Not-so-free trade agreements
Business Standard, India
Not-so-free trade agreements
Clauses on social issues in FTAs with the developed world can impede market access for developing countries
By T S Vishwanath
19 August 2010
The flavour of protectionism is spreading in the US sometimes at the cost of impeding market access for trade partners. The recent law signed by US President Barack Obama to raise work visa fees will hit Indian companies immediately and US companies with global operations in the medium and long term.
It is obvious that the US is addressing domestic policy concerns by triggering policy initiatives that discriminate foreign service suppliers vis-à-vis the domestic companies. There are two main concerns in the visa fees issue.
First, there is a direct reference to Indian companies. Second, and more serious, is the issue of raising revenue through increased visa fees to fund a $600-million initiative for securing the US-Mexican border through 1,500 new border personnel, a pair of unmanned drones and military-style bases along the border.
The concern is that the US is impeding genuine market access through the use of domestic policy to address the issue of illegal immigration. It is very important to examine if the US move is WTO-compliant.
In an unrelated recent decision, the US has used policy space to focus on labour rights. The US has used the clause in the FTA Agreement to file the first-ever formal labour case under a free trade agreement when it filed a case against Guatemala under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR).
An announcement by United States Trade Representative Don Kirk says that “the Government of Guatemala’s apparent failure to effectively enforce its labour laws harms US workers by forcing them to compete against substandard labour practices and tilts the playing field away from American workers and businesses. By holding the Government of Guatemala accountable to its labour commitments under the CAFTA-DR, we can help to ensure that US businesses and workers are able to compete on fair terms”.
The US has already held informal consultations with Guatemala on this issue and is now seeking formal consultations under the relevant chapter in the FTA. If the two sides fail to resolve the issue and the US continues to find that Guatemala is not “effectively enforcing domestic labour law”, then the US has the choice to seek dispute settlement.
Both these incidents bring two very important points to the fore. One, the unhindered use of policy space to safeguard domestic interests. Two, the use of social clauses in the FTA to provide a level playing ground to its workers.
One interpretation of the American decision to take Guatemala to task is that the US Administration is seeking Congressional approval for several FTAs that have not been ratified as yet, including agreements with South Korea, Panama and Colombia. Congress has been dragging its feet stating these agreements do not have adequate labour provisions. By taking Guatemala to task, the US administration may be sending a signal that it will safeguard labour interests.
Both these decisions by the US provide valuable lessons. First, there would be a continuous effort by the developed world to pander to protectionist lobbies through use of domestic policy. With the pace of growth increasing in the developing world, this form of protectionism will thrive. Businesses in India will, therefore, have to remain dynamic to emerging situations and adapt quickly to remain on top.
Industry will need to keep a constant watch on such developments and take precautions against it becoming an impediment as has been the case with the visa issue.
Second, the larger lesson is that though FTAs provide a platform for increasing trade, there is a need to be very careful while negotiating any specific clause with the developed world. The environmental and labour clauses are the most important to watch.
Developed countries, for instance, are now seeking to introduce elements in FTAs that call for specific social obligations on various issues. The European Union (EU), for example, has inserted the labour and environment clause in the FTA with South Korea and is reported to be keen to introduce the same elements in the agreement it is negotiating with India. While India has reportedly not accepted the EU proposal, the 27-nation Union is expected to seek the inclusion of these clauses to get the agreement ratified by the European Parliament as was the case with the South Korean FTA.
It is important for FTA negotiators on both sides to understand that policing by other partners on social issues can lead to unfair situations where developing countries would find access to markets restricted.
The author is principal adviser APJ-SLG Law Offices
