The Race to the Bottom

For decades, manufacturing firms have relocated their factories to take advantage of lower labor costs. Advances in technology and the opening of borders to trade have made it easier for multinationals to produce their products farther and farther from their headquarters and markets. The ability of corporations to locate elsewhere has resulted in a "race to the bottom" in which firms compete by seeking lower labor costs, while workers are forced to compete for jobs by working for less and communities are forced to compete for investment by requiring less of employers.

The global race to the bottom, sped up by free trade agreements, has been a significant factor in the decline of U.S. manufacturing, the stagnation of job quality throughout the industrial world, and the spread of sweatshop labor in developing nations. The fact that big businesses have unlimited mobility and workers have almost none is felt everyday by workers across the globe. Similar to what took place in the U.S. over the last several decades, multinationals are now shutting down factories in Mexico, and even Central America, seeking cheaper labor primarily in China.

Women are the most negatively impacted by the social burdens of global competition and its subsequent path of exploitation and job insecurity. Evidence shows that reinforced patterns of discrimination against women occur when jobs are lost or few jobs are available. More men are hired in manufacturing at the expense of women's participation, and women workers are laid off first, while those who keep their jobs are rarely promoted to supervisory positions. Adding to this, the current model for trade agreements, like the Central America Free Trade Agreement (CAFTA), uses a definition of "labor laws" that excludes laws related to workplace discrimination and will allow abuses like routine pregnancy testing of women workers or applicants resulting in a loss or refusal of a job.

Using Trade Agreements to Enforce Labor Standards

Trade agreements provide increasing protection for employers without effectively protecting workers. This is in part because linking core labor standards (see "Did you know" box) to trade agreements has been a contentious issue. Developing country trade negotiators (not always representing the views of workers in their country) claim that using trade sanctions to penalize countries who violate standards could be abused by the North looking to protect its failing industries. Each time it has been proposed to include a section on worker rights in the World Trade Organization's (WTO) rules, country members have moved beyond the impasse by delegating this role to the International Labor Organization (ILO) and committing to continuing collaboration between the agencies. However, that commitment has not materialized and, on its own, the ILO has no effective means of enforcement.

NAFTA's failed labor "side agreement" model

Despite omission at the WTO level, worker rights provisions were incorporated into the North American Free Trade Agreement (NAFTA) as a way to win ratification in the U.S. creating a labor "side agreement" called the North American Agreement on Labor Cooperation (NAALC). However, the side agreement has proven worthless. Since NAFTA went into effect in 1994, 28 cases of "persistent failure to enforce" existing labor laws in North America have been submitted to the NAALC process. However, only two fired workers were (temporarily) returned to work, not a single independent union has been recognized, and no workplace health and safety hazards have been corrected as a result of the side agreement.

Other failed U.S. trade agreement models

The U.S.-Jordan Free Trade Agreement (2000) set a new precedent that has been followed by all subsequent U.S. agreements. In this model, the only worker rights requirement is that countries should effectively enforce their own labor laws and strive to provide labor standards consistent with ILO principles. The addition of some labor provisions in the core text of agreements was initially seen as an encouraging development. However, not only did they establish unenforceable obligations, the provisions also contain legal standards very difficult to satisfy for anyone who wants to bring a complaint forward.

Basically, the same template was transplanted to the Central American Free Trade Agreement (CAFTA). Although there is an attempt to use fines as an enforcement mechanism, they will likely be ineffective because penalties are levied on governments of the countries where the violations occur, not the companies that violate. In fact, the fines that the governments pay would actually be paid back to themselves to fund "appropriate" labor initiatives. And nothing stops governments from shifting the amount equal to the fine out of the labor budget into the budget that paid the fine, effectively canceling out the fine.

A new path is needed

The Global Unions Group, an umbrella coalition led by the International Confederation of Free Trade Unions (ICFTU), has encouraged the WTO to establish a formal structure (together with the ILO) to address violations of core labor standards. The ICFTU also promotes the idea of positive incentives that would assist countries where trade liberalization has been associated with violating labor standards. In response to perceptions that labor unions in the North who are advocating for stronger enforcement mechanisms are motivated by protectionism, the International Labor Rights Fund has proposed that sanctions be placed against employers who violate rights, rather than against governments. 

Adding to the debate, the Hemispheric Social Alliance (HSA) has put forward a set of comprehensive proposals. Its Alternatives for the Americas paper calls for strong labor standards based on a five-point plan that includes:

  • A Workers' Rights Clause added to every trade agreement
  • Monitoring and enforcement of labor standards by the ILO
  • Mechanisms for adjustment and job creation to allow national economies to adjust to the increased competition caused by trade agreements
  • Social programs that provide a safety net for those who may lose their jobs, including basic assistance such as health care, social security, unemployment insurance, and workers' compensation
  • Protection against job instability and discrimination, with special attention paid to protection of women