Wednesday, May 2, 2012

WTO, labour standards and public morals

(Courtesy:Two young Bolivian girls give a piglet a bath before dressing him for dinner. / United Nations Photo / Jean Pierre Laffont.)

The issue of linking labour standards to international trade is a contentious one. The proponents of universal international labour standards and enforcement through international trade agreements argue that lower labour standards, including child labour, creates an unfair advantage to the countries using them and results in cheaper goods entering their markets endangering their products as well as labour. They argue that similar labour standards must be implemented across to avoid unfair competition and trade and propose that countries should be allowed to impose trade barriers when labour standards are not followed. The opponents of this view argue that labour standards are the domain of domestic governments and should not be linked to enforceable international trade agreements. While accepting that improvements in standards of labour is a compelling prerogative for countries its linkage to trade is a veiled attempt at protectionism by the developed world to protect their products and labour. They oppose any linkage with international trade and argue that the WTO  is no the right forum to take up this issue. I had blogged about child labour and trade issues in earlier blog posts here  and here .

The Boston Review  carried a piece  on this issue titled "Hype or Help - Globalisation and the fight over labor standards". It argued that the fight for better labour standards by the developed world would actually not benefit it to the extent that is normally believed.

Now the issue of labor standards has become economically more momentous and politically murkier. The importance of the economic issue has grown in proportion to the exploding income gap between the world’s rich countries in the “North” and poor countries in the “South.” In the nineteenth century the divide in per capita income between England and its emulators was roughly 2:1. Today the comparable distance between the United States and the average developing country is on the order of 25:1. At the same time, technology and foreign investment are flowing more freely than ever from North to South, thereby evening out international differences in output per worker. As a result, employers can now hire high productivity labor in the South, at relatively low wages. And that represents a threat to the living standards of Northern workers.
This threat has mixed up the politics of labor standards. Conservative views about labor standards have remained the same—they propose to let the compensation of labor be fixed by market forces. But a geographical division has developed between the South and “progressive” or “internationalist” labor advocates in the North (mainly the United States). These advocates note the two-decade-long stagnation of real wages in the United States, and argue that important causes of that stagnation are low wages (in relation to productivity) and minimalist labor standards in late-industrializing, Southern countries. To revitalize wages in the North, they propose a more militant posture towards labor standards in late-industrializing countries, and urge that that posture be implemented through trade agreements. Such agreements would make access to Northern markets by companies located in the South contingent on sharp improvements in Southern labor standards.

Are these arguments for tougher Southern labor standards compelling, or are they—as critics argue—a thin veil for protectionism? Should progressives in the South accept them, or be placed in the awkward position of resisting higher labor standards? To answer these questions, we need to be clear about the the kinds of labor standards in question. In particular, the issue is not health and safety conditions, and the right of Southern workers to be treated like human beings—not to be murdered for organizing unions, for example. These rights are inviolate, and must continue to be fought for through diplomatic channels, such organizations as the ILO, and popular protest. Rather, the standards in question focus on rates of pay—for example, minimum wage regulations, or requirements that wage increases be linked closely to productivity growth."

Arguing that the new form of globalism does not really benefit the view held by the proponents of universal international standards enforcement through international trade agreements, the article concludes:

"Against the background of this particular form of globalism, the demand for tighter labor standards in the South as a way to protect workers in the North is not only likely to harm the South but is also likely to be weak tea in the North. While demands by Northern progressives and labor activists for international income redistribution may be politically attractive with the home team, they are no substitute for aggressive policies in favor of economic expansion. Unless the growth of the global economy accelerates—as it did in the late 19th century —the problems posed by low-wage Southern competition to Northern workers promise to be enormous" 

It would be interesting to see the debate in the context of existing  WTO Agreements. Article XX (General Exceptions) of the GATT  provides countries to take certain measures under specific circumstances to further certain public policy goals. Article XX (a) is as follows:
"Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:
(a)      necessary to protect public morals;"
Can the universalisation of labour standards be argued from a standpoint of public morals? Let us take an example of a developed country which is impacted by cheaper goods from a developing country where labour standards are less stringent than its own. Can the developed country legislate banning products of countries which do not follow a certain labour standard on the grounds that using such labour standards goes against its "public morals" as it considers a certain degree of labour standards as necessary and moral. Though it would not violate the "national treatment" principle as goods produced within the developed country too must follow similar standards, is it a disguised restriction on international trade? Does it constitute veiled protectionism? Can the "public moral" standard be used to impact processes, in this case labour standards,  outside one's country? 

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