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U.S., Guatemala Fail to Resolve CAFTA-DR Labor Dispute

United States Trade Representative Michael Froman announced Monday that a dispute between the U.S. and Guatemala under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) has not been resolved and will continue for at least an additional four months.

Froman said, “Today’s action recognizes the progress made in Guatemala to adopt reforms to improve labor law enforcement, but also recognizes that significant work remains. We will continue to work closely with the Guatemalan Government in these next four months to review the steps taken and assess whether the reforms are leading to concrete improvements in Guatemalan workers’ rights.”

The disagreement between the U.S. and Guatemala is over the implementation of an eighteen-point plan mutually agreed upon in April 2013 that addressed a bevy of labor complaints the U.S. brought against Guatemala in 2008 under CAFTA-DR. According to the U.S., Guatemala has been negligent in the practical implementation of the plan; while Guatemala has made some progress, hiring more than 100 new labor inspectors, and directing law enforcement to “facilitate labor inspector access to worksites and to verify employer compliance with labor court orders,” the U.S. still alleges that Guatemala has failed on most counts.

The eighteen-point plan in question was designed to strengthen labor rights and empower the government to vigilantly police their protection. It called for a wide spectrum of measures including annual inspections of Guatemalan companies for labor compliance, the revocation of all tax benefits for companies in violation of those regulations, new training for labor court judges, a streamlined judicial process for the hearing of labor cases and the passage of new labor laws.

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Last month, Froman and Secretary of Labor Thomas Perez met with Guatemalan Trade Minister Sergio de la Torre and Guatemalan Labor Minister Carlos Contreras to discuss a brewing dispute between the two nations over a labor enforcement pact they both signed.

According to Froman, especially distressing is the failure of the Guatemalan legislature to pass laws that make it easier to sanction employers who violate existing labor regulations. Froman said, “We will continue to work with our partners to strengthen enforcement of labor rights in Guatemala. Today’s meeting was an important opportunity to assess what progress has been made and where further efforts are necessary.”

CAFTA-DR, a free trade agreement that includes the U.S., Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, was concluded in 2005. The agreement’s intent is to reduce tariffs between the participating nations, liberalize markets and promote commercial transparency, ultimately furthering regional integration. Central America and the Dominican Republic combined count as the U.S.’s third largest export market in Latin America. Some believe Guatemala has great potential to develop into a major textile and apparel exporter, if only it could effectively reform its questionable labor practices. Besides geographic proximity to major export markets (U.S., Mexico, Central America) and access to both the Atlantic and Pacific oceans, Guatemala is an increasingly important source of raw materials including special woven fabrics, synthetic filament fabrics, knitted fabric, yarn fabric and others. It also has a well-skilled labor force. According to the Guatemalan Central Bank (Banguat), the flow of foreign direct investment (FDI) in 2011 was $984.6 million, a 22 percent increase compared with 2010. FDI is estimated to have increased 26.7% in 2012 to $1.2 billion.

Guatemala also participates in several free trade agreements besides CAFTA-DR that include Mexico and Taiwan. Many major labels produce in Guatemala including Adidas, Nike, Tommy Hilfiger, Old Navy, Gap, Abercombie & Fitch, Polo Ralph Lauren and others.