ILRF: Labor Experts Censure “Wrong Turn” in CAFTA Arbitration Decision

04/12/18

A new report from the International Labor Rights Forum (ILRF) says that an arbitral panel’s ruling in the first case ever decided under the labor chapter of a free trade agreement “got it wrong” on workers’ rights violations in Guatemala. Written by three prominent international labor law experts, “Wrong Turn” edits down the 300-page decision into a reader-friendly 30 pages, and provides analysis and commentary at key points showing the arbitral panel’s flawed approach and conclusions.

Following a 2008 complaint by the AFL-CIO and a coalition of Guatemalan unions, the United States government initiated the arbitration case in 2011 under the labor rights chapter of the 2005 U.S.-Central America Free Trade Agreement (CAFTA). That chapter defines as its central purpose to “protect, enhance, and enforce basic workers’ rights.” The United States charged Guatemala with failing to effectively enforce its national labor law to halt mass firings of workers who try to form unions and to remedy minimum wage, health and safety, and other violations of employment standards. Effective enforcement of national law is a central obligation of the CAFTA labor chapter.

In their report, Eric Gottwald of ILRF, Jeff Vogt of the Solidarity Center, and Lance Compa of Cornell University note that two of the three members of the arbitral panel, while prominent trade lawyers who normally represent multinational companies in commercial disputes, have no labor experience or expertise. As a result, “The decision is based on a narrow, trade-oriented analysis divorced from labor law reality - particularly in a developing country like Guatemala.”

Importantly, the arbitral panel did find that Guatemala repeatedly failed to effectively enforce its labor law. However, the panel found that such failures did not occur “in a manner affecting trade”, as required by the labor chapter, leading the arbitrators to rule in favor of Guatemala. In contrast, the report’s authors argue that, “A rights-focused analysis would say the CAFTA labor chapter is meant to protect workers’ fundamental rights, not competition in the free trade area.”

Gottwald, Vogt and Compa suggest that the arbitral panel erected an impossibly high barrier to workers prevailing in such cases. All violations and the failure to enforce labor laws occurred in trade-related sectors such as apparel manufacturing, agriculture, and shipping, but the panel found that this was insufficient to meet the “manner affecting trade” requirement. The arbitrators demanded evidence that companies took advantage of the government’s enforcement failures to gain a price advantage in the marketplace. But such information, argue the report authors, is impossible to obtain without subpoena power – a tool that is not available in the CAFTA dispute resolution system.

The authors also decry the failure of the U.S. government to present evidence on widespread violence against trade unionists in Guatemala, including death threats and assassinations – an important part of the unions’ original 2008 complaint. Reflecting this failure, they note that “In the full 299-page decision of the Panel, not once does the word ‘violence’ appear.”

The ILRF report concludes with recommendations to address the “wrong turn” in the CAFTA arbitration decision. They include requiring arbitrators to be experts in labor law and labor relations and to consider reports and decisions from international human rights bodies, not just the WTO, in their decision-making process; allowing trade unions and victimized workers to participate in arbitration proceedings, correcting the interpretation of the “manner affecting trade” clause, and making the labor chapter of all trade agreements a human rights chapter.

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