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The Return of Labour Standards in the WTO?

Arvind Panagariya

           With the Seattle Ministerial meeting right around the corner, the United States has tabled a proposal for a working group on labour standards at the World Trade Organization (WTO).  The United States wants the working group to prepare a report in two years on the relationship between international trade and employment, social protection and the so-called core labour standards that include child labour.  It also wants the proposed working group to study the impact of derogations from national labour standards in export processing zones.

            Three years ago, at the conclusion of the Singapore Ministerial meeting, developing countries had taken a sigh of relief that the issue of labour standards had at last been delegated to the International Labour Organization.  The Singapore Declaration, signed by all WTO members including the United States, provided ample grounds for this sense of relief.  The sole paragraph dealing with labor standards in the Declaration, reproduced below in its entirety, states,

“We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration. “

            Only the most credulous readers will argue that this paragraph leaves the door open to setting up a working group on labour standards at the WTO.  Indeed, in his concluding speech, Singapore’s Trade and Industry Minister Mr. Yeo Cheow Tong, who also chaired the Ministerial Conference, had explicitly noted, “Some delegations had expressed the concern that this text may lead the WTO to acquire a competence to undertake further work in the relationship between trade and core labour standards. I want to assure these delegations that this text will not permit such a development.” Yet, in a move that is reminiscent of its heavy-handed tactics in the Uruguay Round negotiations on intellectual property rights, the United States has reinterpreted the Singapore mandate and put forward the proposal for a WTO working group on labor standards.

             The renewed U.S. effort raises once again the issue how developing countries should respond to developed country demands for the linkage between trade and labor standards.  This was one of the several important questions debated on November 5 and 6 by academics and developing country policy makers at a conference at Harvard University.  The principal panelist on the subject, Professor Devesh Kapur of Harvard University, noted that the available options ranged from refusing any discussion of the subject even at the cost of a total breakdown of the Seattle discussions to a “grand bargain” in which developing countries could agree to negotiate labor standards in return for more liberal rules of migration for labor in developed countries and considerable weakening of the agreement on intellectual property.  He felt it was critical for developing countries to turn the terms of the debate from standards to the core issue of poverty.  He concluded, however, that the best course would be to insist on compliance with the spirit of the Singapore mandate for the delegation of subject to the ILO.

             Professor Dani Rodrik, also of Harvard University, argued that by refusing to discuss labor standards in the WTO, developing countries would be missing the opportunity to take the high moral ground since, to-date, the United States had itself refused to sign the ILO conventions on core labor standards.  They would also be depriving themselves of the possibility of negotiating reciprocal concessions from developed countries.  For instance, they could ask for tighter rules on anti-dumping and increased immigration into developed countries in return for enforcing core labor standards, which is a desirable goal in any case.

             Disagreeing with Rodrik, the present author argued that the discussions should be in the ILO and that developing countries should eschew negotiations in the WTO.  Once negotiations begin, rich countries are in a position to threaten the rival nations with retaliation or offer them side deals on an individual basis until the remaining countries are too few and powerless to resist.  This strategy was successfully employed by the United States in the TRIPs negotiations and may be repeated in the event of a negotiation on labor standards.

            A recent statement entitled “Third World Intellectuals and NGOs: Statement Against Linkage” (TWIN-SAL), circulated by Professor Jagdish Bhagwati of Columbia University and others, argues that achieving freer trade and improving labor standards are both desirable goals.  But assigning them to a single institution, namely the WTO, is like trying to kill two birds with one stone.  Such a strategy is bound to miss both birds except by fluke.

           Therefore, it is best to let the WTO promote free trade and delegate the responsibility to promote labor standards to the ILO.  TWIN-SAL suggests that the ILO could be asked to do periodic reviews of objectionable labor practices in both developed and developing countries along the lines of Trade Policy Reviews, done by the WTO.  Such reviews can be then used to bring moral pressure on the offending countries to improve upon their standards.  This approach has the advantage that it maintains symmetry across rich and poor countries.  By contrast, under the U.S. approach, only the objectionable labor practices in developing countries are being addressed.  Moreover, in the WTO, only bigger richer countries can credibly wield the instrument of trade sanctions.

Economic Times, November 6, 1999