13.2.1 Developments on the International Level (GATT, WTO, and ILO) and Their Relationship with Labour Provisions in PTAs

Preferential trade agreements are not the only treaties dealing with labour issues. The most prominent international organisations with an interest in labour issues are the WTO and the ILO. This section outlines the role of these two organisations and highlights the ways in which they are compatible in advancing workers’ rights in trade.

The United States (US) and the former European Economic Community/European Community sought to include labour standards in both the GATT and the WTO agreements. In 1953, for instance, the US State Department proposed an ‘unfair labour clause’ to the GATT, but the member countries could not reach a consensus on its definition (Cottier and Caplazi Reference Cottier, Caplazi, Geiser, Schmid and Walter-Busch1998). In 1994, the European Parliament proposed to broaden Article XX(e) of the GATT by including child labour as well as the infringement of the principle of freedom of association and collective bargaining (FACB) (Waer Reference Waer1996).

However, these attempts failed mainly due to the opposition of India and other developing countries, who opposed the inclusion of labour clauses at the WTO on the grounds that they represent ‘protectionism in its new garb’ (Kolben Reference Kolben2006: 237; see also Hepple Reference Hepple2005: 130; Bhagwati Reference Bhagwati1995; Staiger Reference Staiger2003; McCrudden and Davies Reference McCrudden and Davies2000). India’s government, business interests, and even labour and civil society organisations actively worked against including or expanding labour clauses, organising opposition among developing nations. Moreover, scholars have criticised the inclusion of non-trade issues (NTIs) at the WTO and in PTAs (and the agreements themselves, generally) as tools of neocolonialism and a means for enforcing foreign, Western norms on other parties to the agreements (Bhala Reference Bhala2007; Villalta Puig and Ohiocheoya Reference Villalta Puig and Ohiocheoya2011).

At the 1996 Singapore Ministerial Conference, WTO Members formally conferred on the ILO authority over labour standards in its Declaration: ‘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 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…’. (WTO 1996).

Again in 1999, leading up to the third WTO Ministerial Conference in Seattle, both the US and the European Communities proposed a joint ILO/WTO working forum (WTO 1999a, 1999b). This forum would serve as a formal mechanism within the WTO to foster dialogue and research on labour issues and strengthen the ILO by granting it observer status at the WTO.

However, despite the proposed forum, labour unions and antiglobalisation protesters expressed concerns about the negative impacts of globalisation on workers’ rights, the environment, and human rights. The widespread protests were a turning point in the global debate on trade and globalisation and brought attention to growing public opposition to unfettered free trade, to the degree that the protests surrounding this conference were dubbed the ‘Battle in Seattle’. Since then, there has been little sustained effort to bring labour issues into the WTO agenda.

The ILO figures prominently in the relationship between trade and labour given that its internationally recognised labour standards are often integrated into trade agreements. Most labour provisions in PTAs refer to the 1998 ILO Declaration on Fundamental Principles and Rights at Work and its follow-up, the ‘1998 ILO Declaration’, or the eight fundamental conventions and the ILO Decent Work Agenda (Velut et al. Reference Velut, Baeza-Breinbauer, Bruijne, Garnizova, Jones, Kolben, Oules, Rouas, Tigere Pittet and Zamparutti2022: 84). The 1998 ILO Declaration contains four fundamental principles regarding labour (ILO 1998):

1. 1. Freedom of association and the effective recognition of the right to collective bargaining.

2. 2. The elimination of all forms of forced or compulsory labour.

3. 3. The effective abolition of child labour.

4. 4. The elimination of discrimination in respect of employment and occupation.

There are various manners in which ILO commitments are referenced in PTAs. Sometimes, parties only reaffirm their ILO-related obligations entailing no further legal obligations or choose to incorporate ILO commitments directly into PTAs, either through ‘best endeavours’ clauses or by directly requiring parties to implement those standards in their domestic legislation (Agustí-Panareda et al. Reference Agustí-Panareda, Ebert and Leclercq2014). In principle, it is possible that a country binds itself by incorporating ILO conventions that it has not yet ratified into a PTA, and thus expands its obligations through the signing of the PTA. However, this has not happened so far, as countries have only included ILO treaties which they previously ratified.

While PTA labour provisions usually mirror the ILO-related obligations of a country, some PTAs require the parties to ‘make continued and sustained efforts towards ratifying and effectively implementing the fundamental ILO conventions’. Through this approach, countries with higher ambition on labour standards use PTAs to put additional pressure on a partner country to ratify the ILO conventions. This is especially common in North–South agreements. Moreover, as the ILO does not have a legally binding enforcement mechanism for non-compliance through their conventions, dispute settlement mechanisms in PTAs can help to close that gap. Allowing a party to take trade sanctions to offset the violation of a treaty provision has potential to be a stringent and efficient way to enforce ILO commitments (Melo Araujo Reference Melo Araujo2018).

On the implementation front, the role of ILO is less pronounced (Peels and Fino Reference Peels and Fino2015: 197). While the ILO is not so present as an actor in the domestic space, many agreements still specify ILO assistance in technical cooperation activities, monitoring, and capacity building (Agustí-Panareda et al. Reference Agustí-Panareda, Ebert and Leclercq2014: 20). For example, in the European Union (EU)–Caribbean Forum (CARIFORUM) and EU–Canada Comprehensive Economic and Trade Agreement (CETA), the ILO is named in a provision on advice for best practices and the use of effective policy tools in addressing labour rights challenges. In the US–Colombia agreement, the ILO is explicitly stated as a supporting pillar for national contact points in capacity-building work. The ILO is also involved in a consultative capacity for disputes in some instances. In the case of EU–Singapore, the PTA specifies that ‘parties may seek the views of [the ILO] in order to fully examine the matter’ in the case of labour disputes.

In addition to the link through the ILO or PTAs, labour standards and trade are connected via the Generalised System of Preferences (GSP). Based on what is commonly referred to as the enabling clause under WTO law, WTO Members can deviate from the ‘most-favoured-nation’ principle and accord more favourable treatment to developing countries. The US and the EU made use of this mechanism by establishing their respective domestic GSPs, where benefits such as preferential tariff treatment can be granted if a developing country meets certain criteria. However, preferences under GSP programmes may be suspended in case of violations of ILO core labour standards (Siroën Reference Siroën2013). Thus, these schemes provide for the unilateral trade suspension of benefits against developing countries that are independent from the suspension of concessions that may be used based on a PTA.

13.2.2 Variation of Labour Provisions PTAs by Region

As of 2022, 113 out of 354 PTAs included labour provisions, half of which were ratified over the last decade (ILO 2022). Although labour provisions tend to be concentrated in North–South trade agreements, there is an increasing trend to integrate labour provisions into trade agreements among developing countries, or South–South trade agreements.

Figure 13.1 depicts the cumulative number of trade agreements that include labour provisions. We observe a very strong trend in the early 2000s of including labour provisions in North–South trade agreements. This indicates that countries in the North possibly use PTAs as a conditionality tool to grant market access in return for improvements in domestic labour standards within Southern counterparties. Interestingly, we find a smaller trend among South–South and North–North partner countries, which indicates that these governments may attach lesser importance to including provisions among partners with similar labour standards.

Figure 13.1

Labour provisions over time.

Source: Data taken from the ILO LP Hub (ILO 2022). Own classification and depiction

A similar picture is shown when we look at the variation of labour provisions in PTAs through a regional lens. Figure 13.2 depicts the number of PTAs with labour provisions by region. Most agreements of this sort have been concluded extra-regionally between European states and countries in the Asia-Pacific region. Sixteen agreements of this sort have been concluded within Europe, and another dozen within Asia-Pacific countries. To date, approximately ten agreements have been concluded that contain labour provisions in African countries.

Figure 13.2

Labour provisions by region.

Source: Data taken from the ILO LP Hub (ILO 2022). Own classification and depiction

As Figure 13.2 illustrates, labour provisions are especially present in North–South agreements since the labour standards of members of North–North and South–South treaties are often homogeneous. Due to the different levels of ambition, there exists variation in the scope, enforcement mechanisms, and compliance.

We categorise these various approaches into two broad schools of thought – enforcement or managerial (Tallberg Reference Tallberg2002). The enforcement school is rooted in the political economy theory of collective action and assumes that states are rational actors. It emphasises that labour laws must be strictly enforced through penalties, fines, and other legal sanctions to ensure that states and companies comply with the law. This approach is based on the idea that some actors may not comply with the law unless there is a strong deterrent in place.

The managerial school, on the other hand, emphasises that actors, both states and companies, should be encouraged to voluntarily comply with labour laws and regulations through cooperation, mutual capacity building, and technical assistance. This approach relies on the idea that companies inherently want to comply with the law, but may need help understanding their obligations, especially if the language leaves room to be interpreted broadly.

Most parties adopt a mixed approach, which is a combination of both the enforcement and managerial. In this section, we take account of the different approaches taken by countries over time.

Since its first venture of including labour in its PTAs, the US has always adopted an enforcement approach in its PTA design. The US often requires its negotiating partners to make changes to domestic labour laws prior to the agreement’s entry into force.

A side agreement to the North American Free Trade Agreement (NAFTA), which entered into force in 1994, was the first time the US introduced binding labour provisions in connection with a trade agreement. The North American Agreement on Labour Cooperation (NAALC) contained clear obligations imposed on the contracting parties, such as an obligation to provide for high standards with reference to eleven labour principles, as well as obligations concerning the enforcement of domestic labour laws (Article 2 and Annex 1, NAALC). The agreement established domestic institutions called the National Administrative Offices (NAOs) to take on the role of acting as contact points between partners for information exchange and to oversee implementation.

The NAFTA also included a general dispute settlement mechanism that could be applied to labour issues. In the case of a labour law abuse, a committee of independent experts is convened if the issue is not resolved after rounds of consultations. A persistent pattern of failure to enforce the labour provisions, namely child labour, lack of minimum wage standards, and occupational safety and health risks could lead to the issue being escalated to an arbitral panel (Arestoff-Izzo et al. Reference Arestoff-Izzo, Bazillier, Duc and Granger-Sarrazin2008). In the event the panel ruled against a country, the penalties could include a monetary assessment and temporary suspension of trade benefits outlined in the main text. In these ways, the US’ strong enforcement approach was a way to signal to partners the importance it ascribes to high labour standards and fair competition.

Following the NAFTA, the US signed an agreement with Cambodia in 1999 (US–Cambodia Textile and Apparel Trade Agreement [UCTA]) that limited labour standard provisions to the textile industry and conditioned market access on Cambodia demonstrating compliance with specific labour standards (Wells Reference Wells2007). In 2001, the US–Jordan PTA’s labour clause reflected a commitment by both parties to not waiving or derogating from their labour laws in their pursuit of encouraging trade, as well as effective enforcement of domestic labour laws. Subsequent agreements led by the US also followed suit, such as bilateral PTAs with Chile, Morocco, Australia, Singapore, Bahrain, Oman, and Peru as well as multilateral agreements, most notably the Central American Free Trade Agreement (CAFTA).

Given that the US was the first mover on high-ambition labour provisions, the language in US labour chapters has spilled over into other agreements as well. The labour obligations in the Trans-Pacific Partnership (TPP) form part of the Canada–EU CETA concluded in 2016. They also appear in the recently concluded EU–Viet Nam Free Trade Agreement, in the sustainable development chapter (Claussen Reference Claussen, Elsig, Polanco and Van Den Bossche2021).

Similar language can also be found in certain agreements signed by Asian countries. However, the main difference is that none of these agreements has a sanction mechanism in case of non-compliance. Hence, they embody the managerial approach as opposed to the enforcement tactic. Latin American countries do not include labour provisions in their PTAs – both Mercosur and the Pacific Alliance do not include any labour references in their PTAs.

The US has strengthened its approach towards enforcement of labour provisions in recent times. In 2020, the US along with Mexico and Canada reached a consensus on the United States–Mexico–Canada Agreement (USMCA), which is considered to be a modernised, high-standard reinvention of the now-defunct NAFTA. The revision was due to growing criticisms that the NAFTA no longer addressed the present-day issues, and the USMCA was designed to account for changes in the global economy and to address issues such as intellectual property protection, digital trade, labour rights, and environmental standards. Interest groups also raised concerns that the NAALC provided insufficient means for the parties to enforce its obligations, leading to concerns regarding a ‘race to the bottom’ regarding working conditions and standards.

The USMCA was designed with a prominent emphasis on labour standards, and those standards are found directly in the main text as opposed to being delineated in a side agreement. Moreover, the USMCA also includes novel mechanisms to enforce labour standards. The key achievements of the USMCA include commitments by Mexico to change domestic law to provide effective recognition of the right to collective bargaining, new provisions prohibiting imports of goods produced by forced labour, addressing violence against workers, and protection of migrant workers. The agreement also includes new trade rules of origin to push for higher wages by requiring that 40–45 per cent of auto content be made by workers earning at least USD 16 per hour. Finally, and possibly most notable, is the novel dispute settlement mechanism called the Rapid Response Mechanism (RRM) that ensures expedited enforcement of labour rights to ensure effective implementation (USTR 2016). The RRM will be expanded upon in a later part of this chapter.

Even though it relied almost entirely on legally non-enforceable labour provisions, Europe was also a pioneer with its inclusion of labour provisions in PTAs in the 1990s (Raess et al. Reference Raess and Sari2018). With the expansion of the EU over time and trade linkages being formed outside of the region, many scholars have characterised the bloc’s approach to labour provisions as advancing a ‘values-based trade agenda’.

Manners (Reference Manners2002) conceptualised the EU as a normative power that works mainly through ideas and values using trade relations and instruments such as PTAs as a viable channel rather than military force. Normative power is not typically exerted with force, but instead through deliberation. The underlying rationale of this ‘norm-diffusion’ stems from a more social and human rights perspective, in which labour provisions can be used to improve labour conditions in countries that otherwise would lack the political will or implementing capacity. Hence, labour provisions are viewed as a means of ensuring respect for labour-related human rights that reflect values universally accepted by the international community (European Commission 2018). Labour rights in signatory countries to EU PTAs are impacted ex post rather than ex ante, which differs from the US. The EU also does not include sanctions as a remedy for failure to enforce labour standards. Hence, the EU approach has been characterised as more consultative and managerial.

However, this approach has led to criticism that the EU policy on labour in trade is not assertive enough (Nissen Reference Nissen2022). Coincidentally, in the wake of these criticisms, the EU has undergone institutional changes in its decision-making process. With the enactment of the Treaty of Lisbon, elected members in the EU Parliament (EP) now have an enhanced role in trade policy, and they advocate for heightened focus towards having obligations for investors and partners, such as adhering to environmental and labour standards to maintain public support for trade (Orbie et al. Reference Orbie, Martens, Oehri and Van Den Putte2016).

Following this shift, EU PTAs since 2015 have included more comprehensive labour provisions within a broader sustainable development chapter that is made legally binding using the dispute settlement mechanism. It also confers a pronounced role for civil society in the monitoring process (Orbie et al. Reference Orbie, Martens, Oehri and Van Den Putte2016), by establishing Domestic Advisory Groups (DAGs) and Civil Society Dialogues. In 2022, the European Commission released a communication after its annual trade policy review that proposes new legal instruments that will inter alia include trade sanctions for material breaches of trade and sustainable development (TSD) provisions in PTAs (European Commission 2022).

One would be hard-pressed to categorically assert which of these two approaches – enforcement or managerial – is better. Consulting the literature, Hafner-Burton (Reference Hafner-Burton2005) argues that PTAs with hard human rights standards can rely on coercion (instead of reputational effects) to influence their treaty members towards establishing and adhering to high human rights standards. On the other hand, Spilker and Böhmelt (Reference Spilker and Böhmelt2013) counter this by illustrating that countries sign PTAs with hard human rights standards only if they are certain they can comply. As such, there might exist an inherent selection bias in which only countries with a good human rights record would be willing to add a hard human rights clause, and so paradoxically, the inclusion of hard human rights standards would primarily occur in those cases in which they are hardly necessary.

The Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP) is one good example of the enforcement approach and has been lauded as a significant improvement to the approach to labour rights in PTAs. The TPP labour chapter had specific and well-defined labour rights in the main text and side agreements, cooperative labour dialogue, and the participation of the public and any interested or involved groups, including organised labour and business. However, it also had notable shortcomings outlined by politicians (e.g. Warren Reference Warren2016), trade unions (e.g. LAC 2015), and international non-governmental organisations (INGOs) (e.g. ITUC 2015). In future PTAs, providing relevant civil society groups (NGOs, INGOs, labour unions) with a larger role in negotiations could help prevent such shortcomings while also improving the acceptability of labour provisions in the agreements. A potential model of how to define what constitutes acceptable (and improved) labour rights above former PTAs is to begin with the rights outlined in the ILO’s core conventions as a minimum and build country-specific rights obligations up from there.

However, as with the inclusion of labour clauses at the WTO, countries have vocally opposed the inclusion of labour provisions in PTAs. Developing countries are most likely to oppose the inclusion of labour rights in PTAs on the grounds that they are 1) disguised protectionism, 2) that they would penalise countries for their stage-of-development, or 3) that they represent the imposition of Western norms on unwilling parties, representing neocolonial attitudes. At its core, these countries fear loss of their comparative advantage in labour-intensive industries and argue that improvements in labour rights will follow from economic growth and development. And yet, other voices from the developing world, like Sujata Gothoskar of the Workers Solidarity Centre, argue that such a view means that ‘every struggle by the workers for a better life may be argued as eroding the competitive advantage of [their] country’ (cited in Hensman Reference Hensman2000 and Fields Reference Fields, Robert, Flanagan and Williams2003). Export-related economic growth is often associated with increasing inequality, growing informality, and structural barriers that can impede widespread improvements in labour standards (Paz Reference Paz2014; Das et al. Reference Das, Sen and Srivastava2017). Labour provisions in trade agreements arguably can help rectify market failures, and adhering to core labour standards promotes a framework for inclusive growth (Martin and Maskus Reference Martin and Maskus2001; ILO 2016). Balancing the protection of workers’ rights within global value chains (GVCs) and export-oriented sectors with developing countries’ desire to pursue economic growth and their own developmental path requires including local, national, and international actors in the negotiation and enforcement of labour provisions in PTAs.

The mixed results of labour conditionalities in PTAs have also fuelled the debate further. In a study comparing the effects of human rights agreements (HRA) and PTAs, Hafner-Burton (Reference Hafner-Burton2005) found that when benefits of trade are conditional to human rights standards through legally binding and enforceable provisions, change in behaviour is more apparent. On the flip side, PTAs that use ‘soft’ standards that are only vaguely tied to market access reflect no difference in the actions of parties with regard to increasing human rights standards. On labour clauses specifically, Carrère et al. (Reference Carrére, Olarreaga and Raess2022) found that including such clauses in PTAs has on average no impact on bilateral trade flows. However, in North–South agreements, the impact of labour clauses is higher when there is more cooperation among parties. Carrère et al also found that strong enforcement mechanisms only reflect marginal improvements on compliance. Nonetheless, with the rise of PTAs, countries that prioritise countries that prioritise extensive labour rights have engaged on a bilateral basis to push for the inclusion of labour provisions in trade agreements.

In examining these patterns in past PTAs empirically, we can evaluate the instances where some approaches worked better than others. First, the coverage and level of ambition with regard to labour rights in PTAs exhibit a lack of consistency. Second, low legalisation – in the precision, obligations, and enforcement – of labour provisions presents as a problem in adhering to these standards in actualisation. As such, future PTAs should move towards more effective legalisation of labour provisions. Finally, on the enforcement of these labour provisions, the numbers are – at first glance – very disappointing: up until 2020, only two cases had been solved under the dispute settlement mechanisms of these PTAs, which implies that the impact of having labour provisions enforced under PTA dispute settlement is limited. Bearing in mind that enforcement does not exclusively include the formal settlement of disputes, the enforcement of labour conditions could improve if dispute settlement procedures were more accessible, and potentially more inclusive towards civil society groups and labour organisations. In fact, some provisions could have been enforced on a political level by these actors.

The lack of a stringent enforcement mechanism at the ILO was one of the main motives for including labour provisions in PTAs. Thus, PTAs and dispute settlement mechanisms might be an avenue to ensure labour provisions can be properly enforced.

13.3.1 Expansion of Labour Rights

Labour rights are often divided into two categories: collective and individual (sometimes called substantial) rights. The former refers to FACB rights, that is, the right of workers to act collectively and negotiate as a collective in their own best interest. The latter category of rights is less well-defined but overlaps to a large degree with the components of the ILO and UN’s concept of decent work, that is, formal work contracts, humane work hours, adequate earnings, occupational safety and health, non-remuneration benefits, and social security (ILO 2009). While unions may be viewed as a threat in developing countries for political (regime stability) and economic reasons (disruption of production and higher negotiated wages, etc.), allowing workers the right to organise does not imply higher labour costs, per se. Employers in developing countries can (and often do) refuse to negotiate in good faith with workers’ legitimate representatives and will even find ways to circumvent laws pertaining to FACB rights by, for example, installing ‘yellow’ or employer-friendly unions. Collective labour rights, therefore, represent a relatively inexpensive way of signalling labour upgrading to (potential or current) trading partners without losing price advantage as an exporter (Wang Reference Wang2020; Messerschmidt and Janz Reference Messerschmidt and Janz2023). Individual rights, on the other hand, can be very costly to implement. Upgrading workplace safety, reducing excessive hours or paying overtime, providing non-wage benefits, providing formal employment contracts, and paying into pension schemes all are associated with higher labour and therefore production costs which is perceived as a loss in competitiveness in export markets, especially for countries whose comparative advantage is in low-skill production.

For these reasons, labour provisions in trade agreements have primarily focused on enforcement of domestic laws (Raess and Sari Reference Raess and Sari2018). Doing so avoids the projection of exogenous standards (i.e. from the Global North) on developing (or otherwise low-standard) countries and pre-empts opposition based on claims that trade-related labour provisions are little more than disguised protectionism. However, while substantive commitments to enforcing domestic laws are widespread, they are largely ineffective in improving the working conditions on the ground. Partner countries are unlikely to trigger dispute settlement regarding violations, and enforcement within a violating country is more likely to occur as a means of signalling suitability as a potential future partner in PTAs, rather than to stop abuses (Kolben Reference Kolben2013; Van Roozendaal Reference Van Roozendaal2015; Vogt Reference Vogt2015).

When labour provisions do mention protection of specific rights, they tend to focus on two things, both derived from the ILO 1998 Declaration: FACB rights and prohibitions on the worst forms of labour abuses, namely, child and forced (i.e. slave) labour. After this, several individual rights are specifically referenced in a steadily declining percentage of agreements as substantive commitments. Elimination of discrimination and equal remuneration are included in ~40% of PTAs, followed by health and safety (~30%), working conditions and wages (in ~20%), and decent work and working time, which can be found in only about 15% of agreements. Freedom of association and collective bargaining labour rights are frequently included in trade agreements because they are considered the cheapest option (i.e. they do not incur increased labour costs), second only to references to upholding domestic laws, and because proponents of their inclusion argue that FACB rights can lead to improvements in working conditions and individual labour rights. However, while signatory countries often improve their collective labour laws, they do little to improve de facto enforcement, leading to no improvement or sometimes even worsening conditions (Raess et al. Reference Raess and Sari2018).

Expanding the types of labour rights in PTAs has the potential to lead to improvements in on-the-ground conditions that have remained elusive thus far, particularly when paired with the other advancements that we recommend. Inhumane working hours, unsafe working conditions, and informal employment are endemic in developing countries and in global supply chains, in particular (Beliner et al. Reference Berliner, Greenleaf, Lake and Noveck2015). So far, state-centred approaches in labour provisions have proven ineffective in alleviating these violations (Vogt Reference Vogt2015; Brown Reference Brown2016). In tandem with targeted sanctions and empowerment of local civil society, more clearly defined and expanded labour rights would make improved working conditions a more attainable and enforceable goal (Brown Reference Brown2016). We can also envision an expansion of protected rights to those of migrant workers, a group whose relevance continues to grow, as many regions in the world grapple with climate change and conflict-exacerbated migration flows. As an example, the draft TPP, which made many progressive steps regarding protection of labour rights, included ‘Labor Consistency Plans’ (LCPs) for some potential signatories. One of these was an LCP for Malaysia, which called on the country to stop withholding migrant workers’ passports and provide them with formal contracts (Dong Reference Dong2016). Although the US ultimately withdrew from the TPP and it has since been replaced by the CPTPP, many of the advances made during the negotiations are being held up as an indication of shifting political will among parties as well as examples of what is possible when negotiating far-reaching trade agreements. Of course, defining the acceptable floor for labour rights in such a way as to avoid the perception (or reality) of disguised protectionism or projection of standards from one country to another will require involvement of not only state representatives, but relevant societal actors from each party. By involving labour representatives or other civil society actors, inclusion and enforcement of labour rights in PTAs can avoid sanctioning countries simply due to their stage-of-development (Fields Reference Fields, Robert, Flanagan and Williams2003).

13.3.2 The ‘Manner Affecting Trade’ Issue

Another key issue observed in past dispute cases regarding labour rights violation is the ‘manner affecting trade’ term. According to Article 16.2.1(a) of the Dominican Republic–Central America FTA (CAFTA-DR), ‘A Party shall not fail to effectively enforce its labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the parties, after the date of entry into force of this Agreement.’ In order to establish a labour violation, two conditions must be met. First, the claimant must prove a persistent pattern of violations of labour laws. Second, this lack of enforcement must have affected trade between the Members of the PTA (Paiement Reference Paiement2018). This term is a key feature from the May 10 template from the US that appears in several agreements (Cimino-Isaacs Reference Cimino-Isaacs2020). To demonstrate the complications brought upon by this term, this section unpacks the dispute between the US and Guatemala over Article 16.2.1(a) of the CAFTA-DR agreement.

The CAFTA-DR includes a state-to-state mechanism that allows for a complaint of labour violations to be brought for dispute under the arbitration mechanisms of the agreement. In 2008, the US government raised a dispute under this mechanism against Guatemala, claiming that they violated commitments to enforce labour laws outlined in the CAFTA-DR PTA. This was after the American Federation of Labour and Congress of Industrial Organizations (AFL-CIO) and six Guatemalan labour unions filed complaints. Formal labour consultations between the two nations failed to yield results, and the United States Trade Representative (USTR) filed for arbitration under the CAFTA-DR dispute resolution chapter in 2011. Nine years after the complaint was submitted, the panel put forth its decision in 2017, finding that the US had not shown that Guatemala breached the agreement in relation to labour rights.

During the proceedings, both countries came forth to explain their interpretation of the language in the agreement. The US submitted that ‘in a manner affecting trade’ means that a violation ‘has a bearing on, influences or changes cross-border economic activity, including influencing conditions of competition within and among the CAFTA-DR Parties’. Conversely, Guatemala submitted that Article 16.2.1(a) requires an ‘unambiguous showing that the challenged conduct has an effect on trade between the Parties’.

However, the panel had differing interpretations. The panel interpreted the notion of ‘sustained or recurring course of action or inaction’ in Article 16.2.1 (a) of CAFTA-DR as either ‘(i) a repeated behaviour which displays sufficient similarity’ or ‘(ii) prolonged behaviour in which there is sufficient consistency in sustained acts or omissions as to constitute a line of connected behaviour by a labour law enforcement institution, rather than isolated or disconnected instances of action or inaction’. The panel acknowledged that ‘in a manner affecting trade between the Parties’ only applies if it provides a competitive edge to an employer or employers involved in trade between the parties. They explained further how this can be proven – by first demonstrating that the business is engaged in markets or competes with imports of CAFTA-DR Parties and identifying that a failure to enforce labour obligations is sufficient to cause ‘some competitive advantage’ on said enterprise.

The panel’s interpretation faced significant criticism. They conclusively determined that Guatemala did not uphold its labour laws according to Article 16.2.1(a) of the CAFTA-DR, as evident from violations affecting 74 workers at eight different locations. Though this appeared to be a straightforward win for the US, two key criteria remained: the persistence of the violations and their impact on trade. The panel firmly concluded that even though Guatemala consistently neglected its labour laws, this neglect did not impact trade. Additionally, in the single instance where trade was affected, the violation was neither sustained nor recurring. Essentially, according to the panel, one of the conditions of Article 16.2.1(a) was always unmet, leading them to rule in favour of Guatemala and against the US.

Given that this was the first labour enforcement case brought to dispute settlement under a PTA, the expectations on whether this mechanism can be evoked to protect workers’ rights were high. The fact that the panel did not find a breach was met with disappointment from stakeholders, including from the Office of US Trade Representative (USTR 2014). The results raised questions of whether labour chapters act as safeguards for workers in the way they are currently formulated (Claussen Reference Claussen2020).

Hence, the main recommendation of this section regarding ‘manner affecting trade’ is that this term should be rephrased with unambiguous language, encompassing strong legal obligations and sharper precision (Abbott et al. Reference Abbott, Keohane, Moravcsik, Slaughter and Snidal2000). We suggest this change on two grounds. First, the term ‘manner affecting trade’ should be phrased in a clearer way that does not allow for narrow interpretations by arbitration panels that primarily adopt a perspective of trade considerations as opposed to worker’s rights, and instead be inclusive to the voices and submissions of civil society. Second, labour rights violations should not only be considered when they are predicated upon whether the violation affects trade. The central goal of including labour provisions should be to protect workers’ rights in traded sectors, not to protect workers’ rights only if labour law violations distort competition in ways that negatively affect trade. Moreover, the combined conditionality of ‘sustained or recurring course of action’ sets a high requirement that worker groups and unions might not be able to prove or reach. Overall, these recommendations can prevent possibilities of interpretations that have adverse effects on the welfare of the workers and instead prioritise labour rights-based considerations.

13.3.3 Enforcement Mechanisms

A main criticism of labour provisions in PTAs is that even if they are included in the agreement, enforcement is weak. Using the USMCA’s enforcement mechanisms as the current gold standard, we make three broad recommendations on how enforcement can be strengthened in future PTAs to fully unlock the potential of these provisions that have been painstakingly negotiated and advocated for.