Abstract:

The Seattle Ministerial Meeting highlighted the diverging positions of industrialized and developing countries on trade and labor. This note describes and analyzes the main arguments of Latin American and Caribbean (LAC) countries regarding the inclusion of labor issues into the WTO negotiations. The author draws on his experience as Trade Minister of Costa Rica and participant in numerous diplomatic discussions on the subject of this note.

Introduction

While LAC countries have an agenda for cooperation on labor issues, they are generally united against linking trade and labor issues in trade negotiations and agreements. It might be accurate to say that most LAC countries prefer to cooperate on labor issues globally in the context of the International Labor Organization (ILO), and hemispherically in the context of the Labor Initiative in the Inter-American system, so as to avoid a formal or legal linking of trade and labor issues in the WTO and the Free Trade Agreement of the Americas (FTAA)2 .

Now, why is this so? It is common sense and a matter of fact that close links do exist in the real world between trade and labor issues, just as there are between trade and environmental issues. Thus, a position that seemingly rejects such a linkage appears on the surface as quite unreasonable. How is it justified? This note aims at answering that question in four steps.

Part I describes the main trade negotiating objectives from the developing countries' perspective and places the trade/labor issue in that context. Part II clarifies what is not entailed in the developing countries' positions on labor issues. Part III then provides an overview of the LAC countries' main arguments and concerns for opposing a linkage of these issues in trade agreements. Finally, Part IV sets out some questions and suggestions for further research and a constructive dialogue.


I.   Negotiating Objectives of Developing Countries.

As countries prepared to launch a new round of multilateral trade negotiations, developing countries have expressed strong concerns about what they perceive as uneven results in the balance of concessions from the Uruguay Round.

There is some truth to this and it is partly related to the time frames for the implementation of the commitments that were negotiated. A recent evaluation of market access results from the Uruguay Round concluded that:

"The major part of what developing countries gave is due now, the major part of what they receive will not be delivered until 2005, or is yet to be negotiated. What they gave (apart from the exchange of tariff cuts) was mainly acceptance of "codes" on major areas of domestic as well as import regulations/institutions (e.g. intellectual property, technical and sanitary standards, customs valuation, import licensing procedures). What they got in return from the developed economies is MFA elimination -not due until 2005- trade liberalization and reduction of domestic support on agricultural products -yet to be negotiated-".3

Given this situation, a new round would have provided an opportunity for developing countries to advance their objectives. Generally speaking, what developing countries want in trade negotiations is enhanced and secure access to large markets. This is seen as a necessary, but clearly not sufficient condition for growth, employment generation and poverty reduction.

Developing country priorities in market access include, mainly:

_ elimination of high tariffs and of non tariff barriers in sectors where they have comparative advantage (textiles, clothing, footwear, leather, food, agriculture);
_ elimination of tariff escalation;
_ tougher disciplines in the application of trade remedies by developed countries
_ further strengthening of dispute resolution mechanisms, and
_ enlarged access for their skilled labor to global markets for services.

They are also very interested in more access to international investment flows, but recognize that this is fundamentally a matter for domestic policies to improve the investment climate: from macro-disciplines, to normative frameworks for investment protection, to the core factors of competitiveness.

Developing countries, and particularly the smaller economies, are clear that trade and investment are the engines of economic growth and, in conjunction with appropriate social policies, offer the best chance for creating employment and reducing poverty. And this is why their priority is expanding trade and obtaining larger and more secure access to the markets of developed countries and to each others' markets. The introduction of other issues that threaten to complicate, delay or even derail the negotiations, is seen as a diversion from the main objectives in terms of growth and development.

II.   What is not entailed?

It is important to note what is not entailed in the opposition of developing countries, particularly in LAC, to the linking labor issues to trade.

Firstly, LAC countries are not saying that trade and labor issues are unrelated. They recognize that there are important relationships between trade and labor as well as trade and environmental issues. What they do not want is to link them in trade agreements or trade negotiations, and particularly not to link them to market access and trade sanctions, for reasons that will be discussed below.

Secondly, LAC countries do not reject the linkage because they have a policy of violating workers rights, or because these countries see themselves as having a competitive strategy based on exploitative conditions. LAC countries have signed an important number of ILO conventions protecting core labor rights. There are problems of enforcement and compliance. Yet, it is one thing to find cases of violations and a quite different one to suggest that this is something promoted by governments as a matter of policy.

Thirdly, developing countries are not declining to cooperate. In the Inter-American system there is cooperation at two levels: regional and hemispheric. At the regional level, Central America is a good example, where Ministers of Labor, including those of Panama and the Dominican Republic, meet regularly to undertake joint actions under the auspices of the regional ILO office. The main initiative, however, is Hemispheric. Ministers of Labor of the hemisphere meet every two years. At their last meeting in Viña del Mar, Chile, the Ministers of Labor agreed on a Plan of Action, and established two working groups: one on Globalization of the Economy and its Social and Labor Dimensions; and another on Modernization of the State and Labor Administration. They identified priority areas and have a number of initiatives to make progress in each area, including: the role of the Ministries of Labor, employment and the labor market, vocational training, labor relations and basic workers' rights, social security, health and safety, enforcement of national labor laws and administration of justice in the labor area, and social dialogue. The last meeting of Ministers of Labor of the Americas took place in Washington D.C. in February 2000.4

It should be stressed that LAC countries are quite engaged in cooperation and committed to work together among themselves and with the US and others on a broad range of issues. There are some funding problems for these cooperation programs but there is political will and an ambitious agreed-upon agenda. Strengthening this hemispheric initiative on Labor Cooperation could be a major way of achieving progress in legal frameworks and enforcement of core labor rights, as well as in other critical areas.

III.   Overview of Developing Countries' Arguments and Concerns

To provide a better understanding of why the majority of LAC countries have been refusing to address labor issues in trade negotiations, the relevant arguments are grouped into five categories, below: First, arguments relating to political economy, second, those concerning the stage of development, third, questions concerning the logic of trade negotiation, fourth considerations of efficiency in achieving negotiating objectives and finally, arguments related to the global architecture of the trading system

Political Economy Arguments

The first political economy argument is related to how LAC countries perceive the political landscape in developed countries. LAC countries understand that pressures in developed countries to include labor issues in trade negotiations emanate from two major constituencies, sometimes acting in alliance: (1) Politically powerful lobbying groups interested in defending protection and privileges, who want to limit international competition from developing countries by raising their production costs and deterring investment flows to them; and (2) Morality-driven human rights and other groups that want to see higher standards abroad and have no protectionist agendas. The first group is perceived as not genuinely interested in improving the wellbeing in developing countries but rather motivated by competitiveness concerns and perceptions that they will be losers from freer trade. Hence, true or not, many developing countries are concerned that the motivations for including labor issues in trade negotiations are at best mixed, and at worst not really humanitarian at all, but rather expressions of protectionist interests. One aspect that reinforces the perception that this is an issue where pressure group politics is paramount, is the often-quoted statistic that only 12% of the US labor force is unionized. Given these apprehensions, this is a game that developing countries would rather not play.

A second political economy issue, closely related to the first, is the perception that self-interest or protectionist intent is clear from the selective focus on certain labor issues. Thus, the refusal to include social clauses issues of importance to some developing countries --such as the rights of migrant laborers or enhanced access for skilled labor in services contracts-- is taken as a signal that even if labor issues were included in negotiations, the playing field would not be level.

A third point relates to fears that by including labor issues in trade negotiations, developing countries might have imposed upon them models of labor/management relations that are inappropriate, be it because of their stage of development, or because changes in labor processes induced by globalization and the technological revolution are rendering such models increasingly obsolete. This serious concern, with potentially profound consequences, is shared by some developed countries as well.

Stage of Development Arguments

That last point is closely linked to stage of development considerations. They take various forms. To mention only one, there is the argument that since poverty, informality and labor market conditions in developing countries are quite different from those of an advanced industrial economy, the strict importation of rules and models of labor-management relations from advanced countries is questionable. A variation of the above focuses on comparisons between labor rights and models of participation in Europe and the United States and raises questions as to whether developed countries ought to undertake far greater commitments in the labor rights area than developing countries that are at a much lower stage of development. (e.g. Union representation on Boards and other aspects of the European model of labor relations).

Logic of Trade Negotiations

A further object of analysis should be the logic and realities of trade and trade negotiations. Here, three observations can be made:

The first relates to the fundamental asymmetry in market size and relative importance as trading partners between the US on the one hand, and developing countries (LAC in particular), on the other. In reality, the US is the only country that can threaten with credibility and actually produce damage, in many cases disproportionately so, by closing its market to the other trading partners. Accepting the link between market access or trade sanctions and labor issues, as suggested by US President Clinton in Seattle5 is, in practice, a way of institutionalizing unilateralism in a multilateral context, either in the WTO or in the FTAA. No win-win situation is perceived in this.

A second argument that explains not so much the opposition to linkage, as the strong feelings and inflexible positions on this issue by some countries, is the fear that any concession made to establish a Working Group on Trade and Labor as proposed by the US6 or a joint ILO/WTO Standing Working Forum on Trade, Globalization and Labor Issues as suggested by the EU and several other Members7, is a slippery slope. Countries see no end to it. For instance: at which point are trade unions or NGOs in the US going to support fast track? Will this support be delivered upon establishment of the Working Group on Trade and Labor in the WTO? Probably not. Countries will have to wait for the recommendations of the Working Group. But what if the recommendations of the Group are not acceptable for trade unions and NGOs? Thus, every solution engenders its own problems and some of those seem even worse than the current difficulties.

The third observation has to do with negotiating priorities and trade-offs. As already mentioned, developing countries' priorities include market access including agriculture and services, disciplining trade remedy laws and strengthening dispute resolution mechanisms. Inclusion of labor and environmental issues entails the risk of overloading negotiations and making them extremely complex, to the point of at best delaying or at worst impeding the achievement of results.

Efficiency in Achieving Objectives

A fourth category of arguments questions the effectiveness of trade sanctions as an instrument to achieve labor or environmental results. Are trade sanctions the best way to achieve results in improving labor and environmental standards? Are there superior ways of achieving these objectives and agendas?

A majority of countries favor a context of cooperation rather than one of negotiation, not only because of the economic and social damage that limitations to market access could inflict on them, but also because they are convinced that, to an important extent, the source of the problem lies in the lack of capacity to implement core labor rights, linked to limitations in institutional infrastructure and human and financial resources. From this perspective, technical assistance and capacity building are seen as first best instruments to achieve results. In other words, this is not a problem that can be overcome merely by using trade measures as mechanism to bring governments into line.

The difficulties that many developing countries are facing in implementing Uruguay Round commitments in areas such as Technical Standards, Intellectual Property and Customs Valuation illustrate this point. It is not merely a matter of getting provisions and rules into the WTO, but of actual institutional and administrative capacity to implement them.8

Some also think that insisting on linkage creates a confrontational and divisive agenda that undermines the objectives, instead of promoting goodwill and creative solutions and cooperation on labor issues. In this view, linkage should be replaced by appropriate governance at the international level, where each agenda is pursued at the appropriate fora. This does not mean that there could not be cooperation and coordination between responsible agencies, such as the WTO and the ILO, given the overlapping of issues. But this is not the same as bringing labor issues into the WTO.

Shaping the global architecture of the trading system

Finally, there are more fundamental questions to be considered: What is the appropriate governance at the international level? What is the appropriate architecture for the global trading system?

A first rather technical but important point concerns the architecture of the GATT/WTO system. Trade negotiators, in particular --and this is not only a developing country concern-worry about overloading the WTO with issues that the WTO was not designed to deal with and which could ultimately lead to the destruction of the multilateral, rules-based trading system.

This can be clearly illustrated with the debate around the proposals to accommodate in the WTO unilateral trade measures based on process and production methods (PPMs) in the country of export. The concern is that discriminating against products on the basis of the method by which they are produced, rather than their intrinsic qualities, amounts to the extra-territorial or extra-jurisdictional application of domestic regulations, perverting the long-established GATT/WTO principle of national treatment of goods in the country of import. The crux of the argument is that the principles of "national treatment" and "most-favoured nation" are intimately linked to the notion of "like product." These are the cornerstones of a multilateral trade regime that works well and has fostered a predictable and stable global trade regime. Allowing discriminatory treatment based on production methods, labor standards or human rights would destroy the predictability and undermine the fundamentals of the system. So there is a widespread agreement among trade experts that it is not advisable to amend WTO rules to accommodate unilateral discriminatory treatment.

Another issue of concern for trade experts is the risk of overloading the dispute settlement procedures of the WTO with disputes that are rather about environmental or labor issues than about trade, even though there might be an overlap. Many believe that the WTO has neither the expertise nor the legitimacy to adjudicate these disputes and that asking it to arbitrate in such matters undermines its credibility and diverts attention from its first priority, enforcing free trade rules.

In the environmental field arguments like this triggered the proposal to create a World Environment Organization to provide a focal point for Multilateral Environmental Agreements and other environment-related issues and disputes. Originally suggested by Daniel Esty, this proposal was adopted by Renato Ruggiero, Director General of the WTO in early 1999.9  The parallel with labor issues is clear. These discussions further underpin the view that linkage in general is not feasible, and that it should be replaced by appropriate governance at the international level, where each agenda is pursued by a separate responsible agency, with appropriate coordination between them.

IV.   Questions and Issues for Further Research

A number of important specific issues need clarification. The following six areas singled out by the recent US proposal to the WTO as terms of reference for the Working Group on Trade and Labor10, might be a good starting point:
1.  Trade and Employment
2.  Trade and Social Safety Nets and Protections
3.  Trade and Core Labor Standards
4.  Positive Trade Policy Incentives and Core Labor Standards
5.  Trade and Child Labor
6.  Trade and derogation from national labor standards (eg in Export Processing Zones)

In addition, a better understanding of the links between Trade and Wages would help dissipating many concerns and misunderstandings.

Yet, also more fundamental issues need to be addressed: One is the globalization debate. Many are concerned that the present model of trade liberalization is exacerbating developmental inequalities, environmental degradation, workers' exploitation and gender imbalances and demand that it should receive careful consideration based on solid evidence. These concerns will not go away. It is essential to discern the causes of inequalities and poverty. Attributing them to trade (whether in the US or in developing countries) is highly contentious and likely misguided. Are they due to trade, technological trends or lack of adequate social policies and safety nets, or a combination of these factors? Likewise, the present portrayal of the WTO as the culprit of all that is wrong with globalization and as beholden to multinational corporate interests to the detriment of labor and developing countries is seriously flawed. We need a balanced and well-informed understanding of the real dynamics of trade negotiations, as well as the relationships between trade and development, trade and jobs, and trade and living standards.

The second area where more research and better understanding is needed is global governance. It is important to understand the concerns of trade negotiators about the risks for the GATT/WTO system to be overloaded with labor and environmental issues. The global trading system is a major achievement and needs to be protected. Any change of rules has to be carefully thought out. In particular, further dialogue and research on the advantages and disadvantages of a separate track approach for global governance by having labor issues dealt with in the ILO is essential.


Notes:

1 Chief Trade Advisor to the Organization of American States (OAS), formerly Trade Minister of Costa Rica, involved in consultations and discussions with Latin American and Caribbean countries on trade issues. This note is based on a presentation given at the ODC/Friedrich Ebert Stiftung conference on "Trade, Labor Standards and the WTO", Washington, DC, November 15, 1999. The views expressed in this paper are entirely personal and shall not be attributed to the OAS.

2 See Jarreau, Negotiating Trade Liberalization in the Western Hemisphere: The Free Trade Area of the Americas, 13 Temp. Int'l & Comp. L. J. 57. For recent developments on the FTAA, see http://www.ftaa-alca.org/.

3 Michael Finger and Ludger Schuknecht, "Market Access Advances and Retreats: The Uruguay Round and Beyond", The WTO/World Bank Conference on "Developing Countries in the Millennium Round", Geneva, September, 1999.

4 See, http://www.oas.org/udse/english/cpo_trab.asp.

5 See, "U.S. Pursuit of Labor Working Group Meets Strong Resistance from Others", BNA International Trade Reporter, Vol. 16 No. 48, December 9, 1999.

6 Communication from the U.S. Establishment of a Working Group on Trade and Labor, reprinted in Inside U.S. Trade, 1. November 1999.

7 See, Draft document "Ministerial Decision on Trade, Globalisation, Development and Labour Issues", circulated early December 3, 1999. Available at http://www.insidetrade.com/sec-cgi/as_web.exe?SEC_world64+B+iwp998024.

8 See Michael Finger and Philip Schuler, "Implementation of Uruguay Round Commitments: The Development Challenge", The WTO/World Bank Conference on "Developing Countries in the Millennium Round", Geneva, September, 1999. Where has this been published?

9 See Renato Ruggiero, then Director- General, WTO: Opening Remarks to the High Level Symposium on Trade and the Environment, 15 March 1999, available at http://www.wto.org/english/tratop_e/envir_e/dgenv.htm

10 See above, n. 4.