The Institute for Domestic and International Affairs
Human Rights Commission
Globalization and Workers’ Rights
Rutgers Model United Nations
16-19 November 2006
Director: Stephanie Horwitz
© 2006 Institute for Domestic & International Affairs, Inc. (IDIA)
This document is solely for use in preparation for Rutgers Model
United Nations 2006. Use for other purposes is not permitted without the express written consent of IDIA. For more
information, please write us at [email protected]
Introduction ________________________________________________________________ 1
Background ________________________________________________________________ 3
Current Status_____________________________________________________________ 12 Evidence of Progress from MNCs________________________________________________ 14
Key Positions _____________________________________________________________ 15 G-8 States _____________________________________________________________________ 15 Africa__________________________________________________________________________ 16 Latin America and the Caribbean ________________________________________________ 17 Asia ___________________________________________________________________________ 18 Middle East ____________________________________________________________________ 18 Non-Government Organizations _________________________________________________ 19 Business ______________________________________________________________________ 20 Media__________________________________________________________________________ 20
Summary _________________________________________________________________ 22
Discussion Questions______________________________________________________ 24
Works Referenced _________________________________________________________ 25
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Introduction
Multinational corporations (MNCs), companies that have production facilities in
more than one country, have greatly increased since the Second World War. In the
modern era of free trade,
where multinational
corporations control one
fourth of total world
production, developing
nations find themselves to
be a popular location for production plants because these firms are often able to take
advantage of lower costs in developing states than in their home states. Additionally,
because developing nations often have low labor standards, MNCs are able to provide
less in terms of safe working environments and employee wages and benefits. At the
same time, developing states, eager for investment by MNCs, are hesitant to enforce
existing labor standards for fear of discouraging future investment in their national
economy.
Some scholars argue that criticism against multinational corporations is misguided
because studies show that most MNCs actually pay their employees above the suggested
minimum wage of the nation in which they are operating. Additionally, although some
allege that MNCs force their employees to work extremely long hours with no overtime
pay, studies show that such employees often report it a positive factor of a job to be able
to work more and consequently earn more money.
Multinational Corporations: These corporations do business in more than one country in order to reduce transportation or import tariff charges, protect patent holdings, or otherwise enjoy monopolistic advantages. Although known 200 years ago, they are a particular feature of the post-World War II period and are controversial because they owe no particular allegiance to any national state. Source: www.politicalscience.utoledo.edu/faculty/lindeen/glos3260.htm
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Other studies, however,
demonstrate that the reason
MNCs pay salaries above local
minimum wages is because
developing nations in which these
MNCs operate suppress their
minimum wages to remain a
competitive market for foreign
investment. Essentially, by
reducing the minimum wage it must pay its employees, the MNC is able to reduce its
costs, and it is more likely that it will find a given country attractive, causing a “race to
the bottom” between developing nations, in which states continue to suppress their labor
protections in hopes of gaining more foreign direct investment. Often, the minimum
wages established by such states are well below what is necessary to sustain an average
family. While MNCs have the ability to set and follow strict standards of workers’ rights
similar to those of their home countries, they lack the incentive to do so. Although non-
state actors, including non-government organizations (NGOs) and the International
Labour Organization (ILO), have established guidelines for multinationals to follow, the
voluntary nature of the guidelines yields little change in the behavior of these enterprises.
A coalition of NGOs associated with the Organization for Economic Cooperation
and Development (OECD), known as OECD Watch, published a comprehensive study
that showed that the efforts of one set of guidelines, revised in 2000, resulted in limited
positive change in the labor standards of MNCs by 2005. OECD Watch primarily blames
the voluntary nature of the guidelines for their failure and calls for sanctions to be placed
upon MNCs that do not follow a future set of guidelines in order to get real results. The
guidelines are suggestions for how these firms should operate, and do not mandate any
specific behavior on behalf of the corporations or on the host countries.
Race to the Bottom: The idea that, if one country provides a competitive advantage to its firms by lax regulation (of the environment, for example), then competing firms in other countries will demand even weaker regulation by their governments, and regulation will be reduced to minimal levels everywhere. Source: www-personal.umich.edu/~alandear/glossary/r.html Foreign Direct Investment: investment in fixed assets located abroad for operating distribution and/or production facilities. Source: wps.prenhall.com/wps/media/objects/516/529139/glossary.html
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Industrialized states, namely the United States and members of the European
Union, often support efforts to encourage multinationals to increase their labor standards,
but studies show their representatives sometimes ignore claims of workers’ rights abuses
by MNCs. Developing states, namely in Latin America and the Caribbean and Asia, are
hesitant to pressure MNCs to improve working conditions in their nations because they
depend on the foreign investment of MNCs to boost their economies. These states rely
on companies locating operations within their borders to develop jobs for their
populations, and also to pay taxes to the government. The international community has
yet to develop regulations that effectively pressure MNCs to uphold strict standards of
labor. Despite efforts by non-governmental organizations, MNCs continue to operate
with few enforceable restrictions on their actions, especially with many states hesitant to
pressure multinational corporations to change their labor standards. At the same time, it
is hard to establish a universal standard of working conditions that is acceptable
worldwide. Non-state actors will have to work with states to achieve any solution that
can feasibly cause change in the way MNCs operate.
Background In the post-World War II era of free trade
and globalization, multinational corporations
have become an important part of the global
economy. In the 1970s, there were 7,000 MNCs
worldwide, and by the year 2000, that number
increased to over 60,000.1 One fourth of world
production and two thirds of international trade
are handled by multinational corporations,
making them an inescapable presence in the
global economy. MNCs often establish
1 Blanpain 5.
Free Trade: Trade that is not hindered by artificial restrictions or trade barriers of any type. Source: wps.aw.com/aw_rohlf_econreason_5/ 0,5759,11635-,00.html Collective Bargaining: Method of determining wages, hours and other conditions of employment through direct negotiations between the union and employer. Normally the result of collective bargaining is a written contract that covers all employees in the bargaining unit, for a specified period of time. Source: www.ibew1620.ca/m-term.htm
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themselves in developing states, which has several consequences. When a large
corporation decides to locate operations in a new company, there are typically
negotiations between executives of the firm and with the government on issues related to
taxation and other operating incentives. As the host country is eager for the development
of new jobs, there is less discussion between the company and members of the labor force
regarding wages and benefits, and often a denial of collective bargaining relationships
between the parties.2 Before discussing the implications of MNCs worldwide, it is
important to understand how they became such an important part of the global economy.
The 1950s and 1960s established mass production, mass sales, and mass
consumption as a vital aspect to the global economy. Between 1950 and 1973, world
trade increased at a rate of eight per cent per year, and the global gross domestic product
(GDP) rose steadily at a rate of five per
cent.3 The rise of multinational
corporations did not begin, however,
until the 1970s, in the aftermath of the
1973 oil crisis, in which members of the
Organization of Petroleum Exporting
Countries (OPEC) placed an oil embargo on the United States and several nations in
Western Europe. The economic turmoil that ensued during the oil crisis led to a
restructuring of companies. Specifically, companies began to diversify their operations
by moving their resources into promising regions where they could operate more cheaply.
In doing so, these companies were increasing their foreign direct investment (FDI) in
developing nations.4 In the process of moving operations overseas, technological
advancements made multinational corporations more efficient. Through the use of
computer-integrated manufacturing and computer-aided design, it is feasible to manage a
2 Ibid 33. 3 “Globalization,” International Labour Organization, http://www.itcilo.it/English/actrav/telern/global/ilo/globe/new_page.htm. 4 Globalization 4
Gross Domestic Product: In economics, the gross domestic product (GDP) is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period. It is one of the measures of national income and output. It is often seen as an indicator of the standard of living in a country, but there are some problems with this view. Source: en.wikipedia.org/wiki/Gross_domestic_product
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Case Study: Social Accountability International Social Accountability International (SAI) is a global not-for-profit organization that promotes the importance of maintaining workers rights regardless of the state in which companies operate. The organization has identified the stakeholders relevant to business, and has established a variety of programs to ensure that standards are being met. Among other programs, SAI: • Convenes stakeholders to build and
continually refine consensus-based ethical workplace standards;
• Accredits qualified organizations to verify compliance with these standards
• Promotes the understanding and implementation of social performance standards worldwide.
In order to receive certification under the SA8000 standard, companies agree to SAI’s definitions of child labor, forced labor, and agree to implement a series of health and safety standards. Source: http://www.sa-intl.org
corporation scattered over several regions of the world in a cost-effective way. Perhaps
more importantly, global networks allow companies to lower costs related to shipping,
resource acquisition, and other logistical considerations.
Foreign direct investment from multinational corporations has increased steadily
since 1980 at a rate of thirteen per cent a year; by 1999, such investment reached $450
billion.5 FDI directed specifically at developing nations increased thirty-four per cent in
1996, to a level of $129 billion. FDI inflows by multinational corporations are
concentrated in a few regions throughout the world: East Asia and the Pacific, as well as
Latin America and the Caribbean, receive the most FDI, accounting for over eighty per
cent of FDI inflows into developing states in 1996.6 These locations correlate with lower
wages and lower costs for raw materials.
The recent influx of MNCs has
brought to the forefront ethical questions
about standards of labor. Chiefly, the United
Nations has attempted to decide if a code of
conduct should be established for all
multinational corporations to follow,
addressing ideas such as collective
bargaining rights, minimum wages, benefits
for employees, and a standardized length of
workday.7 Although multinational
corporations are generally based in
developed countries with strict standards of
labor for employees, the countries in which
MNCs operate often have developing
5 Manuel Velasquez, “Globalization and the Failure of Ethics,” Business Ethics Quarterly 10, no. 1 (2000): 343. 6 Globalization 6. 7 Velasquez 345.
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economies and few, if any, labor standards. Importantly, the standards that these firms
uphold are different in each country in which they operate. This disparity makes it
difficult to establish a universal code of conduct that is accepted by the international
community and followed by MNCs. Recent years have seen a push toward establishing
“social accountability contracts,” in which multinational corporations take social
responsibility for their actions and agree to follow a code of conduct in agreement with
their government and non-governmental organizations (NGOs).8
The garment industry is a particularly difficult industry with regard to the
maintenance of workers’ rights. Based on a system of sub-contracting, retailers sell
clothes that they order from manufacturers, such as Guess and Northface. Many
manufacturers are very large MNCs, but they use several contractors in developing
countries to actually produce the garments that they design and market.9 Due to this
situation of subcontracting, manufacturers are able to ignore human rights abuses in the
factories that produce their clothes; because they have no direct relationship to these
companies, they have no legal liability to uphold labor standards. Globalization has
enhanced the process of subcontracting, and often manufacturers have subcontract
relationships with companies in multiple countries producing their clothes. In this
manner, major international companies can deny knowledge of, or involvement in, the
exploitation of workers. Employees in such factories often do not know what
manufacturer they are actually working for, much less where to go to address grievances.
Subcontracting has provided an effective outlet for manufacturers to escape responsibility
for their treatment of employees; for example,
Nike escaped taking action to improve the
working conditions of its employees in Latin
America because of subcontracting, despite
intense public pressure to reform. Social pressure and negative publicity has, however, 8 Jill Esbenshade, “The Social Accountability Contract: Private Monitoring from Los Angeles to the Global Apparel Industry,” Social Accountability Contract (2001): 99. 9 Esbenshade 100.
Subcontract: A subcontract is a contract that assigns part of an existing contract to a different party. Source: en.wikipedia.org/wiki/Subcontract
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led to some reform in the garment industry. In 1995, for example, The Gap agreed to
allow a foreign contractor to conduct independent monitoring of its factories. As the first
manufacturer to do so, the firm initiated a trend towards independent monitoring as a
means of improving the conditions of MNC workers.
It has yet to be seen, however, if independent monitoring is the solution to the
sweatshop crisis.10 Independent monitoring of The Gap’s factories in El Salvador, for
example, failed to produce positive change because a divided union in the country was
unable to successfully organize to promote workers rights. At the same time,
independent monitoring can actually be beneficial to manufacturers, rather than workers,
for several reasons. Monitoring enables manufacturers to delay enforcement of legal
reform and liability and to use monitoring as a public relations tool to placate consumers
and investors. Manufactures advertise that negative claims about their factories are
invalid based on the fact that they have agreed to monitoring. Guess, for example,
promoted itself in newspapers as “a leader in the fight against sweatshops,” even though
independent monitoring results continued to find its contractors acting against the law. 11
Clearly, monitoring by itself is not an effective tool to yield true changes in the codes of
conducts of MNCs.
There is some controversy regarding whether multinational corporations are
actually guilty of providing their employees with substandard wages and working
conditions. Several studies have found that multinational firms actually pay their
employees in developing states higher wages than local firms in comparable areas. In
Vietnam, for example, workers in foreign-owned footwear and apparel factories are listed
in the top twenty per cent of the population based on income. Studies of Nike
subcontractor factories have shown similar results; in 2000, employees were paid an
average of $670 annual wages, compared with the $134 average annual minimum wage
of those areas. A study of Nike factories in Vietnam and Indonesia, conducted by the
10 Ibid 101. 11 Esbenshade 114.
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Amos Tuck School at Dartmouth College, found that in Indonesia, non-cash employee
benefits alleviated food, transportation, and housing expenses of employees, while in
Vietnam, workers perceive overtime hours as an attractive way to supplement their base
income levels.12 Contrary to public opinion in many developed nations, MNCs are not
making their profits by exploiting the wages of their employees; in a study of the profits
of 214 MNCs on the 1999 Fortune Global 500 list, only 8.3 per cent of the companies’
profits were acquired from foreign assets.13 Studies have also confirmed that MNCs
often pay employees in developing countries such as Mexico, Indonesia, and Vietnam a
wage premium, or salaries that exceed the average wage in the area in which the
company is located. MNCs generally pay wage premiums ranging from forty per cent to
one hundred per cent in low-income countries. With respect to the long hours that
employees of MNCs often work, surveys have found that many employees report long
hours as a positive factor to their job, because it allows them to earn more money; some
employees specifically seek jobs in factories that allow them to work long hours so they
are able to increase their income.14
Other studies, however, find that the average wages paid by multinational
corporations drops drastically when taking into account migrant workers, who are not
counted as official “staff and workers” of corporations.15 Once migrant workers are
accounted for in the Chinese cities of Dongguan, Putian, and Shanghai, factory workers
go from earning the highest wages in the region to the lowest, with MNCs paying the
lowest wages out of any type of company. At the same time, many developing nations
tend to suppress their national or local minimum wages so as to attract foreign investment
and multinational corporations to their region. MNCs are most likely to operate in the
most economically efficient location possible, so states gain a competitive advantage by
offering a corporation a place to operate with cheaper labor than another state. This 12 Baldwin 314. 13 Jagdish Bhagwati, “Do Multinational Corporations Hurt Poor Countries?” The American Enterprise (2004): 28. 14 Bhagwati 29. 15 Anita Chan, “Globalization, the Social Clause, and China’s Workers,” The Chinese Economy 34, no. 6 (2001): 14.
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phenomenon is known as a “race to the bottom”
among developing states, which compete with
each other to offer the lowest wages and to be
the most appealing to foreign investment.16 The
desire for foreign investment also leads local
governments to ignore the exploitation of MNC
employees. This “race to the bottom” is exemplified by the minimum wage of Indonesia,
which is set lower than the “minimum subsistence need” published by the Indonesian
government.17 The trend of depression of minimum wages is also seen in Central
American states, such as Mexico and Nicaragua.18
Clearly, the negative effects of the presence of multinational corporations in
developing states are felt, even if MNCs appear to benefit workers by paying higher
wages. These firms have the potential to improve the standard of living in the developing
nations in which they operate, but they lack the incentive. Several declarations have been
made by non-state actors to establish quality working conditions in developing countries,
and multinational labor standards are often involved in such declarations. Corporations
are pressured to follow the broad principles outlined in the Universal Declaration of
Human Rights (UDHR). Articles twenty-three through twenty-five are most prevalent to
multinational corporations, stating that laborers have the right to work in “just and
favorable conditions” without discrimination including the right to form and join trade
unions, that laborers have a right to “reasonable limitation of working hours,” and that
laborers have the right to an adequate standard of living.19 The Universal Declaration of
Human Rights, like all United Nations resolutions, is not an enforceable set of guidelines.
16 Chan 17. 17 It should be noted that even in the United States, the minimum wage is considerable lower than the “living wage.” As of printing, the minimum wage in the United States was USD $10,300, while the living wage for the average family of four was $17,028. Source: http://www.csmonitor.com/2002/0315/p01s02-usec.html 18 Ibid 19. 19 Universal Declaration of Human Rights.
Competitive Advantage: exists when a firm can deliver the same benefits as competitors but at lower cost. A firm may also deliver benefits that are greater than those of competing products Source: media.pearsoncmg.com/intl/ema/uk/ 0131217666/student/0131217666_glo.html
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It also does not directly address multinational corporations, although the articles above
clearly set some standards of working conditions to be followed.
The International Labour Organization (ILO) has been very active in establishing
core labor standards for corporations. Its primary goal is to establish a standard of
“decent work” worldwide.20 In order to make progress towards this goal more
measurable, the ILO has divided labor standards into three groups: the fundamental rights
of men and women at work, the rules of social policies of governments which are
promotional rather than compulsory, and the implantation of more technical and specific
provisions of labor laws. This third group is the source of the majority of the debate
regarding MNCs and workers rights and includes specific working conditions and legal
procedures.21
In June 1998, the ILO adopted the Declaration on Fundamental Principles and
Rights at Work, which declares that all member states of the ILO have the obligation to
provide the right of freedom of association and recognition of the right of employees to
collective bargaining.22 Although this declaration does not specifically address MNCs
and workers rights, the ILO also adopted a Tripartite Declaration of Principles
Concerning Multinational Enterprises and Social policy in 1977 which specifically
addresses MNCs and sets as its goal to “encourage the positive contribution which
multinational enterprises can make to economic and social progress and to minimize and
resolve the difficulties to which their various operations may give rise.”23 This
declaration calls for MNCs to follow general policy objectives in accordance with the
local governments in which they operate in order to achieve “developmental priorities
and social aims.”24 Wages, benefits, and working conditions are stipulated to be at least
as favorable as those offered to employees in comparable companies in the region, and
20 Blanpain 17. 21 Ibid 20. 22 ILO Declaration on Fundamental Principles and Rights at Work. 23 ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy. 24 Ibid, Article 10.
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MNCs are called upon to maintain the “highest standards of safety and health.”25 The
declaration also establishes that MNCs should not hinder the right of their employees to
collective bargaining and trade union organization.26 This declaration, however, is based
on a voluntary set of guidelines, and has no enforcement power. Its voluntary nature has
translated into little actual progress since 1977, and many workers in developing nations
continue to live in poverty. The Organization for Economic Cooperation and
Development has established a similar set of Guidelines for Multinational Enterprises,
which is also based on voluntary action by MNCs. Pressure from multinational
corporations worldwide has prevented the international community from developing a
consistent and enforceable set of guidelines for labor standards that has the ability to
effectively change the labor practices of those companies.
Trade unions have historically
been an effective way to improve
workers rights in industrialized states.
As multinational corporations continue
to expand their factories in developing
states, unions are being established as well. Leading the organized labor effort in
developing countries is the International Confederation of Free Trade Unions (ICFTU).
Formed in 1951, the group is a result of the 1949 Free World Labor Conference. With
158 members in 150 territories and countries, the goal of the ICFTU is to encourage
cooperation between trade unions in developing countries to enhance the bargaining
power of employees.27 Working with the ILO and its goals for decent work, the ICFTU
has established plans to address the challenges workers will face in the 21st Century.
Specifically, it plans to enhance cooperation to bring union representatives from major
MNCs together and establish direct dialogue with upper-management of the corporations
for which they work. The ICFTU also wants to tie together unions of the same 25 Ibid, Articles 33 and 37. 26 Ibid, Articles 41-55 27 ICFTU, “Preamble,” ICFTU, http://www.icftu-apro.org/aboutus.html (accessed 1 February 2006).
Trade Union: An organisation of workers formed to protect the rights and advance the interests of its members concerning wages, benefits and working conditions. Source: www.apheda.org.au/campaigns/ burma_schools_kit/resources/1074040257_16812.html
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corporation in different states and expand union representation in MNCs, in essence to
develop collective bargaining relationships across state borders. Perhaps more
importantly, the group seeks to get MNCs to be more responsive to complaints from
labor.28
In 1999, United Nations Secretary-General Kofi Annan established the UN Global
Compact, which, among other initiatives, seeks to establish international labor standards.
The Global Compact has brought fifty large
multinational corporations, including Nike and Royal
Dutch Shell, in direct contact with twelve non-
government organizations (NGOs). The MNCs
involved pledged to commit themselves to promote
principles of human rights and labor standards, and
many MNCs have established public codes of
conduct to commit themselves to responsible labor
practices.29 In theory, these public affirmations regarding labor standards will make
companies actually offer the benefits they are promising, however more research needs to
be done in order to effectively measure the success of this initiative. Regardless, the
establishment of UN-based institutions to promote the rights of workers suggests that
major corporations recognize the importance of labor standards, at least as they relate to
their public relations strategies.
Current Status In recent years, the trend of globalization persists and multinational corporations
have continued to expand. As the influence of multinational corporations steadily
increases, the effectiveness of guidelines established by the UN and other non-state actors
is questioned since few tangible results can be seen. For example, in 2000 a group of
28 Blanpain 72. 29 Jane Wills, “Bargaining for the space to organize in the global economy: a review of the Accor-IUF trade union rights agreement,” Review of International Political Economy 9, no. 4 (2002): 677.
UN Global Compact: The Global Compact is an initiative of the United Nations in which multinational companies voluntarily commit to ecologically and socially sustainable globalization. The aim is to further the implementation of new principles in the fields of human rights, working conditions and practices, and environmental protection worldwide. Source: volkswagen-ir.irlcomm.de/ english/content07/co_03.html
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forty-seven NGOs created OECD Watch in 2003 with several goals to pursue. First,
OECD Watch committed to monitoring the work of the OECD and testing the
effectiveness of the OECD Guidelines for Multinational Enterprises. OECD Watch also
pledged to disseminate the information they discover through their monitoring and to
offer advice to NGOs about filing complaints against MNCs that have allegedly broken
the Guidelines.30 In September 2005, OECD Watch produced a report called “Five Years
On: A Review of the OECD Guidelines for Multinational Enterprises and National
Contact Points” to establish the effectiveness of the revised set of Guidelines.31 In one of
the most comprehensive studies on the effectiveness of MNC reform, OECD Watch
concludes that despite popular support of the Guidelines, there is “no conclusive evidence
that the Guidelines have had a positive, comprehensive impact on multinational
enterprises.”32 Specifically, OECD Watch cites several problems with the system of
national contact points (NCPs) established as government offices to promote the
adherence of multinational corporations to the Guidelines. OECD Watch found that
NGOs seeking to promote rights for workers were not being treated fairly by NCPs and
that these government groups did not follow through with investigations of claims made
by NGOs. Statements made by NCPs were also found to be weak or inconclusive, and
these groups often refused to look into cases brought to their attention or acknowledge
that OECD guidelines had been breached.33 With more than one hundred complaints
being brought against NCPs worldwide between 2000 and 2005, OECD Watch concluded
that the OECD Guidelines are ineffective at meaningfully improving working conditions
and standards of labor in multinational corporations. Although OECD Watch did find a
modicum of positive progress in their reports, with at least seven documented cases of
MNCs demonstrating some progress towards following the Guidelines, this represents
30 “Five Years On: A Review of the OECD Guidelines for Multinational Enterprises and National Contact Points,” 13. 31 “Global NGO Coalition Calls for Tighter Regulation of Multinational Corporations,” U.S. Newswire, September 22, 2005, final edition, Lexis-Nexis, http://web.lexis-nexis.com 32 “Five Years On: A Review of the OECD Guidelines for Multinational Enterprises and National Contact Points, 5. 33 Ibid, 21, 29, 47.
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less than fifteen per cent of total cases reported. The report states that the ineffectiveness
of the Guidelines is largely due to their voluntary nature. With no threat of sanctions,
MNCs that do not comply with the Guidelines have little incentive to comply. To
strengthen the Guidelines and make positive change in the future, OECD Watch
recommends increasing the capacity and resources of NCPs, while promoting their
independence from government agencies. Most importantly, OECD Watch concludes
that multinational corporations should be required to adhere to the OECD Guidelines as a
stipulation for receiving export credits, subsidies, or political risk insurance from export
credit agencies. Based on these studies, eliminating the voluntary nature of the
Guidelines is necessary to cause real improvement in the labor standards of MNCs.
Evidence of Progress from MNCs There is some evidence that multinational corporations have been making
progress toward offering more benefits to their employees. In China, for example, many
MNCs offer savings plans and supplemental pensions to senior-level executives, put they
do not make such opportunities available to lower-level employees. Lucrative pension
plans are effectively used by MNCs to attract quality managers. Unfortunately, rank-and-
file members of MNCs in China continue to receive only the social-security pensions that
are mandated by the Chinese government.34 This suggests little progress in enhancing
labor standards for the average employee of a multinational corporation in China. In
India, however, there seems to be an exception to the norm, where multinational
corporations have been offering extensive benefits to all of their employees, not just
employees at the managerial level. India became a popular location for multinationals in
the late 1990s because of its low operating costs.35 MNCs are able to cost-effectively
extend the same employee benefits to workers in India that they do to comparable
workers in their home country, including comprehensive health and life insurance. 34 Phyllis Feinberg, “Retirement Plans: Multinationals Using Supplemental Pensions to Compete for Top Talent,” Pensions and Investments, November 29, 2004, final edition, Lexis-Nexis, http://web.lexis-nexis.com 35 Michael Bradford, “India Upgrades Employee Benefits: Multinational Employer Practices Raising the Bar for Other Employers,” Business Insurance, August 2, 2004, final edition, Lexis-Nexis, http://web.lexis-nexis.com
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Multinational corporations that establish operations in India, however, are generally
information technology companies such as Microsoft, which require skilled workers.36
For effective developments to occur, it may become necessary for corporations to
compete for employees. In places such as India, companies that do not offer employee
benefits suffer a lack of labor supply, resulting in lower quality workers seeking
employment. By establishing a system in which employees are able to compare
employee wages and benefits, it will generate competition as companies seek the most-
skilled employees. These employees will have considerably more control regarding their
labor agreements, as it will shift from a system that benefits multinational corporations to
one that guarantees equitable wages and working conditions for employees.
Key Positions G-8 States The Group of 8, or G-8 states, consists of the eight biggest industrial states in the
world, and are the home to nearly every multinational corporation.37 The United States
hosts the most MNCs, with 162 of the 500 largest
global corporations, and Japan hosts the second most,
with 126.38 With strong roots in capitalism and the
protection of workers’ rights, several of these states
are also seen as models for labor standards. In the United States, for example, the Fair
Labor Standards Act, in addition to numerous other laws, addresses issues such as a
national minimum wage and overtime pay.39 Additionally, labor unions from America
and the European Union have been working for years to establish more direct
communication with China in order to promote collective bargaining rights for Chinese 36 Bradford 2. 37 “Background on the G8,” Department of Justice, http://www.usdoj.gov/ag/events/g82004/g8_background.html (accessed 14 February 2006). 38 “Multinational Corporations,” International Labour Organization, http://www.itcilo.it/english/actrav/telearn/global/ilo/multinat/multinat.htm (accessed 20 February 2006). 39 Glenn A. Fierst, “The Fair Labor Standards Act in the Changing Workplace,” Employee Rights Quarterly (2003): 50.
Group of Eight (G-8) Membership Includes: Canada Japan France Russian Federation Germany United Kingdom Italy United States
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employees.40 The G-8 has also backed the ILO and OECD in their declarations and
guidelines for labor standards relative to MNCs. However, national contact points from
both the United States and the United Kingdom were found to ignore the claims of NGOs
and to treat them unfairly, according to OECD Watch’s study, suggesting that
industrialized states may attempt to protect the interests of their big businesses abroad
while supporting decent work standards at home.41 Several protests in the United States
and throughout Europe demonstrate public sentiment against globalization and
multinational corporations. Most notably, 20,000 people gathered in Seattle, Washington
in 1999, during a meeting of the World Trade Organization, to protest the effects of
globalization.42 Similarly, a large protest consisting of both Americans and Europeans
erupted in Prague in 2000 when a group of demonstrators marched in opposition to the
poverty and pollution arguably caused by globalization.43 Despite these protests, G-8
states represent the vast majority of economic productive throughout the world, and
without the meaningful support of these states, little will change relative to the rights of
workers worldwide.
Africa For the past two decades, ethnic conflict and political turmoil have plagued much
of Africa. Due to the political instability of the region, there is a low level of
international investment, especially from multinational corporations. The lack of
investment, combined with stalled economic growth, enhances the poverty of the region.
Direct investment in Africa from multinational corporations is currently at a lower level
than it was in the 1970s, and two-thirds of the African population now lives in absolute
40 Joseph Kahn, “China Blocks International Meeting Focusing on Workers’ Rights,” The New York Times, December 9, 2004, final edition, LexisNexis Academic, http://web.lexis-nexis.com 41 “Five Years On: A Review of the OECD Guidelines for Multinational Enterprises and National Contact Points.” 42 Postman, David, et al, “Clashes, Protests Wrack WTO: Police Try to Break Up Protesters; Clash Delays Opening Event,” The Seattle Times, November 30, 1999, final edition, Lexis-Nexis, http://web.lexis-nexis.com 43 Adler, Michael, “Demonstrations Growing in Prague Against World Bank and IMF,” Agence France Presse, September 24, 2000, final edition, Lexis-Nexis, http://web.lexis-nexis.com
Rutgers Model United Nations 2006 17
poverty.44 This situation has prompted the African Union to promote programs to
increase employment and income levels in Africa. As part of the “Jobs for Africa”
program established by the International Labour Organization, the importance of
international investment is stressed as a means to boost the economy and create jobs. The
African Union has addressed labor standards and the affect of legislation as areas to
develop political stability and good governance in the region. Africa would therefore
support setting labor standards for multinational corporations.45 In reality, however, local
governments may be hesitant to enforce such standards for fear of inhibiting economic
growth.
Latin America and the Caribbean Latin America and the Caribbean are popular locations for multinational
corporations because MNCs are able to operate inexpensively in the region. MNCs
create many jobs in the area, but there have been numerous complaints of exploitation by
such corporations.46 Mexico, especially, has experienced a significant increase in foreign
direct investment in the past two decades.47 In the early 1980s, prevailing Mexican
wages dropped below the level of developing countries in East Asia, opening Mexico to
much more foreign investment, with the number of workers employed by MNCs growing
at a rate of sixteen per cent per year throughout the 1980s.48 In the mid-1990s, however,
a devaluation of Mexico’s currency caused MNCs to look elsewhere in Latin America
and the Caribbean to invest, leading to the expanded presence of MNCs throughout the
region. For example, Volkswagen has invested more than USD $2.5 dollars in Brazil,
and Hughes Electronics has expanded its investment throughout the entire region.49
Consequently, nations in this region must try to balance their need to stay competitive in
the foreign investment market with their need to develop better protections for their 44 “Decent Work,” International Labor Office (Geneva: 1999), 48. 45 “Decent Work,” 50. 46 Esbenshade 110. 47 Christopher Power, “Second Thoughts on Going Global,” Business Week, 1995. 48 Sheldon Friedman, “NAFTA as Social Dumping,” Challenge 35 (1992). 49 Christopher Power 2.
Rutgers Model United Nations 2006 18
workers. States in Latin America and the Caribbean, therefore, must work together to
avoid the “race to the bottom” and pressure multinational corporations in the region to
enhance the standard to labor they provide.50
Asia Like Latin America and the Caribbean, Asia is a traditional location of
multinational corporations because of the low operating costs of running a factory in the
region. Nearly two-thirds of the world’s poor live in Asia, and in an attempt to remain a
competitive location for MNCs and factory jobs, nations participate in the “race to the
bottom” phenomenon that worsens wages and working conditions.51 The desire to
remain competitive has led to hesitation by local and national governments to enforce
strict labor regulations against MNCs. In 1995, for example, the UN Committee on
Economic, Social, and Cultural Rights specifically targeted the Republic of Korea with
respect to workers rights, stating its alarm at the high number of work-related accidents,
as well as the large disparity in wages between men and women.52 China has also been
targeted for blocking labor reform; in 2004 the Chinese government prevented a meeting
between business and global union leaders which would have pressured the government
to take more stringent action to protect workers’ rights. Almost every major MNC has a
presence in China, but the government forbids the formation of private labor unions and
often ignores or abuses labor laws such as wage rules and health and safety protections.53
Middle East Several countries in the Middle East are in the midst of social, political, and
economic change.54 In some countries, such as Bahrain, this change has led to increased
rights for workers. In 2002, Bahrain implemented a labor and trade unions law which
50 “Decent Work,” 51. 51 “Decent Work,” 53. 52 “Conclusions and recommendations of the Committee on Economic, Social and Cultural Rights,” Republic of Korea, U.N. Document E/C.12/1995/3 (1995). 53 Kahn 2. 54 “Decent Work,” 52.
Rutgers Model United Nations 2006 19
granted workers the right to strike as a legal way to defend their rights, AND guaranteed
right to set up independent unions and establish collective bargaining.55 Middle Eastern
nations like Bahrain that are establishing progressive workers rights initiatives are more
likely to favor stricter labor standards for multinational corporations. At the same time,
some Middle Eastern countries with a strong reliance on oil are looking to diversify their
economies. Saudi Arabia, for example, depends on oil for seventy-five per cent of its
GDP, but has in recent years attempted to diversify its economy and attract more foreign
direct investment. As of 2005, Saudi Arabia allows foreign investment in the
telecommunications and power generation sectors, and is researching other industries in
which to promote foreign investment. If this trend toward diversifying the economy in
the Middle East continues, MNCs will likely establish a much greater presence, which
may cause similar workers’ rights violations found in other developing states. The
Middle East may soon have to assess how strict it will be with MNCs; Middle Eastern
states that are very eager to attract new investment, however, may be hesitant set
standards too high for fear of discouraging investment.
Non-Government Organizations Numerous non-government organizations have taken a strong stance against the
poor treatment of workers by multinational corporations, best exemplified by the
establishment of OECD Watch as a coalition composed of nearly fifty NGOs seeking to
improve workers’ rights in MNCs.56 Several NGOs have also devoted significant time to
perform investigations of their own. Amnesty International, an NGO that works to
protect all aspects of human rights worldwide, has established its own set of guidelines
for multinational corporations to follow.57 Human Rights Watch, another prominent
55 Nizar Wattad, “Arabian Peninsula,” Washington Report on Middle East Affairs 21, no. 9 (2002). Academic Search Premier, via EBSCOhost. 56 “Five Years On: A Review of the OECD Guidelines for Multinational Enterprises and National Contact Points.” 57 www.amnesty.org
Rutgers Model United Nations 2006 20
NGO that focus on the promotion of global human rights, publishes reports on various
human rights violations of MNCs.58
Business At the core of the debate over workers’ rights is the fundamental idea that the role
of a corporation is to maximize profitability and to increase shareholder value. MNCs
operate in developing countries because these locations offer lower wages and cheaper
access to raw materials. The challenge for these companies is to balance their desire for
increased profits with the rights of the employees that generate these profits. Studies
have shown that multinational corporations often pay above-average wages, but this may
be to stay competitive in the region and to attract workers.59 Additionally, some MNCs
cooperate with independent monitoring agencies to inspect the working conditions of
their employees, but this may be done merely to enhance public relations, and the results
of such independent monitoring are often disregarded.60 Guidelines set to establish
decent standards of work in MNCs have failed to improve working conditions because
many multinational corporations have not agreed to change their labor standards to
adhere to such guidelines.61 Without an incentive that will benefit the actual
corporations, MNCs are reluctant to increase costs related to safeguarding their
employees.
Media Media coverage in industrialized states such as the G-8 states tends to highlight
the plight of the poor worker in the developing country. Reports often cast the
corporation in a negative light, accusing it of denying its workers fair working conditions.
The media also highlights protests against the effects of globalization and MNCs. For
example, The Toronto Star, a Canadian newspaper, recently published an article 58 HRW, “The Enron Corporation,” HRW, http://www.hrw.org/reports/1999/enron/enron2-1.htm (accessed 20 January 2006). 59 Baldwin 313. 60 Esbenshade 312. 61 “Five Years On: A Review of the OECD Guidelines for Multinational Enterprises and National Contact Points.”
Rutgers Model United Nations 2006 21
describing activists protesting Coca-Cola products at the 2006 Olympics in Turin, Italy
because of allegations of workers’ rights abuses by Coca-Cola.62 There is limited
coverage of the positive affects that these companies have in the developing states in
which they work.
In developing states, however, the media reports a much different story. MNCs
are essential to the economy of these nations, leading to a more positive portrayal of
MNCs. In China, for example, MNCs are not antagonized by the media by constant
reporting about a greater need for worker’s rights. In contrast, the media often highlights
the importance of MNCs to expand the economy of developing states. One Chinese
paper, for example, writes about an MNC that “cares a lot about the interest of employees
and has fostered close interactive relations with labor unions.”63 The paper also writes
about MNCs such as General Electric that call for greater corporate responsibility for
labor standards. Similarly, a Singapore newspaper writes of the virtue of MNCs, stating
that they are working to increase labor standards and want to “leave a positive legacy.”64
Clearly, there is a difference in the way the media in industrialized states and developed
states wish to portray the image of MNCs to the public.
62 Rosia DiManno. “Coke Sponsorship Fiasco Part of a Bigger Problem,” The Toronto Star, 8 Feb 2006. 63 “Corporate Responsibility Vital to Business Expansion.” Xinhua News Agency, 13 Oct 2005. 64 Andrew Symon. “Giants Need Not Be Selfish,” The Straits Times, 24 Feb 2006.
Rutgers Model United Nations 2006 22
Summary Since the Second World War, multinational corporations have developed an
importance presence in the global economy, controlling more than twenty-five per cent
of all production. Multinational corporations often choose to operate in developing
countries where costs are lower, opening them to criticism over their treatment of
employees. Although studies show that MNCs often pay their workers above minimum
wage standards of the region in which they are operating, other studies demonstrate that
the wage standards set by developing states are well below the level of sustainability for
an average family in the area, as developing nations often seek to attract MNCs by
lowering wages in an effort to remain competitive in the market. Such practices have led
to a “race to the bottom” in which developing states suppress their wages to avoid losing
foreign investment to an area in which the multinational can more cheaply operate. This
phenomenon counters the positive effects of international investment and helps keep
many citizens in poverty by allowing companies to pay them wages too low to live on.
Although the International Labour Organization and the United Nations have
passed several declarations and guidelines relating to “decent work,” they are all based on
the voluntary action of multinational corporations to increase their labor standards.
Unfortunately, with almost no pressure from the world community, MNCs see little
incentive to change their practices. As a result, many NGOs have called for sanctions
against MNCs that do not follow guidelines for decent labor conditions, but no such
sanctions have been imposed. Studies have found that MNCs allowing independent
monitoring of their factories often exploit such monitoring as a tool to gain public support
–MNCs rarely make changes to their standards of labor as a result of the monitoring.
Without pressure from states, both developing and industrialized, MNCs are hard
to control despite effort from NGOs. To genuinely improve working conditions
worldwide and to establish a principle of decent work that is followed by MNCs, the
Rutgers Model United Nations 2006 23
international community must band together and stand up for the needs of workers
worldwide.
Rutgers Model United Nations 2006 24
Discussion Questions
• Is your state home to any multinational corporations? How do these companies treat their workers? Have there been any complaints of exploitation or unsafe working conditions? Have these companies been responsive to such complaints?
• Is it possible to set up a universal standard of workers’ rights? How can cultural
issues make this difficult?
• How and why do developing states create a “race to the bottom?” Does this phenomenon help or hinder economic growth?
• Why have guidelines set up by organizations like the ILO failed to be effective in
changing the behavior of MNCs with respect to workers’ rights? Is it is likely that a voluntary set of guidelines will be enforced by MNCs?
• Why are industrialized states hesitant to pressure MNCs to increase their labor
standards? What can be done to encourage them to do so?
• Why is the right to form a union considered a fundamental human right according the UN? Can unions, if allowed to operate freely, raise the labor standards of MNCs in developing countries?
• Why do developing states desire the presence of MNCs in their nations? What
are potential drawbacks of having MNCs in developing states?
• Are sanctions an effective way to convince MNCs to raise their labor standards? Why or why not? If so, why have they not been implemented in the past? If not, are there any other alternatives to voluntary guidelines of labor standards that are more likely to change the labor standards of MNCs?
• Why are MNCs reluctant to establish stronger labor standards in developing
states?
• Is the negative reporting regarding MNCs accurate? Despite low wages, is the standard of living of the regions in which MNCs operate increasing or decreasing? What evidence is available to support these claims?
Rutgers Model United Nations 2006 25
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