For decades, trade policy has been disconnected from labour and social considerations. The principles on the basis of which WTO was founded did not take them into account, as it was considered that the international forum to discuss and settle labour issues was the ILO. ILO is a slow producer of effective norms, relying essentially on the goodwill of its members to implement them, and was never mandated to tackle the huge differences in social norms impacting goods traded between countries.
The consequence of this disconnection is also perceived as a collateral damage caused by globalization: innovative companies with strong economic performance were systematically undercut by less performing companies using cheap labour, pushing the best performers to delocate in countries with low labour costs and to innovate less. Competition was driven by a race to the bottom of labour costs and social protection, not by quality, innovation, productivity or efficiency.
This artificial division between trade and labour started to be questioned a few years ago, but it is only recently that corrective measures started to be initiated in the most advanced economies. But instead of taking the issue to WTO or ILO where it was widely perceived that no progress could be made quickly, countries used their bilateral trade agreement negotiations to improve the situation.
One of the most striking policy change took place in the US, when the new administration brought by President Biden announced that the priority of his trade policy was a “worker-centric agenda”; this means making sure that international trade brings back quality jobs for US workers, and having recourse without hesitation to trade defense instruments to achieve this goal; and it means, taking steps to make sure that goods which are imported in the US are produced in decent working conditions and with a decent financial compensation for workers. A clear example of this approach, which dates back from the Trump administration, which shows the continuity of thinking between Republicans and Democrats on trade, is USMCA, the free-trade agreement between the US, Canada and Mexico, which succeeded recently to NAFTA.
Under the USMCA, companies that interfere with labour rights may be hit with sanctions. The USMCA establishes a rapid-response labor mechanism to provide a quick investigation and determination to establish whether violations occurred at a facility. Unions, workers and others can petition the U.S. government to trigger the rapid-response process. If there were violations, the company would have to pay additional tariffs and could have goods seized at the border. Likewise, USMCA requires that 40 percent of a passenger car and 45 percent of a truck manufactured in North America be built by workers earning at least $16 an hour. This provision specifically aims to raise wages for Mexican workers and to improve the level playing field with American workers.
Strangely enough, the EU who is the strongest advocate for social & human rights on the international scene has been slower to introduce a more direct and enforceable link between labour and trade policies.
Already a signatory to around 40 trade agreements on all continents, the EU has recently concluded new free trade agreements with Canada (Ceta, September 2017), Singapore (November 2019) , Japan (Jefta, February 2020), Vietnam (August 2020), Mercosur (agreement in principle in June 2019 but awaiting signature and ratification) or even Mexico (agreement in principle reached in April 2020 awaiting signature and ratification).
All the recent EU trade agreements have been subject to major pushbacks from civil society, some political groups and some Member States criticizing the opacity of negotiations, the leveling down of European social norms, the risk of job losses, or the harm to the democratic functioning of Member States. These charges led to stop some important trade negotiations, as for instance the project (now aborted) of a transatlantic partnership between Europe and the United States (TTIP/TAFTA), or the agreement with Mercosur, which is blocked by France, considering that it does not contain meaningful environmental guarantees.
Recent EU trade agreements include systems for settling disputes, and some include social or environmental requirements (in so-called “sustainable development” chapters), which are often less precise, and without enforcement capacity in case of violation. The social chapters of these trade agreements are in fact not directly enforceable, as the resolution of disputes essentially relies on the goodwill of the parties to the agreement to find a commonly agreed solution to the issue.
The Trade agreement concluded with Korea in 2011 was the first EU trade agreement containing a labour & environment chapter. In July 2019, after unsuccessful consultations, the EU requested a panel of experts to adjudicate a dispute revolving around Korea’s lack of compliance with some key labour obligations which remained unfulfilled since the inception of the agreement. The decision rendered by a panel of experts in 2021 adopts the form of recommendations, and the parties must “make their best efforts to accommodate advice or recommendations of the panel of experts.” The decision is not legally binding, nor can the EU suspend their tariff concessions if the recommendations are not implemented. In this respect, this mechanism differs from the U.S. approach to enforcing TSD obligations within its FTAs. For example, parties to the KORUS (the South Korea–U.S. FTA) can impose trade sanctions or fines when TSD obligations are breached.
All the most recent trade agreements mentioned above all suffer from the same lack of enforceability in case of violations as is the case with Korea; and what is even more disturbing is that these agreements contain provisions allowing parties to take sanctions when other obligations resulting from the agreement are breached, except for the labour & environment obligations!
However, starting with the von der Leyen Commission, a noticeable change of approach has been announced and is starting to be implemented. Realizing the political vulnerability of trade agreements which are not enforceable in case of violations of their provisions, the Commission has started to take steps to correct the situation.
Indeed, in December 2020, the EU signed a trade and cooperation agreement with its former member state, the United Kingdom, which contains provisions allowing both parties to take sanctions following an expedited process in case of violation of labour obligations under the agreement. Obviously, the situation is very specific, as contrary to traditional trade agreements where the objective is to create convergence between the parties, here the objective is to prevent divergence between the UK and the EU which have both the same starting point, i.e the EU social legislation.
And in September 2021, at the inaugural meeting of the Trade & Technology Council, the EU and the US agreed to: “1. Share information and best practices on trade measures related to the respect for fundamental labour rights and prevention of forced and child labour, including implementation and enforcement; new initiatives of each side, with a view to developing additional and joint ways to prevent forced labour; and the effectiveness of labour enforcement tools, with a view to improving them. 2. Cooperate and jointly support work in multilateral fora to promote fundamental labour rights, including to combat child and forced labour, and including in the WTO fisheries subsidies negotiations. 3. Discuss the impact of technology on labour markets, working conditions, and worker rights, including policy issues related to the “gig” economy, worker surveillance, and labour conditions throughout supply chains. 4. Exchange information on the implementation of labour provisions in our respective trade agreements.” This new approach was replicated last week during the US-UK Dialogue on the Future of Atlantic Trade which opened with a strong emphasis on workers’ rights.
Furthermore, the Commission when publicly presenting its approach in on-going trade negotiations (New Zealand, India etc.) recently flagged that sanctions would be considered (but “as a last resort”) when it comes to violations of core labour and environment commitments, such as a failure to implement key International Labour Organisation conventions and the Paris Agreement on climate.
But the Commission also added that the emphasis would be on tailoring labour and environment objectives to the situation of the partner. This may lead to a dilemma: it is clear that the EU can be more demanding in terms of labour commitments with advanced economies like New Zealand because their social legislations are broadly convergent with the EU; but it is in the case of countries which are lagging behind international norms in terms of employment and social protection, that labour commitments in a bilateral trade agreement will be most meaningful for the EU.
And this is exactly the issue with the investment agreement concluded by the EU and China at the end of 2020, as it contained only weak commitments from China on key labour issues, including for instance vague indications given by China that it may try and ratify the ILO Protocol on forced labour! This was unacceptable for the European Parliament, and soon enough it was announced that its signature and ratification were suspended (especially given the Beijing sanctions against MEPs denouncing the persecutions of the Uyghur minority).
Finally, because the von der Leyen Commission considers that implementing and enforcing existing trade agreements is as important as negotiating new trade agreements, it created the new function of Chief Trade Enforcement Officer, whose role is to activate existing frameworks of cooperation and engagement with third countries in the most efficient way while making use of unilateral trade and enforcement tools where necessary. And the Commission continues to develop the enforcement toolbox, creating new legislative instruments, such as the proposal for a Directive on Corporate Sustainability Due Diligence tabled in February 2022, which aims to tackle human rights and environmental impacts across global value chains by imposing a corporate due diligence duty on EU and third-country companies, their subsidiaries and value chains.
In conclusion, the EU Commission is slowly adapting itself to the obvious reality that stark differences in working conditions, such as lack of compliance with key ILO conventions (for instance on forced or child labour), social protection, collective rights, in fact all the key elements that the EU identified in its European Pillar of Social Rights, deeply impact the level playing field for European companies. Acting to create directly enforceable labour and environment chapters in EU bilateral trade agreements is key to restore fair competitive conditions in the EU internal market, key to protect quality employment in the EU, and key to ensure the political acceptability of new Trade agreements in the future.