the effect that the country had applied for trade preference under the applicable legislation and that the department is examining the questions in (1) and (2). In contrast to the closed and secretive proceedings that are now the prevailing norm, it would invite public comment and schedule public hearings. The process would be effectively democratized: NGOs, unions, and workers would have an opportunity to be heard. The regulations governing the proceedings, like those of the USNAO, would provide for specific time limits for the different phases of the proceedings and publication of the final report.

In arriving at its conclusion, the Department of Labor would take into account the jurisprudence of the ILO. The most recent reports of the USNAO (Han Young and Itapsa 1998), for example, have drawn upon the jurisprudence of the ILO dealing with the right of freedom of association and collective bargaining (ILO Conventions 98 and 87) to support its conclusion that Mexico has not complied with its obligations under the NAALC to assure these rights. This jurisprudence governing conventions 98 and 87 is now codified in proceedings of the Committee of Experts on the Application of Conventions and Recommendations and the Committee on Freedom of Association (ILO Freedom of Association and Collective Bargaining).

The ILO Committee on Freedom of Association was first established in 1951 by the Governing Body of the ILO. The committee is composed of nine titular members appointed by the Governing Body and representing, respectively, the government, workers’ groups, and employers’ groups. This membership is a reflection of the tripartite character of the ILO. The individual members are supposed to be and, for the most part, have been prestigious individuals.

The functions of the committee are of a quasi-judicial nature, and the procedure it follows conforms to the basic principles applicable to litigation. Complaints must be submitted either by workers’ or employers’ organizations or by governments, and may be presented even against a government that has not ratified the ILO freedom of association convention. When a complaint is received, it is communicated to the government concerned for its observations. The committee cannot conduct an onsite investigation without the consent of the government involved. Once in possession of all the evidence, the committee formulates its conclusion and communicates it to the affected government with a proposal, where warranted, for remedial action. The committee’s effectiveness has, like that of the ILO itself, been limited by the fact that it has neither sanctions nor resources with which to induce an offending government to change its behavior. It has relied instead upon public suasion and moral authority.

In 1998, the then-Secretary-General of the ILO stated that the ILO would be more aggressive in publicly reporting on countries’ compliance with core worker rights in accordance with the increased responsibility for these rights accorded to it by the WTO’s Singapore ministerial meeting. The ILO is also presently engaged in a reorganization designed to eliminate duplication and overlapping functions among its various committees, providing for more expeditious and streamlined proceedings.

A country applying to the STR for trade preference eligibility might find that it is in its interest to request, for example, that the ILO Committee on Freedom of Association confirm that workers in the affected country can, indeed, exercise effectively their right of association and collective bargaining. It could then attach such a finding and the accompanying ILO report to its STR application. The Department of Labor would give great weight to such a finding by the ILO in making its own determination as to whether to issue the requisite core worker rights certificate to the STR. The fact that an ILO finding could have such a concrete positive result for the applicant country would increase ILO leverage in discussions with country authorities over the status of core worker rights. On the other hand, the absence of a positive ILO determination, a refusal of the applicant country to permit onsite investigation and/or observations, and the experiences of the ILO would also be important considerations in the Labor Department’s own examination.

The labor rights certification process would apply to all international trade and investment activities of the U.S. government. For example, the IMF legislation approved in 1998 required that the USEDs assure that IMF conditions for labor market flexibility measures not undermine core worker rights. Under a Labor Rights Certification Amendment, the USED in the IMF could not vote in favor of an IMF financing that included labor market flexibility measures, unless the Department of Labor had made a determination that the proposed IMF conditions would not weaken core worker rights in the country concerned. In arriving at its determination, the DOL would follow much the same process as in the trade preference certification: public notification that the department is considering the issue, solicitation of public comment, and, if warranted, public testimony. The IMF-proposed conditions would be made public as part of the proceeding. ILO reports (for example, World Employment 1996/97), which often are diametrically opposed to the IMF/World Bank view on this issue, would, as in the case of freedom of association, be relevant.

In
both trade preference and labor market flexibility examples, the Department of Labor is dependent upon referrals from other departments of the government. However, there ought also to be provision for a direct citizen complaint analogous to that provided in the NAALC, where submissions to the USNAO can be made directly by NGOs, labor unions, or other citizen groups. A submission to the DOL, for example, would allege that (1) country X is a borrowing member country of the Bretton Woods institutions and a regional development bank, and (2) the government of the country does not permit workers to exercise core worker rights. The U.S. executive directors in the IFIs, in accordance with the Sanders/Frank Amendment, should vote to deny future financing for country X.

The DOL, after an initial determination that the submission was not frivolous, would notify other departments of the government, notably the Treasury and the STR, that it had received such a submission and intended to initiate an investigation, including public comment and hearings. It would also inform its counterpart ministry in country X that such a submission had been received and offer an opportunity for response. Consistent with the procedure previously outlined, based upon the USNAO experience, the DOL would conduct the investigation and file a public report, including a specific determination as to whether the allegations in the submission have been substantiated. If they have been, the DOL would notify the Treasury, and thereafter the USEDs in the IFIs would vote against proposed financing for country X.

The Treasury, of course, could place the issue before the National Economic Council (NEC) as to whether it should instruct the USEDs to vote against such financing. The president would then have the final word, but, if he decided to short-circuit the proceeding, he should have to file a public report explaining, in detail, why he overruled the determination of the DOL.

There would be, then, three routes by which the worker rights issue could reach the Department of Labor: (1) a country applies for a trade preference, in which case the STR sends a referral to the DOL; (2) IMF conditions in a particular country include labor market flexibility measures that may be in conflict with core worker rights, in which case the Treasury sends a referral to the DOL; and (3) citizens make a submission to the DOL for the purpose of triggering the Sanders/Frank Amendment.

There is no guarantee that the Department of Labor will emerge as an aggressive advocate of core worker rights or even of ILO analysis of labor market flexibility. With the exception of the USNAO, it has not been so in the past, and it has clearly been subordinate to the Treasury and the STR in internal Administration deliberations. In part, its secondary role may be due to the fact that it has had no defined institutional responsibility. Given such a clear responsibility, and in light of its willingness (in the case of the USNAO) to report workers’ conditions honestly, it is reasonable to expect that it would be at least somewhat more willing to assert itself on behalf of core worker rights and take a more independent view on labor market flexibility than do the Treasury and the STR. And, as evidenced by the creative use by the USNAO of ILO jurisprudence on freedom of association, the Labor Department is certainly more open than the Treasury or the STR to incorporating ILO expertise into its decision making.

Even if the Department of Labor did not emerge as a more aggressive and effective advocate of international core worker rights, a more open process of deliberation, such as is proposed here, could create its own dynamic. It would be a beginning in breaking the existing lock on policy that economist Jagdish Bhagwati, himself a well-known advocate for free trade, has referred to as the “Treasury/Wall Street complex.” For that complex, the overriding policy priority has been the security and mobility of capital. Public discussion of core worker rights and their relationship to trade, investment, and finance in the context of concrete country situations would broaden the base of participation on these issues. At the very least, it would require a more explicit justification on the part of the Administration for its decisions in individual circumstances, a requirement from which it is now insulated by the secretive and closed nature of the decision making that characterizes the present process. Such active participation by unions, NGOs, and citizens groups might even strengthen public support for the IFIs and begin to forge a broader public consensus than now exists on the trade and investment regime.

The Treasury and STR, as noted above, would still retain the option of elevating a disagreement over core worker rights and the relative priority it should have in individual circumstances to the NEC, which the president chairs. A president would then have to define the relative priorities of the Administration: core worker rights or investor rights. Both Presidents Bush and Clinton, for example, overruled officials in their own Administration in certifying that Mexico was cooperating with the United States in interdicting drugs. The New York Times (August 21, 1995) stated that “…American officials were kept in check by the desire of the Clinton and Bush Administrations to keep problems of drugs and corruption from jeopardizing the trade accord and the new economic partnership it symbolized.” Accountability would rest solely with the president, rather than being diffused at lower levels of the various government departments. And the president could no longer escape political responsibility for such decisions by defending labor rights rhetorically while abandoning them as a serious public objective.

We would be elevating decisions from inside the bureaucracy, where the Treasury and the STR are dominant, onto a more open political level where the labor and human rights constituency has more of a chance to be heard on a basis of equality. We would, in effect, be creating a competitive market within the U.S. government in which the traditional objectives of security and mobility of capital, and trade and investment, would have to compete on a more nearly equal basis with core worker rights. Parallel to this, at the level of international governance, we would be creating, in a strengthened ILO, an institutional source of competition for the Bretton Woods institutions – the World Bank and IMF. These institutions now have a monopoly in defining the labor market conditions that attach to their respective financings, and they nearly always sacrifice the interests of workers and unions to the interests of capital. In this, they mirror the existing priorities within the U.S. government.

A labor rights certification process would not by itself level the unequal playing field between workers’ and investors’ rights in the global economy. But it would be an important, practical step in changing the political balance – and therefore the priorities – inside the domestic and international structures of global economic governance.

Without a change in those priorities, we are, in effect, making a decision to accept, through the backdoor of globalization, the “erosion” of our domestic social compact.

June 1999

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