*Most recent data available

Source: International Labour Organization Decent
Work Indicators Database
http://www.oit.or.cr/estad/td/indexe.php

Labor laws and their enforcement

A trade agreement should stimulate positive change, not ratify the status quo or worse. What type of labor standards might be rigorous enough to improve the conditions of work yet flexible enough to recognize different levels of development? One model is the five core labor standards developed by the International Labor Organization (ILO).[13] Particularly critical are the first two: the right of association (Convention 87) and the right to organize and bargain collectively (Convention 98). The recognition and enforcement of these rights allows workers some say in their economic futures; their violation further marginalizes workers.

Although DR-CAFTA pays rhetorical homage to these standards, the approach it uses throws them overboard. The agreement calls for each country to enforce its existing labor codes, no matter how inadequate or distant from the ILO standards. The agreement recognizes “the right of each Party to establish its own domestic labor standards, and to adopt or modify accordingly its labor laws.” It then goes on to state that “each Party shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights….and shall strive to improve those standards in that light.”[14] “Strive to ensure” and “strive to improve”? This is the kind of language many would like to see on April 15 when they have to pay their taxes since it is virtually unenforceable. A standard based on effort is hardly a serious standard.

Instead of “striving to ensure” international standards are met, the agreement could commit to upholding them and provide clear penalties if they are not upheld.

The domestic laws often read as if they are designed to thwart the formation of unions, and slipshod enforcement hardly improves the situation. Companies wanting to avoid unions can do just about anything; workers seeking to join unions face threats and intimidation. Protection against anti-union bias is akin to snow in San Francisco; it happens but not frequently. “In practice, labor laws on the books in Central America are not sufficient to deter employers from violations,” an International Labor Rights Fund (ILRF) study found.[15] Byzantine regulations tend to tie unions into knots, laying out registration procedures that are more maze than procedure. In Honduras, the ILRF found “obstacles and delays in union registration constitute a violation of ILO Convention 87 on the right to associate”.[16] Laws encourage employer interference in union affairs, restrictions prohibit anything above an enterprise union, rights for temporary workers are truncated, and public workers often are prohibited from organizing. Finally, there are severe limits on the right to strike. Weak as labor rights are, the track record hardly inspires confidence that they won’t be ratcheted downwards in response to globalization.

Consider El Salvador. The government-appointed Human Rights Ombudsman told the Washington Post in late 2004 that both industry and the government have “an explicit intent to destroy unions.”[17] A recent Human Rights Watch report concluded that the country’s laws “do not adequately protect workers against anti-union suspensions or dismissals, thereby undermining the right to freedom of association and to form and join trade unions.”[18] The report documents that “employers routinely fire union affiliates and pay the small fine for ridding their facilities of trade unionists,” a practice that is widespread in the other countries as well. [19]

Enforcement is squeezed by impunity and corruption; ineptitude and fear. In Guatemala, the U.S. State Department concluded in its 2005 human rights report that “Workers had little confidence that the responsible executive and judicial institutions would effectively protect or defend their rights if violated.” The report stated that “the weakness of labor inspectors, the failures of the judicial system, poverty, the legacy of violent repression of labor activists during the internal conflict, the climate of impunity, and the long-standing hostility between the business establishment and independent and self-governing labor associations all constrained the exercise of worker rights.”[20] The document also pointed out that “the prevailing business culture ignores labor contracts because, in practice, they are largely unenforceable due to the weak, cumbersome and corrupt legal system….[the system] perpetuates the violence that workers face if they attempt to exercise their rights.” In Costa Rica, the International Federation of Free Trade Unions found diminished collective bargaining stemming from a lack of protection for union organizing.[21] The labor courts provide little remedy.

The promotion of reform

There is little dispute that labor conditions are bad today; the real question is will DR-CAFTA make them better? In fact, it will make them worse. What makes the DR-CAFTA approach particularly problematic is that it replaces the modest existing protections for labor rights embedded in two unilateral trade preference programs: the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI). Much of the halting, modest reform that has taken place in the region over the last 15 years stems from the pressure brought through these programs. For example, El Salvador was put on GSP review for abusing worker rights in 1992 and labor law reform followed within two years.[22] More broadly, Kimberly Ann Elliott found that “the U.S. experience in applying worker rights conditionality to trade benefits under the GSP suggests that external pressure can be helpful in improving treatment of workers in developing countries and that linkage of trade and worker rights need not devolve into simple protectionism.”[23] Without external pressure, it is very naïve to expect any substantive change. Rather than learn from this experience, DR-CAFTA ignores it.

What impetus is supposed to change destructive practices this deeply rooted? The core problem is one of political will, not lack of technical resources. The most powerful incentive for change is conditioning U.S. ratification on domestic labor law reform. Unfortunately, that horse has already left the barn. Some proponents argue expanded trade will result in more democratic rights. Burgeoning trade does not seem to have done much in Mexico–-especially in the export sector--in the first decade of NAFTA. Cross border trade between the U.S. and Mexico has tripled yet the number of independent unions remains in single digits. This approach certainly was not the path that the U.S. itself followed 70 years ago. Instead, the U.S. passed legislation such as the Wagner Act and the Fair Labor Standards Act in the midst of the Great Depression, hardly the most opportune moment, as a foundation for future progress. The rights workers won in the 1930s and 1940s propelled economic growth for decades to come and laid the basis for the middle class today.

Realistically, powerful elites retain a strong hold on the DR-CAFTA economies. If expanded trade simply translates to expanded income for these elites, a small number of wealthy families may become wealthier and happier, but little will be passed along to the majority of the people of these countries. The growth of the middle class will be thwarted and, ironically, the potential market for U.S. goods dampened. By the same token, the pressure will correspondingly increases on the wages and working conditions for U.S. workers. The goal should be to harmonize standards upwards not the other way around.

Global context

Trade among the DR-CAFTA countries takes place in a tough global context. Are strong labor standards possible in a world in which China is emerging as a defining manufacturing power? Put differently, how can the countries of this region compete with China if they emphasize worker rights? This question itself highlights a central choice in the global economy: the high road versus the low road to competitiveness. For these six countries the high road would involve competing based on innovation, response time, efficiency, and geographical proximity to the U.S. Competitive success could translate into both higher profits and higher wages.

“Low cost labor,” a Congressional Research Service (CRS) report maintained, “is not the only or even the most important factor driving competitiveness. Studies suggest that the economic and social networks that developed between U.S. and Central American firms effectively created a comparative advantage for the region in apparel exporting that has held up even with the entry of China in the market.” [24] What is this comparative advantage based on? “This relationship was made possible by the proximity of production, operational efficiencies, and quick turn around times for meeting increasingly shortened deadlines demanded of large retailers.” The CRS may be overly optimistic on how sustainable this advantage proves to be, but in conjunction with other policy measures it could contribute to a high road alternative.

The low road emphasizes the lowest possible wages and intensified working conditions. Over 60 percent of DR-CAFTA exports to the United States are in apparel, a sector known for maquiladora export plants, rock bottom wages, and fierce competitiveness.[25] Although tempting for many firms in the short run, the problem with the low road is that China already occupies most of the lanes. No amount of wage cutting will effectively compete with China, which is building a far better infrastructure and, has a far larger domestic market, and access to state-of-the-art technologies. Central America needs a long term strategy that provides its’ labor force with more education, fosters effective innovation, and builds on its geographical proximity to the U.S. market. Instead, DR-CAFTA encourages wage cutting tomorrow, possibly boosting profits next quarter, but ensuring a frontal collision with China next year or the year after. Not only is the low road damaging; it won’t work in the global economy today.

Smart trade

Ambassador Peter F. Allgeier, Acting United States Trade Representative, has referred to DR-CAFTA “as an important tool of reform that will help deepen and strengthen democracy.”[26] While the goal is worthy, the reality falls far short. The pressures were such that the DR-CAFTA countries had little choice but to sign. As a consultant for the Nicaraguan government, himself a former trade official for Mexico, put it “I advised them to sign whatever the United States put in front of them.”[27] This entire process has caused severe strains and protests in civil society throughout Central America. Alvaro Ramazzini Imeri, Bishop of the Dioceses of San Marcos (Guatemala’s third poorest province) and president of the Episcopal secretariat of Central America (SEDAC), commented last May that “Guatemalan society is not suitably informed about the content and consequences of CAFTA. The negotiations that took place did not take into account the great majority of poor people in the country, who are represented in popular and rural organizations.”[28] Reflecting the gap between the ratification process for DR-CAFTA and popular sentiment is the fact that legislatures often had to pass the agreement in the dead of night. The Honduran Congress ratified CAFTA in an early morning surprise vote specifically because protests were expected. The Guatemala Congress approved CAFTA in emergency session and under exceptional circumstances also because of anticipated protests. It passed by a lopsided vote of 126-12 on March 10; a Gallup poll carried out two weeks later (March 14-23) found that 65 percent of those polled felt that the agreement would harm the country.[29]

When it came to the issue of labor rights, tough negotiating dissolved into acceptance of the status quo. The danger, according to former President of Costa Rica Rodrigo Carazo Odio, is that “corporations take advantage of cheap labor, operating in enclaves with limited links to the national economy, trapping the region in a spiral of low salaries, low aggregate value and lack of compliance with basic labor standards, such as the freedom of association and the right to collective negotiation.”[30]

The ability for citizens of any society to assemble freely and act collectively when they so desire is a fundamental democratic right. Without this right, you can have fair elections, but you do not have democracy. In fact, for democracy to flourish in this region so ravaged by social upheaval and war, one needs to strengthen, not weaken civil society. The ILO embeds these principles into its five core labor rights. For DR-CAFTA to work, labor rights need to be strengthened considerably in a fundamental arena: the decision an ordinary worker might take as to whether or not he or she chooses to join a union. The checks and balances that unions provide are essential in the workplace, but are even more central in sustaining fledgling democracies.

We need to reframe the debate on the issues of labor rights and development. It is not a question of free trade versus protectionism, but rather “smart trade” versus “polarizing trade.” Smart trade recognizes rights, spurs economic growth with equity, and promotes democracy; polarizing trade might spur trade in the short run but the benefits go to the winners’ circle while the number of losers grows far larger. Democracy itself could be a casualty.

Smart trade requires four provisions:

1. Upward harmonization of domestic labor law to match the core ILO conventions as the goal of a three-year phase-in period. The granting of trade and investment benefits would follow agreed upon reform in a country’s labor law.[31]

2. The ILO five core labor rights embedded in the core agreement, subject to strong enforcement provisions and penalties.

3. A development fund targeted for infrastructure and education. This fund would reinforce competitiveness in the six countries and place them on the “high road.”

4. Expanded adjustment assistance for U.S. workers negatively impacted by trade.  This assistance should also be proactive in industries threatened by trade.

No trade agreement can solve all the problems of development and globalization, but it should point in the right direction.  A trade agreement that fosters prosperity and promotes democracy is possible and essential for the region and for the United States. Smart trade lays the basis for growing incomes and markets in Central America and the Dominican Republic and expanded U.S. exports and jobs.  It begins to define a better model for integrating into the global economy.  Unfortunately, that model is not this DR-CAFTA.