E.VEN ARDENT Free traders have their limits. Most would agree, for example, on the horror of imports involving slave labor. You could also sniff on things made by children or workers who cannot join a union of their choice. Since one person’s labor protection is another person’s protectionism, it has proven impossible to include such standards in global trade rules. However, America and the European Union (EU) aggravate themselves.
This year America added new rules to the books and tightened the enforcement of existing rules. 12 “retention release orders” were applied (WROs) mainly on products from China on the grounds that they were made in Xinjiang using forced labor. These enable customs agents to seize suspicious shipments. In order to secure their entry into the country, companies have to prove that the goods were not produced using forced labor.
The USMCAThe American agreement with Canada and Mexico, implemented on July 1, also offers opportunities for enforcement. All signatories must adopt forced labor import bans – Canada introduced its version in March. The agreement also provides for a number of labor reforms that Mexico must implement. And a new “quick reaction mechanism” enables independent experts to assess whether factory workers have been denied the right to organize – and if so, to apply targeted trade restrictions.
The EU worked mainly on enforcing pre-existing rules. At a hearing on October 8, she accused South Korea of violating the working rules set out in her bilateral trade agreement. Tariffs on imports from Cambodia were raised in August in response to human and labor rights violations. And more action seems likely. It has appointed a chief enforcement officer to facilitate the filing of such complaints. At his confirmation hearing on October 2nd, Valdis Dombrovskis, the EUThe new trade commissioner said he was ready to investigate “conditioning tariffs for certain sustainability results” in future deals.
Past experience shows that there are limits to how far such measures can spread and how effective they can be. Poorer countries are more reluctant to join them, complaining that they are a violation of their sovereignty and a ploy to neutralize their comparative advantage. Companies also despise them because they undermine the certainty trade deals are designed to generate. If rich countries take the rules too broadly, their own labor practices may also be reviewed. American negotiators have long been concerned – why the USMCA “The quick response mechanism requires that complaints against America be filed domestically first.
Overly harsh measures can also lead to unjustified disruptions in the supply chain. Earlier this year, American customs agents considered a WRO on all cotton imported from Xinjiang that could have affected billions of dollars worth of imports. But the opaqueness of supply chains means that such a move would likely also have resulted in some fairly manufactured products being banned. The idea is reportedly undergoing legal analysis.
Nevertheless, the activist trend persists. On September 22nd, the US House of Representatives passed a law that would force customs authorities to apply the broader one WRO (although the Senate is unlikely to approve). Joe Biden, America’s Democratic presidential candidate, is committed to both enforcing labor standards and calling for provisions for future trade deals. The EU plans to oblige companies to make their supply chains transparent.
What about the allegation that all of this reflects an onslaught of protectionism? It is difficult to see how the measures so far could bring jobs back to America or Europe, where wages are much higher than in the countries where their measures are normally aimed. And while there may be scope for enforcement tools to be used too broadly, there are certainly legitimate grounds to suspect that imports from Xinjiang are made using forced labor.
Within the USMCAThe process of persuading evidence from workers who are afraid of retaliation is so difficult that a wave of frivolous cases seems unlikely. Although the AFL-CIOThe American trade union had hoped to initiate legal proceedings against a Mexican producer by the end of September. This was not the case, partly because the pandemic made it difficult to collect evidence. “We want to make a strong argument first,” says Eric Gottwald of the AFL-CIO. Some rules and their limits have yet to be tested.■
This article appeared in the Finance & Economics section of the print edition under the heading “Working to Rule”.