Workers’ Rights: Labor standards and global trade

Of all the debates surrounding globalization, one of the most contentious involves trade and workers’ rights.

Proponents of workers’ rights argue that trading nations should be held to strict labor standards—and they offer two quite different justifications for their view. The first is a moral argument whose premise is that many labor standards, such as freedom of association and the prohibition of forced labor, protect basic human rights. Foreign nations that wish to be granted free access to the world’s biggest and richest markets should be required to observe fundamental human values, including labor rights. In short, the lure of market access to the United States and the European Union should be used to expand the domain of human rights.

The key consideration here is the efficacy of labor standards policies. Will they improve human rights among would-be trading partners? Or will they slow progress toward human rights by keeping politically powerless workers mired in poverty? Some countries, including China, might reject otherwise appealing trade deals that contain enforceable labor standards. By insisting on tough labor standards, the wealthy democracies could lay claim to the moral high ground. But they might have to forgo a trade pact that could help their own producers and consumers while boosting the incomes and political power of impoverished Chinese workers.

The second argument for strict labor standards stresses not the welfare of poor workers, but simple economic self-interest. A trading partner that fails to enforce basic protections for its workers can gain an unfair trade advantage, boosting its market competitiveness against countries with stronger labor safeguards. Including labor standards in trade deals can encourage countries in a free trade zone to maintain worker protections rather than abandoning them in a race to the bottom. If each country must observe a common set of minimum standards, member countries can offer and enforce worker protections at a more nearly optimal level. This second argument, unlike the first, can be assessed with economic theory and evidence.

Evaluating these arguments requires answering three questions. First, what labor standards are important to U.S. trade and foreign policy? Second, how can labor standards, once negotiated, be enforced? Finally, does it make sense to insist that our trade partners adhere to a common set of core labor standards?and if so, which standards?

Which Labor Standards Matter Most?

Although the international community agrees broadly on the need to respect labor standards, agreement does not extend to what those standards should be. Forced labor and slavery are almost universally regarded as repugnant, but other labor safeguards thought vital in the world’s richest countries are not widely observed elsewhere.

The International Labor Organization, created by the Treaty of Versailles after World War I, has published labor standards in dozens of areas, but it has identified eight essential core standards (see box on page 13), most of which refer to basic human rights. Of the 175 ILO member countries, overwhelming majorities have ratified most of the eight standards. More than 150 have ratified the four treating forced labor and discrimination in employment and wages. Washington has ratified just two standards, one abolishing forced labor and the other eliminating the worst forms of child labor, placing the United States in the company of only eight other ILO member countries, including China, Myanmar, and Oman.

Many proponents of labor standards would expand the core list of ILO protections to cover workplace safety, working conditions, and wages. The U.S. Trade Act of 1974 defines “internationally recognized worker rights” to include “acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.” The University of Michigan, for example, obliges producers of goods bearing its insignia to respect the core ILO standards and also requires them to pay minimum wages and to offer a “safe and healthy working environment.”

The labor standards that might be covered by a trade agreement fall along a continuum from those that focus on basic human rights to those that stress working conditions and pay. On the whole, the case for the former is more persuasive. Insisting that other nations respect workers’ right of free association reflects our moral view that this right is fundamental to human dignity. Workers may also have a “right” to a safe and healthy workplace, but that right comes at some cost to productive efficiency. Insisting that other nations adopt American standards for a safe and healthy workplace means that they must also adopt our view of the appropriate trade-off between health and safety, on the one hand, and productive efficiency, on the other.

Enforcing Labor Standards: The Status Quo

The principal global institution enforcing labor standards today is the ILO, which reports regularly and periodically on the steps each nation takes to implement the standards it has ratified. If complaints are lodged, the ILO investigates the alleged violation and publicizes its findings. Even if a member nation has not ratified the freedom-of-association conventions, the ILO may investigate alleged violations of those conventions. The ILO cannot, however, authorize retaliatory trade measures or sanctions. Instead it provides technical assistance to member countries to bring their labor laws and enforcement procedures into compliance.

Although the work of the ILO has been recognized with a Nobel Peace Prize, many labor sympathizers are skeptical that it can protect workers using its existing enforcement tools since they impose little penalty besides bad publicity.

Putting Teeth into Standards Enforcement

Labor advocates favor strengthening enforcement by expanding the role of the World Trade Organization or using bilateral trade agreements.

WTO rules do not apply to labor standards; they govern members’ treatment of the goods, services, and intellectual property of other member countries. In those areas the WTO has developed elaborate dispute settlement procedures to investigate complaints. If a WTO panel finds that a member country has violated WTO rules, it may allow the complaining country to retaliate.

At the 1996 WTO ministerial meeting, developing countries strongly resisted efforts to allow the WTO to enforce labor standards, and the meeting concluded by affirming the ILO’s role in determining and dealing with labor standards. Similarly, when President Clinton and some EU leaders tried to bring workers’ rights into the next round of multilateral trade negotiations at the 1999 WTO ministerial meeting in Seattle, developing countries rejected the initiative.

In a recent free trade pact, Jordan and the United States agreed to protect core ILO workers’ rights. They also spelled out how to resolve disputes over labor standards: if one country weakens its labor laws or fails to bring its laws or enforcement into compliance with the ILO core standards, the other may take appropriate measures, including withdrawal of trade benefits.

The AFL-CIO has endorsed the labor provisions of the Jordan trade pact, while the U.S. Chamber of Commerce has denounced them. The Chamber favors free trade agreements, and it fears that most countries will resist including enforceable labor standards in any new agreement. This view is almost certainly correct, at least in the developing world.

Practical Difficulties

Some Americans may fear that including enforceable labor standards in trade agreements will open the United States to charges that it fails to enforce ILO core standards, exposing it to possible trade penalties. But U.S. civil rights and labor laws already contain the fundamental protections demanded by the ILO conventions.

Citizens in developing countries might be less confident that their laws and enforcement procedures will meet the tests implied by the ILO conventions, especially as construed by observers from affluent countries. Interpretations devised in the drawing rooms of Paris or the recreation rooms of suburban Washington might seem out of touch with conditions in countries where half or more of the population lives on less than $2 a day.

Two of the most troublesome ILO standards involve child labor. Rich countries—very sensibly—restrict children’s participation in the job market so that youngsters can attend school and prepare to become workers. But in poor countries, where children’s earnings are a crucial family resource and schooling may be unavailable, the restrictions may not be appropriate. Of course, children in poor countries deserve protection and education too, but the standard of protection and the resources available for schooling will be far below those in a wealthy country.

A standard of protection that is appropriate in rich countries can impose excessive burdens on poor ones. Third-world leaders fear, understandably, that including enforceable labor standards in trade treaties will expose their countries to constant challenge in the WTO—and that the standards will be used mainly to protect workers and businesses in developed countries from competition from third-world workers.

AFL-CIO President John Sweeney denies that enforcing labor standards can have a protectionist impact. The ILO standards, he notes, are designed to protect the interests of workers in low-income as well as high-income countries. The WTO and United States strongly defend intellectual property (IP) rights and enforce trade penalties when developing countries violate those rights. Extending the same protections to workers’ rights, he reasons, cannot be protectionist.

While it is easy to sympathize with Sweeney’s view, there is a big difference between worker rights in another country and the IP rights of a country’s own citizens. If Burma denies its workers the right to organize independent unions, its actions are deplorable but do not directly injure me. If Burma allows publishers and recording companies to reproduce my copyrighted books and songs without compensating me, the theft of my creative efforts injures me directly. It is hardly surprising that U.S. voters would insist on remedies for injuries to themselves before fixing the problems of workers overseas. Sweeney may object that the injury to Burmese workers from human rights abuses is much more serious than the monetary losses from copyright infringement suffered by a handful of artists, inventors, and U.S. corporations. And he may well be right. But American artists, inventors, and corporate shareholders can vote in U.S. elections; Burmese workers cannot.

How to Assess WTO Penalties?

If the WTO is to be used to assess penalties against countries violating international labor norms, its member countries must devise a new way to assign penalties for violations. Under current procedures, a country found to have a valid trade complaint may retaliate against the offending country by withholding a trade benefit roughly equivalent to the benefit denied it by the offender as a result of the violation of WTO rules. It is not obvious how to calculate the penalty when the violation involves a labor standard. There the injury has been suffered by workers in the offending country, and residents of the complaining country may have enjoyed a net benefit.

Suppose, for example, the United States accuses another country of employing underage children in its apparel industry. The violation increases the offending country’s supply of low-wage workers, thus reducing producers’ wage costs and the prices charged to domestic and overseas consumers. The adult workers in the offending country have clearly suffered injury, as have the children if their work has deprived them of schooling that was otherwise available.

How did the violation affect Americans? U.S. apparel workers probably lost wages and jobs. But their losses are counterbalanced by gains to U.S. consumers, who bought clothing more cheaply because of child labor in the offending country. Since all American workers, including those in the apparel industry, are themselves consumers, it is not clear whether the violation injured U.S. workers as a class. Last year apparel imports into the United States exceeded exports by about $55 billion. If the use of child labor overseas cut the cost of imports, Americans spent less for clothing than they otherwise would have. While most Americans deplore child labor, at home or abroad, it is hard to see how an overseas violation of the child labor standard has injured them. Nor is the United States likely to weaken its own child labor laws because it has benefited from the availability of cheaper imported clothes.

Private Sanctions

As a final option for enforcing labor standards, American consumers can apply their own private sanctions. Anyone who finds child labor or forced labor reprehensible can refuse to buy products made in countries that tolerate those practices. The ILO could push consumers into action by publishing information about offending countries and their violations. It could also publicize any country’s refusal to cooperate with ILO investigations. If voters want more information about imported goods and services from countries that comply with ILO standards, their own national governments can provide it. Washington can help American consumers increase pressure on offending countries by requiring sellers to label products with the country of origin. It could also encourage or require sellers to identify goods and services produced in countries that fully comply with ILO’s core labor standards.

Should Uncle Sam Enforce Labor Standards?

The case for enforcing labor standards is strongest when it involves basic human rights, such as freedom of association or freedom from slavery, and when it rests on moral grounds rather than economic calculation. If Washington wants to require its trading partners to respect basic human rights, it must be prepared to accept the real costs it will thereby impose on its own producers and consumers—and occasionally on the victims overseas whom it is trying to help. Economic theory and evidence may be useful in calculating the potential cost of trade sanctions to the United States and its trading partners. It is not helpful in determining whether the potential gains to human rights are worth the income sacrifice. Nor is social science very informative about whether a policy of trade sanctions is likely to improve victims’ rights.

The case for requiring U.S. trade partners to respect international labor standards is least compelling when it involves the terms and conditions of employment. If a country respects ILO core standards, then workers will be able to negotiate for the best combination of pay, fringe benefits, work hours, and workplace amenities that their level of productivity allows. If we insist that the resulting compensation package meet minimum international standards, we are substituting our own judgment for that of the affected workers and their employers.

Readers may object, rightly, that the weak bargaining position of workers in poor countries makes it unlikely that their negotiations with employers will secure decent compensation and safe working conditions. But their weak bargaining position is linked to their low productivity and skills. Today U.S. and European labor standards are much higher, and labor regulation enforced more rigorously, than was the case 50 years ago. The improvement is closely associated with workers’ increased skill and productivity. Even in the developing world, the better-off countries are more likely than the poorest to conform to ILO labor standards. In countries with per capita income of $500 a year or less, 30—60 percent of children between the ages of 10 and 14 work. In countries with per capita income of $500—1,000, just 10—30 percent of youngsters work. As productivity improves, so too will the bargaining position and wages of industrial workers. If history is any guide, national labor standards will improve as well.

The most reliable way to improve the condition of third-world workers is to boost their average productivity. Concerned voters in rich countries can help make this happen by pressing to open up their own markets to third-world products. Many low-income countries have a comparative advantage in manufacturing apparel, textiles, and footwear and in producing staple foods, fruits, and vegetables. Rich countries often impose high tariffs or quotas on these products, and nearly all provide generous subsidies to their farmers—thus denying third-world producers and farmers access to a huge potential market. The World Bank estimates that tariff and nontariff barriers, together with subsidies lavished on U.S. and European farmers, cost third-world countries more in lost trade than they get in foreign aid.

If we insist that developing countries meet immediately the labor standards that the richest countries achieved only gradually, we will keep some of them out of the world’s best markets. The poor countries that agree to abide by ILO standards will occasionally be challenged—sometimes by representatives of rich countries more intent on protecting their own workers from “unfair” overseas competition than on improving the lot of third-world workers. While the moral case for requiring our trading partners to respect labor rights is compelling, the case for removing trade barriers that limit the product markets and incomes of the world’s poorest workers is just as powerful.