Reality Bites The Myth of Labor Rights as a Non-trade Issue Susan Ariel Aaronson Introduction

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Reality Bites

The Myth of Labor Rights as a Non-trade Issue

Susan Ariel Aaronson
Introduction:
In 1999, economist Jagdish Bhagwati and 98 other prominent individuals from the developing world took a forceful position. Bhagwati, the world’s preeminent trade economist, and his co-signatories argued that labor rights should not be linked to the WTO or to any other trade agreement. To these men and women, labor rights were non trade issues and should not be allowed to “contaminate” trade rules.1 UN Secretary General Kofi Annan as well as and trade officials from Thailand and the Philippines seconded this point of view.2

The signatories were responding to longstanding efforts by policymakers, activists, and academics, mainly from the industrialized world, who sought to include labor rights in the purview of the WTO and other trade agreements. But developing countries held fast, and they seemed to forestall any direct linkage of labor rights and trade in the WTO.

Some 7 years on, however, many developing countries participate in trade agreements which include labor rights language –and increasingly labor rights conditions. They do so under trade agreements with the EU and the United States. For example, the EU ACP Partnership Agreement (a preference program) covers some 79 countries and includes labor rights. The US has preferential agreements with some 140 developing countries with labor rights conditionality. Moreover, the EU has bilateral agreements with over 15 countries.3 The US has free trade agreements (FTAs) that include labor standards conditions with 4 countries; pending FTAs with 12 more; and as of July 2006 is negotiating with 5 countries. All of these bilaterals have labor rights conditions.4 Between the United States and the EU, at least 150 countries participate in trade agreements with labor rights conditions.

This article explores how the US and the EU have made labor rights a trade agreement issue. I focus on 3 case studies: the EU, the U.S., and the members of the WTO. The methodology for this article is simple. I begin with an overview of efforts at the international level to link labor rights and trade. I keep this story brief, as many other scholars have delineated this history. Next, I discuss what the EU and the US do to promote labor rights abroad. Both trade powerhouses use access to their huge markets as an inducement to change labor rights practices at the firm and governmental level within their trade partners. I stress that despite their shared objective, EU and US policymakers take very different approaches; these approaches are essentially “branded.” On the other side of the equation, many developing country trade partners are not always enthusiastic recipients of labor rights conditionality. But they have accepted such conditions in order to maintain good trade relations with the two trade behemoths. In addition, developing and middle income countries also bring up questions of labor rights during WTO activities, including accessions, trade policy reviews, and discussions of procurement policies.

In this article, I define labor rights as the ability of individuals “to claim freely and on the basis of equality of opportunity their fair share of the wealth which they have helped to generate.” Governments are obligated to ensure that individuals are not forced or compelled to work; children are not made to work; individuals have freedom of association and the right to collective bargaining; and are not discriminated against in employment and occupation.5

A Very Brief History of Trade and Labor links

As long and men and women have traded, they have wrestled with questions of labor rights. According to economist Peter Temin, the ancients shipped a wide range of goods from wheat to wine.6 But these traders often lived in fear; when they engaged in trade they risked being captured, sold as slaves or enslaved by pirates.7

In the centuries that followed, policymakers around the globe developed a wide range of approaches to govern the behavior of states and citizens at the intersection of trade and labor rights. Often one state would act and challenge (or inspire) others to follow. For example, after England banned the slave trade in 1807, it signed treaties with Portugal, Denmark, and Sweden to supplement its own ban. After the United States banned goods manufactured by convict labor in the Tariff Act of 1890 (section 51), Great Britain, Australia, and Canada adopted similar bans. Ever so gradually, these national laws inspired international cooperation.8

In the twentieth century, policymakers began to recognize the need to root protection for human rights in international law. For example, the signatories of the Versailles Treaty tried to engineer a peace that would both stabilize Europe and protect various minority groups. They also pledged to “endeavor to secure and maintain fair and humane conditions of labour…in all countries in which their commercial and industrial relations extend.” To meet that goal, they created an International Labor Organization (ILO) in 1919.9

During the second world war, the US and British postwar planners were determined to create an international trade regime that would help improve labor standards. With the Atlantic Charter, the Allies pledged to establish a peace with the objective of securing improved labor standards.10 But they were unable to gain approval of an international organization that could govern trade, investment, and employment (the International Trade Organization or ITO.). After Congress failed to vote on the ITO, policymakers began to rely on the part of the ITO-the General Agreement on Tariffs and Trade (GATT) that governed commercial policy (tariffs and quotas).11

Although the GATT included the ITO’s ban on trade in goods made with forced labor, it said beyond that about labor rights. The GATT (and the WTO that superseded it) was more concerned with relationships between states, then relationships within states. Some countries, including the United States and France, repeatedly tried to expand GATT’s purview to include labor rights, but each attempt failed. Many contracting partners of the GATT viewed labor standards as de facto trade barriers and proponents of including such labor standards were unable to convince these countries that including labor standards in the GATT was not a subterfuge for protectionism.12

During the Marrakech ministerial conference of the GATT in 1994, the United States, Norway, and several other countries hoped to include labor standards (and environmental issues) in the final Declaration, but many developing countries balked. The chair of the Trade Negotiating Committee referred to, but did not endorse, proposals for an examination of the relationship of international labor standards and the trading system.13 In 1996, at the Singapore ministerial, some members demanded negotiations on core labor standards, but several developing countries again objected.14 In the Singapore Declaration, the final statement of the members of the WTO at the ministerial, the members of the WTO re-stated their commitment to observe internationally recognized core labor standards. They affirmed that the International Labor Organization (ILO), rather than the WTO, was the competent body to discuss and address these standards and declared that governments must not use labor standards for protectionist purposes.15

But some industrialized countries were determined to try again. Before the Seattle ministerial of the WTO in 1999, the United States, the European Union, and Canada submitted proposals for the consideration of trade and core labor rights issues. These nations argued that public confidence in the WTO would rise if the members agreed to include core labor rights in the WTO’s purview. They suggested various proposals to set up working groups on the relationship between trade and labor standards, but these proposals went nowhere.16

But these efforts got crossed with politics. U.S. president Bill Clinton, the host of the ministerial, called on the members of the WTO to set up a working group on trade and labor rights. Representatives of several developing countries including India and Mexico responded angrily to President Clinton’s proposal. They thought he was pandering to U.S. labor unions, and they refused to create such a working group.17 The delegates at Seattle could not find common ground on labor rights, development, or any of the other issues that brought them to that port city. The delegates left as disappointed and frustrated as many of the activists in the streets who were protesting the ministerial.18

After so many years of trying to add labor rights to the WTO’s purview, trade policymakers in both the European Union and the United States recognized that they needed to develop alternative strategies to use trade to promote labor rights. They began to focus on how they could use access to their home market as an incentive to change the labor rights practices of their trade partners.


How EU Policymakers Link Labor Rights and Trade Agreements

Philosophy and Definition of Core Labor Standards

The European Union claims that its trade policy “is conceived not only as an end in itself, but as a means to promote sustainable development.” 19 EU policymakers argue that sustainable development has two broad components—core labor standards and respect for the environment. They use the ILO definition for core labor rights.20 Thus, labor rights are an essential component of EU external trade strategy. However, EU policymakers believe that human rights are universal and indivisible. They claim to link trade agreements to a wide range of human rights outlined in the Universal Declaration of Human Rights, rather than promoting a particular basket of human rights such as labor rights.



EU Strategies to Link Trade and Human Rights

The EU has 3 main strategies with which it marries labor rights and trade agreements and policies: the human rights clause in its trade, cooperation, partnership, and association agreements; its GSP and preference programs; and through national strategies such as social labels.



Overview of the European Union’s Major Regional and Bilateral Trade Agreements

Trade Agreement

Year Enacted

Other Member

Nations

Special Attributes


Regional Agreements










Agreement on the European Economic Area (EEA)

1994

Norway, Liechtenstein, Iceland

The EEA extends the European Union single market and its legislation to these EFTA countries, with the exception of agriculture and fisheries.

Bilateral Agreements










Europe Agreements

1993

Bulgaria, Romania

The EAs are a prelude to accession to the European Union.

EU-Turkey Association Agreement

1995

Turkey

Liberalizes all trade in industrial goods. Agriculture (except processed agricultural products), services or public procurement excluded, but negotiations are ongoing.

Euro-Mediterranean Association Agreements

1997–2006

Egypt, Israel, Jordan, Morocco, Tunisia, Algeria, Lebanon, Palestinian Authority

Gradual liberalization of trade in industrial goods and agricultural products through reciprocal preferential access. Liberalization of services and investment is also part of the objectives.


Stabilization and Association Agreements

2004, 2005

Former Yugoslav Republic of Macedonia, Croatia

Gradually establish a free-trade area. The European Union supports the conclusion of a network of bilateral free trade agreements (FTAs) among the partner countries in the Balkans in the context of the Stabilization and Association Process.

EU-South Africa Trade, Development, and Cooperation Agreement (TDCA)

Trade-related provisions provisionally applied since 2000

South Africa

Gradually establish a free trade area over a period of twelve years.

EU-Chile Association Agreement

Trade-related provisions provisionally applied since 2003

Chile

Gradually establishes a free trade area covering trade in goods, services and government procurement, liberalization of investment and capital flows, the protection of intellectual property rights, cooperation for competition, and an efficient and binding dispute settlement mechanism.

EU-Mexico Global Agreement

2000

Mexico

Aims to gradually establish a free trade area covering goods, services, government procurement, competition, intellectual property rights (IPR), investment and related payments.

Non-Reciprocal Preferential Agreements





ACP-EU Partnership Agreement (Cotonou Agreement)

2000

Seventy-nine African, Caribbean and Pacific (ACP) countries

Unilateral preferences will be replaced by reciprocal Economic Partnership Agreements (EPAs) beginning in 2008.

Source: DG Trade, http://europa.eu.int/comm/trade/issues/bilateral/index_en.htm

The Human Rights Clause

Since 1995, the European Union has included a human rights clause in all its trade, cooperation, partnership, and association agreements, except the WTO agreements.21 The clause defines respect for fundamental human rights, including core labor rights as an “essential element” of the agreement.22

EU policymakers want their counterparts to recognize that if they promote human rights and develop the habits of good governance, they will gradually attract long-term investment, stimulate trade, and achieve sustainable development.23 But EU policymakers have not left sanctions out of their human rights equations. They can withdraw development funds or take “appropriate measures” such as suspending the agreement in full or in part if an offending partner country (mostly following a consultation procedure) fails to bring satisfactory change in its human rights records.24 Such “appropriate measures” may include trade or arms embargoes.25

As of July 2006, the EU has invoked the human rights clause in twelve cases, but it has never done so for labor rights.26 Except for Uzbekistan, all these cases concerned countries bound to the European Union by the Cotonou Agreement. 27 These countries were former colonies, where the European Union had strong political and economic relationships and influence. In six out of the twelve cases, the European Union decided to impose “appropriate measures” (arms embargoes, as well as restrictions on admission—visa or travel bans—and the freezing of funds) only after years of talks broke down.28 In fact, the European Parliament found that the European Union has never invoked the human rights clause in response to violations of economic, social, or cultural rights. 29

Clearly, EU policymakers are not eager to cut off trade in the interest of promoting human rights in general or labor rights in particular. 30 However, scholar and current EU official Hadewych Hazelzet says that the European Union’s failure to use negative sanctions to protect human rights such as labor rights stems not from a lack of will but rather from the collective decision-making process at the EU level.31 The twenty-five EU member states in the General Affairs and External Relations Council have to decide unanimously on a common position in imposing such sanctions in accordance with the framework of the European Union’s Common Foreign and Security Policy. Thus, one member state can derail the use of sanctions.32 These decisions then have to be implemented by either a regulation proposed by the European Commission (in the case of trade sanctions) or national legislative measures (in the case of arms embargoes).33 Thus, each EU member state has several opportunities to block or complicate EU decisions on sanctions that would harm that member state’s bilateral relations with the targeted country.

But human rights activists and the EU Parliament believe that EU technocrats make these decisions in a secretive manner, which allows commercial interests to trump human rights concerns. 34 In a February 2005 report, the EU Parliament’s Committee on Foreign Affairs noted, “the way the clause has been used, or not used, over the years…leaves room to ask if criteria for initiating a consultation procedure, or applying restrictive measures, are objective, or rather dependent on political and commercial interests.”35 In 2006 the Parliament called on the EC to “identify a list of "Countries of Particular Concern" with respect to human rights violations and prodded the EU to weigh imposing aid or trade sanctions if human rights breaches. Finally, the Parliament stressed that “EU officials need this kind of specific policy directive if they are to promote human rights clearly and consistently.” But the Parliament did not appear particularly determined to single out labor rights36



Preferential Arrangements

The EU has adopted a more straightforward approach to improving labor rights with its trade preference programs. 37 Under WTO rules, members can provide differential and more favorable treatment for developing countries. The European Community was the first to implement such a system in 1971. The EU has tailored its approaches to GSP to meet the needs of particular developing countries. The European Union's GSP grants certain products imported from beneficiary countries either duty-free access or a tariff reduction, depending on which of the GSP arrangements a country enjoys.38 The forty nine-least developed countries have duty-free access to EU markets without any quantitative restrictions, except for arms and munitions.39 A second program, the GSP-Plus arrangement, grants additional market access to “dependent and vulnerable” countries that have ratified and effectively implemented key international conventions on human and labor rights, environmental protection, and good governance.40 This is an incentive based approach. In December 2005, the European Commission granted GSP-Plus benefits to Bolivia, Columbia, Ecuador, Peru, Venezuela, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Moldova, Georgia, Mongolia, and Sri Lanka for the period from 2006 to 2008.41

The EU GSP uses both carrots and sticks to prod human rights improvements. European Union policymakers can withdraw trade preferences if the beneficiary country seriously and systematically violates core UN and ILO conventions on human and labor rights or exports goods made by prison labor.42

Ironically, EU policymakers can more easily impose sanctions under GSP than under the human rights clause because they confront fewer bureaucratic hurdles.43 But the EU has only done so once—in the case of Burma, because of its use of forced labor. NGOs and parliamentarians have pressured DG Trade to withdraw GSP from Belarus—a country where labor rights and freedom of association are repeatedly denied.44 In December 2003, the European Commission began to investigate these allegations as a first step toward a possible withdrawal of the trade preferences that the “last dictatorship in Europe” enjoys under its GSP scheme.45 As of September 2006, the EC had not yet announced a decision.

The EU’s approach to GSP has been challenged at the WTO. In a previous GSP arrangement, the European Union included additional preferences for countries that were engaged in efforts to combat drug production and trafficking. However, according to trade scholar Lorand Bartels, “there was no mechanism for a beneficiary country to apply for these special preferences. The European Commission decided on the beneficiaries based on its own criteria.”46 In late 2001, trade policymakers added Pakistan to the list of countries that received additional tariff preferences under the arrangement aimed at combating drug production and trafficking. The European Union publicly admitted it wanted to reward Pakistan for its new position on the Taliban regime in Afghanistan and for its return to democratic rule.47

On December 9, 2002, India requested that the WTO establish a panel to determine whether or not this approach distorted trade. India claimed that the conditions under which the European Union granted tariff preferences under this special incentive arrangement were discriminatory and violated the requirements set out in the Enabling Clause. India argued that it violated the European Union’s binding obligation to grant GSP preferences in a “generalized, non-reciprocal and non-discriminatory” way. The panel found in favor of India.48 (It is important to note that India initially also challenged the EU labor rights requirements but dropped that aspect of the challenge. This will be discussed later in this article.)

In January 2004, the European Union appealed the panel report’s conclusions in the Appellate Body, and, in April, the Appellate Body issued its decision.49 Although the Appellate Body upheld most of the panel’s findings, it found that, in granting differential tariff treatment, preference-granting countries are required, by virtue of the term “nondiscriminatory,” to ensure that identical treatment is available to all GSP beneficiaries that have the same “development, financial and trade needs.”50 A noted legal scholar, Lorand Bartels has interpreted the panel’s decision to mean that WTO members’ GSP arrangements can differentiate among developing countries as long as the arrangements grant the same preferences to all developing countries that face the development, financial, and trade needs the arrangements try to address.51 On July 20, 2005, the European Commission announced that it had repealed its special arrangements to combat drug production and trafficking and was now in compliance with WTO rules.52

This decision, however, has raised questions about how nations can use their GSP programs to promote labor rights as well as other objectives. For example, law professor Robert Howse fears that, in the future, policymakers will only be able to grant or withdraw GSP treatment by justifying such actions under the exception provisions in the WTO agreements (such as Articles XX and XXI)53 Professor Bartels, however, believes that the report allows for differentiation between developing countries on three conditions: when there are legitimate development needs, when the preferences represent an appropriate and positive response to these needs, and when the preferences are available to all those countries with those needs.54 Nonetheless, he worries that countries will find it difficult to withdraw trade preferences in conditions where beneficiaries violate human rights such as labor rights: “It is very difficult to argue that a withdrawal of trade preferences is a positive response to such [development] needs.”55 Thus, like Howse, he thinks it will be harder for industrialized countries to use trade policy to promote labor rights—which some see as a non-trade policy objectives.



Innovative policies at the national level

Specific member states have also developed some innovative approaches at the intersection of trade and human rights. For example, in January 2002, the Belgian Parliament approved a law aiming to promote socially accountable production by introducing a voluntary social label on workers’ rights. According to the Belgian government, the law “offers companies the possibility to acquire a label, which is granted to products whose chain of production respects the eight fundamental ILO conventions.” The Ministry of Economic Affairs grants the label for a maximum of three years after a committee comprised of stakeholders (government officials, social partners, business federations, consumers, and NGO representatives) reviews a company’s proposals. This committee establishes a program of control for the company and monitors its compliance. Certification is carried out by the inspection bodies accredited by the Minister of Economic Affairs. This social label was not linked to a specific trade agreement but was vetted both by the Belgian government and the European Commission to ensure that it was compatible with WTO rules. The label is not just for Belgian or EU firms. A U.S. NGO, Social Accountability International, has been accredited under the Belgian social labeling law. Thus, it does not seem to violate WTO national treatment rules—it treats foreign and domestic market actors similarly. Nonetheless, both the Belgian government and the European Commission sought to ensure that it was compatible with WTO rules.56

The Dutch government has also developed an innovative approach. It requires companies that want taxpayer-funded export subsidies to declare in writing that they are familiar with the OECD Guidelines (a voluntary code of conduct that includes sections on human rights and labor rights). These companies must declare that they will make an effort to apply the Guidelines in their corporate practices, but they are not monitored. Austria is considering a similar link.57 Finally, some European governments use procurement policies to promote labor rights (this will be further discussed in the WTO section.)


Capacity Building and Labor Rights Assessment

EU policymakers recognize they can’t help their trade partners promote human rights without helping them create both a demand for labor rights and a supply of good governance (laws, regulations and effective enforcement). Thus the European Union also funds specific labor rights capacity-building projects aimed at building the expertise of government officials to enforce labor laws. For example, it funds a project called the Joint Initiative on Corporate Accountability and Workers Rights to attempt to improve workplace conditions in global supply chains.58 It also works closely with the ILO on similar capacity building projects.59

But while EU policymakers play great attention to labor rights abroad, they do not examine the broad impact of its trade policies on labor rights (as opposed to employment) at home. The EU does hire independent consultants to carry out sustainable impact assessments. These consultants weigh the impact of trade agreements on biodiversity, income, poverty, equity etc in the EU, its trade partners, and sometimes even assess the trade impact on third countries. EU policymakers could add a labor rights impact assessment to this assessment, to make it more comprehensive.60



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