By: Lisa W. Wang and Sophia J.C. Lin
Recent debate about labor standards in the domestic legal systems of our trading partners have focused on labor commitments in bilateral and multilateral treaties, such as the U.S.-Mexico-Canada Agreement (“USMCA”). Such commitments, although important mechanisms for change in a country’s labor laws, have proven difficult to enforce through international dispute settlement proceedings. For example, a 2017 opinion by an arbitral panel under the Dominican Republic-Central America-United States Free Trade Agreement (“CAFTA-DR”) found that the United States had failed to demonstrate that Guatemala’s failure to enforce its own labor laws was done “in a manner affecting trade.” Given this finding, the panel rejected the United States’ complaint that Guatemala had failed to abide by the labor commitments of the CAFTA-DR. This case, which was the first dispute settlement proceeding directly litigating the labor rights commitments of a free trade agreement (“FTAs”), may have had a chilling effect on the filing of complaints under the labor chapters of FTAs as there have no been additional proceedings since the United States’ initial complaint in 2010.
Given concerns about the enforceability of FTA commitments, the use of existing U.S. antidumping duty (“AD”) and countervailing duty (“CVD”) laws could also address the use of forced labor in imported goods. For example, the concept of “social dumping” has long been used to refer to a country’s use of unfair labor and other regulatory practices to artificially lower the cost of production for exported goods. In other words, because of the lax laws and enforcement in these exporting countries, producers are not required to account for these “social costs” in the cost of making their goods. Unless a country has been designated as a non-market economy for purposes of the U.S. AD laws, the U.S. Department of Commerce (“Commerce”) typically accepts the reported labor costs of a producer, and does not consider the “fairness” of these wages in the calculation of an AD margin. Thus, imported goods made using child or forced labor, for example, would accept this artificially low cost of production as the “normal value” of the product.
Congress attempted to address these types of distortions in a provision of the 2015 Trade Preferences Extension Act (“TPEA”) dealing with “particular market situations.” Specifically, section 504 of the TPEA provides Commerce the express authority to adjust the cost of producing an imported good where a “particular market situation” adversely impacts the reliability of using respondents’ cost data to determine whether sales have been made in the ordinary course of trade:
{I}f a particular market situation exists such that the cost of materials and fabrication or other processing of any kind does not accurately reflect the cost of production in the ordinary course of trade, the administering authority may use another calculation methodology under this subtitle or any other calculation methodology.
In other words, should Commerce, as the ”administering authority,” find that labor costs do not accurately reflect the cost of production in the ordinary course of business, it can use another methodology for valuing wages, including, for example, the wages of another country or an upward adjustment to the producer’s wages to reflect an accurate “living wage” for that country. Once a particular market situation for labor costs has been established, Commerce has significant discretion to find “another calculation methodology.”
Petitioning parties to Commerce’s AD proceedings have thus far used this provision mainly to address distortions caused by government intervention or subsidization of inputs to the product at issue, or “subject merchandise.” However, section 504 of the TPEA could also be used to address distortions in the cost of production caused by the use of forced labor. For example, if the subject merchandise was an electronic good (e.g., the keyboard you’re using now) from Malaysia, there could be a strong argument that a particular market situation exists with respect to the cost of labor used to produce that keyboard. That is, the pervasive use of forced labor in Malaysia’s electronics industry renders the cost of production as outside the ordinary course of trade such that Commerce should deem it a particular market situation.
Such a finding would be based on published reports and articles from the U.S. government, non-governmental organizations, and the media. For example, Verité, with financial support from the U.S. Department of Labor, published a report in September 2014 finding that “forced labor is present in Malaysian electronics industry in more than isolated incidents, and can indeed be characterized as widespread.” Of the 501 electronics workers interviewed by Verité, 28 percent of all workers and almost a third of foreign workers were found to be in situations of forced labor. In addition, 46 percent of the workers interviewed were “deemed to be on the threshold of forced labor, due to the presence of one or more forced labor indicators. A total of 73% of workers in the study exhibited forced labor characteristics of some kind, a finding which suggests that the risk of forced labor in the industry is extremely high.” The report also found that forced labor occurred in “significant numbers across all major producing regions, electronics products, foreign worker nationalities, and among both female and male workers.” Foreign workers are particularly vulnerable to such labor abuses: the report found that many migrant workers working in Malaysia’s electronics industry are subject to “high recruitment fees, personal debt, complicated recruitment process, lack of transparency about their eventual working conditions, and inadequate legal protections.”
An article published by The Atlantic in June 2018 echoed Verité’s findings. The article discussed how the backbone of Malaysia’s electronics sector is foreign migrant workers, who often become trapped in forced labor because of excessive recruitment fees, which, in turn, “kickoff to a cycle of debt and bondage that can trap people for years and decades.” In addition, “many employers also confiscate and hold workers’ passports in order to keep them from leaving an untenable situation.” Although most foreign migrant workers entered the country legally, “workers find themselves undocumented when they flee a job, or their employment contract is not renewed, since their visas are tied to their employers. And being undocumented means a worker is at risk of being deported during a raid, and that they have no protections against exorbitant fees when their recruiter gets them another job.”
In addition to the use of AD laws, the systemic disregard for labor, environmental, and other laws in the country of production could constitute an unfair, or countervailable, subsidy, which under U.S. laws must satisfy the following the criteria: (1) a government or public entity provides a “financial contribution”; (2) to a producer which confers a “benefit”; and (3) is “specific,” or limited, within the meaning of the trade laws. There is a wide range of unfair subsidies, from direct cash grants, to loans that do not reflect fair market conditions, and the public authority’s provision of goods for less than fair value, to name a few. Specific to the issue of labor rights violations is a provision of the statute that addresses unfair subsidization when the government forgoes “collecting revenue that is otherwise due.”
If a government turns a blind eye to labor rights violations, and fails to enforce the country’s labor laws, this failure to collect penalties and other fines associated with those laws could constitute the forgiveness of revenue that is otherwise due to the government. For example, in Thailand, the government imposes a fine of up to 800,000 Thai baht (“THB”) (~US$22,000) per worker for producers in the fishing industry employing workers without valid work permits. Factory owners found in violation of labor protection laws could be fined upwards of 500,000 THB (~US$14,000) for each day of entire duration of the violation. In the case of the United States’ claim against Guatemala under the CAFTA-DR, the United States provided evidence that the government of Guatemala failed to pursue enforcement of court orders on labor claims for eight individual employers, including the apparel manufacturers, Mackditex, Alianza, and Avandia. Using Mackditex as an example, the United States provided the CAFTA-DR panel with evidence that a Guatemalan labor court had ordered Mackditex to reinstate the employment of workers who had filed labor claims to the court, and had been wrongly terminated. Nearly three years after the court’s order, Mackditex had not reinstated these workers, and the court failed to increase the fines for noncompliance with its orders, as required under Guatemalan law, or to pay the withheld wages and benefits of these workers. If Mackditex was a respondent in a CVD case involving apparel products from Guatemala, the failure of the Guatemalan government to collect such penalties could be considered a countervailable subsidy as the government forgave revenue that it was owed to the benefit of Mackditex.
Although there are a wide variety of issues to consider before the filing an AD and/or CVD petition on imports made under unfair labor practices, the use of U.S. AD and CVD trade laws to address such practices could be another tool for effecting change in a country’s labor laws and practices.
