Wage policies may hamper FTAs

By Tu Jenn-hwa 杜震華  / 

Mon, Oct 08, 2012 - Page 8

Former Council of Labor Affairs (CLA) minister Jennifer Wang (王如玄) resigned at the end of last month over her disagreement with other Cabinet ministers about adjusting the minimum wage. On her way out, she cast doubt on another aspect of the government’s labor policy, saying that free-trade agreements (FTA) around the world all include sections devoted to labor affairs, and that making domestic and foreign workers subject to different regulations on wages and working conditions might make it impossible for Taiwan to sign FTAs with other countries.

Is Wang right about this? Would decoupling native and foreign workers’ wage conditions create a major obstacle to Taiwan’s efforts to sign FTAs? Does it mean that extra caution should be applied in planning Taiwan’s proposed free economic demonstration zones?

There is indeed a trend in advanced Western countries to include sections devoted to labor, or labor rights, in the FTAs they sign. This trend can be traced back to the North American Free Trade Agreement (NAFTA). To dispel domestic opposition to NAFTA and allow the agreement to pass smoothly through Congress, the US government added two side agreements to be negotiated and signed as part of NAFTA — the North American Agreement on Labor Cooperation and a similar one on environmental cooperation. Since then, any FTA signed between the US and other countries is sure to include sections of this sort. Canada and the EU also include such sections in their FTAs.

Among developing nations, only Chile gives a lot of weight to this kind of content in its FTAs. This might have something to do with Chile’s experience under the rule of former Chilean dictator Augusto Pinochet. However, hardly any FTAs signed between Asian nations include sections like these, the only exception being the one between Japan and the Philippines. The FTAs that South Korea and Singapore have signed with the US include sections on labor, because the US demands it.

Unfortunately, the Trans-Pacific Partnership (TPP), which Taiwan wants to join in 2020, clearly reiterates in the attached Memorandum of Understanding on Labor Cooperation that TPP partner countries must abide by the International Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at Work, which means that they cannot allow discrimination in employment. Furthermore, if Taiwan wants to sign an FTA with the US before it joins the TPP, then it will have to confront this question even sooner.

If Taiwan is serious about these partnerships and agreements, it cannot avoid dealing with this issue. Although up until now, there has been no effective follow-up on the labor clauses of FTAs, or penalties applied for failing to comply, there is still a risk of that happening. Notably, if one of the signatory countries of an FTA allows foreign migrant workers to be employed at a relatively low rate of pay, and this gives it a trade advantage in exporting goods to advanced countries, those countries can be expected to pay careful attention to the issue, and that will definitely heighten the risk of action being taken.

If a policy of decoupling the wages paid to foreign workers from those paid to native workers is to have the desired effect of increasing job opportunities for Taiwanese workers, it will have to be a nationwide policy, not one limited to certain special zones. Furthermore, if special zones were to promote differential wages for foreign migrant workers as an attraction, it is very likely that most of the investors it would attract would be labor-intensive manufacturers, and that is not in keeping with the original purpose for which special zones were set up.

One way to get out of this quandary would be to take transitional measures that could simultaneously achieve two goals — that of attracting Taiwanese businesspeople who have invested abroad to move their investment money back to Taiwan, and that of providing more job opportunities.

During the next eight years, businesses and households all over Taiwan should be allowed to employ foreign workers and domestic helpers and caregivers at different wages than those paid to Taiwanese workers. However, after four years businesses would have to readjust. This would result in the wages of about half of all foreign migrant workers in Taiwan being recoupled with those paid to Taiwanese workers. After a further four years, all foreign employees, including those employed by both businesses and households, would have to be paid according to the same standards that apply to native workers.

The main purpose of this proposal is to allow Taiwanese businesspeople who bring their investment money back to Taiwan to adjust and upgrade their business operations, while other existing businesses would also enjoy the same treatment, but to also help Taiwan avoid unnecessary risks when it joins the TPP in eight years.

During this adjustment period, Taiwan would not have problems signing FTAs with other Asian countries because they are not in the habit of including labor-related sections in their FTAs. Taiwan would probably not have problems signing FTAs with New Zealand and Australia either, because the FTAs that New Zealand signed with Hong Kong last year and those that Australia has signed with Asian countries do not include sections on labor issues.

The government should quickly make up its mind about whether to decouple foreign migrant workers’ wage standards from those that apply to native workers. However, this decision does not have to be a simple question of yes or no — there ought to be a third way available.

Tu Jenn-hwa is director of the Commerce Development Research Institute’s business development and policy research department.

Translated by Julian Clegg