International Labour Standards

Module -International Perspectives on Industrial Relations

QUESTION: Some commentators have argued thatthe adoption of labour standards would threaten the trade prospects of developing countries. Critically evaluate this claim and discuss the policyimplications.

In this essay, it is explained that ILO after its foundation following World War One aimed at protecting the fundamental rights at work, creating and securing decent work opportunities for men and women, providing social protection to all the parties concerned and encourage social dialogue. To achieve its aim, ILO works very hard to achieve core labour standards through its member states by giving funds and encouraging them to implement core labour standards and by punishing and discouraging the member states who violate core labour standards. It also, through its campaigns tries to link World Trade Organization with the core labour standards to put extra pressure on the states which are not complying with the set standards. ILO also encourages the member states that they should ratify the convention as after their ratification it becomes the law of the government. ILO has been very active in creating many conventions and they have been trying very hard to encourage countries to have declaration which constitute better policy implications to promote core labour standards in developed and developing countries. It is also explained that how growth of trade is affecting core labour standards and its effect on the particular economy and job sector by giving empirical analysis of developed countries and developing countries. In the case of developed nations Japan and United States were thought of. While doing bilateral trade agreement each country should respect their domestic labour standards and each country while having trade with each other should have high labour standards. In the end, it is explained that developing countries should pay special attention to implement core labour standards and at the same time should take great care while implementing them according to their current domestic or local situation.

International Labour Standards and Trade Prospects

International labour organization was founded in 1919 after the First World War. Its main aim is to promote working rights, social protection, decent employment opportunities and to deal with work related issues via negotiations and dialogues. In the year 1946, the International Labour Organization became the first specialized agency of the UN. Today, it has 178 members in six continents. It is the only tripartite agency which brings together government, workers and employers to formulate and shape up the policy and programmes. There are four main objectives which ILO is determined to achieve and these are as follows:

§ To encourage standards and fundamental principles and rights at work

§ To provide vast opportunities for men and women to earn living by securing decent employment

§ To provide social protection for all parties concerned

§ Strengthen tripartism and social dialogue

Source: http://www.ilo.org/global/About_the_ILO/lang–en/index.htm

The ILO is the global body responsible for drawing up and overseeing international labour standards. In today’s globalized economy, international labour standards are very important tool in ensuring the growth of the global economy which provides benefits to all.

“The rules of the global economy should be aimed at improving the rights, livelihoods, security, and opportunities of people, families and communities around the world.” (World Commission on the Social Dimension of Globalization, 2004)

International labour standards are made with a view to promote opportunities for women and men to obtain decent and productive work in an atmosphere of freedom, equity, security and dignity. The development of the labour standards occurred without international coordination before the First World War and these agreements only concerned with the migrant people from different countries, although they were actually made after the formation of International Labour Organization in 1919. ILO is working very hard to implement core labour standards throughout the world. Core labour standards are those standards which are so basic and universal and can be implemented in all member states irrespective of the economic development of member states. These core labour standards are those which are also described as ILO’s four main objectives as mentioned earlier. To achieve these standards ILO held so many conventions since 2006. ILO conveyed 186 conventions and discussed various issues like women working after dark and holiday pay etc. Member states are not required to ratify all conventions but ILO emphasizes member states for ratification of the conventions. Because after the ratification, it becomes a law even for the government who approved of it and that’s why they are reluctant to ratify the law although they agree in principle with the law. In order to achieve core labour standards ILO stresses on its publications and condemns those who violate these standards. It puts pressure on the countries which ratify the conventions but are not complying with the law. It has no official authority to punish the state which violates these core labour standards but a tripartite representative can make a complaint and ILO can only do investigation and report its findings. The failure on part of implementation of core labour standards universally led to a suggestion that Core labour standards should be linked with WTO so that it can be used as a tool to enforce core labour standards (Brown, 2001). According to the ILO Constitution (2006c), “the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries.”

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ILO is having major problems in the implementation of core labour standards mostly in the developing countries as they are prone to labour rights abuses, with minimum wages, open to child labour exploitation and where the core labour standards are not entirely protected. ILO is working very hard to encourage the developing countries to follow the footprints of developed nations in implementing the core labour standards. Although improvement of core labour standards is essential for the growth or prosperity of a particular country but it is also counterproductive if these core labour standards are introduced in trade agreements as the countries who have comparative advantage in labour intensive goods would not be able to export their goods and therefore its growth and social development will slow down in turn. If a country has low labour standards and by applying trade sanctions it would be inefficient as there would be no trade labour linkage as there is violation of core labour standards for example, child labour and forced labour occurs in small, domestic or family firms who have nothing to do with the trade as they are not exporting anything and trade labour linkage is a social clause only limited to trade-impacted products (Robert C. Shelburne, Wage Differentials, Monopsony Labor Markets, and the Trade-Labor Debate, 19 Journal of Economic Integration 1 (March 2004), pp. 131-161.)

On the contrary, the trade labour linkage could also be used indirectly when small firms which have nothing to do with the exports subcontracting with the exporting firms which indirectly contribute to the competitiveness of the exposed firms (Peter Morici and Evan Shulz, Labor Standards in the Global Trading System) (Washington, D. C.: Economic Strategy Institute, 2001).

Violation of core labour standards can affect trade flows in two ways firstly, by decreasing wages competitiveness is reduced and secondly, child and forced labour will lead to an increase in unskilled labour but it can give developing countries comparative advantage in labour intensive goods and thus increase or boost exports.

In 1947, Havana charter was laid down as a link between international trade and labour standards. The purpose of this charter is that all member states should recognize the importance of core labour standards related to their productivity and enhance labour standards within its territory. Due to failure of its ratification from the member states the International trade organization had not been created instead General agreement on Tariff and Trade (GATT) was used as a substitute (GATT Article XX (e)). When World trade organization was only two years old, Singapore ministerial declaration was adopted on 13 December, 1996 and due to absence of consensus again labour trade linkage was denied. Hence, ILO was the only body or organization to tackle labour standards. The difference between Havana Charter and Singapore declaration is that in Havana Charter they recognize that trade disputes are caused due to labour standards in different member states whereas in Singapore Declaration trade related labour standards should be adopted but it should be counterproductive as it prevents trade and distorts comparative advantage for labour intensive developing countries. After the Singapore declaration, ILO set up a world commission on the social dimension of globalization (the final report: A fair globalization – Creating opportunities for all) (Geneva: ILO, February 2004).

Trade theorists have always argued that growth of trade between developed and developing nations will lead to job losses of unskilled labour in developed countries whereas job gains of unskilled labour in developing countries but the problem is that the job gains of unskilled labour in developing countries is quite high as compared to job losses of unskilled workers in developed nations [Collins, (1998) Machin and Van Reenan, (1998) and Learner, (1998)].

Many countries while doing their bilateral trade, respect the core labour standards. In the U.S Trade Act of 2002, the 6th objective is “to promote respect for workers right and the right of the children consistent with core labour standards of the ILO.”

While engaging in the bilateral trade agreements, every nation should respect the domestic labour standards and must possess high labour standards. In case of any disputes, there is specific institution which has the power to impose sanctions in case of serious flaws in relating to labour standards (International Economics Policy Briefs PB-5; Washington D. C.: Institute of International Economics, April 2001).

In December 1998, Mercosur countries (Brazil, Argentina, Paraguay, and Uruguay) adopted a social declaration about promotion and respect of ILO core labour standards. Similar provisions can be found in most of the new regional trade agreements. Developed countries also impose labour standards criteria within the Generalized System of Preferences (GSP) and the World Trade Organization, Enabling Clause, which allows nonreciprocal preferences in favour of developing countries. The European Union also proposes “special incentive arrangements” for the protection of labour rights, which may be granted to countries whose national legislation, incorporates the rules adopted in the ILO conventions. In order to understand the trade impact of labour standards, empirical analysis of trade manufacturers between developed countries and developing countries will be used. The developed countries in this analysis are Japan and U.S and Six developing countries from Asia. The methodology consists of main items of export and import of each of the countries concerned and classified as export-oriented, import-competing, food, beverage and tobacco, petroleum and related and others and comparative analysis of changes in employment and wages in different categories of industries. Japan and United States are the nations which mainly export skill intensive manufacturers to the developing nations and import labour intensive producers from those nations. Employment in import-competing industries reduces due to growth in trade with the developing countries whereas employment will increase in export orientated industries. As import competing industries are more labour intensive than export-orientated industries therefore the employment of skilled worker will rise and so there wages in developed nations and demand for unskilled labour will fall as a result. Therefore, the share of import competing industries will decline in Japan and U.S whereas the export-orientated industries will either increase or remain at stagnant level. Developing countries are expected to export labour intensive manufacturers to developed countries and import skill intensive manufacturers to them. Growth of trade with developed countries should increase the labour intensive industries in developing countries and decrease the skill intensive industries in total manufacturing sector (International Labour Review, Vol.139 (2000), No.3). Therefore, the demand for unskilled labour will increase and the demand for skilled labour will fall thus reducing the wage difference between the skilled and unskilled labour will fall {World Bank (1997)}.

Growth of Trade affects employment in the import-competing developed countries and in contrast it stimulates employment in all sectors of manufacturing industries in developing countries. This is because the growth of trade will give foreign exchange to developing countries which obviously they need for their prosperity or economic growth and their income elasticity of demand for import competing is high in developing countries whereas it is low in case of developed countries (Chenery and Strout, 1966).

It is presumed that rich and developed countries are more towards international labour standards than developing countries. The violation of core labour standards in developing countries will result in economic distortion and hence lower the national income of developing countries. These violations can be in respect of child labour, gender, racial or other discriminations which in turn risk physical integrity and health (Sandra Polanski, Trade and Labour Standards, A Strategy For Developing Countries (Carnegie Endowment for International Peace, 2003), at ). If the developing countries want to invest in capital accumulation they need to raise their labour standards which in turn will eradicate child labour and other discriminations which can trigger growth of the economy (the pioneer work, Robert Lucas, On the mechanics of economic development, Journal of Monetary Economics 22 (1988), pp. 3-42). Many authors have argued that higher labour standards in developing countries will increase the demand for unskilled labour as they are labour intensive and will increase the wages of formal employment, discourage foreign and domestic investment and it may become an obstacle for economic growth of a developing country (Singh. A and Zammit. A, The global labour standards controversy: Critical issues for developing countries) (Geneva: South Center, 2000). If the developing countries adopt higher labour standards for example, reduction of child labour then it might have a negative effect on the economy as some of developing countries people are living below the poverty line and if child labour is restricted then it might have a way to other social problems like starvation, prostitution, street labour etc. So, the developing countries must take great care while implementing policies as such sudden policies might have negative effect on the social life of people living in those countries so they must take into account the local or domestic condition into account. On the contrary, the disappearance of child labour and compulsory education in developed countries like U.S and Britain have very significant effect on their economies as restriction on child labour would increase the employment opportunities for adults and with compulsory education they can specialize in some field or sector by which they can increase their income. So, labour standards can play an important role in promoting economic growth for example, with the improvement of labour standards in developing countries like Bangladeshi garments firms, Pakistani soccer ball manufacturing and West African cocoa production etc, all these industries are growing. In turn they are playing an important role in the growth of their economy respectively (Kimberly Elliott and Richard B. Freeman).

Conclusion

The absence of core labour standards in World Trade Organization official text other than Singapore Declaration has reinforced the ILO legitimacy. The ILO has given a new life to fundamental conventions which are now largely ratified by member states and became a law for the country who ratify them. It contributes to more efficient labour market and respect the comparative advantage of the developing countries. More cooperation between ILO and WTO is needed. Core labour standards are very helpful in increasing capital accumulation which in turn increase the economic growth of developing countries and decrease the distortions and make human capital accumulation easier. The developed countries should encourage developing countries in the form of incremental aid and other concessions in order to improve their labour standards and if fines or duties are imposed the money from fines and duties must be spent on the betterment of labour standards of a particular country.

The developing countries are not in a position to benefit from globalization where trade is shifting from primary commodities to manufacturers. The population in developing countries is increasing at much higher rate than developed countries thus developing countries should give special attention towards restraining the inequality of growth between developed and developing countries and this can be achieved if they make their international policy towards the betterment of infrastructure development. The trade growth of manufacturers in developing countries has adverse effect on unskilled labour in developed countries. Skilled and unskilled labour in developing countries has increased their employment and wages due to growth of trade and in general growth of trade has positive and substantial effects.

International labour Organization is playing an important part in strengthening labour standards in developing countries and argues that developed world which has high labour standards now had poor labour standards in the past and developing world can choose the same steps in making their standards high and ultimately boost up their economic growth .They should eradicate Child Labor, Forced labor, and all other discriminations. It might take some time as they have to act according to their domestic environment but slowly and surely they will reach at the point where they will have high labour standards that’s why ILO proposed substantial relaxation labour standards for the developing world.

References:

* Clotilde Granger&Jean-Marc Siroën.(2006), “Core Labor Standards in Trade Agreements: From Multilateralism to Bilateralism”.Journal of World Trade,40(5),813-836. Retrieved December 1, 2009

* GATT Article XX (e).

* http://www.ilo.org/global

* International Economics Policy Briefs PB-5 (Washington D. C.: Institute of International Economics, April 2001).

* International Labour Review, Vol.139 (2000), No.3

· Joshua C. Hall & Peter T. Leeson, “ Good for the Goose, Bad for the Gander: International Labor Standards and Comparative Development” J Labor Res (2007) 28:658-676

* Peter Morici and Evan Shulz, “Labor Standards in the Global Trading System” (Washington, D. C.: Economic Strategy Institute, 2001)

* Robert C. Shelburne, Wage Differentials, Monopsony Labor Markets, and the Trade-Labor Debate, 19 Journal of Economic Integration 1 {March 2004), pp. 131-161.

* Sandra Polanski, “Trade and Labor Standards, A Strategy for Developing Countries” (Carnegie Endowment for International Peace, 2003), at www.ceip.org/pubs

* Singh. A and Zammit. A, “The global labor standards controversy: Critical issues for developing countries” (Geneva: South Center, 2000)

* The final report: A fair globalization – Creating opportunities for all, (Geneva: ILO, February 2004).