Friday, September 23, 2011

Guatemala: USTR Issues First Letter of Arbitration in Labor-Related Case Under US Free Trade Agreement

By Tequila J. Brooks, Washington DC

On August 9, 2011, the United States Trade Representative Ron Kirk issued a Letter of Arbitration against the Government of Guatemala in the first ever government-to-government arbitration request to arise from the violation of the labor chapter of a U.S. free trade agreement (FTA). Should the arbitral panel find against the Government of Guatemala, up to $15 million in fines may be assessed.

The claim had its genesis on April 12, 2008 when the AFL-CIO and five Guatemalan unions filed a public communication with the Office of Trade and Labor Assistance (OTLA) in the U.S. Department of Labor alleging that the Government of Guatemala had failed to comply with its obligation under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) to effectively enforce national labor laws.

The CAFTA-DR went into effect in Guatemala on July 1, 2006. Like the labor side agreement to the NAFTA (the North American Agreement on Labor Cooperation - NAALC), Chapter 16 of the CAFTA-DR obligates signatories to effectively enforce their own national labor laws. Unlike those of the NAFTA, the labor provisions of the CAFTA-DR are an integral part of the FTA and the seven signatories to the CAFTA-DR - including the United States - obligated themselves in Article 16.1 to strive to ensure that the workplace protections set forth in the 1998 ILO Declaration on Fundamental Principles and Rights at Work are recognized and protected by law. The workplace protections covered by the 1998 ILO Declaration include freedom of association and the effective recognition of the right to collective bargaining, elimination of all forms of forced or compulsory labor, effective abolition of child labor and elimination of discrimination in respect of employment and occupation. Failing to comply with the labor provisions in Chapter 16 of the CAFTA-DR - as well as Chapter 17 environmental provisions and Chapter 7 technical barriers to trade - is subject to the government-to-government arbitration process set forth in Chapter 20 of the CAFTA-DR. It should be noted that under CAFTA-DR Article 16.6.7, only the Article 16.2.1(a) obligation to effectively enforce labor laws - and not the Article 16.1.1 obligation to strive to recognize and protect fundamental workplace protections - is subject to the Chapter 20 government-to-government arbitration provisions.

The petition submitted to the OTLA outlines Guatemala’s failure to effectively enforce labor laws in the process of privatization of Guatemala’s ports as well as in the banana production, fruit and vegetable processing and garment manufacturing sectors. Each of the five cases discussed in the public communication implicates either the transportation or production of goods for export to the United States by five companies including Bandegua (the Guatemala subsidiary of Del Monte Fresh Produce, the world’s third largest banana producer in the world), INPROCSA (a fruit and vegetable processor that exports to SYSCO, Heinz, Superior Foods International and Safeway Select), Avandia S.A. (a manufacturer that produced garments for Jones Apparel Group and participated briefly in a pilot project to improve compliance with JAG’s corporate code of conduct), Fribo S.A. (a Korean-based manufacturer that produced garments for Kohl's and Dress Barn) and Empresa Portuaria Quetzal (a parastatal company that manages Guatemala’s primary port on the Pacific coast).

The AFL-CIO, four unions and one organizing committee representing workers at these five companies in Guatemala alleged that some or all of the companies engaged in the following activities: failure to bargain in good faith with the unions, unlawful dismissal of union leaders and members, failure to comply with court decisions ordering the reinstatement of unlawfully terminated workers, blacklisting worker representatives for participating in a factory compliance program and failing to make payments to the Guatemalan Social Security Institute after deducting social security contributions from workers’ pay. In two of the cases, union leaders received death threats, were subject to violent threats and attacks and were interrogated by the military about their union activity. On January 15, 2007, Pedro Zamora, the President of STEPQ, the union representing port workers at EPQ, was shot and killed in front of his children. On September 23, 2007, Marco Tulio Ramirez, a union leader and younger brother of the President of SITRABI, the union representing workers on Bandegua’s banana plantations, was killed by masked assailants while walking to work on the Yuma banana plantation. In the CAFTA-DR public communication, these murders were framed as violations of Guatemalans’ freedom to associate and collectively bargain under the 1998 ILO Declaration because of the chilling effect such violence can have on workers’ participation in worker organizations, protesting poor working conditions and negotiating with employers for better wages and improved workplace standards.

To demonstrate a violation of Chapter 16 of the CAFTA-DR or the labor provisions of any of the other nine FTAs the U.S. has with 17 countries, it is necessary to show not that an employer may have violated a nation’s labor and employment laws but that the nation itself failed to effectively enforce those laws. The petition submitted by the AFL-CIO and five Guatemalan worker organizations addresses both systemic failures to enforce labor laws as well as those specific to the five cases raised in the petition. The petitioners argued that the cases demonstrated that the Government of Guatemala failed to protect trade unionists from threats and violence and did not adequately investigate death threats against trade unionists or the assassinations of Pedro Zamora of STEPQ and Marco Tulio Ramirez of SITRABI. Other examples include failing to order the reinstatement of unlawfully terminated workers and union members; not compelling garment manufacturer Fribo S.A. to pay over $1 million in unpaid social security contributions deducted in part from workers’ pay to the Guatemalan Social Security Institute; not enforcing court decisions ordering EPQ to reinstate unlawfully terminated workers and union members; failing to compel fruit and vegetable processor INPROCSA to bargain in good faith with the workers’ union SITRAINPROCSA upon learning of INPROCSA’s non-compliance with labor laws; allowing companies to reincorporate under new names in order to evade legal obligations without consequences; not dispatching labor inspectors to factories to verify whether workers were indeed laid off due to lack of work or as a result of their union activities; allowing companies to refuse entry to labor inspectors; and failing to order the reinstatement of workers terminated for participating in a pilot project to comply with a corporate code of conduct.

The OTLA accepted the petition for review on June 12, 2008, completed its investigation six months later on December 12, 2008 and issued its report on January 16, 2009, four days before the inauguration of President Barack Obama. Based on reviews of documentary evidence and in-person interviews with workers, unions, employers, government officials in Guatemala in July and October, 2008, the OTLA confirmed most of the allegations made in the petition both as to the violations of Guatemalan labor law and the weaknesses of Guatemala’s labor rights enforcement regime. Regarding allegations that the Government of Guatemala failed to provide adequate protection to trade unionists from threats, violence and murder, the OTLA noted that the government offered protection to the entire STEPQ Executive Board, but only provided a single bullet proof vest and required STEPQ to pay for the lodging and expenses for guards although the Ministry of Public Security is legally obligated to pay these expenses. Although it afforded the Government of Guatemala wide latitude and benefit of the doubt regarding investigators’ conclusion that Pedro Zamora’s murder did not have a trade-union related motive, the OTLA did pointedly find, “[W]hen a union leader is violently attacked with total impunity, the crime’s impact can reach beyond the individual and cast a shadow of fear upon others, weakening the right of association and collective bargaining” (OTLA Guatemala Report, p. 8).

The OTLA report draws attention to a number of systemic flaws in Guatemala’s labor rights enforcement regime. One key flaw related to the implementation by Guatemala’s labor ministry of Supreme Court orders and other judicial decisions. The OTLA found, “It does not appear that there is a system that would allow for the court decisions to be shared with the initiating executive agency, so that the agency can see how the [labor] inspection was dealt with, and to incorporate any relevant information into its case management systems” (OTLA Guatemala Report, p. 27). Thus, the labor inspector’s report would be overturned by the judiciary, but the labor inspectorate would never be informed so it would continue to operate on the faulty legal reasoning utilized in the overturned initial report. Another systemic flaw noted by the OTLA was the fact that the Guatemalan Institute of Social Security appears to have no effective mechanism for sanctioning employers that do not make legally-mandated contributions to the social security system or transfer contributions deducted from workers’ pay.

Chapter 16 of the CAFTA-DR is similar to the NAFTA labor side agreement in that it requires that member states engage in a period of ministerial consultations to discuss and address in a non-confrontational manner any issues uncovered in the report written as the result of a public communication. Generally, ministerial consultations are the first stage in a process that may lead to further inter-governmental action. In the case of the NAFTA labor side agreement, no public communication has ever gone beyond the stage of ministerial consultations. In its report in response to the Guatemala petition, the OTLA recommended against ministerial consultations. While this recommendation may seem counter-intuitive given the violence perpetrated against trade union leaders in two of the cases raised in the petition and the observations made by the OTLA about systemic flaws in Guatemalan labor enforcement mechanisms and failures to effectively and enforce labor laws in cases involving individual companies, the introduction of the OTLA’s report gives some indication as to why this recommendation was made that goes beyond a simply political interpretation and analysis. Given a recent change in presidential administration in Guatemala and the extreme cooperation of the Government of Guatemala in facilitating the OTLA’s investigation of the petition, it appears that the OTLA decided to afford the Government of Guatemala the opportunity to address matters raised in the petition without calling for ministerial consultations - but not without limits. The OTLA left itself an opening to request ministerial consultations if the matters raised in the public communication and discussed in its report were not addressed within 6 months. This time limit included in the OTLA’s report laid the procedural groundwork for the USTR’s eventual request for arbitration in August 2011. After a year and a half of ongoing “informal” discussions between the U.S. and Guatemalan governments, on June 30, 2010, the USTR and OTLA called for ministerial consultations with Guatemala which were conducted in Guatemala in September and December 2010. When ministerial consultations did not have the desired effect, the USTR called for a meeting of the labor and economic ministers of all the CAFTA-DR member states on May 16, 2011. This meeting was held on June 7, 2011. When this meeting did not have the desired effect of improved application and enforcement of Guatemalan’s labor laws, the USTR called for an arbitral panel on August 9, 2011.

Despite the numerous differences between Guatemala and Mexico and the structural and legal differences between the NAFTA and the CAFTA-DR, the inter-agency approach taken by the U.S. and Guatemalan governments in addressing the claims made in the 2008 Guatemala CAFTA-DR petition demonstrates a number of potentially beneficial and positive practical effects of the inter-agency approach. One such example is engaging Guatemala’s Ministry of the Economy in de-certifying Guatemalan companies that do not comply with labor laws or pay their social security contributions from tax benefits and economic trade-related benefits afforded by the CAFTA-DR and even from conducting business altogether - and better tracking companies that change their business registration for the purpose of avoiding legal obligations under labor, social security and other laws.

USTR Letter of Arbitration:
USTR Web Page about the Guatemala petition:
OTLA Report on the Guatemala petition: and Guatemalan Unions petition on Guatemala’s failure to effective enforce labor laws: