08 October 2013

Labour standards and international trade – Some issues

by Manoj Gupta

In July 2013 United States of America withdrew trade benefits available to Bangladesh, one of the least developed countries, under the Generalised System of Preferences (GSP) quoting lack of worker security and workers’ rights in Bangladesh. Section 502(b)(2)(G) of the US Trade Act specifies that developing countries that have not taken or are not taking steps to afford internationally recognized worker rights to workers in their country, may not be designated as a beneficiary country. Pursuant to the said provision, USA has withdrawn the benefits given to Bangladesh. According to the US Trade Representative, recent tragedies that took the lives of over 1,200 garment factory workers highlighted some serious shortcomings in workers’ rights and workplace safety standards in Bangladesh. These recent happenings, both the tragedy and the withdrawal of benefit, have again brought to light issues concerning labour standards which remain unresolved even after years of debate.          

This debate, between the developed countries on one side and the developing or least developed countries on the other side, is regarding the growing concern among the former that since cost of labour is one of the important components of the cost of final product, violations of labour standards to keep the cost low, would lead to what is termed as “social dumping”. Though intersection of labour laws (labour standards, including their rights) with international trade is a matter of lengthy discussion, this article,  seeks to discuss some of the issues that arise in this context.


WTO agreements and labour standards

 WTO agreements do not deal with labour standards as such. Developed countries have, however, always wanted to include such provisions in the WTO’s multilateral agreements. According to them this will ensure better compliance by the developing or the least developed world and further, in case of any violation, the latter can be brought to book by way of dispute settlement and eventual trade sanctions. The matter was discussed at the Singapore Ministerial Conference in 1996 where the Ministers rejected the use of labour standards in the multilateral agreements, terming it as protectionist, and agreed that comparative advantage of some countries must in no way be put to question. No working committee was hence formed though it was decided that the WTO and ILO Secretariats would continue their existing collaboration. The debate could not go any further even at the Seattle or the Doha Ministerial Conferences. As per the WTO, four sub-sets of the main question, of viability of labour standards in international trade, are:            

1) Do the exports from countries having lower standards of labour rights have an unfair advantage?          

2) In case of any advantage, should countries only trade with those that have similar labour standards?        

3) Should WTO rules explicitly allow governments to take trade action against countries not complying with such   standards?        

4) Is the WTO the proper place to discuss and set rules on labour, or to enforce them?          

Taking the last question first, Havana Charter of 1947 had acknowledged that unfair labour conditions, particularly in production for export, create difficulties in international trade. Apart from that, there are no express provisions in the GATT 1947 or in any other WTO Agreement. Primarily, WTO is a place to set rules for trade in goods between Member countries.  Trade in services has also been covered with the signing of the General Agreement on Trade in Services (GATS).  However, labour standards do not fall within the ‘trade’ arena.  Many Member countries have included at least some clauses relating to labour or human rights in the Free Trade Agreement or Economic Cooperation Agreements.  Since Article XXIV of GATT deals with FTAs, should there be an objection for including human rights or labour standards into other WTO Agreements as well? However, if labour standards are to be brought within the purview of WTO Agreements, substantial structural changes may be required in all the existing WTO agreements. It may not be a worthwhile exercise. For the same reasons, question No. 3 also has to be answered in the negative.               

Are there any internationally accepted labour standards? International Labour standards are generally available in the ILO conventions.  Not all countries have ratified even the eight core or fundamental ILO conventions. It may be interesting to note that even USA has ratified only two of the eight core or fundamental labour conventions of the ILO, while Bangladesh has given its consent for 7 of these conventions.  It is not the question of whether or not a particular country has a set of legal instruments that institute internationally acceptable labour standards.  It is the actual implementation of those standards within the economy of a country which is more important and that is what differentiates one country from the other.               

In this regard, it may be noted that ILO’s Declaration on Fundamental Principles and Rights at Work adopted by the International Labour Conference on 18-6-1998 stresses that labour standards should not be used for protectionist trade purposes, and that nothing in that Declaration and its follow-up shall be invoked or otherwise used for such purposes. These clauses on labour or human rights in the FTAs, though applicable only in relation to trade between two countries, effectively amounts to external control of the economies of the lesser developed countries while also interfering with the way their respective governments manage their human resources.


Effect of labour laws in global trade

Considering again the US-Bangladesh case, Bangladesh has on 15-7-2013, in knee jerk reaction, amended its labour laws to incorporate provisions for resolution of conflicts over legal financial rights through arbitration, ensuring safety measures for workers at their workplaces, mandatory election for workers’ participation committees and compulsory group insurance policies. The amended law further includes provisions allowing formation of trade unions without informing the factory owners. Thus, withdrawal of the benefits, in fact triggered the amendments in the law. It is now to be seen how effectively they are implemented (US law asks for effective implementation!).            

Looking from another angle, due to such denial of market access, a big market is denied to the developing country. By such a move, image of the beneficiary country suffers, leading to reduction in FDI in-flow which is very crucial for technological upgradation. As a result, the financial capacity of the beneficiary country may further deteriorate, leading to even further worsening of working conditions. The State, no matter how much it wants to improve the same, would not be able to do so, owing to lack of resources. Sanctions, which were originally meant to ensure enforcement of labour welfare, could lead to further unemployment or scaling down of welfare provisions. Withdrawal of such benefits will also push the workforce employed in exports to move to even less paying jobs catering to the informal market.          

On the other hand, if export/trade continues to grow, the wages and working atmosphere will improve. Here, it may be noted that the Singapore Ministerial Declaration had also observed that economic growth and development fostered by increased trade and further trade liberalization contribute to promotion of labour standards. There are no easy answers to questions No.1 and 2.            

While USA has withdrawn the GSP Benefits to Bangladesh, EU has taken a decision not to withdraw the benefit. The press release in this regard states that decision to withdraw the EU GSP for Bangladesh must be avoided, as it would have far-reaching consequences for jobs and for the economy of Bangladesh. So we see that even the developed countries are divided on the issue. Note in this regard should also be taken of WTO’s Trade Report 2013, released last week, which acknowledges that regulatory convergence and non-tariff barriers are the greatest challenges to the trading system of the future.              

International trade has a social dimension to it. It not only has to be rule-based in order to reap its benefits, but further should have a distant vision to it. Protection of domestic industry and jobs from competition that is unfair is fine, but the importance mutual or collaborative growth shall not be under-estimated. As stated in the WTO’s 2013 Report, future of trade will be affected by the extent to which politics and policies successfully address issues of growing social concern.

[ The author is an Assistant Manager, Knowledge Management Team, Lakshmikumaran & Sridharan, New Delhi ]


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