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News Release

International Labor Organization and World Trade Organization Need to Strengthen International Labor Standards

May 28, 2003

Contact:    Kimberly Ann Elliott    (202) 328-9000

Washington, DC—Globalization and labor standards are complementary rather than competing ways to raise living standards around the world. Neither can advance very far without the other. Rapid and sustainable improvements in working conditions can take hold only in the context of expanding markets and robust economic growth. These are some of the main conclusions of a new study by the Institute for International Economics, Can Labor Standards Improve Under Globalization? by Kimberly Ann Elliott and Richard B. Freeman.

In order to address labor-related concerns about globalization, and to increase political support for a liberal trade agenda, the authors recommend that:

  • The International Labor Organization (ILO) retain the central role in promoting international labor standards and strengthen its ability to do so through supervision of compliance, technical assistance, and enforcement measures such as those taken against Burma over forced labor;
  • The ILO also use the Internet more effectively to disseminate information to workers explaining their rights; to consumers, workers, and nongovernmental organizations (NGOs) on the state of working conditions around the world; and to these groups, employers, and governments on effective ways to raise labor standards;
  • The World Trade Organization (WTO) expand its Article XX(e) to permit countries to ban imports of products linked to egregious violations of core labor standards that aim to promote exports or attract foreign investment; and
  • Anti-sweatshop activists, NGOs, and multinational corporations (MNCs) strengthen their cooperation in monitoring and verifying codes of conduct regarding labor practices.

The new study concludes that there is a market for labor standards that can both improve standards and increase public support for trade. Consumers are increasingly engaged in the global economy through the goods they buy and are increasingly aware of working conditions in source countries because of the media and the efforts of anti-sweatshop activists. The authors provide evidence that consumers care about these conditions, are willing to pay a bit more for goods produced under decent conditions, and will shun goods if they are informed the goods were produced under poor conditions.

The authors argue that this presents both risks and opportunities for MNCs and the developing countries where many of their operations and suppliers are located, at least in the clothing and footwear sectors. MNCs and exporting countries can lose business if they are labeled as violators of basic human and workers' rights, as Burma has found.

But there are also opportunities for firms and countries to differentiate themselves as "good guys" in the labor standards arena and increase, or at least protect, market share. Reputation-conscious, brand-name companies such as Levi Strauss, Reebok, Nike, and Starbucks have responded to consumer demands by adopting codes of conduct. In some cases, they are joining multi-stakeholder initiatives, such as the Fair Labor Association or Social Accountability International, that independently verify company compliance with code provisions. Some developing countries, for example Cambodia, are also exploring whether improved compliance with labor standards could be a useful marketing tool when competition in the apparel export market intensifies after the phase-out of Multi-Fiber Arrangement quotas in 2005. The authors find little evidence to support fears that international enforcement of core labor standards would undermine the comparative advantage of countries or firms or that a link to trade would be abused for protectionist purposes.

The market for labor standards is inherently limited, however, because it encompasses only a few consumer products (clothing, footwear, toys, food, and beverages). It misses exports of primary and intermediate products as well as nontradables in developing countries, such as subsistence agriculture and the informal sector, where conditions are far worse. Long supply chains in many of the targeted sectors also make it difficult to enforce codes of conduct, however serious the intent of the actors involved.

This leaves a large role for public policy and institutions in raising labor standards around the world. The most vigorous debate over global labor standards has been whether to include them in trade agreements and the WTO and whether to enforce them with trade sanctions. The authors recommend that the ILO retain the central role for promoting and enforcing labor standards and that it receive increased political and financial support to do so as long as it demonstrates that it is effective. The study notes that, to the contrary, the Bush administration has proposed cutting the budget for the ILO and for bilateral technical assistance to promote labor standards each year it has been in office.

The authors also recommend that the WTO take action against labor standards violations that fall logically within its mandate to discipline trade distortions. Derogations from national labor laws that are intended to promote exports or attract foreign investment are examples of such distortions. Article XX(e), which allows countries to ban imports made with prison labor, could be expanded to include egregious and trade-related violations of all the core standards—freedom of association and the right to organize and bargain collectively, the elimination of forced labor and child labor, and nondiscrimination in employment. This proposal restricts potential sanctions to those products implicated in the violation and would not sideswipe exporters who offer better conditions or better jobs in other sectors.

Trade-labor linkages have moved far faster in regional and bilateral trade agreements than they have in the WTO. Such linkages began with the labor side agreement to the North American Free Trade Agreement (NAFTA), and labor issues were included in the agreements between the United States and Jordan, Singapore, and Chile. Under the Trade Act of 2002, they will have to be included in some fashion in all future trade agreements as well. But complaints to date under NAFTA have produced little more than studies of labor standards problems, and the new agreements seem likely to do little more.

In sum, the authors conclude that globalization will work better if implementation of labor standards is improved, as standards advocates insist, and if market access for LDC products is improved, as globalization enthusiasts insist (as long as those products meet global standards). One way to do this is through corporate codes of conduct that inform consumers about work conditions and allow them to choose higher standards products. Another way to improve standards is to provide more resources to LDC governments to enforce their own labor codes. Yet another is to enhance the resources of the ILO to help governments improve compliance with global standards. Ensuring that globalization and labor standards are complementary also means responding to the market distortions created when governments—by law or by looking the other way—repress standards with the goal of increasing exports or attracting foreign investment.

About the Authors

Kimberly Ann Elliott is a research fellow at the Institute for International Economics and has a joint appointment with the Center for Global Development. Her previous books include Corruption and the Global Economy (1997), Reciprocity and Retaliation in US Trade Policy (1994), Measuring the Costs of Protection in the United States (1994), Economic Sanctions Reconsidered (2d ed., 1990, and 3d ed., forthcoming), and Auction Quotas and United States Trade Policy (1987). She served on the National Academies Committee on Monitoring International Labor Standards in 2002-03 and, in 1999, as chair of the Task Force on Civil Society of the State Department Advisory Committee on International Economic Policy.

Richard B. Freeman is Ascherman Professor of Economics at Harvard University, co-director of the Labor and Worklife Forum at the Harvard Law School, and director of the Labor Studies Program at the National Bureau of Economic Research (NBER). He is also co-director of the Centre for Economic Performance at the London School of Economics (LSE) and visiting professor at LSE. He has published over 300 articles on a wide range of topics including the job market for scientists and engineers, the growth and decline of unions, and the effects of immigration and trade on inequality. Some of his books include What Do Unions Do? (1984), When Public Sector Workers Unionize (1988), Labour Markets in Action (1989), Immigration, Trade and the Labor Market (1991), Working Under Different Rules (1994), What Do Workers Want? (1999) and What Do Unions Do to the European Welfare States? (2001).

About the Institute

The Institute for International Economics is a private nonprofit research institution for the study and discussion of international economic policy. The Institute, directed by C. Fred Bergsten, provides fresh analyses of key economic, monetary, trade and investment issues and recommends practical policy approaches for strengthening public policy toward these important topics. The Institute receives funding from a large number of private foundations and corporations.