GLOBAL ECONOMICS


Patrick Grady and Kathleen Macmillan
Integrating Labour Standards
from Seattle and Beyond: the WTO Millenium Round (1999), Chapter 12.

Not on the Agenda?

The official position of WTO members is that labour standards are not on the WTO agenda. But it could be that the lady doth protest too much. The U.S. Administration is pushing hard for something on labour standards to take home from Seattle. Without this something, however symbolic it might be, it will be difficult, if not impossible, for the Administration to garner the necessary additional Democratic Party votes in Congress to pass the fast track legislation required for the successful conduct and particularly for a successful conclusion of the Millennium Round. The Administration is keen to find some way to quiet "fair-trade" Democrats and their supporters in the AFL-CIO, who have been railing tirelessly against the bogeyman of unfair competition from sweatshops in low-wage countries.

Developing countries, whose prosperity depends on exports of cheap labour-intensive goods to industrialized countries, are equally adamant that nothing be done to undermine their comparative advantage in these goods. Labour standards are for these countries nothing less than a politically correct cloak for protectionism.

The WTO wrestled mightily with these competing views at the 1996 Singapore Ministerial and came up with the following motherhood declaration:

"We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly the low-wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration."

Core Labour Standards

Labour standards are the responsibility of the International Labour Organization (ILO). The ILO is a UN-affiliated body made up of representatives of governments, workers, and employers from 174 member countries. Since 1919 , the ILO's annual Conferences have passed heaps of conventions on labour standards. Seven of these conventions constitute what the ILO calls "core labour standards:"

These so-called "enabling rights" do not cover wages or working conditions. Rather, they provide the framework within which wages and working conditions are determined. The trade unions that are well represented at the ILO are naturally enough big supporters of the right to freedom of association and collective bargaining. In this, they differ from some economists who believe that union monopolies distort resource allocation just like business monopolies and should be similarly outlawed.

For years, the ILO was content to sit around in Geneva with reams of its labour standard conventions that had yet to be ratified by all of its members. Only 35 members have ratified all seven of the core conventions. One of the worst footdraggers among its members was the current champion of labour standards, the United States, which had only ratified the convention on the abolition of forced labour. The problem was that unless a convention was passed by its members, the ILO had no mandate to monitor its application and enforcement.

With the debate on labour standards raging all about it, the ILO finally had to do something. At the ILO Conference in June 1998, a declaration was ratified by ILO members specifying that:

"all members, even if they have not ratified the Conventions in question, have an obligation arising from the very fact of membership in the Organization, to respect, to promote and to realize, in good faith and in accordance with the Constitution, the principles concerning the fundamental rights which are the subject of the Conventions, namely:
(a) freedom of association and the effective recognition of the right of collective bargaining;
(b) the elimination of all forms of forced or compulsory labour;
(c) the effective abolition of child labour;
(d) the elimination of discrimination in respect of employment and occupation.

With this new declaration, countries will be required to report annually on the progress they have made in meeting these four fundamental rights. The ILO will in turn issue an annual report on global progress. Hopefully, this report will be hard hitting and pull no punches. International public opinion can be a powerful force for improvement once the spotlight is turned on particular abuses of labour rights.

In the same June 1998 declaration, ILO members "stressed that labour standards should not be used for protectionist purposes, and that nothing in this declaration and its follow-up shall be invoked or otherwise used for such purposes; in addition, the comparative advantage of any country should be in no way called into question by this declaration and its followup." The language is almost the same as used in the WTO Singapore Ministerial declaration. Evidently, it is not only at the WTO that countries express their reservations about making links between labour standards to trade sanctions. Jawboning seems to be the preferred alternative.

Child labour is a particularly contentious issue. While everyone abhors the exploitation of children, there is genuine concern that efforts to prevent poor children from working could end up making them and their families even worse off. Some forms of child labour, though, are so abhorrent to everyone that it was possible to reach agreement to adopt a convention banning the worst forms of child labour at this year's annual ILO conference. The convention, which applies to all persons under 18, calls for measures to stop: "all forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage, serfdom and forced or compulsory labour; forced or compulsory recruitment of children for use in armed conflict; use of a child for prostitution, production of pornography or pornographic performances; use, procuring or offering of a child for illicit activities, in particular for the production and the trafficking of drugs; and, work which is likely to harm the health, safety or morals of children." In deference to the views of developing countries, there is no outright prohibition on work by very young children such as exists in almost all industrialized countries.

Cartoon by Clay Bennett, The Christian Science Monitor, Reprinted with his permission.
Cartoon by Clay Bennett, The Christian Science Monitor, Reprinted with his permission.

Why the WTO?

The WTO is not close to the hearts of most trade unionists. Many view it as an uppity institution, usurping national sovereignty and forcing reluctant governments to yield to global market forces. Yet at the same time, they do give it a grudging respect, which they may not have for their own handmaiden, the ILO. Trade unionists see the WTO protecting business from unfair competition and ask why it can't do the same for them. In their view, the threat of trade sanctions that the WTO has at its disposal is a powerful tool that can be wielded for good as well as evil. The ILO may be able to bark, but the WTO can bite. This is just what Trade unionists feel is needed to make rapid progress on labour standards after too many years of inaction. The trick is to get the WTO to put its teeth at the service of labour standards in a politically-acceptable and non-trade-distorting manner.

What, if Anything, is the WTO doing already?

In a nutshell, not much. Article XX (e) of the GATT (1947) permits WTO members to take measures against "the products of prison labour." Reference to slave labour, child labour or any other type of forced labour is conspicuously absent. Under the WTO agreements, a country could prohibit the import of products produced by prisoners, but could do absolutely nothing about goods made by slaves.

The NAFTA Approach

The North American Agreement on Labor Cooperation, which was tagged on to the NAFTA at the last minute, was a response to the fearsome prospect of Ross Perot's "giant sucking sound." While it does not establish common minimum standards, it commits the NAFTA partners to promote the following guiding principles:

These labour principles go far beyond the ILO's core labour standards. In addition, an institutional framework was established to oversee the agreement which includes a Commission for Labor Cooperation with a Secretariat in Dallas, Texas, and National Administrative Offices in each of the NAFTA countries. A dispute settlement mechanism was also created with consultation and arbitral panels.

The most common complaints under the agreement have been filed by US unions against Mexican companies that have allegedly violated the right of unions to organize. A complaint was also launched by a coalition of Mexican unions and supported by American unions accusing the Washington state apple industry of violating the rights of Mexican apple pickers and threatening their health and safety.

The achievements of the NAALC may not be very impressive to trade unionists. But even they must admit that the agreement represents a pioneering effort to introduce labour standards into a trade agreement. It might eventually serve as a model for a multilateral agreement under the WTO. However, the world is not yet ready to contemplate such an ambitious solution to the labour standards issue.

What can be done?

One of the most controversial proposals is to add a "social clause" in the WTO agreements that would allow trade sanctions to be used to enforce core labour standards. Under this proposal, the ILO would be responsible for monitoring compliance and identifying violations while the WTO would determine and administer the appropriate trade remedies. There is little enthusiasm for this proposal at either the WTO or the ILO, judging from the statements on using labour standards for protectionist purposes contained in both the WTO Singapore Ministerial Declaration and the ILO Declaration on fundamental principles and rights of work. The WTO does not administer multilateral sanctions, but authorizes compensating trade measures to restore previously negotiated trade benefits.

Another possibility would be to add a provision for products of forced labour similar to that for prison labour contained in Article XX of GATT 1947. Forced labour runs contrary to the fundamental principle of voluntary exchange which underlies market-based economies. Even though this proposal would not be a major change, it still could run into opposition from some developing countries.

Even more controversial would be the addition of a provision to Article XX for the products of children under, say, 12. But even from a narrow economic point of view, let alone the social, it is not in the interest of any developing country to allow children to work rather than to complete their primary education. And the labour of very young children is not voluntary and is usually forced by their parents constituting nothing more than a particular type of forced labour. Nevertheless, any restrictions on child labour would be strongly resisted by many developing countries.

The EU has an incentive scheme that provides extra benefits to developing countries that are eligible for lower GSP tariffs if they can demonstrate that they meet core labour standards. Other developed countries could also consider providing such a carrot. The EU, which opposes any efforts to use labour standards for protectionist purposes, advocates the use of such positive measures rather than the stick of trade sanctions. The EU is considering a proposal to establish of a some kind of forum to oversee labour standards. This forum could be inside the WTO, joint between the WTO and ILO, or outside the WTO entirely.

Through its Trade Policy Review Mechanism, the WTO should also be involved in monitoring labour standards, particularly in Export Processing Zones, which are directly related to trade. As part of a package of tax and other incentives, some countries have offered waivers from national labour laws, especially those relating to union rights, to foreign companies setting up in the EPZ. Other countries just don't enforce their labour standards in EPZs. In these limited cases, a direct link can be established between trade and lower labour standards.

The WTO and the ILO will definitely need to work together more closely to ensure that core labour standards are respected, and that, more generally, progress is made in improving standards of living and working conditions.

Nothing substantive may get done on labour standards in the Millennium Round. But there will at least be something symbolic. More substance will probably have to await future rounds. At least a start can be made now.

Freer trade will increase productivity and incomes. This may be the most important contribution of a successful Millenium Round to labour standards. As a rule, the countries with the highest incomes also have the highest labour standards. Labour standards, and not only cash standards, will improve with incomes. Some of the least developed countries still have the dismal labour standards that Dickens chronicled for England during the Industrial Revolution, largely because they have similarly low levels of income. Economic development and improved labour standards go together.