3. INTERNATIONAL TRADE AND INVESTMENT AGREEMENTS
VANN Yuvaktep, RADU Mares
International economic agreements are meant to facilitate the flow of capital, goods and services across national borders and to create a win-win for involved countries based on their competitive advantage. Trade and investment facilitation has advanced through the setting up of the World Trade Organization and free trade agreements (trade system), and thousands of bilateral investment treaties that protect the rights and interests of investors (investment system). However, as commendable as accelerated economic activity might be such agreements have not incorporated safeguards to protect the environment and affected people. Even more, rights arising from such economic agreements have strong enforcement mechanisms, whereas human rights are taken into account insufficiently, if at all. Therefore, criticism has been raised that agreements encourage reckless economic activities and a disregard for human rights protections. Recent developments indicate the criticism is being heard: more recent ‘modern trade’ agreements contain ‘social clauses’ that refer to labour rights and human rights. Also reforms of the investor arbitration system are being discussed. The sovereign right of states to regulate its social and environmental affairs without fear of economic penalties is being reaffirmed in newer trade and investment agreements. The OECD, UNCTAD and the EU are the leading organizations promoting a more sustainable economic system. Even with these notable developments, questions remain as to whether current reforms go far enough given that victims of abuse do not seem to acquire enforceable rights against investors and businesses affecting their rights.
For Cambodia’s economy, international trade and investment have been unquestionably a major driver in the past decades. After Cambodia’s last regime change in 1993, the government concluded bilateral investment treaties with Malaysia, Thailand, South Korea, China, Singapore, and Switzerland in the 1990s. Subsequent investment agreements followed with other nations such as Germany and France in the early 2000s. As of today, Cambodia has signed 27 bilateral investment treaties, of which 16 are in force and one, with Indonesia, has been terminated. Most of the treaties have a standard clause permitting States to take measures necessary to protect the life of their citizens and the environment. This protection is vague and difficult to impose any obligation on States to ensure the respect and protection of human rights. Only the treaty with Turkey incorporates an aspirational protection of labour rights in the preamble, and only the one with Hungary requires State parties not to dilute environmental and labour protection standards to encourage investment. Additionally, Cambodia has been a member of the WTO since 2004. Cambodia has been granted preferential trade access with the EU, the US, and the ASEAN members. Recently though, allegations of and an investigation into human rights issues (both political and social rights) in Cambodia have prompted the EU and the US to begin proceedings to withdraw such preferential treatment. The ASEAN trade framework has been generally criticized because it lacks specific legal texts to ensure the upholding of human rights and labour protections.
- Free trade agreements (FTAs)
- Bilateral investment treaties (BITs)
- Policy space (of states under economic law)
- Stabilization clauses (in state-investor contracts)
- (The state’s) right to regulate
- Arbitration (investor-State disputes)
- Human rights impact assessments (of economic agreements)
- Investment contracts (investor-state contracts)
- Labour chapters (in FTAs)
- Trade and sustainable development chapters (FTAs)
- Core labour standards (ILO)
- Extraterritorial obligations of states
- Obligation to enforce laws
- Civil society mechanisms
- Cooperation and institution building
ILO, Social Dimensions of Free Trade Agreements
An important part of the debate about making globalization more socially sustainable deals with the question of how to ensure that trade liberalization upholds or improves labour standards, rather than puts them at risk. In recent years, labour standards and other labour issues have increasingly been integrated into bilateral and regional trade agreements. Trade unions and civil society actors invest substantial resources in advocating for the inclusion of labour provisions in trade agreements and the issue is on the agenda of an increasing number of trade negotiators. There are widely divergent views on their effectiveness, however. While some consider them a panacea for improving labour standards and working conditions, others criticize them as mere window dressing or even disguised protectionism.(…)
There are a number of rationales for including labour provisions in trade agreements. From a social perspective the rationale is the safeguarding of social protection, while from an economic perspective labour provisions are tools against unfair competition, the main idea being that violations of labour standards can distort competitiveness (“social dumping”) and should be addressed in a manner similar to that employed against other unfair trading practices.4 In addition, there is the concern that trade liberalization without the necessary safeguards may lead to a race to the bottom as regards labour standards. There is also a human rights rationale, whereby labour provisions can be used as a means of ensuring respect for labour-related human rights that reflect values universally accepted by the international community. Through cooperative activities and dialogue such provisions can also be used as a catalyst for improvement of labour standards by increasing the labour-related implementation capacity of the countries concerned. (…)
Trade agreements with labour provisions have increased significantly in the last two decades, both in absolute and relative terms. Fifty-eight trade agreements included labour provisions in June 2013, up from 21 in 2005 and 4 in 1995. Although labour provisions tend to be concentrated in North-South trade agreements, there is a modest but increasing trend to integrate labour provisions into trade agreements among developing and emerging countries (South-South trade agreements).
About 40 per cent of trade agreements that include labour provisions have a conditional dimension. This implies that compliance with labour standards entails economic consequences – in terms of an economic sanction or benefit. Conditional labour provisions are typical of many of the trade agreements concluded by the United States and Canada.
The remaining 60 per cent of trade agreements that include labour provisions are exclusively promotional in nature. These provisions do not link compliance to economic consequences but provide a framework for dialogue, cooperation, and/or monitoring and are found mainly in EU, New Zealand and South-South trade agreements that consider labour issues. (…)
OHCHR, Impact of Free Trade and Investment Agreements on Human Rights
A number of free trade and investment agreements, such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), are currently being negotiated. A group of UN experts have issued the following statement to express concern about the secret nature of drawing up and negotiating many of these agreements and the potential adverse impact of these agreements on human rights.
While trade and investment agreements can create new economic opportunities, we draw attention to the potential detrimental impact these treaties and agreements may have on the enjoyment of human rights as enshrined in legally binding instruments, whether civil, cultural, economic, political or social. Our concerns relate to the rights to life, food, water and sanitation, health, housing, education, science and culture, improved labour standards, an independent judiciary, a clean environment and the right not to be subjected to forced resettlement. (…)
Observers are concerned that these treaties and agreements are likely to have a number of retrogressive effects on the protection and promotion of human rights, including by lowering the threshold of health protection, food safety, and labour standards, by catering to the business interests of pharmaceutical monopolies and extending intellectual property protection.
There is a legitimate concern that both bilateral and multilateral investment treaties might aggravate the problem of extreme poverty, jeopardize fair and efficient foreign debt renegotiation, and affect the rights of indigenous peoples, minorities, persons with disabilities, older persons, and other persons leaving in vulnerable situations. Undoubtedly, globalization and the many Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) can have positive but also negative impacts on the promotion of a democratic and equitable international order, which entails practical international solidarity.
Investor-state-dispute settlement (ISDS) chapters in BITs and FTAs are also increasingly problematic given the experience of decades related arbitrations conducted before ISDS tribunals. The experience demonstrates that the regulatory function of many States and their ability to legislate in the public interest have been put at risk.
We believe the problem has been aggravated by the “chilling effect” that intrusive ISDS awards have had, when States have been penalized for adopting regulations, for example to protect the environment, food security, access to generic and essential medicines, and reduction of smoking, as required under the WHO Framework Convention on Tobacco Control, or raising the minimum wage.
ISDS chapters are anomalous in that they provide protection for investors but not for States or for the population. They allow investors to sue States but not vice-versa. (…)
UN, Guiding Principles on Business and Human Rights
9. States should maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises, for instance through investment treaties or contracts.
Economic agreements concluded by States, either with other States or with business enterprises – such as bilateral investment treaties, free-trade agreements or contracts for investment projects – create economic opportunities for States. But they can also affect the domestic policy space of governments. For example, the terms of international investment agreements may constrain States from fully implementing new human rights legislation, or put them at risk of binding international arbitration if they do so. Therefore, States should ensure that they retain adequate policy and regulatory ability to protect human rights under the terms of such agreements, while providing the necessary investor protection.
Committee on Economic, Social and Cultural Rights, General Comment No. 24
[State] Obligation to respect [human rights]
13. States parties should identify any potential conflict between their obligations under the Covenant and under trade or investment treaties, and refrain from entering into such treaties where such conflicts are found to exist, as required under the principle of the binding character of treaties. The conclusion of such treaties should therefore be preceded by human rights impact assessments that take into account both the positive and negative human rights impacts of trade and investment treaties, including the contribution of such treaties to the realization of the right to development. Such impacts on human rights of the implementation of the agreements should be regularly assessed, to allow for the adoption of any corrective measures that may be required. The interpretation of trade and investment treaties currently in force should take into account the human rights obligations of the State, consistent with Article 103 of the Charter of the United Nations and with the specific nature of human rights obligations. States parties cannot derogate from the obligations under the Covenant in trade and investment treaties that they may conclude. They are encouraged to insert, in future treaties, a provision explicitly referring to their human rights obligations, and to ensure that mechanisms for the settlement of investor-State disputes take human rights into account in the interpretation of investment treaties or of investment chapters in trade agreements.
Extraterritorial obligation to respect
29. The extraterritorial obligation to respect requires States parties to refrain from interfering directly or indirectly with the enjoyment of the Covenant rights by persons outside their territories. As part of that obligation, States parties must ensure that they do not obstruct another State from complying with its obligations under the Covenant. This duty is particularly relevant to the negotiation and conclusion of trade and investment agreements or of financial and tax treaties, as well as to judicial cooperation.
WTO, Singapore Ministerial Declaration
Core Labour Standards
4. We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration.
Role of WTO
6. In pursuit of the goal of sustainable growth and development for the common good, we envisage a world where trade flows freely. To this end we renew our commitment to:
- a fair, equitable and more open rule-based system;
- progressive liberalization and elimination of tariff and non-tariff barriers to trade in goods;
- progressive liberalization of trade in services;
- rejection of all forms of protectionism;
- elimination of discriminatory treatment in international trade relations;
- integration of developing and least-developed countries and economies in transition into the multilateral system; and
- the maximum possible level of transparency.
EU, Trade for All: Towards a Responsible Trade and Investment Policy
4.1.2. Promoting a new approach to investment
(…) investment protection and arbitration have triggered a heated debate about fairness and the need to preserve the right of public authorities to regulate both in the EU and in partner countries, in particular in the context of the TTIP negotiations.
Over the past 50 years, states set up a dense global web of more than 3,200 bilateral investment treaties (BITs) — 1,400 of them involving EU Member States — with the goal of protecting and encouraging investment.
The current debate has cast light on the risk of the abuse of provisions common to many of those agreements, as well as lack of transparency and independence of the arbitrators. (…) The question is not whether the system should be changed but how this should be done. While the status quo is not an option, the basic objective of investment protection remains valid since bias against foreign investors and violations of property rights are still an issue.
The Commission will:
- in a first step, include modern provisions in bilateral agreements, putting stronger emphasis on the right of the state to regulate, something which was not sufficiently highlighted in the past. EU bilateral agreements will begin the transformation of the old investor–state dispute settlement into a public Investment Court System composed of a Tribunal of first instance and an Appeal Tribunal operating like traditional courts. There will be a clear code of conduct to avoid conflicts of interest, independent judges with high technical and legal qualifications comparable to those required for the members of permanent international courts, such as the International Court of Justice and the WTO Appellate Body;
- in parallel, engage with partners to build consensus for a fully-fledged, permanent International Investment Court;
- in the longer term, support the incorporation of investment rules into the WTO. This would be an opportunity to simplify and update the current web of bilateral agreements to set up a clearer, more legitimate and more inclusive system
5.2.3. A redefined relationship with Africa
Africa’s ongoing transformation will have a significant impact on the world. The stakes are high both in terms of poverty eradication and new economic opportunities. Africa has been the fastest growing continent over the past decade. However, the key challenge is to make growth sustainable. This implies an effective agenda for economic transformation and industrialisation. Trade and investment will be instrumental in addressing those challenges. Africa still suffers from highly fragmented markets with high barriers between countries. There is a strong case for fostering regional integration and creating hubs that would benefit a whole region.
EU-Africa trade relations entered a new phase in 2014 with the conclusion of three regional Economic Partnership Agreements (EPAs) involving 27 western, southern and eastern African countries. It established a new dynamic partnership between the two continents, and paved the way to closer cooperation in the future. EPAs also support Africa’s own regional integration and prepare the ground for wider African integration efforts.
Fulfilling the promise of these agreements will be a major deliverable for the next few years. Many challenges lie ahead, including ensuring that they deliver their potential in terms of development. EPAs can help make the business environment more predictable and transparent but much will depend on genuine domestic reforms. This lies in the hands of African countries but the EU is ready to continue supporting them. The available development aid can reinforce capacity and optimise the conditions for African countries to reap the benefits of effective EPA implementation, in a way that is consistent with their own development strategies.
Looking ahead, EPAs are also a bridge to the future. Current EPAs mostly cover trade in goods only. There is a strong rationale for progressively extending EPAs to other areas like services and investment. Facilitating and protecting investment will be fundamental as the next step to support growth on the continent.
Chapter 15: Trade and Sustainable Development
Article 2: Right to regulate and levels of protection
1. The Parties recognise the right of each Party to determine its sustainable development objectives, strategies, policies and priorities, to establish its own levels of domestic protection in the environmental and social areas as it deems appropriate and to adopt or modify accordingly its relevant laws and policies, consistently with the principles of internationally recognised standards or the agreements, to which it is a party, referred to in Articles 3 and 4.
2. Each Party shall strive to ensure that its laws and policies provide for and encourage high levels of domestic protection in the environmental and social areas and shall strive to continue to improve those laws and policies.
Article 3: Multilateral labour standards and agreements
2. Each Party reaffirms its commitments, in accordance with its obligations deriving from the membership of the ILO (…) to respect, promote and effectively implement the principles concerning the fundamental rights at work, namely:
a) the freedom of association and the effective recognition of the right to collective bargaining;
b) the elimination of all forms of forced or compulsory labour;
c) the effective abolition of child labour; and
d) the elimination of discrimination in respect of employment and occupation.
3. Each Party will make continued and sustained efforts towards ratifying, to the extent it has not yet done so, the fundamental ILO conventions, and the Parties will regularly exchange information in this regard. (…)
5. Each Party reaffirms its commitment to effectively implement in its laws and practices the ILO Conventions ratified by Vietnam and the Member States of the European Union respectively.
6. The Parties recognise that the violation of fundamental principles and rights at work cannot be invoked or otherwise used as a legitimate comparative advantage and that labour standards should not be used for protectionist trade purposes.
Article 9: Trade and investment favouring sustainable development
The Parties confirm their commitment to enhance the contribution of trade and investment to the goal of sustainable development in its economic, social and environmental dimensions. (…)
(d) The Parties recognize that voluntary initiatives can contribute to the achievement and maintenance of high levels of environmental and labour protection and complement domestic regulatory measures. Therefore, each Party, in accordance with its laws or policies, shall encourage the development of and participation in such initiatives, including voluntary sustainable assurance schemes such as fair and ethical trade schemes and eco-labels.
(e) The Parties, in accordance with their domestic policies, agree to promote corporate social responsibility (CSR), provided that CSR-related measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties or a disguised restriction on trade. Promotion of CSR includes among others exchange of information and best practices, education and training activities and technical advice. In this regard, each Party takes into account relevant internationally accepted and agreed instruments, that have been endorsed or are supported by the Party, such as the OECD Guidelines for Multinational Enterprises, the UN Global Compact, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.
Article 15: Institutional set-up and overseeing mechanism
2. The Parties shall establish a Specialised committee on Trade and Sustainable Development. (…)
3. The Specialised committee on trade and sustainable development on Trade and Sustainable Development shall (…) review the implementation of this chapter, including co-operative activities undertaken under Article 14. (…)
4. Each Party shall convene new or consult existing domestic advisory group(s) on sustainable development … [which] shall comprise independent representative organisations, ensuring a balanced representation of economic, social and environmental stakeholders, including among others employers’ and workers’ organizations, business groups, and environmental organizations. (…)
Article 16: Government Consultations
1. For any matter arising under this chapter where there is disagreement, the Parties shall only have recourse to the procedures established under Article 16 and Article 17. Except as otherwise provided in this Chapter, the Chapter XXX [Dispute Settlement] and its Annex III (Mediation) shall not apply to this Chapter (…)
3. The Parties shall make every attempt to arrive at a mutually satisfactory resolution of the matter. During consultations, special attention shall be given to the particular problems and interests of the developing country Party. Where relevant, the Parties shall give due consideration to the works of the ILO or relevant multilateral environmental organisations or bodies and may, by mutual agreement, seek advice from these organisations or bodies, or any other body or person they deem appropriate, in order to fully examine the matter.
Article 17: Panel of experts
1. If any matter has not been satisfactorily resolved by the Specialised committee on trade and sustainable development within 120 days, or a longer period agreed by both Parties, after the delivery of a request for consultations under Article 16.4, a Party may request, by delivering a written request to the contact point of the other Party, that a Panel of Experts be convened to examine that matter.
EU, Human Rights and Sustainable Development in the EU-Vietnam Relations
The Agreement is the most ambitious and comprehensive FTA that the EU has ever concluded with a developing country, also with regard to sustainable development objectives and provisions. The FTA lives up to the commitments the Commission has taken in the new Communication on trade and investment strategy, according to which trade liberalisation, social justice, respect for human rights, and high labour and environmental levels of protection must go hand-in-hand. While trade policy has as a primary objective to deliver growth, jobs and innovation, it should also promote European and international values. (…)
Under Article 1 of the EU-Vietnam PCA [Partnership and Co-operation Agreement] both sides commit to respect democratic principles and human rights, as laid down in the UN General Assembly Universal Declaration of Human Rights and other relevant international human rights instruments.
The inclusion of this “human rights, democracy and rule of law clause” (in brief the “human rights clause”, which is an essential element of the agreement) in the EU-Vietnam PCA, as in other EU agreements with third countries, is intended to promote the values and political principles on which the European Union is founded (Art. 2 of the Treaty on the European Union) and constitutes the basis for the EU’s external policies, as stated in Article 21 of the Treaty on the European Union. (…)
The “human rights clause” ensures that human rights are a subject of common interest and part of the dialogue between the parties, and serves as a basis for the implementation of positive measures. The EU sees one of the principal values of this clause to have a legally binding expression of their shared commitment to the promotion and protection of human rights. It gives the EU a clear legal basis for raising human rights issues and it makes it impossible for both parties to claim that human rights are a purely internal matter. (…)
If a party fails to fulfil its obligations under the PCA the other party is empowered to take “appropriate measures” (Article 57 “Fulfilment of Obligations”). Unless there is a material breach of the agreement the case must first be examined by the Joint Committee.
In case of a material breach, defined in the Joint Declaration on Article 57 as a violation of an essential element of the Agreement, the other party can take measures with immediate effect. That can include the introduction of an expedited dialogue.
As the commitments to human rights constitute an essential element under the PCA, in the event of violations in this regard by one party, Article 57 enables the other party to take “appropriate measures” against the offending party, including as a last resort the suspension of the agreement or parts thereof. (…)
A human rights clause is included in all political framework agreements (e.g. Association Agreements and Partnership and Co-operation Agreements) concluded by the EU with third countries since 1995, covering over one-hundred and thirty countries. Such clause is defined as an essential element of the agreements. The human rights clause included in the most recent agreements is based on the Council Conclusions on the common approach on the use of political clauses endorsed by COREPER in May 2009. (…)
European Commission, Human Rights Impact Assessments for Trade Policy
Human rights considerations in trade and investment policy
The EU’s trade policy is geared towards promoting free and fair openness to trade in the global market place. In combination with other instruments, it can contribute to the improvement of human rights in various countries.
As highlighted in the communication Trade, Growth and Development, openness to trade has been a key element of successful growth and development strategies; and sustainable development over a longer period supports the emergence of favourable conditions for human rights: e.g. rising levels of employment, better living standards, and increasing government resources that can be applied to human rights related goals.
Yet Trade, Growth and Development also underlines that while trade is a necessary condition for development, it is not sufficient. International trade can foster growth and poverty reduction, depending on the structure of the economy, appropriate sequencing of trade liberalisation measures and complementary policies such as domestic reforms and fair income distribution. International trade policy should be seen as one component in a jigsaw of policies and actions to address poverty and promote development: including, amongst others, co-operation at multilateral and bilateral levels, development aid and support, and political dialogues; paired with domestic policies in areas such as employment, social affairs, health, good governance, the rule of law and education, as well as corporate social responsibility (CSR) practices by the private sector, etc.
In consequence, when considering the impact of trade policies on human rights issues, the EU’s overall relations with the country/ies concerned should be taken into account. This may include, for example, the existence of a political framework agreement (eg, a Partnership and Cooperation Agreement), or of human rights dialogue mechanisms. These instruments provide the main platforms for the EU to discuss human rights issues with its trade partners.
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
[ratified by Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam]
Article 1 : Incorporation of the Trans-Pacific Partnership Agreement
1. The Parties hereby agree that, under the terms of this Agreement, the provisions of the Trans-Pacific Partnership Agreement, done at Auckland on 4 February 2016 (“the TPP”) are incorporated, by reference, into and made part of this Agreement…
Trans-Pacific Partnership Agreement
Chapter 19: Labour
Article 19.3: Labour Rights
1. Each Party shall adopt and maintain in its statutes and regulations, and practices thereunder, the following rights as stated in the ILO Declaration:
(a) freedom of association and the effective recognition of the right to collective bargaining;
(b) the elimination of all forms of forced or compulsory labour;
(c) the effective abolition of child labour and, for the purposes of this Agreement, a prohibition on the worst forms of child labour; and
(d) the elimination of discrimination in respect of employment and occupation.
2. Each Party shall adopt and maintain statutes and regulations, and practices thereunder, governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
Article 19.10: Cooperation
1. The Parties recognise the importance of cooperation as a mechanism for effective implementation of this Chapter, to enhance opportunities to improve labour standards and to further advance common commitments regarding labour matters, including workers’ wellbeing and quality of life and the principles and rights stated in the ILO Declaration. (…)
Article 19.15: Labour Consultations
1. The Parties shall make every effort through cooperation and consultation based on the principle of mutual respect to resolve any matter arising under this Chapter.
2. A Party (requesting Party) may, at any time, request labour consultations with another Party (responding Party) regarding any matter arising under this Chapter by delivering a written request to the responding Party’s contact point. The requesting Party shall include information that is specific and sufficient to enable the responding Party to respond, including identification of the matter at issue and an indication of the legal basis of the request under this Chapter. The requesting Party shall circulate the request to the other Parties through their respective contact points. (…)
12. If the consulting Parties have failed to resolve the matter no later than 60 days after the date of receipt of a request under paragraph 2, the requesting Party may request the establishment of a panel under Article 28.7 (Establishment of a Panel) and, as provided in Chapter 28 (Dispute Settlement)…
13. No Party shall have recourse to dispute settlement under Chapter 28 (Dispute Settlement) for a matter arising under this Chapter without first seeking to resolve the matter in accordance with this Article.
US-Central America Free Trade Agreement (CAFTA)
Chapter Sixteen: Labor
Article 16.2: Enforcement of Labor Laws
1. (a) A Party shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties, after the date of entry into force of this Agreement. (…)
Article 16.6: Cooperative Labor Consultations
1. A Party may request consultations with another Party regarding any matter arising under this Chapter (…)
3. The consulting Parties shall make every attempt to arrive at a mutually satisfactory resolution of the matter (…)
6. If the matter concerns whether a Party is conforming to its obligations under Article 16.2.1(a), and the consulting Parties have failed to resolve the matter within 60 days of a request under paragraph 1, the complaining Party may request consultations under Article 20.4 (Consultations) or a meeting of the Commission under Article 20.5 (Commission – Good Offices, Conciliation, and Mediation) and, as provided in Chapter Twenty (Dispute Settlement), thereafter have recourse to the other provisions of that Chapter. (…)
7. No Party may have recourse to dispute settlement under this Agreement for any matter arising under any provision of this Chapter other than Article 16.2.1(a).
8. No Party may have recourse to dispute settlement under this Agreement for a matter arising under Article 16.2.1(a) without first pursuing resolution of the matter in accordance with this Article.
Compa et al, U.S. – Guatemala CAFTA Labor Arbitration
On April 23, 2008, the AFL-CIO and six Guatemalan trade unions filed a complaint – known formally as a “public submission” – with the U.S. Department of Labor’s Office of Trade and Labor Affairs (OTLA) alleging that Guatemala was failing to effectively enforce its labor laws as required under Chapter 16 of the Dominican Republic – Central American Free Trade Agreement (DR-CAFTA). The complaint included five case studies where Guatemala failed to enforce its labor laws with regard to the right to freedom of association, to organize and to bargain collectively, as well as “acceptable conditions of work.” It also highlighted the troubling rise in anti-union violence since the passage of the trade deal. (…)
In August 2011, after formal labor consultations between the two nations failed to yield results, the United States Trade Representative (USTR) filed for arbitration under the CAFTA dispute resolution chapter. This was the first time the United States ever brought a labor case to dispute settlement under a trade agreement. Shortly after this filing, USTR announced yet another delay while both governments negotiated a “labor enforcement plan,” which was not signed until April 2013. Guatemala failed to implement key components of the plan and, over a year later, on September 18, 2014, USTR announced it would restart the arbitration process.
The U.S. filed its first written materials on November 3, 2014, and the first hearing before the arbitration panel took place on June 2, 2015, in Guatemala City. Beset with numerous delays, including the resignation of one of the arbitrators in the middle of the case, the panel’s final decision was handed down on June 14, 2017 – nine years after the unions filed their submission.
The Panel here made conclusive findings that Guatemala failed to effectively enforce its labor laws in violation of the central obligation of the CAFTA labor chapter. (…) However, two more hurdles remained: whether the violations reflected a sustained or recurring course of action or inaction, and whether they were in a manner affecting trade.
The record evidence demonstrates that Guatemala’s failure to effectively enforce its labor laws against one employer – Avandia – conferred some competitive advantage upon it. The evidence does not establish that the other seven failures to effectively enforce labor laws [affected trade]… [A]lthough we have found (on an arguendo basis) that Guatemala’s failures to effectively enforce its labor laws constitute a sustained or recurring course of action or inaction, we have not found any evidence of such course itself having an effect on trade…
Conversely, while we have found one instance of a failure to effectively enforce labor laws to have been in a manner affecting trade (i.e., the Avandia case), that instance alone does not constitute a sustained or recurring course of inaction. (…)
The United States has proven that at eight worksites and with respect to 74 workers Guatemala failed to effectively enforce its labor laws by failing to secure compliance with court orders, but not that these instances constitute a course of inaction that was in a manner affecting trade. The United States has not proven sufficient failures to adequately conduct labor inspections to constitute a course of action or inaction. The Panel has no jurisdiction over the other claims advanced by the United States in these proceedings, as they were not included in the panel request. We therefore conclude that the United States has not proven that Guatemala failed to conform to its obligations under Article 16.2.1(a) of the CAFTA-DR.
As the first case ever to proceed through the entire dispute resolution process under the labor chapter of any trade agreement, the arbitral panel’s decision is a devastating setback for advocates of workers’ rights in the global economy. It is even more harmful to workers themselves who seek protection under labor chapters in trade agreements. The panel’s pinched, hyper-technical, trade-first, nit-picking-the-evidence approach sets a terrible precedent on many fronts. It calls into question the viability of all labor chapters, and undermines the progress, however slight, in the evolution of such labor rights provisions since the CAFTA agreement, such as the “May 10” template which strengthened standards, obligations, and enforcement mechanisms in agreements with Peru, Korea, Colombia and other countries. They all contain the “in a manner affecting trade” formulation which was the death warrant in this case.
Harisson, Governing Labour Standards through Free Trade Agreements
A superficial account of labour provisions within EU FTAs [free trade agreements] tells a positive story. Trade agreements have been negotiated with relatively extensive substantive standards and procedural commitments. Representatives of the respective parties are meeting with their international counterparts and civil society meetings are occurring. But in terms of addressing substantive labour standards issues, this article has shown that TSD [trade and sustainable development] chapters have delivered little. Scholars have already argued that the EU has not sought to ‘aggressively’ export labour standards through its trade agreements. We show that neither have state officials in trading partners readily imported them. Rather, they have reluctantly accepted – or even actively softened – minimalist obligations around core labour standards. The weight of expectation has been loaded instead onto processes of dialogue, particularly via CSMs [civil society mechanism], widely considered as the key institutions for making progress on labour issues. However, CSMs are seriously hampered by various operational deficiencies as well as political marginalization within the broader institutional mechanisms and processes of the FTA.
Overall, we found no evidence that the existence of TSD chapters has led to improvements in labour standards governance in any of our case studies, nor did we find any evidence that the institutionalization of opportunities for learning and socialization between the parties was creating a significant prospect of longer-term change. These findings thus offer the most robust refutation to date of the hypothesis that labour provisions in EU FTAs are actively advancing workers’ rights. And in contrast to more optimistic assessments, they also suggest that future normative influence is unlikely to be realized via TSD chapters in their current form.
Should the EU therefore seek to put more of its market power behind its labour governance strategy? Such an approach could in part be realized by the most common suggestion for reform from European interviewees involved in the labour movement, namely to increase the enforceability of the TSD chapter by giving the EU the ability to withdraw preferential access to its market if labour standards are violated. This would make the labour provisions more coercive, and in the shadow of sanctions, perhaps persuade trading partners to engage in more earnest dialogue and responsive action.
Yet some interviewees in case study countries averred from this approach, with unionists and allied researchers expressing concern about the dangers of labour standards being utilized as a form of disguised protectionism. We agree, then, with the comments made by one labour representative who noted that more must be done to assuage such concerns and explain how specific forms of conditionality could benefit labour struggles in trade partners. This demands consideration of a range of complex design issues including how a dispute is initiated, who it targets in relation to what labour-related allegations, who investigates those allegations, who decides on the kinds of corrective action and penalties, and what form of sanctions or fines are available to do this. Appropriately nuanced, a crude social clause founded on economic nationalism could thus be avoided.
UNCTAD, Investment Policy for Sustainable Development
Core Principles for Investment Policymaking
The overarching objective of investment policymaking is to promote investment for inclusive growth and sustainable development.
1. Policy coherence: Investment policies should be grounded in a country’s overall development strategy. All policies that impact on investment should be coherent and synergetic at both the national and international level.
2. Public governance and institutions: Investment policies should be developed involving all stakeholders, and embedded in an institutional framework based on the rule of law that adheres to high standards of public governance and ensures predictable, efficient and transparent procedures for investors.
3. Dynamic policymaking: Investment policies should be regularly reviewed for effectiveness and relevance and adapted to changing development dynamics.
4. Balanced rights and obligations: Investment policies should be balanced in setting out rights and obligations of States and investors in the interest of development for all.
5. Right to regulate: Each country has the sovereign right to establish entry and operational conditions for foreign investment, subject to international commitments, in the interest of the public good and to minimize potential negative effects.
6. Openness to investment: In line with each country’s development strategy, investment policy should establish open, stable and predictable entry conditions for investment.
7. Investment protection and treatment: Investment policies should provide adequate protection to established investors. The treatment of established investors should be non-discriminatory.
8. Investment promotion and facilitation: Policies for investment promotion and facilitation should be aligned with sustainable development goals and designed to minimize the risk of harmful competition for investment.
9. Corporate governance and responsibility: Investment policies should promote and facilitate the adoption of and compliance with best international practices of corporate social responsibility and good corporate governance.
10. International cooperation: the international community should cooperate to address shared investment-for-development policy challenges, particularly in least developed countries. Collective efforts should also be made to avoid investment protectionism.
European Commission, EU-China Agreement (Sustainability Impact Assessment)
Human rights impacts
At the outset, the SIA [Sustainability Impact Assessment] notes that the CAI’s [Comprehensive Agreement on Investment] impact on human rights – either positive or negative – will largely depend on the soundness of the domestic legal frameworks and their compliance with international standards. In addition, since the Agreement does not include specific human rights provisions as it is limited to investment protection and market access, the SIA notes that its overall impact on human rights would be mainly indirect.
Having clarified these two points, the SIA then estimates that such indirect effect is likely to be positive although minimal, and it would mainly derive from the increased engagement of the Parties on labour- and environment-related aspects of investment following from the sustainable development provisions. An increase in FDI from the EU could also promote economic stability and growth, increase employment and, as a result, lead to better living standards and less poverty. Additionally, EU investors would be expected to value and protect human rights, especially as they often include CSR [corporate social responsibility] and RBC [responsible business conduct] practices in their business operations. With an increase in Chinese investment in the EU, these investors are expected to observe EU human rights as implemented in various pieces of legislation and hence no negative impacts are expected in the EU.
The SIA also finds that an institutional mechanism under the CAI might provide an opportunity for participation of non-state stakeholders in discussions on labour and environment related aspects of investment. The obligation to ensure transparency and to promote public participation and public information might also positively impact the right of freedom of expression, especially in China.
Finally, as mentioned above, the SIA points to the CAI’s potential litigation risk. It echoes stakeholders’ calls for China and the EU to retain sufficient policy space under the Agreement to undertake the necessary reform process to promote social inclusion, labour rights and the protection of human rights. On the other hand, the SIA notes that the right to regulate will be embedded in the Agreement and hence the policy space will be preserved.
Brazilian Model BIT
Article 14 Corporate Social Responsibility
1. Investors and their investment shall strive to achieve the highest possible level of contribution to the sustainable development of the Host State and the local community, through the adoption of a high degree of socially responsible practices, based on the voluntary principles and standards set out in this Article.
2. The investors and their investment shall endeavour to comply with the following voluntary principles and standards for a responsible business conduct and consistent with the laws adopted by the Host State receiving the investment:
a) Contribute to the economic, social and environmental progress, aiming at achieving sustainable development;
b) Respect the internationally recognized human rights of those involved in the companies’ activities;
c) Encourage local capacity building through close cooperation with the local community;
d) Encourage the creation of human capital, especially by creating employment opportunities and offering professional training to workers to;
e) Refrain from seeking or accepting exemptions that are not established in the legal or regulatory framework relating to human rights, environment, health, security, work, tax system, financial incentives, or other issues;
f) Support and advocate for good corporate governance principles, and develop and apply good practices of corporate governance;
g) Develop and implement effective self-regulatory practices and management systems that foster a relationship of mutual trust between the companies and the societies in which its operations are conducted;
h) Promote the knowledge of and the adherence to, by workers, the corporate policy, through appropriate dissemination of this policy, including programs for professional training;
i) Refrain from discriminatory or disciplinary action against employees who submit grave reports to the board or, whenever appropriate, to the competent public authorities, about practices that violate the law or corporate policy;
j) Encourage, whenever possible, business associates, including service providers and outsources, to apply the principles of business conduct consistent with the principles provided for in this Article; and
k) Refrain from any undue interference in local political activities.
Ruggie, Principles for Responsible Contracts (State-Investor Contract Negotiations)
The 10 principles that can help guide the integration of human rights risk management into contract negotiations are listed below: (…)
4. Stabilization clauses: Contractual stabilization clauses, if used, should be carefully drafted so that any protections for investors against future changes in law do not interfere with the State’s bona fide efforts to implement laws, regulations or policies in a non-discriminatory manner in order to meet its human rights obligations.
Key implications of Principle 4 for the negotiations:
It is legitimate for business investors to seek protections against arbitrary or discriminatory changes in law. However, stabilization clauses that “freeze” laws applicable to the project or that create exemptions for investors with respect to future laws, are unlikely to satisfy the objectives of this Principle where they include areas such as labor, health, safety, the environment, or other legal measures that serve to meet the State’s human rights obligations.
Stabilization clauses, if used, should not contemplate economic or other penalties for the State in the event that the State introduces laws, regulations or policies which: are implemented on a non-discriminatory basis; and (b) reflect international standards, benchmarks or recognized good practices in areas such as health, safety, labor, the environment, technical specifications or other areas that concern human rights impacts of the project. (…)
Brief explanation: Stabilization clauses
31. Contractual stabilization clauses aim to mitigate the risks to business investors from changes in law. Not all investment contracts have these provisions, but research shows that where they do exist the breadth of their application, and their provisions for mitigating the impacts of new laws on investors, vary greatly.
32. Business investors view project financing predictability and consistency as a primary concern, as most large investments are long term and of an irreversible nature. This makes them vulnerable to changes in the rules governing their projects over time. (…)
34. However, the comparative research carried out by the Special Representative showed that, depending on the way the stabilization clause was drafted, it may have the potential to unduly constrict the policy space States need to meet their human rights obligations. The research found that those contracts negotiated with developing country governments were (1) typically much broader in their coverage than those agreed with developed country governments; and (2) they were much more likely to include exemptions for or award compensation to business investors for compliance with future laws–even in areas that are directly related to protecting human rights, such as health, environmental protection, labor and safety.
38. Additionally, necessary investor protection against arbitrary and discriminatory changes in law can be fashioned to not interfere with the State’s bona fide efforts to meet its human rights obligations. In certain circumstances, in particular for fixed-tariff projects, the parties to the contract can integrate a number of mechanisms to manage the material and economic consequences of changes in the law. These can specify procedures to facilitate the efficient and effective resolution of issues as they arise, such as formula for appropriate risk-sharing or procedures and requirements for the parties to negotiate in good faith regarding mitigating any impacts of changes in the law. (…)
Richard & Luke, Human Rights in Investment Law: Where to after Urbaser?
So why is Urbaser [Urbaser S.A. v Argentina] so significant? After all, it is just one in a long line of cases in which Argentina has unsuccessfully invoked the human right to water as part of its defence. For example, in Suez v Argentina, the tribunal considered Argentina’s obligation to protect the right to water and held that it was not incompatible with its obligations towards foreign investors. Similarly, in SAUR International v Argentina, the tribunal held that although Argentina could nationalize a public service, such as the water supply, in order to safeguard human rights, it still had to pay compensation when doing so. More broadly, investment tribunals have considered a range of human rights issues in determining investment treaty claims, including indigenous rights (Glamis Gold Ltd v USA), arbitrary arrest and detention (Biloune v Ghana), the right to access the courts (Mondev v USA) and migrant rights (Channel Tunnel v France and the UK), among many others. Be that as it may, the Urbaser decision is significant for two reasons. First, as already mentioned, the tribunal accepted that a corporation could be bound by human rights standards. Second, this was the first time a tribunal has accepted jurisdiction over a human rights counterclaim (Argentina’s claim that Urbaser had threatened the right to water).
It is true that the permissive language of the Spain-Argentina BIT, which allows either the investor or the state to a dispute to commence an arbitration, helped the tribunal to assert jurisdiction over Argentina’s counterclaim in Urbaser. But to state that this was the only relevant factor misses the point, which is that in bringing its counterclaim, Argentina availed itself fully of the legal tools available to it. This leads conveniently into the next point: recent investment treaties suggest that states are increasingly seeking to balance the rights and obligations arising from investment treaties and human rights instruments.
Traditionally, very few, if any, BITs have referred to human rights. Limited provisions on human rights are, however, found in certain “model” BITs – the 2012 US Model BIT, for example recognises labour rights – however this is not mirrored in the treaties currently in force. But the indications are that things might be changing. At the end of 2016, just before the tribunal in Urbaser rendered its decision, Morocco and Nigeria signed a new BIT. The Morocco-Nigeria BIT has not yet entered into force, meaning that it is not strictly binding on the parties yet, however, it contains unprecedented and explicit recognition of the human rights obligations of Morocco and Nigeria and prioritizes the protection of human rights over the creation of a favourable climate for foreign investment. For example, the BIT prohibits Morocco and Nigeria from lowering labour, public health and safety standards in order to encourage investment. Investors, on the other hand must “strive to make the maximum feasible contributions to the sustainable development of the Host State and local community through high levels of socially responsible practices.”
Schill & Djanic, Public Interest-Based Justification of International Investment Law
Critics consider international investment law (IIL) and investor–State dispute settlement (ISDS) to be a threat to global public interests, such as environmental protection, labour standards, public health or human rights, and portray them as one-sidedly protecting foreign investors and undermining public policies that are adopted for the benefit of local populations and the international community as a whole. They also dismiss economic justifications of the system as unfounded. The present article suggests a different approach to the justification of IIL, arguing that, properly construed, IIL can be justified as a system that, on aggregate, promotes global public interests.
First, the article shows how IIL and ISDS form part of the legal infrastructure that is necessary for the functioning of the global economy under a rule of law framework. Aimed at supporting global economic growth and welfare, this helps further not only economic, but also non-economic, global public interests, such as sustainable development.
Second, the article argues that IIL and ISDS do not turn a blind eye to the conflicts that can arise between economic and non-economic public interests. Instead, IIL and ISDS have numerous, although admittedly imperfect and as of yet insufficiently utilized, mechanisms at their disposal for alleviating ensuing tensions, thus allowing both economic and non-economic global public interests to be advanced at the same time.
Krajewski, Establishing Investor Obligations
International investment law and international human rights law are two distinct fields of international law. Even if one subscribes to the view that they may have a common root in the customary law protecting aliens, the two regimes rest on different legal sources, contain different legal principles and are applied and administered in different institutional settings. (…)
International investment law rests on a web of thousands of bilateral investment treaties and other treaties with investment protection provisions.16 It contains general standards of protecting foreign investors and their investment, including compensation for expropriation as well as guarantees of fair and equitable treatment and nondiscrimination of the investor. Investment treaties are applied by ad hoc tribunals established at the request of a foreign investor and based on the claim that the host state treated the investor in a manner which violates the term of the respective investment agreement.
In contrast, human rights law is enshrined in global and regional human rights treaties which contain rights of individuals and respective obligations of states to respect, protect and fulfil those human rights. International human rights treaties are applied by regional human rights courts or special bodies established on the basis of human rights treaties. (…)
The preceding analysis reveals a sobering result: it cannot be assumed that a new human rights treaty will contain directly binding obligations for business entities. Similarly, recent treaty-making practice in investment law also does not seem to move towards including clear and precise binding human rights obligations for investors. Finally, investment tribunals remain extremely reluctant to develop such obligations on the basis of existing international law. If they consider such approaches, the doctrinal basis is not clear. As a consequence, it seems unlikely that investor obligations to respect human rights will emerge in the foreseeable future in international treaty-making or treaty-application.
(…) investment treaties incorporate references to domestic laws and may even oblige the states to effectively regulate businesses in a domestic and international setting. If relevant domestic laws are then incorporated into an investment treaty with the aim to allow a state to either base a counter-claim on the non-compliance of a domestic law by the investor or use such non-compliance to reduce the amount of the damages, international investment law and tribunals may indirectly contribute to the establishment of human rights obligations of investors. Finally, states should increasingly refer to international standards of investor responsibilities in their investment treaties. This would the allow investment tribunals to rely on standards such as the UNGPs or the OECD Guidelines when interpreting and applying the terms of investment agreements.
The emerging pluralistic regime of investor obligations consisting of domestic legislation, international soft law standards and binding international treaty norms could form the basis of a web of clear and effective provisions establishing investor responsibilities on safe legal grounds. (…)
European Commission, Report on EBA Beneficiaries
Since 2017 (…) The [European] Commission had for many years raised its concerns on issues related to Economic Land Concessions (ELCs) in the sugar sector, recommending the establishment of an independent and transparent mechanism in order to deal with claims for compensation arising from the granting of ELCs for sugar cane plantations.
Following the deterioration of democracy, human rights and labour rights in Cambodia, the EU concerns covered the following main areas: a) political rights and the shrinking of the democratic space; b) freedom of expression and freedom of association; c) labour rights; and d) concerns over land issues arising from ELCs in the sugar sector. (…)
Economic Impact of EU Tariff Preferences under EBA
(…) In terms of socio-economic development, the percentage of the population living under the poverty line has steadily declined from 50.1% in 2007 to 13.5% in 2014.
In 2014, the EU became the first Cambodian export market, ahead of the US. The EU market currently accounts for more than one-third of Cambodia’s exports, particularly garment, footwear and bicycles. The EU ranked as the second biggest trade partner of Cambodia (after China), accounting for 17.3% of the country’s total trade (China 23.8%). Cambodia is the EU’s 56th largest trading partner (accounting for 0.2% of the EU’s total trade). In 2018, Cambodian exports to the EU registered a record of €5.3 billion (compared to €3 billion in 2014), concentrated on garments at 73.4% of total exports, footwear 12.7%, bicycles 5.7%, and rice 3%. Total trade in goods between the two partners equalled €6.2 billion. Over 95% of these exports entered the EU market under EBA tariff preferences (one of the highest ratios of any EBA beneficiary country). Overall, Cambodia is the second largest user of EBA preferences, after Bangladesh. In January 2019, the EU imposed – under the GSP regulation – safeguard measures on Indica rice from Cambodia and Myanmar for three years, thus introducing normal customs duties on this product for the first year (€175 per tonne), and then progressively reducing it to €150 per tonne in year two, and €125 per tonne in year three.
Key Concerns (…)
Freedom of association and of peaceful assembly. Restrictions to freedoms of assembly and association, including a shrinking of the space for civil society, remain a cause of concern. Procedural requirements going beyond the law are creating additional obstacles to legitimate work of civil society organizations. Some positive steps took place such as the Instruction of the Ministry of Interior to repeal the ‘three-day notice requirements’ and the establishment of a Government Working Group under the Ministry of Interior to consult with civil society. However, no concrete actions were taken to amend restrictive provisions of the Law on Associations and Non-Governmental Organizations (LANGO). Harassment and intimidation of journalists, human rights defenders, trade union members and workers, land and environmental activists continued to be reported by the UN and civil society organisations.
Non-discrimination, land and housing rights. Dispossession with no or inadequate compensation of families living or working on land designated as Economic Land Concessions related to sugar farming constitutes a violation of the relevant international conventions: International Covenant on Economic, Social and Cultural Rights (ICESCR), Committee on the Elimination of Racial Discrimination (CERD) and ICCPR. The EU recognises the actions taken by the Cambodian authorities to resolve these issues, but continues to be concerned over lack of transparency in the process, and the lack of a clear set of criteria for establishment of the validity of claims and the appropriate level of compensation.
Turkey-Cambodia Agreement on Protection of Investments
The Government of the Republic of Turkey and the Government of the Kingdom of Cambodia (…)
Agreeing that fair and equitable treatment of investments is desirable in order to maintain a stable framework for investment and will contribute to maximizing effective utilization of economic resources and improve living standards; and
Convinced that these objectives can be achieved without relaxing health, safety and environmental measures of general application as well as internationally recognized labor rights;
Article 4 (General Exceptions)
1. Nothing in this Agreement shall be construed to prevent a Contracting Party from adopting, maintaining, or enforcing any non-discriminatory legal measures:
(a) designed and applied for the protection of human, animal or plant life or health, or the environment;
(b) related to the conservation of living or non” living exhaustible natural resources.
Hungary-Cambodia Agreement on Protection of Investments
Article 2 (Promotion and protection of investments)
1. Each Contracting Party shall encourage and create favourable conditions for investors of the other Contracting Party to make investments in its territory and, shall admit such investments in accordance with its laws and regulations.
2. Investments and returns of investors of either Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party.
3. The Contracting Party shall not encourage investment by lowering domestic environmental, labour or occupational health and safety legislation or by relaxing core labour standards. Where a Contracting Party considers that the other Contracting Party has offered such an encouragement, it may request consultations with the other Contracting Party and the two Contracting Parties shall consult with a view to avoiding any such encouragement.
Cambodia Trade Integration Strategy
4.2 Joining the CP-TPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership]
The CP-TPP agreement is a modern FTA encompassing a series of WTO-Plus disciplines both in terms of coverage and in depth. The preliminary analysis of the CP-TPP with respect to market access and rules of origin is similar to RCEP in the sense that the CP-TPP may not bring to Cambodia additional market access to what has been already been granted under different arrangements thanks to the current LDC status or as member of the ASEAN FTAs with dialogue partners. The complex rules of origin of the CP-TPP especially in the garment sector does not reflect the present capacity of the Cambodian garment industry. (…)
(…) It is noteworthy that the investment chapter includes several reform-oriented elements. For example, it refines definitions of investor and investment; clarifies the meaning of key standards to preserve regulatory space (e.g. clarifying that a government’s failure to respect an investor’s legitimate expectations does not automatically amount to a breach of the minimum standard of the treatment) …; contains a clause recognizing that parties should not relax health, safety and environmental standards and reaffirms Corporate Social Responsibility (CSR)-related obligations. (…)
Cambodia Industrial Development Policy
E. Labor Market and Industrial Relations
Industrial relations is still a major challenge for industrial development not only in Cambodia but also in almost all countries going through a transition from agriculture/rural to industry/urban setting. A proper management of such transition can lay the foundation for attracting investments in the future, especially to ensure better working conditions, high productivity and reasonable wage for the workforce. The process would require careful and systematic solutions based on the applicable regulatory framework so as to strengthen social investment needed to reduce wage-rise pressure in order to maintain competitiveness of the economy.
This factor is even more important when Cambodia joins the ASEAN Economic Community where a carefully managed labor mobility can ensure the investment competitiveness of the country. An adequate development and effective implementation of the regulatory framework is thus necessary. Such a regulatory system combined with a proper labor market management such as workers orientation prior to starting their jobs, awareness of rights and obligations of employers/employees, reasonable demand for working conditions, are crucial and should be widely implemented to ensure stability and effectiveness of the labor market.(…)
European Commission, Temporary Suspension of Trade Preferences for Cambodia
What is the Everything But Arms trade arrangement?
The Everything But Arms (EBA) arrangement is part of EU’s Generalised Scheme of Preferences (GSP) for developing countries. Under EBA, the EU grants unilaterally duty free and quota free access to its single market for all products – except arms and ammunition – to all the States classified by the United Nations as Least Developed Countries (LDCs).
The EBA arrangement, as the GSP scheme as a whole, aims to assist developing countries in their efforts to reduce poverty, promote good governance, and support sustainable development by helping them to generate additional revenue through international trade.
The access to this arrangement is conditional upon the beneficiary country respecting the principles of 15 core United Nations (UN) and International Labour Organisation (ILO) Conventions on human rights and labour rights (laid down in Annex VIII Part A of the GSP Regulation). (…)
Why is the EU targeting Cambodia and not other GSP beneficiaries with poor human rights records?
The Foreign Affairs Council in its Conclusions from February 2018 identified Cambodia and Myanmar for enhanced engagement under the EBA on the basis of the seriousness of their alleged violations (as testified by the most recent UN and ILO reports), as well as on the basis of their substantial trade with the EU. (…)
Cambodian Chamber of Commerce, et al., Press Release on EBA Decision
Phnom Penh, Cambodia – The Cambodian Chamber of Commerce and signatories, as representatives of the Cambodian private sector, regrets the decision taken by the European Commission to partially withdraw preferences granted to the Kingdom of Cambodia under the Everything but Arms (EBA) arrangement, following the review it initiated on 12 February 2019.(…)
Looking forward, Cambodia will continue to benefit from trade preferences for 80% of its exports to the European Union. Therefore, we respectfully call on the European Commission and the Royal Government of Cambodia to continue to engage in dialogue on the issues raised by the Commission’s review. We have full trust in the resilience of the Cambodian people, and are committed to working with those most affected by this decision to mitigate the potential damage to trade and investment, and the Kingdom’s reputation. We will continue to work closely with international brands and development partners to strengthen and promote the values of human and labour rights in Cambodia, in accordance with international best practices. The decision by the Commission, while regrettable, is viewed by the private sector as an opportunity to initiate further structural reforms that strengthen legal compliance and reduce unfair competition, which will help to accelerate the diversification of Cambodia’s economy, export markets and sources of investment. The Cambodian private sector is dedicated to working with all investors, development partners and the Royal Government of Cambodia to review and implement additional measures and legislation that will enable a more conducive environment for all businesses, employees and Cambodian society.
Unions in Cambodia Urge EU Not to Withdraw EBA Benefit
[…] Cambodian union leaders attending IndustriALL Global Union’s trade and workers’ rights training on 4-5 November in Phnom Penh expressed grave concern over the enormous impact of a suspension of the EBA scheme, as foreign investors have said they may move garment production to other countries, risking thousands of jobs in the process. […]
The Vice President of the Federation of Free Trade Union of Workers of the Kingdom of Cambodia (FTUWKC) Mann Senghak added: “Cambodian trade unions must urgently put aside any differences and unite to send a strong message to the EU that the trade preference scheme is of paramount importance for the survival of millions of Cambodian people dependent on the industry.” […]
Joint Letter from Companies to the Prime Minister of Cambodia on EBA Matter
We are companies that source from Cambodia. Our work with suppliers in Cambodia contributed to the USD $9.5 billion in garment, footwear, and travel goods exported from Cambodia last year. Many of the companies signing this letter have been sourcing from Cambodia since the garment sector was established in Cambodia in the mid‐1990s.
The success of Cambodia’s garment sector has gone hand‐in‐hand with Cambodia’s adoption and adherence to high labor standards such as those set by the International Labor Organization (ILO). When the Multifibre Arrangement (MFA) was being phased out, there was concern that Cambodia’s garment sector would not survive, but European, Canadian, HK, and American companies kept buying from Cambodia largely based on your government’s strong commitment to higher labor standards that were embodied in your government’s implementation of the ILO Better Factories Cambodia (BFC) program.
Since 2001, the Cambodian Government’s strong support for the BFC and implementation of strong labor standards has enabled first the garment sector, and now the footwear and travel goods sectors, to grow exponentially. Today, exports of garments, footwear, and travel goods account for more than one third (43 percent) of Cambodia’s total Gross Domestic Product (GDP). This represents half of Cambodia’s total exports. The preferential trade benefits that Europe, Canada, and the United States have implemented over this same period continue to be an important factor in many company’s sourcing decisions.
We are concerned that the labor and human rights situation in Cambodia is posing a risk to trade preferences for Cambodia. Recently the European Union announced its decision to review Cambodia’s Everything but Arms (EBA) benefits. Members in the U.S. Congress have introduced bills that would require the U.S. Government to review Cambodia’s Generalized System of Preferences (GSP) benefits based on the declining respect for labor standards, including freedom of association, and other issues related to respect for human rights issues in Cambodia.
Many of the signatories to this letter have previously raised these concerns through multiple channels with your government. We are attaching a November 1, 2018, letter that details recommendations that we believe, if implemented, could demonstrate real progress toward respecting trade unions and civil society, and keeping Cambodia’s trade benefits in place. To date, we have not received any response to that letter. We look forward to hearing back from you and working with you to ensure a bright future for Cambodia’s workers and the Cambodian economy overall.
ADHOC, Joint Statement on the EU’s Decision on Cambodia’s Access to EBA
We, the undersigned Non-Governmental Organisations, Associations, Trade Unions, Members of the Cambodian Civil Society, and citizens are deeply concerned about the launch of the European Union (EU) Commission’s procedure to temporarily suspend Cambodia’s access to its Everything But Arms (EBA) trade agreement.
The EU has indeed expressed its concerns over the crackdown on democracy and human rights including the repression of the political opposition, media and civic space in light of the general elections of July 2018. The EU has repeatedly reminded Cambodia that respect for human rights and fundamental freedoms, including labour rights was a crucial part of the granting of EU trade preferences. In July 2018, the European Union assessed the human rights and labour rights situation in Cambodia in response to serious concerns about the undermining of democracy, respect for human rights and the rule of law in Cambodia and requested the Royal Government of Cambodia (RGC) to fulfil some conditions in addition to bringing back democracy and the respect of human rights in the country. On 11 February 2019, in view of the RGC’s failure in fulfilling its obligations under the EBA agreement and the continuing deterioration of the human rights situation in Cambodia, the EU Commission officially announced the beginning of the tariff preferences removal process.
As defenders of fundamental rights and labour rights, we fully understand the European Union’ position and decision. However, we are deeply worried that the EBA suspension will directly and negatively impact Cambodian people’s welfare and livelihood.
We believe that this situation can be avoided if the RGC takes appropriate steps to fulfil its obligations towards its citizens and effectively implement the Cambodian Constitution, especially Article 31 stating that “The Kingdom of Cambodia recognizes and respects human rights as enshrined in the United Nations Charter, the Universal Declaration of Human rights, and all the treaties and conventions related to human rights, women’s rights and children’s rights (…) “, Articles 41 and 42 which guarantee the fundamental freedoms of association, expression and assembly, as well as Article 52 stating that “ (…) The State shall give priority to the improvement of the living conditions and welfare of citizens”.
Amfori, Call on the European Commission to Persuade Cambodia on EBA
(…) [As] the leading business association for open and sustainable trade, amfori cannot ignore the serious shortcomings in human and labour rights that exist. With that in mind, amfori is:
– calling on the European Commission to make every effort to ensure that its investigation against Cambodia results in significant improvements to the conditions in the country.
– urging the Cambodian government to consider the serious economic and social impact that will occur should it lose its EBA status and to cooperate fully with the investigation and put into practice all the changes required to avoid this.
– advising companies with business links to Cambodia to engage in direct dialogue with the government, and local authorities, and support a satisfactory outcome of the investigation process
amfori believes that the investigation will achieve a mutually beneficial solution with Cambodia meeting the conditions required to retain its EBA preferences so that the livelihood of its workers in the garment and footwear industry will not be affected. The consequences of removing preferences would almost certainly be a fall in exports which would result in a lowering of development and employment. However, amfori would support any such decision, as a last resort, to lend credibility to the GSP system and show that penalties, as well as advantages, can occur.
Lawreniuk, Up in Arms
Um Dina, General Secretary of the Coalition of Free Trade Union of the Woman’s Textile, explained the anxiety and panic this is causing among garment and footwear workers: “The government said Cambodia will learn to live by itself. But the problem is that workers are those who will suffer hardship.” […]
In the current climate of harassment, intimidation and fear, the union movement’s ability to organise national mobilisations to press for change, as seen in the past, is severely curtailed. The workers, [unionist] Sokny says, “will tell you they are afraid. They will not go to take the road again, to demonstrate again. They are scared to God to be killed like them at the Veng Sreng shooting.”
But amidst the apprehension, there are glimmers of hope. Dina points to how brave some of the union folks and garment workers are, especially the women – some have gone so far as to make blatant requests for change on the Prime Minister’s Facebook page. (…)
“I think the anger of the Cambodian workers at the factory can ignite the problem. One day, there can be unrest. … Do you want more of us to die? I don’t want that. Only the workers, when they rise up, [will create] unrest, social unrest in Cambodia.”
Kiyoyasu Tanaka, EBA Scheme & the Future of Cambodia’s Garment Industry
Losing EBA benefits: A lesson from Myanmar
The potential impact of EBA suspension on the Cambodian economy is of great interest to policy makers and academics. For example, how much will the EBA suspension reduce garment exports? While there are a number of economic approaches to predict the potential impact, the precise magnitude often crucially depends on underlying assumptions in economic models such as an elasticity of substitution, import demand elasticity, and so on. Thus, the predicted impact can vary, casting doubts on the credibility of economic forecasts.
An alternative but unexplored approach is to draw from the recent experience of Myanmar. The EU suspended trade preferences for Myanmar in 1997 for forced labour, and re-established EBA preferences in 2013. While Cambodia’s recent economic environment is quite different from late-1990s Myanmar, it is reasonable to assume similar economic environments in these countries for the 2010s. From the re-establishment of EBA preferences for Myanmar, possible lessons can be drawn by looking at how much Myanmar’s garment exports increased after 2013.(…)
The loss of EBA preferences is likely to produce a substantial negative impact on the Cambodian economy, such as the closure of garment factories and job cuts for garment workers. Since female workers account for the majority of garment employment, this would particularly affect poor female workers from rural regions. A very rough estimate suggests that at least 60,000 jobs in garment factories would be lost.
Heng & Po, Cambodia and China’s Belt and Road Initiative
Furthermore, considering bilateral relations between Cambodia and the US under the Sinocentric world, Carl A. Thayer, emeritus professor at the University of New South Wales, argues that Chinese support will buffer Cambodia under Prime Minister Hun Sen’s leadership against domestic pressure by civil society groups and external pressure from the US to address inadequacies of democratic and human rights issues. Such action has led former US Secretary of State Hilary Clinton to advise Cambodia not to be too dependent on any country. Therefore, Cambodia must raise important matters related to the Mekong issues with China. However, Bae and Kim (2014) argue that such a pattern will be likely to continue even without Chinese assistance. (…)
However, Cambodia’s total acceptance of China’s Belt and Road Initiative can be a mixed blessing, considering a strong likelihood that Cambodia may fall into the Chinese debt trap and China’s sphere of influence. In addition, Chinese investments and development assistance, outside or inside the BRI framework, which very often target the few Cambodian elites, not the general public, may facilitate corruption and nepotism, further the exploitation of natural resources, and worsen human rights records in Cambodia. More importantly, as Cambodia enthusiastically supports China’s BRI and continue to receive China’s “no string attached” aid and loans, its foreign policy will be undermined and formulated in favor of China’s broader interests and influence in the regional and international arena.
Amnesty International, Human Rights, Trade and Investment Matters
A further innovation linking trade with labor rights occurred in 1993, when the United States incorporated a requirement that labor rights be respected as a condition of the North American Free Trade Agreement (NAFTA). (…) In 2002, the US Congress mandated that executive branch negotiators must include labor rights provisions in all future trade agreements. The United States also pioneered a novel incentive-based approach in a bilateral textile agreement with Cambodia (…)
In its textile trade agreement with Cambodia, the United States agreed to allow increased amounts of textiles to be imported from Cambodia if Cambodia implemented “a program to improve working conditions in the textile and apparel sector, including internationally recognized core labor standards” … The agreement was originally negotiated for a three-year term, from 1999 to 2003, and was subsequently extended until the end of 2004. Through the agreement, the United States not only granted an initial quota to Cambodia, but also pledged to increase the quota by 14% each year that working conditions in Cambodian factories were found to “substantially comply with such labor law and standards”. The US included these labor rights provisions partly as a reaction to increasing public anti-sweatshop and anti-globalization activism. (…) When the agreement was negotiated, these provisions were without precedent and appeared to herald a new era for a more rights-respecting international trade regime. By incentivizing improved conditions, the Cambodian agreement created the regulatory framework for a “race to the top”.
The Cambodian agreement focused on textiles because of an anomaly in the international trade regime, which allowed countries such as the United States to control textile imports through select quotas from different countries rather than treating all trading partners on the same terms. With relatively low capital investment and without a need for highly skilled workers, textiles were seen as a good entry-level manufacturing opportunity for poor countries to enter the global market. (…)
When the Cambodian agreement was signed, conditions in the country’s factories were generally regarded as very poor, on a par with similar conditions in other countries such as China, Bangladesh and El Salvador. As in many other countries, most of the factories in Cambodia were owned by Taiwanese and Hong Kong enterprises, and most of the workers were young women from the countryside. Cambodia agreed to the strict provisions of the trade agreement because the country, one of the poorest in the world, was almost entirely dependent on foreign aid and the goodwill of foreign donors.
The Cambodian Labor Code underwent substantial revision to meet international standards. However, the question remained of how improvements were to be undertaken and enforced. After the first year of the agreement, the United States agreed only to increase Cambodia’s quota by 9%, primarily to recognize that Cambodia had ratified core International Labor Organization (ILO) conventions and registered a labor federation. The United States would not have relied on Cambodia’s poorly resourced and corrupt labor inspectorate for an assessment of improvements. (…)
- How do international trade and investment agreements incorporate human rights clauses?
- What are the implications of EU’s EBA/GSP for governmental and corporate responsibilities toward human rights law compliance in Cambodia?
- What have the responses been from the civil society, trade unions, and business associations regarding the withdrawal of trade preferential tariffs from Cambodia?
- How should Cambodia prepare itself when concluding investment agreement after the withdrawal of EBA?
- What should Cambodian Trade Agreements focus on that they are not focusing on now?
- How is the Belt and Road Initiative affecting businesses’ responsibilities toward human rights law compliance?
- Is it of advantage to Cambodia to lobby for an ASEAN-wide trade agreement?
- What would be the impression when looking at the bilateral investment agreements concluded by Cambodia?
- What are the implications of a US preferential trade deal on governmental and corporate responsibilities toward human rights law compliance in Cambodia?
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