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Models of International Labor Standards

Presented by Richard N. Block

School of Labor and Industrial RelationsMichigan State University

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What Are Labor Standards?

• Governmentally imposed and enforced terms and conditions of employment or procedures associated with establishing terms and conditions of employment that a political jurisdiction establishes in accordance with its powers to protect the welfare of its citizenry.

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Rationale for Labor Standards?

• Generally Moral and Ethical– A person employed should not be compensated

at a level below that which society sees fit

– a person employed should be protected from the harmful effects of the labor market that are not his/her fault.

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What Level of “Government” Enacts Labor Standards?

• Generally, at the national level or below.

• No mechanism for enacting true international labor standards– difficult to impose international labor standards– difficult to enforce international labor standards

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Labor Standards and Trade

• Should there be linkage between labor standards and trade privileges

• Developing countries v. Developed countries

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Arguments for Linkage between Trade Privileges and Labor Standards (“Social Clause”)

• Identified with ILO

• Seems to favor developed countries

• Moral argument– If a country wishes to reap the benefits of

participating in the global trading system, should guarantee some minimally acceptable level of labor standards.

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Arguments for Linkage between Trade Privileges and Labor Standards (“Social Clause”)

• Specific Concerns– low labor standards will be reflected in low

export prices– international trade theory

• absolute advantage– a country should specialize in producing the good or goods

in which it has a cost advantage vis-à-vis other countries based on its endowment of factors of production

• comparative advantage– a country should specialize in producing the good or

goods in cost advantage vis-à-vis other goods it could produce based on its endowment of factors of production

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Arguments for Linkage between Trade Privileges and Labor Standards (“Social Clause”)

• Specific concerns (cont.)– producers in high standards jurisdictions will

relocate to lower standards jurisdictions– political pressure in high standards

jurisdictions to reduce labor standards– “race to the bottom”

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Arguments for Linkage between Trade Privileges and Labor Standards (“Social Clause”)

• Specific concerns (cont.)– producers in high standards jurisdictions will lose

market share to producers from lower standards jurisdictions (“social dumping”)

– rising income inequality and reduced employment in high standards jurisdiction as “low wage” jobs are lost

– important that the benefits from trade be widespread

– defuse protectionist pressures

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Arguments for Linkage between Trade Privileges and Labor Standards (“Social Clause”)

• Economic rationale for a linkage– encourage investment in LDC’s workforce

• child labor laws with mandatory schooling– but may need to compensate family in LDC for lost income

– borrowed funds to be repaid later (World Bank?)

• encourage employers to increase worker productivity if floor on labor standards is raised (“efficiency wage “argument)

– may also raise adult “wage” so that families can afford to send children to school

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)

• Economics

• Political Theory

• Practical

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)• Economic Theory

– international trade theory• absolute advantage

– a country should specialize in producing the good or goods in which it has a cost advantage vis-à-vis other countries based on its endowment of factors of production

• comparative advantage– a country should specialize in producing the good or

goods in cost advantage vis-à-vis other goods it could produce based on its endowment of factors of production

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)• Absolute and Comparative Advantage

– All countries should produce according to their absolute or comparative advantage

– Developing countries have an advantage in goods produced with low wage labor

– (factor) productivity differs– maximizes consumer welfare and producer

income over the long run– incomes maldistributed in the less developed

country

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)• Economic Theory

– A “social clause” is an indirect protectionist device to protect the wealth and incomes of citizens of wealthy, developed countries at the expense of the citizens of poor, developing countries

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)

• Political Theory– Sovereignty

• the level of labor standards a country wishes to consume for its citizenry is a domestic, political issue

• economic circumstances differ between developing and developed countries

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Arguments against Linkage between Trade Privileges and

Labor Standards (“Social Clause”)• Practical View

– Labor standards matters and trade matters are separate and should not be linked

– WTO view• WTO does trade

• ILO does labor standards

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What Do We Know?

• Not much

• We do not know if the level of labor standards of a jurisdiction has any effect on trade flows.

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International Labor Standards Models

• Legislative Models– International Labor Organization– European Community

• Trade Sanctions Model– United States Legislation

• Multilateral Enforcement Model– North American Agreement on Labor Cooperation

• Voluntary Standards– Corporate Codes of Conduct– Certification

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International Labor Organization• Overview

– established in 1919 as part of League of Nations– continued with UN in 1945– Tripartite governance system

• labor representatives• employer representatives• government

– Membership• almost all countries

– ILO Website (www.ilo.org)• International Labour Organization - ILO Web site

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International Labor Organization

• Functions– Adopts proposed labor standards for its

member countries • CONVENTIONS

– for consideration for ratification

• RECOMMENDATIONS

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International Labor Organization

• Conventions– 182 adopted by ILO– status of treaties when ratified by a country– variation for special country circumstances

permitted

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ILO - Example of a Convention

Example C87 Freedom of Association and Protection of the Right to Organize Convention, . . . Part I. Freedom of Association

Article 1, Each Member of the International Labour Organization for which this Convention is in force undertakes to give effect to the following provisions.

Article 2 Workers and employers, without distinction whatsoever, shall have the right to establish and, subject only to the rules of the organization concerned, to join organizations of their own choosing without previous authorization.

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ILO Conventions in Force -Ratification Examples

• Canada - 28

• Mexico - 67

• Japan - 46

• United Kingdom – 65

• Germany - 77

• United States - 12

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ILO Conventions

• Compliance through– publicity– International Court of Justice

• never occurred

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ILO - Declaration of Fundamental Principles and Rights at Work

• June, 1998

• 4 Principles– freedom of association and right of collective

bargaining

– elimination of forced or compulsory labor

– abolition of child labor

– elimination of employment discrimination

• applies to all member countries regardless of ratification

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European Community• Directives binding on member states• Limited to member states• Part of a larger system of economic integration• Labor issues have been among most difficult

– directives issued: • free movement of workers

• occupational safety and health

• nondiscrimination on basis of gender

• worker consultation (October 8, 2001)

• Working time restrictions

• Restructuring of enterprises

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European Community(continued)

– no directives issued• part-time workers

• worker representation

• guest workers

• termination

– Website EUR-Lex - Home

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Unilateral Trade Sanctions• United States

– Title V of Trade Act of 1974– Omnibus Trade and Competitiveness Act of

1988– Caribbean Basin Economic Recovery Act– Andean Trade Preference Act

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Unilateral Trade Sanctions

• Permits U.S. to provide certain countries duty free (most favored nation) status if country meets certain eligibility requirements– one of requirements is affording workers

internationally recognized rights– reports from each U.S. embassy– Trade Representative investigates

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Unilateral Trade Sanctions

• Impact – 8 countries suspended from trade with U.S.– 4 countries suspended but reinstates

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North American Agreement on Labor Cooperation (NAALC)

• Labor “side agreement” of North American Free Trade Agreement (NAFTA) Signatories– United States– Canada– Mexico

• Each signatory agrees to enforce its domestic labor standards

• Does not create international labor standards

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NAALC• Includes a complaint system

– Administered by National Administrative Office in USDOL and Mexico and Canada Labo(u)r Ministries

• 15 submissions to date• If accepted and found meritorious, remedy is

– information on each side’s laws

– consultations among ministers (Secretary of Labor) in U.S.

• Website is http://www.dol.gov/ilab/

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Voluntary Standards

• Fair Labor Association

• Apparel Industry Partnership– Industry, labor, and human rights

representatives– October, 1998, agreement by industry and

human rights representatives on code of conduct and monitoring

– labor representatives withdrew

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Voluntary Standards

• Certification by Council on Economic Priorities Accrediting Agency– SA 8000 Advisory Board made up of labor,

corporations, and nongovernmental agencies

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Should We Care About International Labor Standards?

• Globalization of trade

• Do labor standards matter for trade?– We believe so, but no proof

• Social Dumping– A dispute between developed and developing

countries

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Should We Care About International Labor Standards?

• Developed countries– should be a link between trade privileges and

compliance with internationally recognized labor standards

– morality

• Developing countries– should not be a link between trade privileges and

international labor standards– morality– sovereignty

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World Trade Organization

• Developing and developed countries on opposite sides of issue

• WTO position: labor standards matters are not trade matters