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White Paper on Trade and International Labor Standards

 

 

DRAFT 5/23

Introduction

The conclusion of the Uruguay Round and soon to be established World Trade Organization set the stage for a new era in international economic relations.  That a new organization was needed to manage the results of the Uruguay Round is just one example of the expansion of the trading system.  The trading system is a work in progress.

The positive relationship between trade and the creation of wealth is universally recognized.  Trade is not however, an end itself, nor is economic growth pursued without a social vision.  Economic growth cannot be maintained if it generates social turmoil.  Our trade and economic policies must ultimately advance our goals for a just and prosperous society.  The goal of creating the WTO was not to have more trade for its own sake, but to raise standards of living around the world.  Opening up new markets and forging interdependence is critical to fostering global growth and creating jobs--in all countries. 

It is for the purpose of promoting this objective--and not for protectionist reasons--that the United States seeks multilateral consideration of the link between internationally recognized labor standards and trade. 

This objective is recognized in the preamble to the GATT which states:

Recognizing that their relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steady growing volume of real income and demand...

The key to maintaining economic growth is by building the middle class in countries around the globe.  Moving people up from poverty into the middle class ensures that they have the incomes to buy the products they or workers in other countries produce.  Increasing the middle class fosters stability and democracy.  Increasing the middle class should broaden support for an open treading system because of the greater number of persons having a stake in the system.  Conversely, if the established middle class sees that its benefits from a liberal trading system are being eroded, because those benefits are not being shared equitably in other countries, support will diminish.  

Assuring equity in growth can be more easily accomplished if workers are afforded basic rights such as freedom of association, the right to organize, a prohibition on forced labor, and a minimum age for the employment of children.  Workers should share in the rewards of their increased productivity.

We recognize that many developing countries have a legitimate competitive advantage based on relatively low labor costs in production of certain goods.  Yet rising levels of trade and investment link the developed and developing economies more and more tightly each year.  The accelerating integration of the global economy makes it ever less possible to wall ourselves off from labor practices abroad.  And some labor practices simply place countries outside the community of civilized nations.  We must either actively accept some share of responsibility for how our economic partners conduct their affairs or else passively accept complicity.

It is therefore appropriate that just as the trading system has developed rules that fostered economic growth through  trade, so now in this age of globalization, it is appropriate for the trading system to take responsibility for assuring that the gains from trade are shared equitably.

While the implications of globalization make it more important for the trading community to acknowledge its responsibility  to promote social as well as economic progress, the concept of linking trade to social conditions dates back to the early part of this century.  The Treaty of Versailles, which formed the basis of the ILO charter in 1919, calls upon members to endeavor to secure "fair and humane conditions of labour" both at home and "in all countries to which their commercial and industrial relations extend."   The ILO is now celebrating its 75th anniversary and is again calling for members to reassess how it addresses the social consequences of international economic trends.  The charter for the International Trade Organization, written in 1946-48, stated that the members...

 "recognize that all countries have a common interest in the achievement and maintenance of  fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit.  The Members recognize that unfair labour conditions, particularly in production for export, create difficulties in international trade, and accordingly, each Member shall take whatever action may be appropriate and feasible to eliminate such conditions within its territory."

The U.S. believes that what was true then is even more vital today and that the newly created World Trade Organization should take steps to achieve the above objectives of its early predecessor organization.  We seek agreement in the WTO on a program of work that will examine the relationship of trade to internationally recognized labor standards.  The Prepcom should consider how this work should be organized, the relevant questions to be addressed and make recommendations to ministers for consideration upon entry into force of the WTO.

What are the labor standards to be addressed?

(Note: The ILO does not recognize the term "internationally  recognized labor standards" and other critics are also questioning this term)

The United States realizes that many countries fear that folding labor standards into the world trade context will expose their exports to protectionism and eliminate their comparative advantage.  This is not what the United States contemplates.  We have led the effort to liberalize world trade and have continuously rejected protectionism.  What we are seeking is to define, through multilateral negotiations, agreement on a core set of standards that will support a free and open trading system.  Our vision of a social clause in trade agreements is not one which sets minimum wages or regulates detailed aspects of any country's labor policies. 

Which standards should comprise this core set of principles?  The United States has no precise prescription to propose.  We would expect that nations should be able to agree that some labor practices simply place countries outside the community of civilized nations.  We would expect that any such list will certainly include goods produced by prison or slave labor.  Some forms of child labor--such as work by very young children--will also be found to violate universal norms, even in the poorest countries.  Nor is poverty a valid pretext for repressively restricting freedom of association and organization.

Work done by the ILO and other UN agencies, as well as some prominent proposals on this issue have identified the following human rights based standards that we believe should be considered. (Question: Do we want to describe these in general terms?)

Prohibition against forced labor
Right to organize and bargain collectively
Freedom of association,
Limitations on child labor
Anti-discrimination in employment
Informed consent of workers in extremely hazardous workplace conditions

Beyond a core list of standards which are so fundamental as not to even depend on level of development, consideration needs to be given to other standards which may be relevant to our objective of assuring that the benefits of expanded trade and economic growth are shared by workers.

It would be inappropriate to for the global community to try to develop uniform levels of working hours, minimum wages, benefits or health and safety standards.  The developing countries' insistence that they must grow richer in order in order to afford American or European labor standards--and that they must trade if they are to grow richer, is essentially correct.  Yet this observation contains within it an implicit acknowledgement that standards should not be static, that a country's ability to offer its citizens better working lives rises with development, and that international expectations may properly rise as well.

The challenge for the global trading community is to develop a framework of standards that leads to improved labor conditions as economies grow.  Rather than set absolutes, one approach might be to consider evaluating results or trends.  For example, as economies expand, one could expect that workers should become better off, not worse off.  The gap between rich and poor should tend to narrow with development, not widen.  Improvements in workplace health and safety standards might be reflected in a country's health and mortality statistics.  Compulsory education requirements or increases in the average level of educational attainment could be considered indicative of a country's determination to promote the interests of children and youths.  Alternatively, the existence of mechanisms which allow participation by the workers and society to set standards such as those related to wages or health and safety might help assure that labor standards rise commensurately with growth.

Role of the ILO

The United States would be remiss if it did not contemplate full participation by the ILO in the pursuit of improved conditions for labor globally.  The Preamble to the ILO Constitution states that "the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions of their own countries".  However, while the text clearly shows that the founders of the ILO did not want states engaged in social reform to be at a disadvantage in international competition, these same framers of the ILO Constitution deliberately discarded all forms of coercion.  Rather, the ILO seeks to promote social progress through its tripartite processes and procedures designed to identify  areas of concern in the labor and social field, adopt appropriate international standards, provide technical assistance to achieve those standards and measure performance toward compliance.

There are 174 ILO Conventions.  Some concern fundamental human rights, others are more technical in nature, covering a variety of issues relating to employment conditions and national labor and social policy.  Some conventions set forth minimum standards, others are "promotional" in nature, that is, they establish a goal to attained over time.

The United States has only ratified 11 ILO Conventions.  Nevertheless, the United States stands ready to defend its law and practice in the labor field.  It has been our view, that the political act of ratification is less important than the implementation of the spirit of the Conventions.  In recognition of the emphasis placed by others on ratification, we are however, accelerating our review of the basic human rights convention on non-discrimination in employment and a technical convention on labor administration.  It is a major goal of this Administration to make sure that U.S. progress toward ratification of ILO standards cannot be used by other countries as a pretext to challenge the credibility of our interest in improving respect for worker rights in the world community.  

ILO Director General, Michel Hansenne, in his report to the 75th anniversary conference of the ILO states that the ILO's mandate requires it to be a party to the current debate regarding international labor standards and raises questions as to just what that role should be.  Hansenne outlines several possible alternatives for strengthening the effectiveness of ILO standard setting activities for use in conjunction with the regulation of international trade, while at the same time safeguarding the voluntary nature of ILO standards.  The United States is ready to cooperate with the Director General and the tri-partite members of the ILO to further develop the ideas contained in the report, and to explore how the ILO and the WTO together can best work together to pursue their mutual objectives.  We should not miss the opportunity of this 75th anniversary to pursue the objective of ensuring that the exploitation of workers does not distort international competition, but rather that the benefits of expanded trade and economic growth are shared by workers.  The United States calls on all representatives to the ILO to give that organization a clear mandate in this endeavor.

OECD

Analytical work by the OECD will also be useful in furthering understanding of the relationship between labor standards, economic growth and trade.  While we would not want this to be considered a developed country forum, that organization could advance the discussion through a dispassionate analysis of the questions involved.  Several committees of the OECD have already initiated work in this area.

U.S. Trade Agreement Programs and Labor Standards

The NAFTA debate in the United States demonstrates the vital role that labor standards plays in U.S. trade policy.  The supplemental labor agreement--the North American Agreement on Labor Cooperation is the first U.S. agreement that links implementation of agreed labor standards to possible trade sanctions.  The U.S. anticipates that labor standards will be an integral element of any future trade arrangements with our North American neighbors--or any other country or group of countries.

Promotion of workers rights is already a component of several U.S. programs which provide trade and investment benefits for developing countries.  Examples include the Caribbean Basin Initiative, the Generalized System of Preferences (GSP), the Overseas Private Investment Corporation (OPIC), the Andean Trade Preferences program, the Multilateral Investment Guarantee Agency (MIGA), and U.S. foreign assistance programs.  Only the GSP program, and to some extent OPIC, have a an active review process for implementing worker rights conditionality[1].  Consequently, GSP has been the focal point for discussions of worker rights issues.

GSP grants zero duty tariffs to eligible articles from beneficiary developing countries.  The GSP Renewal Act of 1984 requires that beneficiary developing countries must be taking or have taken steps to promote internationally recognized worker rights.  An identical or nearly identical standard exists for the other programs listed above.  Some critics argue that the worker rights standard leads to interference in domestic affairs of foreign countries and detracts from the program's objective of promoting economic development.

The United believes, on the other hand, that the worker rights criteria have promoted broad-based economic development worldwide and ensured that exports under GSP are not based on the exploitation of workers.  Our objective in implementing the GSP worker rights statute has always been to encourage higher labor standards rather than to limit GSP benefits.  We would argue that the worker rights conditionality has provided one useful lever to raise living standards and promote worker rights.  For example, Costa Rica and Paraguay enacted major labor code reform shortly after a GSP review was initiated.  A number of countries in Latin America subject to GSP reviews--e.g., the Dominican Republic, Panama, Guatemala, El Salvador--have enacted labor code reform to varying degrees. 

Elements of an Agreement on Trade and Labor Standards

It would be premature for the U.S. to table a specific proposal for an agreement on trade and labor standards.  What we seek is for the international community to examine the issues and formulate recommendations.  Only through this type of consideration, where all points of view can be expressed and taken into account, can we expect to reach agreement.  However, other organizations have made proposals which illustrate various approaches that might be taken.

Perhaps the most detailed proposal for a social clause is that put forth by the International Confederation of Free Trade Unions (ICFTU).   The ICFTU plan would establish a GATT/ILO Advisory Body to specify a list of minimum standards and oversee implementation of the clause.  ILO standards on freedom of association and the right to collective bargaining, the minimum age for employment, discrimination, equal remuneration and forced labour are referenced in the proposal because they are among the most widely ratified ILO conventions.  The ILO and GATT would review systematically and on the basis of specific complaints the extent to which GATT contracting parties are meeting their obligations under the social clause and make  recommendations.  When a country was found to be falling short of its obligations, the Advisory Body would recommend measures to be taken by the government within a specified period of time to improve performance.  Technical assistance, perhaps funded through a social fund, could be provided.  At the end of a given period, say two years, a further report would be prepared on the effect given to the earlier recommendations.  If a country had failed to make adequate efforts to implement the GATT/ILO recommendations trade sanctions would applied.  According to the ICFTU, "These sanctions should probably be increased tariffs to be levied by all GATT members on the offending country's exports."

In the United States, statements by AFL-CIO officials have suggested an approach similar to that taken in Uruguay Round negotiations of the TRIPS agreement where WIPO standards were embedded in a agreement which would be enforced through the WTO dispute settlement mechanism.  AFL-CIO Secretary Treasurer Tom Donahue told an April 25 conference that, .."we need to bring into place a joint mechanism between the ILO and the GATT or World Trade Organization, a committee first to examine these issues and to make available to the GATT the expertise of the ILO  . . .  but a judgment and an enforcement mechanism, triggered on a complaint basis, needs to be established in the World Trade Organization..."

As indicated earlier, ILO Director General Hansenne discusses several approaches based on ILO principles and procedures for the members to consider at their 1994 75th anniversary Conference.  Other private sector and academic proposals are also in circulation.

What stands out about these proposals is that none calls for a European Union type social charter harmonizing specific labor practices and laws across borders.  There is no call for an international minimum wage nor explicit health and safety standards.   All emphasize promoting and advancing labor standards, not restricting trades. 

The above discussion also illustrates the types of questions that must be addressed--namely:

--   What areas should agreed standards cover and how should they be defined?

--   How can implementation be monitored, promoted and assured?

--   What type of dispute settlement mechanism needs to be in place?

--   What should be the respective roles of the GATT and the ILO?

--   What should be the link to trade, both in terms of actionablility and enforcement?

Final Considerations

No matter how these questions are answered, the end result must certainly include safeguards against protectionist application.  There must be:

--   Due process allowing all parties to participate

--   Multilateral review and agreement

--   Emphasis on progressive improvement not rash response

--   Ample opportunity for any alleged violator to take steps to improve

--   Technical assistance available if appropriate

--   Responses appropriate to the circumstances and only at the end of the day if there are persistent patterns of abuse, e.g. sectorial or general trade sanctions, loss of GSP, ineligibility for international grant and loan programs, sun- shine to highlight abuses.

Private Sector Support

Raising labor standards globally cannot be accomplished by governments alone.  Corporations, especially through their multinational operations, can play a positive role internationally in promoting respect for the rights of worker.  Several voluntary codes of conduct establish sets of fair labor standards that U.S. corporations either commit to apply to their operations in foreign countries or, in some cases, require foreign subcontractors or suppliers to apply in their home countries.  The Sullivan Principles and the MacBride Principles, for example, deal primarily with labor standards.  Others such as the Slepak principles, the Miller Principles, the Maquiladora Standards of Conduct, and the Levi Strauss and Company's Business Partner Terms of Engagement, deal with a broader set of issues of which labor standards is a significant component.   These types of codes are to be encouraged.   The United States would hope that more and more companies would commit themselves to set positive examples of good corporate labor policies through their foreign operations. 

Codes of conduct for multinational corporations sponsored by international organizations also address labor standards.  The ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy and the OECD Guidelines for Multinational Enterprises both aim to encourage multinational enterprises to make positive contributions to the economic and social progress of their host country.  While both emphasize the need to operate within the framework of national law and practice, the guidelines they proscribe both include sections on industrial relations based on ILO principles related to freedom of association and the right to organize and bargain collectively, and discrimination.  The ILO Declaration also covers safety and health and wages and working conditions.  The United States will encourage the ILO and OECD to examine the operation of their respective guidelines with a view to ensuring their effectiveness in advancing basic labor standards.

Organized labor in all countries also has a responsibility to make sure that policies and practices they espouse for their membership also promote the broader interests of workers generally.

Conclusions

It is time for the international community to seriously address the relationship between trade and labor standards.  The U.S. stands ready to cooperate in any and all fora to begin this dialogue.

C:ILSWHITE.523

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    [1]Countries which loose GSP benefits because of worker rights violations also automatically loose OPIC benefits.  For non-GSP countries, OPIC conducts reviews upon request at annual public hearings.