Labor's Stake in the WTO

W
hen seven years of trade negotiations at last gave birth to the World Trade
Organization (WTO) in 1995, the U.S. labor movement was one of its leading
skeptics. A world trade organization, labor supporters argued, would only
accelerate the headlong rush to laissez-faire by dismantling national
regulations. It would overwhelm attempts by nations to defend living standards
and the ability of unions to fight for wages and health and safety laws—and it
would make it harder for nations to defend the rights of workers to join unions.
Labor lobbied hard against the WTO.

But now, ironically, the WTO could become a critical venue for advancing
workers' rights worldwide. For the WTO has the power to review nations' domestic
laws that create unfair trade advantages—including, potentially, labor laws. The
WTO could define fair trade to include labor standards. Such linkage would be a
historic change in the world's trading regime, and labor's stake in it.

The idea of linking labor rights with trade policy has been around since
shortly after World War II when efforts to create an international trading
regime began in earnest. However, the WTO represents the first opportunity since
1948 to give the issue serious attention.

Proponents of linking labor rights to trade rules build on the conventional
case for free trade. For international commerce to be free, markets within
countries must not be rigged to encourage exports and discourage imports. This
is the fundamental principle of free trade and it is the central precept of the
WTO.

Labor markets are a special case, because they are not conventional free
markets. Minimum-wage laws and guarantees of free collective bargaining change
the wages that market forces might otherwise produce. But the economic
mainstream in advanced industrial countries has long accepted that some
regulation of wages and working conditions can enhance overall economic
efficiency, as well as fairness. If employers are compelled to treat workers
decently, they will deploy them more productively. By that logic, certain labor
practices common in undemocratic countries, such as
child labor, prison labor, and denial of the right to form unions, can be seen
as unfair trade practices—and, potentially, violations of WTO principles that
trade should reflect acceptable rules of market competition.

Since wages affect all traded products and services, labor issues are central
to the ultimate credibility of the WTO as the arbiter of a consistent rule-based
international trading system. To the extent that wages are artificially held
down because labor rights are abrogated, an indirect subsidy is extracted from
these workers by their governments' policies, which arguably violate the WTO's
free trade philosophy.

D
uring the WTO's second-year review in late 1996 in Singapore, the
United States actively sought to link labor rights with trade. However, this
effort was blocked by a coalition of Third World nations (who saw the initiative
as a form of protectionism) and the European Union (which was then dominated by
conservative governments). Nonetheless, the attempt put the U.S. government on
the side of trade-labor linkage and forced WTO members to officially consider
the issue of linkage for the first time. Even Sir Leon Brittain, the Thatcherite
vice-president of the EU who actively opposed trade-labor linkage, was compelled
by sister EU governments to affirm that "labor standards and other
apparently domestic political issues are now the legitimate concern of the WTO
because they are concerns of our constituents." The United States,
according to the U.S. Trade Representative's office in Geneva, will continue
pushing for linkage.



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THE ORIGINS OF THE WTO

Established in the wake of World War II, the WTO's predecessor, the General
Agreement on Tariffs and Trade (GATT) formed the third pillar of the Bretton
Woods system, which included economic development loans through the World Bank
and monetary stabilization via the International Monetary Fund. While the IMF
and the World Bank date to the original Bretton Woods conference of June 1944,
trade rules were first addressed in a 1946 meeting that set tariff levels and
developed a draft charter for an International Trade Organization (ITO) that was
presented at the 1948 UN Conference on Trade and Employment in Havana. John
Maynard Keynes, the original architect of the Bretton Woods system, had hoped to
develop worldwide trading rules that would avoid the destructive protectionism
prevalent during the Great Depression, while preserving a commitment to full
employment.

The ITO charter contained sections on employment, commodity agreements,
business practices, international investment, and services. However, the ITO was
to be stillborn. And the prominence of employment in the construction of the
1948 ITO would be lost in the creation of the 1995 WTO.

Between 1946 and 1948, the start of the Cold War had closed what, in
retrospect, was a very narrow window for postwar internationalism in the United
States that included an activist role for government. GATT was far weaker than
the proposed ITO, but even GATT was opposed by the American right, as an
infringement on American sovereignty. Conservative commentator Fulton Lewis,
Jr., coined the slogan, "a GATT in your ribs," from the popular James
Cagney and Edward G. Robinson Hollywood genre of the day, in which guns, in
gangster slang, were called "gats."

When in 1950 the Truman administration realized that it lacked congressional
support, the ITO died. In its place the key trading nations adopted the earlier
and more limited 1946 agreements and established the "provisional"
GATT—pending a final transformation into some type of permanent treaty
obligation. It took longer than expected—47 years—to convert the provisional
GATT into a permanent WTO, whose structure and provisions are not terribly
different from the original 1948 ITO, except that the primary employment purpose
of world trade became lost amid the free trade ideology popularized since then.

W
hen the WTO replaced GATT on January 1, 1995, all of the GATT rules
and its 47 years of precedents were folded into the WTO. Broader in scope than
GATT, the WTO establishes rules of open trade in a variety of industries,
including manufacturing, services, and agriculture, as well as intellectual
property. A December 1997 agreement adds financial services and banking.
National laws restricting the rights of foreigners to buy banks must be swept
aside. While GATT relied solely on pressure and persuasion, the WTO has the
power—through its trade policy review process—to pass judgment on domestic laws,
regulations, and practices that affect trade. Although the WTO has not yet added
basic labor rights to the list of fair trade practices subject to its rulings,
decisions about how far the WTO can go to enforce labor rights will likely be
reached within the next five years.


A HOUSE FOR LABOR?

Labor's best hope for mitigating the effects of competition from low-wage
countries will thus be decided under the aegis of the WTO, where the battle
lines are being drawn between a handful of industrial countries that seek to
link trade rules with labor rights and an alliance of Third World countries with
their corporate patrons who resist doing so. (These developing nations have been
joined by some industrial-country governments, notably Australia, New Zealand,
and Great Britain under John Major's Tory government.)

Low wages do provide a comparative advantage, often legitimately, because
they reflect lower productivity. Low wages can help poor countries promote
exports and develop economically. But if the world trading system embraces rules
that uphold a minimum set of labor rights, this could prevent artificially low
wages. A linkage of labor rights and trade rules would help promote a
"high-road" form of development in the Third World by relieving those
countries of a competitive race to the bottom in which they are pressed to
guarantee a union-free and regulation-free labor market to a Nike or Wal-Mart
supplier. If labor rights become part of the regulatory regime governing
international trade, countries that deny basic labor rights to their workers
will no longer enjoy an artificial competitive advantage, and workers will be
less threatened by their corporate employers with flight to low-wage sanctuaries
that offer an unfree labor market through government policies that produce low
wages.

T
he only international institution that monitors labor rights today is
the International Labor Organization. Since 1919, the ILO has sought to
eliminate labor practices that stifle human progress. Its constitution states
that the "failure of any nation to adopt humane conditions of labor is an
obstacle in the way of other nations which desire to improve the conditions in
their own countries." Over the years the ILO has produced conventions that
it then asks its member countries to adopt. Central to this process is a set of
five categories of conventions that form what are called core labor standards,
which address practices concerning prison labor, bonded labor, child labor,
discrimination, and rights of labor to organize and bargain collectively.

The ILO has historically played a much less significant role in global trade
than GATT because it could only resort to moral suasion. While the ILO has
achieved some limited success by investigating and publicizing gross violations,
and by exerting pressure on countries through human rights campaign techniques,
it cannot issue sanctions or other penalties. Without the economic power to
pressure nations that fail to adhere to its core labor standards, the ILO lacks
any real leverage. But if the WTO were to take up labor standards, the ILO
vision would receive a huge boost.


HOW THE WTO WORKS

Bureaucratically, the WTO is an organization of some 500 highly paid
professionals, mostly lawyers, who work in a building in Geneva that resembles a
stylish nineteenth-century chateau—an interior of dark wood, plush leather
furnishings, and floor-to-ceiling windows. Sitting alongside the Botanical
Gardens just off Lake Geneva, the building feels more like a placid retreat than
a working edifice. At a distance from the hurly-burly of domestic politics,
government representatives and the WTO staff make significant decisions about
international trade out of the public's view. It has no written bylaws, makes
decisions by consensus, and has never taken a vote on any issue. It holds no
public hearings, and in fact has never opened its processes to the public. Its
meeting rooms do not even have a section for the public to observe its
activities. And its court-like rulings are not made by U.S.-style due process.
Yet the WTO today rivals the World Bank and International Monetary Fund in
global importance, because it has a dispute settlement mechanism with
enforcement powers.

In the basic architecture of the current trading regime, three minimalist
GATT principles continue to operate through the WTO. The first is the famous
most-favored-nation status (MFN): Products traded among GATT members must
receive the best terms that exist in any bilateral trading agreement. The
necessity for an MFN clause arises because countries have bilateral trading
agreements. So if the United States imposes, say, a 10 percent tariff on product
X from country Y, it must use that same tariff on all other members of the
earlier GATT and the present WTO. Today nearly all countries are either members
of the WTO or would like to be. Twenty years ago, however, only a minority of
nations were GATT members and the MFN concept had more force, because those
outside of GATT could not receive MFN treatment except by specific bilateral
extension. The annual congressional fuss over China's trade status occurs
because China, which is not in the WTO, does not automatically receive MFN
treatment. Congress must choose to grant it, withhold it, or subject MFN
treatment to special conditions. In lending China MFN status, the United States
voluntarily allows China to receive the rewards of WTO membership as it pertains
to trade between the two countries, even though China has been denied membership
to the trade organization as a whole.

The second GATT standard is called non-discrimination, which demands that
countries not discriminate between foreign and domestic products. Goods produced
domestically and abroad must receive the same "national treatment"—equal
access to domestic markets. The third GATT principle is
"transparency," which requires that any trade protection be obvious
and quantifiable—like a tariff. Finally, in addition to these rules, the WTO has
the authority to resolve disputes and to issue penalties and sanctions.

Moreover, its jurisdiction has been extended beyond manufacturing policy to
include domestic policies that affect trade. The WTO can now apply to many
service industries—including banking, insurance, management consulting, and
travel—the same policies that GATT applied to manufacturing. Patents,
trademarks, and copyrights, the bedrock of national policies that restrict trade
in intellectual property, now fall under the WTO's jurisdiction. Investment
issues can also be subject to WTO rules when restrictions on investment among
countries restrain free flows of capital and goods.

Any member country can challenge another's practices and file a claim, which
then triggers a formal procedure for resolving the dispute. Panels are
established to look at each dispute—there have been about 30 established since
1995—and, after several layers of appeals have been exhausted, the findings of
these panels are binding. While GATT had a similar process, it did not have the
power to recommend and enforce penalties, sanctions, and compensation—the WTO
panels do, and the signatories to the WTO have agreed to abide by the findings.
So far, every country found to be in violation of WTO rules has voluntarily
accepted the findings and taken steps to correct its practices. (When a country
first rejects a WTO panel's findings, the organization will face probably its
most difficult challenge: enforcing a finding.) Once a special panel makes a
decision about a specific dispute, a country found to be in violation of WTO
rules has several options, including repaying the aggrieved country for its
losses or changing its policies to comply with the panel's findings. In the
event that a nation in violation elects not to abide by its rulings, the WTO
allows the complaining party—as a last resort—to retaliate through the use of
counter trade sanctions.

T
he most far-reaching new power of the WTO is its jurisdiction over
national policies that affect trade. This has already allowed the organization
to grapple with a wide variety of issues, including: the use of growth hormones
in U.S. beef production; U.S. chicken production methods; India's process-based
patent laws that allow its domestic pharmaceutical industry to re-engineer drugs
developed in other countries; EU claims that more of its cheese should be
allowed to enter U.S. markets; the way Mexico catches tuna; and Thai, Malaysian,
and Indian shrimp harvesting techniques that kill sea turtles. To this list are
added intellectual property claims by France over the use of its regional wine
labels and Switzerland's assertion that only it can use the Swiss Army Knife
appellation. As more nations learn about WTO procedures, such examples will
multiply.

Although these trade policy reviews have just begun, they offer opportunities
to introduce uniform global stipulations into domestic policies, with
predictable outcries and controversies. The consequent reports that will emerge
are one of the WTO's levers for introducing standards for internal policies that
influence trade, such as labor rights.


LABOR RIGHTS AND TRADE

The idea of linking labor rights and trade was included in the Havana charter
of 1948. Article 7 of the ill-fated charter proclaimed that "members
recognize that unfair labor conditions, particularly in production for export,
create difficulties in international trade, and, accordingly each member shall
take whatever action may be appropriate and feasible to eliminate such
conditions within its territory." GATT lacked such a sweeping commitment
and only allowed a country to restrict another's exports based on the use of
prison labor.

The deliberations leading up to the formation of the WTO did not take up the
issue of labor rights until almost the last moment. Because the Reagan and Bush
administrations were uninterested, the issue did not receive attention until the
late fall of 1993, and it only became a factor then because, in order to win
congressional support for WTO approval, the Clinton administration needed to
regain labor support lost during the NAFTA debate. When the Clinton
administration did finally raise the issue of labor rights and trade, the
ensuing uproar among Third World delegations forced the issue to the sidelines.
It did not become part of the agreement, but the signatories agreed to take up
the matter in the future.

This could be construed as either a victory or a defeat, and in fact it was
both. Labor rights did not become part of the WTO. But the opportunity for tying
labor rights to trade policy is significant, and subsequent maneuvers within the
WTO have nudged labor's concerns closer to the playing field.

Shortly after the inauguration of the WTO in 1995, the International Labor
Organization was commissioned to come up with a program for introducing labor
rights into the development of WTO trade regulations. Its draft produced such a
firestorm of controversy that it never saw the light of day. Even now, few
people have seen it, and those who have will not talk about it. That experience
has made the organization wary of treading onto this terrain unless its mandate
is more clearly defined, although the issue of linkage surfaced again during the
WTO's second-year review.


WHAT NEXT?

Organized labor and its friends would do well to make the WTO a priority
issue. The labor movement's attention, divided as it is among so many demands,
has not focused on Geneva in part for historical reasons. For years, the ILO
afforded equal status to trade unions from communist countries. As a result, the
AFL-CIO became disenchanted with the ILO and encouraged the United States to
withdraw from the organization, which it did between 1977 and 1980. This Cold
War legacy continues to cool the AFL-CIO's relationship with the ILO despite the
potential linkage of international labor rights to trade policy and the
importance of the WTO to this process. In addition, American labor should
connect the WTO's interest in linking labor rights to trade with efforts to end
child labor, which is certainly an issue destined to receive widespread support
if the WTO begins to focus on labor practices. So far, these issues have not
been integrated, and so the campaign against child labor remains a moral
crusade, rooted in labeling and consumer consciousness and detached from
enforceable trade sanctions and penalties.

But there are at least several concrete ways in which the WTO could soon be
used to link labor rights to trade policy. The first opportunity will arise when
China is proposed for admission to the WTO. Previous congressional statutes
(specifically the Jackson-Vanik amendment) give Congress the opportunity to vote
on China's accession to the WTO although congressional approval is not required
for other countries. So if members of Congress choose, China's WTO membership
could be conditioned upon the WTO's adoption of labor rights protections.

Second, future negotiations about specific products—with textiles being the
most likely candidate—might tie trade rules to labor standards. The Third
World's eagerness to accelerate the elimination of existing import quotas can be
connected to their acceptance of labor rights as part of the WTO trading
system.

The whole linkage issue won much greater prominence during the recent
congressional rejection of renewal of fast-track negotiating privileges for the
President. Now might be the time to press for the linkage of labor rights to
trade rules in the WTO. The introduction of labor rights into the WTO framework
is central to any strategy of softening global pressures on labor. It would
allow the United States, for example, to file a claim against Indonesia for
prohibiting trade union organization; Germany could object to Pakistan's use of
children in the production of carpets; and the use of bonded and prison labor
could be challenged wherever it occurs. This would be a major advance for labor
in industrial countries, for human rights, and for the welfare of the most
marginalized people in Third World countries.



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