May 10, 2006

May 10, 2006 | WebMemo on Trade, Economic Freedom

Facts Ease Labor Pains Over U.S.-Oman FTA

This week, the House Ways and Means Committee will conduct an advisory "mock markup" of the proposed U.S.-Oman Free Trade Agreement (FTA), and the Senate Finance Committee will likely weigh in early next week. A challenge for the agreement is the perception that Oman is only weakly committed to protecting workers' rights. Not only is that a misconception, but the very structure of the FTA would further improve the country's labor standards and their enforcement. While a vote against the FTA on labor grounds probably will not halt Oman's continuing labor market reforms, it would signal that America's stance on labor rights is more rhetoric than substance.

 

The Facts on Oman

Before Congress gives up the economic and strategic benefits of a U.S.-Oman FTA for a principled stand on labor rights, it should review the following facts about Oman's record and the FTA:

  • Oman is a member of the International Labor Organization (ILO). It has ratified ILO conventions against various aspects of child and forced labor and is works closely with the ILO on labor rights.
     
  • Oman's labor laws allow the creation of worker representative committees that can define dispute resolution procedures, call strikes, and ensure that collective bargaining provisions are fair and comprehensive. These laws apply the same to women and foreign workers as they do to Omani men.
     
  • The U.S.-Oman FTA fully meets the labor objectives set out by Congress in its Trade Promotion Authority legislation. Labor obligations are part of the core text of the FTA.
     
  • As a part of the FTA, each government reaffirms its obligations as a member of the ILO and commits to keep its laws consistent with internationally recognized labor standards.
     
  • The FTA clearly states that it is inappropriate to weaken or reduce domestic labor protections to encourage trade or investment.
     
  • The FTA requires each government to provide workers and employers access to fair, equitable, and transparent labor tribunals.
     
  • The FTA outlines collaborative efforts to improve worker conditions and strengthen institutional capacity to administer labor regulations effectively.
     
  • The FTA requires each government to enforce its labor regulations or face monetary fines and possibly the loss of preferential trade benefits. This obligation is enforceable through the FTA's dispute resolution procedures.

In short, Oman has made significant progress in workers' rights in recent years, and the FTA builds on these gains and could accelerate future improvements.

 

A Worthy Trade Partner

In 2005, total trade between the U.S. and Oman exceeded $1 billion. The U.S. exported almost $594 million in goods to Oman, and Oman's exports to the U.S. totaled almost $555 million. Currently, most American exporters to Oman face a tariff rate of 5 percent, while the bulk of imports from Oman enter the U.S. market duty-free or face very low tariffs.

 

Under the FTA, all bilateral trade in manufactured goods would become duty-free. Oman would immediately eliminate tariffs that 87 percent of U.S. agriculture exports to Oman now face and phase out the remaining product tariffs within 10 years.

 

In addition to promoting fairer, freer trade in manufactured goods and agriculture products, the U.S.-Oman agreement would also create opportunities for America's service sector. Oman would open markets to U.S. firms exporting a variety of services, including audiovisual, express delivery, telecommunications, healthcare, and construction services.

 

While Oman's economy is small, a free trade agreement would bring real gains to consumers and firms in the U.S. and Oman. The FTA would benefit U.S. exporters and improve the investment and business environment in Oman, boosting economic opportunity and leading to greater economic prosperity.

 

Free Trade and Free Markets

Economic freedom, of which free trade is a major component, leads to faster economic growth and improved standards of living. According to The Heritage Foundation's Index of Economic Freedom,countries with freer trade policies experience higher per-capita GDP growth than countries that maintain trade barriers. Countries that opened their trade policies between 1997 and 2006 saw their per-capita GDPs grow at an average compound rate of 2.5 percent. Countries whose trade policies were unchanged experienced a growth rate of 2.1 percent. Finally, countries that increased their barriers to trade managed only a 1.8 percent growth rate.

 

These results support the 9/11 Commission's recommendation that "a comprehensive U.S. strategy to counter terrorism should include economic policies that encourage development, more open societies, and opportunities for people to improve the lives of their families and to enhance prospects for their children's future."

 

Consistent with the 9/11 Commission's recommendations, the Administration authorized the negotiation of a free trade agreement with Oman in 2004 as part of President Bush's plan to create a Middle East Free Trade Area (MEFTA) by 2013. This plan enjoyed broad bipartisan support at the time of the Administration's initial consultations with Congress. The FTA was signed in October 2005.

 

This agreement is about far more than trade. America's FTAs do more than achieve lower tariffs on U.S. agriculture, manufacturing, and service exports. FTAs also safeguard investors from discrimination and uncompensated expropriation of property, increase regulatory transparency, eliminate excessive red tape, protect and enforce intellectual property rights, combat corruptive practices, insure nondiscriminatory government procurement, protect labor rights, and strengthen environmental protection. U.S. FTAs include transparent dispute resolution and arbitration mechanisms to guarantee that the terms of the agreements, along with the rights of U.S. firms and consumers, are upheld.

 

In short, FTAs serve to promote U.S. interests, not weaken them. The U.S.-Oman FTA fits this mold perfectly.

 

Conclusion

If it is ratified, the Oman FTA will ultimately be validated by its strategic and economic gains to the U.S. Fears that the agreement would somehow undermine labor rights, hurt Omani workers, or put U.S. workers at a great disadvantage are unfounded. The facts of Oman's recent progress in labor rights and the FTA's safeguards point in the opposite direction. As well, this agreement is a crucial piece of the U.S. strategy of fighting terror through prosperity and liberalism in the Middle East. Vague concerns unsupported by the facts should not cause Congress to overlook that massive benefit.  

 

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Daniella Markheim Jay Van Andel Senior Analyst in Trade Policy
Center for Trade and Economics (CTE)