After the Seattle debacle, many people in the North and the South felt that the notion of linking trade and labour standards would disappear from the agenda. However, for those who oppose this linkage, complacency is not warranted. The issue is still very much alive in US domestic politics and is therefore sure to remain on the trade agenda. The delicate balance between the Democrats and Republicans in both Houses of Congress means that the Administration, which opposes linkages, may well have to make some concessions to the Democrats on labour standards in order to make progress in trade negotiations.

The interviews conducted demonstrated that Northern NGOs still tend to support a ‘social clause’ in the WTO and other trade agreements, believing that it can exert pressure on governments with positive results for workers. However, their perceptions and their demands have become more nuanced since Seattle. There is a growing appreciation for the role of the ILO, the need for technical assistance and capacity-building in developing countries and for constructing the clause and its dispute settlement mechanism in such a way that it cannot be captured by protectionist interests in developed countries.

The picture for Southern NGOs is more varied. Unions, especially in countries in which the government exerts an influence over organised labour, are in favour of linkages. Indian unions, on the other hand, remain determinedly against. Businesses also reflect many shades of opinion on this issue, but there is a definite trend towards greater ethical awareness, prompted in part by the vociferous media.

The deadlock at the WTO has prompted a search for other ways to address workers’ rights. These include the use of fines rather than trade sanctions for dispute settlement; strengthening the role of the ILO in setting and monitoring standards and providing a forum for debate; voluntary instruments, designed and monitored by firms themselves or by independent bodies; and extending the reach of mandatory national standards.

The future of the trade-labour standards linkage depends both on the domestic political situation in the US and also on the ability of those actively involved in the debate to find an innovative solution that will improve workers’ conditions without the risk of protectionism.

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Background

The US has been trying for the past few years to include a social clause in international trade agreements. This issue came to a head at the failed Seattle Ministerial meeting of the WTO where US pressure came up against powerful opposition by developing countries. This clash was one of the main factors contributing to the collapse of the meeting.

In the US, support for the social clause comes mainly from Democrats while Republicans tend to favour untrammeled free trade. Thus the Administration of President George W Bush would not be expected to pursue linkages with labour standards in its international trade policy. However, the President needs Congressional approval for Fast Track negotiating authority as well as Congressional agreement to ratify any treaties and agreements that he signs. The Democrats have made labour standards a condition of support for Fast Track. The current delicate political balance in both the House of Representatives and the Senate leaves the question of the social clause up in the air.

Meanwhile, the European Union is staying quiet on the social clause. Its agenda for the WTO focuses on competition, investment and environment. But at the same time, support for the social clause in the general public and amongst civil society groups in both the US and Europe remains strong.

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Aims AND Methodology

The aim of the study tour was to interview people who could shed light on the current state of the debate on the trade and labour standards linkage and anticipate likely future trends. The interviews were carried out in Washington, New York, Geneva, and London.

The study tour forms part of the CUTS’ Initiative for Capacity Building on Linkages Between Trade and Non-Trade Issues, a research and advocacy project carried out over three years, 2000-2002, funded by the Ford Foundation. The project involves primary and secondary research, the production of documents and materials reflecting the Southern perspective on linkages and a series of dialogues and workshops involving protagonists and antagonists in the linkages debate.

A questionnaire was prepared around which the interviews were based, although the format was kept flexible to allow interesting issues to emerge (see Annex I). The questionnaire covered four areas:

1. Stance on labour standards/trade linkage

2. Justification for this stance

3. Level of knowledge of the interviewee of the potential impact of linkage in developing countries

4. Action planned/taken

Key individuals and organisations were targeted for interviews (see Annex II). Unfortunately, interviews with Congressmen/Congressional staff persons did not take place. Attempts to line up meetings with Max Baucus, Tom Harkin, Chuck Grassley and their staffers were unsuccessful. They would be sent a questionnaire by email instead.

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Results

The case for and against linkages

The case for the inclusion of the social clause in the WTO looks increasingly complex from a moral point of view. Many argue for reform of the international trading system on moral grounds, saying that the system is currently dominated and driven by business interests at the expense of the rights and interests of workers and consumers. These NGOs argue that the general public in developing countries, and workers all over the world, have on balance suffered rather than benefited from trade liberalisation under the auspices of the WTO. It should therefore be reformed to place these groups at the heart of the decision-making system. Labour groups, human rights groups and other NGOs have pushed for the social clause as a way to redress the current imbalance.

At the time of the Seattle Ministerial these groups were able to hold the upper ground in the moral argument and held sway in the media and public opinion. However, many of these NGOs have since come to realise that the impact of a social clause for poor and disadvantaged groups is not nearly so clear-cut. In some, perhaps most, cases the outcome of the threat or imposition of trade sanctions may be harmful to just the groups they are claiming to be trying to protect. The concerns of developing countries that the clause, however well intentioned might be hijacked by protectionist interest in developed countries, is now appreciated by many Northern NGOs.

Organisations such as the Maryknoll Office of Global Concerns have made efforts to spread information on the complex impact of trade on labour conditions, though these voices tend still to be drowned out by vociferous supporters of the social clause, and protectionist interest groups jumping on the bandwagon. Their protectionist intentions are sometime only thinly disguised. One example is the Mothers for Safe Highways campaign which is a loosely veiled attempt by teamsters in California to prevent competition from Mexican drivers.

Even stalwart supporters of the linkage like the AFL-CIO acknowledge that there could be negative effects on vulnerable communities in developing countries. The AFL-CIO now advocates that resources be ear-marked by the US and other developed country governments for

i) debt relief, which will raise the amount of resources available to developing country governments, and

ii) capacity-building and technical assistance to implement a WTO social clause, appreciating the burdens of developing and implementing new compliant labour laws.

Some groups have also become sensitive to the sequencing of capacity-building and the introduction of a social clause in the WTO. But the AFL-CIO is still saying, “the sooner, the better.”

Public opinion has to some extent been left behind in understanding the nuances of the issue. According to the AFL-CIO, the public in the US is overwhelmingly in favour of a social clause. The media still tends to take a sensationalist approach to cases of child labour, for example, and does not follow up stories when factories are closed down or child workers have to find alternative sources of income in the informal sectors which may be less well paid or even illegal/degrading such as prostitution or petty crime.

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Political: Congress

The delicate balance between the Democrats and the Republicans in both Houses of Congress makes it extremely difficult to judge the future of a social clause in US trade policy. With the Democrats in control of the Senate Chairs, their call for the inclusion of enforceable labour standards in all trade agreements, bilateral, regional and multilateral will be difficult for the Administration to ignore..

The Republicans take the view that enforceable labour standards should not be part of trade agreements. In a recent speech, Bush referred to labour and environmental standards as “all kinds of excuses not to trade.” Bush could go for a reactionary bill which would leave out such provisions altogether, even in the Preamble or in a non-enforceable form, but this would be dangerous politically as there are a number of Congressmen on either side who may not necessarily follow the party line. The Republicans are drafting a bill at the moment.

In order to get trade agreements ratified by Congress and to secure Fast Track negotiating authority for trade agreements (also referred to as Trade Promotion Authority), President Bush is likely to have to make concessions on linkages, given the position of the Democrats in both Houses. As Thea Lee of the AFL-CIO put it, “Without movement on linkages, there will be no movement on trade.” Whether the President manages to secure Fast Track depends on a few votes of ‘swing’ Congressmen. in both parties. In Robert Scott’s view, some of the Democrats who have so far pushed for the social clause would be willing to ‘cut a deal’ on some intermediate position.

Key Republicans are: Phil Crane, IL (Trade Subcommittee Chair, Ways and Means), Tom DeLay TX (Majority Whip, Appropriations), Duncan Hunter, CA, Charlie Norwood, GA (Energy & Commerce) and Bob Ney, OH (Chairman, House Administration). Key Democrats are: Cal Dooley, CA (Agriculture/Resources), Bob Matsui, CA, and Sandy Levin, MI (Ways and Means) who was very active in trying to prevent the China PNTR bill last year. Phil Crane is on the hard core right and will resist any inclusion of labour standards, even in a non-enforceable form. The other Republicans have opposed fast track, but could swing either way. Sandy Levin could be flexible and Bob Matsui has recently changed sides. The Republicans need 10-20 people to come over to their side to compensate for their own party members who are supporters of enforceable labour standards in trade agreements.

President Bush does not necessarily need Fast Track to launch a new round at the Doha Ministerial in November, but his prospects for achieving progress in freeing trade and the US’ bargaining power in multilateral negotiations will be all the stronger if he does have it. Thus he may decide not to push for it at this stage if the political balance looks like it will not fall on his side. Scott’s feeling was that the labour standards issue would not be decided by Congress before the Ministerial. The bill could be rushed through in the omnibus bill at the end of the session, but would be more likely to get discussed at the start of 2002. If there is no agreement in Congress by November, the US will probably suggest some vague language on labour standards for home consumption, but not push too hard.

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Civil Society: Unions in the North

Northern unions have been the most vociferous campaigners for a social clause at the WTO. In some cases, such as the textile workers unions, the protectionist motivation has been barely disguised by rhetoric about ‘welfare in the developing world’ and ‘human rights.’ The union umbrella groups now tend to take a more nuanced stance and are well prepared to defend themselves against the accusation of protectionism.

The developing countries imposed an effective block on the inclusion of a social clause at the WTO during the Seattle Ministerial in a show of collective force. This success has led to complacency in some quarters that the battle against the social clause has been won. This is far from being the case. Supporters of labour standards are pursuing the same goals very successfully in bilateral and regional negotiations.

Unions lost one battle to maintain the prominence of the issue when China was granted Permanent Normal Trading Arrangement with the US. This replaces an annual reconsideration of China’s MFN status that allowed advocates a platform from which to draw attention to labour rights abuses in that country in particular.

But there are several other routes open to push the linkages agenda outside the WTO. Firstly, the AFL-CIO and the ILRF both bring cases for the withdrawal of GSP, the Generalised System of Preferences in the US, on the grounds of labour standards. They have been successful in securing legal changes in a number of cases, and in most the changes are made following the threat, without GSP ever having actually to be withdrawn. The AFL-CIO claims that the pattern of GSP cases demonstrates that their motives are not protectionist as the cases have been brought in relation to sectors in which US workers are not competing with developing country workers for markets, for example the boycott of Ganesh bidis.

The AFL-CIO’s strategy at the present time is to get a labour clause in bilateral and regional trade agreements which would cover the core rights as articulated by the ILO. Their priority at the moment is to see them go into the FTAA. Whether or not the US makes progress on the social clause at the WTO matters less in the context of the US-Jordan trade agreement and prospects for US-Chile. AFL-CIO sees the prospects of getting a labour clause in the FTAA as being good.

Unions are also lobbying municipal politicians. For example, the New York city council has recently introduced legislation on an international living wage under pressure from UNITE, the textile workers union.

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Civil Society: Unions in the South

There is no consensus among Southern unions on the issue. While Indian trade unions are strongly against any linkage, unions in Latin America, for example, are generally for them. The stance of the Latin American trade unions was demonstrated in the debates on social issues in the context of the Free Trade Agreement of the Americas.

In many Latin American countries, unions exist under highly repressive political regimes. As one delegate at the ICTUR conference put it, trade union leaders lack even the most basic freedoms, in fact, in some countries, they have a “right to death.” In this context, it could be very useful to ally themselves with powerful unions in the US that hold an influential position in the political process like the AFL-CIO. Interestingly, the Latin American countries were the first proponents of a trade-labour linkage when the issue surfaced in the 1930s.

Some divergence in views amongst unions in the South may also be explained by government involvement in unions. Robert Scott argues that in Mexico, for example, the unions are to all intents and purposes run by the government, so they should not be taken as representing an independent union view. The same situation applies in Malaysia and other countries.

1. Business

The picture among businesses is also varied. Some companies like Caterpillar and Boeing, are willing to resign themselves to a social clause if this is necessary for the President to win Fast Track as they view the benefits of trade liberalisation to be greater than the restrictions of the social clause. Undoubtedly, ‘ethical’ awareness is becoming more prevalent among firms (most firms in the US now have an Ethics Officer or Department), pushed by an investigative and often sensationalist media.

As part of this growing awareness, a number of firms, including those most targeted by student campaigns and by the media for their labour practices in developing countries, are joining the Fair Labor Association. The FLA will conduct investigations and provide certification of labour conditions. In an effort to regain ground lost in public relations, and to undermine the more radical rival body, the Workers’ Rights Consortium, Nike, Reebok, Adidas and Levi Strauss are helping to finance this body.

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2. International institutions

Civil society representatives and other international organisations, according to Sabine Schlemmer-Schulte, a lawyer at the Bank, have called upon the World Bank to integrate labour standards into their funding decisions. The Bank in general now tries to steer clear of adding extra conditionalities to its loans and is resisting this pressure to make the maintenance or improvement in labour standards the condition of a loan.

In legal terms, the Bank’s mandate specifically states that political considerations may not be taken into account in a funding decision. This leaves a grey area within the Bank’s mission to promote economic development in which some social considerations could be integrated. The US has tried to put pressure on the Bank by linking their donations to the introduction of social considerations in lending. However, as the International Bank for Reconstruction and Development has its own capital endowment, it is not beholden to its donors to the extent that some other institutions are. The US could in theory tie its donations to the IDA to restrictions on eligibility for loans, but the IDA accounts for a small proportion of the Bank’s overall lending activity.

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The Future: what other approaches could be taken?

(a) Role of the ILO

The role and potential role of the ILO in this area is much debated. Some argue that the ILO plays an adequate role as it is, working with governments rather than against them. The ILO would like to see the following conditions on any linkage at the WTO in order to prevent the linkage being used as a form of disguised protectionism:

· The ILO should determine whether the abuse has taken place;

· Trade sanctions would only be imposed where a “gross and persistent” violation had taken place;

· ILO should be a forum for debate on the social impact of trade. In trade negotiations, views tend to diverge, where as there are middle positions that could emerge in informal discussions.

As the WTO is essentially a bargaining forum for national interests, it cannot play the role of conducting research and hosting a debate on the social impact of globalisation, while the ILO is well suited to these functions. The ILO Working Party on the Social Dimension of Globalization has launched an ambitious proposal to prepare a major authoritative report of the interaction between the global economy and the world of work. The method and participants for the report are under discussion in the WP.

Others point to the failure of the ILO in the recent case of Myanmar to argue that an ILO without teeth cannot play an important role in raising labour standards. The aim of the ILO is to encourage and persuade, so the ILO cannot even be said to have the power to give a good ‘tongue-lashing.’ Member states are required to produce annual reports but in reality often do not do so. In terms of supervision and sanctions, the Committee of Experts makes requests on bringing national legislation into conformity with ratified conventions which are all too often ignored.

If the ILO’s powers are inadequate and a social clause at the WTO risks abuse by protectionist interests in developed countries, what – if anything, should be done at the international level to protect and promote labour standards?

Jagdish Bhagwati sees a three-pronged approach:

i. The Global Compact. This serves a very important part in creating norms and standards in the international system that gradually trickle down into changes in corporate behaviour. It does not involve any monitoring or enforcement.

ii. Voluntary standards. There are a huge number of these (200 at last count), including SA 8000 the Ethical Trading Initiative, the WRC/FLA proposals and a vast number of independent standards created by companies themselves. In his view, their proliferation is a good thing, which allows firms to pick the standards that are relevant and useful to them. Firms are more likely to implement standards that they define for themselves. Different standards also give consumers more choice so that they can balance ethical considerations against price.

iii. Mandatory national standards. The US and other developed countries can make a huge contribution by extending the application of national laws to company operations wherever they take place. Companies should have to maintain the same standards to production by subcontractors and subsidiaries in other countries as at facilities in home countries. Firms are resistant to this idea as standards are of course much higher in the US and Europe than in developing countries. However, there is no legal reason why this should not be implemented as US anti-corruption laws, for example, apply to the operations of US-registered firms wherever they take place. The same could therefore apply to labour standards.

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(b) Voluntary standards

An important set of approaches involves voluntary standards. Companies are showing increasing interest in these, and the experience of the Ethics Resource Centre which has long experience in providing ethical consultancy to companies is that top-down regulations are much less likely to work than programmes that emerge from within the companies. Even the best motivated companies have problems in making sure that their ethics codes are followed by their contractors and suppliers.

Some academics who have analysed these initiatives, like Peter Utting of the UNRISD, believe that voluntary initiatives are too fragmented to have much of an impact either in the negative sense of creating unemployment or reducing the quality of work available or in positive terms by reducing child labour etc. Codes are more likely to be effective, as sectoral codes for infant formula or pesticides, where they contain clauses to integrate them into national legislation.

One interesting initiative is the Ethical Trading Initiative in the UK, a tripartite body including business, unions and campaigning groups and supported by the government. As it will often be difficult for companies to ensure that their codes are implemented on the ground, its main effort has been to help find ways to improve implementation. One particularly successful scheme is in Zimbabwe has revealed that audits must be conducted with social and cultural understanding, more along the lines of the way that an aid agency operates, and by interviewers with ability in the local language, if they are to uncover breaches in the codes. Audits that do not follow these guidelines are likely to fail to uncover lapses or to misunderstand their nature.

Others proposals involve targeting firms rather than countries. This appeals to the anti-TNC feeling that characterises much of the anti-globalisation movement, especially in Northern publics and NGOs. However, targeting firms means that any improvements will only have a limited impact in the production facilities of a single firm, although there could be a demonstration effect on other multinational and national firms.

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(c) Fines

An alternative to using economic sanctions to enforce labour standards is to use fines. This idea is gaining currency and is thought to be more appealing to developing countries. A system of fines has been included in the NAFTA labour side agreement and in the Canada-Chile trade agreement. Neither of these has been effective. No case has been settled under the North American Agreement on Labor Cooperation (NAALC), several remain stuck in the judicial process. Fines can lead to improved working conditions either though deterring or punishing violators and/or redirecting resources to address enforcement problems.

Potential developing country support for this proposal would depend on the precise nature of the system. Points of importance include:

· Which labour standards are enforceable. These could be national standards or internationally agreed standards and could include all or some of the ILO’s core standards. Any breach should be for a “persistent pattern of failure” by a country to impose the standards.
· Who pays the fine. The fine would be levied on the government which could then pass it on to the offending firm according to its national legal system. Levying a fine on the government or on the labour agency can exacerbate a resource deficiency, making it even more difficult for developing countries to enforce their own labour laws.
· What happens to revenue from the fine. One would need to consider how the revenue can be used most effectively. Rather than relying on the national agency, the ILO could be involved in ensuring that the money is directed towards training and capacity-building which will address problems across the economy.
· How disputes are resolved. Disputes could be resolved through an international system of arbitration or through national courts. Developing countries are likely to resist international arbitration while developed countries might not accept the national approach.
· How collection of fines is ultimately enforced. If fines are ultimately enforced by the imposition of trade sanctions, then developing countries would be very unlikely to agree.

The record of the NAALC and Canada-Chile does not hold out much promise for a fines system, but better design could make this a system ‘with teeth’ but possibly also channeling resources towards raising labour standards in developing countries. This option deserves more discussion.

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Conclusion

It is difficult to predict the future of labour standards on trade agreements. At the WTO, developing country resistance is probably strong and united enough to prevent their inclusion in the agenda for a new round. The position of the US depends on the delicate domestic political balance. At Doha, we can probably expect to see the US talking about labour standards without pressing the point in negotiations but the precarious political balance in the US means that a deal could yet be struck that forces the hand of the President in this regard.

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ANNEXURES

Annexure 1: Interviews

The interviews were carried out by Pradeep Mehta and Olivia Jensen.

Washington DC

11/06

1. Robert Scott, Economic Policy Institute [Economics think-tank specialising in labour issues]

2. Thea Lee, American Federation of Labor – Congress of Industrial Organizations [National trade union federation]

3. Jerry O’Brien, Ethics Resource Centre [Consultancy on ethical issues]

4. Steve Charnowitz, Wilmer, Cutler and Pickering [Lawyer and academic, widely published on ILO and international labour issues]

12/06

1. Peter Ruggere, Maryknoll Office of Global Concerns [NGO working on improving labour standards at the grass-roots level in developing countries]

2. Sabine Schlemmer-Schulte, Legal Adviser, World Bank

3. Bama Athreya, International Labour Rights Fund [Labour rights NGO]

New York

13/06:

1. Jagdish Bhagwati, Council on Foreign Relations, Professor of International Economics, Columbia

Geneva

16/06:

1. International Centre for Trade Union Rights annual general meeting [Trade unions’ research and advocacy organisation]

18/06:

1. Peter Utting, United Nations Research Institute for Social Development [Development research agency working]

19/06:

1. Stephen Pursey, ILO

2. Gek Boo Ng, ILO: International Programme on the Elimination of Child Labour

3. ILO Working Party on the Social Dimension of Globalization

London

20/06:

1. Chidi Odinkalu, Interights [Labour rights NGO]

2. Phil Wells, Ethical Trading Initiative [Tripartite standards and monitoring body]

21/06:

1. Barry Coates, World Development Movement [Development NGO]

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Annexure 2: Questionnaire

Introductory Questions

1. How actively are you involved in the trade and labour standards debate? How important do you consider the issue to be e.g. in comparison to environmental standards/other aspects of trade agreements like TRIPS/GATS etc.?

2. How long have you been involved in the debate?

3. How have your views developed over time?

4. There is wide divergence of views on linkages between trade and labour standards, even within sectors such as trade union federations, multinational businesses etc. How would you explain this divergence within your sector?

Labour standards in international trade agreements

5. What do you understand the position of your government to be on this issue? Do you agree with this position?

6. Has the position of your government changed recently? How and why?

7. What do you expect the impact of these changes to be on moves toward inclusion of LS at the WTO?

8. Which of the following ILO conventions have been ratified by the US?

9. Which of the following ILO conventions would form part of a ‘social clause’ in trade agreements under the Bush Administration?

10. Which do you think should be included?

· Freedom of association

· Collective bargaining

· Right to strike

· Prohibition on forced labour

· Prohibition on child labour

· Prohibition of employment discrimination (e.g.men/women)

· Minimum wage

· Minimum employment standards (health, safety)

· Protection of migrant workers

11. What do you understand the position of developing country governments on this issue to be?

Please answer the following questions if you support the inclusion of a LS clause in the WTO. (If not, go to Q 14)

12. Is it a crucial agenda item for the any new round of talks i.e. negotiations on other issues should not go ahead without agreement on the inclusion of LS?

13. Are trade sanctions a fair and effective tool for raising LS?

14. Why do you support the use of trade sanctions to enforce LS?

i. Poor LS give developing countries an unfair advantage in trade. How? Is there a relationship between LS and export performance as far as you know?

ii. Cheap imports threaten domestic jobs. How? In which sectors? Do you have evidence to support this position?

iii. Humanitarian concern. How would LS help protect labour rights? What about labour in the non-traded sector (N-TS)? What about unemployment/reduced income caused by trade sanctions?

(Go to Q 17)

Please answer the following questions if you disagree with the inclusion of a LS clause in the WTO.

15. Should LS be included in regional/bilateral trade agreements like the FTAA?

16. Where should the issue be discussed?

iv. Only by national governments

v. Only by the ILO. How could the ILO be given teeth?

vi. By concerned IGOs such as ILO, UNCTAD, IMF, World Bank including the WTO

vii. By concerned IGOs such as ILO, UNCTAD, IMF, World Bank excluding the WTO

17. What is the most effective way to raise LS in developing countries?

i. Foreign aid?

ii. Growth/technological up-grading?

iii. Open markets?

iv. Trade sanctions to force governments to raise standards?

Social labeling

18. Do you support social labeling? SL is:

v. Futile/counter-productive

vi. Should be voluntary

vii. Should be voluntary but closely monitored

viii. Should be strictly enforced

Action

19. What action should your government be taking to protect the national interest?

20. What action should developing country governments be taking to protect their interests?

21. What action are you taking to influence the policy-making process?

ix. Lobbying politicians? Which politicians have you found most supportive of your views?

x. Networking with other like-minded organisations? National or international?

xi. Research? Publishing documents on your views?

xii. Taking part in publicity/action campaigns e.g. FLA/WRC? Do you have a media strategy?

xiii. Mobilising own membership? How?

CONTACT US

CUTS Centre For International Trade, Economics & Environment (CITEE)

D–217, Bhaskar Marg, Bani Park,

Jaipur 302 016, India,

Ph: +91(0)141-228 2821-3

Fx: +91(0)141-228 2485

Email: cuts@cuts.org

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