Tag: labor laws

Economic Sanctions: Effective Enforcement Method for Labor Standards?

by Julie Wilson

1 FEB 2018

Although including labor standards in international trade agreements has had some effect on recognizing and enforcing fair labor practices, such provisions fail to significantly improve these practices on a global scale. Labor standards are included in trade agreements because they are considered a barrier to free trade. Currently, existing standards are largely unenforceable; however, targeted economic sanctions may strengthen their efficacy.

The Development and Current Status of Labor Standards in Trade Agreements

Before labor standards were prevalent in trade agreements, such agreements initially focused on lowering tariff barriers to trade. But by the 1970s, the General Agreement on Tariffs and Trade (GATT) and subsequent World Trade Organization (WTO) rounds had decreased tariff rates enough that they no longer significantly barred trade. Thus, attention shifted to nontariff barriers, including import licensing, rules for valuation of goods at customs, pre-shipment inspections, and rules of origin.[1] The discussion of nontariff barriers led to discussions of other areas related to trade, such as labor standards.

As a result of this shift in focus, growing domestic political pressure in the US to include enforceable labor standards in trade agreements has emerged. When Congress granted the Executive branch authority to negotiate the Trans-Pacific Partnership, Congress specifically included labor standards as a trade objective.[2]

The US has recently started to include more labor provisions in its trade agreements, including the US—Jordan Free Trade Agreement; the Canada—Chile Free Trade Agreement; and the North American Agreement on Labor Collaboration (NAALC).[3] Where enforcement exists at all, approaches range from treating trade-related labor violations as trade violations (e.g., import bans) or developing separate enforcement mechanisms to fine violations (e.g., child labor). Most such agreements, however, fail to require that labor standards align with international standards.

The Purpose of Labor Standards in Trade Agreements

Stakeholders disagree on the impact of labor standards on fair conditions and trade practices. Stakeholders in favor of including standards warn that countries with exploitative labor practices gain unfair trade advantages. This so-called “race to the bottom” forces other countries to lower their labor standards to compete in the market.[4] Such stakeholders believe that including labor standards in trade agreements would reveal unfair and exploitative labor practices in countries that would otherwise be opposed to improving their domestic labor practices. Countries would be held accountable for compliance failures through economic sanctions, the primary tool for enforcing labor standards compliance.[5]

Alternatively, stakeholders against enforcing labor standards claim that they would interfere with free trade and impede efficiency. Under this view, the “race to the bottom” idea is a myth; rather, enforcing labor standards would disadvantage less developed countries through decreased market access, decreased trade, and worse working conditions for laborers.[6]

The Reality of Labor Standards in Trade Agreements

It is likely that labor standards in trade agreements would effect some change, but only for the worst offenders because economic sanctions are ultimately a limited tool.[7]

The argument for including labor standards relies on the assumption that labor standards can be enforced. However, current labor standards are largely unenforceable. Economic sanctions suffer multiple efficacy problems. First, the standards they enforce may not be internationally recognized. Second, sanctions ignore that some countries lack sufficient resources for immediate improvement. Third, trade sanctions can be coercive, convincing small and poor countries to comply in order to resist the high cost of violations.[8] Finally, primary international trade and labor organizations lack effective recognition and compliance mechanisms. Thus, labor standards are limited by their enforcement capacity.

The most serious obstacle facing effective implementation of economic sanctions is disagreement over how to define compliance with labor standards, which in turn makes enforcement of such standards tenuous. Without common definitions of rights such as “freedom of association” or “right to collective bargaining,” there is no baseline to establish what behavior is or isn’t compliant.[9] Without this foundation, performance cannot be measured by neutral observers.

International bodies recognize labor standards in inconsistent ways. The WTO does not explicitly recognize labor standards violations as violations of its rules.[10] Instead, it merely affirms the standards of the International Labour Organization (ILO).[11] The ILO outlines labor standards, but it faces challenges in determining a country’s obligation to these standards. For example, although the ILO generally prohibits private contractors from employing prison labor, many countries, including the US, “consider private contractors to be an integral part of the modern management of penal institutions.”[12] Additionally, unlike the WTO, the ILO has virtually no enforcement power. The ILO may only provide technical assistance to violating countries and cannot authorize retaliation or sanctions for violations. Thus, although the ILO recognizes labor standards, it has limited abilities to induce compliance.[13]

In multilateral agreements, the recognition of labor standards varies widely. Some agreements include labor standards as side agreements, while others explicitly incorporate labor standards into the main text of the agreement. However, even incorporated standards are ultimately limited by the efficacy of their enforcement mechanisms.

The incorporation of labor standards into multilateral agreements has achieved some success with targeted economic sanctions. For example, the US’s Generalized System of Preferences (GSP) program allows developing countries to export certain products in specified amounts to the US duty free. Ten years after the program began in 1984, Congress implemented an additional requirement: developing countries must take steps to implement basic labor standards. Failure to do so would threaten that country’s participation in the GSP program.

GSP countries have been responsive to this condition. For example, Swaziland implemented constitutional changes to protect workers’ rights and reach compliance with the program. However, of the fifteen countries sanctioned by the US, seven countries have not yet been reinstated. Labor standards as a solution to poor working conditions overlooks the cost of isolating these economies while they remain non-compliant. Regardless of the reason for their prolonged violation, lack of access to this program prevents these countries from accessing GSP’s economic aid.[14]

Trade sanctions may succeed in inducing compliance for clear-cut violations. However, they are unlikely to be effective at reaching gray areas – which include many laws and practices surrounding working conditions. Thus, until more productive mechanisms of compliance emerge, labor standards remain a limited tool to improve workers’ conditions globally.

Work Cited

[1] Non-tariff Barriers: Red Tape, etc., https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm (Last visited November 30, 2017).

[2] Office of the United States Trade Representative, The Trans-Pacific Partnership: Detailed Summary of U.S. Objectives (September 2015), https://ustr.gov/sites/default/files/TPP-Detailed-Summary-of-US-Objectives.pdf.

[3] Peterson Inst. for Int’l Econ., Trans-Pacific Partnership: An Assessment, 85 (Cathleen Cimino-Isaacs et al eds., 2016). https://piie.com/publications/chapters_preview/338/4iie3322.pdf.

[4] Robert M. Stern and Katherine Terrell, University of Michigan, Labor Standards and the World Trade Organization, (August 2003).

[5] Peterson Inst., supra at note 3.incorporatedctivefined violations.ns are used in a targeted method.onsnt. reach compliance. See also UGanda.uch standards meani

[6] Id. at 73-74.

[7] Id. at 74.

[8] Theodore Moran, The Brookings Institution, Trade Agreements and Labor Standards (May 1, 2004) https://www.brookings.edu/research/trade-agreements-and-labor-standards/.incorporatedctivefined violations.ns are used in a targeted method.onsnt. reach compliance. See also UGanda.uch standards meani

[9] Id.

[10] Rorden Wilkinson, Labour and Trade Related Regulation: Beyond the Trade-Labour Standards Debate?, 1 British Journal of Politics and International Relations 2, 165-191 (1999).

[11] Labour Standards: Consensus, Coherence and Controversy, https://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm (Last visited November 30, 2017).

[12] Moran, supra note 10.

[13] Gary Burtless, Workers’ Rights: Labor Standards and Global Trade, September 1, 2001, https://www.brookings.edu/articles/workers-rights-labor-standards-and-global-trade/.

[14] Robert A. Rogowsky and Eric Chyn, US Trade Law and FTAs: A Survey of Labor Requirements, July 2007, https://www.usitc.gov/publications/332/journals/trade_law_ftas.pdf.

Julie Wilson is a second-year law student at the University of Texas School of Law. She is Human Rights Scholar at the Rapoport Center for Human Rights and Justice and Chair of the 2017-2018 Working Paper Series Editorial Committee.

Sierra Leone’s Experience with In-Country Outsourcing

by Francis Kaifala

23 DEC 2017

In 2007, I was in my first year as a lawyer working for a firm in Freetown, Sierra Leone. The managing partner of the firm forwarded an email from some foreign clients and instructed me to provide a well-researched, comprehensive response to the clients’ inquiries. The questions on “doing business in Sierra Leone” were fairly routine, as I had already responded to similar ones before. However, one question left me a bit confused – it asked what local legal and regulatory regime existed with respect to “outsourcing practices” in Sierra Leone. Until then, I had never heard the term “outsourcing” and had no idea what the clients were asking.

My research led me to one conclusion: there was nothing in our laws specifically regulating either cross-border or in-country outsourcing practices. Sierra Leone’s labor laws are primarily concerned with traditional employee-employer relationships.[1] Other practices such as consultancies are governed almost entirely by contract law. Our laws had paid little attention to outsourcing and there were scarcely any regulatory references to the practice. I came to learn that outsourcing—reflecting neoliberal motivations—aims to cut costs and reduce other liabilities associated with standard employee-employer relationships. This is achieved by creating an outside company that hires workers and then outsources them to other institutions to provide services.

I reported my findings about outsourcing to my Head of Chambers. After listening to me, he calmly said, “that which is not prohibited, is lawful.” My understanding of his statement was that because our laws did not explicitly prohibit outsourcing, it was an acceptable practice. We later explained to the clients that Sierra Leone’s labor laws protect workers but allow outsourcing based on a business’s right to contract freely.

As years went by, we provided similar opinions to additional clients, particularly in the US, UK, Nigeria, and Senegal. By 2010, Nigerian banks and service providers, many of which had benefited from our advice, started businesses in Sierra Leone. While cross-border outsourcing did not take really take root in Sierra Leone as in other countries like South Africa and Nigeria, in-country outsourcing – the phenomenon whereby workers are hired by an outsourcer and then sent to provide services to another company on a contractual basis – has become more prevalent.

Before the influx of foreign companies, most local banks and other financial sector businesses directly hired their employees (from janitors to managing directors) who typically enjoyed full rights and relatively good conditions of service. Employees worked within the normal structure of the company and were paid reasonable salaries, ensuring that they and their families lived at least middle-class lifestyles. Apart from normal sub-contracting, outsourcing of work was not known.

With the introduction of the Sierra Investment Promotion Act of 2007,[2] which opened the market and guaranteed incentives for foreign investments, more and more Nigerian companies started establishing branches and subsidiaries in Sierra Leone. These included banks, insurance companies, mining companies, oil companies, technology companies, general supplies companies, and general services providers.

With the advent of outsourcing, newly launched financial institutions, insurance companies, and mining companies capitalized on this trend: staff members were laid off then heavily recruited and hired by outsourcers. Companies could then hire (or rehire) workers directly from outsourcers, sidestepping the standard worker protections required in employee/employer relationships. Payments were made directly to the outsourcer who then paid the worker a lesser amount. Other Nigerians established their own outsourcing companies to create a ready pool of local workers with a range of skills, providing a market for companies that needed them. They took advantage of the fact that in Sierra Leone, one could hire workers on “contract” for specific periods.[3]

Because contract workers are not categorized as employees, they cannot benefit from collective bargaining agreements or union rules. Thus, workers lacked formal employment relationships with both the outsourcer and with the company where they might be stationed. In some cases, contractual workers found themselves placed at the very same institutions that had fired them in order to make way for outsourced hires. Those affected mostly included custodial staff, security personnel, cashiers, and tellers. They were no longer part of the staff structure of the businesses and were not classified as employees. As contractors, they lost employment benefits like employee loans, car loans, leave allowances, sick day allowances, paid holidays, and medical insurance.

Today, businesses that once offered competitive wages and good benefits to employees have outsourced jobs to institutions that do not prioritize workers’ well-being. This has left workers with lower wages, disadvantageous terms and conditions of service, and many unregulated harmful labor practices. With outsourcing practices growing,[4] the livelihoods of workers affected in Sierra Leone are declining, leaving them worse off than workers from previous decades.

Without some protective intervention from the government this pattern will continue. Workers ought to be treated fairly, not exploited. A company’s environment and conditions must include respect for workers and protect their human rights. Therefore, domestic standards need to be developed to create a level playing field. Such standards should prescribe a minimum set of worker rights and conditions in labor and employment agreements. This action would balance the benefits that businesses accrue from outsourcing with their obligation to safeguard the vulnerable workers’ rights.

Work Cited

[1] “Traditional” here refers to direct employment relationship between and employee and employer whereby all responsibility and work is for the employer.

[2] After the end of the civil war, this Act was introduced to encourage and attract foreign investment in the country.

[3] With proper framing, these contracts would not be employment contracts to attract the application of Collective Agreements to them.

[4] In 2014, it was estimated to be growing at 12% to 26% according to the International Organization for Standardization (ISO).

Francis Kaifala was a Fall 2017 Human Rights Scholar at the Rapoport Center for Human Rights and Justice. He is also a Fulbright Scholarship recipient and a native of Sierra Leone.