[CTC] Sources: U.S. loses to Guatemala in first-ever FTA labor dispute settlement case

[Arthur Stamoulis]

INSIDE US TRADE

Sources: U.S. loses to Guatemala in first-ever FTA labor dispute settlement case

June 20, 2017 
After nine years, the United States has lost -- to Guatemala -- the first-ever labor enforcement case brought to dispute settlement under a free trade agreement, sources told Inside U.S. Trade.

The dispute, which marked the first time a labor rights complaint was lodged under a free trade deal, was triggered in 2008 after the AFL-CIO and six Guatemalan labor unions filed a complaint with the Labor Department under the labor chapter of the Dominican Republic-Central America free trade agreement (CAFTA-DR). The groups alleged that the Guatemalan government failed to adequately enforce labor obligations involving the freedom of association, collective bargaining and rights to acceptable conditions of work.

A three-person arbitration panel ruled in favor of Guatemala last week, sources said, issuing a report to the parties that is expected to be released soon. CAFTA-DR does not provide a mechanism for appeal.

Celeste Drake, trade policy specialist at AFL-CIO, declined to comment on the case as she had not read the report and was not privy to the outcome. However, she said, “we believe this case should have been a slam dunk for the U.S., so the rumors of a U.S. loss are very troubling.”

Sources who have been closely following the case believe it could have implications for the renegotiation of the North American Free Trade Agreement and future trade deals.

Drake said the outcome of the case would hinge on whether the U.S. proved Guatemala's alleged labor violations “affected trade” -- pertaining to the language outlined in CAFTA-DR's Article 16.2.1(a).

Article 16.2.1(a) of the FTA says “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 between the Parties after the date of entry into force of this Agreement.”

Sources told Inside U.S. Trade the panel in the dispute made it “very difficult” for the U.S. to demonstrate that deficiencies in Guatemala's enforcement of its labor laws were affecting trade -- a hurdle that these sources said the U.S. did not anticipate having to clear.

Drake said that in AFL-CIO's view, such violations “do affect trade” by driving down “wages in workplaces in export industries, thus making exports to the U.S. from Guatemala cheaper than they otherwise would have been.”

“If the panel decided that the U.S. failed to demonstrate this,” she said, “then the question becomes what exactly does a petitioner have to show in order bring a cause of action under a May 10 deal that incorporates 'manner affecting trade' if the evidence in Guatemala was not good enough?”

The May 10th deal <https://ustr.gov/sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf> -- established by Congress and the administration in 2007 -- lays out the basis for labor chapters in trade agreements, building upon the 2005 CAFTA-DR by adding enforceable items.

Language in the May 10 agreement stipulates that “a violation must occur in a manner affecting trade or investment between the parties.”

The agreement -- included in U.S. FTAs with Peru, Colombia, Panama and South Korea -- incorporates internationally recognized labor standards into trade agreements by stipulating that countries must “adopt and maintain” the fundamental labor pillars of the International Labor Organization's Declaration on Fundamental Principles and Rights at Work.

Some sources believe the U.S. loss in this case could potentially call into question May 10 obligations in existing and future trade agreements because language interpreted by the panel is also reflected in May 10.

Drake argued that if the U.S.-Guatemala arbitration panel “set an unreasonably high standard” for proving how labor violations affect trade, that high standard “could be repeated in a case based on a May 10 deal.”

After the initial complaint in 2008, the Labor Department investigated and then joined the Office of the U.S. Trade Representative in requesting consultations with the Guatemalans to discuss issues relating to Article 16.2.1(a) of the FTA.

The U.S. then requested the establishment of an arbitration panel -- composed in late 2012 -- and the U.S. and Guatemala agreed on its chair, as outlined in Article 20.9 of the FTA. The parties then designated one panelist apiece.

However, both sides then agreed to suspend arbitration in 2013, backing instead a comprehensive enforcement plan under which the Guatemalan government promised to improve labor law enforcement within specific time frames. A year later, former U.S. Trade Representative Michael Froman claimed in August 2014 <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2014/September/United-States-Proceeds-with-Labor-Enforcement-Case-Against-Guatemala> that Guatemala had failed to implement the enforcement plan and asked to reactivate dispute settlement proceedings.

After nagging delays <https://insidetrade.com/node/156176>, the dispute settlement panel weighing the U.S. complaint held a hearing in June 2015 and issued its initial panel report in October 2016. The final report was expected to be shared between the parties in April 2017; however, a source said the arbitration panel moved that date back.

Last week, Inside U.S. Trade learned that the three-person arbitration panel delivered its final report to the disputing parties on June 14. They are in the process of assessing the outcome, a source said, with the report due to be released soon.

According to Article 20.14.1 of the CAFTA-DR, the U.S. and Guatemalan governments are required to make the final report public within 15 days of receipt. On receipt of the final report of a panel, the disputing parties “shall agree on the resolution of the dispute, which normally conforms with the determinations and recommendations, if any, of the panel,” the agreement states.

Some sources suggested the Obama administration might have tried to settle the case after the initial panel report was issued last October but said Guatemala refused to do so and instead opted for the final report to be issued.

A source with an international trade association said that a finding absolving Guatemala could reinforce the idea, held by some pro-labor advocates, that labor chapters in U.S. free trade agreements “lack teeth” -- and might also increase the focus on labor terms in upcoming NAFTA talks.

Several sources agreed that the outcome of the landmark case could raise questions about the effectiveness of labor standards in trade deals and affect the renegotiation of NAFTA as well as other future trade agreements. -- Isabelle Hoagland (isabelle.hoagland at iwpnews.com <mailto:isabelle.hoagland at iwpnews.com>) and Jenny Leonard (jenny.leonard at iwpnews.com <mailto:jenny.leonard at iwpnews.com>)


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