Peru Trade Promotion Agreement: Labor Issues
Released: 2010-01-21T00:00:00

Introduction

On April 12, 2006, U.S. Trade Representative Rob Portman and Peruvian Minister of Foreign Trade and Tourism Alfredo Ferrero Diez Canseco signed the proposed U.S.-Peru Trade Promotion Agreement (PTPA). The labor chapter of the PTPA includes enforceable International Labor Organization (ILO) core labor standards in addition to specific obligations on domestic labor law enforcement and a labor cooperation and capacity building mechanism. Despite the June 30, 2007 expiration of presidential "fast track" or "trade promotion authority" (provided by the Trade Act of 2002 , P.L. 107 - 210 ) to negotiate agreements that Congress then considers on an expedited basis—without amendment and under limited debate—Congress passed PTPA implementing legislation, the President signed it, and it became law as P.L. 110 - 138 on December 14, 2007. It went into effect February 1, 2009.

Incorporation of New Trade Policy for America into PTPA Labor Provisions

On May 10, 2007, after much negotiation, Congress and the Administration announced a "New Trade Policy for America." Pending U.S. trade agreements would be amended to incorporate "key Democratic priorities" relating to such issues as labor, the environment, access to medicine, port security, and government procurement that would "spread the benefits of globalization here and abroad by raising standards." The release also announced that "this policy clears the way for broad, bipartisan congressional support" for pending FTAs .

Key concepts in the new trade-labor policy include, for FTAs, fully enforceable provisions: (1) incorporating ILO core labor standards as stated in the 1998 ILO Declaration on Fundamental Principles and Rights at Work (henceforth referred to as the ILO Declaration ); and (2) prohibiting FTA countries from weakening laws relating to ILO core labor standards in order to attract trade or investment. They also include (3) new limitations on "prosecutorial" and "enforcement" discretion, so that FTA countries cannot defend failure to enforce laws related to the ILO core labor standards on the basis of resource limitations or decisions to prioritize other enforcement issues; and (4) the same mechanisms/penalties for settling labor, environment, and all other FTA obligations. The Administration released the "final text" of the Peru FTA incorporating these concepts on June 25, 2007. On June 27, 2007, Peru's congress approved the FTA-related amendments. Other FTA language previously agreed to by both countries also includes procedural guarantees to help ensure that workers and employers would have fair, equitable, and transparent access to labor tribunals. Both parties would ensure that (1) workers have appropriate access to tribunals for the enforcement of each party's labor laws; (2) the proceedings before such tribunals are fair, equitable, and transparent; (3) the tribunals' final decisions are in writing and made publicly available; (4) parties to the proceedings have the right to seek review and possible correction of final decisions; (5) tribunals conducting or reviewing the proceedings are impartial and independent; (6) parties to the proceedings could seek remedies such as penalties or temporary workplace closures to ensure the enforcement of their rights under labor laws; and (7) public awareness of domestic labor laws is promoted through public availability of information and encouraging public education regarding labor laws.

In addition, the agreement would require that the United States and Peru establish a Labor Affairs Council (Labor Council) comprised of cabinet-level or equivalent representatives to oversee implementation of the labor obligations, including the activities of the Labor Cooperation and Capacity Building Mechanism. The Labor Council would meet within the first year after the date of entry into force of the agreement and as often as necessary thereafter. Government representatives of the two countries would work together to establish priorities in specific cooperative and capacity-building activities. The Labor Council would establish guidelines, prepare reports, provide public communication, and be responsible for cooperating with the parties' points of contact.

Finally, the two parties agreed that cooperation on labor issues plays an important role in advancing labor commitments, including those embodied in the 1998 ILO Declaration and a 1999 ILO convention on the worst forms of child labor (including child trafficking, or the use of children in armed conflict, drug trafficking, or pornography). They would establish a Labor Cooperation and Capacity Building Mechanism to develop and pursue bilateral or regional cooperation activities on labor-related issues. Such initiatives would be aimed at establishing and strengthening alternative dispute resolution mechanisms for labor disputes.

Labor Market and Worker Rights in Peru

Peruvian President Alan Garcia took office for a five-year term at the end of July 2006, replacing outgoing president, Alejandro Toledo. President Toledo presided over a period in which Peru was one of the fastest growing economies in Latin America, largely due to growth in the mining and export sectors. In spite of the recent economic growth, over half of Peruvians live in poverty and a large portion of the population is underemployed. Unemployment and underemployment levels total 64.5% nationwide. Peru's labor market is relatively small compared with that of the United States. In 2005, the labor force of Peru comprised nine million workers, compared to 151 million workers in the United States. Recorded unemployment in Peru was 7.2% and labor cost per hour was $1.48 in 2005. In comparison, the United States had a recorded unemployment rate of 4.7% and an hourly labor cost of $24.42. The economic sector in Peru with the highest employment is wholesale/retail trade and repair services, followed by manufacturing.

During the regime of former President Alberto Fujimori (1990 to 2000), the government implemented a radical economic reform program to control hyperinflation and bring economic stability to the country. Part of the program included a wide-ranging privatization plan and a relaxation of foreign investment restrictions to help increase foreign investment. Existing labor laws were relaxed significantly during this time. In recent years, however, Peru has made much progress in strengthening labor protections by implementing labor law reform and protecting workers' rights. In 2002, Peru ratified the two ILO conventions on the abolition of child labor. In 2003, the government reduced the number of workers needed to establish a union, eliminated prohibitions on workers that kept them from joining unions during their probationary period, and limited the power of the labor authority to cancel a union's registration. In July 2004, the government published regulations to strengthen labor inspections and broaden labor inspectors' powers to allow easier access to firms, improved inspectors' ability to impose sanctions, and increase the levels of fines.

Peru has ratified 71 ILO conventions, including all eight core conventions on workers' rights. The ILO has stated that Peru has satisfactorily amended its laws to improve labor standards in certain areas related to freedom of association and protection of the right to organize. However, some critics argue that Peru has had some problems in the observance of the ILO core labor standards and that improvements must be made in Peru's legislation on collective bargaining.

Labor Provisions: Proposed PTPA vs. Other FTAs

The proposed PTPA was negotiated under the trade promotion authority in the Trade Act of 2002 ( P.L. 107 - 210 ) as were seven other trade agreements approved by Congress: the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), plus agreements with Chile, Singapore, Australia, Morocco, Bahrain, and Oman; and several agreements that are still pending (Colombia, Panama, and South Korea.) While many provisions of the free trade agreements (FTAs) are similar, the Peru TPA was the first to incorporate provisions reflecting the new congressional-administration trade policy. In addition, each of the eight agreements has some unique provisions. For the PTPA, unique labor provisions include some new reporting requirements and cooperative and trade-capacity building activities. Proponents and opponents typically cite the following strengths and weaknesses of the labor provisions of the PTPA.

Strengths of the PTPA Labor Provisions

PTPA Reinforces Peruvian Labor Reforms and ILO Commitments

Supporters argue that the PTPA reinforces Peru's labor reforms in 2003, 2004, and 2005. In addition, enforceable ILO core labor standards in the body of the agreement overlay and reinforce Peru's long-term ratification of 71 ILO labor conventions including all eight ILO core labor standards—two in each of the following categories: (1) the right to organize and bargain collectively (ILO Convention (C) 87 in 1960 and C98 in 1964); (2) freedom from forced or compulsory labor (C29 and C105, both in 1960); (3) prohibitions against child labor (C138 and C182, both in 2002); and (4) prohibitions against employment discrimination (C100 in 1960 and C111 in 1970).

PTPA Would Go Beyond Labor Protections in U.S. Trade Preference Laws

Proponents point out that "key Democratic priorities" include fully enforceable ILO core labor standards and the same dispute resolution procedures that were available for commercial disputes. The PTPA would go beyond protections afforded Peru under the Andean Trade Preference Drug Enforcement Act (ATPDEA, P.L. 107 - 210 ) and the Generalized System of Preferences (GSP, P.L. 98 - 573 , as amended), which set, for benefits eligibility, the lower standard of " providing or taking steps to provide " workers "internationally recognized worker rights."

Weaknesses of the Peru TPA Labor Provisions

Despite Recent Progress, Peru's Labor Laws and Enforcement Have Been Weak

Critics argue that, with enforceable ILO core labor standards in the language of the agreement, the main issues at this point are Peru's adoption of new labor laws and enforceability. They argue that recent Peruvian labor reforms have not reversed the weakening of labor laws during the Fujimori administration, and that both ILO reports and the 2005 State Department's Country Reports on Human Rights Practices document the failure of Peru's compliance with U.S. internationally recognized worker rights and ILO core labor standards. Such "failures" include (1) the lack of basic protection of the right to organize for (a) large numbers of workers "casually" employed as temporary or contract workers (and therefore not permitted to join labor unions of permanent workers) and (b) the 60% of all Peruvian workers in the largely unregulated informal sector; (2) reports of forced or compulsory labor practices, particularly involving indigenous families in remote areas, in violation of Peru's laws; (3) violations of child labor laws—an estimated one-fourth of all children between 6 and 17 years of age are employed, mostly in the informal sector including some in prostitution and narcotics production; and (4) non-compliance with minimum wage guideline s, in that roughly half the workforce earned the minimum wage or below, many of them in the informal sector.

ILO Core Labor Standard Language and U.S. Laws

Before the new PTPA language was released, some observers noted that the United States has ratified only two ILO conventions, while Peru has ratified all eight. In addition, the United States has some laws that may not totally conform with language of ILO conventions. A possible example is some state laws that permit employment-without-pay for prisoners. Consequently, they express concern that including enforceable ILO core labor standards into trade agreements could subject the entire U.S. labor code to challenges by trading partners. This issue is addressed by language in the PTPA that (a) restricts the application of the PTPA provisions to trade-related matters and (b) incorporates only the principles of the four basic ILO rights listed in the ILO Declaration and quoted on p. 4, footnote 2, rather than the detailed language of the specific eight conventions.

Projected Effect of PTPA on U.S. and Peruvian Workers

The proposed PTPA is unlikely to impact the aggregate employment level in the United States: U.S.-Peru trade accounts for only 0.3% of total U.S. merchandise trade (2005). However, it could impact jobs in specific industries. According to a report by the U.S. International Trade Commission (USITC), the largest U.S. employment gain (1%) is projected in wheat production. Declines are projected in metals (gold, copper, and aluminum), rice production, and miscellaneous crops (cut flowers, live plants, and seeds) which could "lose" up to 0.2% of their employment, displaced by imports. For Peru, various estimates of job "gains" range from less than 20,000 to 700,000. On the other hand, some labor groups argue that U.S. exports of basic grains could adversely affect the livelihoods of subsistence farmers in Peru, where agriculture is the main source of jobs.

Prospects

The Peruvian Congress voted 79-14 to approve the PTPA in June 2006 and it approved a set of amendments tied to the FTA on June 27, 2007. Gaining passage of a PTPA was a high priority for the government of Peru. Peruvian President Alan García Perez met with President Bush on October 10, 2006, and again on April 23, 2007, to discuss the free trade agreement. After the April 2007 meeting, President García said about the agreement, "It is vital for our country. It is fundamental to continue this path of growth and social redistribution that we have started in my country." House Democratic leaders had indicated they would not take up implementing legislation until after Peru changed its laws to comply with new labor (and other) provisions added to the PTPA. Peru is implementing its new labor obligations under the agreement through a series of "supreme decrees" issued by President Garcia. Peru had agreed to issue supreme decrees covering five areas: time-limited contracts, subcontracting, the right to strike, anti-union discrimination, and safeguarding the right to strike.

The House passed the Peru TPA implementing legislation, H.R. 3688 , on November 8, 2007, by a vote of 285 to 132; the Senate passed it on December 4 by a vote of 77 to 18; and President Bush signed it into law as P.L. 110 - 138 on December 14, 2007. Issues included how a PTPA might affect workers in both countries, and Peru's commitments to reforms, alleviating poverty, and enforcement. Some Peruvian policymakers believe that maintaining confidence in the bilateral trade environment with the United States is the key to the long-term stability of the region. While the Chamber of Commerce and the Business Roundtable strongly supported the Peru TPA, the AFL-CIO neither supported nor opposed it because the AFL-CIO has labor unions on both sides of the issue. Change To Win labor coalition, comprised of labor unions that formerly belonged to the AFL, urged Congress to oppose the PTPA.