US, Guatemala Square Off as FTA Labour Dispute Advances

12 February 2015

The labour rights dispute between the US and Guatemala under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) has revved up in recent weeks, with both sides now having sent in written submissions to the arbitral panel outlining their respective claims.

The dispute dates back to July 2010, when the US charged that Guatemala had failed to enforce effectively its own domestic laws, specifically regarding the protection of workers’ rights such as freedom of association, right to collective bargaining, and right to work in acceptable conditions. (See Bridges Weekly, 4 August 2010)

Washington had argued that this alleged violation of a CAFTA-DR labour provision had forced US workers to compete against poor labour practices, putting them at a competitive disadvantage.

The 2010 complaint marked the first time that a labour rights complaint had been lodged under a free trade deal. Both the US and Guatemala are parties to CAFTA-DR, a free trade deal that also includes Costa Rica, the Dominican Republic, El Salvador, Honduras, and Nicaragua as its members.

Unlike current WTO agreements, the commitments these seven countries have made under CAFTA-DR extend to certain non-traditional trade fields such as labour rights enforcement, which are now becoming increasingly common in FTAs. This case is therefore being watched closely to see how such new issues are dealt with in a trade context.

Over four years in

The case has advanced slowly since its initial launch. Unsuccessful efforts at consultation and mediation in 2010 and 2011, respectively, led the US to request the establishment of an arbitral panel, which was composed in late 2012.

However, both sides then agreed to suspend arbitration in 2013, reaching instead an 18-point “Enforcement Plan” under which the Guatemalan government promised to improve labour law enforcement within specific time frames.

The dispute re-surfaced a year later, when the US claimed in August 2014 that Guatemala had failed to implement the enforcement plan and asked to reactivate dispute settlement proceedings.

“Our goal in taking action… remains the same as it has always been: to ensure that Guatemala implements the labour protections to which its workers are entitled,” US Trade Representative Michael Froman said in September when confirming that Washington was renewing dispute proceedings. 

The US trade chief added that improving labour rights in Guatemala could serve as a “positive signal to the world,” one that would draw investment to the Central American country and boost economic growth, while also potentially providing a deterrent for the growing problem of unaccompanied child migrants being sent from Guatemala to the US in search of economic opportunities.

Labour rights and trade

Chapter 16 of CAFTA-DR outlines the parties’ labour-related obligations, such as consistency with internationally recognised labour rights, effective enforcement of labour laws, and due process requirements.

“A party shall not fail 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 FTA says.

According to the US, this particular provision requires each party to take actions necessary to compel compliance with its labour law to ensure substantial effect or result.

That party would therefore be liable for failure of effective enforcement, in this case of the Guatemalan Labour Code, should the facts demonstrate a sustained or recurring course of action that affects cross-border economic activity, such as by influencing competiveness conditions within and among the CAFTA-DR parties.

Guatemala has rebutted that this CAFTA-DR provision is meant to capture a deliberate policy of action or inaction adopted by the relevant party, and therefore individual acts or actions that are not attributable to the party should be excluded.

Regarding the term “in a manner affecting trade,” Guatemala says that there must be a causal link between the “course of action or inaction” and the alleged trade effect. In Guatemala’s view, the word “trade” refers to FTA-related trade of all CAFTA-DR parties, not simply bilateral trade flows or commercial transactions within one country’s territory.

US claims over 400 violation examples

In its submission, the US says that it has evidence of at least 402 individual instances of Guatemalan labour law violations that together represent a “sustained or recurring course of inaction affecting trade between the parties” in breach of CAFTA-DR obligations.

For example, the US says that Guatemala has failed both to secure compliance with court orders requiring employers to reinstate and compensate workers wrongfully dismissed for union activities, as well as to pay fines for this retaliatory action.

Washington also claims that Guatemala City has failed to conduct investigations in accordance with the latter’s Labour Code and has not imposed the requisite penalties when employer violations have been found. Furthermore, the US said, Guatemala has also failed to register unions or institute conciliation processes in a timely fashion.

These violations, the US says, hurt bilateral trade through altering competiveness conditions in a way that unfairly benefits Guatemalan companies, including through inappropriately reduced labour costs.

Guatemala argues that the United States has submitted flawed evidence to make its case, with the Central American country claiming that approximately 85 percent of this evidence is in the form of either anonymous statements or redacted documents.

Regarding the US’ factual arguments, Guatemala charges that the alleged labour law inconsistency comes from the fact that some of the court orders cited were under appeal, leaving no basis for imposing penalties. In other instances, the authorities did conduct investigations and/or impose penalties as provided by its domestic law, while in other cases the workers and the employers reached mutually-agreed solutions.

Guatemala also alleges that the US failed to establish the existence of various related omissions that are either continuous or occur repeatedly over a prolonged period of time, and that form part of a deliberate policy of the Guatemalan government.

Furthermore, Guatemala says that the US has failed to demonstrate that trade between parties is being affected, and whether any impact on trade is truly attributable to the alleged “sustained or recurring course of inaction.”

“Only one of the 16 Guatemalan companies targeted in the United States’ complaint has exported to the other CAFTA-DR Parties, and the exports of this company were negligible, amounting to less than US$13,000 in 2014,” Guatemala said in its submission.

Next steps

The parties will next send in their rebuttal submissions, after which the panel will organise a hearing, followed by supplementary written submissions and answers to any questions on the basis of a mutually agreed timetable.

CAFTA-DR provides for a maximum of 120 days for the panel to issue an initial report after the last panellist has been selected, unless the parties decide otherwise.

ICTSD reporting.

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