Policy Briefs

Dealing with Labor and Environment Issues in Trade

by Kimberly Ann Elliott, Peterson Institute for International Economics

July 2001

 


Kimberly Ann Elliott is a research fellow at the Institute for International Economics. She is the editor of Corruption and the Global Economy (1997), and coauthor of Can Labor Standards Improve under Globalization? (forthcoming 2003).

© Institute for International Economics. All rights reserved.

 

This November, trade ministers from the United States and more than 100 other countries will gather in Doha, Qatar, with the goal of launching a new multilateral round of trade negotiations. Space permitting, hundreds or thousands of protestors will also gather to condemn the unwillingness of the World Trade Organization (WTO) to give more serious attention to the negative consequences of globalization for workers and the environment. As in Seattle in 1999, however, the number of protestors in the streets will be less important in determining the outcome in Doha than whether or not US Trade Representative Robert Zoellick has “trade promotion authority” from the US Congress to bolster his position. Without it, any WTO commitment to negotiate is likely to be weak. But getting it will require that the administration and Congress find a way to address the labor and environment concerns of key constituents in this country, while still preserving enough flexibility for Mr. Zoellick to be able to negotiate effectively at the international table.

Rebuilding a bipartisan coalition in favor of further trade liberalization requires progress on at least three related initiatives: 1


The Domestic Policy Package

Enforcement of core labor standards in low-wage countries is inherently desirable but will do little to help American workers cope with the downsides of globalization. For that reason, we believe domestic policy proposals should be in the forefront of the overall package. Moreover, the need to renew the Trade Adjustment Assistance (TAA) program this year offers an opportunity to further help workers cope with an increasingly global economy. In addition to overhauling US adjustment and training programs to make them more coherent and more effective, Congress should also consider “wage insurance,” a relatively simple and inexpensive idea that addresses key weaknesses in existing programs.

There are two motivations behind adding wage insurance to the worker adjustment package. The first is the accumulating evidence that worker anxiety about job loss and subsequent earnings losses is increasing, even in periods of low unemployment such as the one we have enjoyed in recent years. The second is the accumulating evidence that the form of worker training that produces the best outcomes is on-the-job training.


Getting trade promotion
authority will require that the
administration and Congress find
a way to address the labor and
environment concerns of key
constituents in this country,
while still preserving enough
flexibility for Mr. Zoellick
to be able to negotiate effectively
at the international table.


Wage insurance promotes on-the-job training and avoids other costs of longer unemployment by encouraging workers to go back to work as soon as possible. It does this by compensating part of the wage loss if a new job pays less than the old one. For example, wage insurance might make up 50 percent of the gap between the new and the old wage for the first two years of reemployment. An alternative approach would be to start the subsidy at a higher rate initially, perhaps 70 percent or so, and then to phase it down over two to three years. A plan developed by Lori Kletzer and Robert Litan, which for reasons of both efficiency and equity covers all dislocated workers, would cost $2 billion to $4 billion annually, depending on the size of the benefit and the unemployment rate.2

In addition, loss of health insurance is another major source of anxiety among workers and their families. Although, displaced workers have the right under current law to continue employer-provided medical policies, many cannot afford the premiums. Thus, the Kletzer and Litan proposal also includes a subsidy to offset the costs of health insurance at an additional cost of perhaps $1 billion annually. In the long run, systematic reforms to ensure that all Americans have access to affordable health care, regardless of their job status, would reduce the costs of, and facilitate adjustment to, economic shocks from any source.

Continuing attention to the effectiveness of primary and secondary education is also an important part of the long-run reforms needed to better prepare Americans to participate in a global economy. In the coming years, development of programs that encourage firms to provide more on-the-job training and encourage workers to engage in lifetime learning would also be desirable.

 

The International Policy Package

Linking trade to labor and environmental issues is anathema in much of the developing world because of fears that these issues will be used as an excuse to discriminate against their exports. The developing world’s worst fear is that labor and environmental standards will become a springboard for private rights of action, akin to the antidumping statute. While safeguards against protectionist abuse are clearly possible, past experience, particularly in the negotiations on intellectual property, gives poor countries little reason to think that WTO rules in these new areas would necessarily serve their interests. There could be some movement if US negotiators put something on the table that is of interest to the developing countries. But the opposition is not simply tactical and the range of possible outcomes, on the labor issue in particular, is quite limited.

This suggests that the guiding principle in writing legislative language on these issues should be permissive—not requiring anything as a condition of agreement, but not excluding anything either. A second principle should be that the WTO is not the appropriate body to set or enforce labor and environmental standards, but that it should address trade-related violations of these standards. In order to guard against protectionist abuse, it should do so only in a fashion that provides for multilateral review and should not provide for a private right of action. Not only will broad WTO enforcement of these standards never be acceptable to most of our trading partners, but it would also not be as effective as the proponents believe.3

On labor, the International Labor Organization (ILO) has the experience, the people, and the incentive to promote and enforce labor standards. That is its reason for being, not the WTO’s. As demonstrated by the recent actions against Burma over forced labor, the ILO also has constitutional power to authorize members to impose sanctions to enforce its standards if the members have the will to do so. It is also increasing technical assistance to member countries, particularly to combat child labor, and is shining a spotlight on compliance with all the core labor standards under the “Declaration on Fundamental Principles and Rights at Work.” What the ILO needs is more resources and more political support, a process that has begun but needs to be sustained and expanded.4 In particular, it is essential that the Bush administration reconsider its decision to sharply cut back the budget for international labor programs, including the ILO.

In the WTO, a limited agenda is appropriate but politically difficult and little progress should be expected in the short run. An agreement to interpret GATT Article XX(e) as covering all forms of forced labor, rather than just prison labor, might be possible and would help to boost WTO credibility. A joint commission or cooperative body that brings together the WTO, the ILO, and perhaps others to examine the costs and benefits for the economic development of export processing zones (EPZs), including the treatment of workers in those zones, would also be helpful. EPZs are the most readily identifiable face of globalization and they often compete with one another in offering incentives to foreign investors and, in labor-intensive sectors, use low labor costs to attract multinational investments. Given these characteristics, EPZs are a logical place for the ILO and WTO to work together to demonstrate that trade and labor standards can reinforce one another in raising living standards in poor countries.5


In addition to overhauling
US adjustment and training
programs to make them more
coherent and more effective,
Congress should also consider
“wage insurance,” a relatively
simple and inexpensive idea
that addresses key weaknesses
in existing programs.

On the environment, the answers are not as straightforward because the issues are broader and more complex.6 Because there is no single organization to defer to on the environment, the most logical WTO reform would be to negotiate language clarifying the relationship between international trade rules and multilateral environmental agreements (MEAs). The procedure adopted by the Clinton administration for reviewing the environmental implications of trade agreements is also a useful innovation and apparently will be continued by the Bush administration. Encouraging the UN Environmental Program to do this on a global scale, at least with respect to sensitive sectors such as agriculture, fisheries, and forests, would also be helpful.

Note that none of these proposals—on forced labor, EPZs, or MEAs—would require changes in US law; hence, agreements in these areas would not have to be included in implementing legislation. (Even an agreement to allow trade sanctions in response to violations of worker rights in EPZs, which is unlikely in the current international environment, could be handled using section 301.) This suggests that fast-track or “trade promotion authority” language could, as a legal matter, be broad and general; perhaps something like,

Principal negotiating objectives of the United States include:

 

The “Fast-Track” Process

Whatever its name—fast track or trade promotion authority, as suggested by USTR Zoellick—a procedure that constrains Congress to an up-or-down vote on large, complex trade agreements with many parties is essential to US negotiating credibility. In exchange for congressional restraint, provisions requiring the executive branch to consult closely with Congress and keep it informed at all stages of a trade negotiation should be beefed up.


On labor, the International Labor
Organization has the experience, the
people, and the incentive to promote
and enforce labor standards.
That is its reason for being,
not the WTO’s.


One means of affirming basic American support for international trade liberalization, while also ensuring that the executive branch does not surprise the Congress with unanticipated negotiations, would be to adopt a two-tiered approach.7 The first tier would grant permanent authority to the President to negotiate trade agreements while the second tier would require him or her to come back to Congress for specific authority for particular negotiations. As in the past, the first tier would set out general procedures for negotiation and approval of trade agreements, including reporting and consultation requirements during the negotiation and the process for Congress to vote on implementing legislation expeditiously. By tradition, the USTR consults with the key congressional committees during the process of preparing and implementing legislation, but Congress could ensure its role in the process by writing that tradition into law.


Because there is no single
organization to defer to on the
environment, the most logical
WTO reform would be to
negotiate language clarifying the
relationship between international
trade rules and multilateral
environmental agreements.

This first-tier general authority would also have to specify procedures for approving a second-tier request for authority to negotiate specific agreements. The executive branch would not be able to invoke negotiating authority until it requests it and Congress approves plans for specific negotiations. Congressional approval, perhaps by concurrent resolution, could be in the form of either an expedited affirmative vote or a negative veto. In designing this feature, there is a potential trade-off between efficiency and control. It would, in some ways, be easier for all concerned to deal with a single request encompassing all the negotiations planned in a particular period (for example, the Free Trade Area of the Americas, a new multilateral round, and the proposed bilateral free trade agreement with Singapore) rather than considering each separately. On the other hand, some in Congress will naturally be concerned about having to accept some negotiations they are not comfortable with in order to get negotiations they want—as in 1991 when President George H. W. Bush requested an extension of fast track to complete the Uruguay Round and also to negotiate the North American Free Trade Agreement. It might be best to keep this language as general as possible and then decide on a case-by-case basis how to package various negotiations.

* * *

In sum, both the substance and the process of trade negotiations have come under attack in recent years and building broad support for continued liberalization requires paying attention to both. A study last year by the Program on International Policy Attitudes at the University of Maryland showed that public support for trade liberalization jumped sharply when it was coupled with adjustment assistance for displaced workers and minimum labor standards.7 Talking about renewing TAA and strengthening parallel tracks for labor and the environment is a start, but it is also necessary to walk the walk.

 


Notes

1. For additional recommendations on how to revitalize the US trade agenda, see Gary Clyde Hufbauer, World Trade after Seattle: Implications for the United States, International Economics Policy Brief 99-10, Institute for International Economics, 1999.

2. Lori G. Kletzer and Robert E. Litan, A Prescription to Relieve Worker Anxiety, International Economics Policy Brief 01-2, Institute for International Economics and Brookings Institution, 2001.

3. Kimberly Ann Elliott, “Getting Beyond No…! Promoting Worker Rights and Trade,” in The WTO after Seattle, Jeffrey J. Schott, editor, Institute for International Economics, 2000.

4. Kimberly Ann Elliott, The ILO and Enforcement of Core Labor Standards, International Economics Policy Brief 00-6, Institute for International Economics, updated April 2001.

5. Kimberly Ann Elliott and Richard B. Freeman, “Global Labor Standards and Free Trade: The Siamese Twins of the Global Economy,” prepared for a conference on “The Impact on Health of Global Inequalities at Work,” Harvard University Center for Society and Health, Boston, 20-22 June, 2001.

6. For a more detailed proposal on the environment and trade, see John J. Audley, "A Greener Fast Track: Putting Environmental Protection on the Trade Agenda," Working Paper No. 22, Washington: Carnegie Endowment for International Peace; available at: http://www.ceip.org/files/Publications/wp22.asp.

7. The section draws heavily on I.M. Destler, Renewing Fast-Track Legislation, Policy Analyses in International Economics 50. Institute for International Economics, 1997.

8. University of Maryland, Program on International Policy Attitudes. 2000. Americans on Globalization: A Study of Public Attitudes. College Park, MD, March. http://www.pipa.org/OnlineReports/Globalization/global_rep.html.



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