[CTC] DOL Official Defends Peru FTA Labor Report; Pledges To Maintain Pressure

[Arthur Stamoulis]

Inside U.S. Trade - 04/01/2016
DOL Official Defends Peru FTA Labor Report; Pledges To Maintain Pressure
March 31, 2016

An Obama administration official last week defended a Department of Labor (DOL) report that found problems with Peru's labor rights regime but stopped short of saying it violated the labor chapter of the U.S.-Peru free trade agreement or recommending formal FTA consultations. He also pledged to keep the pressure on Peru to fix these shortcomings.

In a March 23 interview with Inside U.S. Trade, the DOL official said the administration is keeping all options on the table if Peru does not fix these problems within nine months. These include pursuing FTA formal consultations, which would be the first step toward dispute settlement, or negotiating an informal labor action plan, he said.

The two governments have already been in contact via email and are scheduled to discuss DOL's recommendations for remedying the problems during a video conference within the next two weeks, he said.

The official's comments on the next steps go further than those laid out in the DOL report, which was published on March 18. It merely states that the U.S. government will "offer to meet" with the Peruvian government to discuss the report's findings and recommendations, and assess Peru's progress within "nine months and thereafter, as appropriate."

The DOL official said the report did not recommend formal FTA consultations because the department already felt that Peru was willing to engage in a dialogue about these problems and address them.

Asked why DOL did not explicitly allege FTA violations as it has done in previous labor reports, the official said the department did not have enough evidence to make such a determination and also meet the 180-day timeframe for delivering its report.

But the official said DOL determined that it had gathered enough information to lay out the specific problems and outline the changes the Peruvian government needs to make, prompting it to go ahead with the publication of the report. This marks the first time DOL has completed an investigation on a labor petition with the 180-day deadline.

The DOL report identified "serious concerns" about whether Peru is upholding the right to freedom of association in its laws, regulations and practices as required by Article 17.2.1(a) of the U.S.-Peru FTA. In particular, the report cited the prevalent use of short-term contracts in export-focused sectors that employees said were not renewed if they joined a union.

The report also raised "questions" about Peru's enforcement of its labor laws related to freedom of association and occupational health and safety. Article 17.3.1(a) of the U.S.-Peru FTA requires that a party shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment.

House Ways & Means Committee Ranking Member Sander Levin (D-MI) criticized the report for not coming down harder on Peru's labor law enforcement when, in his view, there is clear evidence of violations. He also charged that it "fails to provide clear next steps regarding how Peru will remedy the use of short-term contracts that deprive workers of the ability to freely associate."

The report was prompted by a petition filed in July 2015 by the International Labor Rights Forum (ILRF) and eight Peruvian groups alleging that Peru violated Articles 17.2.1(a) and 17.3.1(a) of their FTA with the U.S.

The Peruvian government and the ILRF offered differing interpretations of DOL's failure to explicitly allege an FTA violation in its report. Lima said the report showed it had not breached its FTA commitments, while ILRF argued DOL had substantiated its allegations of a breach.

"It demonstrates that the facts identified in the communication [submitted by labor groups] do not constitute a possible case of non-compliance with the Labor Chapter of the FTA, but rather confirm the actions of the Peruvian government to respond to complaints, both at the administrative and judicial level, including the cases referred to as alleged violations in the communication that prompted the Public Report," Peru's Ministry of Foreign Trade and Tourism said in a March 18 Spanish-language statement on the DOL report, according to an informal translation.

The ministry said Peru has taken steps since signing the FTA to strengthen its labor laws, and will work with the United States moving forward as it continues to improve its regime. Peru is expected to release a more in-depth response to the DOL report in the coming weeks.

Eric Gottwald, legal and policy director at ILRF, said the DOL report substantiates all of the claims made in the original petition even though the DOL stopped short of finding FTA violations.

"The reason I am pleased with the report is that [DOL has] serious concerns, and that is a good signal," Gottwald said. "They did their investigation. From what they gleaned from their investigation … they think there are real problems with the short-term contract law."

With regard to upholding freedom of association under Article 17.2.1(a), the ILRF petition alleged that short-term contracting is used by employers in the so-called non-traditional economy (NTE) sectors to discourage workers from joining labor unions. In Peru, NTE sectors include textiles and apparel, certain agricultural products, fishery products, jewelry, wood and paper, and nonmetallic minerals.

While employees in other industries can only be kept on short-term contracts for five years, the limit does not apply to NTE jobs, which are covered by Decree Law 22342, the report found. That decree allows short-term contracts to be renewed as "necessary." It also provides tax breaks and other incentives to NTE businesses that meet its requirements.

But NTE businesses still need to abide by another decree, Decree Law 18138, which states "workers may only be employed on short-term contracts in cases when it is required by unforeseen circumstances or by the temporary nature of the act or service to be undertaken."

The DOL report found NTE employees were half as likely to join a union as other industry sectors. DOL officials also heard from several employees that their contracts were not renewed if they joined a labor union. Short-term contract workers in the agriculture sector also said their contracts were not renewed if they joined a union, though they can only be kept on short-term contracts for five years.

With respect to Article 17.3.1(a), DOL said it had "questions" generally regarding Peru's enforcement of labor laws, in particular in the NTE and agricultural sectors. These related to low numbers of labor inspectors, lack of labor inspectorate offices outside of Lima; the length of time for resolution of cases through the administrative and judicial processes; and the inability of the administrative labor authority to compel employers to comply with reinstatement and other remediation orders.

Specifically on enforcement of laws related to freedom of association, the report raised questions about how long it takes to adjudicate cases where employers were found to not renew the short-term contracts of employees who joined a union. In cases where labor inspectors determined a company violated laws protecting an employee's right to join a union, any remedies or fines could be stayed for years as the case is adjudicated.

"These concerns contribute to a labor law enforcement process that may embolden employers who seek to undermine freedom of association by not renewing the short-term contracts of workers who attempt to form or participate in a union as the affected workers have little incentive to pursue claims and employers have little fear of enforceable repercussions," the report said.

The report raised questions about Peru's ability to enforce its occupational health and safety laws in the agriculture sector. DOL found cases where companies received multiple fines or violations for incidents involving worker injury or death, but the cases languished in the legal system for years.

Still, DOL said Peru has already made progress in improving its labor rights regime by creating a new labor inspection agency, preparing for implementation of a new labor court and clarifying laws to ensure short-term contracts cannot be used to prevent employees from joining a union. But it laid out four additional recommendations for Peru to address going forward.

The first is for Peru to adopt and implement "legal instruments and other measures to ensure that the use of short-term contracts in the NTE sectors" does not restrict workers' right to associate. This could include actions such as placing a five-year limit on the use of consecutive short-term contracts in the non-traditional economy sectors, thereby bringing NTE jobs in line with other Peruvian industries.

Second, Peru needs to expand the nation's federal labor inspection program, called the Superintendencia Nacional de Fiscalizacion Laboral (SUNAFIL), into all regions of Peru. SUNAFIL is currently only in nine of Peru's 26 regions, and 98 of the agency's 107 full labor inspectors are based in Lima.

Third, Peru needs to increase support for labor enforcement activities, including inspections and the administrative sanctions process in a manner that expedites enforcement of Peru's labor laws, according to DOL.

Finally, Peru needs to expand its Labor Court of First Instance and increase its budget for labor cases that expedites the adjudication of labor cases, DOL said.
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