February 25
2021
Anjum Shabbir
Anjum Shabbir
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5th February 2021
Employment & Immigration External Relations & Trade

Op-Ed: “EU – Korea FTA panel ruling and a challenge for its effective implementation” by Yves Melin and Jin Woo Kim

In a nutshell

The Free Trade Agreement (FTA) dispute on labour rights between the European Union (EU) and Republic of Korea (Korea) is the first time that the EU has initiated dispute settlement procedures under a trade agreement to challenge violations of a third country’s Trade & Sustainable Development (TSD) obligations.

In this dispute, the EU won several claims against Korea’s Trade Union Act. However, the FTA panel found that Korea did not fail to make ‘continued and sustained efforts’ towards the ratification of four fundamental International Labour Organization (ILO) Conventions. As a next step, the EU could face difficulties in successfully implementing the FTA panel ruling, if Korea refuses to do so or delays the implementation. This is because, in this FTA as in all others, the EU relied on voluntary cooperation from Korea for the implementation of panel recommendations concerning the violation of TSD obligations.

 

Background

After raising its concerns that Korea failed to comply with its commitments on labour rights under the TSD Chapter (Chapter 13) of the EU – Korea FTA, the EU requested consultations in December 2018. As the consultations did not lead to a resolution of the dispute, the EU requested the establishment of a panel of independent experts in July 2019. In essence, the EU submitted two claims:

(i) Korea’s measures (four specific provisions of Korea’s Trade Union Act) are inconsistent with the first sentence of Article 13.4.3, in particular, the principle of freedom of association; and

(ii) Korea’s efforts towards ratifying four fundamental ILO Conventions are inadequate and, thus, Korea acted inconsistently with the last sentence of Article 13.4.3.

 

Panel’s finding 

With respect to the EU’s first claim on Korea’s Trade Union Act, the panel interpreted the first sentence of Article 13.4.3, the relevant part of which states: ‘[t]he Parties, in accordance with the obligations deriving from membership of the ILO […], commit 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 […]’ The panel found that the term ‘the obligations deriving from membership of the ILO’ in the context of the first sentence of Article 13.4.3 has the effect of creating a legally binding commitment on both Parties in relation to respecting, promoting and realising the principles of freedom of association as they are understood in the context of the ILO Constitution. The panel confirmed that the EU – Korea FTA reaffirms the existing obligations of the Parties under the ILO Constitution and has incorporated these obligations as separate and independent obligations under the TSD Chapter of the FTA.

Then, the panel found that three of Korea’s measures are inconsistent with the first sentence of Article 13.4.3, in which Korea is obliged to respect, promote and realise the right to freedom of association. The measures found to be inconsistent are the definition of ‘workers’, the definition of ‘trade unions’ and the requirement that trade union officials may only be elected from among the members of the trade union under the Korea’s Trade Union Act. The panel then recommended that Korea bring the relevant provisions of its Trade Union Act into conformity with the principles concerning freedom of association. However, the panel held that the EU failed to establish that a fourth measure, the discretionary certification procedure for the establishment of trade unions under Korea’s Trade Union Act, is contrary to Korea’s obligations under Article 13.4.3.

Concerning the EU’s second claim on Korea’s slow progress in ratifying the core ILO Conventions, the panel interpreted the last sentence of Article 13.4.3, which states: ‘[t]he Parties will make continued and sustained efforts towards ratifying the fundamental ILO Conventions […]’ The panel held that Article 13.4.3 imposes a legally binding obligation on the Parties to make ‘continued and sustained efforts towards ratification’ of the core ILO Conventions. The panel clarified that this is an obligation of ‘best endeavours’, which is higher than undertaking merely minimal steps or none at all, but lower than a requirement to mobilise all measures available at all times. The panel further explained that Article 13.4.3 imposes an ongoing obligation of efforts, not result, of the ratification without a specific target date or schedule. In other words, the fact that Korea has yet to ratify four fundamental ILO Conventions does not in itself serve as evidence of its failure to comply with the EU – Korea FTA. Considering Korea’s efforts in the ratification, particularly those taken since 2017 as acknowledged by the EU, the panel concluded that Korea did not act inconsistently with the last sentence of Article 13.4.3.

 

Challenge for implementing the panel ruling 

To implement the EU – Korea FTA panel ruling, the EU will discuss with Korea the implementation of the panel report in the next meeting of the TSD Committee. The EU is likely to exert pressure on Korea to revise the three measures under the Korean Trade Union Act found to be inconsistent with Article 13.4.3, and to expedite the ratification of four fundamental ILO Conventions. However, the dispute settlement procedures under the TSD Chapter of the EU – Korea FTA provide for a weak enforcement mechanism. The EU cannot unilaterally suspend tariff concessions under the TSD Chapter of the EU – Korea FTA, if Korea fails to implement recommendations from the FTA panel.

This is because the TSD Chapter of the EU – Korea FTA (as well as the TSD chapters of other EU trade agreements such as with MERCOSUR, and the recently concluded EU – China investment agreement) does not provide any right for a party to unilaterally impose retaliatory tariffs when another party fails to comply with an FTA panel ruling. This is a stark contrast to the Dispute Settlement Chapter, which explicitly provides for such an option. This means that the enforcement of sustainable development obligations under EU trade agreements ultimately depends on voluntary cooperation from third countries.

In fact, well aware of this weak enforcement mechanism, France and the Netherlands jointly issued a non-paper in May 2020, suggesting the inclusion of a possibility to impose rebalancing duties against non-compliant third countries in the TSD Chapter of EU trade agreements. However, there was no further discussion within the Commission to develop this idea. The implementation of the EU – Korea FTA panel ruling, and what Korea does next, is likely to cause the EU to revisit its current cooperation-based approach for the trade and sustainable development chapters of its free trade agreements.

 

Yves Melin is an International Trade and Customs lawyer based in Brussels. His focus is on trade remedies (anti-dumping measures, countervailing measures and safeguards), re-balancing duties, customs laws and procedures, sanctions & export and import controls. Yves is also a Member of the Editorial Board of the Global Trade & Customs journal and member of the steering committee of Customs & Trade Law Academy of the University of Liège, in Belgium.

Jin Woo (Jay) Kim is an International Trade and Customs lawyer based in Brussels. He advises clients on international trade and customs matters, including EU trade remedy proceedings, World Trade Organization dispute settlement, EU customs rules, EU-Korea trade relations, trade policy and the EU Carbon Border Adjustment Mechanism.

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