5:16 AM Sep 12, 1994


Penang 7 Sep (TWN) -- Participants at an Asian regional seminar on post-Uruguay Round issues here appeared unanimous in opposition to the attempt to link trade and labour issues and saw it as a device to erode the competitiveness of developing country exports.

The meeting was co-sponsored by UNCTAD, the Malaysian Institute of Diplomacy and Foreign Relations and the Malaysian Institute for Economic Research.

Whilst the first two days of the meeting discussed trade and environment and competition policy, the final day focused on the issue of trade and labour standards.

In a paper commissioned by UNCTAD and presented at the seminar, Dr Sieh Lee Mei Ling, an economics professor at the University of Malaya, said the introduction of investment measures (through TRIMS) and intellectual property (through TRIPS) in the Uruguay Round had already caused concern among developing countries.

"Now the introduction of labour rights in the post-Uruguay Round agenda is certainly seen by developing countries as protectionist."

Developing countries were still doubtful about the possible gains from the Uruguay Round, and these doubts would increase with the Northern attempts to introduce new issues like labour rights, she said, adding: "The United States could also continue to use unilateral measures even after the WTO is set up. What else can they try next?"

Dr Sieh said the US and Europeans wanted to "get the foot of the social clause in the door" in order to raise the labour costs of Southern country products, and as a response to union pressure in the North to save jobs.

At this juncture, she said, "they were interested to nudge into the trade framework agreements for some elements of labour standards, however rudimentary, as reference points for the future work of WTO. But it is really to get a foot in the door rather than to insist on any elaborate labour conditions."

She added: "Clearly, developed countries are trying very hard to lay the groundwork to recoup their comparative advantage through raising labour costs in countries from which they now import...Their effort to protect domestic production against foreign competition cannot but mean trade protectionism."

Dr Sieh said the strongest argument against a social clause is that it is economically unjustifiable. Developing countries' objections can be justified on the grounds that labour-linked trade poses serious and dangerous threats to their economic and social well being.

Firstly, linking labour conditions to trade distorts free trade flows, as good produced by workers not engaged according to internationally recognised labour standards will face restrictions.

Secondly, as the issue is actively pursued by a few developed countries, it is very likely that the standards eventually set may not be relevant for developing countries. For instance, it is not necessarily true that lower wages mean lower living standards.

Thirdly, successful export-oriented industrialising developing countries have enjoyed comparative advantage by keeping production costs down. Most of them have aspirations to improve labour welfare and working conditions but not through linking labour to trade. Their main strategy has been to reach high growth rates first, and reduce commodity export dependence by expanding manufactured exports.

"The premature setting of costly labour standards as trade conditions before corresponding increase in productivity to pay for those standards will amount to destroying the means or ability of developing countries to sustain economic conditions where higher levels of labour costs can be effectively carried."

The danger of the trade-labour link is that it could eliminate the capability of developing countries to attain sustainable economic growth altogether.

Dr Sieh outlined various mechanisms by which developing country economies could be hit by a labour-trade link:

* Higher labour standards will escalate production costs and render developing country exports uncompetitive. Imports may meanwhile expand as their prices will become cheaper than domestic output as foreign labour becomes relatively inexpensive. The balance of payments will be adversely affected.

* Higher labour costs will jeopardise the flow of foreign investment as (the presently) relatively inexpensive labour will cease to be an attraction.

* The competitiveness of goods based on low-tech and labour-intensive production strategies will be eroded, causing incomes to drop. Ironically, "a poorly conceived social clause will mean a decline in income necessary for implementing better labour standards and improving wages."

* There will be a rise in unemployment as exports and investments are hit. This may be worsened if domestically produced goods become more expensive compared to imports if wages are pushed higher; more jobs are lost. Industries may also prefer to be more capital intensive as labour costs rise; this may worsen unemployment.

Dr Sieh concluded that GATT or WTO is not a proper or suitable forum for discussing labour standards, for which the ILO is more suitable. "A social clause would certainly be trade restrictive. It will not only distort trade flows but has the potential of destroying even economies through protectionism."

Dr Sieh also warned that attempts to incorporate labour standards in the WTO "may mean the end of the world trading system. If developing countries became convinced of the protectionist motives of developed countries, the international trading system will not only be threatened by the emergence of new trading blocks but may be destroyed."

In his presentation, Victor Ognivtsev, trade research officer at UNCTAD, said that the implications of the labour standards issue should be considered within the context of the WTO organisational setup and what appears to be an open-ended mandate to approach or consider all emerging issues.

Moreover, all issues in the WTO are linked together through its integrated dispute settlement mechanism under which cross- retaliation is permissable. Eventually, all agreements are linked together and open to the possibility of trade sanctions. Any new issue would face this eventuality.

From the perspective of developing countries, this should be avoided by all means; as weaker trading partners they can hardly be in a position to employ trade sanctions, compared to industrialised countries.

Ognivtsev added there was no consensus on the trade-labour link in the North.

For instance, there are divisions in the US Congress on this issue; a group of Republican Senators and Congressmen recently appealed to President Clinton to reject linking this issue to the extension of fast-track authority. Within the European Union, there is no common position, with the UK rejecting such a linkage.

There is strong case to be made that there is no valid economic justification for the trade-labour link, Ognivtsev said. To make such a link would be to take an anti-competitive and anti-market approach.

From a tactical point, developing countries should not object to labour standards per se as elaborated in the ILO. These standards recognise levels of economic development. Revisions in international labour standards in the ILO make the point that the level of development should be recognised when applying those standards. Developing countries should support such standards, taking into account the different levels of development and legitimate adaptations.

What they should object to is the trade-labour standards linkage which is not justified.

Martin Khor of the Third World Network said Northern apprehension about low labour costs in the South may be misplaced. The main reason for "jobless growth" and unemployment in the North was the displacement of jobs by labour-saving technology. Two million US jobs will be lost annually due to technological change and 25 million out of the present private sector jobs there could be eliminated, according to recent studies. It was thus wrong to blame job loss on the shift of industries to the lower-cost South.

He added that any advocacy for the social clause should have to satisfy two tests or conditions: firstly, that it would not result in net job loss to developing countries; secondly, that even if only a few basic standards were to be first introduced into the WTO, it can be guaranteed that other conditions (including wage levels) would not later be introduced.

There would, he said, be a strong case for linking labour standards to trade if it can be proved that there would be no trade off between higher labour standards and jobs. In reality, it is likely that an internationally-imposed regime of labour standards would result in loss of competitiveness, jobs and income in developing countries.

Khor said some proponents of the social clause had argued that developing countries need not worry since only a few basic standards (the right to association and collective bargaining, a ban on child labour and forced labour) would be applied.

However, the experience of the Uruguay Round had showed that even if promises can be made to restrict negotiations within a limited scope, eventually the negotiations can be widened to encompass more and more areas. Even if a few standards were to be agreed upon now, more standards (which are less justifiable) could well be introduced later by Northern countries that dominate the decision-making process in GATT and in the future WTO.

Khor added that it was true labour standards needed to be raised in the South, and for that matter in Northern countries as well, in order to address legitimate grievances of workers. However, linking labour standards to trade sanctions is not justified and could well lead to a lowering of workers' welfare instead of improving it.

UNCTAD Senior Adviser Jagdish Saigal said the notion of linking labour standards to trade was "misconceived" and was dangerous not only for developing countries but for the global economy as a whole. The idea that the loss of jobs in the North was due to the South is also misconceived. Northern unemployment, said Saigal, was due to inappropriate macroeconomic policies.

As far as trade is concerned, developing countries do not have an export surplus. On a net basis they cannot be the cause of job loss in the North.

A representative from the Malaysian Foreign Ministry said the issue of human rights and workers' rights had been politicised by the Western countries more vigorously since the end of the Cold War, and was being used as conditionality on development assistance. As far as rights is concerned, he said, the UN declaration on the right to development was most crucial. The right to development is also an inalienable human right, and it was meaningless to talk of civil rights alone if the core issue of the right to provide food, shelter and health were not addressed. Civil rights should be considered in an integrated manner with the right to development.

Several other participants, including senior trade policy officials from Bangladesh, China, Malaysia, India and Pakistan, made statements reflecting concern at the weak bargaining position of developing countries in trade negotiations, and in the unbalanced nature of the trade agenda. Within this general context, they also expressed opposition to the attempts to link trade with labour standards.