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.
Reasons 🡪 the west sees through its own lense and imposes rules by it too. It doesn’t consider domestic issues!
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? 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:raising standards or raising the walls of protectionis essay
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 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. Countries in LDC’s are barely able to survive as it is, sanctions will not help.
For example, the case of Pakistani soccer balls, where children were stitching soccer balls for 5 cents an hour. They were eventually fired and as a result a large percentage of them became beggars or prostitutes.We think we know what is best for them, so we punish them for acting contrary to our wishes.” The same happened in Bangladesh where children under the age of 14 who worked in garment factories were fired. The majority of these children ended up with jobs as breaking rocks pulling rickshaws and rolling cigarettes. Parents in LDC’s take their children out of work when they can afford to do so. “Labour productivity can improve only with an infusion of capital”. “Working conditions can only improve from below, not from above” ”Rather than trying to impose our standards on others, we should permit people in other countries to set their own standards” We should encourage free trade to set down trade barriers so that developing countries can take full advantage of the benefits that flow with free trade.”Since the 1980s developing countries GDP has increased significantly with an average of 5% growth each year. The World Bank found that the income of the poor rose at the same time as the overall economic growth. As developing countries become developed countries, their labour standards will imrove overtime.
Unfair Advantage
Often argued that countries that sell goods into export markets, produced by processes that fail to respect internationally recognized standards engage in an unfair form of competition. Often accused of “social dumping” or indirect illicit subsidization.
Perspective of developing countries 🡪 still in early stages of industrialization, which entails mass production of low technology products like textiles, clothing, footwear 🡪 low cost & low skilled labour is one one of the principle sources of competitive advantage.
Comparative Advantage= Theory by Ricardo In an economic model, an agent has a comparative advantage over another in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade
Thus to deny LDC from their ability to exploit this comparative advantage is to consign them forever to low value-added commodity production for developed country markets
Earnings of workers is dependable on their labour productivity; more productive workers will get paid more 🡪 Marx’s theory of capitalist exploitation
Labour productivity 🡪 dependable on many factors, including public investments in education and training, health care, infrastructure and law and order. Thus it would be wrong to assume that low wages are the driving force of today’s global trade.
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 (Griswold).
If it is unfair for firms in Developed countries to compete with firms in developing countries with access to low paid and low skilled labor 🡪 equally unfair for developing countries to have to compete with firms with highly developed infrastructure, education, health care system and effective law and order.
B. The Race to the Bottom
A major reason for developed countries to promote a “social inclusion clause” is that low labour standards including low wages in exporting countries may undermine higher labour standards in importing countries.
Developing countries fear that this will lead to a “race to the bottom”
“RTB” that can only be prevented by enforcement of International minimum labour standards.
Like unfair competition concerns, “RTB” concerns originate from the perceived welfare implications of non-compliance with international labour standards for citizens and interests in importing countries.
Differences in conditions of employment largely reflect differences in productivity. 🡪There is little reason to suppose that free trade and investment regimes will cause a race to the bottom.
Empirical evidence provides no support for the claim that liberal international trade and investment regimes leads to that developed countries to improve their labour standards generally or that foreign direct investors are investing in countries with weak CLS.
Evidence suggests, countries with weak CLS attract very little FDI in the sectors where CLS are weak (exluding China).
developing countries with weak CLS that compete against each other in export markets may be stuck in a low-level equilibrium trap with respect to efforts to enhance CLS vis à-vis each other.
Trade sanctions designed to enforce common compliance with CLS may have adverse effects on the targeted countries’ economic welfare, and may reduce their capacity to eliminate non-compliant practices.
Why CLSs should not be incorporated in the WTO agenda
Primary Reason: Disguised Protectionism.
If CLSs are incorporated within the WTO, this means that countries violating these labor standards will be penalized through sanctions. However, such sanctions would make LDCs less competitive in international markers, since economy is already hampered as it is. Further imposing this extra burden will diminish economic growth and impede employment rates.
Imposing sanction will also cut off opportunities for trade, which will cause their economy to shrink further. Using sanctions as weapons will punish the highest paid industries in a country, since export industries pay higher wages than other industries. Workers in the export industries will be forced to find work in industries that pay lower wages, which is just the opposite of what rising labor standards is supposed to accomplish.
may reduce their capacity to eliminate non-compliant practices.
The former Director General of the WTO Mike Moore opined, “labour standards would damage the poor.”
Secondary Reason: Appellate Body
Scope and definition of CLSs are susceptible to contentious understanding of their scope. E.g. Child Labor🡪 only in terms of minimum working age or should some subset of exploitative child labor practices be targeted? What constitutes discrimination at working place? What constitutes forced labor beyond slavery? 🡪 factors that are also defines culturally
While civil rights (e.g. to be free from genocide, apartheid, torture, detention etc.) are reasonably well understood the aforementioned are subject to interpretation (economic, social and cultural rights are less universally accepted)
The relationship between trade and labor is exactly the sort of policy issue that is ill-suited to the AB. The key questions involve the complex and incompletely understood trade-offs between the benefits of trade and welfare of workers, the appropriateness of international intervention into the labor policies of individual states, and the willingness of the international community to reduce economic welfare in pursuit of labor rights
Unless a non-discrimination/consistency requirement is applied rigorously, hard law based trade sanctions carry a high risk of constituting a disguised form of protectionism with the human rights rationale only a mere pretext or cover for protectionist measures not motivated by human rights concerns but in fact the other two illegitimate rationales for intervention discussed earlier in this paper
In terms of substantive rules, this requirement assigns considerable significance to rules of non-discrimination and consistency. For example, suppose hypothetically that it is the case that the U.S. has no textile sector but a significant clothing sector and that child labour is employed in producing exports for the U.S. market in India in both sectors but the U.S. seeks to impose trade sanctions only against clothing imports from India and not textile imports. Alternatively, even if the U.S. seeks to apply trade sanctions against both clothing and textile imports from India, it does not seek to do so against similar imports from Pakistan made with child labour for geopolitical or other reasons. The Appellate Body’s decisions in Shrimp/Turtles, Beef Hormones, and Australian Salmon28 in other contexts, in my view, rightly emphasize the importance of non-discriminatory and consistent treatment of imports reflecting the ostensible rationale (in the present context a human rights rationale) for the intervention, and not disguised protectionism Unless a non-discrimination/consistency requirement is applied rigorously, hard law based trade sanctions carry a high risk of constituting a disguised form of protectionism with the human rights rationale only a mere pretext or cover for protectionist measures not motivated by human rights concerns but in fact the other two illegitimate rationales for intervention discussed earlier in this paper.
In other less egregious cases, there will still obviously be questions of institutional legitimacy and competence in vesting the administration of such a regime in a trade organization. One option here entails a sharp and exclusive institutional division of labour. For example, with respect to core labour standards, the authorization or requirement for the imposition of a trade or other economic sanctions could be vested in the ILO by way of elaboration of its sanctioning power under article 33 of the ILO Constitution. This would follow, by way of analogy, the example of regimes such as the Convention on International Trade in Endangered Species (CITES), which requires signatory states to ban imports of endangered species or products there from. However, critics of the ILO are sceptical of the willingness or capacity of the ILO to implement and administer effectively such a regime. Defenders of the ILO, on the other hand, may worry that the attachment of economic sanctions to the powers of the ILO may destabilize the organization, causing states to withdraw from membership or to withhold ratification of its Conventions to an even greater extent than is the case at present
Another option is to imagine some form of horizontal coordination among international agencies, whereby e.g. the ILO would be wholly or largely responsible for determinations of systematic and persistent violations of core labour standards, or UN Committees on Human Rights systematic and persistent violations of other universal human rights (other than the most egregious abuses), and the WTO would be responsible for overseeing the implementation of sanctions and ensuring that arbitrary and unjustifiable forms of discrimination and disguised protectionism are avoided, as well as proportionality in the scale of the trade sanctions imposed
Critics, such as Jagdish Bhagwati, argue that 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. Under this view, the incorporation of labor standards for the purpose of upholding certain rights within a Member State is not a concern of the WTO, which has as its key objective the furtherance of Member rights regarding market access to other Members by upholding mutually agreed upon tariff rates and other concessions
(1) CLS must be “trade-related”; (2) protection of CLS would positively affect international trade flows;
The Organisation of Economic Co-operation and Development (OECD,1996) study found that the high and low standards in the labour sector appear to have little impact on international trade or performance. It also found that liberal labour policies have been accompanied by better productivity in the long run.
In the case of child labour, developing countries argue that child labour is essentially a domestic problem -for example only 8 per cent of India’s child labour force is engaged in the export sector.
Industrialised countries enjoy a comparative advantage through huge capital and technological powers. Social clause can become a tool for developed countries to impose their social standards on developing countries and distort international trade to the detriment of consumer welfare within the developed world itself. The developed countries are trying to insert a social clause whose definition itself has not been established. The apprehension of the developing countries is well founded in such a situation that this will be used as a protectionist tool to shield uncompetitive sectors and they therefore are strongly arguing against the inclusion of the social clause in the WTO.
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