Trade & labour: not so fast

Where are we now? Where are we headed?
John Langmore

It is timely to review the trade and labour debate, for there has been an extension of our experience in both areas in recent years that suggests the possibility of the evolution of positions.

One significant step has been the global agreement at the United Nations conferences during the nineties about the centrality of equitable economic and social development. The most powerful summation of that unanimity about aims is the Declaration of the Millennium Assembly held in September 2000, from which the Millennium Development Goals (MDGs) are derived.

It is important to recall that the framework for the explicit targets of the MDGs is the Universal Declaration of Human Rights. The 1948 Universal Declaration is not only about freedom of speech and belief, but also freedom from fear and want. Though the Universal Declaration is remembered by many for the political rights it expresses, it is also a strong expression of economic and social rights, such as the right to work, the right to education and social security, the right to an adequate standard of living for health and wellbeing, and the right to rest and leisure for both women and men. It also includes the right to form and join trade unions. As well, Article (28) states that 'Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realised.'

The ILO Conventions, some of which predate the Universal Declaration, are an especially important expression of the global framework of human rights. There are now over 7000 ratifications of the 184 ILO Conventions by the 175 member states of the Organisation, an average of 40 ratifications for each member state. India, for example, has ratified 39, and the US 14.

There has been growth of support for the standards expressed in these Conventions in recent years, in both the areas of employment growth and of labour standards. For example, the 1995 Social Summit asserted the crucial importance of focusing on growth of employment. The special session of the General Assembly in Geneva in June 2000 made a commitment to 'Ensuring that macroeconomic policies reflect and fully integrate, inter alia, employment growth and poverty reduction goals.'

One example of implementation of those international recommendations was the launching of the European Employment Strategy at its jobs summit in Luxembourg in 1997. Another is the modification that the World Bank and to some extent the IMF report, involving easing and diversification of their previously uniform structural adjustment policies, so allowing greater scope for nationally-determined economic and employment growth strategies in developing countries.

In 1998 ILO members adopted the Declaration on the Fundamental Principles and Rights at Work which requires governments 'to respect, to promote and to realize' the eight ILO core conventions. The Declaration was prepared to highlight core labour standards as identified at the Social Summit and to promote respect for them amongst states that have not ratified the relevant conventions, as well as those that have. The Declaration sets process-related standards, rather than focusing on outcomes. It states that:

... all Members, even if they have not ratified the Conventions in question, have an obligation arising from the very fact of membership in the Organization, to respect, to promote and to realize, in good faith and in accordance with the Constitution, the Principles concerning the fundamental rights that are the subject of those Conventions, namely:
1. freedom of association and the effective recognition of the right to collective bargaining,
2. the elimination of all forms of forced or compulsory labor,
3. the effective abolition of child labor, and
4. the elimination of discrimination in respect of employment and occupation.

The Declaration recognizes that standards cannot be considered in isolation and that the ILO has an obligation to assist members in achieving them by offering technical co-operation and creating "a climate for economic and social development".

In 1999, Convention 182 was adopted on the Worst Forms of Child Labour and this has become the fastest ratified convention in ILO history, receiving over 120 ratifications already. The ILO's International Program on the Elimination of Child Labour - the largest technical co-operation program in the Organization - attests to this commitment, as do its results, not just in terms of the rate of ratification but also through the withdrawal of thousands of children from the worst forms of child labour.

The same message was confirmed in the Director General's Report "The Decent Work Deficit" to the International Labour Conference at its 89th session in 2001, in which he stated that: "labour standards are not merely significant in respect of trade, but equally significant for technology, finance, investment, enterprise development and other areas.... These fundamental principles and rights at work are an integral part of development itself".

The ratification and implementation of international labour conventions not only improves labour standards, but also contributes to better worker morale, reduction of absenteeism and accident rates, and so to higher productivity. Although the enforcement mechanisms relating to these conventions and other human rights instruments are sometimes criticised for their weakness, there is a growing tendency to include a human and labour rights perspective in the development agenda.

An ILO study on labour costs and foreign direct investment found 'no solid evidence in support of the conventional wisdom that foreign investors favour countries with lower labour standards, with all the evidence of statistical significance pointing in the opposite direction.' This evidence contrasts with the fear voiced by some industrialised country' governments and trade unions that economic globalisation is causing a "race to the bottom." In contrast, some developing countries question the value and motive of a WTO social clause, fearing that it is a form of disguised protectionism through an attempt to raise labour costs in developing countries, in order to reduce their international competitiveness and comparative advantage.

While there is some evidence for both these views, neither seems entirely justified. Empirical evidence suggests that in fact trade with low-income countries has been only a secondary factor behind the rise in unemployment and wage inequality in developed countries. In a recent authoritative review of the evidence in the Journal of Economic Perspectives, Drusilla Brown concludes that '... it seems unlikely that trade is the primary factor that has caused the stagnant wages of low-skilled workers in recent decades.'

In addition, there is no systematic evidence that developing countries are keeping their labour costs artificially low through the repression of labour standards, though it is clear that some developing countries have neither the resources nor perhaps the will to actively enforce the provisions of conventions they have ratified. This factor is, however, contributing to competitive pressure between developing countries, making sustained application of international labour standards in developing countries competing with others that do not conscientiously apply them more difficult.

The argument for linking labour standards with trade presumes that 'free trade' is good for everyone. Yet, recent research results question this. For example, after an exhaustive study Rodrik concludes that 'A close look at the [literature on the links between trade policy and economic performance], and the evidence underlying the conclusions drawn, suggests that the issues are hardly clear-cut. Essentially, there is no convincing evidence that trade liberalization is predictably associated with subsequent economic growth.' In that paper he 'questions the centrality of trade and trade policy and emphasizes instead the critical role of domestic institutional innovations that often depart from prevailing orthodoxy.'

Sanjaya Lall concludes that '... in the presence of market failure ... free trade and import liberalization may not be the best policy for developing countries ... The design of liberalization has to take account of the extent and type of market failure.' Technological upgrading is hindered by market failures that are harder to overcome in a free trade environment. The central lesson is that, as in other areas of policy, national trade strategy for each country should be decided in relation to its circumstances and characteristics. As Lall writes, 'It isn't at all obvious ... that further external liberalization ("open-ness") is now in every country's interest in all dimensions.'

As well, the hypocrisy in this area is clear to all, with the major industrial powers urging free trade on everyone, but rigidly maintaining or even strengthening trade restrictions and agricultural and other subsidies. As Cornia writes, '... developing countries exporting to rich-country markets face tariff barriers that are four times higher than those faced by rich countries.' Both theory and historical experience show that infant industries - broadly defined - need opportunity and time for establishment. Comparative advantage must be treated as dynamic, and allowed to evolve.

The meeting of trade ministers in Singapore in 1996 confirmed their "commitment to the observance of internationally recognized core labour standards" ... and that 'The ILO ... is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them ..." The Singapore Declaration also specifically stated that: 'We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question ..."

Another argument against linking labour standards with trade is that most workers in the developing world are employed in the agricultural, services, and informal sectors. Trade sanctions would inflict pain only on industries involved in international trade. Yet, core labour standards should apply uniformly within a country to both tradable and non-tradable goods sectors.

A trade sanctions approach would also seem unfair: developed countries threats of sanctions would carry more power than ones made by developing countries. Besides, the ILO's own dispute system does not rule out ultimate resort to multilateral trade sanctions.

In 2000, the Governing Body prohibited ILO technical assistance to Burma except as necessary to end forced labour, and declared a ban on Burma's attendance at most ILO meetings. When that did not yield results, the ILO invoked for the first time Article 33 which does not rule out trade sanctions in that it allows the Governing Body to "recommend to the Conference such action as it may deem wise and expedient to secure compliance". The resolution that emerged from the Conference, recommended that ILO constituents - governments, employers and workers - review their relations with Burma and take "appropriate measures" to ensure that Burma could not take advantage of such relations to perpetuate or extend the system of forced or compulsory labour.

A tentative conclusion from this discussion is that it may make most sense to retain the current division of labour between the WTO and ILO, and attempt to find ways of strengthening the existing enforcement system of ILO conventions. In a situation where the WTO has already over-extended its activities into areas that are not principally about trade, there is growing advocacy for reduction of its range of responsibilities. In this context it would seem inappropriate to seek to add international labour standards to the issues with which it deals.

Labour rights, like all human rights, must be mainstreamed into the whole development agenda. After all, how can labour standards be addressed if the jobs do not yet exist? The crucial prerequisite for effective application of labour standards is economic development. Labour standards in developed countries were the result of struggle for social justice in situations where living standards were not rising for employees as fast as for others. The global economy is still a hostile place for developing countries. For those concerned about global equity, our goal must be a global system from which the impediments to development have been removed.

The value and impact of the existing ILO system of scrutiny, review and publicity (involving potential shaming) may well be under-estimated. In any case, there is clearly a case for attempting to strengthen the incentives for ratification and compliance, in part at least through increased development assistance to developing countries and structural adjustment assistance to industries in developed countries facing intensified international competition. As well, if all developed countries set a better example by ratifying more of the conventions themselves, the application of labour standards everywhere would be likely to improve.


John Langmore is the Director of the New York Liaison Office of the International Labour Organisation to the United Nations, a former member of the Parliament of Australia, and a former memeber of the executive committee ofthe Evatt Foundation. This paper comprises introductory comments on the issue of trade and labour linkages for the conference on "Linkages: How do we bridge the gap?" convened in Washington on 22 April 2003. John Langmore can be contacted at langmore@ilo.org.


See also:

Suggested citation
Langmore, John, 'Trade & labour: not so fast', Evatt Journal, Vol. 3, No. 5, August 2003.<http://evatt.org.au/news/trade-labour-not-so-fast.html>