Trade Dispute Panel Issues Ruling in US-Guatemala Labour Law Case

6 July 2017

An arbitral panel under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) made its report public last week, finding that Guatemala’s alleged failure to enforce domestic labour legislation was not done “in a manner affecting trade.”

The case was the first time a labour rights dispute had ever been filed under an FTA’s dispute settlement mechanism, and has drawn the scrutiny of labour unions and trade analysts alike over the past several years.

The US formally launched the case in 2010, following complaints made by domestic and Guatemalan labour unions two years prior. Washington officials raised concerns that the alleged treatment of Guatemalan workers was in violation of their labour rights, while also putting American workers at an unfair competitive disadvantage. (See Puentes, 6 May 2008)

Among the questions raised were whether workers at various Guatemalan sites had good working conditions and were able to form unions and engage in collective bargaining.  (See Bridges Weekly, 4 August 2010)

According to the United States, those failures constituted “a sustained or recurring course of action or inaction” by Guatemala “in a manner affecting trade,” thus violating the agreement’s labour provisions. The trade agreement itself includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and the United States.

An arbitral panel was composed in late 2012, but the two sides agreed to put this process on hold the following year in order to provide Guatemala with the time to improve enforcement of its labour laws.  The US later asked the panel to continue its review, citing concerns that Guatemala was not advancing enough in this area – while also noting that some positive steps had been taken, such as hiring more labour inspectors. (See Bridges Weekly, 25 September 2014 and 12 February 2015)

The panel report published last week is final, given that the trade deal involved does not feature the option of appeal.

Labour rights enforcement, competitive advantages

Under the trade deal’s labour chapter, the parties involved made a series of commitments, such as reaffirming their existing pledges under the International Labour Organization; addressing the relationship between labour law enforcement and trading relationships; setting up a CAFTA-DR “Labour Affairs Council;” and taking a host of other steps to improve their cooperation on labour-related issues.

More specifically, that chapter includes a provision that prohibits CAFTA-DR parties from failing “to effectively enforce its labour law through a sustained or recurring course of action or inaction, in a manner affecting trade between the parties.”

The panel read this provision as requiring parties to ensure that their domestic labour laws are enforced by their respective legal systems and applied across employers. Violations of those rules would also have to demonstrate a trend of poor or failed enforcement efforts – along with giving “some competitive advantage” to domestic employers relative to their foreign competitors, such as by lowering their costs in practice.

The panel found that Guatemala failed to enforce court orders and fines concerning eight employers, who were cited for their dismissal of workers who had attempted to engage in union activities. Those cases spanned several years and together involved nearly 80 workers. These findings, in turn, raised concerns over whether employers believed they would be held accountable for labour violations.

The panel also highlighted an apparent pattern where labour courts exhibited a “significant shortfall” between their mandate and their work in practice, while stopping short of calling this “a sustained or recurring course of action or inaction.”

The US had also questioned whether Guatemalan authorities had conducted the necessary labour inspections – a claim that the panel ultimately rejected, since there appeared to be only one “discrete” case where laws were not enforced effectively, rather than “a sustained or recurring course of action or inaction.”

The panel then looked at specific examples in gauging the relationship between labour rights enforcement and trade in its analysis. For example, it scrutinised one employer’s violations of workers’ rights to freedom of association, along with how this was handled by domestic courts – finding that poor enforcement did give that employer a competitive advantage.

However, this advantage was not consistent across the board when looked at other cases where labour law enforcement was lacking – and therefore did not prove that this was “a sustained or recurring course of action or inaction” that was also “in a manner affecting trade.”

Lawmakers respond, look ahead

In the years since CAFTA-DR, the inclusion of labour chapters in trade deals has become much more common, while negotiators and analysts have debated how best to design these and how to ensure their enforcement.

For example, some US Democratic Party lawmakers have raised specific questions over what the panel ruling means for enforcing and understanding how to address labour issues in trade deals, with Ways and Means Committee Ranking Member Richard Neal and Trade Subcommittee Ranking Member Bill Pascrell issuing a joint statement on the subject.

Neal and Pascrell represent districts in the states of Massachusetts and New Jersey, respectively, in the US House of Representatives.

“Not only did the dispute take more than nine years to conclude, but it raises new questions about the basic meaning of labour and other provisions in our trade agreements. We cannot let trade agreements allow a race to the bottom on labour standards,” said Pascrell.

Various US lawmakers have also called for strong, enforceable labour provisions in future trade accords, including during recent hearings regarding the current White House’s trade priorities and what these mean for the upcoming efforts to renegotiate the North American Free Trade Agreement (NAFTA). (See Bridges Weekly, 29 June 2017)

ICTSD reporting.  


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