Statement focusing on the labor component of U.S. trade preference programs.  Polaski describes labor provisions\u27 role in preference programs, specifically in the achievement of development objectives.  She also shares observations on the functioning of preference programs, and highlights areas where Congress should consider improving the programs

Polaski, Sandra

English

DigitalCommons@ILR

Deputy Undersecretary (ILAB), Sandra Polaski  
Statement of Sandra Polaski, Deputy Undersecretary,  
Bureau of International Labor Affairs (ILAB) 
Testimony before the Subcommittee on Trade of the House Committee on Ways and 
Means  
November 17, 2009  
Introduction 
Chairman Levin, Ranking Member Brady and distinguished members of the Subcommittee on 
Trade: 
On behalf of the Department of Labor, thank you for the opportunity to discuss how to ensure 
that U.S. trade preference programs are achieving their goals.  
As you know, U.S. trade preferences were created in order to spread economic growth and 
development through new trade opportunities for developing countries. Secretary Solis and I 
support this goal. The Secretary has made the overarching goal for the Department of Labor 
Good Jobs for Everyone. In the Department's Bureau of International Labor Affairs (ILAB), 
which I lead, we support this goal by working to ensure that workers and their households are 
able to share in the benefits of trade — both in developing countries and here at home. This goal 
is also an essential component of the President's broader vision for international growth and 
development that broadly benefits the people of the world.  
Today I would like to focus on one essential aspect of preference programs — the labor 
component. I will discuss the role that labor provisions play in preference programs, and why 
they are indispensable in achieving the development objectives of preference programs. I will 
also share some observations on the functioning of the preference programs, particularly areas 
where Congress may want to consider whether the programs could be improved.  
Trade, Labor and Economic Development 
When Congress authorized the first U.S. trade preference program — the Generalized System of 
Preferences (GSP) — through the 1974 Trade Act, the goal was to provide greater access to the 
U.S. market for developing countries. The purpose was to create additional export opportunities 
which would attract investment, develop new industries, create jobs, and thereby foster growth 
and development. Since then, Congress has expanded U.S. trade preferences roughly each 
decade through the Caribbean Basin Initiative (CBI) in 1983, the Andean Trade Preference Act 
(ATPA) in 1991, the African Growth and Opportunity Act (AGOA) in 2000, and the Haitian 
Hemispheric Opportunity through Partnership Encouragement (HOPE) Act in 2006 and 2008. 
Each of these new programs modified the original GSP model to incorporate the knowledge and 
experience gained about how best to stimulate development using market access incentives.  
One of the key ways in which the preference programs evolved over these last 35 years was 
through the program eligibility criteria that beneficiary countries must meet in order to receive 
unilateral duty exemptions. Congress gradually included eligibility criteria in the programs — 
covering matters as diverse as treatment of investors and treatment of workers — that reflected 
the understanding that without a positive policy framework greater access to the U.S. market 
alone would not lead to broad-based and sustained development. 
The labor requirements of preference programs first emerged in 1984, when Congress and then-
President Reagan negotiated the addition of internationally recognized worker rights to the GSP 
eligibility criteria. This innovation reflected the understanding that fundamental labor rights were 
an essential component of broad-based economic development in low and middle income 
countries, just as they were an essential component in our own economic development. Labor 
markets in many developing countries are characterized by numerous short comings. Economic 
power is often highly consolidated and the institutions that would allow workers to claim their 
rights under law are often very weak. In some countries these problems are compounded by 
pervasive corruption. Under these conditions, the likelihood is low that trade preferences alone 
will easily translate into significant and sustained benefits for workers and their families. 
However, if workers share in the benefits of trade and have effective means of addressing their 
exclusion, then the economic growth that comes from expanding trade may help address existing 
inequalities. It should increase the incentives for employers and workers to upgrade productivity 
and skills, rather than encouraging cost-cutting through disregard of national labor laws and 
international labor standards. When labor is free from coercion, when children are kept in 
schools rather than factories, and when workers are able to freely organize and bargain for their 
interests, the economic opportunities that come through trade are more likely to create 
widespread prosperity and put the beneficiary country on a virtuous upward cycle. 
By protecting the most basic human and workers' rights and ensuring a broader distribution of 
gains throughout an economy, the labor provisions of trade preference programs also spur global 
aggregate demand which is good for U.S. workers and firms. By helping to build a more level 
playing field in the global economy, they shore up support for free trade both at home and in 
recipient countries.  
Improvements in Worker Rights 
By adding the labor eligibility provisions on internationally recognized worker rights to the U.S. 
preference programs, Congress created both a requirement and an opportunity for developing 
countries to improve their labor standards. As we have utilized these provisions in the past, they 
have led to positive changes in workers' lives.  
For example, in August 2005 the U.S. government accepted for review an AFL-CIO petition to 
remove Uganda's eligibility for GSP benefits. The petition alleged serious shortcomings in 
Ugandan labor law and enforcement, including a requirement that a minimum of 1,000 workers 
were needed to form a union. Following high-level U.S. government demands on the issues 
raised in the petition, Uganda committed to expedite passage of long-overdue labor legislation to 
improve the situation. The legislation, which the International Labor Organization (ILO) 
reviewed, addressed each of the main problems cited in the petition and was ultimately passed 
and enacted in May 2006. The government also undertook measures to fund and begin 
operations of a new industrial court for labor issues, and posted labor inspectors in each district 
of the country.  
On occasion benefits have actually been withdrawn when countries did not make progress 
addressing worker rights and other eligibility criteria. For example, Liberia's benefits were 
suspended in 1990 because of worker rights concerns. However, following two decades of war, 
Liberia's new President, Ellen Johnson Sirleaf, made improving worker rights a high priority. 
This included repealing a decree that prohibited strikes and inviting the ILO to assist Liberia in 
bringing its laws and practices into conformity with its ILO obligations. In 2006, Liberia's GSP 
eligibility was reinstated.  
Trade preferences have also been used to provide additional incentives for countries to make 
concerted improvements in worker rights. In 1999, the U.S. negotiated a textile agreement with 
Cambodia that offered additional textile quota annually to Cambodia when worker rights criteria 
were met based on factory-level monitoring reports. I was closely involved in the creation and 
implementation of that agreement and believe that certain lessons from that experience continue 
to be instructive today.  
First, the agreement aligned the market incentives facing the government, investors, international 
buyers, employers, and workers. Since improvements in working conditions were tied to a 
positive incentive — increased textile quota — both the private sector and the government 
benefited when workers benefited. Because the quota determinations were made annually, there 
was a close temporal relationship between improvements on the factory floor and greater market 
access. The result of the program was significant growth in trade, employment, and incomes for 
apparel workers in one of the world's poorest countries. From 80,000 apparel jobs in 19981 
before the agreement took effect, employment increased to over 350,000 jobs by the end of 
2008.2 As the industry and employment were growing, the labor rights of Cambodian workers 
and their working conditions also improved. It is important to note that even after the Multi-Fiber 
Agreement ended at the end of 2004 — and with it the quota incentives that were used at the 
beginning of the program — the country continued its efforts to improve worker rights.  
A second element of the Cambodia program that deserves close attention is the way the factory 
conditions were monitored and the information was transmitted. The program introduced an 
innovative design that combined transparency and integrity to overcome limited market 
information and lower costs for producers. The ILO was asked by the U.S. and Cambodian 
governments to carry out a monitoring program, known as the Better Factories project, that 
monitored factories and made the results public. This provided transparency about the conditions 
in all the export firms to international buyers, consumers and other factories, as well as to the 
governments and the labor force. This information helped buyers make better sourcing decisions 
and rewarded the factories that were improving, while channeling business away from factories 
with a record of labor abuses. Since the monitoring was conducted by a credible outside entity, 
buyers were able to reduce or eliminate their own inspections of their supplier factories. Since 
factories pay for these buyer-required inspections, the program reduced factory costs and 
eliminated redundant monitoring. Estimates show the Cambodia monitoring program cost 
factories about $3 per worker per year, compared to third-party monitoring costs of up to $50 per 
worker per year.  
A third element in the success of the program was the decision by the Cambodian government 
that all firms benefiting from the market access should participate in the Better Factories project. 
This ensured that factories that complied with the national labor laws and internationally 
recognized worker rights were not at a disadvantage compared to factories not in the program. 
This sector-wide participation avoided creating perverse incentives in which factories joining the 
program would be subject to greater transparency than factories outside the program, which 
would free ride on the reputation of the industry and program benefits. It also avoided the risk 
that the reputation of Cambodia and its apparel industry could be damaged by media exposes of 
poor labor practices by non-compliant factories outside the program.  
In sum, preference programs can be effective tools to both promote economic development and 
improve labor standards, so that economic development is broad-based and sustainable. Our 
preference programs work best when economic incentives are aligned in a way that produces 
optimal results for overall growth of exports, employment generation and improved respect for 
workers' rights. That is when we are most likely to see broad distribution of the benefits from 
preferential access to our market.  
Observations on Existing Preference Programs 
Since the original inclusion of internationally recognized worker rights in the GSP statute, the 
United States has included labor provisions in every subsequent preference program and virtually 
every free trade agreement. However, Congress created the preference programs over time, and 
our current system is made up of varying levels of benefits, eligibility criteria and eligibility 
reviews. These variations provide insight into how the incentives created by the programs work 
in practice.  
Incentives 
Congress has authorized the preference programs to provide benefits to countries that meet the 
eligibility criteria and to remove benefits when these criteria are not being met. The objective of 
the labor provisions of the programs is to align the incentives facing government, employers and 
workers. When we have been able to effectively operationalize this alignment, we have been able 
to make significant and lasting progress.  
Regarding the incentives, I want to make an important point. The goal of reviewing a country's 
eligibility is not to remove benefits, but rather to encourage compliance. It may be helpful to 
think of the analogy to enforcement of U.S. labor laws. The goal of enforcement is not to impose 
penalties, but rather to create effective deterrents in order to elicit voluntary compliance. For the 
incentives in our preference programs to be effective, they must be credible, just as our domestic 
enforcement must be credible.  
The purpose of eligibility reviews — whether for worker rights or other program criteria — is to 
examine whether a country is failing to meet the criteria, engage with them to help them come 
into compliance, and — failing that — determine whether eligibility should be revoked. 
Eligibility for U.S. preference programs has been removed in the past at least 12 times due to 
failure to address abuses of worker rights, but nearly all of the actions were taken in late 1980s 
and 1990s. There have been several occasions when countries responded to U.S. engagement, 
through the petition and review process, to make positive changes to come into compliance with 
eligibility criteria. When this happens, this is a win-win situation: improvements are made, and 
benefits are retained.  
There has also been one worker rights case under the GSP program, involving Pakistan, in which 
benefits were withdrawn for some, but not all, eligible tariff lines. Under the HOPE Act, benefits 
can be withdrawn for particular firms that fail to meet the programs' requirements, but benefits 
are maintained for rest of the country. As currently authorized, preference programs provide 
duty-free access for eligible goods; but, if eligibility is revoked, then rates revert to the normal 
trade relations duty rate.  
Transparency  
Transparency helps provide better information to all stakeholders and can lead to desirable 
outcomes with efficiency and speed. President Obama has called on the federal government to 
improve the transparency of decision making. In administering the preference programs, the 
interagency representatives regularly meet with petitioners, government officials and other 
stakeholders to discuss the process and specific allegations when they are raised in a petition. 
Public hearings are also held to gather information. At the conclusion of the review process, a 
decision is made public on whether to close the review, continue the review or remove benefits. 
However, additional consideration could be given to how the process can be made further 
transparent.  
Standards 
Over time, our definition of labor rights has evolved. The definition of internationally 
recognized worker rights found in the GSP statute in 1984 preceded the development of the 
ILO's 1998 Declaration on Fundamental Principles and Rights at Work, a consensus definition 
which the U.S. supports. U.S. preference programs include the following labor rights:  
• freedom of association and the right to organize and bargain collectively;  
• a minimum age with respect to children;  
• the elimination of the worst forms of child labor,  
• freedom from compulsory labor, and  
• "acceptable conditions of work" with respect to minimum wages, hours of work and 
occupational safety and health.  
The ILO's 1998 Declaration includes these labor rights except for acceptable conditions of work. 
The Declaration also includes freedom from discrimination in the workplace as an additional 
right, which is not included in U.S. preference programs. The most recent U.S. free trade 
agreements combined the Declaration labor rights with acceptable conditions of work.  
Petitions versus Systematic Reviews 
Another area where preference programs vary is on the trigger for eligibility reviews of 
beneficiary countries. For example, the GSP and ATPA programs have a petition-driven process, 
while AGOA has an annual, self-initiated review. It should be noted that both systems have 
advantages and are not mutually exclusive. Petitions can serve to highlight, in a timely way, 
where significant labor abuses are occurring. These petitions are usually filed by stakeholders 
and organizations "on the ground" that have real-time knowledge and also may bring the 
capacity to collaborate on solutions to the problems identified.  
However, there are also cases in which third-party petitions are not received simply because such 
stakeholder groups do not exist or because information is strictly controlled by the government, 
and organizations that typically would file petitions are constrained from doing so. In these cases, 
regular, systematic reviews by the U.S. may better identify countries that are failing to meet the 
eligibility criteria of the preference programs. For example, the AGOA annual, eligibility review 
examines every beneficiary country against each criterion every year and makes a 
recommendation to the President on eligibility. This has the benefit of applying the criteria 
universally and regularly each year. The review is completed at a certain date, and decisions on 
individual countries are rarely extended. In contrast, some GSP petition reviews remain open for 
several years. While this allows for greater discretion and engagement with the beneficiary 
country to address the concerns raised in the petition, it may also lessen the incentive for 
countries to act expeditiously. As a practical matter, though, I should mention that the GSP 
program has approximately 140 eligible countries, and a full, annual review process would be 
resource intensive. It may be preferable to effectively target resources at the most significant or 
strategic cases.  
Conclusion 
Thank you again for inviting me to participate in this hearing, Chairman Levin, Ranking Member 
Brady, and distinguished members of the Subcommittee. I believe we share the common goal of 
making preference programs more effective tools for development and poverty alleviation. 
Secretary Solis and I believe that the labor provisions of the preference programs are an essential 
component in meeting these goals. The Bureau of International Labor Affairs and the 
Department of Labor stand ready to provide any assistance or support to you and your staff as 
you continue in your deliberations.  
 
Footnotes 
1Independent Final Evaluation Report (covering the period February 2003 — December 2005), 
Ensuring that Working Conditions in the Textile and Apparel Sector in Cambodia Comply with 
Internationally-Recognized Core Labour Standards and the Cambodian Labour Law, Luis 
Reguera & Christopher Land-Kazlauskas, P.7, Oct. 2007. 
2Twenty-Second Synthesis Report on Working Conditions in Cambodia's Garment Sector, Better 
Factories Cambodia, International Labor Organization, April 30, 2009, p.5 (graph 3). 
 


Testimony of Deputy Undersecretary Sandra Polaski, Bureau of International Labor Affairs (ILAB) before the Subcommittee on Trade of the House Committee on Ways and Means, November 17, 2009

Statement focusing on the labor component of U.S. trade preference programs.  Polaski describes labor provisions' role in preference programs, specifically in the achievement of development objectives.  She also shares observations on the functioning of preference programs, and highlights areas where Congress should consider improving the programs.ILAB_Testimony_Polaski_2009.pdf: 26 downloads, before Oct. 1, 2020

eCommons@Cornell

https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1445&amp;context=globaldocs

Testimony of Deputy Undersecretary Sandra Polaski, Bureau of International Labor Affairs (ILAB) before the Subcommittee on Trade of the House Committee on Ways and Means, November 17, 2009

Abstract

Similar works

Full text

Available Versions

DigitalCommons@ILR

eCommons@Cornell