International Baccalaureate, Geneva, Switzerland


1.1 Thesis of the Book

Will compliance with the core labour standards (CLS) be universally achieved using the lessons learned from the regional approach in creating some international norms, such as a legal framework that would assist in bridging the gap between economic growth and social progress? What this, in effect, calls for are the measures that need to be put in place in this era of globalisation not only to ensure compliance with the CLS but also to improve social dialogue among government, employer, and worker organisations on how to address issues that lie at the intersection between the economic and social development of countries. The recent financial crisis with its attendant effects on job losses, the inability of many economies to sustain jobs, not to mention the creation of jobs, has shown how intertwined economic growth and social progress are.

The aim of this book is to examine the labour standard provisions in a number of regional and bilateral trade agreements and to determine whether the labour standard clauses in these trade agreements could be used as a benchmark in developing an enabling legal framework for the international community in resolving the contentious issue of the linkage between labour standards and international trade.

From the economic globalisation perspective, the linkages in the economies of the world have expanded through international trade. Whereas trade is not an end in itself, the emphasis on trade for development is what has in part contributed to improving the economic outlook of many countries.

Trade can provide potential developmental benefits. The development contribution that trade can make is significant. Through participation in international trade, countries can achieve development by promoting and rewarding the sectors of the economy where the countries enjoy comparative advantage, whether through labour efficiency or factor endowments. The countries are also able to take advantage of economies of scale.1

We argue in this book that since trade is good for development and development is good for compliance with the CLS, then trade, even if not directly impacting on CLS compliance, can have a positive effect on adherence to the CLS, which conversely meet the aspirations of workers in both developed and developing countries.

Whilst regional trade agreements (RTAs) have brought attention to the link between CLS and trade, the recent signing of international framework agreements (IFAs)2 between representatives of management and workers in some multinational enterprises (which includes all the four CLS) could be the beginning of a combination of the efforts of governments, employers, and workers agreeing on a legal framework based on the ILO tripartite system in the development of a global legal framework agreement.

This book makes a case for the development of a global labour and trade framework agreement (GLTFA) to ensure worldwide compliance through international social dialogue, good practice, and the resolution of labour management disputes. This GLTFA could be adapted to suit regional trade agreements, in effect, the development of regional labour and trade framework agreement (RLTFA) as part of future RTAs.3

The IFAs to date are agreements with the aim of setting up a general framework as an enabling factor in creating a harmonious relationship between unions, both local and global, and the multinationals (which have signed) and their suppliers. Whilst in a sense the IFAs signed have not produced legally binding obligations with legal sanctions that can be relied on in national courts or lead to enforceable decisions and legal sanctions, there is reason to believe that the present and future IFAs could contribute to further development of sound industrial relations.4

The assessment of IFAs appears to indicate that they have a positive impact on industrial relations, especially for facilitating cross-border industrial relations in this age of globalisation.5 What is recommended in this book based on the ILO tripartite system is how the proposed GLTFA based on the IFAs could assist in achieving a high level of CLS compliance. This is in contrast to the government-to-government negotiations that lead to trade agreements and management and workers’ organisations agreements in the case of IFAs. Such an agreement has a greater possibility to contribute to make the CLS legally binding obligations in contrast to the “best endeavour” or so-called voluntary standards that have no legal implications.

Further, such an agreement has a greater possibility of extending the protection accorded under the CLS beyond workers involved in production for export and workers who work for multinationals to also workers involved in domestic production. This in a way would help achieve the balance of equities both within the multilateral economic rule-making process,6 and through the incorporation of social concerns, and at the national and enterprise levels.

1.2 Linkage Between the Core Labour Standards and International Trade

The issue of the correlation between labour standards and international trade has historically been one of the most vexing issues facing global trade policymakers7—how to accommodate the growing consensus on the need to promote CLS8 within the framework of the multilateral trading system. The nature of the subject raises issues of whether CLS need to be part of a global set of trade rules and whether doing so would be in the developmental interest of workers.9

Even more compelling issues are the moral dimensions of the labour and trade debate and the absence of an international legal framework within which the economic integration of the global system can be reconciled with the principle of social equity.10 In effect, how the international community can set the moral debate on globalisation within a legal framework to achieve sustainable development for all lies at the heart of this book.

The impact that trade has on people in every country and on their economic and social life and the reasons why the proponents of the CLS and international trade linkage are pushing for a legal approach can be found in the words of Julio Lacarte11:

  • Behind practically any WTO decision lie economic and social interests. A simple example: when a customs tariff is modified, consumers frequently gain or lose, producers in one place gain and those somewhere else lose. Jobs are gained and jobs are put in jeopardy.

  • These consumers and producers are people, individuals who strive to lead a good life and be useful members of their community. Very often, they are unaware of WTO decisions that make them prosper or fail, have a gainful occupation, or join the ranks of the unemployed.

  • Behind the terminology of the Preamble of the WTO Agreement and the many provisions … there is the living reality that affects untold millions of people. This is a crucial facet of trade that is imperfectly conveyed and understood.12

The quotation above shows the importance of trade as an enabling factor in economic and social development and is the subject of much debate. In addition to generating wealth for nations, it has also helped spur employment growth.13 It is no wonder then that trade negotiations have sometimes led to heated debates at the highest political levels.14 As a result, trade negotiators work hard to ensure that their countries achieve the maximum gains from trade agreements that they sign onto.15 It is also no wonder that proponents of a formal link between CLS and international trade, especially from the developed world, are very passionate about the issue.

At the heart of the debate surrounding this issue is whether or not trade sanctions should be imposed on countries that do not respect the core labour standards embodied in multilateral conventions administered by the ILO. This would entail the inserting of a social clause in the World Trade Organization (WTO) rules and would trigger the imposition of sanctions on countries that do not respect the CLS.16 This raises a question that forms a major part of the debate: whether social policy aims can be grafted onto an institution designed to dismantle economic barriers.

In recent times, a new form of transnational social dialogue, termed international framework agreements (IFAs), has appeared, as an example of bipartite, corporation level social dialogue, mostly in the private sector. These agreements have been noted as breaking new ground, an innovative tool in the global debate on the importance of showing respect for the CLS.17 These IFAs are a result of negotiations between multinational enterprises (MNEs) and global union federations (GUFs), as a way to promote minimum levels of labour standards and practices and also to organise common labour relation framework across the global operations of the MNEs, which sign onto these IFAs.

This book, in proposing a global trade and labour framework agreement (GTLFA), intends to use the IFAs as a benchmark. The IFAs signed to date are the direct result of negotiations between workers’ and management representatives. The relevance of the IFAs’ approach is that of the universality of the application of human rights and the CLS built into the agreements. Further to this are the joint monitoring mechanisms that are part of the IFAs signed to date.18 Whilst the origin of IFAs is European, it is spreading to MNEs in other countries. In 2010, 12 of the 70 companies that had signed IFAs were non-European countries.19 The number of IFAs by the middle of 2011 had increased to 80, covering nearly 6.3 million workers. The IFAs, together with the European framework agreements (EFAs), cover about eight million workers around the world.20 The potential for the positive role of IFAs in ensuring compliance with the CLS whilst in their very initial stage can be instrumental when given global recognition.

Whilst the book focuses primarily on the legal aspects of the linkage between the CLS and international trade, it also refers to the political and economic aspects of the linkage. Though there are a number of free trade agreements (FTA) signed between the United States of America, the European Community (EC), Canada, and other developing countries, such as Chile, the analyses focuses mainly on the North American Free Trade Agreement (NAFTA) side agreement, the North American Agreement on Labor Cooperation (NAALC). This is the most prominent of these agreements. Even though there are significant limitations that hinder its effectiveness as a tool of social change, its use since 1994 has enabled the rise of strong cross-border cooperation and also drawn the public attention to the respect for the core labour standards.

Furthermore, the reason for this focus is that it is about the only FTA that has adjudicated labour disputes. The focus on the NAALC does not in any way indicate that the FTAs signed by the European Union (EU), Canada, and other countries are not relevant to the discussion of the linkage between the CLS and international in FTAs, but rather it indicates that all the agreements fit into the overall debate in finding a common ground for the resolution of this contentious issue.

The issue of the linkage affects both developed and developing countries, but in considerably different ways leading to serious differences in perspective as to the nature of the problem and possible solutions to it. In the case of child labour, for example, it does not only give countries that use child labour unfair advantage in international trade, but the children are likewise deprived of a better future as they are stopped from going to school. This is but one example of a social problem that is, to some extent, related to trade within the wider economic policy debate. A consideration of such social problems in economic policy could be instrumental in the labour standards and international trade linkage.

There appears to be wide differences in the views of the proponents of a formal link between trade and labour standards and the critics of such a link. Both tend to have valid arguments, making the issue very contentious and probably one that makes finding a common ground difficult to achieve. One of the principal arguments of the proponents of a formal link is that countries that do not adhere to the core labour standards administered by the ILO tend to gain competitive advantage in terms of lowering costs of production and may result in a “race to the bottom”21 in labour standards worldwide.

The critics, on the other hand, argue that the linkage, if any, is tenuous and that protectionism is hidden behind the rhetoric. Whilst we embrace the goal of achieving a level playing field, we take the position that the solution to the problem lies in assisting developing countries to achieve economic growth and development that, in turn, would enhance labour standards. In our opinion, the imposition of sanctions on countries with weak labour standards would have negative ramifications.

Whilst the debate surrounding this issue is not new, it has recently been pushed to the top of the international trade agenda. This is because the ILO, as the custodian of the labour standards, appears to lack the enforcement powers necessary to achieve compliance, which is relevant to the debate as to whether labour standards should be left to the ILO or added to the WTO agenda since the WTO, through its dispute settlement mechanism, has more effective procedures for surveillance and for suspension of concessions. However, the majority of WTO Members are strongly opposed to the WTO getting involved in this controversial issue. During the Fourth World Trade Organization (WTO) Ministerial Conference in Doha, Trade Ministers reaffirmed their declaration made at the Singapore Ministerial Conference that the issue be left under the remit of the ILO.22

Whilst the majority of the community of nations (mostly developing) do not agree on linking trade and the CLS, a few countries and the International Confederation of Free Trade Unions (ICFTU)23 are pushing for a linkage. This is reflected in some countries’ unilateral and regional efforts in the area of trade agreements. The most prominent of such a country and regional grouping are the United States of America and the European Union. In the case of the United States, since the 1980s it has become increasingly common to include international labour standard criteria in U.S. foreign economic legislation.

With the recent surge in free trade agreements or regional trade agreements (RTAs),24 mostly between developed and developing countries, and the inclusion of labour standard clauses in these agreements, the argument by proponents of a labour/trade nexus is that RTAs will assist in the compliance of international labour standards, which, it is believed, could lead to higher wages, and that in their view is the fastest route to improving the lot of workers. The questions are whether a difference in labour standards between developed and developing countries creates economic and social issues that should be addressed in trade agreements25 and, if so, whether the regional agreements or a multilateral agreement will best serve the interest of workers, mostly in developing countries.

The deal struck on 10 May 2007 between the United States Congress and the George W. Bush administration on a range of measures for all pending free trade agreements, notably a deal on the inclusion of labour standards, signalled the ever-growing desire to use RTAs to enforce internationally recognised labour standards in the absence of an agreement at the multilateral level. Dubbed “A New Trade Policy for America”, the agreement is to have “legally enforceable” labour standards in all free trade agreements negotiated by the United States. Future trade deals will require signatories to “adopt, maintain and enforce” the five fundamental standards of the International Labour Organization (ILO). Whereas previous trade agreements have only included watery language about workers’ rights, the new agreements are expected to contain tighter language on labour rights, including the possibility of imposing trade sanctions on countries that do not adhere to CLS.

In most developed countries, but more so in the United States of America, administrations particularly from the Clinton era have been under enormous pressure from labour groups and civil society to include labour provisions in trade agreements. In the 1997 NAFTA ratification debate, when public attention was particularly focused on the issues of labour standards and the environment, a Business Week/Harris poll found that 73 % of the respondents felt that free trade agreements “should seek to protect the environment” and “to lift labor standards in other countries”.26 The agreement of 10 May 2007 is a manifestation of this sentiment.

Almost two decades after the issue was raised at the multilateral level during the first WTO Ministerial Conference in 1996, the issue still remains unresolved. However, both the proponents and the critics have compelling arguments with respect to the linkage. Both agree, however, that adherence to core labour standards is required. Nevertheless, there remains a disagreement over the resolution of the issue. Their disagreement lies in whether the core labour standards should be incorporated in the multilateral trade agreement.

The sensitive nature of the issue, and the fact that it has been recurring for a 150 years without any meaningful solution, makes the adoption of a novel approach very important as the solutions being offered at the multilateral level do not seem to satisfy both the supporters and critics of such a linkage.27 The current approaches at the multilateral level through the International Labour Organization’s (ILO) moral suasion to improving labour standards worldwide appear not to be working. On the other hand, there is resentment against making the observance of labour standards mandatory.

The debate surrounding the matter raises issues that go beyond the realm of economics to include the human rights dimension (workers’ right). This raises questions on how to achieve equity in international trade relations, the moral principles involved in international trade, and the role of international organisations, notably the ILO, the WTO, the International Monetary Fund (IMF), and the World Bank, in addressing the concerns of the proponents and critics of the issue and their respective or joint roles in balancing the views of both parties.

During the latter part of the twentieth century, there was considerable discussion on the ethics of international trade, and one of the conspicuous features of the international economy during this period was the international division of labour whereby developing countries produced primary products for markets of the developed countries. From 1970s onwards, factors such as rising labour costs in developed countries, liberalisation of trade, decrease in transport costs, deregulation of markets with its attendant effects on the movement of capital, labour, and goods brought about changes in the volume and pattern of trade, with its associated changes in the international division of labour.

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