Labor rights issues slow CAFTA’s progress

Labor rights issues slow CAFTA’s progress

A decade ago, labor rights advocates in the U.S. and Central America noted that Central American nations had laws on their books that were largely consistent with core labor standards of the International Labor Organization, but were working to address gaps between existing laws and ILO recommendations.

In response to such criticisms, the Office of the U.S. Trade Representative noted, the CAFTA text included “a groundbreaking cooperation mechanism to promote labor rights through specialized consultations and targeted training programs in the areas of child labor, public awareness of worker rights, and labor inspection systems.”

As part of the CAFTA process, the U.S. Department of Labor allocated $6.7 million to educate Central Americans on core labor standards and to improve the administrative capacity of the CAFTA countries in labor matters.

A decade later, the labor rights issue continues to cast a dark shadow over foreign-owned, low-wage manufacturing plants, especially in Guatemala. On multiple occasions, trade unions in the U.S. and Guatemala have charged that the Guatemalan government has failed to comply with its obligations to effectively enforce the labor rights chapter of CAFTA.

Among other grievances, the unionists say some employers rob Guatemalan workers of their wages and pensions, refuse to allow labor rights inspectors on their grounds, or even fail to pay those rare legal judgments made against local companies in Guatemalan courts.

In April, the U.S. granted Guatemala additional time to comply with the two countries’ Mutually Agreed Enforcement Action Plan, signed in April 2013. That plan was enacted in response to a 2008 complaint filed by the AFL-CIO and six Guatemalan trade unions. Thus, Guatemala has recommitted itself to strengthen its system of labor inspections, expedite and streamline its process for sanctioning its non-compliant employers and remediating labor violations.

Although AFL-CIO observers seem skeptical, Mary O’Rourke, president of New York-based apparel consultant O’Rourke Group Partners, sees signs of progress in recent years. “It was bad, but it has improved,” she said. Generally speaking, compliance with labor rights provisions in Central America is “substantially better than in Asia,” she added. Central American nations “have made remarkable progress. I have seen it at its worst” in years past.

U.S. trade negotiators insist on including labor provisions in every new free trade pact because of the politics of U.S. trade, according to Kimberly Ann Elliott, senior fellow at the Center for Global Development, a Washington-based research center.

“Past trade agreements, if they were with small, distant countries with relatively high standards, good working conditions and few sensitive exports, such as Australia, Chile and Singapore, or those driven by foreign policy, as with Jordan, received strong congressional support,” she said. “But gaining congressional approval of agreements with countries where labor standards, or their enforcement, are well below international standards has proved more difficult, especially when the countries also export sensitive products, particularly apparel.” 

The debate over worker rights in U.S. FTAs was “partisan and rancorous,” but the general trend over two decades has been to strengthen the labor chapter, making it more enforceable and, since 2007, to tighten the linkage between national laws and international standards, Elliott added.

If the Latin American governments hadn’t promised to vastly improve their human rights records, the U.S. Congress would not have approved CAFTA, which passed by just one vote in 2005.

Making a significant, often neglected distinction, Elliott noted, “These core standards relate to the framework rules that govern labor market transactions, not to specific outcomes, such as wages. They are comparable to the rules that protect property rights and freedom of transactions in product markets, which most economists view as necessary for market economies to operate efficiently,” she added. “And just as universality of property rights and freedom of market transactions does not imply identical laws or institutions among countries, universality of these core labor standards does not imply uniformity in the details of the protections or in the institutions that implement them.”

How much impact has these labor-rights standards had on trade and investment in CAFTA countries? Elliott explained, “There is little compelling evidence either of a race to the bottom in labor standards, or of protectionist abuse of trade-labor linkages where they exist. The impact of higher standards on competitiveness is more complicated than usually assumed because any higher costs of compliance that do occur are often offset by higher productivity.”

In the case of CAFTA, economists agree it’s difficult to assess whether the inclusion of such labor rights agreements in that pact had any impact on the rate at which CAFTA’s member nations have been able to attract investment, and gain market share for their products worldwide.

Jose Luis Carrazco Velazquez, head of Menlo Logistics’ division for Mexico and Latin America, said, “Of course, we are concerned” about the controversy over labor. But he’s also optimistic that “the region will continue to stabilize” because “the governments are changing for good” when it comes to “making sure that any (public) insecurity is not affecting” foreign investments in the region.

“Foreign investment has not slowed down” as a result of the turmoil over labor rights, he added.

Contact Alan M. Field at