NEW DIMENSIONS OF INTERNATIONAL TRADE  ADDRESSING THE CHALLENGES AHEAD :  THE ROLE OF LABOUR STANDARDS   Roy Jones Senior Policy Advisor TUAC – OECD
April 1999

It is a great pleasure to be present at such an important event to represent the views of the international trade union movement. That the Swedish government has assembled such a distinguished list of speakers – and that they have travelled such a great distance - is testimony to its efforts to seek a consensus around the future direction of the world trading system. We too wish to be part of that consensus. To build a world trading system as part of a “millennium” model of economic development that balances economic efficiency and social justice. 

It is particularly pleasing to see such a broad range of stakeholders in the trading system present. A factor which, I hope will shed more light than heat – although heat is sometimes a good thing – on the challenges ahead for all of us, not just governments. Such efforts should be applauded and we would hope replicated by all governments in the run up to the November Seattle meeting of WTO Trade Ministers. 
 

Background To The Seattle WTO Trade Ministers’ Meeting 

In the last two years one third of the world economy has moved into recession. In Asia living standards have collapsed, and unemployment has surged to over 26 million in East Asia alone. 100 million people who in one generation had moved out of poverty have been thrown back into destitution. Japan’s slump continues unabated, as deflationary forces deepen. Russia’s transition, if there ever was one has stalled, and one quarter of the labour force remains unpaid. In Brazil, time has been bought for financial markets but at an enormous economic and social cost. The United States is finely balanced. While still the motor of growing world demand, it would take a brave person to forecast this to continue long into the future, against a background of over-stretched equity markets and a mountain of personal debt. Closer to home the European Union is experiencing slowing growth. 

Through the interlinkages of globalisation, including trade imbalances and dangerously volatile financial markets the spectre haunting the world economy today is of a truly global recession. The impact of that on employment and social exclusion would be devastating, as would its impact on the publics perception of a new negotiating round on trade and other wider issues. 
 

Globalisation Mismanaged: The Root Cause Of The crisis 

The crisis did not fall from the heavens – it was man made. The responsibility lies with those governments who believed that the best response to economic globalisation was to abdicate their management role, to simply leave it to market forces. Some took the view that the process should be speeded up by simultaneously attacking the social institutions of civil society, including trade unions, that underpin market economies. Many western governments went further in linking these policies to IMF and World Bank structural adjustment programmes, in addition to WTO negotiations for developing countries. 

For the most part the inter-governmental bodies that either police the world economy or provide its intellectual foundations too changed their focus to one that prioritised narrow allocative economic efficiency, in which social institutions were seen as rigidities to the smooth functioning of private markets. In sum, a “one size fits all” approach to economic and social development was created. If the empirical outcome did not conform to the theory, then it was the fault of the country and not the theory. 

The outcome is evidenced by the blinkered pursuit as an end in itself of full capital account liberalisation and financial market liberalisation without the countervailing national and international regulatory frameworks. This was a major contributory factor to the current crisis. Similarly, the WTO was created with a binding dispute settlement body whose sole remit was to adjudicate on trade distortionary measures, with a view to pure trade liberalisation. An attempt was made to replicate this model for international investment – the OECD MAI - an attempt that failed. 

Attempts to change the rules and to meaningfully take account of the social and environmental impacts of such measures, especially at the WTO have to-date been beaten back. These issues can’t however be just swept under the carpet. Such attempts lie behind the backlash against globalisation itself. One that is growing daily and fuelling opposition to further trade and investment liberalisation, while feeding protectionist tendencies. 
 

Managing The Global Economy: A Partnership Approach 

It is essential that governments learn the correct lessons from the crisis and establish a new direction for public policy governing global markets. This will require the re-regulation through a mix of hard and soft measures of international financial and capital markets, labour markets and the world trade and investment system. There are signs that this is happening, witness the belated recognition that some controls on capital inflows are a good thing, and that purely market led development leads to crony capitalism, bribery and corruption - and not just in developing countries. Yet, however encouraging the responses to date have been, they are in reality  insufficient to meet the task. A full review of the types of hard and soft regulation needed to re-balance the global economy is beyond the scope of this paper, but the international trade union movement has addressed this issue.  (1) 

Managing a globalising world in an effective way is beyond the scope of governments and their international institutions working alone. It will require a new social compact between those economic and social actors willing to play a constructive part in transforming the global economy into a vehicle to deliver benefits for all and not just the minority. Trade unions call this a “partnership approach”. One that will differ in terms of its scope and content depending upon the challenges faced. 

Such a “partnership” approach will be needed to address the new dimensions of international trade.  The remainder of the paper will focus on the required measures to re-balance the world trading order, especially the institutional aspects of the WTO, in order to meet those challenges in a socially acceptable way. 
 

Future Directions For the WTO 

Whatever the outcome of the Seattle WTO Trade Ministers’ meeting it will launch a new round of trade negotiations. At present the key unanswered question is whether it will be a narrow round (focussing on agriculture or services) or a broader one bringing in new issues, for example, investment, competition policy, electronic commerce, labour standards, the environment, and institutional reform. A key concern for trade unions and other civil society groups is that a wide round, as proposed by some, would take the WTO and its dispute settlement mechanism further into the social and environmental dimensions of national economies. And unless countervailing “partnership” based checks and balances are inserted into the Organisation the system itself could implode. 

For its part the international trade union movement has proposed a range of issues that the new round should address (the full list is annexed for information). Of these the most controversial remains the proposal to include core labour standards as part of any future negotiations. 

Some governments remain viscerally opposed to this including to their shame and standing in the international community some OECD countries. Some governments have even threatened to veto a new round per se if they are included. One challenge then is how to overcome such threats, predicated as they are on the notion however misguided that the linking of core labour standards to trade is either a protectionist measure or a plot to undermine the comparative advantage of developing countries. It bears repeating that when trade unions talk about core labour standards we are talking about human rights that are enabling rights. We are not talking about wage levels, or other prescriptive labour market mechanisms that would undermine the comparative advantage of developing countries. I would also add that the suppression of labour standards is itself a protectionist measure. And would in fact undermine the ability of those countries seeking to upgrade their economic potential. Furthermore, and as regards the issue of comparative advantage developing countries in particular should consider what the inclusion of China would mean for them within a WTO devoid of enforceable labour rights. Meeting these challenges requires an analytical and a political response. 
 

The Trade And Labour Standards Debate: Where are We Now? 

Among other work the 1996 OECD Report on Trade, Employment and Labour Standards along with the 1998 ILO Declaration on Fundamental Principles and Rights at Work are pointers to where a consensus exists around the nexus between core labour standards and trade. 

A consensus now exists around the definition of core labour standards based on ILO Conventions: freedom of association and the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation. 

There is an irrefutable body of analytical and empirical evidence supporting the economic case for the implementation of core labour standards as preconditions for raising a countries’ growth rate. The OECD report, for example, found that those countries suppressing these rights did not enjoy better economic growth rates, and concluded that “concerns expressed by some developing countries that core labour standards would negatively affect their economic performance are unfounded.” The Report also found that with regard to Foreign Direct Investment “host countries may be able to enforce core standards without risking negative repercussions on FDI flows”. More recent research by other scholars has strengthened those findings. 

Work by the OECD Development Assistance Committee and the World Bank, among others has highlighted the need for strong democratic trade unions as part of the new paradigm of “participatory” economic and social development. 

The following is therefore clear. Trade and economic development complement one another, although this can raise distributional issues. The implementation of core labour standards is a precondition for improving and balancing economic and social development, and helps to solve distributional problems. Trade and labour standards are linked. A binding workers’ rights clause would not affect aggregate trade flows. It would however empower people by giving them the tools to better determine their own future. 

It is at that point that the consensus begins to unravel around the vexed question of how to ensure the implementation of core labour standards.  And, when the political dimension takes over from the analytical one. 
 

Re-Visiting The Real World 

The theoretical and empirical linkage between trade and labour standards will, until translated into meaningful policy action by governments remain an  irrelevance for those ordinary working people and trade unions who everyday confront the harsh realities of globalisation. That is not to say that all workers lose out in the global market place. Indeed there are many winners. Equally, there are many good companies around the world who are competing on the basis of what I would call the “high road” approach to competitiveness. Here competitiveness starts with the recognition of trade unions at the workplace along with free collective bargaining. Negotiations over such bread and butter issues such as pay, training and career progression are conducted in a spirit of co-operation. Company profits are generated through sales growth and expanding revenues, rather than crude efficiency measures such as downsizing. The need for intra-firm equity is recognised with CEO and senior managers pay levels staying in step with that of the workforce. Company re-organisation, where necessary is through negotiation rather than unilateral imposition. Environmental issues, for example on workplace health and safety are internalised into the bargaining process, while wider environmental concerns where necessary are addressed through ongoing dialogue with NGO’s and the local communities that are seen as stakeholders. In many instances unions too have a role here, given that workers often live within the surrounding communities of an enterprise. This is an enterprise based “partnership” approach. 

However, because of globalisation it is increasingly the case that “high road” companies are being undercut by unscrupulous “low road” companies. Here, trade union rights are suppressed and an atmosphere of fear pervades the workplace. Profitability is about narrow efficiency gains where more is squeezed from less, and unilateral downsizing is the norm. Internal equity is ignored as CEO’s, other directors and senior managers engage in a feeding frenzy over salary levels while depressing workers pay levels. Internal and external environmental problems are ignored or dismissed as an irrelevance for the company, with the costs forced onto workers and local communities. The “polluter pays” principle gives way to the “polluter profits” principle. 

It’s not only the “high road” companies and their workers that suffer. Governments and societies in general lose from the activities of these free riders. The “low road” is a breeding ground for corruption, cronyism and nepotism, as its corrosive effects spread out through society while simultaneously pulling in those attracted to the rewards. Corporate responsibility becomes a by word for a smash and grab corporate mentality. 

According to the ICFTU annual Survey of Violations of Trade Union Rights hundreds of trade unionists and workers fighting for the right to organise are murdered each year while many more disappear, are detained, subjected to violence and intimidation or simply sacked. The linkage here between trade and the suppression of workers’ rights has been confirmed by the 44 ICFTU reports prepared to date as a voluntary contribution to the WTO Member country Trade Policy Review’s. Similarly, a new TUAC survey has painted a worsening picture of the labour standards situation in multinational enterprises operating within and beyond the OECD since the last survey in 1996. 

These abuses, though not confined to are prevalent in those country’s seeking to turn themselves into export platforms, and especially where Export Processing Zones (EPZs) have proliferated. There are at present some 27 million workers in around 850 EPZs world-wide, including enterprises ranging from small locally run firms to giant multinationals. Each week sees the design or launch of a new one somewhere. 

In essence EPZs are industrial zones with special incentives such as freedom from taxes and customs duties on imports and exports, alongside fiscal incentives; all designed to attract mainly foreign, but also local investors, whose output is primarily for export. 

Economic development problems are linked to EPZs. For example, a tendency to lead to a misallocation of resources, the loss of tax revenues and the lack of forward and backward linkages into national and local economies. Of concern here though is the growing tendency whereby governments use labour standards as part of their incentive packages to attract investors. This is most visible in countries such as Bangladesh, Namibia, Pakistan, Panama and Zimbabwe where the existence of trade unions is openly banned, or as in the case of Malaysia severely circumscribed. Equally problematic however is the non-enforcement of labour laws in many EPZs. In Mexico and due to a lack of genuine free collective bargaining wages in EPZs are actually lower than the national minimum wage. 

Women workers in EPZs are most at risk in EPZs. Accounting for an average of 80 per cent of the labour force they frequently have to endure forced pregnancy tests and are often subjected to sexual abuse. Their wages tend to be lower than males in similar occupations, and hours of work are longer posing additional health and safety problems, and an increased vulnerability to harassment or attack when travelling to and from work at odd hours or in the dark. 

The situation is more complex in China, where often whole cities or regions are declared as special economic zones. Access is usually controlled through the use of residency permits, breeding corruption. The authorities mistakenly believe that they have solved the labour standards situation (sic) by the banning of free trade unions. But, resistance to this is growing and spreading as workers increasingly demand their democratic right, their basic human right to freedom of association and collective bargaining. 

A further concern for trade unions is the recent phenomena whereby a growing number of governments are authorising the development of privately owned and managed EPZs, that still qualify for the same incentives as government zones. It is anybody’s guess what will happen to labour standards in these zones! 

The question of labour rights abuses is not confined to developing countries. Australia, Korea, Mexico and New Zealand – incidentally all members of the OECD – have questionable records here. In the United States, and according to independent research at least one in ten union supporters is illegally fired for trying to form a union. For every thirty people who vote for a union in any given year one will be illegally sacked. At least one worker will be illegally fired in 25 per cent of all union organising campaigns. A 1994 opinion poll found that 79 per cent of Americans believe workers will be fired if they try to form a union at their workplace. The National Labour relations Board is estimated to have a backlog of 25,000 cases of alleged illegal dismissals. (2) 

We can see therefore that while in theory and over the long-term the observance of core labour standards should improve world-wide, the reality is of continuing abuses to gain a short-term competitive advantage. 
 

Enforcing Core labour Standards 

There is a fundamental imbalance in the way governments are addressing the issue of how to enforce core labour standards through international institutions. The protection of capital has been mainstreamed within the international financial institutions and the WTO. The IMF organises multi-billion dollar bail out packages to ensure that Wall Street is cushioned from the effects of financial market crises. A bill that will ultimately be picked up by the tax payer. At the same time the WTO enforces the intellectual property rights of private companies through its TRIPS agreement. The recent dispute settlement panel ruling in the case of the banana dispute in essence found in favour of US based multinational enterprises, whose labour rights record is abysmal. Ethyl corporation, a US based enterprise recently used the threat of the NAFTA  agreement to force a change in Canada’s environment protection laws, while pocketing a multi-million dollar out of court settlement. Now the European Union and other governments are seeking to push this further by including new issues such as investment and E commerce in any new round of negotiations. 

Yet, when it comes to labour standards, many of these same governments wish to ring fence the WTO and the trading system from taking any responsibility and corrective action for the very problems it is creating. Instead, they argue the ILO is the forum in which to solve labour standards problems, in the full knowledge that it has no enforcement mechanism. It should not be forgotten that those countries now talking up the role of the ILO in this area are the very same ones that were pushing for its closure five years ago. Furthermore, and to underline the linkage of trade and labour standards, during the final stages of the negotiations over the ILO Declaration on Fundamental Principles and Rights at Work some key governments substituted Trade Ministers for their Labour Ministers. 
 

The Seattle WTO Ministerial Meeting: Rising To The Challenge? 

Trade Ministers at Seattle will have to agree a process of practical steps to translate the political commitment around core labour standards into concrete action by the WTO. First and foremost this must include the establishment of a WTO Negotiating Group on the Relationship between Trade and Internationally Recognised Core Labour Standards. Furthermore, labour standards should be mainstreamed into the work of the WTO, along the lines suggested for the environment, but with an enhanced collaboration between the WTO and the ILO, including a monitoring committee to oversee and review the results. This mechanism would provide a useful avenue to consider the gender implications of trade liberalisation. Should the new round include investment, then the WTO should initiate a Committee or Working Group on the relationship between trade/investment and core labour standards, along the lines of the Trade and Environment Committee established at Marrakech in 1994. 

As regards institutional issues, improved channels are needed for the involvement of trade unions, employers’ organisations and other representative civil society organisations. Access to the dispute settlement mechanism should be extended to non-governmental actors, and include their involvement, along with that of competent UN agencies over matters of concern to them. 

The European Union must meet its responsibilities here. The EU has committed itself to pressing for the inclusion of core labour standards into the WTO through a joint statement with the United States as part of the Transatlantic Economic Partnership programme. European Commission negotiators at Seattle must be given a clear mandate by EU governments to prosecute this. 

It should not be inferred from this that trade unions see the WTO as the only inter-governmental organisation that should deal with labour standards issues. On the contrary, we are pushing this issue at a range of different fora, including the ILO, IMF, World Bank and the OECD. Moreover, in our view these issues are the minimum required to re-balance the WTO in a socially acceptable way. 

An important issue here is how to build the necessary consensus around these issues in the run up to Seattle. Developed countries and their supporting international institutions have a key role to play in this. The guiding principle here should be a “partnership” approach. 

The OECD is expected soon to begin work to update the 1996 Report on Trade, Employment and Labour Standards. This would be an ideal opportunity to deepen its analytical work in support of the economic case for labour standards, while simultaneously stressing the trade linkage of such standards. Moreover, the exercise could be used to help build a consensus both within and beyond the OECD area for this issue to be tackled at the WTO. The OECD’s outreach work programme would be the perfect vehicle for such a consensus building exercise. In the past the outreach work has been criticised for pushing too hard and too fast the case for pure market liberalisation. Such a change in direction would help maintain the case for the WTO – labour standards link beyond Seattle, while helping to restore some lost credibility to the OECD in light of the MAI debacle. 

At the same time the OECD has started a Review of its Guidelines for Multinational Enterprises, which is expected to be completed by the Spring 2000 Ministerial Council meeting. A meaningful outcome with strengthened implementation mechanisms would send a powerful signal that the most advanced countries in the world have prioritised the need to balance the rights and responsibilities of investors. 

Similarly, the World Bank should strengthen its work on participatory development, and within that the role of trade unions. In turn, the Bretton Woods Institutions and the Regional Development Banks must incorporate respect for core labour standards into their work programmes, while simultaneously explaining to recipient countries the economic and social benefits of such a move. 
 

Summary 

My presentation today has elaborated on the economic and social problems that have arisen from the mismanagement of globalisation. Many of these are due to imbalances built into the world trading system and the WTO itself. As such Trade Ministers have both a duty and a role in helping to resolve these at Seattle. I have sought to highlight the direction that we in the international trade union movement believe the WTO should go if it is to have a sustainable future: why and how core labour standards need to be integrated into its procedures. Trade unions do not underestimate the nature of this challenge, which will require an analytical and a political response, along with a consensus building exercise. We are ready to play our part as partners in this. The outstanding question is does the political will exist to turn the WTO into a body that can shape the trading system to meet the needs of societies, other than narrow elites? A negative response would put in danger the necessary public support for the implementation of the outcome of the next round of negotiations. A positive response would represent a beacon of hope for those left weakened, marginalised and confused by the vagaries of an unregulated system of globalisation. 

 (1) “International Trade Union Statement on the World economic Crisis”. Adopted by the TUAC and the ICFTU in December 1998. 

 (2) AFL-CIO submission to the 1999 TUAC survey on the OECD Guidelines for Multinational Enterprises.

Annex 1. Broader issues for inclusion into  a new Round of WTO negotiations