Work That Pays Off: The Strategic Dimension of Labor Obligations in Trade Agreements

This commentary is part of the Strategic Trade series supported by the Atlas Network.

Many countries seek formalized commercial relationships with the United States. For foreign partners, free trade agreements (FTA) and membership in trade preferences programs with the United States offer preferential access to the largest economy in the world and a symbolic boost to bilateral relations. But those relationships come with strings attached. Partners must meet obligations in order to access commercial and strategic advantages provided by the agreement.

One important element of U.S. FTAs and trade preferences programs is the inclusion of labor obligations. These obligations aim to improve labor standards abroad to equalize competition between U.S. and foreign workers. Obligations include guarantees of freedom of association and collective bargaining; the elimination of forced labor, child labor, and workplace discrimination; and maintenance of acceptable working conditions, including wages and occupational safety. The explicit addition (albeit in a side agreement) of labor to FTAs came in 1993, when President Clinton kept his election year promise to negotiate a labor side agreement to the North American Free Trade Agreement. Pressure on the executive branch to negotiate more robust labor requirements has continued to grow, and U.S. negotiators have obliged. The passage of the United States-Mexico-Canada Agreement (USMCA) came only after the Trump administration beefed up the labor terms with Mexico, ultimately allowing for labor conditions at individual factories to be inspected.

Aside from fair competition between workers, there is another compelling reason to include strong labor obligations in FTAs: to enhance U.S. soft power. Conditioning preferential access to the U.S. market on the treatment of workers in line with international standards may be a hard pill for some foreign governments and businesses to swallow but should carry broad appeal with workers around the world. Labor obligations align with bedrock American values and the idea of the American dream—the envy of workers around the world. The concept that hard work will be rewarded, that anyone has the chance to achieve economic mobility, and that workers should be respected are American values that should be front and center in U.S. economic policy.

Two trends improve the strategic case for labor obligations in trade agreements: continued scrutiny from the public about globalization’s effect on labor, and U.S. competitors assuming a greater share of global trade and building out their own FTA networks. The first trend is not new—the relationship between trade and labor has been debated for centuries—but failure to acknowledge it risks undermining the U.S. trade policy agenda and the strategic benefits that accompany it.

The second trend is one the United States can take advantage of. While the United States seeks to improve foreign labor standards through FTAs and preference programs, China, for example, has expanded its economic footprint in Africa with little regard for labor conditions there. Chinese companies have been accused of discrimination against workers in Kenya. A study conducted between 2000 and 2012 of Chinese-funded projects in 18 African countries found that those projects led to less local trade union involvement, while other funding sources had no similar impact. Over the long term, a pattern of Chinese economic outreach coupled with disregard for labor rights can result in “soft disempowerment,” where attempts at building soft power backfire by attracting attention to practices that do not comport with international standards and negatively impact nations and communities. The outcome of “soft disempowerment” is the loss of credibility and reputation, which can short-circuit a broader economic leadership agenda.

The lack of attention paid to labor rights by China creates an opportunity for the United States to differentiate itself from its economic rival and offer trading partners a more equitable and development-friendly path. Forthcoming FTA negotiations between the United States and Kenya is a good opportunity for the United States to reaffirm the importance of worker rights and labor obligations as a dimension of trade. The U.S. negotiating objectives for an agreement with Kenya are the first step in the right direction.

To fully maximize the potential strategic gains from embedding robust labor obligations in trade policy, the United States needs to make improvements in three areas. First, its record of enforcing labor obligations it has negotiated is dismal. The United States has only initiated one trade dispute with an FTA partner over labor conditions and ultimately lost the case. What good are provisions if they are not enforced? The United States should commit to calling out trading partners that do not meet labor obligations they have committed to. Colombia, which has an FTA with the United States that includes labor obligations subject to dispute settlement, was the deadliest country in the world for union workers. Failure to mount an aggressive enforcement program led some Democrats to cast doubt over whether USMCA’s labor improvements were meaningful.

Second, the United States should review whether recent innovations in labor obligations will improve labor conditions abroad or will be used by domestic industry as a new path to relief from foreign competition. For example, USMCA rules that allow for disputes to be brought against Mexico over the conditions in a single factory could be ripe for abuse.

Third, for the United States to be a credible leader on worker rights it needs to take stock of its own house. Union membership fell from over 20 percent of the workforce in 1983 to 10.3 percent in 2019. Covid-19 has brought a new focus on the treatment of gig workers, part-time workers, contract workers, and essential workers. While trade as a portion of GDP has increased, inequality in the United States has grown for 50 years, which suggests workers are not fully benefiting from the economic gains of trade. A rising tide has not lifted all boats equally. 

Workers are the bedrock of the global economy and a fundamental force driving globalization. Just as the growth in international trade has brought benefits to the working class, it has also generated challenges. Labor rights remain uneven around the world, and globalization has made it more profitable for firms to exploit workers with poor protections. The United States can beat back this predatory profit-seeking-at-all-costs by continuing to condition preferential access to its market on the protection of workers around the world and enforcing those obligations when necessary. By doing so, the United States can generate goodwill not only with workers and civil society around the world, but with governments seeking leverage to improve labor conditions in their countries.

Jack Caporal is an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Jack Caporal