JOURNAL OF STRATEGIC MARKETING 14 263–275 (SEPTEMBER 2006)
What if all trade was fair trade? The potential of a social clause to achieve the goals of fair trade CARMEN VALOR*
Associate Teacher, Universidad Pontificia de Comillas – ICADE
This paper focuses on one of the strategies proposed in the name of ‘fair trade’: the inclusion of social clauses in trade agreements. Although the social clauses could cover any non-economic aspect of trade exchanges, such as environment, they are more commonly used to protect labour rights. Although examined in other disciplines, this issue is still elusive for marketers, despite its implications for this discipline. This paper attempts to answer the question: Will the inclusion of a social clause in bilateral and multilateral trade agreements help to achieve the objective of fair trade? After analysing the possibility and the effectiveness of such a social clause and examining whether the objectives attached to the social clause are coherent with those of the fair trade movement, the conclusion follows that only to some extent will the inclusion of a social clause in trade agreements help to achieve the goals of the Fair Trade movement. Since it does not aim at altering ‘unjust’ trade structures but ‘unfair’ labour practices, the social clause should be better understood as an improvement of existing Ethical Trade initiatives. KEYWORDS: Social clause; WTO; Ethical Trade; Fair Trade
INTRODUCTION The concern about the social consequences of trade dates back two centuries. For instance, the concern about the negative effects of international trade on labour standards led to the creation of the International Labour Organisation (ILO) in 1919 (Lee, 1997). Recently, this problem has been brought to the forefront, as regards the worsening of conditions for workers (McDonagh, 2002; Scherrer and Greven, 2001), especially in the so-called Export Processing Zones (Klein, 2001). In 1856, Dutchman Max Havelaar denounced the unfair commercial exchange between Indonesia and the Netherlands (Redfern and Snedker, 2002). Recently, the issue of fair trade has gained attention in the literature, being examined in a number of academic disciplines, such as Policy Sciences, Economy, and Marketing.
* Corresponding author. Email:
[email protected]
Journal of Strategic Marketing ISSN 0965–254Xprint/ISSN 1466–4488 online # 2006 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/09652540600856519
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This paper focuses on one of the strategies proposed in the name of ‘fair trade’: the inclusion of social clauses in trade agreements. The promotion of international competitiveness and exportoriented economies through, inter alia, the deregulation of labour and capital markets has given rise to the debate about the ‘social clauses’ (Addo, 2002; Lee, 1997). Although the social clauses could cover any non-economic aspect of trade exchanges, such as environment, they are more commonly used to protect labour rights. Public discontent with the effect of economic liberalisation on labour standards in North and South countries has been evident in Seattle and Geneva (Chan and Ross, 2003; Rikowski, 2001): citizens object to economic progress taking primacy over social progress. At the same time, the international regulatory body on labour standards, the ILO, is regarded as ineffective, due to its lack of binding mechanisms (Hoekman and Kostecki, 2001). Moreover, it is argued that the traditional within-country regulation is no longer effective, since the violation of labour standards stems from globalisation (Lee, 1997). It is in this context that the proposal of a social clause arises. The social clause has been examined by scholars from Policy Sciences and Economics. Yet, the issue is still elusive to marketers, despite its implications for this discipline. Should a social clause be approved, companies would have to show enforcement of labour standards, or their exporting strategy will be curtailed. Besides, the social clause has not been examined, as far as we know, in the light of the fair trade principles. This paper attempts to answer the following question: Will the inclusion of a social clause in bilateral and multilateral trade agreements help to achieve the objective of fair trade? To answer this question, this paper will firstly analyse the possibility and the effectiveness of such a social clause and secondly will examine whether the objectives attached to the social clause are coherent with those of the fair trade movement. This paper is structured as follows. The first section will review the theoretical debate about the social clause. The second section will describe current examples of the inclusion of social clauses in trade agreements; in particular, it will review the debate held in the World Trade Organisation (WTO). The third section will answer the research question, examining the objectives and features of the fair trade movement, and compare them to the ones attached to the social clause. Finally, some conclusions and implications for marketers will be offered. THEORETICAL DEBATE Two main perspectives guide the debate on the inclusion of a social clause to improve labour standards: an economic and a moral perspective. The economic orientation stems from the concern regarding ‘social dumping’—that is, the implicit governmental subsidy to foster exports by minimising workers’ protection (Tsogas, 1999)—and the resulting potential erosion of the competitive position of countries with higher levels of workers’ protection (Lee, 1997). Eventually, to maintain their competitive advantage countries will start a race-to-the-bottom, reducing more and more workers’ protection, with the resulting inequality and social frictions (Lee, 1997). Hence, to level the playing field and to maintain existing labour standards, a social clause is necessary. In the absence of a social clause, two scenarios are envisaged: the aforementioned race-to-the-bottom (evidenced in the new trend of South-South competition, see Chan and Ross, 2003) or an increased protectionism (i.e. countries with higher levels of protection will raise their protectionist measures to compete with countries having lower or nil workers’ protection) (Tsogas, 1999). When the social clause is proposed as a means of ensuring fair competition among countries, the social clause is rejected, since it is regarded as a protectionist measure (Tsogas, 1999). That is why most Less Developed Countries (LDCs), some South Asian NGOs (e.g. the Malaysian Third
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World Network), and some South Asian trade unions (e.g. India) (Chan and Ross, 2003) oppose the social clause, arguing that their competitive strategy in international markets is a consequence of underdevelopment; therefore, they should not be penalised. On the contrary, they should be rewarded if they comply with existing labour standards, and should be helped with aid and technical assistance (Lee, 1997). However, it has been suggested that this approach may give incentives to governments to ‘‘intensify the offensive behaviour (…) to maximize the payments being offered’’ (Trebilcock and Howse, 1999, p. 450). At the root of the opposition of LDCs lies the belief in the Ricardian theory of comparative advantage, according to which all countries will gain from trade if they specialise in those commodities for which production prices are relatively lower (see Subasat, 2002, for a more detailed explanation). Given that LDCs have low labour costs due to the abundance of this factor, they should specialise in labour-intensive commodities. Should a social clause be approved, LDCs would be deprived of their competitive advantage (Golub, 1997; Hoekman and Kostecki, 2001), since labour costs would, in theory, increase. Two main counterarguments have been raised against LDCs’ position. Firstly, given that the social clause does not impose a minimum wage, labour costs would increase only marginally. Secondly, little evidence supports the hypothesised erosion of competitive advantage or economic growth. Most studies have found that non-compliance with Core Labour Standards, the conventions of the ILO on the four rights recognised in the Declaration of Human Rights (ILO, 1998), may be harmful to a country’s economic growth and development (see a revision of empirical studies in OECD, 2000). It has not been proven that higher protection undermines economic efficiency (Adnett, 1995; Sengenberger, 1994; Swinnerton, 1997). On the contrary: a recent study by ILO (2003) shows that a ban on child labour does have positive effects on economic growth. Evidence also shows that lax CLSs lead to lower FDI than expected, given other characteristics (Lee, 1997). Many successful export-oriented developing countries comply with CLSs (Trebilcock and Howse, 1999). Prices of imports from developing countries tend to be rather uniform, even though the degree of enforcement of freedom of association rights varies substantially among these countries (Scherrer and Greven, 2001). Despite this lack of evidence, opponents of the social clause maintain that other measures are desirable. Some argue (e.g. Golub, 1997) that ‘poor’ labour standards reflect low productivity and abundance of unskilled labour. Any interventionist policy not reflecting citizens’ preferences will distort the market mechanism, leading to a less optimal outcome (Maskus, 1997). Hence, consumer-led strategies (e.g. boycotts or labelling), or voluntary standards (Golub, 1997) should be preferred to regulatory schemes, because they would be more effective. However, the disadvantages of these alternative options to improve labour standards have been shown (De la Cuesta and Valor, 2004). These will be reviewed in the third section. At the same time, some violations of labour standards (e.g. use of coercion) could be considered market failures; thus, they should be subject to regulation (Trebilcock and Howse, 1999). Other scholars also argue that these voluntary schemes should be favoured not only because they are more effective but also because they are more legitimate: the imposition of a social clause will be a serious infringement of national sovereignty (Lee, 1997). Yet, this argument does not hold when the moral argument is taken into account. The moral argument contends that labour standards are human rights and deserve utter protection (Valticos, 1998). An illegitimate or immoral comparative advantage (e.g. based on slavery) is not sustainable and cannot be accepted (Lee, 1997). Other authors also highlight the artificiality of the comparative advantage of LDCs, since it is based on unjust power relationships (Trebilcock and Howse, 1999). The idea of the cultural relativism, often advanced by Less
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Table 1. Core ILO Conventions Issue
Freedom of association/ collective bargaining
Forced labour Discrimination
Child labour
Name
Number
Ratifications (no. of countries)
Freedom of association and protection of the right to organise Right to organise and collective bargaining Forced labour Abolition of forced labour Discrimination (employment and occupation) Equal remuneration Minimum age Worst form of child labour
87
129
98
146
29 105 111
153 147 142
100 138 182
146 89 16
Source: adapted from Scherrer and Graven (2001, p. 15).
Developed Countries to argue against the social clause does not hold (Trebilcock and Howse, 1999; Valticos, 1998). Core Labour Standards are human rights; therefore they should be implemented regardless of the level of development (Swinnerton, 1997). The number of countries having ratified the corresponding ILO Conventions evidences an overall agreement with these standards, except for the conflicting issue of child labour (see Table 1). Besides, it is important to bear in mind that these conventions allow for different policies (e.g. the minimum age to work varies among countries), precisely because they take into account the particularities of the cultural context where they are to be implemented. Since violations of CLSs are a violation of human rights, the social clause is conceived as an economic sanction to impose the enforcement of CLSs on recalcitrant governments (Trebilcock and Howse, 1999), not very different from other economic sanctions in case of other serious abuses of human rights (e.g. South Africa and the apartheid). Proponents of this view contend that LDCs can afford a social clause: the minimalist protection is due to a lack of political will, not to economic underdevelopment (Trebilcock and Howse, 1999). To support their view, some scholars argue that while LDCs insist that the ILO is the appropriate body to deal with these issues, they do not advocate or support the ILO’s efforts to strengthen observance by improving supervisory mechanisms (Lee, 1997). It is difficult to argue against a social clause enforced as a means of ensuring human rights’ protection. Consequently, objectors to the social clause raise the issue of its effectiveness. If the social clause is implemented as trade sanctions, and if it proves ineffective to achieve the objective, it may result in a serious loss of welfare for the citizens in the target country. Moreover, the measure may be counterproductive, as the case of Bangladesh shows (Addo, 2002). The hallmark study of Hufbauer and colleagues (quoted in Lindert and Pugel, 1996) suggests that sanctions are as effective as other more extreme coercive options. Trebilcock and Howse (1999) analyse the welfare effects of trade sanctions and conclude that there may result in positive welfare effects, under certain circumstances (which makes it difficult to talk about effectiveness in the abstract), when the long-term welfare is considered, and when the welfare effects on other groups, such as consumers, are taken into account. These authors reiterate that sanctions will only be effective
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when two main conditions are met when implementing it: it has to be imposed consistently (or production will be shifted from one abuser to another), and it should target non-compliant companies, rather than countries, since trade takes place between companies. Other scholars cast doubts on the effectiveness of a social clause to raise labour standards. Since the social clause can only be included in inter-country trade agreements, major areas of labour competition (e.g. production for domestic consumption or informal sectors) would remain uncovered (Hoekman and Kostecki, 2001; Sengenberger, 1994; Vosko, 2002). Data show that it is in these sectors where most labour abuses occur. For instance, only 5% of working children work in export-industries (Addo, 2002). Trade sanctions would be ineffective to enforce a ban on child labour in other industries. In addition, considering that 80% of trade takes place between OECD member countries (that have ratified all or almost all of the aforementioned ILO conventions, except for South Korea and USA), the social clause ‘‘will not revolutionise world trade’’ (Scherrer and Greven, 2001, p. 37). Finally, it should be highlighted that, given the current power structures, it is not likely that sanctions could be imposed on developed countries, even if they do not comply with CLSs. Besides, those advocating trade sanctions assume that protection of core labour standards in the imposing country is optimal, which may not be the case. These two arguments are founded on the workers’ situation in developed countries. For instance, in the US few ILO Conventions have been ratified. In addition, some of the CLSs are not enforced consistently across sectors (e.g. agriculture and textile industries), and the right of freedom of association is seriously repressed (ACILS, 2003; Addo, 2002; Tsogas, 1999). Likewise, the European Confederation of Trade Unions (ECFTU) has denounced that child labour in Europe is more prevalent than it appears.1 Other organisations, such as the ILO or the Global March, have produced reports showing child abuses in Europe.2 SOCIAL CLAUSES IN TRADE AGREEMENTS Having analysed the theoretical debate, the implementation of the social clause in trade agreements will be examined. Since most arguments against the social clause, either from an economic perspective or from a moral one, refer to its lack of effectiveness to achieve the objective of raising labour standards, this section will specifically examine the outcomes of existing social clauses in bilateral or multilateral trade agreements. In bilateral trade agreements, protection of CLSs is intended through a system of incentives. In 1998, the EU attached a social clause to the Generalised System of Preferences, inspired by the American one (operating since 1974) (ACILS, 2003). These systems are not a form of trade sanctions, since they imply a nonreciprocal tariff preference to LDC, on the condition that they comply with certain labour standards. The American system relies on a unilateral judgment of US authorities (i.e. United States Trade Representative, USTR), although the statute suggests taking as a reference point the ILO Conventions. The EU system makes explicit reference to respect for CLSs and their corresponding ILO Conventions (freedom of association and collective bargaining; child labour) and allows preference withdrawal if a country permits slavery or if it exports products made with forced labour (Trebilcock and Howse, 1999). Yet, the system is run by the EU bureaucracy and, as in the US, social partners enjoy limited participation (Tsogas, 2000). The American GSP has not proven very successful in promoting compliance with CLSs (ACILS, 2003; Addo, 2002), given the limited number of cases where preferences have been
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removed due to non-compliance with ILO Conventions (Trebilcock and Howse, 1999), and given that countries with similar benefits have disparate systems of protection (Block et al., 2001). This lack of success is due to the way the social clause has been implemented through the GSPs. Scholars have pointed out these flaws; in particular, the lack of consistent implementation and the subordination to Foreign Policy and economic interests (Tsogas, 2000). This misuse of the GSP has occurred not only when solving a complaint, but also when filing it. The largest complainer, the American trade union AFL-CIO, has been accused of being more interested in protecting American jobs than in enforcing workers’ rights worldwide. They have frequently filed complaints against Newly Industrialised Countries (e.g. Taiwan or Singapore), disregarding gross labour abuses in Central and South American countries (Tsogas, 2000). There is little evidence about the effectiveness of the European GSP. However, trade unions and scholars have highlighted the similarities with the US one as regards its implementation (Tsogas, 2000). Trade Unions have denounced this misuse of the social clause in the European Union and have demanded changes, to no avail (Global Unions/WCL/ETUC, 2003). Therefore, similar outcomes could be expected. Having said that, the OECD notes that the pressure may have had some impact on performance (Trebilcock and Howse, 1999). This is also the view of trade unions (ACILS, 2003). Both the American and the European system are based on external complaints (e.g. by trade unions or NGOs), not on continuous monitoring. The publicity derived from the reviews demanded by social agents may have contributed to raise labour standards in certain countries or, at least, it has helped to bring certain countries under public scrutiny (Tsogas, 2000). Multilateral trade agreements (MTAs) have shown their reluctance to include a social clause through penalties or trade sanctions. Certain MTAs, such as the European Union, have succeeded in achieving high levels of protection through regulation and monitoring mechanisms, without mandating trade sanctions (Addo, 2002; Block et al., 2001). However, it is not likely that the European model could be replicated. The North American Free Trade Agreement (NAFTA) has been complemented by a labour side agreement: the North American Agreement on Labour Cooperation (NAALCA) (Block et al., 2001). It does not attempt to harmonise or raise labour standards; its legal obligation is to enforce domestic labour rules within each NAFTA member state. It relies on consultation and trade sanctions are envisaged as a last resort mechanism to enforce members’ domestic regulation. Despite its weak institutional structure (complaints are dealt with by a dispute settlement panel) and its cumbersome rules (Scherrer and Greven, 2001) it has proven somewhat effective (Block et al., 2001). Its main tool is the negative publicity derived from waiving the complaints and reports presented to the panel. Since most of the cases have involved a major corporation, the fear of reputation damages has been enough to improve the practices, even when the government has not taken any action (Block et al., 2001; Trebilcock and Howse, 1999). The creation of transnational networks of unions and human rights organisations, facilitated by the participatory element comprised in the NAALCA, has also helped to provide greater publicity than ILO complaints (Scherrer and Greven, 2001). The remainder of this section will be devoted to analysing the social clause in the WTO, which has become one of the most conflicting issues in the Organisation. With more than 130 members, the WTO is not only the largest regulatory body for international trade but is also seen as ‘‘the central international economic institution’’ (Jackson, 1998, p. 1). There are two reasons why a social clause should be included in the WTO agreements. Firstly, as Scherrer and Greven (2001) point out, ‘‘developing countries cannot raise their social standards in isolation but only in conjunction with other countries’’. If labour standards were enforced globally, no country would
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lose their comparative advantage. Thus, the social clause should be adopted by the largest MTA. Secondly, as mentioned above, it cannot be assumed that the protection of CLSs is optimal in developed countries. Hence, the social clause will not be effective if it is attached only to bilateral trade agreements. There is a need for an independent body, able to administer sanctions against the most and the least powerful countries. The Dispute Settlement Body of the WTO could perform this role. The issue of labour standards in the organization has changed through time. The first outline of what then was called the International Trade Organization (ITO) came out in 1945, covering not just trading relations but also employment, international investment, economic development, services, competition, restrictive practices and commercial policy and commodity agreements (Rikowski, 2001). However, the USA opposed this draft. In 1947, the General Agreement on Trade and Tariffs (GATT) was signed by 23 countries (Rikowski, 2001). In 1995, the WTO was created. The basic legal framework is established in the WTO Charter, the GATT agreements being included as appendixes (Jackson, 1998). Two articles in the GATT permit otherwise GATT-inconsistent measures, ‘‘relating to the product of prison labour’’ (a. XX(e)) and measures ‘‘necessary to protect public morals’’ (a. XX(a)) (Trebilcock and Howse, 1999, p. 456). Article XX(a) of GATT 1994 could be interpreted so to include violations of CLSs, which would allow to implement sanctions as long as they are not arbitrary or a disguised protectionist measure (Trebilcock and Howse, 1999). However, this interpretation has received the opposition of LDCs; since an amendment to the agreements demand the unanimous vote of all Members, it is not likely that the WTO would allow for trade sanctions under the chapeau of a. XX(a). The issue of a social clause was raised during the Singapore Ministerial Conference (1996). Developing and some developed countries (e.g. the UK) opposed to discussing the issue during the meeting. After long and intense debates, a reference to labour standards was included in the Singapore Ministerial Declaration, emphasising that ILO was the competent organism to deal with these issues, and that WTO and ILO should pursue their cooperation (Tsogas, 1999). Existing collaboration between the WTO and ILO secretariats includes participation by the WTO in meetings of ILO bodies, the exchange of documentation and informal cooperation between the two secretariats (WTO, undated3). During the Seattle Conference (1999), the US, EU and other developed countries managed to get the issue addressed in a working group. Debate in that group was intense and there was strong disagreement among members. Consensus on any role for the WTO on the question of labour standards was not attained. Doha Ministerial Declaration (2001) stressed also WTO Members’ commitment to CLSs without specifying steps for its development (Bakvis, 2002). One of the reasons for their opposition is that developed countries (e.g. the USA) frame their proposal in the terms of the economic argument, i.e. they express the concern that the lack of labour regulation may negatively impact their exports (Hoekman and Kostecki, 2001), and not the moral argument. The protectionism LDCs allude to depends on how the social clause is implemented. Trebilcock and Howse (1999) revise several possibilities for the introduction of the CLSs in the WTO. Most of them rely on the Dispute Settlement Body to enforce compliance with CLSs and envisage the WTO as the enforcer of last resort, maintaining the ILO as the main responsible institution for enforcing CLSs (Block et al., 2001; Suranovic, 2002; Tsogas, 1999). Trade Unions (see, for instance, ICFTU/WCL/ETUC, 2003) propose the creation of a joint advisory committee of the ILO and the WTO, to examine the implementation of the social clause. This committee would recommend measures to be taken within a specific period that should not exceed two years. During this period, the offending country will be helped with
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technical assistance and funds. At the end of this period, the committee will issue a new report. If the offending country has failed to make adequate efforts, trade sanctions could be advised against it, in the form of increased tariffs on its exports. These proposals have been rejected. Apart from the procedural changes they would imply for the ILO and the WTO, the most frequent argument against any role for the WTO in enforcing labour standards is that this is not within WTO’s competences (Maskus, 1997; WTO, undated). Yet, some authors (e.g. Scherrer and Greven, 2001; Suranovic, 2002) highlight that there are several precedents (e.g. the TRIPS agreement, the aforementioned a. XX(e) of the GATT, the new WTO objective of harmonising competition policy) that could be explored with the aim of including a social clause to protect CLSs. Other countries have proposed the creation of a working party to examine the link between trade and CLSs, and more generally, the social issues affected by globalisation. These suggestions have been also rejected. None the less, there is a precedent for a working group in the WTO focusing on issues other than trade: the Committee on Trade and Environment, instructed to analyse the effect of environmental measures on market access and trade.
SOCIAL CLAUSE, FAIR TRADE OR ETHICAL TRADE? This section will examine whether the social clause would contribute to the advancement of the goals of the Fair Trade movement. FINE4 (in Polgreen, 2002) defines Fair Trade as ‘‘an alternative approach to conventional international trade. It is a trading partnership, which aims at sustainable development for excluded and disadvantaged producers. It seeks to do it by producing better trading conditions, by awareness raising and by campaigning’’. In a nutshell, the Fair Trade movement proposes an alternative model to mainstream trade, since the traditional business model is essentially flawed (Redfern and Snedker, 2002). Since the beginning, the Fair Trade movement has combined practical and ‘propagandistic’ goals. To illustrate, one of the primary goals of Tradicraft was to show that trade could be done in another way. This goal cannot be dismissed when analysing the Fair Trade movement. Fair Trade is often confused with Ethical Trade. Ethical Trade is ‘‘an approach to the supplychain management, most usually undertaken by multinational brands or retailers, that involve the use of codes of conduct to ensure that suppliers meet minimum standards of employment, workers welfare and other aspects of human rights standards’’ (Tallontire, 2002). Although both approaches are complementary (Blowfield, 1999b; Redfern and Snedker, 2002) there are fundamental differences between them. Table 2 depicts the goals and strategic options of both initiatives. Initially, the social clause may not be considered as an instrument to advance the objectives of the Fair Trade movement, but those of the Ethical Trade. None the less, a deeper analysis leads to conclude that the social clause could be a complement for the Fair Trade movement, to a greater extent than current Ethical Trading initiatives are. There is an evident coherence in objectives, since it also aims at protecting human rights and promoting social justice. Other instrumental objectives of the Fair Trade initiatives are: to build capacity in the communities by empowering producers, to alleviate poverty, to balance power, creating non-exploitative structures at the organisational level. The social clause may also help to achieve these goals. As research has shown, enforcement of CLSs will result in improved human capital, helping LDCs to ‘‘make the transition from an extensive to an intensive use of labour’’ (Scherrer and Greven, 2001, p. 51). This is regarded as the main strategy for economic development (Subasat, 2002); thus,
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Table 2. Goals and Strategic Options of Fair Trade and Ethical Trade Fair Trade Approach Focus Scope Organisational agent Target Secondary goals
Macro-economic: change unequal trade relationships Producers and local communities Developing countries Alternative business Niche market Raise awareness among consumers
Ethical Trade Micro-economic: minimum workers’ (environmental) protection Workers/livelihoods Developing (and developed) countries Mainstream (and alternative) business Mainstream market Improve reputation of companies
Source: adapted from Tallontire (2002); Burns and Blowfield (undated); Redfern and Snedker (2002).
enforcement of CLSs will also help to alleviate poverty. The prohibition of slavery and forced labour, and the enforcement of the rights of freedom of association and collective bargaining will contribute to empowering workers, balancing power structures in the organisation. Yet, the inclusion of a social clause in trade agreements would not change current trade structures, since it does not challenge the objective of profit maximisation. At most, it will bring changes at the micro level. Further research is needed before affirming that these changes at the organisational level would contribute to the aforementioned goal of ensuring ‘sustainable development for disadvantaged producers’. Hence, as regards the research question that prompted this paper, only to some extent will the inclusion of a social clause in trade agreements help to achieve the goals of the Fair Trade movement. Since it does not aim at altering ‘unjust’ trade structures but ‘unfair’ labour practices, the social clause should be better understood as an improvement of existing Ethical Trade initiatives. So far, Ethical Trade initiatives are undertaken in a voluntary fashion through codes of conduct (Blowfield, 1999b; Burns and Blowfield, undated). Scholars (e.g. De la Cuesta and Valor, 2004) have highlighted the flaws of these voluntary initiatives. The inclusion of a social clause in trade agreements will overcome some of these withdrawals. Below, the limitations of codes of conduct are briefly explained, followed by the improvements brought up by the social clause. One the main flaws of existing Ethical Trade initiative is the number of them and the differences among codes (Blowfield, 1999b; OECD, 1999). The social clause will offer a unified normative framework as regards labour standards, since the covenants stem from agreed ILO Conventions. In addition, it has been stressed that codes tend to be adopted by certain brands. In other words, since codes are adopted to hedge against reputation damages, they will only be adopted when there is a brand to harm (Liubicic, 1998). Hence, codes tend to be frequent in Business-to-Consumer industries (e.g. textiles) and tend to be adopted by certain companies in each sector (those with a brand to protect). The social clause will enlarge the scope of companies currently engaged in improving workers’ conditions: it will apply to any export-oriented company in any industry. The inclusion of a social clause in multilateral trade agreements, in particular, in the WTO, would help to overcome the two major disadvantages of codes of conduct: lack of monitoring and enforcement mechanisms (De la Cuesta and Valor, 2004; OECD, 1999). The effectiveness of codes is weakened by the lack of monitoring systems. The implementation of a social clause in the
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WTO agreements, in the terms trade unions propose, would help to overcome this issue, since companies would be continuously monitored by the ILO inspectors. It will also provide an enforcing mechanism: the Dispute Settlement Body. This would be the enforcer of last resort, able to inflict trade sanctions against companies/countries that do not comply with ILO Conventions. Besides, the publicity derived from airing the complaints at the DSB would be another incentive for companies to comply with CLSs. None the less, the social clause cannot be regarded as the final solution. Two main limitations of the social clause still remain. Firstly, the social clause only covers Core Labour Standards. Other workers’ rights, such as health and safety, would not be protected. Secondly, the social clause will ensure the ethical conditions of production in exported goods. Adopting a supply-chain approach could enlarge the scope of industries liable by the social clause, i.e. by extending the liability to violations committed by their suppliers. Considering the difficulties in approving the social clause as currently formulated, these two flaws will be extremely hard to overcome. Hence, there would be still a need for voluntary Ethical Trade initiatives (to enlarge the scope of the social clause, either in number of workers’ rights and in industries affected) and for other mechanisms (e.g. that could raise labour standards in the informal sector) to ensure workers’ protection worldwide. CONCLUSIONS To conclude, from a theoretical point of view, the social clause will only partially achieve the objectives attached to the Fair Trade initiatives. Because the social clause does not attempt to change current market structures, it should be analysed as a strategy similar to the Ethical Trade. Moreover, the social clause brings some benefits over current Ethical Trade initiatives, since it provides a uniformed standard and, should it be attached to the WTO agreements, would overcome the lack of monitoring and enforcement of codes of conduct. From a practical point of view, as suggested above, these theoretical benefits will only materialise if, firstly, the social clause is attached to trade agreements, and secondly, if its implementation is effective to achieve the objective. The social clause currently exists in bilateral trade agreements between US/EU and other developing countries. It has also been attached to the main multilateral trade agreements (the European Union and NAFTA). Yet, the effectiveness of the clause in these agreements has been limited due to the misuse of such a clause. The social clause is being used to achieve political objectives rather than to enforce human rights worldwide. None the less, the inclusion of a social clause has brought disclosure of labour abuses in certain countries. This, coupled with the naming and shaming strategy pursued by trade unions, NGOs and the established dispute settlers, has contributed to raise labour standards in Member countries. Yet, to bring the benefits suggested above, the social clause should be implemented on a global basis, i.e. in the WTO, as trade unions and NGOs suggest. It is not very likely that such a clause could be attached to the WTO agreements for the time being, considering the strong opposition of certain developing countries. Further research is needed to clarify the consequences of social clauses on developing countries and to assess their effectiveness in raising labour standards worldwide. Having said that, the existing social clauses have an impact on the internalisation strategy of companies. In the past, it has been obvious the negative publicity derived from being brought to the dispute settlement bodies of the EU, US or the NAFTA. Even when it is not likely that a social clause is implemented on a global basis, marketers should adopt a proactive strategy vis-a`-vis preventing labour abuses, to reap the benefits of existing and potential social clauses. In a nutshell, this proactive strategy consists of monitoring the supply chain to ensure workers’ protection.
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Companies may either adopt a code of conduct (created by company, industry, or intergovernmental organisations), or try to be awarded a label. Both strategies entail a learning process. Hence, those companies which start fighting labour abuses now through voluntary codes of conduct may obtain a competitive advantage in the future, should these codes be made compulsory. Marketers may join one of the numerous Ethical Trade initiatives that fight labour abuses. In this paper, and as conclusion, three initiatives are briefly explained: the label SA8000, or the codes of conduct Ethical Trading Initiative and Clean Clothes Campaign (only for apparel manufacturers). The SA8000 was set up by the American NGO Council on Economic Priorities. This NGO accredits and monitors accounting and auditing firms that want to work with SA8000. To develop and improve the standard, they rely on an advisory board (with representatives of NGOs, unions, companies, accreditation agencies and academics) (ACILS, 2003; Burns and Blowfield, undated). The Ethical Trading Initiative is a coalition of British trade unions, NGOs and retailers, with the support of the government (Department for International Development). They have produced a code (ETI Base Code), but compliance with the code is not monitored. Companies have to send annual reports where they assess the quality of the monitoring and enforcement program. These reports are used by ETI to decide membership eligibility. Companies are not required to make their reports publicly available but they cannot either mention their membership for the promotion of their products (http://www.ethicaltrade.org; ACILS, 2003). The Clean Clothes Campaigns (CCCs) started in the Netherlands in 1990. In each country, the CCCs are coalitions of consumer organisations, trade unions, human rights and women rights organisations, researchers, solidarity groups and activists. Their campaign focuses on three objectives: guaranteeing consumers’ right of information; holding liability of distributors and clothing companies at every stage of production; increasing adherence to the code among companies, as well as ensuring independent verification. The first two are achieved through legal means, not voluntary codes. To implement the voluntary code, they have opted for a foundational model: a foundation, comprised of an equal number of representatives from unions, producers, retailers, and NGOs, monitors the code. The code includes other ILO conventions apart from the core labour standards (e.g. living wage, working week) (ACILS, 2003; Scherrer and Greven, 2001). ACKNOWLEDGMENTS This research was supported by the grants FPU (2003) of the Ministerio de Educacio´n, Cultura, Deporte (Spain). I am very grateful to Ali H. Abdul for proof-reading this paper. NOTES 1
http://www.eiro.eurofound.eu.int/2000/12/feature/eu0012286f.html http://www.ilo.org/public/english/standards/ipec/publ/policy/brussels_traffpaper2002.pdf, http://www.globalmarch.org/worstformsreport/world/europe-region.html 3 http://www.wto.org/english/thewto_e/minist_e/min01_e/brief_e/brief16_e.htm 4 FINE is an alliance of FLO (Fair Trade Labelling Organisation), IFAT (International Federation of Alternative Trades), NEWS (Network of European World Shops), and EFTA (European Fair Trade Association). 2
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