Labour standards in international trade agreements

The International Journal of Human Resource Management 10:2 April 1999 351-375

Labour standards in international trade agreements: an assessment of the arguments

George Tsogas Abstract In the 1980s and 1990s organized labour in industrialized countries was hit by the demise of traditional manufacturing industries, the ever-expanding globalization of the economy and the ideological dominance of economic liberalism and free trade. Support for the introduction of labour standards in the world trade regime grew out of these conditions. This paper introduces an analytical framework for the study of labour standards in international trade agreements (LSITA) and provides a detailed examination of the individuals and organizations involved in the debate and an analysis of their arguments and activities. Experiences of LSITA fall into four categories: (i) unilateral: child and prison labour legislation and corporate codes of conduct; (ii) bilateral: the GSP programmes; (iii) multilateral: attempts in the GATT/WTO; and (iv) regional: the Social Charter of the EU and the labour side agreement of NAFTA. In the opposition group are neoclassical economists and free trade theorists; major international employers; and some Third World governments and economic elites. Â Among the proponents belong neo-Keynesians and neo-institutionalists; èthical’ international employers; trade unions; the ILO; governments and politicians in industrialized countries; and a plethora of NGOs and individual activists. Keywords trade.

Labour standards in international trade, workers’ rights, social clause in

Introduction Faced with diminishing living standards and unable to resist their marginalization, workers and trade unions in the USA and elsewhere, in the 1980s, often saw cheap foreign imports (such as Japanese and Korean cars or Taiwanese electronics) as the cause of their ills and raised their voices in support of trade barriers against them. Populist movements like the `Buy American’ campaign found support among workers in industries such as steel and car manufacturing, where Japanese import cars, in particular, were treated with resentment (see AFL-CIO, 1989). Others turned their attention to the conditions under which such products are produced, to discover in certain cases appalling conditions of employment: very long hours, low wages, dangerous workplaces where discrimination and intimidation from the employer and oppression from the state were the rule rather than the exception. In Shenzhen in China, some workers earn as little as one yuan (12 American cents) an hour for working 12±13 hours a day, seven days a week. In India millions of children, some as young as seven, work in carpet and textile factories. In Pakistan and Peru children are sometimes sold into slavery. Trade union leaders are jailed or even George Tsogas, Cardiff Business School, UK. Copyright Routledge 1999 0958±5192

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murdered. Hundreds of workers in the third world die in factory ® res every year. In manufacturing, the risk of being killed in a factory accident is six times higher in South Korea than in America, and 15 times higher in Pakistan. (The Economist, 1994c: 32)

As a result, during the 1980s, advocacy for the inclusion of standards regarding conditions of employment in the regulatory framework of international trade relations gained momentum in the US. This spread throughout the world in the 1990s. Even though the proposition of a `social clause’ in trade agreements is quite old (Hansson, 1983: 11±29; Charnovitz, 1986, 1987), it has acquired special signi® cance nowadays, within the context of a global economy. Supporters of labour standards in international trade agreements (LSITA) wish to join the interests of (quite often) unorganized Third World workers, threatened by repressive governments, with the interests of their colleagues in developed countries. They claim that, in a global economy, the rights of workers in developed countries can be safeguarded only when labour rights in lessdeveloped countries are also protected (Faux, 1990). Ensuring that social standards are `harmonized’ up, not down, is seen as a fundamental social challenge faced by advanced and developing countries as they become more economically integrated. Advocates of LSITA emphasize that the international trade system is not without its rules. Just as these already include codes which are bene® cial to corporate interests on intellectual property rights, market access and subsidies, they could also include socially bene® cial rules on labour standards and environmental protection (see Charnovitz, 1992). Otherwise, they claim, there is a risk of a global race to the absolute minimum that could undercut hard-won employment standards. For that purpose, labour standards legislation is intended to ensure that there is no de¯ ationary bias to the system and the bene® ts of expanded international trade are fairly distributed. The practical opportunity to achieve this goal arose with the establishment in 1995 of a global regulatory body for trade, the World Trade Organization (WTO). A social charter that de® nes minimum labour standards and a procedure for enforcement could potentially be included. The ILO has also been considered as a possible forum for the administration of LSITA and has certainly been a forum for bargaining on international labour standards for decades. ILO Conventions and Recommendations (the Ìnternational Labour Code’ ) are a solid point of reference for international standardization of conditions of employment. Inevitably, all discussions on LSITA refer to ILO Conventions and Recommendations and all de® nitions of labour standards are based on this code. Not surprisingly, the standard-setting work of the ILO has attracted considerable indignation from those who see it as a restraint on the functioning of free markets. They demand more `¯ exibility’ and less regulation (International Organisation of Employers, 1993). On the other hand, some Third World governments argue that national development policy has priority over international requirements. The importance of foreign investment for national development results in demands for `competitive’ labour-market structures, where wage levels, labour conditions and labour institutions have to adapt to the level of Third World economic `realities’ . Industrializing countries’ governments, and several others, are not convinced of the necessity for a social clause in trade. Disguised protectionism is the most common argument used against such a proposal. Currently, the debate is far from conclusive. The issues involved are many and complex. Organizations and individuals involved in the debate have expressed strong and varied views in favour and against.

Tsogas: Labour standards in international trade agreements

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A framework for the study of labour standards in trade The experiences gained from attempts at or cases of successful implementation of a social clause in trade agreements fall into four identi® able categories: unilateral, bilateral, multilateral and regional (Table 1). The unilateral approach involves the trade laws of a country containing a social clause that covers all its trade relations. Examples include legislation on imports produced by child or prison labour. Additionally, corporate codes of conduct relating to labour issues in the supplier±purchaser relationship could be included, as policy measures taken unilaterally by a corporation. The bilateral track involves workers’ rights clauses in trade relations between a country and its trading partners. Examples of this approach include: (a) the European Communities’ attempt to incorporate labour standards provisions during the Lom eÂII negotiations and the newly introduced labour standards clauses in its Generalized System of Preferences (GSP); and (b) the inclusion of labour standards in US trade legislation: the Caribbean Basin Initiative (CBI), the Overseas Private Investment Corporation (OPIC), the GSP and the 1988 Omnibus Trade and Competitiveness Act. The multilateral track embraces attempts to incorporate a labour standards clause in the GATT and the new WTO. Finally, the regional track includes social clauses in regional trade agreements such as the NAALC (the North American Agreement on Labor Cooperation, the labour `side agreement’ of NAFTA) and the Social Charter of the EU. The two opposing groups Organizations and individuals involved in the debate about a social clause in trade have expressed strong and varied views in favour and against. This paper presents, categorizes and assess the main arguments of those involved in the debate. Those opposed to LSITA (Table 2) are neoclassical economists and free traders; major international employers and transnational corporations (TNCs); Third World governments and political and economic elites; Â and some activists, who see the social clause as an instrument of neo-colonialism and paternalism and an interference in the internal affairs of the developing countries (Khor, 1994). In the supporters’ group coexist neo-Keynesian and neo-institutionalist economists and academics (see Herzenberg and Perez-Lopez, 1990); international employers who have developed èthical’ codes of conduct for their suppliers and subcontractors; tradeunion organizations at national (AFL-CIO, TUC) or international level (ICFTU [International Confederation of Free Trade Unions] and various International Trade Secretariats); the ILO as an organization and individuals within its ranks; governments Table 1 Levels of application for labour standards in trade Unilateral

Bilateral

Corporate codes of conduct

USA: CBI GATT OPIC WTO GSP 1988 Trade Act EU: Lom eÂII GSP

Child & prison labour legislation

Multilateral

Regional NAALC EU Social Charter

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Table 2 The two opposing groups on labour standards in trade Àgainst’

Ìn favour’

Neoclassical economists & free traders

Neo-Keynesian/neo-institutionalist economists & academics

International employers & TNCs

Èthical’ international employers Trade union organizations The ILO

Third World governments and economic elites Â

Governments and politicians in some industrialized countries

Activists

Activists & NGOs

and politicians in industrialized countries, such as the Clinton Administration, the French government and some EU of® cials; last but not least, a plethora of NGOs and a myriad of individual activists. In this grouping belong international labour solidarity and lobbying networks, such as the US-based International Labor Rights Education and Research Fund (ILRERF); informal coalitions and grassroots movements, human rights organizations that have developed an interest in and monitor violations of workers’ rights (Amnesty International, Human Rights Watch); various development, consumer, charitable and religious NGOs (e.g. Christian Aid); human rights and church activists, progressive trade unionists and scholars; and ethical-investing and shareholder activists. The arguments One of the most widely noted justi® cations for the establishment of a social dimension as part of any trade agreement is to avoid `social dumping’ . `The basic principle is that no partner in a trade agreement should derive competitive advantage from inadequate labour standards’ (Adams and Turner, 1994: 82). However, while the concept may seem straightforward, interpretation and conversion into enforceable measures remain hotly disputed and often stir counter-arguments of protectionism. In fact, these two arguments are commonly repeated in the debate over labour standards in trade: supporters of a social clause claim that it would discourage social dumping and promote `fairness’ , while opponents reciprocate with accusations of a hidden protectionist agenda. Next, we examine arguments for and against LSITA, and try to provide some assessment of their validity. The low labour standards debate Many proponents of LSITA have argued that the emergence of an increasingly integrated world economy requires an integrated world labour market, based on a set of universally applied minimum standards. The failure to reach this minimum platform would lead either to a general down-scaling of labour conditions or to major job losses in the industrialized countries (Sengenberger, 1994: 395). Opponents of LSITA argue that low standards do not necessarily imply low wages, and, even if they did, competitiveness does not necessarily depend on low wages or weak labour standards. If low labour standards are indeed at the source of any competitive advantage, then they should be correlated with low labour costs. Theory and empirical evidence provide little reason to expect that differences in standards contribute signi® cantly to differences in costs of production and hence to trade and investment patterns, but evidence is not


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conclusive. Nevertheless, at least in some cases, raising labour standards would imply only marginal increases in labour costs, and thus in total production costs (Bhagwati, 1994: 26±8). As far as workers’ safely standards are concerned, for instance, a stricter observance of existing regulations or the introduction of more stringent standards may indeed lead to cost savings, when additional expenses for occupational diseases and accidents are taken into account at the levels of both the ® rm and of the economy as a whole. In fact, one needs to consider not only the cost of repairs to installations and equipment, ® nancial compensation to the worker involved and/or the necessity of providing bene® ts in kind in the form of medical care or medicines, but also more indirect burdens such as possible disruptions in supply or low capacity utilization due to workers’ absence, also the necessity to retrain replacement employees and the possibility that a ® rm with a bad reputation for safety may become unable to attract good and productive employees (ILO, 1986). Thus, implementing labour standards is not merely an economic issue, but also has important cultural and social implications that need to be taken into careful consideration. This topic is discussed in more detail below. Do low labour standards give a comparative advantage? There is no empirical evidence either refuting or proving that lax workers’ rights lead to a competitive advantage in trade. An OECD study (1996) examined the possible impact of differences in labour rights on international trade and foreign investment ¯ ows, concluding that it is impossible to prove (or disprove) the existence of an empirical link between these standards and overall trade performance (or foreign investment). In other words, the view that non-observance of core labour standards gives rise to unfair trade practices cannot be proven (or disproven) empirically. Thus, there is no global correlation between real wage growth and degree of respect for freedom of association. Conversely, there is nothing to show that countries with weak standards have globally better export performance than those with high standards. Contrary to what is thought by those who subscribe to the unfair competition view, failure to observe core labour standards can hamper a country’ s economic ef® ciency and the growth of its exports. Exploitation of labour and discrimination in employment are liable to perpetuate an inef® cient economic situation over the long term. Child labour exploitation, for example, hinders the development of human capital and thus retards productivity gains. Discrimination in employment results in situations in which certain workers are not employed in the positions where they would be most productive. And the lack of freedom of association undoubtedly makes it more dif® cult to introduce modern methods of human-resource management and generates an unstable social climate which does not encourage productive investment. It follows, therefore, that countries with low standards can strengthen them without fear of this having an adverse impact on their long-term economic development. As Freeman puts it, good standards simply do not drive out bad ones (Freeman, 1994). To a large extent, a country can choose its own desired level of social protection; labour standards are still far from being equalized, even in closely integrated European countries. Even if a correlation between lax labour standards and low wages could indeed be established, competitiveness does not depend only on low wages. Much of the difference in wages is simply the result of differences in labour productivity, in turn resulting from differences in educational standards, availability and reliability of

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infrastructure (roads, railways, electricity), communication services, technology, etc. At the heart of this argument lies the issue of low wages in developing countries. Low wages and LSITA One of the most commonly repeated points of friction in the debate over a social clause in trade involves the issues of wages. Many commentators and critics of LSITA understand a social clause as primarily affecting wages in developing countries. Third World governments have been especially vigorous in that criticism. In their view, low wages represent a legitimate comparative advantage and, in fact, they claim, this is the only one that they possess. On the other hand, proponents of LSITA claim that it is not low wages that create ùnfair’ trade. It is the combination of low wages and possibly other poor working conditions such as unhealthy and dangerous working environments, with high productivity (sometimes equal to that of industrialized countries in certain industries, such as electronics in Malaysia) coupled with the suppression of basic worker rights (freedom of association and collective bargaining) by authoritarian regimes that creates `cut-throat’ competition. Proponents of LSITA make one very important distinction at this point. It is not countries in general that are to be blamed, but rather actions and policies generated by TNCs and local political and economic elites; Â they acknowledge that fact that countries do not trade ± ® rms do (Zachary, 1995). There is evidence ± albeit not undisputed ± that trade is a source of unemployment and declining wages, particularly for low-skilled, young males in developed countries (Wood, 1994). Moreover, other factors, such as technological change, could also account for job losses. Nevertheless, international businesses have frequently played the `foreign competition’ card to win concessions in wages, hours of employment, health and safety standards and other working conditions from their workers or to derecognize trade unions. Unfortunately, this is the logic of deregulated globalization. Some political and economic elites are more than happy to go along with it. They have often prospered on the foreign capital that is invested and the new business opportunities that arise (Barnathan, 1994). Labour standards and the relocation of industries De Gray (1994:14) notes that the issue of LSITA, particularly for Western European countries, is not just restricted to imports but in fact is deeply connected to fear of massive relocations of industrial activities to Third World countries, due to the lower labour standards and wages prevailing in these countries, a process commonly refer to as `social dumping’ . One reason for getting a social clause into the GATT is to give a signal that ® rms moving production facilities to Eastern Europe, or to South Asia, with the prospect of exporting back to the European market, may face a new barrier. Whether this fear is justi® ed is debatable, but, for one thing, when considering the huge differences in wages that exist between countries, it seems inevitable that a relocation of some labour-intensive operations will take place (OECD, 1993). And some has indeed already taken place, although on a smaller scale than most analysts believe. However, opponents of LSITA point out that this trend is likely to be offset by exports of technology-intensive components, marketing and design services. Likewise, as the share of low-skilled labour costs in total costs decreases and capital costs, R&D, marketing, etc., increase in importance, lower wages and lower standards are likely to become progressively less important determinants in decisions on the location of manufacturing activities. Moreover, ¯ exible production methods, which have stricter requirements of quality and reliability, are more vulnerable to bottlenecks, and thus less suitable to the infrastructure and facilities of most LDCs. However, this view fails to


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take into consideration the fact that these modern manufacturing methods standardize and de-skill the production process, so that it could be broken down into discrete segments, from which the labour-intensive segments could be carried out by low-skill workers almost anywhere in the world Nonetheless, opponents of LSITA argue that conditions of employment in developing countries will hopefully improve over time, as will workers’ educational records and productivity. Then, if those developments prove over time to be long lasting, labour practices and wages are likely to begin improving in the LDCs. This may prove a long process, however, and fears that those adjustment processes might be painful for less skilled workers in the industrialized countries are mounting. In this respect, opponents of LSITA would argue that the direct effects of labour standards prevailing in LDCs on the welfare of less-skilled workers in industrialized countries are likely to be small, especially in comparison to the effects of the spread of technological innovations or to those that can be attributed to the rigidities of the labour market, or to the heavy taxation of income, especially in Western Europe. Thus, in the eyes of opponents of LSITA, pushing for improvement in the status of workers in developing countries is no recipe for solving the industrialized countries’ , particularly Western Europe’ s, problems of unemployment and growing joblessness; the causes of these problems are to be found much nearer to home. To that extent, the proposition of a social clause in trade is treated with suspicion as bound to hide protectionist sentiments. Protectionism, economic and social growth and labour markets The most cited argument against LSITA is that of protectionism. Third World governments and economic elites Â have been particularly vocal in using that criticism. The fact that there is a distinct possibility that a social clause could be incorporated into the international trading regime has alarmed many governments, particularly in South East Asia. They charge industrialized countries and special interest groups within them (such as trade unions and NGOs) with, in retaliation for the erosion of their countries’ dominance in world markets by cheap, high-quality imports from developing countries, wanting to impose on the developing world standards that are inappropriate for their level of development. The motive they attribute to the proponents of a social clause is that they wish to penalize developing countries for taking full advantage of their comparative advantages ± particularly low wages ± to compete in world manufacturing (Islam, 1994: 82). There is also apprehension that acceptance of a social clause, including a core of labour standards, could act as the thin edge of a wedge, with further and unknown conditions being added later (Smyth, 1994: 51). On the other hand, governments in developed countries have taken positive steps to incorporate social clauses in regional integration schemes, such as the North American Free Trade Agreement (NAFTA) and the European Union (EU), and have steadfastly rebutted any claims of protectionism. The Clinton Administration in the USA achieved the inclusion of a labour `side agreement’ in NAFTA. Furthermore, in the run-up to the mid-April 1994 signing of the Uruguay Round of GATT in Marrakesh the US, France and the EU took the lead in insisting that a social clause be considered by GATT’ s successor, the World Trade Organization. The US government and the EU agreed that, against the background of world trade liberalization and growing global interdependence, the inclusion of a social clause was both timely and appropriate. Nevertheless, faced with opposition from developing countries, notably Singapore and Malaysia, they backed away and succeeded only in keeping the door open for future discussions under

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the WTO preparatory committee (Business Europe, 1994: 1; Free Labour World, 1994: 3). Views of national and international trade union organizations Trade union organizations in developed countries have also been very careful to distance themselves from any accusations of a hidden protectionist agenda. National federations, such as the AFL-CIO, international federations, like the ICFTU and the WFTU and International Trade Secretariats (ITSs), such as the International Metalworkers’ Federation (IMF), and especially unions in the developing countries have been active campaigners and enthusiastic supporters for LSITA. The IMF has advocated the incorporation of a social clause in the GATT since 1976 (Hanson, 1990: 91, 101) and considers as the essence of the social clause the following four principles: 1 The right for all workers to form and/or join free and independent trade unions of their choice. 2 The right of all workers to negotiate collectively their wages and other conditions of their employment. 3 The abolition of slave and child labour. 4 Making all forms of discrimination in employment, whether based on creed, nationality or gender, illegal. (Malentacchi, 1995: 12)

In addition, the IMF identi® ed TNCs as the main source of worker rights violations (às it enables them substantially to increase their pro® ts’ ), along with the governments of those countries which àllow the exploitation of their citizens by agreeing to such conditions’ (Malentacchi, 1995: 12). Similarly, the ICFTU has campaigned extensively for the inclusion of a social clause. Its proposals contain two key elements. First, a social clause should be based on àlready agreed and widely rati® ed international standards contained in ILO Conventions’ . Second, such a clause should introduce an implementation process whereby the ILO would be the competent authority to investigate and report the implementation of labour standards. Speci® cally, under the ICFTU proposal, a joint advisory body of the WTO and the ILO would recommend appropriate measures to a country `falling short of its obligations. . . . Such measures could include better enforcement of laws and regulations through a strengthened labour inspectorate.’ Further, progress would be monitored and, if adequate measures have not been implemented within a year, the matter would be referred to the WTO for trade sanctions to be considered (UNCTAD, 1994: 356). The London-based International Centre of Trade Union Rights (ICTUR) was established at the 1986 Congress of the World Federation of Trade Unions (WFTU) on the initiative of the Portuguese trade-union centre InterSindical and some British trade unions. It ® rst set up of® ce in Prague in 1987 as a research and campaign centre for workers’ rights and publishes International Union Rights. AFL-CIO’ s involvement has been two-fold. At home, it has campaigned against NAFTA and its expansion to the rest of the Western hemisphere, unless workers’ rights are safeguarded; lobbied for expansion of workers’ rights provisions; and ® led petitions to the US Trade Representative (USTR) for review of the GSP status of countries allegedly violating workers’ rights. Abroad, it has established a network of `friendly’ trade unions and overseas centres which have been monitoring workers’ rights and providing feedback to the US. However, not all of AFL-CIO’ s involvement has been viewed positively by those affected but has, to a certain extent, fuelled suspicion in


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developing countries. On 1 June 1987, the AFL-CIO submitted a petition to the USTR urging the withdrawal of GSP status from Singapore, on the grounds of having violated workers’ rights. That action was taken without any consultation or dialogue with trade unions in Singapore (the Singapore National Trade Union Congress, NTUC, or any of its af® liates) and raised considerable objections from the NTUC regarding AFL-CIO’ s motives. The NTUC accused the AFL-CIO of hypocrisy and bullying as well as lack of the simple courtesy of consulting a fellow member of the ICFTU before it took actions that could affect NTUC’ s members (Singapore NTUC, 1987). Ever since, the AFL-CIO and its associated labour bodies have adopted a much more cautious approach, rallying other trade unions to pledge their support for a social clause as a fundamental rights issue, in a ® ght against `big capital’ , careful to avoid any `North vs South’ confrontation. Practically every independent trade union organization from every country in the world, North and South, has supported the establishment of worker rights clauses in trade pacts. Every major business organization, North and South, has opposed this linkage. The division on this question in not North vs. South, but capital vs. labor. . . . The AFL-CIO and other world unions want to see rights respected in all countries. No worker should be beaten, jailed or ® red simply for joining a union and seeking to negotiate a collective contract. Trade unions also want to see standards respected in all countries, but standards appropriate to each country’ s level of development. No one expects that the minimum wage in, say, the Dominican Republic can be set equal to the U.S. level. But unions do expect that Dominican workers, through the democratic process, will be able to democratically participate in the establishment of a minimum wage appropriate to their country’ s level of development, and that once established, the wage will be fairly enforced by the government. (Jessup, 1994: 12)

Views from academia Academic circles have traditionally provided strong support for workers’ rights. Professor Ray Marshall (1987, 1988, 1989, 1990), former Secretary of Labor in the Carter Administration, was among the ® rst to analyse labour standards in trade from a theoretical perspective. He placed a ® rm focus on the role of TNCs and their operations and acknowledged that the claim for LSITA arises out of the global character of the economy and of the position of the TNCs in fully utilizing their power in order to shift jobs around the globe, win concessions on wages and conditions of employment and avoid collective bargaining agreements and national labour legislation. The extensive US experience in linking trade and labour standards has attracted the interest of many researchers from this group and has been studied extensively by Charnovitz (1986, 1987, 1992), Perez-Lopez (1988, 1990), Herzenberg (1988), Ballon (1987), Compa (1993) and Compa and Diamond (1996). Many arguments in favour and a lot of active support for the incorporation of labour standards in trade agreements has originated in the relatively small but ceaselessly untiring academic community which identi® es with the scope for a social clause. Several arguments have been put forward in favour of LSITA, or, according to Van Liemt (1989), a `rationale of a social clause’ : For one thing, it is said, such a clause would promote fair competition between developing country exporters by ensuring that those who respect minimum labour standards are not penalised for their efforts to promote social development. For another, it would enable working people to bene® t from increased trade. Without such a clause increased international competition might lead to à destructive downward spiral in the

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conditions of work and life of working people all over the world’ . Worse, Western countries would be collaborating in the exploitation of workers in Third World countries if they failed to press for the adoption of universal minimum labour standards. Finally, it is argued that, without a social clause, the pressure for increased protectionism would be much harder to resist. (Van Liemt, 1989: 434±5)

Theoretical perspectives on labour market functions The aforementioned disparate points of view on LSITA underscore opposing views on the function of labour markets as agents for economic and social growth and deepseated beliefs that higher labour standards (particularly when imposed through legislation) could result in loss of `competitiveness.’ On the relationship between labour standards and economic and social development, a theoretical divide exists between `neoclassical’ (Fields; Srinivasan; Fallon; and Riveros, 1990) and `neo-institutional’ (Piore; Banuri; and Singh, 1990) economic approaches (Herzenberg et al., 1990: 4). Opposition and support for the incorporation of LSITA stems from opposing views on the process of economic development and the function of labour markets. The disagreement between the two schools of thought is about the type of labour standards and labour market policies that would best achieve productivity and output growth. The divide runs along disparate views on three dimensions: (1) the micro-dynamic (neo-institutional) as opposed to static (neoclassical) allocative ef® ciency of modern business strategy; (2) the macro-economic consequences of labour standards and labour-market regulation; and (3) the `governance’ (neo-institutional) compared to liberalization (neoclassical) approach to labour relations and labour market institutions. Neoclassical economists and free traders The neoclassical view believes in the selfregulatory mechanism of free markets (Fields, 1990 and for a reply on Korea, see You and Chang, 1993). Fields suggests that once a `minimalist’ list of conditions in the labour-relations process has been achieved (prohibition of slavery and employment of children, freedom of association and relative safe working conditions) then, `labour standards might best be gauged in terms of labour market outcomes’ (Fields, 1990: 20). So, he favours an ìndirect promotion’ of labour standards, based on the Far East example of employment creation (Fields, 1984) through `rapid economic growth of a labour intensive character’ (Fields, 1990: 22). From that point of view, all that really matters is having people in employment, regardless of levels of wages or other conditions. Once full employment has been attained, increased demand for scarce labour will lead to the `bidding up’ of wages. Economic expansion and growth will inevitably follow and so will òutcome-oriented’ labour standards (good wages and conditions of employment) and prosperity for the workers. As an example for his argument Fields cites the fast-growing economies of Hong Kong, Korea, Singapore and Taiwan: èconomic growth under market wage determination has brought about full employment, rapidly rising real wages, and consequent higher standards of living.’ To that extent, `process-oriented’ labour standards (protection of associational and collective bargaining rights, enabling labour legislation and minimum wages) are not only subjective but clearly unwanted: To those who judge labor standards by process, the lack of collective bargaining and protective labor legislation would appear as an abuse of labor standards which is getting no better in the course of economic growth. But to others who are more outcome oriented, the attainment of full employment and the creation of new jobs at substantially


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higher rates of pay than those workers had been able to earn before is a sign that labor standards are improving. Abuse of labor standards is in the eye of the beholder. (Fields, 1990: 31)

Neo-institutionalist and neo-Keynesian economists Unlike neoclassical economists, neo-institutionalists view labour standards às tools that may in¯ uence the social progress of development’ (Herzenberg et al., 1990: 4). At the micro level, Piore (1990) distinguishes between a `sweat-shop’ , low-wage, low-productivity business strategy, which curtails labour standards, and a high-productivity, quality-enhancing competition strategy, which requires high standards of employment. At the macro-economic level, high labour standards could enhance aggregate demand and thus help increase overall and high-wage employment ± the sort of development that was experienced in industrialized countries after World War II and in the USA after the New Deal, and prevented an ùnderconsumption’ shock of the magnitude of the Great Depression. At the `governance’ level, neo-institutionalists emphasize the importance of structural factors and historical developments as well as government mediation in the labourrelation processes: We suggest that the objective of government policy is neither to promote economic growth, not to create a free market, nor to protect some interests and destroy others, nor even to plan or run the entire economy. Rather the objective is to create an environment in which people (or groups) who need to cooperate with each other despite mutually con¯ icting or incompatible interests can forge credible and enforceable compromises with each other. It means the management of con¯ ict, not the elimination of con¯ ict, and not even the postponement of con¯ ict. (Banuri, 1990: 59)

Moreover, non-neoclassical scholars recognize that: labour standards do not inevitably improve as a re¯ ection of individual preferences when income grows. Instead, organized political action is often necessary to bring about substantial changes in labor market rules and outcomes. In most OECD countries, for example, expanded worker rights and social welfare policy emerged following the strengthening of the labor movement after the depression. (Herzenberg, 1988: 5)

Can low wages enhance development? Related to labour-market functioning is the issue of growth and, in particular, whether low labour costs ± as a result of low wages and possibly `substandard’ conditions of employment (e.g. unhealthy and unsafe working environment, long hours, discrimination and harassment) ± help create jobs in developing countries and advance their economic and social development. The job-creation argument is based on two supporting rationales: (1) any low-wage job in export-oriented industries is better for the worker than work anywhere else; (2) the nation bene® ts from such employment. Proponents of LSITA would point out that the majority of Third World workers in export-oriented manufacturing are employed in unskilled jobs. Employers provide no training and offer no upward mobility possibilities. Cheap, unskilled labour can be easily replaced or complemented when production requirements increase. Subsistence wages are inadequate for saving and often are below or near the poverty line. The case of Nike shoe-manufacturing operations in Indonesia can best illustrate this approach. More than 30,000 workers in the Jakarta area, most of them young women, assemble the athletic shoes exported to the United States and elsewhere (Press for

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Change, 1995). In 1994, an increase of 50 cents per day in the minimum wage (raising it to about $2.25 per day) left it still 20 per cent below the of® cial poverty line for a single adult. Labour unrest and human rights violations of labour activists are not uncommon in Indonesia. Amnesty International’ s document Labour Activists Under Fire demonstrates persistent patterns of military and police intervention in labour disputes, resulting in ill-treatment, imprisonment, torture, rape and even death of workers and activists (Hainsworth, 1995: 7). Nevertheless, these types of factory jobs, international employers and Third World political and economic elites Â argue, will eventually spawn higher standards of living. But do investment and factories like the aforementioned bene® t the country in which they operate? Proponents of LSITA would point out that machinery, technology, most raw material and know-how are imported. Pro® ts are repatriated, often tax-free. Corporations can easily move out when labour costs become cheaper somewhere else and the incentives better. What remains for the country is à-few-dollars-a-day’ wages for the impoverished, unskilled workers but big pro® ts for the local political and economic elites: Â the sweat-shop owners and subcontractors of the TNCs, the latter’ s host-country managers, the corrupt authorities and the bribed politicians, and company or government trade unionists (if they exist). Social dumping and the social dimension of free trade This issue became prominent in the wake of the creation of the Single European Market on 1 January 1992. Although proponents of a social clause generally recognize that partners to a free trade agreement cannot be expected to have identical social conditions, it is also considered unacceptable for any country deliberately to maintain poor conditions in order to gain a trade advantage (Adams and Turner, 1994). Such an approach could be considered a form of government subsidy. Adams and Turner (1994: 83) suggest that adopting a social charter in which all parties to a trade agreement af® rm a set of social standards, with some form of unbiased adjudication to enforce adherence to the accepted standards, is one way to address the problem of social dumping. They recognize that, in the European Union, the Charter of Fundamental Social Rights provides the standards, and the European Court of Justice provides the adjudicatory tribunal (see also Teague, 1989). Adams and Turner also put forward three further reasons for the need for a social dimension. First is the growth of TNCs. They acknowledge that, as enterprises have become increasingly global, it has become practically impossible to regulate their activities on a national basis. Therefore, international organizations such as the ILO and the Organization for Economic Co-operation and Development (OECD) have developed codes of conduct and benchmark standards. A second reason has to do with the objectives of a democratic society: In such a society, the nation pursues an ef® cient economy not for its own sake but rather to improve the general welfare. Attaching a social charter to an international trade agreements is a way of ensuring citizens within a free trade area that the ultimate objective of the exercise is to improve the conditions of work and life for the average individual, as opposed to improving the conditions of certain groups to the disadvantage of others. (Adams and Turner, 1994: 83)

The ® nal reason suggested by Adams and Turner is to achieve social consensus, as in the case of the European Union:


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The belief is that over the long run (or even medium run), an important condition for the smooth functioning of an ef® cient market is a high level of acceptance by all relevant parties of the rules and regulations guiding the substance and process of that market. (Adams and Turner, 1994: 83)

They point out, at the macro level, the success of countries with a co-operative labour±management culture (Germany and Japan) over those with a confrontational culture (UK and the US) and, at the micro level, the success of Japanese ® rms employing labour±management co-operation schemes. From that point of view, they acknowledge the social charter as à means of securing labour’ s cooperation in the implementation of freer trade’ . Such co-operation, they claim, has been achieved in Europe where labour movements almost unanimously supported the move towards a single European market, while in North America organized labour’ s opposition to NAFTA has resulted in the inclusion of a `side agreement’ which introduced some modest, yet unprecedented international labour regulations (Adams and Singh, 1997; Tsogas, 1998). Universality of labour standards and national cultures One line of argument against a social clause rests on the notion that common international standards would constitute an infringement of national sovereignty and cultural identity. The basis of this argument rests on the fact that labour standards are often seen by their proponents in moral terms (hence, the frequently used term `fair labour standards’ ). In that way, central to the thinking on the question of LSITA is the notion that a competitive advantage can sometimes be morally ìllegitimate’ and ùnfair’ (Bhagwati, 1994: 26±8). Thus, proponents would argue that it is à universal moral imperative to eliminate exploitative labour practices and inhumane working conditions’ (Lee, 1997: 181). For example, there is universal agreement that slavery is a morally unacceptable practice, therefore, if slavery produces competitive advantage, that advantage is illegitimate and ought to be rejected. In other words, opponents say, a `values’ -related argument is put forward for suspending a country’ s trading rights or access to markets. They perceive that approach as highly problematic, since, in certain cases, where they see no universal agreement on the acceptability of a practice, disastrous results can be produced. The US±Mexico tuna dispute over Mexico’ s use of nets that trapped dolphins is often cited as a typical example of the misguided use of this approach. The US, acting unilaterally, allegedly from a `moral high-ground’ , sought to suspend Mexico’ s tuna-trading rights. In that way, opponents argue, the insertion of a social clause into the WTO can be seen as a way of giving legitimacy to exceptions from the GATT/WTO rule that prohibits the suspension of a contracting party’ s trading rights concerning a product simply on the grounds that, for reasons of morality asserted by another contracting party, the process by which that product is produced is considered immoral and therefore illegitimate. However, according to opponents of LSITA, universally condemned practices such as slavery are rare indeed. As an example, they bring forward ILO Conventions which many nations have signed, but allegedly simply because in effect they are not binding. The question of whether a substantive consensus on anything, except well-meaning and broad principles without consequences for trade access in case of noncompliance, can be obtained is therefore, they claim, highly dubious. Opponents suggest that, in reality, labour practices and standards are widely diverse, a fact re¯ ecting not necessarily venality and wickedness, but rather diversity of cultural values, economic conditions and analytical beliefs and theories concerning the

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economic (and therefore moral) consequences of speci® c labour standards. Bhagwati (1994: 26±8) argues that the notion that labour standards can be universalized ± like human rights such as liberty and habeas corpus ± simply by calling them `labour rights’ cannot survive deeper scrutiny because it refers in fact to an implausible equation between culture-speci® c labour standards and universal human rights. Bhagwati also brings into question what can be seen as the `double standards’ of advanced economies. The United States itself, a principal proponent of the social clause, promoting its labour standards as àdvanced’ and providing `moral leadership’ on the debate vis-a-vis Á developing countries, could lead itself into a widespread and sustained suspension of its own trading rights if there was an impartial tribunal and the right to ® le complaints was given to concerned citizens, trade unions and NGOs, rather than to governments. As an example, Bhagwati cites many US employment practices which are simply unacceptable in many other advanced and even developing countries. Migrant labour is ill-treated to the point of brutality and slavery in US agriculture, due to grossly inadequate and corrupt enforcement. Sweatshops exploiting female immigrants with long hours and below-minimum wages are endemic in the textile industry. Even the right to organize could be considered to be inadequate. Trade unions are actively discouraged in several ways and strikes are circumscribed. Thus, Bhagwati claims that it would be dif® cult to arrive at a universal moral consensus that could underpin a set of international labour standards; and, in the absence of this, imposing labour standards which evolved in the West would constitute political and cultural imperialism (Bhagwati, 1994: 26±32). Employers’ views International employers and local subcontractors have often used the culture argument to deny responsibility for working conditions in their offshore installations or local suppliers. Their rationale for opposing LSITA is based on cost (`We just buy at the best possible price. The local manufacturer is responsible for his workers’ ) or culture (Ìt’ s just the way things are done here’ ) (Nichols, 1993: 20). These attitudes underlay the neoclassical notion that the sole responsibility of business is to maximize its pro® ts, subject only to the most minimal constraints of the law (Stark, 1993: 39). Èthical’ international employers On the other hand, many international employers, particularly those with Third World supply chains, have taken an active stance on developing and implementing èthical’ corporate codes of conduct for their subcontractors and suppliers. The movement, with the help and involvement of many NGOs, is spreading rapidly and is expected to expand beyond the sectors that traditionally have attracted bad publicity, due to the use of child labour or particularly bad conditions of employment, such as textiles and apparel, shoes, sports goods and tropical foodstuffs. The main reason that corporations might adopt a voluntary labour code of conduct is the danger that their brand image could be tarnished (Zachary, 1995). In May 1993, Levi Strauss made head-line news when it announced its decision to withdraw from China due to `persistent human rights abuses’ , after conducting a painstaking fact® nding mission: The dozen Levi’ s staffers who conducted the human-rights review . . . spent 2,000 manhours listening to everyone from human-rights activists to scholars and executives. The group split, with many of its members taking the position that the company would do


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more to improve conditions by staying on rather than withdrawing. In the end, Levi’ s decided that it must heed its corporate guidelines, which mandated pulling out of countries where there are pervasive violations of human rights. . . . As [Levi’ s vicepresident Bob] Dunn puts it `when we honour our values, long term it bene® ts us commercially’. (Clifford, 1994).

Levi Strauss’ decision has been the outcome of a long-standing commitment on èthical sourcing’ . Its global sourcing guidelines, `Business Partner Terms of Engagement’ , cover environmental and legal requirements, ethical standards, health and safety, and employment practices such as child labour (Nichols, 1993: 16; UNCTAD, 1994). Other international employers have followed closely, often coerced by co-ordinated campaigning and grassroots activism. Are labour standards culture-speci® c? Many of the aforementioned arguments are related to the issue of culture and whether labour standards and worker rights are culture-dependent and culture-speci® c. However, these arguments are related to the larger debate over the universality of human rights. In that debate, universality of human rights has been rejected, in particular by Asian governments, on the grounds of what they perceive as the separateness of Àsian values and their distinction from western norms’ (Sen, 1996: 4) This argument has been used to provide the basis for Asia’ s different understanding of human rights and justify the èxceptional’ (or brutal, depending on the point of view) handling of rights by some Asian governments. Such claims has been strongly challenged. First, even if it was shown that freedoms of this kind have had less importance in Asian thought and tradition than in the West this would still be an unconvincing way of justifying the violation of these freedoms in Asia. To see the con¯ ict over human rights as a battle between Western liberalism and Asian authenticity is to cast the debate in a form that distracts attention from the central question: What is right, what makes sense, in contemporary Asia? The history of ideas, in Asia and in the West, cannot decide this issue. Second, it is by no means clear that historically there has been systematically greater importance attached to freedom and tolerance in the West than in Asia. Individual liberty, in its contemporary form, is a relatively new notion both in Asia and in the West; and while the West did get to these ideas earlier (through developments such as the Renaissance, the European Enlightenment, the Industrial Revolution and so on), the divergence between the cultures is relatively recent. (Sen, 1996: 12)

Furthermore, Àsia is where about 60 per cent of the world’ s entire population live. There are no quintessential values that apply to this immensely large and heterogeneous population, which separate them out as a group from the rest of the world’ (Sen, 1996: 13). The Àsian values’ position has also been questioned on other grounds. One is that the case has been articulated by authoritarian regimes and does not therefore represent a democratic consensus in these countries. Another is the inconsistency in the position of the advocates of Àsian values’ . Leaders from the region pick and choose freely from other cultures, adopting whatever is in their political interest. They seem to have no qualms about embracing such things as capitalist markets and consumerist culture. What troubles them about the concept of human rights, then, turns out to have little to do with its Western cultural origin. (Li, 1996: 2)

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The claim that a consensus on labour standards is not feasible is `puzzling’ according to Lee (1997: 184), since it is clear that such a consensus not only currently exists but has existed for decades. Membership of the ILO is near universal among developed and developing countries and implies acceptance of the principles enshrined in the Constitution such as the freedom of association, the right to collective bargaining, and the rejection of the inhumane treatment of labour. These principles have never been questioned; on the contrary they have recently been reaf® rmed repeatedly; most recently in the Declaration of the World Summit on Social Development and the Singapore meeting of the WTO. This must indicate that some genuine, unforced consensus exits on labour standards (Lee, 1997: 184)

The argument that workers of different nationalities or races should be treated differently is extremely dangerous. It is indeed worrying to hear suggestions that certain workers are inherently `culturally’ unequal. The issue of universality of labour standards has been addressed speci® cally within the ILO framework. ILO Conventions contain a built-in ¯ exibility which makes them applicable for all countries whatever their level of development. The ILO in its supervision of the standards does not attempt to impose a global harmonization of labour laws but rather examines whether the effects of laws and practice achieve the objective of ensuring that the principles are applied. The strength of ILO Conventions is that they encapsulate core values which enable trust and respect between nations ± a prerequisite for an effective multilateral trade regime ± to be developed as a solid foundation for co-operation. Nonetheless, `culture’ has been routinely blamed for child labour, poverty wages and unhealthy conditions of employment. The fatalistic argument goes like this: Ìt’ s just the way things are done here’ , so nothing much can be done. However, the truth of the matter is that no culture `considers factory work a desirable experience for children, condones the payment of subsistence wages, or approves of working in unhealthy conditions’ (Nichols, 1993: 21). All these are economic choices. Nevertheless, culture can reinforce existing economic roles, such as respect for managers and supervisors and gender roles that require female cultural submissiveness. Unfortunately, not everyone seems able to distinguish (or at least so it appears) what constitutes a cultural attribute and what is, in effect, an economic choice that can maintain wages and working conditions at an arti® cially low level. There would be a genuine distortion only if the especially low wages were due to something else than supply and demand factors (including productivity). It is hard to imagine what this `something else’ might be. One conceivable possibility would be an effective conspiracy among employers in the particular foreign industry to hold down wages and keep the workers ignorant of better opportunities in other jobs. . . . Removal of the wage distortions and correction of the price signals would bene® t the exploited foreign workers and their country as a whole. (Yeager and Tuerck, 1976: 136)

Conspiracy or not, we maintain that it is not at all dif® cult to see that this `something else’ that keeps wages and conditions of employment arti® cially low is not `culture’ or `the way things are done here’ , but oppressive regimes that deny their citizens basic human rights and forbid unions and collective bargaining, often with the active support, encouragement or non-involvement of TNCs. The removal of these aforementioned `distortions’ (the reinstatement of universally accepted basic human rights) would indeed bene® t the workers and their countries; and this is exactly what the labour standards’ advocates would argue.


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Child labour and economic development The cultural speci® city of labour standards has been frequently used to explain, even justify, the existence of child labour. A commonly used argument from the opponents of LSITA is that children, and their families, in developing countries are, regrettably, too poor to afford not going to work; the whole family would be worse off if children did not work. This argument can be understood as part of a larger contention that conceives of people in developing countries as too poor to afford any `Western-style’ rights and conditions of employment. It is indeed a common argument from neoclassical economists that child labour is a `necessary evil’ that all industrialized countries have gone through and, inevitably, all industrializing countries will have to go, or are currently going, through: We know of no case where a nation developed a modern manufacturing sector without ® rst going through the `sweat shop’ phase. How long ago was it that children could be found working in the textile factories of Lowell, Massachusetts, of Manchester, England, or of Osaka, Japan? Should the developing economies of today be any different? If child labor is a necessary evil of industrialization, then a nation should be judged on how quickly it passes through this phase. (Nichols, 1993: 20)

From that point of view, child labour is an unpleasant, yet `natural’ stage at the process of capitalist accumulation. Thus, there is nothing much to be done: `Laws against child labour are of no help to children who would otherwise starve. The danger is that this supposedly high-minded agenda would punish the poor for their poverty’ (Financial Times, 1994). This argument from an editorial article in a world-class newspaper ± based on the free-trade neoclassical doctrine ± in fact provides ideological support for child labour. Taking this argument to its logical extreme we can argue that no laws would have helped abolish slavery, since slaves and the economies of the societies they lived in were too poor to sustain `free’ labour, or any human rights for that matter. The question therefore is: where do we actually draw the line? Are there any human rights and values below which, as human kind, regardless of politics or level of economic development, we are not prepared to go? The answer historically has been a de® nite yes. All member states of the United Nations have accepted the Universal Declaration of Human Rights and no dissenting voice has been heard on the usefulness or appropriateness of the Declaration depending upon the level of economic development. The General Assembly has proclaimed the Declaration à common standard of achievement for all peoples and all nations’ (Joyce, 1980: 21). The `dilemma’ between child labour or impoverished children and families is not new; Third World economic elites Â nowadays express just the same attitudes as their counterparts in the American South, more than 100 years ago: The mill owners and the mine managers, who hired `breaker boys’ ten and eleven years old to work deep in the shaft . . . called themselves benevolent for employing children as young as eight years old; the owners were supposed saviors to families otherwise in the poorhouse. (Tonya, 1992: 635)

Who bene® ts from child labour? Admittedly, however, not everyone accepts the view that child or slave labour is a `necessary evil’ of economic development. The Economist draws a line between legal rights over terms of employment and slavery, child labour and the rights of assembly and free speech, which, unlike the former, are not freely modi® ed as circumstances dictate: `You do not need to be rich to outlaw

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slavery or grant the rights of free speech and assembly; education is costly, but curbing the cruelest sorts of child labour is widely affordable’ (The Economist, 1994b). The aforementioned `dilemma’ between child labour or impoverished children and families is essentially fake and serves only the purposes of those who bene® t economically from such exploitation. In the long run, the economies of countries that use child labour will suffer. Employment of children depresses wages, which in turn hinders increases in productivity that could stimulate economic growth. Good national education policies and enforced prohibition of child labour are not only justi® able but also make good economic sense. Countries that have experienced rapid economic development, such as the East Asian NICs, have not allowed child labour. Sound economic development and employment of children simply do not go together. Moreover, child labour is not necessarily inexpensive labour. Economizing on wages and working conditions is not the only means of achieving competitiveness. Productivity improvement and treatment of employees as valuable assets rather than as replaceable factors of production enhance long-term competitiveness and sustainable growth. On the other hand, where very cheap labour and production at extremely low prices, such as in carpet weaving or garment subcontracting in South Asia, is sought, child labour is endemic. It is estimated `that up to a ® fth of Indian children are in some form of bondage, their labour pledged as security for debts that their parents owe to landlords or to factory owners’ (National Journal, 1994). The killing of the 12-year-old former child-slave, turned international campaigner, Iqbal Masih (Free Labour World, 1995) shows the greedy face of some of the Third World economic elites Â and the brutal exploitation that poor people suffer in these countries, where children ± aside from working to help their families ± are also enslaved to repay family debts. Child labour is neither a cultural attitude nor just a social phenomenon. It is primarily an economic choice which brings signi® cant economic bene® ts to an unscrupulous and greedy minority of Third World elites, Â that take advantage of the poor education systems and the economic desperation that many families face. Pharis Harvey’ s work on child labour in India shows that child labour has increased in export-competing industries, such as carpet weaving, gemstone polishing and brassware manufacturing (Harvey, 1994; National Journal, 1994: 1510). Eighty-thousand children, mostly girls, are employed in hand-made match `manufacturing’ , because the government taxes heavily machine-made matches (The Economist, 1994a). This is an act of (politically in¯ uenced) economic choice and certainly not a culturally inclined behaviour. `No culture considers work a desirable experience for children’ (Nichols, 1993: 21); all cultures consider education as the most appropriate experience for children. Countries where child labour is widespread (e.g. Pakistan) systematically and intentionally deny their citizens the opportunity to educate themselves. Education can bring emancipation for the impoverished masses, a development least desired by autocratic ruling classes. Enforcement of labour standards: trade sanctions or moral suasion? Earlier we put forward the supposition that there is an almost universal af® rmation of fundamental labour rights ± among proponents and supporters of LSITA, alike ± as well as of the role of the ILO in promoting them (Lee, 1997: 184). Assuming that this publicly expressed consensus is genuine, that would indicate that the debate should not be focused on whether labour rights, as fundamental human rights, should be observed, but instead on how this observance could be put in place, strengthened, enforced and


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monitored effectively. In other words, how might LSITA be enforced ± through moral suasion (i.e. ILO) or through a trade-related mechanism that could ultimately lead to trade sanctions? As expected, this has been a hotly debated issue. Even governments in South East Asia, who strongly oppose any link between labour standards and trade, are agreeing to leave this matter in the hands of the ILO, provided some aid is given to poorer countries to help them develop their labour markets, raise standards of employment and be able to àfford’ labour rights (Islam, 1996). On the other hand, proponents would argue that these governments want to leave the matter as a sole responsibility of the ILO, because this organization lacks any means ± other than moral suasion and public criticism ± actively to enforce labour rights improvements or to penalize countries who persistently violate them. The Singapore Ministerial Meeting of the WTO This debate gained momentum in the aftermath of the Singapore Ministerial Meeting of the WTO in December 1996. The controversy over the social clause arose early in the Conference when an invitation to Michel Hansenne, Director-General of the ILO, to address the ministers was withdrawn due to òbjections’ from developing countries totally unwilling to discuss any labour issues at the meeting. The linking of trade and labour standards was strongly supported by the US, France and other developed countries, and opposed by a substantial number of developing countries, as well as the UK. A compromise on the issue resulted in the following paragraph which was included in the ® nal Ministerial Declaration of the Conference, the ® rst time that such a reference to such standards was included in a WTO of® cial document. We renew our commitment to the observance of internationally recognised core labour standards. The International Labour Organisation (ILO) is the competent body to set and deal with these standards, and we af® rm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalisation 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 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. (WTO, 1996)

The interpretation which was later given to this paragraph attracted much controversy. At ® rst sight, the paragraph appears to close the door to further consideration of the link of trade with labour standards within the WTO, even though this is unlikely to be the case. Nonetheless, the Ministers refused to set up a committee or a working party on trade and labour standards, a development seen as `victory’ by opponents. The inclusion of a reference to labour standards for the ® rst time within an of® cial WTO document indicates the importance that leading trading countries give to the subject, and will undoubtedly continue to do so, as demonstrated by the statements of numerous ministers at the Singapore Conference. Equally signi® cant is the acceptance by developing countries opposed to linking trade and labour standards of a reference to the matter in a WTO document, even if it has been interpreted as rejecting any further consideration. The US threatened to refuse to sign the Declaration if it did not refer to labour standards. The Dutch and Scandinavian Ministers also supported WTO consideration of labour standards. Speaking for the European Union, Sir Leon Brittan gave mild support, hindered by the opposition of the UK’ s Conservative government.

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Developing countries, most notably Malaysia and Egypt, argued strongly against consideration of labour standards by the WTO, reiterating contentions that the trade and labour standards link was a re¯ ection of protectionist tendencies, aimed at limiting the comparative advantages of developing countries (World of Work, 1997). The failure of the Ministerial Declaration to close the door explicitly on any further consideration of the topic leaves open the likelihood that the issue will surface in other work of the WTO concerning, for example, labelling and investment. The movement for the labelling of goods to indicate conformity with core labour standards ± particularly on child labour ± is spreading in the US and Europe. Concerns that labelling might be used by countries as a means of restricting imports will have to be dealt with at the WTO. The Declaration emphasizes that the ILO, and not the WTO, is the competent body to set and deal with labour standards. But the Declaration does not mark the end of efforts to raise the subject of the link between labour standards and trade at the WTO. While an explicit social clause is not (for the foreseeable future) a viable option within the WTO, the broader rationale of the link between trade and labour standards was not put to rest in Singapore. Undoubtedly, developing countries will continue to attempt to block further consideration of the issue, referring to the paragraph in the Declaration that the ILO, and not the WTO, should deal with labour standards. But, as Michel Hansenne, Director-General of the ILO, stated, `The ball is now in the ILO court . . . and we have no intention simply to hang on to the ball; we are going to play with it’ (World of Work, 1997). However, it was the weaknesses of the ILO procedures that has led trade unions and other proponents of LSITA to urge the linking of labour rights with trade in the hope that trade sanctions might be an effective weapon as well as a threat. To the extent that ILO procedures for implementing labour standards are improved, the pressure for trade sanctions may diminish. On the other hand, and despite the expressed support for worker rights by WTO members in the Singapore Declaration, many countries, as well as employer organizations, continue to block better enforcement by the ILO: a mismatch between words and actions that casts doubts on the sincerity of their views. ILO views on linking labour standards and trade The ILO is by de® nition at the focus of discussions on linking labour standards and trade. Many individuals from within ILO’ s ranks have provided studies on LSITA. Since 1987 the ILO’ s in-house publication, the International Labour Review, has been a fertile forum for discussion (Edgren, 1979; Charnovitz, 1987, Van Liemt, 1989; Servais, 1989). Nevertheless, the social clause issue received a serious setback when the organization’ s governing body (acting as a working party on `social dimensions of the liberalization of international trade’ ) decided on 3 April 1995 to postpone its discussions on the social dimension. The decision was reached òn the understanding that the working party would not pursue the question of trade sanctions and that any further discussion of link between international trade and social standards through a sanctions-based social clause mechanism should be suspended’ (Myrdal, 1995b). Interpretations of this decision varied. Hans-G Èoran Myrdal, Director of the Swedish Employers’ Federation, saw it as a `crystal clear’ decision `that no clause will be adopted by the World Trade Organisation/ILO’ (Myrdal, 1995a). On the other hand, Bill Brett, chairman of the workers’ group of the ILO, maintained that the existing working party would continue its meetings, with `the linkage between trade and


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international labour standards very much on its agenda’ . Nevertheless, he admits that the workers’ group made the proposal to suspend discussions of a sanctions-based social clause temporarily `with a view to facilitate progress in other areas of the debate’ (Brett, 1995). Nonetheless, it remains to be seen whether the social clause will eventually make inroads into the ILO mechanisms, and in what form. ILO’ s Director-General, Michel Hansenne, has acknowledged the complexity of the issue and the divided views among member states. He has set the ILO’ s position on two premises (ILO, 1994). First, the ILO has no mandate to regulate international trade. This task falls to the WTO, even if it currently has no speci® c mandate to deal with the problem of social dumping; the ILO cannot get involved in an area outside its jurisdiction, even in the absence of another suitable body. Second, `the ILO should rely on cooperation rather than coercion in its efforts to promote social progress . . . through an ongoing dialogue to remind member States of their obligations’ . Indeed, the whole structure and philosophy of the ILO rests upon tripartite co-operation and moral persuasion, and not in any form of retaliation or sanction. He, nevertheless, prescribes that òne possible solution would be to transfer the responsibility for sanctions to a kind of ª secular armº outside the Organisation’ (ILO, 1994: 58). In that way the `supervisory machinery would [not] suffer if the conclusions that result from it are used in a context of coercion’ (ILO, 1994: 59). Further, at the United Nations Social Summit in Copenhagen, Michel Hansenne urged the WTO to require from its member states rati® cation of ILO Conventions on forced labour, freedom of association and right to collective bargaining, but not prohibition of child labour and discrimination at work. He went on to moderate his stance on the issue further by admitting that `the time is not yet right for including a social clause to protect workers’ rights in trade agreements. I realise there is a lot of ambiguity about it’ , he added (Taylor, 1995). Conclusion Different views on linking labour standards with trade underline disagreements on the function of labour markets, as well as on development and trade policies. Neoclassical economists and supporters of free trade oppose any inclusion of a social clause in trade agreements. Third World governments and political and economic elites Â provide the institutional framework that transnational capital requires. Neo-Keynesians and neoinstitutionalist economists and academics provide strong reasoning for LSITA. International employers who have developed èthical’ codes of conduct for their suppliers and subcontractors implement these principles in practice. Some governments and politicians in industrialized countries have supported the inclusion of a social clause in the WTO, while the ILO, in its tripartite structure, remained a balanced observer of the debate. Workers’ rights clauses in international trade agreements do not aim at developing countries’ low wages. They endeavour to free labour markets from employer and government coercion against workers’ right to association and collective bargaining. They can ameliorate the welfare effects of global trade and open markets and help workers redistribute the wealth created by transnational capital. LSITA can create an enabling framework at international level, so that collective bargaining and labour legislation at national level can actually lead to higher standards of living for all. Workers’ rights are not a luxury.

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