Economic Sanctions: Effective Enforcement Method for Labor Standards?

By Julie Wilson

Julie Wilson is a second-year law student at the University of Texas School of Law. She is Human Rights Scholar at the Rapoport Center for Human Rights and Justice and Chair of the 2017-2018 Working Paper Series Editorial Committee.

Although including labor standards in international trade agreements has had some effect on recognizing and enforcing fair labor practices, such provisions fail to significantly improve these practices on a global scale. Labor standards are included in trade agreements because they are considered a barrier to free trade. Currently, existing standards are largely unenforceable; however, targeted economic sanctions may strengthen their efficacy.

The Development and Current Status of Labor Standards in Trade Agreements

Before labor standards were prevalent in trade agreements, such agreements initially focused on lowering tariff barriers to trade. But by the 1970s, the General Agreement on Tariffs and Trade (GATT) and subsequent World Trade Organization (WTO) rounds had decreased tariff rates enough that they no longer significantly barred trade. Thus, attention shifted to nontariff barriers, including import licensing, rules for valuation of goods at customs, pre-shipment inspections, and rules of origin.[1] The discussion of nontariff barriers led to discussions of other areas related to trade, such as labor standards.

As a result of this shift in focus, growing domestic political pressure in the US to include enforceable labor standards in trade agreements has emerged. When Congress granted the Executive branch authority to negotiate the Trans-Pacific Partnership, Congress specifically included labor standards as a trade objective.[2]

The US has recently started to include more labor provisions in its trade agreements, including the US—Jordan Free Trade Agreement; the Canada—Chile Free Trade Agreement; and the North American Agreement on Labor Collaboration (NAALC).[3] Where enforcement exists at all, approaches range from treating trade-related labor violations as trade violations (e.g., import bans) or developing separate enforcement mechanisms to fine violations (e.g., child labor). Most such agreements, however, fail to require that labor standards align with international standards.

The Purpose of Labor Standards in Trade Agreements

Stakeholders disagree on the impact of labor standards on fair conditions and trade practices. Stakeholders in favor of including standards warn that countries with exploitative labor practices gain unfair trade advantages. This so-called “race to the bottom” forces other countries to lower their labor standards to compete in the market.[4] Such stakeholders believe that including labor standards in trade agreements would reveal unfair and exploitative labor practices in countries that would otherwise be opposed to improving their domestic labor practices. Countries would be held accountable for compliance failures through economic sanctions, the primary tool for enforcing labor standards compliance.[5]

Alternatively, stakeholders against enforcing labor standards claim that they would interfere with free trade and impede efficiency. Under this view, the “race to the bottom” idea is a myth; rather, enforcing labor standards would disadvantage less developed countries through decreased market access, decreased trade, and worse working conditions for laborers.[6]

The Reality of Labor Standards in Trade Agreements

It is likely that labor standards in trade agreements would effect some change, but only for the worst offenders because economic sanctions are ultimately a limited tool.[7]

The argument for including labor standards relies on the assumption that labor standards can be enforced. However, current labor standards are largely unenforceable. Economic sanctions suffer multiple efficacy problems. First, the standards they enforce may not be internationally recognized. Second, sanctions ignore that some countries lack sufficient resources for immediate improvement. Third, trade sanctions can be coercive, convincing small and poor countries to comply in order to resist the high cost of violations.[8] Finally, primary international trade and labor organizations lack effective recognition and compliance mechanisms. Thus, labor standards are limited by their enforcement capacity.

The most serious obstacle facing effective implementation of economic sanctions is disagreement over how to define compliance with labor standards, which in turn makes enforcement of such standards tenuous. Without common definitions of rights such as “freedom of association” or “right to collective bargaining,” there is no baseline to establish what behavior is or isn’t compliant.[9] Without this foundation, performance cannot be measured by neutral observers.

International bodies recognize labor standards in inconsistent ways. The WTO does not explicitly recognize labor standards violations as violations of its rules.[10] Instead, it merely affirms the standards of the International Labour Organization (ILO).[11] The ILO outlines labor standards, but it faces challenges in determining a country’s obligation to these standards. For example, although the ILO generally prohibits private contractors from employing prison labor, many countries, including the US, “consider private contractors to be an integral part of the modern management of penal institutions.”[12] Additionally, unlike the WTO, the ILO has virtually no enforcement power. The ILO may only provide technical assistance to violating countries and cannot authorize retaliation or sanctions for violations. Thus, although the ILO recognizes labor standards, it has limited abilities to induce compliance.[13]

In multilateral agreements, the recognition of labor standards varies widely. Some agreements include labor standards as side agreements, while others explicitly incorporate labor standards into the main text of the agreement. However, even incorporated standards are ultimately limited by the efficacy of their enforcement mechanisms.

The incorporation of labor standards into multilateral agreements has achieved some success with targeted economic sanctions. For example, the US’s Generalized System of Preferences (GSP) program allows developing countries to export certain products in specified amounts to the US duty free. Ten years after the program began in 1984, Congress implemented an additional requirement: developing countries must take steps to implement basic labor standards. Failure to do so would threaten that country’s participation in the GSP program.

GSP countries have been responsive to this condition. For example, Swaziland implemented constitutional changes to protect workers’ rights and reach compliance with the program. However, of the fifteen countries sanctioned by the US, seven countries have not yet been reinstated. Labor standards as a solution to poor working conditions overlooks the cost of isolating these economies while they remain non-compliant. Regardless of the reason for their prolonged violation, lack of access to this program prevents these countries from accessing GSP’s economic aid.[14]

Trade sanctions may succeed in inducing compliance for clear-cut violations. However, they are unlikely to be effective at reaching gray areas – which include many laws and practices surrounding working conditions. Thus, until more productive mechanisms of compliance emerge, labor standards remain a limited tool to improve workers’ conditions globally.

[1] Non-tariff Barriers: Red Tape, etc., https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm (Last visited November 30, 2017).

[2] Office of the United States Trade Representative, The Trans-Pacific Partnership: Detailed Summary of U.S. Objectives (September 2015), https://ustr.gov/sites/default/files/TPP-Detailed-Summary-of-US-Objectives.pdf.

[3] Peterson Inst. for Int’l Econ., Trans-Pacific Partnership: An Assessment, 85 (Cathleen Cimino-Isaacs et al eds., 2016). https://piie.com/publications/chapters_preview/338/4iie3322.pdf.

[4] Robert M. Stern and Katherine Terrell, University of Michigan, Labor Standards and the World Trade Organization, (August 2003).

[5] Peterson Inst., supra at note 3.incorporatedctivefined violations.ns are used in a targeted method.onsnt. reach compliance. See also UGanda.uch standards meani

[6] Id. at 73-74.

[7] Id. at 74.

[8] Theodore Moran, The Brookings Institution, Trade Agreements and Labor Standards (May 1, 2004) https://www.brookings.edu/research/trade-agreements-and-labor-standards/.incorporatedctivefined violations.ns are used in a targeted method.onsnt. reach compliance. See also UGanda.uch standards meani

[9] Id.

[10] Rorden Wilkinson, Labour and Trade Related Regulation: Beyond the Trade-Labour Standards Debate?, 1 British Journal of Politics and International Relations 2, 165-191 (1999).

[11] Labour Standards: Consensus, Coherence and Controversy, https://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm (Last visited November 30, 2017).

[12] Moran, supra note 10.

[13] Gary Burtless, Workers’ Rights: Labor Standards and Global Trade, September 1, 2001, https://www.brookings.edu/articles/workers-rights-labor-standards-and-global-trade/.

[14] Robert A. Rogowsky and Eric Chyn, US Trade Law and FTAs: A Survey of Labor Requirements, July 2007, https://www.usitc.gov/publications/332/journals/trade_law_ftas.pdf.