[PEN-L:303] IN FOCUS: An Enforceable Social Clause

[Interhemispheric Resource Center <ircalb@xxxxxxxx>]

Foreign Policy In Focus: An Enforceable Social Clause

October 1998
Vol. 3, No. 28

Written by Terry Collingsworth, General Counsel, International Labor Rights
Fund
Edited by Tom Barry (IRC) and Martha Honey (IPS)


Key Points
o	The failure of sustainable economic growth to take hold in the developing
world demonstrates that "free trade" is not delivering on its promise to
bring prosperity to the world's poor.
o	The new global economy forces developing countries to compete based on
their willingness to offer the lowest possible wages to multinational
firms, ensuring that the world's poorest workers remain poor.
o	If a major goal of the trading regime is to eradicate poverty, this needs
to be made explicit in the trading rules with an enforceable social clause
that prevents the worst forms of worker exploitation and protects
fundamental labor rights.


The recent Asian crash has provided economic policymakers with a refresher
course on a lesson learned by most of our depression-era grandparents
through painful experience: Laissez-faire capitalism does not lead to
broad-based economic development. With the meltdown in Russia, Japan in
crisis, Central and South America hanging on the precipice, Africa as
desperate as ever for economic assistance, and growing economic inequality
in virtually every country, we are at a crucial moment in economic history.

The economist cabal is split over what action to take. Free market purists
argue for no intervention-let the market discipline investors who thought
the Asian mirage was real. The other faction, led by U.S. Treasury
Secretary Robert Rubin, argues for International Monetary Fund (IMF)-led
bailouts to restore investor confidence, or at least to subsidize some of
their losses with public funds. Neither of these investor-oriented,
trickle-down perspectives offers hope for the countless millions of working
poor who will lose (or suffer a reduction in) their meager incomes because
of the global economic crisis. There is virtually no high-level policy
discussion on the need to reevaluate the global trading system based on its
clear failure to create sustainable economic growth in developing countries
that have largely followed the neoliberal economic prescriptions.

Following the searing experience of the Great Depression and World War II
and mindful of the threat of Soviet communist domination, the architects of
the post-war order understood that delivering economic benefits to the poor
was a necessary ingredient for an economic model that could counter the
Soviet challenge. Whatever the motivation, there was an express recognition
that trade was not an end in itself-increased trade was to be the engine
for bringing prosperity to the world's poor. For example, the preamble to
the original General Agreement on Tariffs and Trade (GATT), signed in 1947,
stated: "Relations among countries in the field of trade and economic
endeavor should be conducted with a view to raising standards of living and
ensuring full employment." This central mission statement justifying the
trading system has been forgotten.

Ironically, now that the global economy has become sufficiently integrated
so that trade could truly be utilized as a tool for eradicating poverty in
the developing world, the trading system has become the nearly exclusive
domain of private capital. The new captains of the global economy view the
goals of trade in entirely different terms from the drafters of the
original GATT. To them, the new global economy offers a way to have the
best of both worlds: products can be made with third world labor costs and
sold for first world prices.

Nike, to take a well-known example, shifted its shoe and apparel production
from Oregon to Korea, Indonesia, and Vietnam and then to China and
Bangladesh, not to spread the benefits of development and raise living
standards for the working poor, but to take advantage of the merciless
competition for investment between developing countries that have been
forced to undercut each other in the race to offer the world's lowest wages.

Promoting sustainable economic development is not an objective of Nike and
its well-developed competitors. In fact, the global manufacturers that rely
upon cheap labor in the third world have a clear conflict of interest with
any developing country's development aspirations, which could raise the
price of labor. The mobility of these companies as they search for ever
cheaper sources of labor and abandon workers who had an expectation that
they would eventually earn a living wage confirms this reality. Any
development-oriented changes in the global economy must come from
regulation of private investors rather than from a naïve hope or cynical
assertion that these companies will regulate themselves. The health of the
world's economy is dependant upon a revival of the concept that trade is a
tool to increase prosperity for all participants in the global economy.

An enforceable social clause that sets a global floor for labor rights in
order to prevent downward competition for investment would revive the
long-dormant GATT preamble.


Problems With Current U.S. Policy

Key Problems
o	Successive U.S. administrations have failed to adequately enforce U.S.
laws designed to serve as models for linking trade benefits to compliance
with "internationally recognized worker rights."
o	The Clinton administration has pursued trade agreements like NAFTA and
the Uruguay Round of GATT that promote trade and protect property but do
not include an enforceable social clause.
o	U.S. policymakers are captives of business interests and ignore calls
from trade unions, human rights groups, and development organizations to
promote sustainable economic development through trade policy.

Labor rights advocates in the U.S. have been quite successful in legally
mandating the link between labor rights and trade on a unilateral basis in
U.S. law. A series of laws were passed that condition specific trade
benefits on compliance with "internationally recognized worker rights."
Perhaps the best known and most utilized of these is the Generalized System
of Preferences Act (GSP), which grants developing countries duty-free
status on many exports to the U.S. in exchange for progress on worker
rights. The premise of the law was that "trade, not aid" should be the
basis for promoting sustainable economic development.

The GSP, and other laws linking trade benefits with the promotion of worker
rights, could have served as an important model leading to a multilateral
approach to social clauses in trade agreements. But the Reagan, Bush, and
Clinton administrations have consistently used their discretionary
authority to decline to enforce the worker rights provisions of these laws.
Whether the reason was foreign policy considerations or buckling to
pressure from a powerful U.S.-based company with offshore production, the
laws have never been enforced to any degree that would allow meaningful
conclusions to be drawn regarding the economic effects of this approach to
global regulation.

The U.S. government has also consistently failed to press for inclusion of
an enforceable social clause in multilateral trade agreements. The North
American Free Trade Agreement (NAFTA) includes a politically expedient side
agreement on labor rights-President Clinton's bone to progressives-but the
primary remedy for violations of the most important labor rights is a
"consultation" between the concerned governments. In extreme cases
involving health and safety violations, the government that failed to
effectively enforce its laws may be "sanctioned," but the sanctions can
then be refunded and used to improve enforcement efforts. Under no
circumstances may workers harmed by serious violations of labor laws obtain
direct relief; likewise, under no circumstances may a company that
repeatedly violates the rights of workers suffer any penalty. In sharp
contrast, U.S. negotiators insisted upon and were successful in obtaining
very strict protection in NAFTA for intellectual property rights, which
include the possibility of criminal penalties for violations.

Likewise, while the Uruguay Round of GATT produced a comprehensive set of
trading rules that protect property rights and create new regulations
regarding intellectual property, it was absolutely silent on labor
standards and other social issues. At the first ministerial-level meeting
of the World Trade Organization (WTO) in December 1996, the body created to
oversee the world trading system pointedly refused to even discuss adding a
social clause to the comprehensive trading rules. The matter was referred
to the International Labor Organization (ILO), which promotes compliance
with its substantive conventions but lacks any means to enforce its standards.

The present direction taken by U.S. negotiators for the Free Trade Area of
the Americas (FTAA) does not bode well for a significant change in
direction. The U.S. has accepted the limitation that social issues will not
be addressed in a formal negotiating group and can only be discussed within
a consultative committee on civil society, which can forward only
nonbinding recommendations to governmental negotiating groups.

While proclaiming its inability to gather the necessary support from other
countries to achieve an enforceable social clause, the U.S. government is
bargaining hard for new and effective standards for the protection of
intellectual property rights. This U.S. focus reflects an issue of
prioritization. Key policymakers are generally recruited from businesses
and institutions that are beneficiaries of the current economic system. For
example, the major voice on economic policy direction within the Clinton
administration, Treasury Secretary Rubin, formed his world-view while
working as a partner at Goldman Sachs, and the U.S. Trade Representative,
Charlene Barshefsky, was formerly an international trade lawyer
representing multinational companies at Steptoe and Johnson, a large
Washington, DC, law firm. The current global economic crisis may force a
reevaluation of the direction of U.S. policy and require input beyond what
would be good for U.S. corporate interests alone.


Toward a New Foreign Policy

Key Recommendations
o	The U.S. government should begin enforcing existing laws like the GSP in
order to develop a credible record for an alternative vision of economic
development.
o	Washington should lead by example and use its considerable economic
leverage to elevate social issues in all trade negotiations-rather than
simply using them as a bargaining chip to get further concessions toward
protecting property rights..
o	Trade unions, human rights organizations, and other interested parties
must unite nationally and globally around a concrete proposal for an
enforceable social clause.

The U.S., as the largest single consumer in the global market, could
immediately change the tenor of trade by fully implementing the worker
rights provisions in the GSP and other related laws. This would signal that
Washington is now serious about social issues as they relate to trade. To
counter the inevitable charges of protectionism and unilateralism, the U.S.
should clarify that it supports the inclusion of an enforceable social
clause in all multilateral trade agreements. This will inevitably be a slow
and difficult process, and success will depend in large part upon U.S.
resolve. Trading partners were certain that there would be no U.S.
agreement on NAFTA or GATT without solid protection for intellectual
property and other commercial interests; this level of resolve must now be
expressed and acted upon with respect to social issues.

Success in developing an enforceable social clause depends upon a lot more
than U.S. government acceptance, however. Natural allies in the labor,
human rights, and environmental communities remain divided on what should
be covered by a social clause. Further, there has been very little concrete
action taken to develop a workable enforcement process. Multinational
firms, in fierce competition with one another for market share, managed to
cooperate in their mutual interest to develop global trading rules to
protect property and investment. The very diverse interests that seek an
alternative economic model must likewise cooperate to ensure the adoption
and implementation of a social clause.

In deciding what should be covered by a substantive social clause, the
approach most likely to lead to acceptance is agreement on the most
fundamental rights that should be enforceable immediately and the
subsequent identification of any number of additional standards to be
phased in over time. There is an emerging consensus on which labor issues
must be included in a social clause. The most widely accepted version is
proposed by the International Confederation of Free Trade Unions (ICFTU),
the international body of national trade union federations.

The ICFTU defines its social clause based on key conventions of the ILO
that have been ratified by most countries of the world: the right to
associate (ILO Convention No. 87); the right to organize and bargain
collectively (ILO Convention No. 98); equal employment opportunity and
nondiscrimination (ILO Convention Nos. 100 and 111); prohibition of forced
labor (ILO Convention Nos. 29 and 105); and prohibition of child labor (ILO
Convention No.138). These labor rights could be supplemented at an
appropriate time with additional provisions relating to specific conditions
of employment and wages. Environmental issues could be prioritized in a
similar way to achieve a more comprehensive social clause.

The conventional debate rages over whether the WTO or the ILO is best
suited to enforce social issues, but this either/or approach is
unnecessary. Every possible venue should be used to promote compliance with
the social clause. Since trade is the catalyst for the global economy, it
should be the primary vehicle for enforcing social norms.

One possibility for comprehensive enforcement would be to simply require
compliance with the social clause as a condition to participation in any
given trade agreement. This is the approach taken unilaterally by the GSP,
which provides a strong incentive for compliance by offering tariff
forgiveness on a wide range of goods. If extended to multilateral
agreements, this approach would offer whatever benefits are attributable to
a given trade agreement as the reward for compliance with the social clause.

A modified version of this approach would be to allow provisional
membership in a trade agreement subject to a very specific plan to
participate in a process to harmonize law and practice upwardly to be
consistent with the social clause. A further principle of harmonization is
that countries that lack the resources and capacity to improve the
enforcement of labor laws must be provided with direct assistance to
support these activities and to offset the costs of compliance.

But these enforcement approaches put the burden on individual countries to
meet the standards of the social clause. Comprehensive compliance is likely
to occur only if private companies are also held accountable for failing to
comply with the standards. As a condition to operating in more than one
country covered under a trade agreement, companies should agree to be bound
by the terms of the social clause (as well as local laws) and to submit to
information audits to confirm their compliance. This approach, which is
utilized with respect to existing laws by the Overseas Private Investment
Corporation, an agency of the U.S. government that provides financing and
insurance to companies investing in developing countries, acknowledges
appropriately that employers, not countries, violate the laws. Should a
company be found in violation of the social clause, remedies could range
from monetary penalties to loss of market access to revoking the right to
transport across national boundaries any products made in violation of the
social clause.

The key goal is to begin a discussion that will lead to a concrete proposal
to replace the current "free market" trading system, which protects only
property rights, with a system that gives life to the GATT preamble and
explicitly recognizes that a major goal of trade should be to improve
living standards and conditions of work for the workers of the world.


Sources for More Information

AFL-CIO
Public Policy Department
Thea Lee, Assistant Director
815  16th Street NW
Washington, DC 20006
Voice: (202) 637-3907
Fax: (202) 508-6967
Email: tlee@xxxxxxxxxx

Development GAP
Steve Hellinger, Karen Hansen-Kuhn
927  15th St. NW, 4th Floor
Washington, DC 20005
Voice: (202) 898-1566
Fax: (202) 898-1612
Email: dgap@xxxxxxxxxxx
Website: http://www.igc.org/dgap

Economic Policy Institute
Jeff Faux, President
Robert Scott, Economist
1660 L Street NW
Washington, DC 20036
Voice: (202) 775-8810
Fax: (202) 775-0819
Email: rscott@xxxxxxxxxx

Institute for Policy Studies
John Cavanagh, Director
Sarah Anderson, Fellow
733  15th St. NW, Suite 1020
Washington, DC 20005
Voice: (202) 234-9382
Fax: (202) 387-7915
Email: jcavanagh@xxxxxxx
Website: http://www.igc.org/ifps

International Labor Office
Anthony Freeman, Director
1828 L Street NW
Washington, DC 20036
Voice: (202) 653-7652
Fax: (202) 653-7687
Email: washilo@xxxxxxxxxx
Website: http://www.us.ilo.org

International Labor Rights Fund
Pharis Harvey, Executive Director
Terry Collingsworth, General Counsel
733  15th Street NW, Suite. 920
Washington, DC 20005
Voice: 202-347-4100
Fax: 202-347-4885
Email: laborrights@xxxxxxxxx
Website: http://www.laborrights.com

U.S. Department of Labor
Andrew J. Samet, Deputy Undersecretary
Bureau of International Labor Affairs
Room S-5303
200 Constitution Ave. NW
Washington, DC 20210
Voice: (202) 208-4843
Fax: (202) 219-4923
Email: jaffe-maureen@xxxxxxx
Website: http://www.dol.gov

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