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Testimony Regarding the Central America Free trade Agreement (CAFTA) Prepared by Bama Athreya, Deputy Director

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Testimony Regarding the Central America Free Trade Agreement (CAFTA) 
Prepared by Bama Athreya, Deputy Director 
International Labor Rights Fund 
April 12, 2005 
 
 
The International Labor Rights Fund (ILRF) would like to thank the Committee 
on Ways and Means, US House of Representatives for the opportunity to present 
testimony related to the Central America Free Trade Agreement (CAFTA).  ILRF is 
deeply concerned about ongoing labor rights violations in Central America.  We believe 
the agreement will force the developing nations of Central America to compete against 
one another to attract limited new US investment by offering low wages and foregoing 
enforcement of labor and environmental laws.   
 
A strong and enforceable labor chapter might have served to mitigate this “race to 
the bottom.”  However, as currently written, the CAFTA labor chapter will not serve to 
deter labor rights abuses, nor will it effectively deter national governments from 
downgrading their existing labor laws.  Thus, as currently written, CAFTA can only lead 
to further degeneration of the labor rights situation in Central America, with no effective 
mechanism available to counteract downward pressures. 
 
Analysis of the CAFTA Labor Chapter Enforcement Mechanisms 
 
Although the CAFTA labor chapter refers to the ILO Declaration on Fundamental 
Principles and Rights at Work, the agreement does not bind any of its Parties to ensuring 
that internationally recognized worker rights are incorporated into national laws, or that 
they are properly enforced.  The language of the agreement is merely aspirational, 
directing parties to strive to improve their laws, but providing no effective reward or 
sanction for countries in this regard.  Indeed there is no language in the agreement that 
would prevent or sanction countries from reforming their laws in such a manner as to 
abrogate the internationally recognized worker rights.   
 
The agreement is thus a step backward from the earlier trade arrangements with 
each country under the Generalized System of Preferences (GSP) program.  While 
imperfect, at least the GSP program does require beneficiaries to be able to demonstrate 
that they are taking steps to ensure that workers enjoy the internationally recognized 
rights to associate and bargain collectively, to abolish child labor, to abolish forced labor 
and to provide the right to decent wages and working conditions.  In contrast, CAFTA 
merely requires countries to be enforcing their existing laws, however inadequate those 
laws may be. 
 
Given the history of the Central America region, we find it disingenous to suggest 
that these countries can be entrusted with enforcement of their own labor laws.  ILRF and 
its partners throughout the region have conducted extensive research on labor law 
implementation in Central America, dating back to the late 1980s.  During the past two 
decades ILRF has used this research to support GSP petitions related to Honduras, El 
ILRF CAFTA Testimony April 2005 2
Salvador, Costa Rica and Guatemala.  ILRF and its partners conducted new research on 
labor law enforcement in the region in 2003 and 2004, and found evidence of systematic 
failures to enforce labor laws in all Central American countries.  The systematic problems 
identified included a lack of political will at the highest levels, corrupt and inefficient 
labor ministries and courts, and intimidation and harassment of workers who attempted to 
utilize legal channels to protect their rights.  The language of the CAFTA labor chapter, 
which, as we have mentioned, is largely aspirational, ignores the realities of legal 
enforcement in these countries. 
 
 The single enforceable provision of the chapter, on labor law enforcement, does 
not give us reason to believe that governments will improve in this regard.  The process 
for invoking a review of a country’s compliance is too weak, opaque and limited to create 
real change in labor law enforcement.  The CAFTA labor chapter effectively sets the fox 
to guard the henhouse, by creating a review process that can only be invoked by another 
government that is party to the agreement.  Specifically, a review of one country’s labor 
law enforcement can only be triggered if another CAFTA country files a request for such 
a review.  Given that there is an extremely poor pattern of law enforcement throughout 
the region, it is extremely unlikely that any one country would file a complaint against 
another, for fear of retaliation.  In short the very mechanism of the CAFTA labor chapter 
creates the preconditions for a conspiracy of silence among all parties to the agreement 
on the issue of labor law enforcement.   
 
Civil society actors, in particular workers and their representative organizations 
have no means by which to affect this process.  The process can only be triggered by a 
national government, and there is no mechanism created by which a civil society 
organization can petition its government to initiate such a review.  Moreover, the 
agreement does not even provide the general public with information about the outcome 
of a review, should one ever take place.  Thus there is no way that the general public in 
any of the CAFTA countries can ever know whether or not the review process, if ever 
invoked, actually resulted in any meaningful dialogue on the issues identified. 
 
 In contrast, the existing GSP provides for a public review process.  Any 
individual or organization can utilize this process, which is comparatively transparent and 
accessible, by filing a submission to the Office of the US Trade Representative.  
Throughout the past two decades a handful of organizations, including ILRF, the AFL-
CIO, and Human Rights Watch have researched and filed lengthy petitions documenting 
labor rights abuses in GSP recipient countries.  Although not all of these cases were 
successful, nevertheless, the cases obliged both the US administration and regimes in the 
targeted countries to respond, point by point, to allegations of abuse.  In Malaysia in 
1991, an ILRF petition succeeded in convincing the Malaysian government to recognize 
union rights in the electronics sector.  A 1996 AFL-CIO petition on Thailand succeeded 
in pushing the Thai government to recognize the right of state enterprise workers to form 
trade unions.  A 1997 petition against Cambodia, filed separately by both the AFL-CIO 
and ILRF, persuaded the Cambodian government to ratify a new Labor Code.  This 
process, while admittedly limited in effectiveness, is at least superior to the CAFTA 
process in its relative public accessibility and transparency.  The fact that the existing 
ILRF CAFTA Testimony April 2005 3
GSP process will be replaced by the weaker CAFTA review mechanism will create 
further disincentives for the CAFTA governments regarding improvement of their labor 
laws and labor law implementation. 
 
Failure to Guarantee Non-Discrimination 
 
While the CAFTA labor chapter references the ILO Declaration on Fundamental 
Principles and Rights at Work, it fails to include any obligation of governments, even 
aspirational, with regard to the right to a workplace free from discrimination.  This right 
is universally recognized as a core labor right and defined in ILO Conventions No. 100 
and 111.  We note that a large percentage of the workers expected to find employment in 
export-oriented sectors, such as the maquila industry, are women.  Our research and that 
of our allies has found that these women workers are subject to discrimination through, 
among other problems, pregnancy testing as a precondition for employment, sexual 
harassment on the job, and non-provision of maternity leave benefits.  In most instances 
they have limited legal recourse, and often are subject to social and economic pressures 
that make it in reality impossible to claim what legal protections they may have on paper. 
 
We urge Congress to insist that CAFTA and any future trade agreements 
reference the essential right to a workplace free from discrimination.  Such a clause 
would help bring the attention of developing countries throughout the world to the plight 
and problems of vulnerable women workers. 
 
Downward Pressure on Labor Laws and Legal Enforcement in Central America 
 
 In December 2004, ILRF and ASEPROLA, a Costa Rican labor rights NGO, co-
filed GSP petitions against five Central American countries.  We found that, despite the 
US Trade Representative’s public claims to the contrary, even during the period of 
CAFTA negotiations, Central American countries, preparing for competition with one 
another for limited US investment, were taking steps to downgrade their labor laws.  
USTR has not yet responded to the request for review of these countries’ GSP privileges, 
and if CAFTA is ratified, then no such review will ever take place.  We note below some 
instances, documented in these petitions, of legal reforms that would weaken worker 
protections in the region. 
 
 Costa Rica:  During the CAFTA negotiations, the Costa Rican government has 
taken steps to weaken existing national labor protections.  In early 2004 the government 
introduced a project to reform the country's labor code.  In particular, proposed 
legislation would modify working hours through a year-long calendar of work shifts and 
the weekly accumulation of working hours, eliminating the standard eight-hour workday. 
The proposed legislation would also eliminate the rights to mixed and absolute overtime 
hours, as it would allow employers to increase work hours at times of high demand, and 
lessen work hours in times of low demand.  When introducing this legislation to the 
Costa Rican parliament, the government argued that such flexibilization of working hours 
and overtime rules was necessary in order to allow Costa Rica to remain competitive with 
the other Central American countries once the CAFTA was ratified.  Public pressure on 
ILRF CAFTA Testimony April 2005 4
the Costa Rican government resulted in some modifications to the proposed legislation, 
which has not yet been introduced to the legislature.   
 
 El Salvador:  The emergency law for economic reactivation (LERE), which 
was introduced to the Assembly in 1999, has continued during the period of CAFTA  
negotiations to work its way through the legislative process in El Salvador. If approved, 
LERE would modify salaries and working shifts, and increase the allowed length of a 
trial period for new workers and the use of fixed-term contracts. These changes affect 
benefits currently guaranteed by labor law, including vacations and social security.  The 
current Labor Code includes indefinite contracts and a 30-day test period (during which 
time the contract can be terminated). LERE would make fixed-term contracts and 180-
day test periods the norm, which means that the social security payments for these  
workers are not made for almost 6 months. This drastically increases job instability, 
making it easier for employers to make workers work overtime without extra pay, and to 
dismiss workers without paying penalties or benefits.  El Salvador is also considering 
new legislative measures that would weaken existing health and safety regulations. 
 
 Panama:  There is some evidence that Panama has continued to weaken its 
labor law regime during the past two years when it has been involved with trade 
negotiations with the US.  (While not a CAFTA country, Panama has been negotiating a 
separate bilateral agreement with the US, with discussions regarding the possibility that 
Panama would ‘dock on’ to CAFTA).  In February 2002, a new regulation was passed 
that provides incentives to companies to hire "young workers" between the ages of 18 
and 25.  The incentives include temporary exoneration from certain legal protections for 
these workers.  In particular, the regulations suspend the protections of certain articles of 
the Labor Code for such workers, in particular the protections for maternity benefits.  
Other reforms are in progress, although they have not yet been presented to the 
Panamanian parliament.  These include an initiative to modify the Labor Code to 
eliminate minimum wages altogether, and a proposal to reform the country's social 
security benefits to increase the retirement age, quotas, and years of contribution to the 
system.  The proposed social security reforms are expected to be presented to the 
Panamanian parliament in early 2005. 
 
 Honduras:  In its petition, ILRF and ASEPROLA noted that the USTR has 
failed to implement the terms of a Memorandum of Understanding negotiated with the 
Honduran government as a result of a 1995 GSP complaint.  The MOU, if implemented 
would have resulted in important changes to Honduran labor law and its labor inspections 
system.  Rather, the CAFTA negotiations have tacitly discouraged the Honduran 
government from implementing those commitments and created perverse incentives for 
labor law reform.  Currently, the Honduran Ministry of Labor, working with employers' 
groups, is promoting a project to modify the labor law with reforms that would generalize 
fixed-term contracts. It would also make the payment for severance payable only on an 
annual basis so that it would not be possible to create special funds with these monies. A 
policy of freezing salaries continues, and Honduran employers are increasingly delaying 
negotiations with workers.   
 
ILRF CAFTA Testimony April 2005 5
 Guatemala:  In 2003, USTR accepted for review GSP petitions filed by ILRF 
and by the AFL-CIO to review Guatemala's country eligibility based on its failure  
to uphold internationally recognized worker rights.  These petitions cited the judicial 
impunity with regard to threats and violence against trade unionists in Guatemala, the 
systematic failure of the government to enforce existing labor laws, and the need for 
further reforms to the country's labor laws in order to bring it into full compliance with 
international standards.  The new ILRF/ASEPROLA petition states that the review has 
failed to bring about meaningful progress in these three areas.  The labor code reforms 
passed in 2001 did not bring Guatemala's labor practices up to acceptable standards, and 
some of these reforms have been reversed by Guatemala's Constitutional Courts.  A 
number of promised legislative reforms have never materialized.   
 
A Better Alternative 
 
ILRF strongly urges that any new trade agreement with Central America contain a 
strong, transparent and enforceable labor rights mechanism.  Sustained economic 
development will elude a vast majority of the populations of the Central American 
countries without such a mechanism. 
 
 The key elements of a workable enforcement mechanism to apply upon the failure 
of a national enforcement system can be easily stated.  First and foremost, any 
enforcement process must be democratic and transparent. A major criticism of the WTO 
enforcement panels is that they are closed to the public and operate in secrecy.  CAFTA 
replicates this secretive model.  All processes involving enforcement must be fully 
transparent, including a written public record of all proceedings and open hearings.  
There also needs to be a clear appeals process.  
 
  Second, access to the enforcement process must be available to all interested 
parties, not just the government signatories to the trade agreement. The key constituency 
here is the workers themselves, most of whom are not currently represented by a trade 
union. They must have direct access to an enforcement process. Also, other stakeholders, 
such as NGOs and labor organisations, must have access to the process.   
 
 Third, the enforcement process must make a distinction between violations that 
are attributable to private actors, including multinationals, and therefore require remedies 
more in the line of penalties, and those that are attributable to governments, and might be 
better addressed by trade sanctions.  Penalties directed at companies, with the cooperation 
of the host government, will resolve most problems. This also leaves problem solving 
within the firm control of the individual governments and allows them to act to prevent 
any protectionist use of the enforcement process.  If a country ultimately refuses to 
enforce its own laws, as per the commitment made in its own laws and the international 
standards, there must be a system of penalties to encourage compliance, with the ultimate 
sanction being exclusion from the benefits of the trade agreement. 
 
 Finally, in keeping with the ILO standards, a model labor clause in CAFTA or 
any other trade agreement must include language recognizing the right of workers to a 
workplace free from discrimination, as defined by ILO Conventions No. 100 and 111. 


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Testimony Regarding the Central America Free trade Agreement (CAFTA) Prepared by Bama Athreya, Deputy Director

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