Tricky Trade Balancing Act.

A way for WTO members to protect workers' rights and promote economic development.

It its 1999 Seattle meeting, the World Trade Organization (WTO) failed to launch a comprehensive round of multilateral negotiations because members could not agree on an agenda. For example, the United States and European Union (EU) would like talks on workers' rights and environmental standards, but they are opposed by developing countries. The EU is seeking a competition policy agreement but is opposed by the United States. Many developing countries would like to roll back Uruguay Round commitments regarding intellectual property but are opposed by the United States.

The purpose of the WTO is to promote trade that raises incomes and growth in both industrialized and developing countries. Workers' rights is just one area where some governments see stronger international rules as enhancing the benefits of globalization, while others view them as threatening their development prospects.

For each contentious issue, governments should ask:

Can members agree on standards for national governments' policies and practices?

Would better compliance with these standards promote trade that raises incomes and growth?

Are violations of these standards significantly affecting trade?

Would applying WTO dispute settlement to complaints about derogations from these standards promote trade that raises incomes and growth?

Is the WTO the most effective forum for these problems?

Since 1948, the WTO system has evolved from the General Agreement on Tariffs and Trade (GATT), which focused on tariffs and quotas, into a capacious system of public international law, regulating many aspects of national industrial policy having international competitive consequences. Although the legal protections workers enjoy in one or several countries can have a major impact on the competitiveness of industries and workers in other countries, no WTO agreement addresses the general rights of workers, such as the right to unionize.

In parallel, a system of international human rights law has emerged that obligates governments to protect civil, economic, and social rights. In this context, certain "core workers' rights" or "core labor standards" have achieved near universal recognition, as witnessed, for example, by the near universal government participation in the 1948 UN Declaration on Human Rights, and the 1998 International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work and surveillance program. These rights are: the prohibition of exploitative forms of child labor, forced labor and discrimination in employment, and freedom of association and collective bargaining.

Eight ILO Conventions address these core rights in specific detail; however, many nations have not ratified all of them. The United States, Canada, China, India, Japan, Korea, and Mexico have not ratified Conventions in at least two of the following areas: minimum age for employment; forced labor; nondiscrimination; and freedom of association and collective bargaining. These governments embrace the goals of these Conventions, as evidenced by their participation in the above referenced agreements, but often they do not agree with the specific means required by these Conventions. Hence, core labor standards could not be addressed in the WTO by importing these eight Conventions into a WTO agreement, or conditioning WTO rights on compliance with these Conventions.

At least 120 million children between the ages of 5 and 14 in developing countries are fully at work. About 12.5 million are in export industries. This approximately equals the number of workers in industrial-country textile and leather goods sectors--export industries where child labor is most prevalent.

Concerns about forced labor focus mainly on unpaid prison labor and bonded labor. A 1996 Organization for Economic Cooperation and Development (OECD) study cited such practices as prevalent in China, India, Pakistan, and Brazil.

Discrimination against women appears pervasive. Average female to male pay ratios are similar in the OECD and developing countries. Ratios are particularly low in East and Southeast Asia and some European countries. Japan, Korea, Malaysia, Singapore, Luxembourg, and Cyprus appear to have among the lowest ratios.

Freedom of association is fairly well guaranteed in industrialized countries. The worst problems are in China, Egypt, Indonesia, Iran, Kuwait, Syria, and Tanzania. Other major countries with major obstacles to the free operation of unions include Bangladesh, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, and Thailand.

Some critics argue that more rigorous international enforcement would impose Western values on many developing countries and harm their development prospects. Since virtually all governments have affirmed the core standards, limiting more rigorous enforcement to these would circumvent the "values issue." As discussed below, economic theory predicts, and empirical evidence indicates, that lax enforcement of workers' rights encourages prolonged reliance on less-skilled labor-intensive activities and does not encourage economy-wide capital formation and long-term growth.

This said, more rigorous enforcement of workers' rights would impose significant economic adjustments on developing-country economies and impose costly enforcement burdens. Should a Labor Rights and Trade Agreement (LRTA) be negotiated during the next WTO round, the adjustments imposed on developing countries should be weighed in the concessions offered them. Also, enhancing World Bank resources for strengthening legal infrastructures would be a good investment for both speeding development and protecting workers in industrialized countries from unfair competition.

If export industries make more intense use of exploited labor than import-competing industries, then child labor, forced labor, and discrimination in employment may be expected to reduce wages for less-skilled workers, increase exports, and place downward pressure on the wages of competing foreign workers. This would likely reduce investments in human capital and more advanced industries, thereby slowing long-term growth. If employers face upward sloping supply curves for labor, restrictions on unions would likely have similar consequences.

An international agreement permitting countries to limit imports of goods made with exploited labor would increase wages, speed development, and increase growth in countries where labor is exploited if these measures caused offending governments to take corrective action. These same conditions prevail when trade measures are authorized against government policies that violate WTO rules and boost exports.

A forthcoming study by this author for the Economic Strategy Institute (ESI) estimates that annual manufacturing labor costs per worker, after taking into account national differences in productivity, are reduced by more than $6,000 in economies where both freedom of association and child labor are not well protected. This was found to translate into significantly greater dependence on export of labor-intensive goods such as textiles.

Although lax enforcement of workers' rights attracts investment to export platforms, it does not appear to have a positive effect on economy-wide foreign direct investment. A 1996 OECD study found no systematic relationship between restrictions on freedom of association and aggregate foreign direct investment. A 1996 Overseas Development Council study found a negative relationship between violations of basic democratic rights and child labor, and U.S. foreign direct investment. The ESI study obtained similar results.

WTO rules regulate the way governments treat one another's goods and services (they define an exchange of benefits or contracts); whereas, ILO Conventions establish standards for how governments treat their domestic workers.

WTO members may bring complaints about violations that deprive them of contracted benefits. Dispute settlement panels may authorize trade measures, calibrated to withdraw equivalent benefits, when respondents refuse to satisfactorily modify behavior. Generally, this process has been successful in persuading governments to correct offending practices.

ILO members may bring complaints when other members fail to comply with Conventions, but the ILO may not authorize specific trade measures or specific sanctions. Hence, the ILO relies more on a surveillance system in which member governments report on their efforts to comply with Conventions, and a Committee of Experts and the annual International Labor Conference evaluate these reports. The record of enforcement through this procedure is uneven, though it has the virtue of embarrassing and pressuring governments guilty of the worst abuses.

In regional and bilateral trade agreements, governments may address issues not covered by WTO agreements. The labor side agreement of the North American Free Trade Agreement encourages members to effectively enforce their domestic laws. The U.S.-Jordan Free Trade Agreement awaiting congressional approval commits both governments to enforcing domestic laws that establish minimum ages for employment, prohibit forced labor, and protect freedom of association and collective bargaining. The EU does not a have comprehensive system of harmonized labor law; however, where members agree on common standards, these are expressed through Commission directives.

The United States conditions benefits under the Generalized System of Preferences and the Caribbean Basin Initiative (CBI) on respect for internationally recognized workers' rights. Investigations of private complaints about labor practices in several CBI countries have caused some positive changes.

Of the five questions posed at the beginning of this article, the answers to the first four appear to be "yes":

A clear consensus has emerged in the international community that governments have an obligation to protect certain core workers' rights.

Better protection of these rights would promote trade that increases incomes and growth, especially in developing countries.

Estimates of the number of child workers, violations of freedom of association, and their effects on manufacturing labor costs indicate abuses are widespread and significantly affect trade.

Applying WTO dispute settlement to violations of core workers' rights would promote trade that increases incomes and growth, much as it does for other policies that violate WTO rules and boost exports.

Regarding the fifth question, the relationship between workers' rights and trade could be addressed in either the ILO or WTO. However, empowering the ILO to authorize trade measures for violations of the Core Conventions would be problematic for many governments. Some of the issues the United States faces illustrate this.

The eight ILO Core Conventions establish means, not just standards, for protecting workers' rights, and U.S. compliance would require changes in U.S. nondiscrimination and industrial labor relations law. Examples could include requiring "comparable worth" standards for compensation and denying majority elected unions exclusive status to represent workers. The Congress may view such changes as unnecessary and inappropriate for achieving reasonable protection of workers' rights.

Empowering the ILO to authorize trade measures would permit economic sanctions for violations in one country having no significant economic effects on other countries. Generally, international law permits sanctions against sovereigns only for the most egregious human rights offenses, such as genocide. Congress could view broadening the scope for international intervention to include a wider set of sovereign actions as unnecessary for protecting the legitimate interests of U.S. workers.

These problems could be remedied by an agreement that:

* requires members to protect the internationally recognized core workers' rights;

* recognizes the right of governments to establish laws to achieve these purposes consistent with their domestic institutions; and

* provides for trade measures through dispute settlement only for violations that impose harm on other members' industries and workers.

This is precisely what an LRTA in the WTO would achieve, and negotiating an agreement in the WTO, as opposed to the ILO, would provide developing countries with opportunities to seek concessions in other areas for the economic adjustments and technical and financial burdens an LRTA could impose on them. It would leave in place uncompromised existing ILO procedures to investigate violations of core Conventions that constitute significant human rights abuses that only have an impact within the violating country.

Peter Morici is a Professor in the Robert H. School of Business at the University of Maryland and a Senior Fellow at the Economic Strategy Institute. This article is based on a forthcoming ESI study, which was supported by the Ford Foundation.