This is a guest post from Cornell professor Desiree LeClercq:
In recent years, workers’ rights advocates have increasingly urged the US and the EU to strengthen the commitments under the labor chapters of their trade agreements. Following up on the innovative labor mechanisms in the U.S.-Mexico-Canada Agreement (USMCA), the Biden Administration has recently nominated several pro-labor officials to various positions throughout its Cabinet, including key positions at the Office of the United States Trade Representative (USTR). Doing so has reinvigorated the trade and labor conversation in the United States.
On January 21, 2021, a Panel of Experts published its Report on the Proceeding Constituted under Article 13.15 of the EU-Korea Free Trade Agreement (“panel report”). The panel’s report interpreted the meaning and import of the EU’s labor chapter that, like the labor chapters in US agreements, incorporates the fundamental labor rights included in the ILO’s 1998 Declaration on the Fundamental Principles and Rights at Work (“1998 Declaration”). The United States discourse should pay attention to this development.
Along with the panel report in the CAFTA-DR dispute between the United States and Guatemala (CAFTA panel report), which was issued in 2017, this EU panel report is only the second attempt to interpret and discern the labor-standards commitments in trade agreements. It is therefore alarming that the recent panel report raises significant questions and concerns as regards its interpretation of the meaning and significance of the 1998 Declaration and the requisite nexus between labor derogations and trade. Given that we only have the (imperfect) CAFTA report to supplement or counter this report, in my view, things do not bode well for future dispute settlement under labor chapters.
Panel Report
The report specifically addressed the EU’s allegations that the Republic of Korea (ROK) failed to satisfy its commitments under the agreement’s Trade and Sustainable Development Chapter. The text at issue, contained in Article 13.14.3 of the agreement, reads as follows:
The Parties, in accordance with the obligations deriving from membership of the ILO and the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998, commit to respecting, promoting and realising, in their laws and practices, the principles concerning the fundamental rights, namely:
- Freedom of association and the effective recognition of the right to collective bargaining;
- The elimination of all forms of forced or compulsory labour;
- The effective abolition of child labour; and
- The elimination of discrimination in respect of employment and occupation.
The Parties reaffirm the commitment to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively. The Parties will make continued and sustained efforts towards ratifying the fundamental ILO Conventions as well as the other Conventions that are classified as “up-to-date” by the ILO.
The EU’s complaint was twofold. First, it alleged that the ROK failed to satisfy its commitments to “respecting, promoting and realizing, in their laws and practices, the principles concerning the fundamental rights,” namely freedom of association and the recognition of the right to collective bargaining. Second, the EU alleged that the ROK failed to satisfy its commitment to “make continued and sustained efforts towards ratifying the fundamental ILO Conventions” because the government had not “resorted to all the appropriate measures that could allow it to attain the objective.”
Jurisdiction
As a critical preliminary matter, the panel first addressed the ROK’s defense that the panel lacked jurisdiction over the matters in the complaint. Article 13.2.1 of the EU-ROK agreement, entitled Scope, states: “Except as otherwise provided in this Chapter, this Chapter applies to measures adopted or maintained by the Parties affecting trade-related aspects of labour, and environmental issues in the context of Articles 13.1.1 and 12.1.2.” The EU made no effort to demonstrate that the ROK’s labor laws were trade-related. Instead, it argued that the Scope provision “comes into play only where the scope of application of another provision of Chapter 13 cannot be ascertained in accordance with customary treaty interpretation.” Remarkably, the panel agreed.
In dismissing the ROK’s objection and finding that it had jurisdiction over the EU’s complaint, the panel examined the “ordinary meaning” of the commitments’ terms and the “object and purpose of the Agreement as a whole.” It found that the object and purpose of the agreement were to ensure that the trade partners' domestic laws and practices, outside of the trade context, comport with the ILO’s “universal” labor principles. Because Korea had decided to “join the ILO,” the obligations stemming from its membership as enshrined in Article 13.4.3 (“in accordance with the obligations deriving from membership of the ILO”) “relate to purely domestic responsibilities in relation to fundamental principles and rights.” Accordingly, reference to those obligations and to the 1998 Declaration “indicate that any obligation arising from the first sentence has been defined by the Parties to the full extent of their internationally accepted meaning.”
Trade-Related
Turning to the internationally-accepted meaning of the ILO’s fundamental rights, the panel decided that the “universality” of those rights necessarily foreclosed the ROK’s attempts to limit its labor commitments to trade-related matters. To rule otherwise, the panel mused, would allow countries to violate the ILO’s fundamental labor rights of workers in non-trade sectors with impunity.
Going even further, the panel decided that the ROK could not have limited the scope of its labor commitments to trade-related sectors even if the text had expressly done so. Drawing from the ILO’s constitutional procedures that prohibit governments from making reservations at the time they ratify ILO Conventions, the panel concludes that “it is not legally possible for a Party to aim to ratify ILO Conventions only for a segment of their workers.”
The panel does not stop there, although it should have. Instead, it argues that its “finding that complaints about measures based on Article 13.4.3 are not limited to trade-related aspects of labour does not mean that the Panel has concluded that the EU’s Panel Request refers to matters which have no connection to trade.” In case you, too, struggled with that string of negatives, the panel is essentially declaring that the ROK’s labor laws, which the EU has not alleged to be trade-related, are in fact trade-related. The panel then surveys the “hortatory” commitments made under the chapter’s Preamble to several various, nonbinding international declarations and statements. It decides that the Parties must have intended to create a “floor” of labor rights as “an integral component of the system they commit to maintaining and developing.” Consequently, the panel finds that all “national measures implementing [labor] rights are therefore inherently related to trade as it is conceived in the EU-Korea FTA.”
Comments
Where to begin.
First, the panel assumes that labor chapters in trade agreements, so long as they incorporate the 1998 Declaration, evidence that the trade agreement’s overarching object and purpose include realizing the ILO’s fundamental rights in domestic laws and practices. That decision stands in stark contrast to the conclusion of the CAFTA panel report. The CAFTA panel also examined the object and purpose of the trade agreement in question, which contained a labor chapter also incorporating the 1998 Declaration, and came to the opposite conclusion. It found that the trade agreement as a whole sought to regulate the conditions of fair competition and concluded that the United States had failed to demonstrate that Guatemala’s labor derogations had the effect of profiting competitors in tradeable sectors in Guatemala. How is it that two panels, examining the same incorporation and the same type of agreement, could come to two entirely different conclusions regarding the agreement’s overall objective and intent? Could US and EU trade agreements serve entirely different purposes?
These two panel decisions illustrate the extremes on both sides of the equation. Taken together, they also paint a clear picture of the dangers of opaque labor provisions in trade agreements. If the incorporation of the ILO’s fundamental rights means a priori an overall objective to regulate domestic, non-tradeable sectors of employment, then the concerns raised by developing countries of imperialism and potential protectionism ring valid. By contrast, if the incorporation of the ILO’s fundamental rights is limited to the demonstrable nexus between labor derogations and competitive advantage on trade-sector enterprises as interpreted by the CAFTA panel, then the concerns raised by developed countries and worker-rights advocates of inefficacy ring valid given the impossibly high evidentiary bar.
USMCA may present a way out of this interpretive conundrum by shifting the burden of proof for the “manner affecting trade” criterion to the defendant Party to demonstrate that labor derogations were carried out in non-trade sectors. In doing so, USMCA maintains the requisite link between labor-rights derogations and the trade relationship. While imperfect, this criterion protects against the overextension of rights prescription in foreign countries while ensuring fair competition.
Second, the panel has mistaken its role as arbiters under trade agreements as ILO enforcers. It assumes that, should trade agreements not encompass purely domestic labor sectors, labor-rights derogations in countries will continue without penalty. The weaknesses of the ILO’s supervisory bodies, including its toothless system of reprisal, have long been documented and scorned by the labor community. Nevertheless, trade agreements have never been intended to replace the functions of international organizations. It is one thing to reimagine how the ILO’s internal mechanisms may be strengthened. It is quite another to presuppose that the ILO’s internal mechanisms have now been entirely outsourced to the government-to-government trade regime and ad hoc panelists.
Third, as with the prohibition on reservations, the panel frequently confuses the ILO’s constitutional procedures, the ILO’s Conventions, and the obligations enshrined in the 1998 Declaration. These are, after all, entirely different legal instruments with their own procedures. That is, simply because the 1998 Declaration enshrines certain fundamental principles does not mean that governments are bound, outside of the ILO’s context, to follow the ILO’s constitutional procedures as they relate to ratifying the ILO’s Conventions. Should governments incorporate part of the 1998 Declaration, or a portion of a fundamental right, through express agreement and a meeting of the minds, that is their prerogative. It is not up to panelists to override the express terms of a trade agreement. If that were the case, the United States’ limitation of those rights to “a manner affecting trade” would be equally invalid. Also invalid would have been the United States’ longstanding omission of one of the ILO’s four fundamental labor rights – nondiscrimination – in its trade legislation. Either labor rights inherently extend to all workers, trade-related or not, or they can be limited in the trade context through express agreement.
Moreover, even the panel’s argument that Conventions must extend to all employment sectors is wrong. The ILO’s standards, including its Conventions, are process-oriented. They do not prescribe the exact manner in which governments should apply those rights domestically; only governments may make that determination in consultation with national workers and employers. For example, following national consultations, the ILO permits governments to exclude categories of workers such as armed forces and the police at the time of ratifying the fundamental Conventions concerning freedom of association and collective bargaining. It also permits governments to include categories of workers (and thus exclude others) at the time of ratification for certain greater protections under the fundamental Convention on the elimination of child labor.
Fourth, the panel’s decision that all domestic violations of labor matters were trade-related is alarming. It also again deviates from the CAFTA panel, which had the same arsenal of hortatory international commitments had it wanted to establish some form of universal social floor of rights throughout the agreement. The CAFTA panel did not take the bait and instead emphasized the objectives of the trade agreement to regulate fair competition. If US and EU trade agreements have entirely different objectives, then the panel’s recent decision may remain confined to the EU space. Nevertheless, it suggests significant hurdles in future US-EU trade negotiations.
Fifth, the deviations across panel interpretations and application of the 1998 Declaration to trade illustrates the very type of incoherence and dangerous external application of international norms that some of us have been cautioning for some time. While working as a lawyer for the ILO’s supervisory bodies, I joined two other ILO officials to research the intention and significance of the incorporation of the 1998 Declaration in trade agreements. We interviewed the ILO Legal Advisor who drafted and negotiated the terms of the Declaration in 1998 (Francis Maupain) and dissected every word in the preparatory works. Our findings (set out in this report and this report) were less than reassuring.
First, we learned that the ILO never intended for the 1998 Declaration to be interpreted and applied by governments outside of the ILO’s uniquely tripartite environment. For those unfamiliar with the ILO, its system of supervision and standard-setting are based on international consultations between representatives of governments, employers, and workers. Even when the ILO adopts Conventions or makes recommendations to ratifying member governments, it leaves it to national governments to implement its fundamental labor rights through consultations with national workers and employers. Prescription of those standards through trade agreements is antithetical to that process. Second, we learned that there is absolutely no agreement on the meaning of the 1998 Declaration in the trade context. For instance, the EU and US both incorporate the 1998 Declaration but do so differently. Whereas the US refers to the “rights as stated in” the 1998 Declaration, the EU refers to the “principles concerning the fundamental rights” in the 1998 Declaration. Does the 1998 Declaration enumerate “rights” or “principles,” and is there a difference between those two standards? No one knows. Our work, therefore, concluded that the residual ambiguities in the 1998 Declaration and its opaque use in the trade context would inevitably lead to incoherence and litigation. And here we are.
The panel acknowledged our 2015 work but dismissed it (our conclusions would have contradicted its efforts to conflate the ILO’s legal instruments into a package of trade commitments). To do so, the panel relied on a disclaimer we had made in which we noted that, although we were all ILO officials, we were writing in our personal capacities. Fair enough. Except that the panel goes on to base its other substantive conclusions on “research by the ILO,” a 2017 document written by a research team in the ILO that, of course, contains the exact same disclaimer text as ours did.
Despite numerous flaws, the panel did get some things right. The ROK’s labor laws do significantly fail to protect workers. Had the EU tried, I am also fairly confident that it could have established a trade-related link to the ROK’s labor derogations. That evidence would have spared the panel from formulating some illogical conclusions that, unfortunately, could guide future panel reports.
The panel also correctly dismissed the EU’s claim that the ROK violated the labor chapter for failing to “make continued and sustained efforts towards ratifying the fundamental ILO Conventions.” Finding that the clause was a “best endeavors” standard, the panel decided that the ROK had committed to taking “an on-going obligation” that afforded it “leeway…to select specific ways to make continued and sustained efforts.” Consequently, the fact that the ROK had not yet ratified the Conventions was not, itself, “evidence of its failure to comply” with that obligation. Had the panel ruled otherwise and found that the commitment was outcome-determinative, its finding would have arguably raised serious questions of consent and sovereignty.
There are many other observations, but those tend to become more granular and appropriate for those in the weeds of international labor law. I would be happy to discuss the panel’s substantive findings with those interested. I would also love to hear others’ impressions on the above.
