Economic Integration, Labor Law and Social Security in the Americas

Viña del Mar, Chile, April 14 and 15, 1998





Terry Collingsworth, General Counsel
International Labor Rights Fund
733 15th Street N.W. #920
Washington, D.C. 20005
(202) 347-4100
Note: The complete version of this text is available from the author. To obtain a copy, please e-mail at:

I. The Substance of a Social Clause.

The primary issue to be addressed in this paper is an enforcement mechanism for a social clause in the context of a trade agreement. For this discussion, the precise substantive content of the social clause need not be resolved definitively. However, to assist in visualizing the mechanics of the enforcement process, it is helpful to have a context. There is an emerging consistency on the substance of the social clause, at least insofar as it addresses labor issues. Probably the most widely-accepted version of the social clause is proposed by the International Confederation of Free Trade Unions (ICFTU), the international body of national trade union federations. The ICFTU's proposal is to define the social clause based on key Conventions of the ILO, which have been ratified by most countries of the world:

- the right to associate (ILO Convention No. 87);

- the right to organize and bargain collectively (ILO Convention No. 98);

- equal employment opportunity and non-discrimination (ILO Convention Nos. 100 and 111);

- Prohibition of Forced Labor (ILO Convention Nos. 29 and 105); and

- Prohibition of Child Labor (ILO Convention No.138).1

This version of the social clause is endorsed by most of the International Trade Secretariats. Also, the Organization for Economic Cooperation and Development (OECD) has specifically endorsed a virtually identical version of the social clause.2

Other versions of a social clause relating to worker rights include minimum standards for health and safety and an acceptable minimum wage, based on the level of economic development of a particular country.3 At a people's forum parallel to a governmental gathering in Brazil in May, 1997 to discuss the creation of a Free Trade Area of the Americas (FTAA), there was an extraordinary showing of unity between unions and NGOs resulting in a broad declaration that supported a social clause going well beyond core labor rights.4 Whether to have a broad or narrow clause remains a strategic choice. It must be noted, however, that the chances of achieving the reality of an enforceable social clause decline as the list of issues covered increase. Governments and companies will unite to resist any comprehensive regulation. At the same time, the coalition for supporting the clause grows as new issues are introduced.


II. A Proposal to Enforce the Terms of a Social Clause.

A social clause, whatever the specific terms ultimately are, will make a concrete improvement in the lives of working people in the global economy only if there is an effective enforcement mechanism. It is essential to note, however, that an enforceable social clause is not a panacea; trade agreements themselves should reflect a primary concern with improving the lives of people and protecting the environment.5 If, instead, a trade agreement permits widespread exploitation of workers and the environment, but there is a mechanism for seeking redress, this will not lead to sustainable development.

The most fundamental concept that must always be at the forefront of efforts to gain acceptance of an enforceable social clause is that virtually every country in the world has domestic labor laws and has ratified international instruments, including ILO Conventions, that already require compliance with all of the terms of the social clause. What's lacking is enforcement, and the goal is to provide for labor laws what already exists for property rights in the global economy: a mechanism to ensure adequate enforcement. The major barrier to enforcement of labor laws in the global economy is that individual countries fear that if they require multinational companies (MNCs) to comply with the law, the companies will flee to another country that will offer greater freedom from regulation. A major objective of the social clause is ultimately to provide a global floor for labor standards so that there can be no place that a company could flee to in order to avoid compliance. The powerful dynamic for enforcement will be to provide incentives for each country to cooperate in obtaining compliance by MNCs with the social clause and corresponding domestic laws.

The elements discussed below are essential, but there are in many cases options for achieving the objective of a given element. Those choices must be resolved as part of a political strategy, and are highlighted here to facilitate debate among advocates for a social clause.

A. Compliance with the social clause as a condition to participation in the trade agreement. Regardless of whether we are talking about admission to the WTO or to a new regional agreement, such as the FTAA, a firm principle must be that all countries seeking to participate in the trade agreement must be in compliance with the social clause as a condition to membership. Each country would participate in an extensive review of its law and practice to determine compliance with the standard. If a country is found not to be in complete compliance, it could have probation membership provided it agrees to implement specific reforms within two years, subject to ongoing monitoring. If at the end of the two-year period it fails to be in complete compliance, then its membership in the trading group would be terminated with the right to reapply only when there is complete compliance with the social clause.


Issues to Be Resolved:

i. Who determines compliance with the social clause? Ideally, this would be something the ILO could do. Certainly, in the context of an agreed format by the participating nations, the ILO is well-suited to assessing whether any given country is in compliance with core ILO Conventions. Indeed, the ILO already performs this function to a certain degree through its annual review of members' compliance with ratified conventions.6 Further, when there are persistent problems with a particular country's compliance with one or more conventions, there is a procedure to create a Commission of Inquiry to investigate fully.7 The ILO thus has the experience and mandate to perform this function. If, however, the ILO declines to participate, or the process for getting its cooperation is too cumbersome, or, as some assert, the ILO is too lethargic to play a constructive role in international worker rights enforcement, then the subject trade agreement could assemble its own panel of experts to make these determinations. The committee could be drawn from a balance of labor ministry staff from the participating countries and outside experts, or, as was agreed to in the NAALC, could be made up entirely of credible, outside experts.8 Likewise, trade unions participating in Mercosur have proposed using a Committee of Specialists to evaluate compliance with social standards. Whatever its composition, for the remainder of this discussion, the body will be referred to as the Panel of Experts.

ii. Can a country not in compliance participate in the trade agreement on a probationary basis while implementing a plan to get into compliance? The reality is that most countries will not be in complete compliance, and allowing a two-year probationary period will provide some incentive to participate in making progress. This also reflects the view that trade agreements represent an opportunity to make progress on worker rights. If the standard for participation is too high, then the result will be that there will not be any trade agreements and no opportunities to make progress. Assuming this approach is accepted, the idea then is to have the Panel of Experts draft a very specific work plan to bring the country into compliance with the social clause, including specific recommendations for reform of labor laws and improving enforcement mechanisms. It should be very clear that the failure of a country to comply with implementation of the plan within the two year probation period will result in automatic expulsion with the option of reapplying only when there is complete compliance. No country will take its obligation seriously if there is a regular pattern of extending time.


B. Participation in a process to harmonize laws upwardly to be consistent with the social clause . The premise of the social clause is that one or more of the countries participating in the trade agreement either does not have adequate laws or is not enforcing its laws. Otherwise, a social clause would not be necessary. In order to emphasize that the individual countries maintain primary responsibility for ensuring the conditions of the social clause, to allow for unique national solutions, and to avoid creating new multilateral institutions that exist in perpetuity, a process of upward harmonization is recommended. More fundamentally, this will reduce concerns of loss of national sovereignty by emphasizing that the primary intent is to encourage countries to rapidly improve their own enforcement processes to assume responsibility for upholding the law. This will, if taken seriously, require each country to adjust its laws and enforcement upward and to assume direct responsibility for enforcement of the provisions of the social clause. This is one of the major strategies for achieving implementation of the European Economic Community Treaty9 and was also advanced as a key aspect for the social charter proposed for Mercosur. This is in sharp contrast with NAFTA, which, in the NAALC, precluded review of or changes to the domestic labor law of the signatories.10

Achieving harmony among the relatively similar economies of the European Community is significantly different from attempting to unite the Americas with the extremely diverse levels of economic development, but harmonization should be accepted initially as the ultimate goal. It is important to add, however, that with respect to the issue of minimum wages, or other issues that are based on relative economic condition, the suggestion is not that standards be harmonized to be identical. The issue would be whether there is a minimum wage, for example, that meets the standard in the given country. An issue that must be addressed is whether the laws of a given country provide for sufficient remedies and penalties to encourage compliance by employers.

Issue to Be Resolved:

i. Who participates in the harmonization planning process? Certainly, representatives of the member countries should be participants, but there should also be direct participation from concerned organizations, as well as from acknowledged experts. Perhaps the Panel of Experts could serve as the expert resource for the harmonization process, since the inspections will reveal the precise issues to be addressed with harmonization. There should also be participation from labor unions, NGOs, and the business community.


C. Participation in an information audit by companies operating in more than one country of the trade area. There must be a firm recognition that employers, not governments,11 initially deny workers their rights, and then the role of government is to enforce the law. A major goal for effective enforcement of a social clause is to develop a way to regulate the employment practices of companies operating in the countries bound by the social clause. Most of the problems relating to a denial of the rights created in the social clause would be solved if companies respected the law.


In order to have a basis for monitoring the activities of companies, more information is needed. This process can be initiated by a requirement as part of the enforcement mechanism for a social clause that all participating countries must cooperate in developing an annual Labor Information Audit of businesses operating in two or more of the trade agreement countries. The audit would be conducted by independent monitors, and conditioned on the right to allow any given company the right to export or import within the area covered by the trade agreement. The companies would be required to report information pertaining to all of their operations, whether under their own corporate form or through subsidiaries, joint ventures or other business forms. The information would include: a) location, b) total number of employees, categorized by job classification and pay grade, c) wages paid for each job classification and/or pay grade specified by form of payment (i.e., hourly, daily, weekly, monthly etc. or average wages for piecework), d) total benefits provided to all individual or group of employees, present unionization status of any employees specifying the name of the union, number of represented employees, status of, and a copy of the most recent, collective bargaining agreement, affiliation of union with any central labor body or confederation, and e) some record of employment practices that might violate the law in one or more trade area countries.

Issues to Be Resolved:

i. Who would conduct the audits? To ensure credibility, the audits must be done by independent auditors. Whether this includes representatives from the respective governments is optional, but it would be desirable to improve the enforcement capacity of government inspectors. The Panel of Experts could certainly be recruited to survey the companies as well, but if the ILO is ultimately selected to serve as the Panel of Experts, it would not necessarily be the ideal group to survey employers. Perhaps a body of independent experts within each country could be appointed to focus exclusively on performing the annual labor audit.

ii. How to require company compliance. There will have to be some commitment by the governments to mandate company compliance as part of the trade agreement.

iii. What is the result if a company is found in the audit to be violating either the labor laws or the social clause? Any violation of the labor laws discovered in the audit should be reported to the country where the violation occurred. There should be a process for monitoring to ensure that the country took action to enforce the law. Violations of the social clause by companies are dealt with in the next two provisions.


D. Requirement that companies operating in more than one country of the trade area must comply fully with the terms of the social clause. The audit described in part D above is designed to develop information to promote better compliance with labor standards. However, in order to ensure that companies comply with the law, they should be required to abide by the terms of the social clause, in addition to the labor laws in the countries where they operate. This is not a radical proposition. The OECD12 and the ILO13 have both called for developing binding codes of conduct for MNCs. Binding the companies to the social clause would simply provide an alternative mechanism for ensuring company compliance. This provision is essential to clarify the responsibility of MNCs in participating in efforts to improve respect for labor laws. Once harmonization occurs, compliance with the provisions of the social clause would be redundant with compliance with the labor laws.

Issue to Be Resolved:

i. What happens if a company refuses to agree to be bound by the social clause? There could be a discussion about a grace period for companies that cannot comply immediately due to the need to make comprehensive changes in the way they operate. That could be a legitimate issue. However, for companies that simply refuse to cooperate, the penalty should be the same as for companies that are found to have violated the social clause, discussed in part e below.

E. Remedies following a violation of the social clause by a member country and/or a company operating within a member country. This, of course, is ultimately the issue that will cause resistence to participation by governments. Whether it is the U.S. or Haiti, no government wants another authority to have enforcement power over it. This provision will necessarily be more complex. To facilitate discussion, language will be offered to accomplish the key points.

Notice of Violation. To leaven the perception that the social clause will override national authority we must constantly emphasize that any penalty imposed against a participating government would flow from a trade agreement that all member states have agreed to abide by that imposes substantive standards in the social clause that each country is already bound to through domestic labor law or international instruments, including ILO Conventions. The power to avoid penalties rests with the member states' ability to avoid violations. To emphasize this point, the first clause of the remedy provision should require notice and opportunity to correct:

Prior to any imposition of a penalty of any sort under this or any other provision, any allegation that a party has violated any provision of the social clause must be provided to the appropriate authority of that party in writing with any documentation. No penalty may be imposed, nor will the allegation be considered a violation, if the party that is the subject of the allegation addresses the allegations to the satisfaction of the complaining party within 10 days of the provision of notice.


Penalties for Failure to Correct Violations of the Social Clause. If a country fails to remedy a violation of the social clause, which would normally mean it refuses to enforce its laws, there must be a system of penalties to encourage compliance. There should be a clear recognition that normally the government doesn't violate the rights protected directly, but is charged with enforcing the law with respect to companies operating within its territory. Given that each country will have, by necessity, passed an assessment of compliance with the social clause as per part a above to qualify for participation in the trade agreement, there should not be too many issues of inadequate law. Penalties directed at companies, with the cooperation of the host government, will resolve most problems. The penalties therefore should be directed to encouraging enforcement. Again, this leaves solving the problem within the firm control of the individual governments and allows them to act to prevent any protectionist use of the social clause. If ultimately a country refuses to enforce its own laws as per the commitment made in accepting the social clause, then the remedy must be exclusion from the trade agreement and the corresponding benefits. The following provision is an effort to accomplish these objectives:

Any products found by the Panel of Experts to be made in violation of any of the provisions of the social clause shall be deemed to be tainted products that may not be shipped within the trade area. Following such a finding, all member countries have the right to ban immediately the importation of that product from the country that was the subject of the finding. If it is not practical to identify within a class of products which items were made in violation of the social clause, all products within the class are subject to the ban unless the producer can demonstrate with satisfactory evidence that his or her products were not made in violation of the social clause.

Any party to the trade agreement, or any person or organization adversely effected by a violation of the social clause, may bring a formal complaint to the Panel of Experts within 90 days of the occurrence of the last act constituting a violation. The Panel of Experts, which shall develop its own rules of procedure to be submitted for approval to the parties to the trade agreement, must hold a public hearing on all complaints and must resolve all complaints with a written opinion within 180 days of the filing date.

Following a finding by the Panel of Experts that there was a violation of the social clause, the country where the violation occurred shall immediately institute proceedings to enforce the law with respect to the company or entity identified as denying the rights of the social clause. The country shall file with the Panel of Experts monthly reports, available for public inspection, indicating steps being taken to enforce the law. In no case shall the enforcement process at the first level of adjudication available in the country take more than six months to complete.


In any case in which a single company, and for purposes of the social clause a single company includes all subsidiaries or other entities under its direction or control, is the subject of more than two findings by the Panel of Experts of a violation of the same provision of the social clause within a one year period, whether or not the violation occurred in the same country of the trade area, the third violation will deemed a systematic failure to comply with the law. The company will be suspended from the benefits of the trade agreement for a period of one year, and all products produced by the company within the trade area must be subject to tariff treatment by all member countries as if they were produced outside the trade area and may be subject to any other trade sanctions any country within the trade area wishes to impose. After a one year period, the company may apply to have the suspension lifted and must then participate in a new audit as per part (C) above to determine whether the company is in complete compliance with the social clause.

In any case in which a member country is the subject of more than two findings by the Panel of Experts of a violation of the same provision of the social clause within a one year period, whether or not the violation concerns the same company or entity, the third violation will deemed a systematic failure to enforce the law and the country will be suspended from the benefits of the trade agreement, allowing all other countries to adjust tariffs or otherwise impose sanctions as if the subject country was not a party to the trade agreement. This penalty will also apply in any case in which a country fails to comply with any of the affirmative requirements of this enforcement provision to provide information to the Panel of Experts or otherwise cooperate in obtaining enforcement of the social clause. After a one year period, the country may reapply for membership through the provisions of part (A) above.

Issues to Be Resolved:

All of the issues addressed in the recommended language should be thoroughly debated to identify the best options. Some general explanation may be helpful in focusing the discussion. The emphasis is on respecting national sovereignty by acknowledging that countries must have the primary responsibility for enforcing laws within their territory, and the social clause serves as a backup device, as well as a monitoring instrument. There are significant opportunities for countries to avoid penalties, first by requiring notice and an opportunity to correct, then by permitting up to two violations before permitting penalties for systematic violations, assuming the country otherwise cooperates in resolving the first two violations. Whether this standards should be higher or lower is certainly something that should be thoroughly debated. Further, we recommend that the penalties be limited to forfeiture of any special treatment afforded by participation in the trade agreement. This also should be the focus of special attention in discussions. There certainly are other options, including monetary fines. We tried to create a reasonable mechanism that would not be viewed as too onerous by countries. It seems fair that the trade agreement provides specific benefits if you comply with the provisions, including the social clause, and you lose these benefits if you violate the provisions. Likewise, with respect to companies, penalties are designed to achieve compliance and provide an incentive to cooperate to avoid suffering loss of market access.


1) See, e.g., Social Charter for Democratic Development, ICFTU-APRO (1994).

2) Trade, Employment and Labour Standards: A Study of Core Workers' Rights and International Trade, Published by the OECD in 1996. (Copy on file at the ILRF).

3) See, e.g., Brown, Goold, and Cavanagh, Making Trade Fair, World Policy Journal 325-26 (Spring, 1992).

4) Declaration: Building a Hemispheric Social Alliance to Confront Free Trade, 1 (May 15, 1997)(copy on file at the ILRF).

5) A Just and Sustainable Trade and Development Initiative for the Western Hemisphere, Alliance for Responsible Trade, Citizen Trade Campaign, and the Mexican Action Network on Free Trade (July, 19, 1994)(Copy on file at the ILRF).

6) Art. 22, Constitution of the ILO (May, 1989).

7) Id. at Art. 26.

8) NAALC Arts. 23-24. In limited cases, the NAALC allows for the formation of an Evaluation Committee of Experts.

9) See, e.g., Stone, Labor and the Global Economy: Four Approaches to Transnational Labor Regulation, 16 Michigan Journal of International Law 987, 997-1004 (1995).

10) See NAALC, Art. 3 (1) requiring that "[e]ach Party shall promote compliance with and enforce its own labor law . . ." The Labor Principles of Annex 1 specifically ?do not establish common minimum standards for [the parties'] domestic law.

11) Of course governments, when acting as employers, can and do violate their own labor laws.

12) OECD, Guidelines for Multinational Enterprises (1996)(Copy on file at ILRF).

13) ILO, Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1996)(Copy on file at ILRF).