Cato Online Forum

A Fresh Approach to Labor Rights and Employment in Transatlantic Trade and Investment Partnership

By Susan Aaronson
October 6, 2015

For many Europeans and Americans, ‘work’ both defines and sustains us. Despite the importance of work to our sense of self and economic welfare, workers in both the United States and the European Union struggle to defend their interests. Skilled and unskilled, highly-educated and less well-educated workers, alike, have been buffeted by job losses, underemployment, and economic insecurity. Many individuals toil without benefits or job security.1 And although workers are increasingly productive, many earn less in real terms today than they did 20 years ago.2

EU and U.S. policymakers argue that one way to create new or better jobs is to conclude a trade and investment agreement between the United States and the 28 EU member states: the Transatlantic Trade and Investment Partnership (TTIP). Not surprisingly, many workers disagree, fearing that companies will continue to replace workers with technologies and move jobs to nations with inadequate governance and fewer workplace protections. TTIP could create employment and improve labor rights, if policymakers are willing to rethink the labor rights language, make the agreement more coherent, and think creatively about how to empower workers.

In this essay I argue, first, that both the United States and the European Union use outdated templates to address labor rights, which are inadequate for the world of work today. Consequently, the proposed trade agreement seems disengaged from the real world of work and does not provide help or creative solutions to the problems workers confront in our rapidly changing and increasingly unequal economy. Next, I warn that language in the investment and regulatory coherence chapters may contradict the language in the labor rights chapter. Finally, based on interviews with 23 eminent scholars, as well as my own ideas, I offer suggestions for redesigning the TTIP to benefit workers and promote employment.3

EU and U.S. Approaches to Promoting Labor Rights

The European Union and the United States use their free trade agreements (FTAs) to advance the rights of workers, but these agreements say very little about creating jobs. Both trade behemoths have adopted “templates” which are built on the International Labor Organization (ILO) core labor standards, but beyond that the two nations differ in their objectives and strategy. Both templates include language on freedom of association and the effective recognition of the right to collective bargaining; elimination of all forms of forced or compulsory labor; effective abolition of child labor; and elimination of discrimination in respect of employment and occupation. Both trade giants also include a clause that forbids negotiating partners from weakening labor laws or lowering their labor standards in order to attract trade or investment. Finally, the United States and the European Union include language encouraging public participation in the development of the labor chapter as well as language encouraging comments concerning labor rights once in force.45

While the two mega traders agree that labor rights should be a trade agreement priority, they disagree as to how to achieve that goal. U.S. policymakers generally believe that market forces should determine labor market outcomes. European regulators, in contrast, generally believe that unregulated markets create an imbalance of power between employer and employee, so the government should regulate markets appropriately to empower workers, create counterweights to business, and protect labor rights.6 Moreover, U.S. policymakers view obligations on labor rights as a means of ensuring that trade and investment agreements do not undermine the rights of workers at home or in U.S. trade partner countries. EU policymakers view labor rights as central to achieving sustainable development, and as part of a broad set of human rights that it seeks to advance through dialogue, cooperation, and capacity building. The EU and U.S. negotiating templates reflect these differences.

The two trade giants also have different strategies to encourage the dispersion of labor standards. The United States includes labor rights in a separate chapter and, since May 2007, has made labor rights binding and subject to dispute settlement, while the European Union includes labor rights as part of its sustainable development chapter and requires both parties to enforce their own labor laws effectively.7

In fact, the two sides may be talking past each other on labor rights. The European Union says it aims to ensure that international economic integration does not lead to domestic social disintegration. Meanwhile, the U.S. Trade Representative states: “Our trade agreements are designed to prevent a race to the bottom on labor protections.”8 The United States does not seem to be hearing European concerns that TTIP should not just prevent a race to the bottom, but it should also cushion workers from the adverse impact of trade and investment liberalization. Neither the European Union nor the United States seems to be encouraging new ideas that can help workers who feel threatened not just by globalization but also by wage stagnation, income inequality, and technologies such as robotics.

Incoherence within TTIP Could Undermine Labor Rights

Despite their professed commitments to labor rights, both governments have included provisions in TTIP that seem to contradict those commitments. For example, provisions in both the regulatory coherence and investment chapters could undermine labor rights unless the two negotiating partners explicitly clarify their intent.

Policy-makers have long understood that domestic regulations designed to protect public health, safety, and the environment could distort trade because foreign producers may find it harder to comply with such regulations. And both negotiating partners insist that democratically determined regulation will not be undermined by TTIP.9 Despite these reassurances, citizens in both the United States and the European Union are concerned that their high-standards regulations could be threatened by the trade negotiations, and some have argued that the regulatory coherence efforts are part of a 21st century strategy to internationalize deregulation, leading inevitably to a “race to the bottom.”1011

Meanwhile, negotiators want to include investor-state dispute settlement (ISDS) provisions in TTIP. These provisions are designed to encourage investment by giving investors special protections, including the right to sue for compensation if their investments are expropriated, or the value of their investments are degraded as a result of policies of the host government that are shown to be discriminatory (a regulatory taking). The United States and the European Union have clearly stated that government regulatory policies cannot be challenged as regulatory takings, but critics are not reassured.12 They note that foreign investors in Egypt challenged the establishment of minimum wages as a regulatory taking because these requirements were not in place at the time of the original contract. Moreover, in Romania and Bulgaria, foreign investors initiated investment disputes arguing that the governments had failed to quell frequent strikes, thereby depriving the claimants of their full investment.13 No investor has won an investment dispute on labor issues, but policymakers have yet to clarify whether investors can challenge collective bargaining agreements or other worker protections.14

U.S. workers generally have fewer protections than are afforded workers in much of Europe. Moreover, the United States has not ratified the same ILO conventions related to health and safety as has the European Union. Unfortunately, policymakers have not clarified whether labor-related regulations such as workplace health and safety regulations will be included or excluded from the negotiations. Since the European Union and the United States have similar labor costs and productivity levels, some trade critics assert that EU and U.S. manufacturing firms may move their operations to venues with fewer or less costly labor-related regulations. For example, European firms could move investment to “right to work” states in the United States (where it is hard for workers to unionize) and U.S. firms could move to countries such as Romania, where labor rights are considered to be inadequately protected.15

Some New Ideas

The TTIP provides an opportunity to think differently about how policymakers in advanced industrialized economics can protect labor rights, encourage job creation, and empower workers. Here are some ideas to ensure that TTIP works for workers.

Negotiators should include broader human rights language and expand coverage to workers in the informal sector as well as workers who are trafficked. They should require signatories to meet ILO core labor standards as a minimum. They should provide incentives for unions to offer cross border services, such as collective representation, benefits, training, and other workplace services. They should include provisions that permit less skilled workers to offer services across borders. They should include language stating that signatories cannot use regulatory coherence chapters to reduce worker protections. They should specify that investors cannot use ISDS provisions to challenge minimum wages, collective bargaining agreements, procurement standards, or regulations meant to protect public health or welfare. And, as an audit of the entire agreement, the negotiators should consider each chapter part of a coherent whole, reviewing each for its coherence with labor and employment objectives.

Finally, policymakers on both sides of the Atlantic should ask the ILO to examine whether domestic tax or monetary policies in one trade partner can affect the provision of public services and human welfare in another. They should then examine whether these provisions can and should be disciplined under trade agreements.

Notes:
1 In April 2015 the seasonally adjusted employment rate in the Euro area was 11.1 per cent. See Eurostat. (2015). Recent developments in unemployment at a European and member state level. Retrieved from http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics#Recent_developments_in_unemployment_at_a_European_and_Member_State_level. The U.S. Department of Labor reports that as of May 2015 the seasonally adjusted unemployment rate was 5.5 per cent but on September 3, it dipped to 5.1%. United States Department of Labor, Bureau of Labor Statistics. (2015)
2 International Labor Organization (ILO). (2013). Global wage report 2012/13: Wages and equitable growth. Geneva: International Labor Office, p. 62, http://www.ilo.org/wcmsp5/groups/public/—-dgreports/—-dcomm/—-publ/documents/publication/wcms_194843.pdf.
3 At the behest of the ILO Washington Office, I surveyed 23 scholars on how TTIP might better meet the needs of workers. Aaronson, S.A. (2015). Working by design: New ideas to empower U.S. and European workers in TTIP. Washington, DC: George Washington University, http://www.gwu.edu/~iiep/events/Working_for_All/summary.pdf.
4 See Cosbey, A. (2014, November 3). Inside CETA: Unpacking the EU-Canada free trade deal. Retrieved from http://www.ictsd.org/bridges-news/biores/news/inside-ceta-unpacking-the-eu-canada-free-trade-deal.
5 See Office of the United States Trade Representative. (2015). Public submission process. Retrieved from https://ustr.gov/issue-areas/labor/public-submission-process.
6 Block, R. N., Berg, P., & Roberts, K. (2003). Comparing and quantifying labor standards in the United States and the European Union. International Journal of Comparative Labor Law and Industrial Relations, 19(4), pp. 441-468.
7 Article 3.1 under Chapter 24, Trade and Labor, of CETA, http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf.
8 U.S. Department of Labor & U.S. Trade Representative. (2015, February). Standing up for workers: Promoting labor rights through trade, pp. 51-53, https://ustr.gov/sites/default/files/USTR%20DOL%20Trade%20-%20Labor%20Report%20-%20Final.pdf; and U.S. Trade Representative. (2014, March). U.S. objectives, U.S. benefits in the Transatlantic Trade and Investment Partnership: A detailed view, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2014/March/US-Objectives-US-Benefits-In-the-TTIP-a-Detailed-View.
9 Fontagné, L., & Jean, S. (2014, November 16). TTIP is about regulatory coherence. VoxEU, http://www.voxeu.org/article/ttip-about-regulatory-coherence.
10 European Commission. (2015, March 26). The top ten myths about TTIP. Retrieved from http://trade.ec.europa.eu/doclib/docs/2015/march/tradoc_153266.pdf.
11 Aaronson, S. A. (2001). Taking trade to the streets: The lost history of public efforts to shape globalization. Ann Arbor: University of Michigan Press, pp. 7-11.
12 OECD, “Investor-State Dispute Settlement: Public Consultation, 5/16-7/12/2012, #3, p. 5; OECD, “Indirect Expropriation and the Right to Regulate in International Investment Law,” OECD Working Papers on International Investment 2004/04, http://www.oecd-ilibrary.org/docserver/download/5lgsjhvj76kd.pdf?expires=1369358232&id=id&accname=guest&checksum=4541798FDEE214C473CD88E27DF9F809; and “UNCTAD World Investment Report 2012,” UNCTAD, p. 139, http://www.unctad-docs.org/files/UNCTAD-WIR2012-Full-en.pdf.
13 European Commission. (2015, January 13). Commission staff working document: Report: Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), SWD(2015) 3 final, pp. 15-30, http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf. On ISDS and minimum wages, see Karadelis, K. (2013, June 28). Can Veolia trash Egypt at ICSID? Global Arbitration Review. Retrieved from http://globalarbitrationreview.com/news/article/30644/can-veolia-trash-egypt-icsid. On right to strike and other investor-state cases on labor rights, see Vogt, J. S. (2014). Trade and investment arrangements and labor rights. In L. Blecher, N. K. Stafford, & G. C. Bellamy. Corporate responsibility for human rights impacts: New expectations and paradigms (pp. 121-175). Chicago: American Bar Association, pp. 171­-172.
14 Aaronson, S.A., “A Fresh Approach to International Investment Rules,” Progressive Policy Institute, 2014. http://www.progressivepolicy.org/publications/policy-report/a-fresh-approach-to-international-investment-rules/
15 See Ponce del Castillo, A. M. (2015, January). TTIP: Fast track to deregulation and lower health and safety protection for workers. ETUI Policy Brief: European Economic, Employment and Social Policy, No. 1., http://www.etui.org/Publications2/Policy-Briefs/European-Economic-Employment-and-Social-Policy/TTIP-fast-track-to-deregulation-and-lower-health-and-safety-protection-for-EU-workers. On Romania, see U.S. Department of State. (2014, March 5). Country reports on human rights practices for 2013: Romania, http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm?year=2013&dlid=220323.

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on The Economics, Geopolitics, and Architecture of the Transatlantic Trade and Investment Partnership.

Susan Ariel Aaronson is Research Professor of International Affairs at George Washington University.