Trade policy and labor rights challenges for global value chains

Kent Wilska,
Commercial Counsellor,
Trade Policy Unit, Ministry for Foreign Affairs of Finland,

A common feature in the 21st century trade policy debate has been the treatment of sustainability issues in trade agreements, including environmental and labor standards and human rights. In recent trade negotiations such as the European Union (EU)-Canada, EU-Vietnam, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), or the revision of the North American Free Trade Agreement (NAFTA), trade and labor rights have become an especially hot topic politically, and for good reasons.  While globalization has created millions of new jobs and economic benefits, it must also be acknowledged that there are still major unresolved trade-related human rights issues. In some countries, labor standards, such as the right to collective bargaining or to freedom of association can go unobserved, even abused. And, according to the International Labor Organization (ILO), there are still nearly 25 million people in forced labor and over 150 million in child labor.

The network of various international agreements, treaties and conventions on human rights, labor and environmental standards is quite wide.  Commitments to implement them effectively are also reaffirmed in many bilateral or regional free trade agreements. For the EU, the inclusion of trade and sustainable development chapters into its trade agreements is now a standard practice.

Multilaterally, however, discussions have proved difficult. In the World Trade Organization (WTO) discussions on trade and labor rights stalled already in the 1990s.

The recent debate on strengthening labor provisions of free trade agreements has mostly concentrated on the use of sanctions in cases of non-compliance. In broad terms, there are two approaches to the enforcement: a sanctions-based approach mainly in agreements by the United States, and now also in the CPTPP, and a promotional approach used by the EU and most other countries. The EU approach stresses the importance of incentives, cooperation and capacity building instead of the threat of penalties or withdrawal of trade benefits.

There is very little empirical evidence on which approach works best. Dispute resolution has been rarely used in trade and labor disagreements, and the cases have never led to the use of sanctions. It should also be noted that dispute settlement is normally reserved for addressing serious and systemic non-compliance. Some governments simply do not have the capacity or the will to fulfill their obligations under a trade agreement or international law. In these cases, sanctions can have only a limited effect.

Unilaterally granted trade preferences offer an alternative route to promoting human rights and labor standards, since the countries granting the benefits also set the conditions for the eligibility. For example, the EU grants additional tariff preferences under the special incentive arrangement for sustainable development and good governance in the Generalized Scheme of Preferences (GSP) to developing countries that implement international conventions related to human rights and labor standards, environment and good governance. The EU may also withdraw preferences from GSP beneficiary countries in cases of serious and systematic violation of human rights and labor standards.

Traditional trade agreements are also complemented by international soft law instruments. For example, the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises state that companies exercise human rights due diligence across their value chains and adhere to internationally recognized human rights wherever they operate. Companies should analyze their role in the value chains and assess the risks they might be involved directly or through their business relationships. They should also act upon the findings by prevention, mitigation and remediation in cases of possible negative impacts.

Regardless, there are growing concerns if current trade agreements, soft law measures and hundreds of different voluntary sustainability standards initiatives are sufficient. Some civil society organizations, trade unions and even private companies are now calling for new binding regulations. At the UN, there are negotiations on a new legally binding instrument on transnational corporations and human rights. There has been debate also at the ILO about new standards-related measures, including a possible new Convention on decent work in supply chains. There are also number of new or envisaged national regulatory measures emerging based on the concept of due diligence. France adopted a duty of care law in 2017, and the Netherlands adopted a bill on Child Labor in June 2019. Germany and the European Commission are pondering the need for new regulatory measures. In Finland, a judicial analysis of a possible new due diligence regulation on responsible business conduct is underway.


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