By Rahul Rao
Part 2
Trade - Labour standards linkages - the track record
Having seen that conventional arguments on both sides of the debate over the social clause are problematic, it is necessary to develop a different perspective on the issue. Trade - labour standards linkages are not a recent phenomenon. Therefore, in deciding whether social clauses should be inserted in trade agreements, it is necessary to determine whether such previous linkages have been effective in achieving what should have been their most important goal - the improvement of labour standards.
Social clauses in US laws
The US has two commercial programmes which give trading partners concessions in the tariffs they pay. They are the Generalised System of Preferences (GSP) and the Caribbean Basin Economic Recovery Act, commonly known as the Caribbean Basin Initiative (CBI). The GSP allows certain quantities of specific goods from developing countries to enter the US duty-free. CBI also provides duty-free treatment on certain goods.(34) Both programs are supposed to be conditioned on the exporting country "taking steps to afford internationally recognised worker rights to (its) workers…". These rights include freedom of association, the right to organise, the right to collective bargaining, prohibitions on forced labour and child labour and acceptable conditions with respect to minimum wages, working hours, health and safety precautions, etc. The GSP programme provides for an annual process under which any group (US or otherwise) can file a petition with the US government requesting that the worker rights situation of a particular country be investigated, to determine whether GSP benefits should be terminated. If the petition is accepted for review, hearings are held and a decision is made by the following April. This decision may take one of three forms - benefits may be suspended, the review/investigation may be extended (analogous to placing the country on probation), or the country is removed from the review process and continues to receive benefits.(35)
The early years of the implementation of the GSP programme were marked by arbitrary decisions unrelated to the level of labour rights abuses and frequent manipulation of the labour rights issue to gain leverage on some trade matter of greater importance to the US government. The administration of the programme was so arbitrary, that in 1989, all 23 organisations that had filed labour rights petitions, filed a lawsuit charging the government under the Administrative Procedures Act with failure to administer the programme as per the law and Congressional intent. The suit was unsuccessful due to a court ruling that the President had absolute discretion to administer the GSP as a foreign policy initiative.(36)
Following the filing of this suit, administration of the programme improved significantly if unevenly. Elements of arbitrary decisions continued. There was a refusal to review the worker rights situation in Mexico and Columbia, where some of the worst labour rights abuses were reported. Mexico was engaged in negotiations for a labour side-agreement to NAFTA and Columbia's President was the US candidate to head the Organisation of American States. It would appear that these considerations outweighed the labour issues.(37) In Indonesia, the GSP has been used as a lever to gain other trade concessions and not to improve labour standards. Between 1987 and 1993, Indonesia has allowed in Hollywood films and has agreed to a tighter code on intellectual property rights - both major US demands - in order to prevent the withdrawal of GSP benefits.(38)
However, the GSP labour rights conditionality has had a positive impact in many cases. A number of countries have been removed from the programme as a result of a negative review that did not lead to reforms. While some of these like Mauritania were of minor trade importance, others like Chile, Paraguay and the Central African Republic were of considerable trade or diplomatic importance. In each of these cases, the GSP programme was used successfully, not so much to secure improvements in labour rights in a narrow sense, but to secure a change of regime that improved the potential protection of all human rights. In each of these cases, the subsequent regimes were readmitted to the programme.(39)
According to Pharis J. Harvey, Executive Director of the International Labour Rights Fund, as long as countries perceive the possibility of economic sanctions, however remote or minor the economic impact might be, they tend to react in positive ways to a review. He claims to have been told by trade unionists in countries under review that their governments have responded to the criticism in the GSP petitions more seriously than they have ever reacted to a negative judgment by the ILO's Committee on Freedom of Association or Committee of Experts.
In Peru, for example, a petition in 1992 led the government of President Fujimori to enter into a dialogue with trade unions for the first time in his administrations' history. Unfortunately, before promised legal reforms were enacted in Peru, the review ended on the basis of a 'commitment' to reform. With the review out of the way, labour rights violations increased and the reforms were put on hold.
In 1990-91, Americas Watch drew attention to the abominable practice prevalent in the Dominican Republic of enslaving Haitian workers in the country's sugar plantations. The threat of loss of GSP access to the US sugar market motivated the government to crack down on those plantations with the worst abuses and to reform its labour laws, making the practice of debt bondage illegal. As a result the Dominican Republic did not loose its GSP status and workers in the plantations acquired the legal right to organise trade unions and negotiate collective agreements.
The GSP programme has been less effective in Indonesia mainly because the Suharto government has succeeded in persuading the Clinton administration that the diplomatic and economic cost to the US and its investors would be formidable if GSP benefits were actually withdrawn from an economic partner as important as Indonesia. Nevertheless, petitions submitted in 1992 demanding the review of Indonesia's labour laws and practices, have helped initiate a public dialogue within that country over the future of its development policy. An independent trade union - the SBSI - was able to form.(40)
Harvey also states that the US GSP programme has not been misused as a protectionist measure. He says that there are few examples of petitions frivolously filed and none of petitions assiduously lobbied for by powerful interests. No petitions have been filed by industry groups in the US facing competitive challenges from industries in the targeted country. There have been no petitions or decisions based primarily on lower wage competition and none that target countries with an emerging comparative advantage.(41)
It is evident from the above data that the US GSP law has been successful in a number of instances, in improving labour rights in developing countries. The major criticism against this programme is not with regard to the concept of linking trade with labour standards, but the arbitrary and inconsistent manner in which it has been applied. This may be explained by the fact that the programme is unilaterally administered by the US government and is used, not just to improve labour standards, but to achieve other foreign policy goals. It would be more difficult for any one country to manipulate a social clause monitored and enforced multilaterally, to suit its own interests.
Social clause in NAFTA
The labour and environment side agreements to the North Atlantic Free Trade Agreement (NAFTA) provide excellent examples of social and environmental clauses. NAFTA is significant because it is the first multilaterally negotiated trade agreement to contain such clauses. However, the social clause in NAFTA has been severely criticised on two counts. Firstly, it requires governments to enforce their existing national labour laws and fails to establish a set of minimum standards. The wide disparities in the labour laws of the different parties to the agreement mean that workers in one country may enjoy certain rights which those in another country are denied. Some argue that this allows companies to favour investments in countries with weak laws and regulations, although, as explained earlier, this theory is highly debatable. Secondly, violations of existing national laws relating to freedom of association and protection of the right to organise and bargain collectively and the right to strike (some of the most basic labour rights) will not be sanctionable under the clause. Only minimum wage, child labour and occupational health and safety questions will be subject to dispute resolution procedures, including sanctions as a last resort.(42)
Nevertheless, NAFTA's labour side accord has created a useful multilateral forum to consider violations of labour rights. In one case, a Mexican labour union filed a petition before the North American Commission for Labour Co-operation, charging that the United States was not enforcing its own labour laws. The case involved the telecommunications giant Sprint, which closed a plant days before its workers were to affiliate with the Communication Workers of America. In addition to the important favourable publicity generated by the petition, the case resulted in high-level consultations between the US and Mexican governments. Subsequently, the US National Labour Relations Board ordered the rehiring of the Sprint workers.(43) Thus, although the violation of the right to organise was not sanctionable, it created a public outcry which forced national labour authorities to act.
The Harkin Bill
In 1992, Senator Harkin introduced a bill in the US Congress that sought to prohibit the import of goods produced abroad with child labour into the US. The bill generated a heated debate the world over, with many condemning it as yet another instance of unilateral protectionism seeking legitimacy by taking the high moral ground on the issue of child labour. The pros and cons of this bill are not discussed here. The ripple effects that the potential passage of this bill caused in countries where child labour was prevalent in export industries, are worthy of note.
India's carpet industry, in which 90% of the weavers have been estimated to be children(44), could have become one of the first targets of this bill. With a turnover of Rs. 800 crore, this was an industry of great export significance to the country.(45) Carpet manufacturers and exporters were thrown into a state of panic by the news of the introduction of the Harkin Bill. Enlightened self interest on their part led them to join hands with the Indo-German Export Promotion Council, the South Asian Coalition against Child Servitude (an NGO) and UN agencies such as UNICEF and ILO. (This was a virtual volte face from the early 1990s, when carpet exporters did their utmost to malign abolition activists and even denied the existence of child labour.(46)) A working party was formed, out of which emerged the idea of the Rugmark label. This is a label that is affixed to carpets manufactured without child labour. Carpet manufacturers who wish to use this label have to agree to produce carpets without child labour, pay at least minimum wages to their adult employees and allow unannounced inspections of their looms. Inspectors are employed by the independent Rugmark Foundation, which oversees implementation of the scheme.(47)
As a direct result of the Rugmark programme, the proportion of children employed in carpet weaving has declined and wages have risen by 43%.(48) Children removed from the industry have been enrolled in schools set up by the Rugmark Foundation. Perhaps, the attitude of the industry and the government to the problem of child labour is best summed up in the statement made by T. S. R. Subramaniam, the then textiles secretary: "I agree that we were lax in the past and if it hadn't been for the hue and cry from the West, nothing would have been done. But now we are moving fast."(49)
The Harkin Bill created waves in neighbouring Bangladesh as well. In 1993, NBC Dateline (a news programme) broadcast a story of young Bangladeshi children making garments sold at Wal-Mart stores. The story generated a great deal of negative publicity for Wal-Mart and the company was pressurised to cancel its contracts with Bangladeshi manufacturers. Other companies informed their partners in Bangladesh that the use of child labour was creating negative publicity and was bad for business. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) also learned of the introduction of the Harkin Bill in the US Congress.(50)
It was under these circumstances that the BGMEA announced on 4 July, 1994, that it would eliminate child labour in the garment industry by 31 October, 1994. Thousands of children were reportedly dismissed from garment factories. Many of these children came from extremely poor factories and the loss of income threatened their very survival. The children were therefore forced to resort to more dangerous and poorly paid work in the informal sector - street begging, prostitution, etc. Some children were hired by underground sub-contractors, working in hidden garment sweatshops under worse conditions than before.(51)
Recognising the need for immediate remedial action, representatives of the ILO, UNICEF, the Asian-American Free Labour Institute and the US Embassy asked the BGMEA to stop firing underage workers until a school system and other resources were in place to take care of the displaced children. On 4 July, 1995, a memorandum of understanding was signed between the BGMEA, ILO and UNICEF. It provided that all children would be removed from the garment sector and put into schools, there would be no new hiring of underage workers and that a monitoring and verification system developed by the ILO would oversee compliance. The BGMEA also promised to offer employment to qualified family members of underage workers whose employment was terminated under the agreement. Former child workers would be offered re-employment once their schooling was completed. A survey conducted in 1995 found far fewer children in the garment factories of Bangladesh than had been found the previous year.(52)
In the light of the impact of the US GSP law and the social clause in NAFTA and the events triggered off by the introduction of the Harkin Bill, it can be said that labour standards may be enforced by making trade conditional on the maintenance of certain minimum standards. India has a plethora of labour laws but these have been poorly implemented because of an indifferent, inadequate, inefficient and corrupt enforcement machinery. International conventions on labour standards have not been very effective in improving labour standards because their ratification is not compulsory. Even after countries ratify conventions, violations of the same continue with impunity because of the lack of an enforcement mechanism at the international level. The ILO tries to improve labour standards through moral persuasion and pressure. When a country violates a ratified convention, therefore, it will at best incur the displeasure of the international community. Linking trade with labour standards is a more effective means of enforcing compliance with minimum standards. When governments and employers work towards improving labour conditions it is not out of any sudden concern or sympathy for the plight of their labour, but because of the threat of reduced sales or boycotts, as the above examples have shown.
The Bangladesh example is particularly important because it shows that trade-labour standards linkages can be counter-productive if not carefully planned. Dismissed child workers may be forced to resort to more inhumane forms of labour to support themselves and their families if alternatives are not available to them. A social clause that forces employers to improve labour standards would necessitate greater investment in human resources. If employers are not willing to do this or if wages rise, they may resort to greater mechanisation in order to cut down on labour costs. Labour will then be displaced. In other words, there may be a trade-off between the right to better labour standards and the right to work.(53) Displaced labour must be provided with alternative means of earning their livelihood. Providing these alternatives will be difficult, but not impossible as both the Rugmark and Bangladesh examples have shown.
It is submitted that the linking of trade with labour standards for the purpose of improving the latter should not be opposed. It must be acknowledged that such linkages can be misused for protectionist purposes. They can also be counter-productive, hurting the very people they are meant to benefit. However, a properly drafted social clause can overcome both these difficulties. The next section of this paper makes a few suggestions towards this end.
The nitty-gritty of social clauses
What standards should be incorporated?
The first question to be addressed in the drafting of a social clause is regarding what standards should be incorporated in the clause. A review of eight different proposals for a social clause found that of the following standards, numbers 1 to 3 were mentioned by all, while numbers 4 to 6 were mentioned by six out of the eight.(54)
1. Freedom of association (ILO Convention No. 87 - workers and employers shall have the right to establish and join organisations of their own choosing without prior authorisation).
2. Right to organise and bargain collectively (ILO Convention No. 98).
3. Minimum age for the employment of workers (ILO Convention No. 138).
4. Freedom from discrimination in employment and occupation on the basis of race, sex, religion, political opinion, etc. (ILO Convention No. 111).
5. Freedom from forced labour (ILO Conventions Nos. 29 and 105).
6. Standards relating to occupational health and safety (various).
Whatever standards are finally incorporated, they must be precisely defined to avoid ambiguities and 'convenient' interpretations. They must also be of such a nature that it is possible for economically and socially less developed countries to implement them within a foreseeable period. A glimpse at the ratification status of these conventions shows that there is no correlation between the stage of development of a country and the number of conventions it has ratified. Some developing countries (Bangladesh, Dominican Republic and Pakistan) have ratified five or more out of the six conventions mentioned above, while a country as developed as the United States has ratified only one. Of the 42 countries which have ratified Convention No. 138 (perhaps the most controversial), almost half are developing countries.(55) It cannot, therefore, be argued that the standards chosen for inclusion in the social clause are biased against the developing countries. Of course, ratification of a convention does not mean that it is being implemented in a country.
The standards that are incorporated into the social clause must be arrived at through a process of consensus, without one set of countries imposing their choices on the other. Opponents of the social clause argue that it would be very difficult, if not impossible, to arrive at such a consensus. However, membership of the I.L.O. is near universal (174). Membership implies acceptance of the principles enshrined in the Constitution – freedom of association, right to collective bargaining, rejection of inhumane treatment of labour, etc. These principles have never been questioned in the public rhetoric of the international arena. No head of state would justify the continuance of bonded labour, or argue that child labour was acceptable or that women should be discriminated against in matters of employment. We have therefore had a consensus on what labour standards need to be universally observed for decades.(56) Differences do persist, however, over the means through which the enforcement of these standards could be strengthened.
India should not have a problem with these conventions being incorporated in a social clause since, broadly speaking, Indian labour laws already guarantee most of the rights and freedoms that the aforementioned conventions deal with. For instance, freedom of association and the right to organise and bargain collectively are already provided for by the Trade Union Act, 1926. The minimum ages for the employment of workers in various sectors of industry are prescribed by the Child Labour (Prohibition and Regulation) Act, 1986. Freedom from discrimination in employment is dealt with by the Equal Remuneration Act, 1976 and the Maternity Benefit Act, 1961. Forced labour is prohibited by the Bonded Labour System (Abolition) Act, 1976. A host of legislations including the Dangerous Machines (Regulation) Act, 1983, the Dock Workers (Safety, Health and Welfare) Act, 1986, the Factories Act, 1948, the Mines Act, 1952, etc. deal with matters of health and safety in employment.(57) While the content of these laws may not correspond exactly with that of the ILO conventions, in most cases, the latter have served as templates for the former.
One of the major concerns of developing countries is that the standards enumerated above will merely be the thin end of the wedge and that over time, developed countries will push through a host of other standards in order to make third world exports less competitive. To prevent this, strict rules could be framed for the inclusion of new standards in the social clause, stipulating that such standards would be incorporated only on the approval of an overwhelming majority(58) of countries.
Safeguards against abuse
Developing countries are wary of a social clause because it could be used as a protectionist instrument by developed countries to deny them market access. This legitimate fear could be assuaged if developed countries stopped linking action on the social front with economic benefits at home. This link is repeatedly emphasised in laws and position papers of developed countries and speeches made by their representatives. For example in an earlier draft of the Harkin Bill, s. 2(a)(9) stated that "Adult workers in the United States and other developed countries should not have their jobs imperilled by imports produced by child labour in developing countries."(59) Such statements reinforce the belief that the motive behind the social clause is not the improvement of labour standards in the developing countries, but the protection of jobs in developed countries.
The International Confederation of Free Trade Unions has given some thought to the drafting of a social clause in such a manner as to prevent its misuse as a protectionist device. Since the WTO has no expertise in the field of labour standards, it has recommended that a joint WTO-ILO Advisory Body be formed to oversee implementation of such a clause. However, the WTO is a body that is deeply distrusted by many developing countries, which view it as an instrument of neo-colonialism. Hence, it has been suggested that the monitoring and enforcement of the social clause be entrusted to a totally independent body comprising representatives of developed and developing countries, exporters, importers, international NGOs, trade unions and UN agencies like UNICEF and ILO.(60) This body would review systematically and based on specific complaints, the extent to which members (of the WTO) are meeting their obligations under the social clause and would make recommendations.
When a country falls short of its obligations, this body would recommend measures to be undertaken by the government within a specified period of time to improve performance. These recommendations should take into consideration the repercussions that trade sanctions would have on the performance of and employment within the defaulting industry of the targeted country. One element of these recommendations would probably be better enforcement of national laws and regulations through a strengthened labour inspectorate. The ILO could also offer technical assistance funded by a new international social fund, to help countries in the process of raising standards. This would, perhaps, be the most important part of the operation of the social clause. Developing countries would require considerable financial assistance from developed countries to raise their labour standards and to provide viable alternatives for displaced workers. To achieve its desired objective, a social clause would have to be accompanied by a firm commitment from developed countries to provide aid. At the end of the implementation period of, say, two years, a further report would be prepared on the effect given to the earlier recommendations. The second report would either state that the country was now fulfilling its obligations, or that progress was being made and further time was needed to deal with the problem, or that the government had failed to make adequate efforts to implement the advisory body's recommendations. In the latter case, trade sanctions would be applied as a last resort.(61)
To limit the danger of misuse, trade sanctions could be put into effect only for specific products (i.e. for branches of trade which have been proven to have systematically and seriously violated provisions of the social clause). Negative sanctions in the form of increased tariffs on the offending country's exports could be the exception. Positive incentives to improve compliance with the clause could be the rule. These would include funds to provide direct support to efforts undertaken by countries to eliminate certain violations of standards, trade preferences (e.g. reduced tariffs) for developing countries or certain export branches that make an effective attempt to enforce minimum labour standards, etc.(62)
An exclusive emphasis on state liability for poor labour standards may be insufficient to improve conditions of labour because in the vast majority of cases, employers (as opposed to the state) violate labour laws. One of the most practical suggestions advanced by advocates of a social clause is that private companies should be held internationally accountable for poor labour standards. This could be implemented by making observance of the terms of a social clause and local labour laws a precondition to operating in more than one country covered by a trade agreement. Companies could be required to submit information affidavits to confirm their compliance. This approach is utilised with respect to existing laws by the Overseas Private Investment Corporation, an agency of the US government that provides financing and insurance to companies investing in developing countries. Should a company be found to violate the social clause, remedies could range from monetary penalties to loss of market access to revoking the right to transport across national boundaries any products made in violation of the social clause.(63)
Limitations of a social clause
It would be unrealistic to expect a social clause to be the panacea for all evils as far as labour are concerned. Any attempt to improve labour standards by linking them with trade will have the following limitations:
(1) The imposition of a social clause would affect only export-oriented industries, forcing a change in labour standards in a small sector of the economy and creating disparities within the labour force of a country. It has been estimated that only 8% of child labour work in export-oriented industries.(64) A social clause would not be of much help to children working in industries producing mainly for domestic consumption (e.g. silk). This is not an argument against the social clause, but merely a reminder of its limitations. Moreover, if estimates of the magnitude of child labour made by NGOs like SACCS were correct (55 million), then 8% would represent 4.4 million children – a huge number. It is possible that improved working conditions in export oriented industries would have a ripple effect, affecting labour standards in allied industries as well.(65)
(2) The social clause does not address the issue of disappearance of jobs and dispensability of workers and may contribute to the problem.(66) As labour standards in developing countries improve through the operation of a social clause, employers may decide to cut down on labour costs by firing excess labour. Alternative employment will have to be generated for displaced labour. Without such alternatives, a social clause would be disastrous.
(34) Introduction to the Social Clause (visited March 5, 1998)
(36) Pharis J. Harvey, Social Clause Laboratory proves it is worth a try (visited March 5, 1998)
(38) Hugh Williamson & Peter Pennartz, Report of the International Seminar on Trade, Aid and Minimum Labour Standards, in SOCIAL CLAUSE IN MULTILATERAL TRADE AGREEMENTS, supra note 5, at 113. back
(39) Harvey, supra note 36. back
(42) Social Clause in the International Multilateral Trading System: Hearing Before the Committee on External Economic Relations, European Parliament (1994) (statement of Anthony G. Freeman, Deputy Assistant Secretary, International Labour Affairs, US Department of State). back
(43) Interhemispheric Resource Centre, Blood, Sweat and Shears - Corporate Codes of Conduct (visited March 5, 1998)
(44) Aasha Gulrajani, Exporters try to get off the mat, DECCAN HERALD (Bangalore), Feb. 1, 1993, at 9. back
(46) Praful Bidwai, Not by 'Sovereignty' Alone, THE ECONOMIC TIMES (Mumbai), Feb. 13, 1995, at 8. back
(47) RUGMARK CONSUMER CAMPAIGN - ORGANISER'S KIT 4 (The Child Labour Coalition 1995). back
(48) Bidwai, supra note 46, at 8. back
(49) Anuradha Paul, Tied Up in Knots, BUSINESS INDIA, Oct. 12-25, 1992, at 17. back
(50) THE APPAREL INDUSTRY AND CODES OF CONDUCT: A SOLUTION TO THE INTERNATIONAL CHILD LABOUR PROBLEM? 7 (US Department of Labour, Bureau of International Labour Affairs 1996). back
(53) Martin Khor, Northern Trade Protectionism and Workers' Rights - why the rationale is flawed, THIRD WORLD ECONOMICS (Singapore), Apr. 16-30, 1994, at 17. back
(54) Gijsbert Van Liemt, Minimum Labour Standards and International Trade: Would a social clause work?, 128 INT'L. LAB. REV. 32, 36 (1989). back
(55) URUGUAY ROUND OF GATT, SOCIAL CLAUSE AND INDIA 24 (Hind Mazdoor Sabha 1995). back
(56) Lee, supra note 13, at 184. back
(57) SOCIAL CLAUSE IN MULTILATERAL TRADE AGREEMENTS 171-174 (Centre for Education and Communication 1995). back
(58) The exact percentage could be determined by negotiation. back
(59) Child Labor Deterrence Act of 1992, s. 2(a)(9). back
(60) Kailash Satyarthi, Perceptions with Child Labour in Focus: Rugmark as an Alternative, in LABOUR, ENVIRONMENT AND GLOBALISATION, supra note 14, at 86. back
(61) ICFTU on Social Clause - The Social Clause: Rationale and Operating Mechanisms, in SOCIAL CLAUSE IN MULTILATERAL TRADE AGREEMENTS, supra note 5, at 136-138. back
(62) Klaus Piepel, NGO Perspectives: Summarised by Misereor, in SOCIAL CLAUSE IN MULTILATERAL TRADE AGREEMENTS, supra note 5, at 151. back
(63) Terry Collingsworth, In Focus: An Enforceable Social Clause (visited Dec. 1, 1999)
(64) CHILD LABOUR IN INDIA 6 (Campaign Against Child Labour 1992). back
(65) Anuradha M. Chenoy, WTO, The Social Clause and Women Workers, 16 ASIAN WOMEN WORKERS NEWSLETTER 1 (1997). back
(66) Vandana Shiva, Social and Environmental Clauses: A Political Diversion, in LABOUR, ENVIRONMENT AND GLOBALISATION, supra note 14, at 105. back
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Part 1
