{"id":8543,"date":"2021-10-07T08:54:28","date_gmt":"2021-10-07T13:54:28","guid":{"rendered":"https:\/\/cf.iisd.net\/itn\/?p=8543"},"modified":"2024-08-09T18:31:59","modified_gmt":"2024-08-09T16:31:59","slug":"the-trade-related-conundrum-of-the-eu-korea-fta-expert-panel-are-ftas-a-novel-forum-to-enforce-sustainable-development-goals","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2021\/10\/07\/the-trade-related-conundrum-of-the-eu-korea-fta-expert-panel-are-ftas-a-novel-forum-to-enforce-sustainable-development-goals\/","title":{"rendered":"The \u201c\u2018trade-related\u201d conundrum of the EU\u2013Korea FTA Expert Panel: Are FTAs a novel forum to enforce sustainable development goals?"},"content":{"rendered":"

On January 20, 2021, a Panel of Experts established under the EU<\/span>\u2013South Korea Free Trade Agreement (FTA<\/span>) found that South Korea was in breach of the FTA\u2019s sustainable development chapter. Under Article 13.4.3 of the agreement, the EU and South Korea \u201ccommit to respecting, promoting and realising\u201d fundamental labour rights, including the freedom of association, \u201cin accordance with the obligations deriving from membership of the [International Labour Organization] ILO<\/span>.\u201d[1]<\/sup><\/a> The EU\u2013Korea agreement is a new-generation FTA that includes a unique dispute settlement mechanism: following a 90-day consultation period, the parties may file a complaint to an ad hoc panel determining a potential breach of the FTA\u2019s sustainability chapter. In line with the EU\u2019s novel approach to promoting its sustainable development agenda with trading partners, the EU filed a complaint that Korean labour laws were inconsistent with Article 13.4.3 of the FTA.[2]<\/sup><\/a> In the recent Panel of Experts\u2019 report, the three panellists adjudicated two sets of EU claims: firstly, that Korean legislation does not adhere to the minimum standards of freedom of association as expressed in the ILO Constitution, and secondly, that Korea has not made continued and sustained efforts to ratify the ILO Conventions on the freedom of association (Conventions 87 and 98), as specified in the agreement.<\/p>\n

The decision created waves among practitioners and academics alike as it amounted to the EU\u2019s first victory in challenging the Trade and Sustainable Development (TSD) obligations of a contracting party under the FTA dispute settlement mechanism.[3]<\/sup><\/a> The lack of freedom of association rights under Korean legislation has been on the EU Members\u2019 radar for quite some time, as similar concerns surfaced during Korea\u2019s accession process to the OECD<\/span>.[4]<\/sup><\/a> The EU\u2013Korea FTA provided a forum through which the EU could voice these concerns and subsequently challenge Korean labour laws by subjecting them to international review. The panel held that Korea was in breach of Article 13.4.3, as its domestic labour legislation fails to grant certain collective bargaining rights and the freedom of association in accordance with ILO standards as reflected in the core conventions. Strikingly, the panel held that the EU\u2019s claims regarding Korean domestic labour laws were well-founded despite having no connection to trade under the FTA.<\/p>\n

This article unpacks the panellists\u2019 decision and draws parallels to the only other decision concluded concerning labour commitments under an FTA: Guatemala \u2013 Issues Relating to the Obligations Under Article 16.2.1(a) of the CAFTA\u2013DR.<\/em> This article examines the Panel of Experts\u2019 procedures and the issues arising with respect to FTAs as a source of future litigation to enforce sustainability objectives. These considerations are also relevant with respect to international investment agreements and FTAs including investment chapters. Increasingly, labour issues are addressed not only in FTAs but also in international investment agreements.<\/p>\n

A summary of the Panel of Experts\u2019 report<\/h1>\n

The panellists firstly uphold their jurisdiction over the EU\u2019s claims<\/h3>\n

The scope of the sustainable development chapter reads as follows: \u201cExcept as otherwise provided in this Chapter, this Chapter applies to measures adopted or maintained by the Parties affecting trade-related aspects of labour.\u201d[5]<\/sup><\/a><\/p>\n

The panel rejected Korea\u2019s position that the claims brought by the EU have no connection to trade under the EU\u2013Korea FTA (i.e., they are not \u201ctrade-related\u201d) and fall outside the scope of the agreement. The panel read that the commitments of the parties to respect, promote, and realize fundamental labour rights assumed under Article 13.4.3 represented an exception to the \u201ctrade-related\u201d requirement, as determined by the phrase \u201cexcept as otherwise provided in this Chapter.\u201d According to the panel, obliging a contracting party to adhere to fundamental ILO labour standards only for some sectors that are related to trade with the EU \u201cis clearly antithetical to the unambiguous meaning\u201d of the labour rights embedded in Article 13.4.3.[6]<\/sup><\/a> For example, Article 13.4.3(c) refers to the obligation to eliminate all forms of forced labour and not simply within particular sectors.[7]<\/sup><\/a> The interpretation was justified through an a contrario<\/em> comparison of Articles 13.4.1 and 13.4.2 and through a broader reading of the object and purpose of the agreement.[8]<\/sup><\/a> The object and purpose of the EU\u2013Korea FTA was interpreted as not simply to facilitate the free flow of trade under equally competitive conditions (as was interpreted to be the object of the CAFTA\u2013DR by the panel in Guatemala<\/em>), but rather the parties\u2019 national labour laws adhere to the standards enshrined in the parties membership obligations to the ILO.[9]<\/sup><\/a> The panel emphasizes that the FTA was constructed so as to provide a strong connection between trade and the promotion of fundamental labour rights, and concludes: \u201cnational measures implementing such rights are therefore inherently related to trade as it is conceived in the EU\u2013Korea FTA.\u201d[10]<\/sup><\/a><\/p>\n

The panel\u2019s approach differs from the arbitral panel\u2019s decision of Guatemala<\/em> in a dispute between the United States and Guatemala.[11]<\/sup><\/a> Here, the phrase \u201cin a manner affecting trade\u201d of the CAFTA-DR was interpreted as a narrow requirement that must confer a competitive advantage on the employer or enterprise engaged in trade with the parties to the FTA.[12]<\/sup><\/a><\/p>\n

The EU\u2019s first set of claims that the Korean Trade Union and Labor Relations Act (TULRAA) fails to adequately ensure the freedom of association<\/h3>\n

The panel firstly determined whether Article 13.4.3, in which the contracting parties \u201ccommit to respecting, promoting and realising, in their laws and practices, the principles concerning the fundamental rights, namely: (a) freedom of association and the effective recognition of the right to collective bargaining\u201d amounted to a legally binding obligation to implement the principles of freedom of association as expressed in the ILO core conventions (87 and 98). Despite Korea\u2019s lack of ratification of these conventions, \u201cthe principles concerning the fundamental rights\u201d was understood in the context of the labour obligations expressed in the ILO Constitution (arising from ILO membership obligations).[13]<\/sup><\/a> According to the panel, the parties\u2019 membership of the ILO creates an obligation to adhere to the principles of the freedom of association as explained by the ILO supervisory bodies and the ILO Committee on Freedom of Association (CFA).[14]<\/sup><\/a> Furthermore, the panel held that the term \u201ccommit\u201d provides for the legally binding link with these fundamental principles, rather than being a purely aspirational term.[15]<\/sup><\/a><\/p>\n

In examining the freedoms of association granted under Korean national employment legislation, the TULRAA, the panel upheld three of the EU\u2019s four claims. The following provisions of the TULRAA were found to be inconsistent with the fundamental principles concerning freedom of association as embedded in Article 13.4.3:<\/p>\n

    \n
  1. The legal definition of \u201cworkers\u201d under Article 2(1) of the TULRAA fails to encompass self-employed, dismissed, and unemployed persons, who are therefore not permitted to enjoy freedom of association rights.<\/li>\n
  2. Article 2(4)(d) of the TULRAA disallows non-workers (dismissed, unemployed, and self-employed persons) to join a trade union.<\/li>\n
  3. Article 23(1) of the TULRAA only permits members of the trade union to be elected as trade union officials, ex officio<\/em> excluding non-members and prohibiting full freedoms in electing trade union officials.<\/li>\n<\/ol>\n

    However, the EU failed to demonstrate that the discretionary certification procedure for the establishment of a trade union under the TULRAA results in \u201can impermissible constraint on the free formation of trade unions.\u201d[16]<\/sup><\/a><\/p>\n

    The EU\u2019s second claim concerning Korea\u2019s ratification of the ILO Conventions<\/h3>\n

    The EU also contended that Korea failed to \u201cmake continued and sustained efforts towards ratifying the fundamental ILO Conventions\u201d in compliance with the last sentence of Article 13.4.3. Despite the panel\u2019s remarks that the proposed bills to ratify only three of the ILO core conventions in Korean Parliament in 2019 was \u201cless-than-optimal,\u201d they concluded that these endeavours did not fall below the legal standard of making \u201ccontinued and sustained efforts.\u201d[17]<\/sup><\/a><\/p>\n

    The institutional mechanism of the Panel of Experts<\/h1>\n

    The establishment of an Expert Panel under an FTA is an innovative institutional mechanism to enforce TSD provisions.[18]<\/sup><\/a>\u00a0 Both parties to the dispute select one expert panellist, while the two appointed co-experts select a chairperson.[19]<\/sup><\/a> Laurence Boisson de Chazournes was appointed by the EU, Jaemin Lee was appointed by Korea, and these experts selected Jill Murray as the chairperson. A key task of the panel is to \u201cseek the advice of the Domestic Advisory Groups [DAGs] and competent international organisations.\u201d[20]<\/sup><\/a> DAGs are set up under the EU\u2013Korea FTA. They \u201ccomprise independent representative organisations of civil society in a balanced representation of environment, labour and business organisations,\u201d and provide advice concerning the implementation of TSD provisions.[21]<\/sup><\/a> The panel also refers to the general principles of the ILO Committee on Freedom of Association\u2019s Compilation of Decisions in its interpretation of the fundamental principle of the freedom of association.[22]<\/sup><\/a><\/p>\n

    The decision rendered by the panel adopts the form of recommendations, and the parties must \u201cmake their best efforts to accommodate advice or recommendations of the panel of experts.\u201d[23]<\/sup><\/a> The decision rendered by the panel is not legally binding, nor can the EU suspend their tariff concessions if the recommendations are not implemented.[24]<\/sup><\/a> In this respect, this mechanism differs from the U.S. approach to enforcing TSD obligations within its FTAs. For example, parties to the KORUS (the South Korea\u2013U.S. FTA) can impose trade sanctions or fines when TSD obligations are breached.[25]<\/sup><\/a><\/p>\n

    Despite the non-legally binding nature of the decision, a Committee on Trade and Sustainable Development, which is established under Article 15.2(1)(e), monitors the implementation of these recommendations.[26]<\/sup><\/a> It is therefore too soon to say whether the non-legally binding Trade and Sustainability Chapter of the EU\u2013Korea FTA can succeed despite lacking teeth, as the decision exerts pressure on the parties to comply with the recommendations. On February 26, 2021, the South Korean government proposed bills to ratify the ILO conventions pertaining to the freedom of association.[27]<\/sup><\/a> Recent panel decisions such as the one established under the EU\u2013Korea Panel FTA signal the development of a new practice in which policing sustainable development objectives is outsourced to ad hoc panellists under \u201ca special sui generis<\/em> arbitration system.\u201d[28]<\/sup><\/a><\/p>\n

    Looking Ahead: What does the decision mean for FTAs with trade and sustainability obligations?<\/h1>\n

    The panel\u2019s report represents a landmark in its suggestion that trade and fundamental labour rights are intrinsically linked: unlike the Guatemala <\/em>decision, no competitive advantage for the parties or impact on trade is examined. A new practice is thereby created in which the review of Korean labour legislation is outsourced to three panellists by virtue of an FTA regardless of its relationship with trade. Some commentators have suggested that \u201cthe panel has mistaken its role as arbiters under trade agreements as ILO enforcers.\u201d[29]<\/sup><\/a> In contrast, the narrow approach taken in the Guatemala<\/em> decision was criticized by senior politicians and trade unions representatives for making such labour provisions \u201cunworkable.\u201d[30]<\/sup><\/a> For example, the Guatemala<\/em> decision has shown that the evidence required to prove the competitive advantage conferred upon the employer engaged in trade under the FTA is a significant hurdle for claimants.[31]<\/sup><\/a><\/p>\n

    The Korea panel decision shows this ongoing tension between upholding sustainable development goals in exchange for market access via FTAs on one hand, and the resulting convergence of employment standards on the other. The panel had, however, rejected Korea\u2019s concerns that its reading results in a harmonization of labour standards, but rather that the parties intended to set a common \u201cfloor\u201d of universal labour rights inherent in the FTA\u2019s obligations to be members of the ILO.[32]<\/sup><\/a><\/p>\n

    The panel report feeds into a larger discussion on the role of FTAs in enforcing labour provisions. While TSD obligations in trade agreements are a significant step in promoting sustainable development goals, including the legislative freedoms of association, the lingering question is whether or not dispute settlement processes under FTAs or investment agreements are the way forward as opposed to strengthening other multilateral processes and institutions, such as the ILO. As long as such developments do not materialize, the political constituencies in major powers such as the United States and the EU will continue to push for including these types of mechanisms in trade and investment agreements.<\/p>\n

    From a policy perspective, the panel seems to have found itself caught between a rock and a hard place: the rock being encroachment on domestic legislation by large Western trading partners; the hard place resembling the pressing need to promote sustainable development goals that are not impeded by the \u201ctrade-related\u201d constraint.<\/p>\n

    The decision is a precedent that has opened a gateway for states to invoke TSD obligations in future disputes. What is emerging from this dispute is the linkage of sustainable development goals in FTAs to improvements in legal protections for workers towards international norms whether or not there is a trade advantage. As trade plus provisions become more frequently included in FTAs, it is likely that litigation involving ad hoc panellists adjudicating on compliance with minimum international standards to further sustainable development will continue to grow.<\/p>\n

    Author<\/h1>\n

    Rebecca Walker<\/strong> is an intern at the World Trade Organization. She holds an LL.M. in International Law from the Graduate Institute of International and Development Studies.<\/p>\n

    Notes<\/h1>\n

    [1]<\/a> EU\u2013South Korea Free Trade Agreement, Article 13.4.3.<\/p>\n

    [2]<\/a> The EU requested three other consultations under FTAs. Bondy, C., & Shin, K. (2021). The EU\u2013Korea FTA labor dispute: Comparing labor provisions under the EU\u2013Korea FTA and the KORUS FTA <\/em>(Steptoe & Johnson LLP Global Trade Policy Blog). https:\/\/www.lexology.com\/library\/detail.aspx?g=cb3811a2-1f3d-45a1-9517-b53b5ef37106<\/a><\/p>\n

    [3]<\/a>\u00a0 Melin, Y. & Kim, J. W. (2021). EU\u2013Korea FTA panel ruling and a challenge for its effective implementation<\/em> (EU Law Live 2021). https:\/\/eulawlive.com\/op-ed-eu-korea-fta-panel-ruling-and-a-challenge-for-its-effective-implementation-by-yves-melin-and-jin-woo-kim\/<\/a><\/p>\n

    [4]<\/a> The Nordic countries and Austria were particularly active in pressing Korean labour reform during Korea\u2019s accession process. OECD Members further \u201ctended to coalesce informally around Korea ratifying ILO Conventions 87 and 98\u201d as a prerequisite to Korea\u2019s accession to the OECD. Salzman, J. (2000). Labor Rights, globalization and institutions: The role and influence of the Organization for Economic Cooperation and Development. Michigan Journal of International Law<\/em>, 21<\/em>(4), 769-848.<\/p>\n

    [5]<\/a> Supra<\/em> note 1, article 13.2.1.<\/p>\n

    [6]<\/a> Panel of Experts Proceeding Constituted under Article 13.15 of the EU\u2013Korea Free Trade Agreement, para 66.<\/p>\n

    [7]<\/a> Supra<\/em> note 6, para. 65.<\/p>\n

    [8]<\/a> Peers, S. (2021). Free trade v freedom of association? The EU\/South Korea free trade agreement and the panel report on the EU challenge to South Korean labour law (EU Law Analysis). http:\/\/eulawanalysis.blogspot.com\/2021\/01\/free-trade-v-freedom-of-association.html<\/a><\/p>\n

    [9]<\/a> Ibid<\/em>.<\/p>\n

    [10]<\/a> Supra<\/em> note 6, para. 95..<\/p>\n

    [11]<\/a> As the Panel suggested, the context of the EU\u2019s claims differ to those previously raised by the United States in Guatemala, <\/em>as they were concerned with the failure to enforce collective bargaining rights and not with national laws meeting such minimum labour standards as prescribed in international agreements, as was the issue in the EU\u2013Korea Panel report. See Peers, supra<\/em> note 8.<\/p>\n

    [12]<\/a> Guatemala \u2013 Issues Relating to the Obligations Under Article 16.2.1(a) of the CAFTA-DR<\/em> (2017), para 190.<\/p>\n

    [13]<\/a> Supra<\/em> note 6, para. 107.<\/p>\n

    [14]<\/a> Supra<\/em> note 6, para. 108 et 110<\/p>\n

    [15]<\/a> Supra<\/em> note 6, para. 125 et 127.<\/p>\n

    [16]<\/a> Supra<\/em> note 6, para. 234.<\/p>\n

    [17]<\/a> Supra<\/em> note 6, para. 292.<\/p>\n

    [18]<\/a> Brown, C. M. (2011). The European Union and regional trade agreements: A case study of the EU\u2013Korea FTA. In C. Herrmann and J. P. Terhechte (Eds.), European Yearbook of International Economic Law<\/em>, 305.<\/p>\n

    [19]<\/a> Supra<\/em> note 1, article 13.15.2.<\/p>\n

    [20]<\/a> European Commission. (2009). EU-South Korea Free Trade Agreement: A quick reading guide<\/em> [Report]. https:\/\/trade.EC<\/span>.europa.eu\/doclib\/docs\/2009\/october\/tradoc_145203.pdf<\/a><\/p>\n

    [21]<\/a> European Economic and Social Committee. (n.d.). The EU-Republic of Korea Domestic Advisory Group<\/em>. https:\/\/www.eesc.europa.eu\/en\/sections-other-bodies\/other\/eu-republic-korea-domestic-advisory-group<\/a><\/p>\n

    [22]<\/a> Supra<\/em> note 6, para. 116 \u00e0 118.<\/p>\n

    [23]<\/a> Supra<\/em> note 1, article 13.15.2<\/p>\n

    [24]<\/a> Melin & Kim, supra<\/em> note 3.<\/p>\n

    [25]<\/a> Bondy & Shin, supra<\/em> note 2.<\/p>\n

    [26]<\/a> Croquet, N. A. J. (2015). The climate change norms under the EU\u2013Korea Free Trade Agreement: Between soft and hard law. In J. Wouters, A. Marx et al. (Eds.), Global governance through trade: EU policies and approaches<\/em>. Edward Elgar Publishing. 124-157.<\/p>\n

    [27]<\/a> Korea: Unions welcome government\u2019s move to ratify ILO core conventions after thirty years. (2021). Uni Global Union<\/em>. https:\/\/www.uniglobalunion.org\/news\/korea-unions-welcome-governments-move-ratify-ilo-core-conventions-after-thirty-years<\/a><\/p>\n

    [28]<\/a> Brown, supra<\/em> note 18, p. 305.<\/p>\n

    [29]<\/a> LeClercq, D. (2021). The Panel Report under the EU\u2013Korea trade agreement concerning labor practices: What are the purposes of trade agreements as they relate to the ILO\u2019s fundamental labor rights<\/em>? [International Economic Law and Policy Blog]. https:\/\/ielp.worldtradelaw.net\/2021\/02\/guest-post-the-panel-report-under-the-eu-korea-trade-agreement-concerning-labor-practices-what-are-t.html<\/a><\/p>\n

    [30]<\/a> Harrison, J. (2019). The labour rights agenda in free trade agreements. The Journal of World Investment & Trade 20<\/em>(5), 705\u2013725.<\/p>\n

    [31]<\/a> Claussen, K. (2020). Reimagining trade-plus compliance: The labor story. Journal of International Economic Law 23<\/em>(1) 25\u201343.<\/p>\n

    [32]<\/a>Supra<\/em> note 6, para. 82 et 85.<\/p>\n