The Fruits of Labor: The Need for International Labor Standards

"The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no single council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it" (Smith, 1776: 456)

Introduction

There is no question that the combination of the free market and rapidly advancing technologies has integrated the world economy to a level unsurpassed in history. In the quote that begins this chapter, Adam Smith asserts that government intervention in this free market is not only disruptive but also dangerous. However, it is essential that market forces be directed in a manner that is beneficial to working people as well as the owners of large capital interests. Countries that habitually ignore labor rights should not be permitted to enjoy unfair trading advantages at the expense of their workers.

Although Smith feels that governmental or supragovernmental intervention is harmful, it is essential that the rapid growth of free markets be tempered with compassion for those who are fueling this expansion. While there are a great multitude of organizations and laws that protect the interests of corporations, there is very little to protect the world’s working people. Smith, being an economist, is content to merely look at the macroeconomic picture without examining the human side of the situation. It is my thesis that the United States should make functioning and enforceable labor standards an integral part of all future unilateral, bilateral, and multilateral trade negotiations. In addition, encouragement and support should be given to international institutions such as the World Trade Organization and the International Labor Organization in their efforts to institutionalize such practices.

A Brief History of Labor Standards

In order to provide a clearer understanding of the need for labor standards in the international trade regime it is prudent to examine the historical background of the issue. The first legal link made between trade and labor standards in the United States manifested itself in the form of legislation designed to reduce the threat of foreign goods being dumped into U.S. markets. The first laws were implemented to this end in 1890, when the McKinley Tariff Act banned the import of goods made with prison labor (International Labor Rights Fund). However, concern for labor rights was merely a convenient byproduct of this legislation. In 1930 Congress took another step by passing into law the U.S. Tariff Act of 1930, which banned the import of goods made with forced or indentured labor.

The postwar era brought about a more multinational approach to dealing with trade issues, most notably in the establishment of the General Agreement on Tariffs and Trade (GATT) in 1948. Although there were high hopes that international labor standards could be established, the GATT made only vague references to the issue, and no concrete and enforceable standards were established. Thus, there was no provision for member states to take action against other members who permitted child labor, denied workers the right to organize, or condoned other such unjust practices. Again concerned with foreign competition, Congress instructed the president to include "the adoption of international fair labor standards and confrontation procedures in the GATT under Section 121 [a] [4] of the Trade Act of 1974. (AFL-CIO). However, these efforts have thus far been unsuccessful due to a lack of consistent efforts by U.S. lawmakers and opposition by other member states.

Defining Labor Standards

In order to bring them to the forefront of international forums on trade issues it is essential to define basic labor standards. The International Labor Organization has outlined these necessities broadly in the preamble of its constitution:

the regulation of the hours of work including the establishment of a maximum working day and week, the regulation of the labour supply, the prevention of unemployment, the provision of an adequate living wage, the protection of the worker against sickness, disease and injury arising out of his employment the protection of children, young persons and women, provision for old age and injury, protection of the interests of workers when employed in countries other than their own, recognition of the principle of equal remuneration for work of equal value, recognition of the principle of freedom of association, the organization of vocational and technical education and other measures (Preamble of the ILO Constitution).

These are only a few examples of the basic needs of laborers around the world. Although we take these standards for granted in the United States, many countries do not extend these privileges to their workers. The need for labor standards is not simply a matter of improving working conditions. Such regulations are an essential requirement for guaranteeing the basic human rights of billions of people. However, many governments choose to ignore these rights because they are in conflict with the interests of corporations and other large capital interests. In many cases, a country’s economic viability is dependent upon these exploitative practices. Therefore, the implementation of international labor standards must be carried out in a manner that optimizes the rights of workers while taking care not to undermine developing economies. The controversy surrounding the necessity and establishment of labor standards is examined in the next section.

The Controversy Surrounding Labor Standards

Competitive Advantage: The Greater of Two Evils

The arguments against labor standards are almost purely economic ones. Adam Smith voices one of critics’ main concerns: "In manufactures, a very small advantage will enable foreigners to undersell our own workmen, even in the home market" (Smith, 1776: 459). Developing countries have at their disposal a large quantity of workers willing to work for alarmingly low wages and under brutal working conditions simply because there is no other employment to be had. As a result, certain goods can be produced at an extremely low cost, which enables these countries to undersell the same goods produced by more highly paid labor in developed countries. The competitive advantage in the production of these goods that developing nations enjoy is often essential to their viability in the world market. The imposition of labor standards by the international community could diminish or eliminate this advantage altogether, sending developing economies into turmoil (VanGrasstek, 1999: 490).

However, the above argument is an egregious oversimplification of the labor market in developing countries. Since the supply of unskilled, low-paying jobs is so proportionally small to the demand, many workers have been forced into the informal sector of the economy. According to Joseph R. Ramos, those employed in the informal sector perform a lesser quality labor because they are underemployed (Ramos, 1970: 98). As a result, underdeveloped countries are not realizing the full potential of the labor capital that they have. The current international regime encourages this behavior by failing to stimulate the incorporation of workers in the informal sector into the mainstream economy.

The establishment of labor standards, combined with financial and technical assistance from multinational organizations and developed countries would provide this stimulation in two ways. First of all, the right to organize and bargain collectively would allow workers to obtain more job security, reducing the numbers of workers forced into marginal employment. Second, the establishment of a higher minimum wage would make mainstream employment a more lucrative option for the average worker, reducing the incentive to enter the informal sector. The greatest difficulty posed by the marginally employed is that they remain out of reach of most economic policies (PREALC, 1978: 23). Although labor standards might not immediately reduce the number of those employed in this manner, they would improve the quality of legitimate employment and therefore the quality of the labor force as a whole. Since the presence of the informal sector is a constant in any developing country, it is more advantageous to prevent its growth and at the same time increase the conditions of legitimate employment than to simply maintain the status quo.

Labor as a Commodity

In his chapter on labor rights, Craig VanGrasstek points out another argument against labor standards: "Economists argue that low wages, poor working conditions, and exploitative labor practices are inferior goods that countries will consume in decreasing quantities as they grow more efficient and prosperous" (Van Grasstek, 1999: 493). While this statement is true, it is only half of a classic chicken-and-egg dilemma. While countries certainly will have a decreasing need to resort to unfair labor conditions as they develop, the betterment of working standards and conditions is a key part of a nation’s development in the first place. Allowing substandard labor rights to perpetuate will only institutionalize them, making the problem more difficult to solve as time goes on. It is impossible to further an economy’s development by simply allowing the same flawed policies to remain in place. Since many governments have demonstrated themselves incapable of substantially improving economic conditions it is crucial that multinational organizations such as the WTO and the ILO provide all of the assistance and structure possible to further this end. The structure and guidance that these institutions can provide toward the implementation of clearly defined and enforceable labor standards is an essential step toward the growth of developing economies.

Enlightened Self Interest and Protectionism

There are many who feel that efforts by national governments to establish international labor standards are merely veiled attempts at protectionism. With only a few exceptions, Adam Smith was strictly against protectionism because he felt that such action was an inefficient allocation of capital: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage" (Smith 457: 1776). Smith would feel that for the United States to favor the products of a domestic industry over cheaper foreign goods would lessen its overall quantity of capital and present barriers to trade. This logic is entirely correct, and in its worst manifestation such policies could lead to market failure.

However, Smith is operating under the flawed assumption that all protectionism is bad. The imposition of labor standards by one party on another during trade negotiations is a double-edged sword. The primary goal is of course to offer some degree of protection to domestic industry so it is not entirely destroyed by cheap foreign imports. The corollary to this, of course, is that a country requires the betterment of its trading partners’ labor standards as a prerequisite to trade. Therefore, applied sparingly, protection can be a good thing. If all markets were allowed to operate completely free from regulations the resulting chaos in the international economy would be far greater than any complications that may arise from a small amount of protectionism. The likelihood of total market failure in some good or another is only a worst-case scenario, and still a better outcome than the further destruction of developing economies by the free market.

In a utopia labor standards would be linked to trade solely out of basic concern for human rights, but in practice governments only act in their enlightened self-interest. However jaded this outlook may seem, it need not concern those who are motivated by the human rights side of the labor rights issue. The fact that governments have a strong economic incentive to promote labor standards in negotiations with its trading partners only ensures the perpetuity of the issue on the agenda. Also, as labor rights are increasingly made a prerequisite to trade with developed countries, developing countries will be forced to improve their labor conditions in order to stay competitive. In the international regime economic motivations are among the strongest to pursue any given goal, and labor standards is no exception.

The Role of Multinational Organizations

The International Labor Organization

While allowing governments to operate in their enlightened self-interest is a first step toward promoting more equitable labor practices around the globe, there remains a strong need for international organizations to set standards that all countries adhere to. The organization most directly involved in providing a forum for labor issues and the establishment of standards is the International Labor Organization (ILO). Founded in 1919 as part of the failed League of Nations, the ILO became the first specialized agency of the United Nations in 1946 (ILO Mandate). The ILO ensures that member governments adhere to the core conventions of the organization that deal with basic human rights of workers. These conventions include: the abolition of forced labor, equality of opportunity and treatment of workers, freedom of association and collective bargaining, and the protection of indigenous and tribal peoples (ILO, 1992: 151). In addition to these basic principles, countries are free to ratify any number of additional conventions that the Organization provides, but are not required for membership.

In the organizational structure of the ILO, workers, employers, and governments are equal participants in order to ensure that all parties involved be given an equal voice. Since a great number of countries belong to organization, the membership is divided into regions. Each region has a regional advisor that visits a particular country regularly to inspect the general labor situation and report back to the Organization. The advisors also meet with government delegates at various sessions of the International Labor Conference to discuss the regular reports of each country or the pending ratification of additional conventions. (ILO, 1992: 156).

Although at present the ILO provides the most concrete set of labor standards available in the international community, it lacks the power to enforce the regulations set forth by its conventions. A country that violates the standards it has pledged to follow as a condition of its membership can be put up to review, but there are ultimately no penalties for noncompliance. As VanGrasstek puts it: "the principal tool available to the ILO is peer pressure." (VanGrasstek 1999: 498). In addition, the ILO has thus far been unable to set uniform standards of compliance for all members. Aside from the core principles, countries are given the liberty to select at will any number of conventions by which they will abide. The result is a sort of race to the bottom among member states, who ratify only those conventions that allow them to save face in the international community but do not interfere with any preexisting agendas.

The World Trade Organization

The World Trade Organization was founded in 1995 as a successor to the GATT. Like the GATT before it, the WTO operates on a series of agreements that are negotiated between member states that are essentially "legal ground-rules for international commerce" (The WTO in Brief). Also, like the GATT, the WTO deals very generally with the links between labor and international trade, focusing primarily on goods, services, intellectual property rights, dispute settlements, and the review of member states’ trade policies (The WTO Agreements). Therefore, this organization has historically had less of an impact on labor standards than the ILO.

The advantage that the WTO has is that violations of its standards by member states are enforceable. Countries have the ability to bring others under review, and the organization even has the authority to authorize sanctions (VanGrasstek, 1999: 498). However, due to the sporadic treatment given labor rights in relation to trade relations, there is very little that the WTO can do to define and enforce labor standards aside from allowing states to take action against others for alleged cases of dumping. In order to establish an international framework for truly enforceable labor standards it is imperative that the WTO make them a condition of continued membership by states who already belong to the organization. These standards must also be an essential requirement of all states seeking accession. Collaboration between the WTO and the ILO would be an excellent first step toward firmly linking trade negotiations and labor standards.

The United States has begun to lead the way in promoting labor standards by making them an essential component of its bilateral trade negotiations. Under the provisions of the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP), the United States can revoke or threaten to revoke the duty free privileges of countries that are not "taking steps to afford internationally recognized worker rights…to workers in the country" (Recently Enacted Workers-Rights Laws). This is a more proactive approach to promoting labor rights than invoking sanctions under Section 301 of the Trade Act of 1974, since sanctions are economically destructive to both parties.

The United States has also made efforts to promote adherence to labor standards within the region. The North American Agreement on Labor Cooperation has been included in the NAFTA as a side agreement that allows member states to investigate allegations of unfair labor practices by others. Although sanctions are a possible end result, the more likely penalty would be the imposition of fines upon the violating state (VanGrasstek, 1999: 500). This is again a proactive solution as it provides for enforcement of labor standards without the damaging effects of sanctions, which would severely undermine the stability of the NAFTA.

The United States can also act unilaterally to promote the establishment of internationally recognized labor standards among its trading partners. As mentioned earlier, sanctions could be invoked under Section 301. However, such action could be cause for discipline under the WTO and would also be economically damaging for both countries. Another option is to provide economic and technical assistance to those countries that have demonstrated concern for workers’ rights, either directly or through the World Bank or the International Monetary Fund (Recently Enacted Workers-Rights Laws). The provision of aid is beneficial in that it promotes compliance with labor standards while simultaneously assisting the economic development of industrializing countries.

The Seattle Round

Hopes for progress in the establishment of enforceable international labor standards are high in the upcoming WTO Ministerial Conference in Seattle. As mentioned earlier, the WTO, like the GATT before it, has been notorious for overlooking labor rights throughout its history. However, in accordance with the implementing legislation of the WTO in 1994 the United States government will seek to establish a working party within the WTO to examine the linkage between labor and trade issues. The working party proposal is receiving much support from unions and other labor rights groups, who have been calling for such action in the past. The AFL-CIO is submitting a petition that recommends several courses of action for the working party with regards to the establishment of international labor standards in the WTO framework, including specific mechanisms of enforcement, regular review of compliance to standards by member states, collaboration of the ILO, and the incorporation of labor standards in the accession criteria for new members. (Petition). Hopefully the Seattle Round talks will usher in a new era of cooperation between workers, businesses, and governments toward promoting the rights of the world’s workers.

Conclusion

In Adam Smith’s time the full ramifications of international trade were not yet understood. Smith believed that "upon equal or nearly equal profits, every wholesale merchant naturally prefers the home trade to the foreign trade of consumption" (Smith 1776: 454). It is understandable that in the late 18^th century the risks of transporting goods great distances made the potential for loss of profit great enough to deter many merchants from entering foreign markets. However, with the advent of technology and increased means of communication between nations, markets on the other side of the globe can be much more profitable than markets in the same town.

With this in mind, it is imperative that the new international economic order be ushered in with temperance. Free markets must not be allowed to operate unbridled or they will do so at the expense of the billions of men and women who drive the very international economy that they are being exploited by. Even if they contain a degree of protectionism, enforceable labor standards must be implemented so that the workers of the world are not crushed under the forces of increasing global economic integration. It is the responsibility of the world’s developed nations and multinational organizations such as the WTO and the ILO to examine, create, and implement these standards. Hopefully the Seattle Round of talks will finally provide laborers with the protection they deserve under the WTO. If these efforts fail, the marginalization and exploitation of workers will continue until the gap between rich and poor grows so great that the international economy is incapable of benefiting anyone but a wealthy few. The implementation of labor standards will derail this scenario and make the world a better place to live, work, and trade for all.

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