Labor clauses with institutionalized cooperation measures in FTAs: a “win-win” outcome in North-South relations Damian Raess Assistant Professor Prepared for presentation at the EFTA Consultative Committee, 211th Meeting Geneva, 22nd November 2018

Outline Impact of labor provisions in FTAs policy implications Review key features of EFTA’s TSD chapter in relation to labor issues EFTA - EU comparison 3) Policy recommendations

Key debates about trade-labor linkages Are labor provisions protectionism in disguise, designed to reduce trade pressures? Do labor provisions in FTAs make a difference in workers lives? 2 cross-cutting issues: What type of provisions (sanction model Versus cooperation approach) best promote social and economic development? What is the role of social partners in the implementation and monitoring?

Preexisting beliefs about trade-labor linkages Protectionism in disguise benefiting high-income countries (Bhagwati 1995) Ineffective in protecting workers (at home and) abroad (e.g., on EU FTA, see Harrison et al. 2018) Only FTAs with strongly enforceable human rights provisions (sanctions model) improve human rights on the ground (Hafner-Burton 2005)

Impact of labor provisions on trade flows Study by Carrère, Olarreaga and Raess (2018) Not a priori clear whether labor provisions in FTAs reduce or increase bilateral trade flows Deterioration in comparative advantage of low-income countries? Increase in demand for goods produced with higher labor standards in high-income countries? Key findings: Introduction of labor provisions has on average no impact (all FTAs) Low-income countries benefit from the inclusion of labor provisions in North-South FTAs (boosts exports of low-incoming countries), especially when they include strongly institutionalized cooperation measures

Impact of labor provisions on labor rights Study by Raess and Sari (2018b) Freedom of association (FA) and collective bargaining (CB) rights Labour Rights indicators (in law LR and in practice LR) (Kucera and Sari 2018) Key findings: Labor provisions with strongly institutionalized cooperation measures are effective at improving compliance with in law (but not in practice) labor rights Strongly enforceable labor provisions (sanctions model) are not effective

Summing-up & policy implications “Business case” for trade-labor linkages: low-income countries benefit economically from introduction of labor provisions in North-South FTAs, particularly when accompanied by institutionalized cooperation mechanisms Claim that labor provisions amount to “hidden protectionism” is a myth Low-income countries should not oppose trade-labour linkage 2) High-income countries should not oppose trade-labor linkages either, as more trade is associated with “fairer trade,” helping to create a “level playing field” for workers and businesses in high-income countries

Summing-up & policy implications (continued) Labor clauses with institutionalized cooperation measures are a “win-win” outcome in North-South FTAs. Design of such clauses: specialized committee in charge of implementation (Labour Affairs council) involvement of third parties (social partners, NGOs, ILO) 4) Model with sanctions appears to be sub-optimal Adjudication based model (tit-for-tat) and threat of sanctions is inadequate (unfavorable) in tackling complex labor related issues

Labour Provisions in PTAs (LABPTA) dataset (Raess and Sari 2018a) Covers 487 FTAs and 165 countries over 1990-2015 I. Preambular Provisions (P) Aspirational statements regarding labour-related commitments in the Preamble or Objectives part of the agreement II. Substance Provisions (S) International LS (e.g. ILO 1998 Declaration; ILO core conventions etc.) Domestic LS (non-derogation, effective enforcement; access to domestic courts) III. Obligation Provisions (O) Bindingness and the extent of obligations established through careful legal analysis (wording such as shall, will etc.) IV. Enforcement Provisions (E) Political DSM (no 3rd party adjudication) Quasi-Judicial DSM (arbitration) Judicial DSM (judicial adjudication) Sanctions (consensual and unilateral sanctions) V. Cooperation Provisions (C) International LS (see Substance) Domestic LS (See Substance) VI. Institutions Provisions (I) Committee (regular or separate) Operation (regular or ad hoc); rank of participants (high or low) Third party involvement (social partners, ILO, NGOs, etc.) Means of cooperation (exchange of info or people, technical assistance/capacity building)

Substance

Obligation

Obligation

Enforceability

Enforceability

Cooperation ***** EFTA Philippines_2016 Costa Rica Panama EFTA 2013 ARTICLE 10.3 Fields of Cooperation Cooperation, assistance and technology transfer may cover any fields jointly identified by the Parties that may serve to enhance the Parties’ and their economic operators’ capacities to benefit from increased international trade and investment, including in particular: (e) regulatory assistance and implementation of laws concerning trade related aspects of labour and environmental issues, including institutional capacity of labour and environmental administrations. ***** EFTA Philippines_2016 Art. 11.9 Cooperation in International Fora (Ch. 11 Trade and Sustainable Development) The Parties shall strive to strengthen their cooperation on trade and investment-related labour and environmental issues of mutual interest in relevant bilateral, regional and multilateral for a in which they participate.

Institution

Institution Costa Rica Panama EFTA Art. 10.2.2 2. Parties shall cooperate with the objective of identifying and employing the most effective methods and means for the implementation of this Chapter. To this end they may coordinate efforts with relevant international organisations.

Institution - Review mechanism Canada Colombia 2008 Art. 7.5 The Council shall review the operation and effectiveness of the Agreement, including the degree to which progress has been made in implementing the obligations and institutional mechanisms of this Agreement, within five years after the date of entry into force of the Agreement and thereafter within such other period as may be decided by the Council. Such review: a. may be conducted by one or more independent experts; b. shall include a literature review and consultation with the members of the public, including representatives of labour and business organizations, as well as an opportunity for the Parties to provide comments; c. may make recommendations for the future; and d. shall be concluded within 180 days of its commencement and made public 30 days thereafter.

Recent development at EU level Debate on and reform of EU TSD chapter (February 2018) Background: dissatisfaction regarding effective enforcement of SD provisions (lack of political will and weak implementation and monitoring) Lack of consensus on introduction of sanctions 15-point plan to step up and improve implementation More assertive enforcement Facilitate monitoring role of civil society organizations Make resources available to support implementation Regular review of effectiveness of TSD implementation

Assessing EFTA’s TSD chapter Summary statement: FTAs that are hortatory, or substantive but lacking in strong institutions and enforcement mechanisms, are unlikely to have much impact on worker rights But neither does the mere presence of those mechanisms guarantee improvements in worker rights The mechanisms have to be credible and countries have to be willing to use them EU passes the test, especially the revamped approach since 2018 Where does EFTA’s approach to trade-labor linkage stand?

Assessing EFTA’s TSD chapter (continued) Institutional set-up for overseeing the implementation and monitoring of SD chapters is weak No dedicated subcommittee dealing with labor/sustainability issues Do not enable civil society organizations to perform monitoring functions Active monitoring of implementation of SD chapters appears to be lacking Joint committees don’t seem to actively act upon SD issues Periodic review is still wanting overhaul of the SD chapter, especially institutional provisions

Policy recommendations Approach based on dialogue and cooperation is the right one, but an overhaul of institutional set-up is needed creation subcommittee for sustainability issues active involvement of social partners Compulsory, regular and inclusive review and impact assessment Step up resources Select partner countries for enhanced cooperation based on: Severity of violations of Fundamental ILO Conventions in partner countries Volume of trade Coordinate with key actors sharing the same approach (EU, New Zealand) (observatory status in each others’ domestic advisory groups where trade partners overlap?)

Policy recommendations (continued) Bindingness. Revise treaty text of TSD chapter to ensure commitments are legally binding (see above point under ‘Obligation’) Scope commitments. Broaden the scope to include commitments to promote Responsible Business Conduct by referring to internationally agreed instruments Dispute settlement. Consider introducing a two-stage process regarding dispute settlement (possibility to establish panel of experts who issue recommendations) From compliance to commitment approach, remember, it is a win-win!!! The global context (UN SD agenda; rise of protectionism) requires it more than ever.

A “Social Clause” through the Back Door A “Social Clause” through the Back Door? Labour Provisions in Preferential Trade Agreements Two-year project (Nov. 2014 – Oct. 2016) funded by the Swiss Network of International Studies https://snis.ch/project/social-clause-through-back-door/

References Carrère, C., Olarreaga, M. and Raess, D. (2018) “Labor Clauses in Trade Agreements: worker protection or protectionism?,” October (available on request) Hafner-Burton, E. (2005) “Trading Human Rights: How Preferential Trade Agreements Influence Government Repression,” International Organization 59: 593-629. Harrison et al. (2018) “Labor Standards Provisions in EU Free Trade Agreements: Reflections on the European Commission’s Reform Agenda”, World Trade Review (published online 2 August) Kucera, D. and Sari, D. (2018) “New Labour Rights Indicators: Method and Trends for 2000-2015,” International Labour Review Raess, D. and Sari, D. (2018a) “Labor Provisions in Trade Agreements (LABPTA): Introducing a New Dataset,” Global Policy 9(4): 451-466. Raess, D. and Sari, D. (2018a) “Do labor provisions in PTAs reduce labor rights violations? The role of institutionalized cooperation,” August (available upon request)