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Econographics October 27, 2023

The status of labor rights in US trade policy

By Uma Menon

This Econographic is part of our Next Gen Fellowship which aims to cultivate a new generation of young economists to rethink the pillars of economic global governance. These undergraduate Fellows researched governance of the international financial system with the Bretton Woods 2.0 Project in Summer 2023. 

Across the past two administrations, Americans have witnessed significant changes to US trade policy. Though President Biden denounced Trump’s “America First” rhetoric, the administration has moved away from traditional, market-opening free trade agreements, opting instead for strategic partnerships such as the Indo-Pacific Economic Framework for Prosperity. US Trade Representative Katherine Tai has pursued a “worker-centered trade agenda”, which aims to protect American workers from unfair trade practices while raising labor standards around the world. Tai believes that past approaches to trade, including traditional free trade agreements, have enabled corporations to employ cheap labor overseas that does not meet basic rights requirements; hence, she has led America’s shift towards a new trade outlook. Can trade policy be a tool for promoting labor rights globally? And, if so, which mechanisms work?

There are two major trade policy tools that the United States might use to promote labor rights: free trade agreements and the Generalized System of Preferences (GSP) program. The former entails bilateral or multilateral agreements in which countries agree to lower trade barriers and follow a set of shared rules. The latter is a program where the United States removes duties for some goods and services imported from beneficiary developing countries that meet certain conditions. GSP has been lapsed since 2020 but remains an important potential trade tool. Both policies are crucial to promoting US and global economic prosperity, and they guarantee preferential access to the US market in exchange for adopting the US’ preferred standards on governance, environment, and labor. Such “quid pro quo” mechanisms are effective in some areas, but worker rights have historically taken a backseat in US free trade agreements and the GSP, in favor of issues like intellectual property. In both cases, the mechanisms for considering labor standards exist, but enforcement has been lacking.

Free Trade Agreements

The United States currently has 14 free trade agreements with 20 different countries—Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. Agreements negotiated since 1994—all except Israel—have included labor standards provisions including the freedom of association, the right to collective bargaining and strikes, minimum employment and wage standards, and protection against forced and child labor. However, whether these standards have been upheld remains unclear.

Between 2006 and 2023, no US free trade agreement partners witnessed improvement in the status of associational and organizational rights as measured by Freedom House. In fact, some countries have experienced stark declines, as exemplified by Nicaragua’s notable drop from a score of 8 to 2. A lack of monitoring does not appear to be the issue, given annual reports from the US Departments of State and Labor that track human rights and labor outcomes, in addition to numerous reports from NGOs such as Freedom House that track similar metrics.

US free trade agreements may lack adequate mechanisms to promote compliance and progress. Enforcement mechanisms differ across agreements but have included dispute settlement systems, monetary penalties, labor affairs councils, and capacity building programs. While these mechanisms appear comprehensive in theory, they do not appear to have been sufficient in practice to support widespread and sustained labor rights progress.

America’s latest free trade agreement, the US-Mexico-Canada Agreement (USMCA), entered force in 2020 and pioneered new enforceable labor standards such as wage requirements and a ban on the importation of goods produced using forced labor. These standards are strengthened by a Rapid Response Labor Mechanism that has already facilitated the fast and successful resolution of nine labor violations. However, given that many of these mechanisms are focused on the automobile industry, it is unclear what USMCA’s large scale impact on labor standards across industries will be.

Likewise, the Indo-Pacific Economic Framework for Prosperity (IPEF), launched in 2022, contains novel measures for reporting labor violations and addressing possible labor issues. But it remains too soon to say whether those mechanisms will lead to greater enforcement of labor standards.

Generalized System of Preferences (GSP)

GSP is a program in which beneficiary developing countries receive preferential access to the US market, but the converse is not true. GSP was first established by the 1974 Trade Act with the intent of promoting economic progress and opportunity in developing countries. The program ran from January 1, 1976 to December 31, 2020, but it has not been renewed since then. At the time of expiration, the program had 102 participating countries and 17 territories.

Independent of labor rights concerns, GSP plays an important role in leveling the playing field as noted by the leaders of many developing countries, who remain hopeful about the possibility of reinstatement.

Once again, US monitoring efforts are thorough, with an annual GSP report produced by the US Trade Representative, and GSP has specific criteria for country eligibility, including a clause on worker rights requirements. The United States has enforced compliance with eligibility criteria in the past by fully or partially suspending GSP benefits. For instance, Bangladesh was removed from the program because it achieved inadequate progress on worker rights. Since countries benefit from being able to export more cheaply to the United States through GSP, beneficiary countries are incentivized to improve worker rights standards to avoid suspension.

Yet, GSP beneficiary countries show a steady decline in associational and organizational rights from 2006 to 2023, similar to US free trade agreement partner countries. The fact that many of these countries nevertheless maintained their beneficiary status indicates that such a decline was insufficient grounds for suspension, either because the metrics used by the US government differ significantly from those used by Freedom House, or because the threshold for suspending benefits on the basis of worker rights is high. It may also be the case, as both figures suggest, that labor rights standards are on a global decline, making it more difficult for the United States to determine whether a country’s progress is poor enough to warrant revocation.

Nevertheless, given the role that GSP can play in expanding economic opportunity for developing countries, the program should be reauthorized with more substantive labor provisions. By reinstating strong economic ties with these countries, the US can support workers’ rights through new enforceable standards, dispute settlement mechanisms, and technical assistance programs such as those implemented through USMCA.

The future of labor rights in US trade policy

Free trade agreements and GSP are no doubt valuable policy tools in that they create mutual economic benefits, serve the strategic interests of the United States, and promote prosperity around the world, but neither policy has succeeded in advancing labor rights globally. Of course, labor standards are the product of many different factors, so it is unreasonable to believe that US trade policy alone might ensure progress. However, within these agreements, stronger enforcement mechanisms and deeper multilateral collaboration between the United States, international organizations such as the WTO and the ILO, and third countries may allow for more consistency in the path to a world of more free and fair labor. Greater focus on technical assistance may ensure that countries not only have the economic incentive to protect worker rights, but also the capacity and resources to do so. It would be important for the United States to act in accordance with the principles it preaches in its trade policy.

Uma Menon is a Next Gen Bretton Woods 2.0 fellow at the Atlantic Council GeoEconomics Center. She is a senior at Princeton University majoring in the School of Public and International Affairs with certificates in South Asian Studies and Gender & Sexuality Studies. Her writing has appeared in The Washington Post, The Huffington Post, and The Progressive, among other publications, and her research interests include human rights, law, and development.

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