USTR Opens Unprecedented Section 301 Investigation into Nicaraguan Labor Rights Practices
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On December 10, 2024, the Office of the U.S. Trade Representative (USTR) initiated an unprecedented investigation into Nicaragua's acts, policies, and practices related to labor rights, human rights, and rule of law under Section 301 of the Trade Act of 1974.1 USTR's announcement asserts that "Nicaragua is engaging in repressive and persistent attacks on labor rights, human rights, and the rule of law" and that those practices "may burden U.S. commerce." Though Section 301 defines forced labor, child labor, and other labor rights abuses as covered unreasonable acts, the United States has never pursued a Section 301 investigation under that standard. If the investigation leads to an affirmative determination, USTR will then determine a remedy (which could include import restrictions). While unprecedented under Section 301, the initiation reflects increasing regulation of forced labor worldwide and the Biden administration's focus on labor rights.
The initiation notice's allegations
The initiation notice explains the general allegations against Nicaragua, which the investigation will examine in more detail. The notice raises concerns about labor rights violations, human rights violations, and a dismantling of the rule of law. The core of the allegation for Section 301 appears to be an argument that "increasing and pervasive labor and human rights violations and dismantling of the rule of law" harms U.S. companies and U.S. workers (i) by exploiting local workers to compete unfairly with U.S. companies; (ii) "by negatively impacting the Nicaraguan economy and market, with lost sales and exports for U.S. enterprises;" and (iii) "by lost investment and business opportunities for U.S. workers and companies, including through the creation of a high-risk environment to invest or conduct business [in Nicaragua]."
Section 301 standards and labor rights
Section 301 of the Trade Act of 19742 assigns authorities to USTR for investigating foreign government practices that are "unreasonable or discriminatory and burdens or restricts United States commerce," and taking appropriate action to obtain remediation of the practice. "Unreasonable acts," as defined in the law, includes "a persistent pattern of conduct that — (i) denies workers the right of association, (ii) denies workers the right to organize and bargain collectively, (iii) permits any form of forced or compulsory labor, (iv) fails to provide a minimum age for the employment of children, or (v) fails to provide standards for minimum wages, hours of work, and occupational safety and health of workers." USTR has never pursued a Section 301 investigation targeting labor rights-related unreasonable acts. Besides the alleged labor rights abuses having to meet the definition of an unreasonable act, USTR must also determine under Section 301(b) that the unreasonable act "burdens or restricts United States commerce."
Investigation process
Section 301 investigations take up to one year to complete, meaning USTR will not reach a decision until after President-elect Donald Trump assumes office. Judging by past practice, the initial phase of the investigation would take about four to six months to produce a preliminary determination. The preliminary determination would be followed by a second round of comments and another hearing. The final determination is supposed to be completed within 12 months. If USTR determines that there is a trade violation, then there is an additional process for determining the appropriate remedy. A negative determination, on other hand, would end the matter.
Potential for import restrictions
If USTR reaches an affirmative determination in the investigation, it will then begin considering its response options. USTR's initiation notice does not predict what actions it may take in the event of an affirmative determination. USTR has broad discretion for how it approaches Section 301 remedies, including imposition of trade restrictions; withdrawal, or suspension of trade agreement concessions; or negotiating binding agreements with the subject country to eliminate or compensate for the conduct in question.
Since the creation of the World Trade Organization's (WTO's) dispute settlement system in 1995, USTR has typically only used Section 301 processes to develop cases for WTO dispute settlement. Unilateral Section 301 actions and trade restrictions resumed under the Trump administration and have continued under the Biden administration. If the Section 301 investigation results in an affirmative finding, USTR could still choose to refer the matter to dispute settlement proceedings at the WTO or through the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). USTR has used the CAFTA-DR labor commitments and dispute settlement process to promote labor rights protections in the past.3
Call for public input and hearings scheduled
As part of the initial steps for the investigation, USTR is seeking information from the public to inform its determination about injury to U.S. industry and what policy measures the government should consider. The deadline for filing comments is January 8, 2025. A public hearing will then take place on January 16, 2025.
Besides seeking general input for the investigation, USTR's initiation notice mentions several specific questions:
- Whether Nicaragua's acts, policies, and practices related to labor rights, human rights, and rule of law are unreasonable or discriminatory towards U.S. business;
- Whether the practices burden or restrict U.S. commerce; and
- Whether actionable conduct exists under Section 301(b) and what action, if any, should be taken in response.
U.S. sanctions on Nicaragua
U.S. relations with Nicaragua have deteriorated significantly in recent years, with the United States protesting the erosion of democracy and human rights in Nicaragua and Nicaragua's expanding relations with U.S. adversaries. Both Presidents Trump and Biden have imposed targeted sanctions, including property blocking sanctions and visa restrictions, against senior officials in President Daniel Ortega's government and other entities that support the regime. In 2022, President Biden issued an Executive Order that authorized the Department of the Treasury to impose additional sanctions, including sectoral sanctions on Nicaragua's gold sector and potentially other sectors, and restrictions on trade and investment.4 Despite that authorization, the United States has not yet imposed broad trade sanctions. The Biden administration has not commented on whether it is initiating the Section 301 investigation in place of, or in addition to, the possibility of such sanctions.
1 "Initiation of Section 301 Investigation, Hearing, and Request for Public Comments: Nicaragua's Acts, Policies, and Practices Related to Labor Rights, Human Rights, and Rule of Law," 89 FR 101088 (December 13, 2024); also see the press release, "USTR Initiates Section 301 Investigation on Nicaragua's Acts, Policies, and Practices Related to Labor Rights, Human Rights, and the Rule of Law," USTR, December 10, 2024.
2 19 U.S.C. §§2411-2420
3 "In the Matter of Guatemala – Issues Relating to the Obligations Under Article 16.2.1(a) of the CAFTA-DR," USTR.
4 Executive Order 14088 of October 24, 2022: "Taking Additional Steps to Address the National Emergency with Respect to the Situation in Nicaragua," 87 FR 64685 (October 26, 2022); for more information on the sanctions program, see, "Nicaragua-related Sanctions," Office of Foreign Assets Control.
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