There has been an ongoing debate concerning the pressing need to incorporate a social clause with fairer minimum trade or core labour standards (“CLS”) by the WTO. Recently, the topic of integration was moved off the agenda during the Doha Round in 2001 i.e. WTO negotiating round where the trade-labour link was opposed especially by LDC’s. However, despite the resistance of the very (developing) countries who oppose the inclusion of a social clause and who most likely will have to suffer the harsh consequences that follow it, ongoing debates regarding the trade- labour linkage continue at domestic, regional, and International levels. This essay will firstly discuss the reasons for a social inclusion clause followed by the disadvantages that it might entail.
Reasons for integration
The argument that WTO relates to “pure” trade issues and has no room for human rights considerations is highly flawed. After all, the GATT and WTO were created in order to facilitate human welfare post-World War II in 1947. Free trade should be combined with principles of security, predictability and equality of opportunity. The preamble to the WTO agreement states that the aim of the WTO shall be “sustainable development” which has to be balanced against economic goals. Furthermore, the argument that wholly internal issues such as domestic policies in relation to a Member State ought to preclude the WTO from intervening with such matters is inconsistent with the current machineries of the WTO. In other words, currently the WTO does indeed cover policies which affect trade, such as “domestic policies concerning government regulation of investment, product and health standards, agricultural policy, and government procurement” which are wholly internal or domestic. Furthermore, the TRIPS Agreement also establishes core standards on purely domestic issues. It has been argued that human rights concerns ought to be dealt with on an international level rather than a domestic level so as to pressurise countries that are forcing vulnerable persons such as children into labour. The incorporation of the CLS in the XX Articles of the GATT which recognizes the balance between legitimate social values (public morals) and trade would merely be an extension to promote free trade. There is a need for inclusion since the conditions under which a product is manufactured impacts its cost in the world market and thus these same conditions effect the trade of those goods evidencing that there exists a trade-labour link. For example, industrialized countries already have labour provisions in place in relation to their trading partners which shows that there exists a labour-trade linkage. The US through §301 of the U.S. Trade Act of 1974, permits trade sanctions against states which fail to observe workers rights when a petition is filed by its administration or interested person to correct unfair trade practices. Similarly, the EU obliges their FTA partners to adhere to a set of labour conditions in the majority of its agreements. Furthermore, most countries are already a part of the ILO, ICCPR and ICESCR human rights treaties which shows a willingness for them to comply with human rights norms. The Organization for Economic Co-Operation and Development (“OECD”) published a study in 1996 contradicting the critiques of “levelling the playing field” which are argued to undermine LDC’s’ comparative advantage of having low wages. Results showed that “the observance of core standards would strengthen the long-term economic performance of all countries.” Further, “countries which strengthen their core labor standards can increase economic efficiency, by raising levels in the workforce and by relation an environment which encourages innovation and high productivity. Mutual acceptance of CLS by Members of the WTO could result in the expansion of the world market. Child labour should be prohibited because children should be shielded from the burdens of labour and freedom should be given to those who are forced into labour and the majority of countries asked agree with this statement. It has been argued that the WTO is the right platform for resolving human rights issues which are related to trade since the WTO has successfully taken steps to protect norms concerning human health and the environment as evidenced by the US-Shrimps Members of the WTO may already take trade restrictive measures against products made with prison labor under article XX(e) of the GATT. One suggestion is that a CLS clause could be read so as to include products made in violation of the CLS under article XX(e) of the GATT. The Appellate Body in U.S.- Shrimp rejected an argument suggesting that Article XX might be incompatible with policies relating to the manner of production of goods produced by another Member. However, it is suggested that the “WTO panel could rely on the ILO and other relevant agencies (such as the U.N. Human Rights Council, Office of the High Commissioner for Human Rights, the ICESCR Committee, and/or the ICCPR Committee) to assist in fact finding”.Thus, the incorporation of a CLS clause could be given effect under Article XX of the exceptions in the GATT.
Reasons for Divorce (no social clause)
The WTO purpose is to liberalize, promote and facilitate a platform where trade negotiations take place and also reduce barriers that restrict it provided that such practices are non-discriminatory. The imposition of a standard set of conditions will prove to be discriminatory as towards LDC’s since they are not on the same “level playing field” as developed countries. According to Jagdish Bhagwati, labor standards have no place in the WTO because it is an organization that exists primarily to promote mutually beneficial, non-coercive trade through reciprocal and mutually advantageous arrangements aimed at reducing barriers to trade. In other words, the WTO should not interfere with upholding rights of workers within a Member State (“wholly internal argument”) and should focus on promoting trade and uphold agreements on tariff rates and concessions. It is important for wholly internal policies to be dealt with internally instead of externally. The inclusion of a social clause set as a common standard by all countries would lead to rising prices of commodities with the net effect of reducing world trade. Further, it would impede efficiency and competition. It is proven that low wages are a comparative advantage when it comes to international trade and they are the very instrument for LDC’s to improve their GNP. It is reported that 26% of the total workforce in Africa and one in eight children in Asia consists of child labor which contributes to a substantial part of their economies. The argument that countries should “level the playing field” is thus weak since the LDC’s are not on the same level playing field as the developed countries in and thus these two cannot be compared. Further, the LDC’s that are a part of the WTO are not likely to ratify an agreement on CLS which would eventually harm their economies.
As argued above, the argument that trade practices which affect trade ought to be settled on an International level for example through the AB of the WTO is an overstatement that poses a linguistic and interpretive hurdle. For instance, there are many areas which “affect” trade yet are not included in the GATT. Who should be the ultimate judge of the criteria of assessing the suitability of incorporation of “trade-related” matters? Also, who can be the judge of what constitutes child or forced labor. It has been suggested that the Apellate Body (AB) of the WTO is ill-suited for judging the relationship between trade and labor and that CLS are a political problem that can only be dealt with domestically. The inclusion of a CLS clause would undermine the comparative advantage that LDC’s with cheap labour have vis-à-vis developed countries.
It should be noted that WTO’s Dispute Settlement Body (“DSB”) has never been directly asked to decide the consistency of unilateral trade restrictions on goods produced in violation of labour standards under the General Agreement on Tariffs and Trade (“GATT”) or any other WTO covered agreement. If this is the case then why should they include a clause that they seemingly ignore during negotiations? The ILO (International labour organization) which is the existing international organization concerning international labour law suffers from a low rate of ratification of treaties which creates a “patchwork of inconsistent legal obligations” and deters the global enforcement of labor standards.
LDC’s say that trading rights should not be dependent on labour standards.
Yet, there are opposing views that suggest that this will undermine the goals of the WTO which promotes trade and furthermore LDC’s economies and more importantly their workers will suffer the most from the inclusion.
Firstly, incorporation would lead to a great deal of ‘judicial activism’. Secondly, it could “open a Pandora’s box of problems that could open large loopholes in the GATT” which would entail that industry’s would have to compel their governments to litigate a dispute in the WTO first to have the unwarranted trade restrictions lifted.
McGee argues that raising labour standards in LDC’s will have unintended consequences for the very workers who the standards are intended to help resulting in increased unemployment. Furthermore, the reason behind low wages in these countries is that the labour is not as productive in comparison to developed countries.
Imposing sanctions on LDC’s will impede the economic and employment growth of LDC’s resulting in that sanctions will be used as weapons. The response of the LDC may be that they will find a trade partner elsewhere and retaliate against the country that has used the sanction. Sanctions have been shown to be ineffective where statistics show that one-third or one-fourth of economic sanctions resulted in policy changes and that the workers, the very people who the inclusion is sought to help in the sanctioned countries lost their jobs.
Concluding remarks
There has been an ongoing debate concerning the pressing need to incorporate a social clause with fairer minimum trade or core labor standards (“CLS”) by the WTO. Recently, the topic of integration was moved off the agenda during the Doha Round in 2001 where the trade-labor link was opposed especially by LDC’s. However, despite the resistance of the very developing countries who oppose the inclusion of a social clause and who most likely will have to suffer the harsh consequences that follow it, ongoing debates regarding the trade- labor linkage continue at domestic, regional, and international levels. Organization for Economic Co-Operation and Development (“OECD”) published a study in 1996 contradicting the critiques of the “levelling playing field” which undermines LDC’s’ comparative advantage of having lower wages and unskilled labor. Developing countries are not on the same “level playing field” as developed countries since their labor is unskilled in comparison to a laborer doing the same task in a developed country. Also foreign companies that invest abroad tend to pay more, not less than local producers within the same industry. In some cases, they pay as much as 8 times the average per capita GDP.
If a social inclusion clause in imposed then WTO may impose sanctions on LDC’s which will impede the economic and employment growth of LDC’s resulting in that sanctions will be used as weapons. The response of the LDC may be that they will find another trade partner elsewhere and retaliate against the country that has used that sanction. Sanctions have been proven to be ineffective where statistics show that one-third or one-fourth of economic sanctions resulted in policy changes and that the workers, the very people who the inclusion is sought to help in the sanctioned countries became unemployed. The OECD (1996) study found that the high and low standards in the labor sector appear to have little impact on international trade or performance. It also found that liberal labor policies have been accompanied by better productivity in the long run.Labor standards have no place in the WTO because it is an organization that exists primarily to promote mutually beneficial trade and mutually advantageous arrangements aimed at reducing barriers to trade. The WTO should not interfere with upholding rights of workers within a Member and should focus on promoting trade and uphold agreements on tariff rates and concessions. Firstly, incorporation would lead to a great deal of ‘judicial activism’ both domestically and internationally. Secondly, it could “open a Pandora’s box of problems that could open large loopholes in the GATT” which would entail that industry’s would have to compel their governments to litigate a dispute in the WTO first to have the unwarranted trade restrictions lifted. The inclusion of a social clause set as a common standard by all countries would lead to rising prices of commodities with the net effect of reducing world trade. Some argue that CLS is a political problem and has little or nothing to do with trade.
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