INTERNATIONAL

WTO & Labour Standards: Staying on Guard

Amit Dasgupta, SAARC Director

No one seriously believed that the collapse of the November WTO Conference at Seattle heralded the collapse of the old WTO order and that a new and invigorated - perhaps even a just - WTO would emerge. Indeed analysts from both sides could even rightly argue that the brilliance of the so-called Seattle fiasco was that there were no losers in the battlefield, since both sides conceded nothing and played out their agenda to the gallery! This makes it all the more imperative that developing and Least Developed Countries are more than fully prepared when the stage is set for Seattle Part II.

 This article focuses briefly on one of the 'new issues' that the developed countries, particularly the US and some European countries, are insisting on including in the overall WTO agenda i.e. labour standards. The article argues that  not withstanding the moral advocacy by these developed countries that children should not be part of the work force, there is in fact a hidden agenda behind the almost arm-twisting efforts at linking trade and labour, and that this is more to do with protecting domestic industry in the developed world. The article argues therefore, on the need for developing and Least Developed Countries to continue to resist this totally trade-extraneous linkage, so that new forms of denying market access to their products are not introduced under the garb of 'social clauses' by the developed countries.

The attempt to establish a linkage between labour standards with trade policy was first made by the United States, with some European support, at Marrakesh where, in fact, it posed a serious threat to the signing of the Uruguay Round Final Act. A renewed attempt was made by the United States and France, with Norwegian support, in the Singapore Ministerial meeting. Strong opposition by developing countries led by Egypt, India, Malaysia and Pakistan was successful in ensuring that the Singapore negotiated text, while expressing support for the observance of “internationally recognized core labor standards”, rejected the use of labor standards for protectionist purposes.

The issue since then has been raised by both the Americans and the Europeans in their various discussions. President Clinton referred to it in his address at the GATT/WTO 50th Anniversary Meeting in Geneva in May 1998 and in his State of the Union Address in January 1999. The President also raised it during his recent visit to India. The European Commission, similarly and regularly, referred to labor standards in their statements, including their most recent regulation on the grant of GSP facility which provides for "special incentives" to those who follow labor standards.

It would, accordingly, be no exaggeration to say that while labor standards is today not a formal part of the WTO agenda, it nevertheless makes its presence felt because of considerable pressures from the United States and Europe, in this regard. Seattle therefore, understandably and predictably, witnessed concerted efforts by them to revive the debate and it would be naïve to assume that the subject would no longer come up at the trade negotiation table.

In my view, the arguments by the developed countries falls essentially into two categories; those which are overt and as such peripheral, and those which are unstated and hence, constitute the principal or core motivation.  The overt argument is essentially a moral argument and goes something like this: We need to improve working conditions; we need to fight against the deployment of certain categories of labor; why should children work when they should in fact, be in school; etc. In other words, it is our collective moral obligation and responsibility to ensure that certain basic pre-conditions are met and in order to facilitate this, if trade sanctions, for instance, are required, it is justified.

This is a powerful argument. How does one, for instance, advocate that children should be in the work place and not in the school. Yet the argument is based on a number of untenable assumptions. First, it assumes that the lot of the people would in fact improve if they were withdrawn from the work force when however, in most developing countries, it is the opposite which in fact may be true.   Furthermore, the assumption seems to ignore the established sociological fact that in developing countries family-based work is a matter of tradition and practice, where traditional skills are passed on from generation to generation within a family-working environment. The child works as an apprentice and his father or elder is the teacher or guru.  In South Asia, the handicrafts industry is almost entirely family-based. Indeed, in almost all developing countries, children learn from their family members “given” traditions and practices which are part of our culture and our heritage. Indeed, the argument against child labor makes no distinction between those who are employed in hazardous forms of labor and those who are not.

 In addition, the moral argument reflects the Western world’s self-entrusted moral right to lecture the world on how to treat its people. While many reasoned treatises have been written to explain and thereby, to discount the validity of such a position by the Western (developed) countries, suffice it to say that it is a dubious assumption on the part of the Western governments to assume that they and they alone, are in a position to decide what is best for our people and that democratically elected governments in developing countries are acting against the wishes of their people.

It is interesting to note that the position advocated by the developed countries has found support among NGOs in the developing world. To a large extent this is because governments in our part of the world have failed to take the civil society in confidence on issues such as WTO which would have far reaching consequences, not only on our economy but also our fragile societies. In a recent study carried out in India, the cost of eradicating actual and potential child laborers is estimated at $14.62 to $18.94 billion every year which does not include the cost of providing free primary education, mechanisms to attract children to school and indeed, to 'persuade' them to remain in school. The fundamental question for our economies is, who pays for this cost? Are our governments to absorb this cost or is it to be off-loaded on our consumers and thereby, make domestically produced traditional goods and handicrafts considerably more expensive than imports from developed countries.

In simple terms, therefore, the moral argument seeks to postulate that it is not the Government in Nepal or in India or in Bangladesh or in any developing or Least Developed Country that knows what is best for its people, but a multi-lateral trading organization whose policies are determined in a developed country.   This is indeed an important point that needs to be reflected upon, especially in the context of the on-debate on economic globalization.

I believe therefore, that the overt argument is spurious and fallacious and that trade protection is in fact, counter-productive to improving the living and working standards of the workers. This would suggest that the overt and moral argument was in fact a smoke-screen meant to camouflage the ‘real’ or core argument. In other words, behind the so-called moral argument we have the covert or the unstated compulsion which is in fact, economic, in that it seeks  to protect living conditions in developed countries by raising the cost of imports from low-wage economies. In other words, the hidden agenda is a new form of protectionism against competition from low-wage imports. By introducing labor standards in the WTO agenda, a direct linkage would be established between labour standards and trade, and this linkage would contribute to a series of adjustments in the developing countries raising, thereby the cost of production and thus, eroding the comparative advantage of such countries. In other words, it would nullify the negotiated text in Singapore.

If labor standards is in fact, used as an import protection strategy by the developed economies, it is likely to have disastrous consequences for the global economy. This is because if we raise domestic prices for import-competing goods (and services), the resources in the developing countries would necessarily need to be re-allocated across-the-board and their comparative advantage would accordingly be altered. Reducing markets for imports from developing countries would thereby, cause the exports from the developed countries to decline as the GNP of the developing countries would fall. This would also have undesirable consequences for international specialization and efficiency.

I mentioned earlier that despite Singapore, the United States has continued to stress the linkage between trade and industry. It is important to stress this point and thereby to put emphasis on the fact that the labor standards-trade nexus has not disappeared from the minds of the developed countries. Not long ago, for instance, the US inserted a clause, (Section 633) under the Postal Services and General Governmental Appropriation Act, 1998 according to which “None of the funds made available in this Act for the United States Custom Service may be used to allow the importation into the United States of any goods, wares, articles or merchandise mined, produced or manufactured by forced or indentured child labor, as determined pursuant to Section 307 of the Tariff Act of 1930”.  Approved in October 1997 by the President of the United States, this amendment has become a law. A complaint has been lodged in US courts urging investigation into India, Pakistan and Nepal’s carpet industry for violating the law and urging a ban on their products for using forced or indentured child labor.  Various US based NGOs have joined this ban call and argued that there is ample evidence to support the view that all hand-knotted carpets from the three above mentioned countries may be barred from entry into the US according to the law. In addition, there are several other bills which are on the anvil in the US such as the Child Labour Free Consumer Information Act of 1997 which would make it mandatory i.e. a standard, to certify that the product is free from child labor. The overt objective of these efforts is the moral one, which I have referred to above. However, it gives the US to right to prevent entry of products that do not comply with the stipulated standards and thereby, to impose sanctions on countries that do not comply with the standards the US stipulates. Interestingly, the US laws also do not appear to be GATT compatible.

It is imperative therefore that developing and Least Developed Countries build up the required consensus not only among their own people and civil society but also with other like-minded nations so that issues which are totally extraneous to trade are not surreptitiously introduced into the WTO agenda. Concerted effort needs to be made on several fronts; first the damage the linkage would do to the already vulnerable economies of the developing countries needs to be emphatically brought out not only along with the denial of market access to our products but also the cost of phasing out child labor; second, the fact that this is a protectionist measure and strategy aimed at safe-guarding domestic industry in the US and other developed countries needs to be effectively publicized; third, developing and Least Developed Countries need to field strong delegations both at the ILO as also the WTO so that the linkage is blocked effectively at both ends; and finally, we should not hesitate to challenge domestic legislation in the US and elsewhere if it is not WTO compatible. Let us have free trade by all means, but let it at least be fair.

Our strength lies in taking a united position in safe-guarding our interests, but for this we need to be fully cognizant of our interests. Seattle, if anything, did not see the end of the battle.

 [Amit Dasgupta is presently Director (Economic and Trade) at the SAARC Secretariat in Kathmandu. The views expressed in this paper are entirely his own and do not  in any way reflect those of the SAARC Secretariat or the Member Countries of the SAARC-Chief editor]