Europe’s trade chief Cecilia Malmström is running into a formidable obstacle as she tries to rack up free-trade agreements across Asia: workers’ rights.
An accord with Vietnam, seen as her first big coup when it was finalized in 2015, now risks being kicked into the legislative deep freeze because of a political backlash over how the communist one-party state treats its workers. Senior European parliamentarians say it is far from clear that they will be able to ratify the pact.
This severe blowback over Vietnam is the harbinger of a significant new trend.
In part, it is French President Emmanuel Macron who is setting Europe’s more assertive tone. Promising a “Europe that protects,” Macron wants to hit back against populist parties by showing that the EU can cushion its workers against untrammeled free trade and unfair competition from Asian sweatshops. To do so, he wants to include sanctions in trade deals with countries that have a poor record on labor rights.
For now, it is the European Parliament that is holding a gun to Malmström’s head over Vietnam, a tiger economy of 93 million people. If there’s “no progress on human rights and especially on … labor rights, then the deal cannot be ratified by the European Parliament,” said Bernd Lange, a veteran lawmaker from the Socialists and Democrats group, and chair of the assembly’s trade committee.
“Workers are hired and laid off without any security, working times are not respected and workers who fight for fairer conditions have been fired” — Bernd Lange MEP
Lange said it was unfair for big manufacturers to use Vietnam as a cheap manufacturing base, with lower environmental standards, and then export goods tariff-free into the EU. Once seen as primarily a manufacturer of clothing and sportswear, Lange stressed that Vietnam was now a major exporter of smartphones and tablets. Hanoi says smartphones make up 21 percent of its exports.
“Workers are hired and laid off without any security, working times are not respected and workers who fight for fairer conditions have been fired … It cannot be that we drop all tariffs on such products and make them even cheaper here, without any improvements for the workers there,” Lange said, specifically referring to conditions in smartphone factories.
In response to the growing complaints, Malmström is taking a diplomatic, consensus-building approach with Hanoi, and is avoiding any threat of the sanctions that Macron would like to see.
On January 15, the Swedish commissioner sent a letter to Hanoi, seen by POLITICO, asking Vietnam’s government for “concrete progress” on “freedom of association and the right to collective bargaining” and said she would “pay close attention to the reform of the labor code.”
She called for a timetable on labor reform and also raised broader concerns about human rights and illegal fishing.
While the European Commission concluded its deal with Hanoi in December 2015, Malmström can still exert leverage for change in Vietnam because she has not yet sent the accord for ratification to the European Parliament or the 28 member countries.
The big debate in Europe is whether Malmström’s softly-softly approach will work. The stakes are high as Brussels is looking to expand its trade relations across Asia. It is aiming to revise its deal with South Korea and is negotiating with Indonesia. Talks with the Philippines are already effectively on ice over human rights concerns.
Brussels’ difficulties over Vietnam are partly due to the fact that the EU had originally hoped the U.S. would do its arm-twisting for it.
As part of the Trans-Pacific Partnership, a planned 12-nation trade grouping, then-President Barack Obama negotiated strict conditions, which would have forbidden Vietnam and Malaysia from joining the partnership until they locked in key reforms on enforcing minimum safety standards and allowing collective bargaining. The deal also included a dispute settlement system, which threatened sanctions if a country violated its commitments on rights.
European Union Commissioner for Trade Cecilia Malmström | John Thys/AFP via Getty Images
After President Donald Trump pulled out of the TPP, it became clear that Brussels itself would have to push for those changes to the labor code.
Macron’s trade “action plan” puts him more in line with Obama’s approach. If a state breaches its commitments to respect freedom of association, for example, or the right of trade unions to bargain over wages, the rules “should allow the EU to suspend tariff preferences.”
Socialist lawmakers in the European Parliament back that stance. In a debate on January 16 on labor rights in trade deals, Italian MEP Alessia Mosca said she supported a “phased sanctions approach that will go hand in hand with … monitoring.”
Malmström argued that the Commission was ready to step up enforcement, but cautioned “there is nothing that indicates a consensus emerging on a policy shift towards introducing trade sanctions.”
Parliamentarians are, however, increasingly skeptical that her approach works without a threat of action to back it up. They point to South Korea, which implemented a trade deal with the EU in 2011 but has still not ratified core International Labor Organization conventions.
“Too many requests on non-trade issues are not a good idea … It’s not so simple to ask a different country to change its labor code” — Senior Vietnamese official
Vietnamese officials also say they feel tricked, arguing the EU is asking for something that was not part of the deal.
While Hanoi did not have an official response to Malmström’s letter, one senior Vietnamese official said: “Too many requests on non-trade issues are not a good idea … It’s not so simple to ask a different country to change its labor code.”
The official argued that market access was already negotiated before the Commission started insisting on labor rights. “The EU is asking for something without giving something in return.”
On paper, that is not exactly true because labor rights are a binding part of the deal that Vietnam signed with the EU.
French President Emmanuel Macron is helping lead the European resistance against sweatshops | Ludovic Marin/AFP via Getty Images
“Each party reaffirms its commitment to effectively implement in its laws and practices the ILO conventions ratified by Vietnam and the member states of the European Union respectively,” the trade agreement reads. The agreement also binds Vietnam to making “continued and sustained efforts towards ratifying, to the extent it has not yet done so, the fundamental ILO conventions.”
But the accord doesn’t set a timeline for those changes, leaving a loophole for Vietnam to kick the can down the road.
Until the European Parliament sees “clear commitment” on a timeline of the reforms and some “concrete action,” Lange warned, “the deal will remain in the drawer.”