Description
International labor standards refer to conventions agreed upon by international actors, resulting from a series of value judgments, set forth to protect basic worker rights, enhance workers job security, and improve their terms of employment on a global scale. The intent of such standards, then, is to establish a worldwide minimum level of protection from inhumane labor practices through the adoption and implementation of said measures. From a theoretical standpoint, it has been maintained, on ethical grounds, that there are certain basic human rights that are universal to humankind
5
International Labor Standards and
World Trade: Friends or Foes?
Richard B. Freeman
This chapter examines the demand for international labor standards in the global
economy and evaluates mechanisms for meeting that demand.
It makes five substantive points about standards:
There is a legitimate concern for international labor standards that
comes from consumer preferences. This concern can be partially met with
product labeling of the labor conditions under which goods are produced. Since
product labeling and corporate codes of conduct rely on the competitive market,
they have some advantages over political mechanisms for raising standards.
The view that standards are disguised protectionism is erroneous. The
distinction between core and cash standards, made by virtually every advocate
of standards, is fundamental. Adherence to core standards will not substantially
affect the comparative advantage of developing countries nor have more than a
minimal effect on trade.
There is a publicgoods dimension of the demand for standards that
private labeling cannot meet. This leads citi!ens in advanced countries to
pressure their governments to take action to get developingcountry
governments to raise standards.
"ne of the problems with developingcountry standards is inade#uate
enforcement of labor laws, which can be addressed through technical
Richard B. Freeman is Herbert Ascherman Professor of Economics, Harvard University; program director
for labor studies, National Bureau of Economic Research; and executive director for the London School of
Economics' Programme in Discontinuous Economics.
87
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assistance and advancedcountry pressures for enforcement, and by
promoting nongovernmental organi!ations concerned with labor rights in
developing countries.
Trade pressures are a legitimate tool for trying to increase international
standards, particularly in export processing !ones, but are unlikely to be the
superpolicy that advocates believe.
This analysis leads me to support a threepronged policy for enhancing
standards: substantial reliance on the private market in advanced coun tries to
''buy'' higher standards through consumer labeling, an interna tional mechanism
for dealing with egregious cases of low standards& mislabeling and for monitoring
labor conditions in export processing !ones, and a program to strengthen
government regulatory agencies and nongovernmental organi!ations, notably
unions, in developing countries so that they have greater capacity to enforce their
own labor codes.
(abor standards)norms or rules that govern working conditions and labor
relations)have become a key issue in public discourse about the future of
international trade. In *++,+- you had only to turn on your television to reali!e
this. In .anada, a young boy attained national renown campaigning against child
labor in less developed countries. In the /nited States, television host 0athie (ee
1ifford used her celebrity status to ''shine the light on the cockroaches'' who
operate sweatshops 2Boston Globe, * 3une *++-4, after having learned that apparel
with her logo was produced in .entral American and 5ew 6ork sweatshops.
Standards have also been on the agenda in trade negotiations. In the 5orth
American 7ree Trade Agreement 25A7TA4, the /nited States insisted on side
agreements re#uiring the trading partners to enforce their own labor laws. In *+8-
and *++9 the /nited States sought to link workers' rights and labor standards with
the conduct of trade in the /ruguay
und of trade negotiations and to the agenda
of the ;orld Trade "rgani !ation 2;T"4. 7rance has also strongly supported
linking workers' rights and trade. <ut these efforts have been stymied by
opposition from the governments of some less developed countries. At the *++-
annual meet ing of the International (abor "rgani!ation 2I("4, both countries
renewed calls for the ;T" to consider how trade policy might be used to implement
core labor standards, even though the I(" ;orking =arty on the Social >imension
of the (iberali!ation of ;orld Trade had earlier re?ected push ing for a social
clause in the ;T" due to opposition from some developing countries and
businesses.
$ven so, most people regard labor standards as akin to motherhood and apple
pie. 5early everyone supports standards in some form, at least in principle. All
countries enact standards for their workers. @ost have ratified some I("
conventions 2-,AAA ratifications of *B9 conventions, and *B+ agreementsC see I("
*++9, 9*4. Among the conventions most
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commonly ratified are those on forced labor, freedom of association and
the right to organi!e, collective bargaining, and discrimination.
*
To appreciate the
desire for labor standards, try arguing with your friends, spouse, taxi driver, or
religious leader against them. Are you in favor of slave labor, unsafe working
conditions, or ,yearolds sweating in a hor
rific factoryD .ockroachE
5onetheless, many in the trade community are suspicious of interna tional
labor standards and oppose linking them to trade policies. 1overn ments in less
developed countries worry that protectionism is behind the call for such standards.
Since some politicians and analysts attribute the problems of lowskilled workers
in advanced countries to developing country trade and thus seek to limit that
trade 21oldsmith *++9, *++,4, these concerns have merit. 7earing protectionist
policies, most trade econ omists balk at the notion that countries should try to
inFuence the labor standards of their trading partners through trade policies.
Is the demand for international labor standards truly a threat to efforts to lower
trade barriersD ;hat are the best ways to attain acceptable labor standards around
the worldD Should trade policy be used to improve
standards, or is the risk of exploitation by protectionists too greatD
This chapter addresses these #uestions. It first describes the demand for
standards that results from the preferences of consumers and lays out some
emerging privatesector modes for meeting this demand. 5ext, it addresses the
fears that protectionist interests may high?ack these demands. 7inally, it assesses
national government and international agency efforts to attain acceptable labor
standards.
Demand for Standards
Consumers today hold companies accountable for the way products are made, not just the
quality of the product itself.
):eebok statement 2as cited in .ompa and Ginchliffe>arricarrere *++,, --84
To evaluate society's demand for standards, consider two shirts, which are identical
in #uality. "ne is manufactured by Slea!o Inc. using political prisoners in a labor
camp, sexually harassed women in a free trade !one, convict labor, employees
whose efforts to unioni!e are suppressed by army brutality, and&or immigrants in a
sweatshop. The other is manufac tured by your runofthemill decent firm, whose
employees work under reasonable standards with or without an independent union
and whose government protects their basic rights.
The products are the same. The price is the same. ;hich do you chooseD
*. The /nited States is a signatory to conventions on hours worked and occupational health and safety,
though it has not signed as many conventions as other advanced countries.
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Table 1 Responses to Marymount University Excel
Omnibus
survey (percent by level ! "nc#e$
If you were aware of a retailer tat sol! "arments ma!e in sweatsops in te
Unite! #tates$ woul! you avoi! soppin" tere%
Ye%& '(l) *v") %+pp"n, t+ere
All --.5/
015&222
015345&666
045376&666
052356&666
052&222
-1.5 -4.5
85.- 81.6
-6.5
If you were buyin" a "arment tat cost &'($ woul! you be willin" to pay up to a
!ollar more if it were "uarantee! to be ma!e in a le"itimate sop%
Ye%& '(l) p*y #re "! #*)e "n * le,"t"#*te %+p
All 85.4/
015&222
015345&666
045376&666
052356&666
052&222
-5.8
82.-
64.-
62.9
85.1
S(rce: M*ry#(nt :n"ver%"ty& Center !r Et+"c*l Cncern%& G*r#ent Wr;er% St()y&
Nve#ber 1665.
5ow the vendor raises the price. The shirts produced under the better standards
cost ,A cents, H*, HI, or H*A more than those produced under
poorer standards. ;hich do you buy nowD
At the same price, most consumers would choose the product made under better
working conditions. @ost would pay some premium for that product, though as the
premium rises, the number willing to pay the extra charge will fall, producing a
demand curve for labor standards in the product market. Gow large a premium
different people would pay for products made under acceptable labor conditions is
unclear. A *++, survey of Americans reported that most respondents said they
would shun a retail store whose products came from /S sweatshops and would pay
an extra dollar on a HIA garment to guarantee that the product be made under
decent conditions 2table *4. Gow many of the respondents will behave as they say
when facing the actual choice is unclear, but if only onehalf actually were to pay
the extra buck for the product produced under acceptable standards, the effect on
the product market would be substantial.
I know of no comparable survey regarding willingness to pay extra money for
products produced under acceptable conditions in other coun tries. @y guess is
that American consumers have a greater aversion to goods produced under low
standards in the /nited States than to those made under low standards in foreign
countries, and that they recogni!e that some standards must differ by level of
national 1>= per capita. <ut
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while Americans may be more upset about the sweatshop in 5ew 6ork
than the one in .alcutta, they still want some standards in the .alcutta products
they consume. @oreover, as >anidrik points out, American consumers may care
about standards in .alcutta not so much because of ''humanitarian concerns for
foreigners than for ensuring labor standards for domesticworkers do not erode''
2drik *++-, **4.
Treating standards as a byproduct for which consumers are willing to
pay money parallels Alfred @arshall's treatment of working conditions as a product
for which workers are willing to sacrifice pay through com pensating differentials.
In his classic Principles of Economics2*8+A4, @ar shall differentiated between the
bricklayer who cares whether he works in a palace or a sewer and the maker of
bricks, who couldn't care less if the bricks were used for the palace or the sewer.
The bricklayer's concern creates compensating wage differentials in the ?ob
market: lower pay for palace work relative to sewer work. .onsumers' concern
with the conditions of production adds a product market dimension to the compen
sating differential story. The consumer who cares whether the worker makes
products in a palace or sewer consumes not only the physical good but the
associated work conditions)an ''extended product,'' as it were. This will create
compensating price differentials in the product market analogous to compensating
wage differentials in the labor market: higher prices for goods produced under
better conditions.
There is, however, an important difference between workers' and con
sumers' assessments of workplace conditions. The bricklayer knows if he is in a
sewer or in a palace. The consumer, by contrast, does not observe the conditions of
production. 7or some products, she may rely on the reputation of the firm: ''Jerox
is a good company and must have good labor standards, even in developing
country J.'' <ut many companies use subcontractors, whose practices they do not
monitor. @any produce generic commodities, where reputation is irrelevant. As a
result, most consumers and many firms have little information about the
conditions under which the products they buy are produced. Gow, then, might
consumer preferences for standards be expressed in the marketD
"ne way is through product labeling of work conditions: a label that
says, for instance, ''These shirts are produced in country J under accept able labor
conditions.'' .onsumers can then penali!e or reward enterprises according to their
underlying preference for labor standards. ;hen con sumers shun goods produced
using poor standards, the market share of firms making these goods will fall,
raising the average level of standards. Some firms that initially produced under
poor standards will find it profitable to improve standards to avoid having to
reduce their prices to maintain customers, further raising average standards.
=roduct labeling has two virtues as a means of dealing with the demand
for standards. 7irst, labeling relies on the competitive market, not on
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politics, to determine the appropriate level of standards. The preferences
of consumers)how much they are willing to pay for higher standards) and the
cost of raising those standards decide which standards prevail in the marketplace.
5ationally, this avoids the danger that importcompeting groups might combine the
rhetoric of standards with political muscle to attain protectionist legislation that
they otherwise could not win. Interna tionally, it avoids the danger that some
developingcountry governments, fearful of incipient ;estern protectionism
and&or beholden to exporters who profit from low standards, will block efforts to
reach international accords.
Second, labeling has generally desirable distributional effects. (abeling re#uires
those who want higher standards)consumers in highincome countries 2or
developing countries4)to pay for what they want. The transfer is from
consumers to firms that meet the standards and to the inputs used by those firms.
I
The result is a net benefit to the world economy: production of new desired goods
)sneakers, shirts, or chil dren's toys)produced under higher labor standards
that meet the mar ket test.
Problems with Labeling
If only it were that simple.
(ike other goods based on information, labeling has problems. The market for
labels is not simple because labels are cheap to attach to items and hard to verify,
as anyone who recently bought a 1ucci watch for HI, in the local street market
knows. (owstandards producers have an incentive to lie to consumers about the
labor conditions in their work places. The consumer must rely on someone other
than the firm to verify the information in labels: producers' associations, retailers,
consumer based agencies 2.onsumer :eportsC 1ood Gousekeeping4, trade unions
2in the /nited States, the union label was once the premiere label, worth money in
the marketplace4, national governments, or international organi !ations.
Institutions that give labels in turn face the difficult problem of deter mining
conditions at thousands of workplaces. The information problem is immense.
.onsider Searsebuck and .ompany. Sears gets its goods from *A,AAA
companies worldwide, many of which hire subcontractors, and all of which buy
goods from yet other firms. Gow is Sears to guarantee that the products it sells are
made under acceptable labor standardsD
I. ;ithin the developing countries, the distributional conse#uences are a bit complex. If there are
compensating wage differentials for poor work conditions 2which is #uestionable4, the inframarginal
workers who accept those conditions plus high pay are among the losers, while the winners are
inframarginal workers who prefer working under better conditions at low pay.
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Sears re#uires contractors to sign an agreement that the goods are made
in compliance with national labor laws, but it cannot monitor all the firms with
which it deals any more than labor ministries can monitor all the firms under their
?urisdiction. The firm probably most committed to high standards, (evi Strauss, has
on occasion been embarrassed to find substan dard conditions at some
subcontractors.
The incentive and information problem in labeling suggests that there is no
single institutional solution to attaching an accurate ''7air (abor .onditions'' label
to goods. @arkets might develop alternative ways to provide the relevant
information, depending on conditions. 7or some goods, there may be competing
labels operated by activist consumer groups. 7or other goods, ma?or producers or
producer associations may develop a label for which they vouch. 7or yet others,
retailers, who may face consumer pressures for selling goods produced under poor
condi tions, might take responsibility. 1iven the information problem, retailers
cannot guarantee that all goods are made under appropriate conditions but can
promise to spotcheck subcontractors and respond rapidly to complaints. In other
situations, government agencies might be the appro priate vehicle for alerting
consumers about work conditions in overseas producers. In yet others, an
international organi!ation such as the I(" or some trade organi!ation might play a
role, encouraging some form of labeling and providing some verification of the
bona fides of labeling groups.
The ''labeling solution'' becomes even more complicated if, as is likely, consumers
care not only about the conditions involved in producing the goods they consume
but also about labor conditions in general. It is not only the purchasers of Slea!o
shirts that may want to stamp out the appalling work conditions in the Slea!o
factory, where management locks the doors to keep workers from taking breaks or
Feeing abusive supervi sors. (abeling Slea!o products as ''produced under
dangerous conditions'' might end the practice, but maybe not. If enough
consumers, perhaps a small minority, don't care about the work conditions and buy
Slea!o shirts anyway, the firm will remain in business, producing at low standards,
to the detriment of those who want higher labor standards. In this case, citi!en
preferences are such that labor conditions are a public good: your wellbeing
suffers from Slea!o's operation even if you do not buy its prod ucts.
;hat can you do to improve its standardsD 6ou can talk to other consumers
and try to convince them not to patroni!e Slea!o products. If you are particularly
offended and aggressive, you might even rip the Slea!o shirt off your neighbor's
back. <ut as the millions who suffer from secondary smoke know, such tactics are
costly to use and have only limited success.
The most common way to deal with publicgoods problems within a country is
through legal enactment. 6ou use some of your political capital
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 9)
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to get a law passed on national labor standards and insist that the labor
ministry enforce the law. To be sure, laws are blunt and imperfect instru ments.
(egal enactment of a single labor standard seeks to force some consumers)those
lowlifes who buy Slea!o products)to purchase more standards than they want. It
re#uires enforcement against the interests of Slea!o and its clientele, which may
prove costly. <ut to the extent that consumers care about substandard labor
conditions per se, legal enact ment&enforcement has the virtue of dealing headon
with the problem.
The situation with respect to general labor conditions in foreign coun tries
raises further issues. /S consumers cannot directly affect laws in some foreign
country whose labor standards appall them. ;hat, then, can they doD "ne market
solution is for consumers to penali!e a country with a reputation for ''bad
standards'' by restricting purchases of its exports, even though exporters
themselves might adhere to standards 2Srinivasan *++94. This re#uires that
consumers know something about general labor conditions overseas, perhaps
through extensive advertising by consumer groups, and that they be willing to
engage in secondary boycotts. <ut again, since this is a publicgood problem, the
natural mode of response is political: to press one's own government to use its
power) for instance, through trade agreements)to force the other country's gov
ernment to enact or enforce labor standards acceptable to the consumer.
=ursuing this logic, >anidrik 2*++-, I-4 has argued, ''"nce the demand for
labor standards is viewed as having a public element . . . the attractiveness of
labeling is greatly weakened.'' Strike the ad?ective greatly, and I agree 27reeman
*++94. (abeling and other forms of consumer infor mation are not panaceas. They
have advantages and disadvantages, ?ust as legal enactment and the use of trade or
other policies do. <ut use of labeling and consumer information is, I believe,
necessary to any effort to raise labor standards and should be promoted both by
advocates of standards and by those leery of including social clauses embodying
stan dards in trade agreements.
=roduct labeling and other forms of consumer information)such as corporate
codes of conduct)are, moreover, not simply a free marketeers' blackboard model
of how the unfettered economy should work. (abeling is increasingly used by
privatesector actors concerned with labor condi tions around the world. I
anticipate that labeling strategies will become even more important in the new
world of global information via the Internet's ;orld ;ide ;eb.
Private-Sector Labeling and Codes of Conduct
Table I provides a short, nonexhaustive list of some recent efforts to use consumer
labeling and codes of corporate conduct to guarantee that firms produce goods
under acceptable standards.
9* THE WORLD TRADING SYSTEM: CHALLENGES AHEAD
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Table ' +abelin" an! information initiatives to enforce
labor
stan!ar!s
,onsumer-pro!ucer "roups
R(,#*r; C*#p*",n. :n)er t+e *(%p"ce% ! t+e C+"l) L*br C*l"t"n<N*t"n*l
Cn%(#er% Le*,(e& * nnpr!"t !
*t"n& t+e c*#p*",n l*bel% +*n)3;ntte) r(,% *%
be"n, #*)e by *)(lt% nly *n) "ncl()e% "n%pectr%. L*r,ely cn)(cte) "n Ger#*ny& t+e
c*#p*",n '*% e=ten)e) t t+e :n"te) St*te% "n 1669.
>*"rtr*)e >*t"n. L*bel% te*% pr)(ce) er ,) cn)"t"n% '"t+ %c"*l bene!"t% !r
'r;er% n te* e%t*te% *n) per*te% t+r(,+ #*?r ret*"ler%& %(c+ *% S*"n%b(ry.
N S'e*t Tren)%etter L"%t. :S ret*"ler% *n) #*n(!*ct(rer% ple),e t er*)"c*te
%'e*t%+p% "n t+e :n"te) St*te%er t+e *e,"% ! t+e :S Dep*rt#ent ! L*br.
Clt+"n, "n)(%try %(##"t. Hel)er t+e *(%p"ce% ! telev"%"n per%n*l"ty @*t+"e Lee
G"!!r) *n) t+e :S Dep*rt#ent ! L*br& "t p(bl"c"Ae% cnnect"n% bet'een %'e*t%+p% *n)
clt+"n, #*;er%.
Cle*n Clt+e% C*#p*",n. A E(rpe*n e!!rt t 'r; n %t*n)*r)% "n *pp*rel t+*t "% b*%e)
"n t+e Net+erl*n)%.
Intern*t"n*l Ty C*#p*",n. A E(rpe*n e!!rt t 'r; n %t*n)*r)% "n ty% t+*t "% b*%e)
"n Ln)n.
In!ivi!ual firms
Lev" Str*(%% B C#p*ny. A)pte) c)e ! cn)(ct& !ll'"n, )"%cvery ! prble#%.
W"t+)re' 052 #"ll"n !r# C+"n* t prte%t +(#*n r",+t% v"l*t"n%. In 1664 t+e
c#p*ny p*") %c+l t("t"n !r * B*n,l*)e%+" cntr*ctrC%er*,e e#plyee% t , t
%c+l *n) ret(rn t 'r; *!ter *,e 15.
Reeb;. H*% "n pl*ce * vl(nt*ry c)e ! cn)(ct !r %(bcntr*ctr%& '"t+ H(#*n R",+t%
Dr,r*#.
T+e G*p. >*c"n, pre%%(re& %",ne) *n *ccr) '"t+ t+e N*t"n*l L*br C##"ttee !r
"n)epen)ent +(#*n r",+t% #n"tr"n, ! "t% pr)(ct"n !*c"l"t"e% "n El S*lv*)r.
L"A Cl*"brne Clt+e%. Al%er pre%%(re& +*% be,(n t 'r; '"t+ "n)epen)ent
,r(p% t #n"tr !*c"l"t"e%.
St*rb(c;% C#p*ny. >*c"n, pre%%(re !r# *n *ct"v"%t ,r(p& "t )evelpe) * c)e !
cn)(ct t+*t "nvlve% %t*n)*r)% !r c!!ee pr)(cer %(bcntr*ctr% "n G(*te#*l*.
.ctivist "roups
A#ne%ty Intern*t"n*l. Cncerne) '"t+ +(#*n r",+t% v"l*t"n%& "ncl()"n, l*br.
H(#*n R",+t% W*tc+. Cncerne) '"t+ +(#*n r",+t% v"l*t"n%& "ncl()"n, l*br.
N*t"n*l L*br C##"ttee. E)(c*t"n ! "n %(pprt ! 'r;er *n) +(#*n r",+t% "n
Centr*l A#er"c*& !r#e) by :S (n"n% cncerne) '"t+ l*br cn)"t"n% "n re,"n.
Intern*t"n*l L*br R",+t% >. L*r,ely (n"n3%pn%re) ,r(p +e*)e) by !r#er :S
Secret*ry ! L*br R*y M*r%+*ll& t pr#te l*br %t*n)*r)% "n t+e :n"te) St*te% *n) t+e
'rl).
:S<G(*te#*l* L*br E)(c*t"n Dr?ect. C*l"t"n ! c##(n"ty& rel","(%& *n) (n"n
,r(p% pre%%(re) St*rb(c;% C!!ee t )evelp c)e ! cn)(ct !r 'r;er% "n
G(*te#*l*n c!!ee pl*nt*t"n%.
C+"l) L*br C*l"t"n. Cn%"%t% ! tr*)e (n"n%& rel","(% ,r(p%& *n) pl"t"c*l ,r(p% *n) "%
cncerne) '"t+ c+"l) l*br e=pl"t*t"n.
Dre%% !r C+*n,e. Cncerne) '"t+ N";e %(bcntr*ctr%.
All"*nce !r Re%pn%"ble Tr*)e. C*l"t"n ! *b(t 142 ,r(p% "n t+e :n"te) St*te% *n)
Me="c& pl(% 52 r % "n C*n*)* *n) C+"le& cncerne) '"t+ NA>TA.
S(rce: B*%e) n )"%c(%%"n% '"t+ *ct"v"%t%& crpr*te c)e ! cn)(ct %t*te#ent%& *n)
ne'%p*per reprt% (%ee *l% C#p* *n) H"nc+l"!!e3D*rr"c*rrere 1665$.
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 9/
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In the corporate world, (evi Strauss is widely lauded for its effort to
ensure high labor practices in developingcountry subcontractors. Accord
ing to .hief $xecutive "fficerbert Gass, ''In today's world, a TK expose L
on working conditions can undo years of effort to build brand loyalty.
;hy s#uander your investment when with commitment reputational problems can
be avoidedD'' 2Business Week, * August *++9, ,I4. The firm pulled out of .hina and
@yanmar 2<urma4 because of human rights violations in those countries.
"ther firms have also made efforts to ensure that overseas contractors
follow reasonable standards, often responding to information&pressures from
activist groups 2table I4. "ne of these, :eebok .orporation, in *++A re#uired its
.hinese contractors to certify that they did not use prison labor. In *++I it
initiated a formal worldwide code for contractors that barred child or compulsory
labor, discrimination, overtime without com pensation, and that called for fair
wages, freedom of association, and a healthy and safe workplace. In *++M :eebok
began auditing factories to ensure compliance 2:eebok *++94. "ther firms that
have corporate codes of conduct covering overseas subcontractors include Sears,
3. =enney, ;al@art, Timberland, Gome >epot, and =hilipsKan Geusen 2.ompa
and Ginchliffe>arricarrere *++,4.
=erhaps the bestknown effort by private firms to raise labor standards
in a foreign country occurred in South Africa under the apartheid regime. The
Sullivan =rinciples, adopted in *+BB by many /S firms investing in South Africa
under pressure from :everend (eon Sullivan, a member of the 1eneral @otors
board of directors, committed the firms to nondiscrim ination in their employment
practices and to make some efforts to improve the economic position of their
nonwhite workers.
7inally, table I lists some /S activist groups that have been pressing
for higher labor standards in the nation's trading partners. @any of the activist
groups have tiny staffs or operating budgets. @any are #uite speciali!ed: one
group worries about 1uatemalan coffee pickers 2which led to the Starbucks
policy4, another about Indonesian workers for 5ike. The main function of these
groups is to provide information and to threaten to embarrass ma?or firms with
that information. They do not organi!e boycotts or carry out largescale protests
against products. @any of the groups have a strong union inFuence, which may
arouse suspicions that they are fronts for specialinterest protectionism.
;hatever their motivation, the activist groups are an intrinsic part of
any privatesector effort to raise standards through labeling and consumer
information. The targeted firms may not appreciate it, but the activists are the
entrepreneurs in the market for standards, providing information and pricking the
consciences of consumers and management.
7or the private sector to succeed in promoting standards through label
ing and corporate codes, four elements are necessary: consumers who
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care, firms that want to meet the consumer demand for standards and
their own principles, modes of publici!ing the facts about labor conditions, and
activists.
In sum, there is a growing privatesector effort to ensure that goods are
produced in developing countries' and elsewhere under specified labor conditions.
The greater the consumer expressions of concern about conditions and the more
activist heat that is generated, the greater the amount of attention firms will give
to this issue. =roduct labeling and consumer information are key weapons for
raising standards throughout the world, wielded by individuals in the competitive
marketplace.
The Fear of Disguised Protectionism
The real danger of using trade sanctions as an instrument for promoting basic rights is that the
trade-standards link could become highjacked by protectionist interests attempting to preserve
activities rendered uncompetitive by cheaper imports.
);orld <ank, World Development Report 1995, B+
Western governments openly propose to eliminate the competitive edge of East Asia. . . . [T]he
professed concern about workers' welfare is motivated by selfsh interest . . . to put as many
obstacles as possible in the way of anyone attempting to catch up and compete with the West.
)@ahathir bin @ohamad 2International Herald Tribune, *B @ay *++9, -4
The fear that demands for higher labor standards is motivated by a desire to raise
costs in developing countries to benefit workers in the ;est underlies much
opposition to international labor standards and to the use of trade as an instrument
to impel developingcountry producers to raise standards. The campaigns of Sir
3ames 1oldsmith andss =erot against developingcountry trade, as well as
activist suggestions that seemingly seek to remove these countries' lowwage
advantage, play into
these fears.
M
The fact that some favor labor standards to reduce trade with develop ing
countries does not mean that standards are a protectionist wolf in lambs' clothing.
It does not mean that standards are designed to benefit domestic producers of
importcompeting products. 5or does it mean that, whatever the goal, enforcement
of basic labor standards will reduce world trade. To the contrary, the view of
standards as protectionism is the red herring in the standardstrade debate, and it
may have blinded some free
M. .onsider the following suggestion: the /nited States should re#uire that ''a developing country's
minimum wage . . . have the same relationship to the 5orth American minimum . . . as its labor
productivity in traded goods bears to 5orth American labor productivity in similar goods'' 2thstein
*++M, *84. As the /S minimum is about the lowest in the world relative to national productivity, this
suggestion might in fact not lead to higher minima overseas, but higher minima in the /nited States,
were it to be made reciprocal.
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traders from recogni!ing the reality of the demand for standards and
led them into logical inconsistencies, such as favoring harmoni!ation of technical
product standards while finding merit in diversity in labor standards 2$lliott
*++-a4.
otivation
There is one aspect of world trade in which advocates of standards explic itly seek
to end a highly lucrative developingcountry activity. They make no bones about
their desire to end this traded service, which I will label J:
(egislative and other measures should be taken to prevent and combat J, both in the countries
from which the customers come and those to which they go. . . . The ;orld Trade
"rgani!ation should be encouraged to convene an experts meeting designed to offer practical
measures to combat J.'' 2@untarbhorn *++-,
*-*B4
Aha, you say. The cat is out of the bag. Theywant the ;T" to end trade in J
on the grounds of labor standards. A protectionist plot to shift demand to domestic
producers, if you ever saw one.
;hat is JD
J is sex tourism based on child prostitution. The motivation for eliminat
ing child sex tourism in developing countries is not to shift demand to ;estern
children, though this may be an unintended side effect. The motivation is utterly
different: to stamp out this practice in poor as in wealthy countries 2/S
>epartment of (abor *++,4.
I have picked an extreme example, but my point is general. @ost advo cates of
standards are not protectionists. @ost advocates of standards want what they say
they want: to guarantee as far as is possible certain basic human rights to workers
around the world.
9
Any reductions in developing countries' comparative advantage
or in trade is purely inci dental.
"ne way to see that individual moral preferences underlie the demand for
standards is to examine the particular standards that advocates endorse. If most
advocates favored standards that would greatly reduce the labor cost advantage of
lowwage countries, such as a world minimum wage, free traders would have good
reason to #uestion their motivation.
9. As Timothy ;irth, counselor at the /S >epartment of State put it, '';e do not seek to use worker
rights as a new form of trade protectionism . . . we eschew such vague terms as social dumping. ;e don't
seek to nullify the natural comparative advantage of developing countries based on labor costs as long as
those labor costs are not artificially depressed by the denial of basic internationally recogni!ed worker
rights'' 2/S >epartment of (abor *++9a, *84.
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Table ) ,ore versus cas labor
stan!ar!s
,ore labor stan!ar!s
Dr+"b"t"n ! >rce) L*br (ILO Cnvent"n% 46 *n) 125$
Dr+"b"t"n ! D"%cr"#"n*t"n (ILO Cnvent"n% 122 *n) 111$
>ree)# ! A%%c"*t"n (ILO Cnvent"n 8-$
R",+t t Cllect"ve B*r,*"n"n, (ILO Cnvent"n% 68 *n) 155$
.r"uable core stan!ar!s
M"n"#(# A,e !r C+"l) L*br (ILO Cnvent"n 178$
Dr+"b"t"n ! E=pl"t*t"ve C+"l) L*br
M"n"#(# Occ(p*t"n*l He*lt+ *n) S*!ety
,as labor stan!ar!s
M"n"#(# W*,e >"="n, (ILO Cnvent"n 171$
M"n"#(# D*y ! Re%t (ILO Cnvent"n 15$
R",+t t Occ(p*t"n*l He*lt+ *n) S*!ety St*n)*r)% (ILO cnvent"n% cver"n, %pec"!"c
"%%(e%$
Sc"*l Sec(r"ty (ILO Cnvent"n 124$
S(rce: B*%e) n ILO cnvent"n% *n) v*r"(% )"%c(%%"n% ! cre %t*n)*r)% "n OECD
(1669$& :S Dep*rt#ent ! L*br (1665*$& *n) S'"nnertn (1669$.
<ut, as table M shows, advocates of standards continually distinguish ''core
standards'' regarding human rights from ''cost standards'' that should, and must, vary
with levels of 1>= per capita. .ore standards rule out a small number of
undesirable market outcomes such as violating human rights and re#uire some
democratic processes for workers to organi!e independently and bargain
collectively, which may only indirectly affect costs. =rohibitions of slave labor or
convict labor and of discrimination, and guarantees of the right of free association
and collective bargaining will not destroy .hina's cost advantage in producing
handmade rugs or inexpensive toys.
There is wide agreement in the world community about the core stan dards that
the world should establish 2I(" *++9C "$.> *++-C ;orld <ank, World
Development Report 1995, chapter **4. 5early every democratic country has its
own labor code that adheres to those standards or goes beyond them, though
dictatorships often outlaw freedom of association and sometimes use forced labor.
The member states of the Association of Southeast Asian 5ations, which has come
out against linking trade and standards, do not oppose a social clause in the ;T"
because they favor forced labor, discrimination, and exploitation of child labor.
They are against these practices and have increasingly improved freedom of
association.
;hile most core standards are thus universal, there is some division of thought
about the standards to apply to child labor 2Swinnerton *++-4. Some who favor
standards believe child labor should be banned: the :ugmark label guarantees
that its rugs are produced by adults. "thers, worried that the loss of employment
could force children into worse
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situations in the market, favor policies that create other programs for
them as part of the process. The (evi Strauss solution to child labor in its
<angladeshi operations provides a useful model here: the firm provides some
money so that previously employed children can go to school and return to their
?obs when they are of age. The "rgani!ation for $conomic .ooperation and
>evelopment 2"$.>4 distinguishes between child labor exploitation and child
labor per se. The I(" stresses the need for Fexibility in dealing with child labor to
ensure that such restrictions benefit the children. "ngoing discussion and the
experience of programs in the I("'s International =rogram on the $limination of
.hild (abor 2I=$.4 may help find the best solution to the problem of developing a
core standard, if any, regarding child labor.
There is a similar, though not widely examined, problem with occupa
tional health and safety standards. The most modern and expensive tech nology
may be safer than *+BAs technology in producing, say, autos, but to set a health and
safety standard that re#uires developing countries to choose the more expensive
technology would be putting the cart before the horse, to mix travel metaphors.
:ates of occupational fatalities are markedly higher in the same sector in
developing than in advanced coun tries 2;orld <ank, World Development Report
1995, B-4. The assurance that workers have egress in a facility might be part of a
core standard on health and safety, but many other safety conditions are a cash
standard, whose level must depend on 1>= per capita.
A second way to examine the motivation for international labor stan
dards is to assess who supports them in advanced countries. In *++, /S
legislators proposed a .hild (abor >eterrence Act that would have prohibited the
importation of goods produced abroad with child labor. ;ere these legislators
motivated by the hope that lessskilled Americans
in their district would benefit from reduced importsD
Alan 0rueger 2*++-4 has examined this #uestion, using the share of the
population in the relevant congressional districts with less than a high school
degree as an indicator of potential beneficiaries. Ge found that representatives
from districts with many high school dropouts were less likely, not more likely, to
have sponsored the bill. :epresentatives from states with high apparel and textile
employment have traditionally opposed lower tariffs but did not take a stand
against child labor. 0rueger 2*++-, *84 concludes: ''Although support for child
labor standards does not appear to be related to constituents' economic interests,
support for tariffs and #uotas does appear to reFect constituents' economic
interests.'' That is, the politicaleconomy opposition to trade shows up in support
of good oldfashioned tariffs and #uotas, not in the demand for standards.
<ut what about trade unionsD Table I showed that unions are in the
forefront of standards activism. 0rueger found that representatives from districts
with a high union representation were more likely to cosponsor
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the .hild (abor >eterrence Act and to oppose 5A7TA 2on which the
A7(.I" had taken a strong position4, though they had not opposed 1ATT. Isn't
this a sign of protectionist sentiment behind the cloak of standardsD If the typical
/S union worker competed with child labor or lowwage developingcountry
workers, one might suspect that it was. <ut, in fact, /S union workers compete
with $/ workers 2who work under higher standards than Americans4 or 3apanese
workers. /nion support of labor standards is not motivated by the possible indirect
gains to members' income from higher standards in developing countries. /nion
support for standards represents a principled commitment to improving the
situation for workers around the world, and in particular to strengthening the
position of unions in developing countries.
In sum, while the banner of standards attracts some protectionists, it is wrong to
treat the call for standards as largely arising from protection
ist motives.
,
Labor Standards! Costs! Trade
Forget motivation. What matters are the efects of international labor standards. If they increase
labor costs in LDCs and those costs shift production in labor intensive goods to advanced
countries, that's bad for economic efciency and the truly poor in the world.
)Archetypical skeptic of standards
There are two empirical issues in assessing the economic effects of labor standards:
the costs of implementing core standards and the elasticity of demand for
developingcountry products with respect to changes in costs.
I do not believe that core standards are all that costly to firms. .ore standards
involve changes in labor relations practices)how workers are treated)that affect
costs only indirectly. >oes a policy of nondiscrimina tion or protection against
sexual harassment or the right to freedom of association raise costs greatlyD
Swinnerton 2*++-4 has argued that some core standards are efficient and thus
would reduce costs. The "$.> concurs on some points. <ut one does not have to
believe in the efficiency of, say, nondiscrimination to accept the weaker claim that
the costs of standards are modest relative to the costs of production. $ven child
labor does not, according to the I(", have great laborcost savings 2cited in "$.>
*++-, *9I4.
The effect of cost increases on production depends on the elasticities of product
demand for the relevant imports. To the extent that developing countries speciali!e
in different goods than lowwage firms in the same
,. Gere I disagree with Srinivasan 2*++9, M-4, who believes that ''the demand for linkage between trading
rights and observance of standards with respect to the environment and labor would seem to arise largely
from protectionist motives.'' =rotectionists such as 1old smith, <uchanan, =erot, and their allies do not
disguise what they want.
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sector in advanced countries, substitution in the product market between
developingcountry goods and advancedcountry goods is likely to be modest: the
substitution will be between commodities, rather than in headon competition
between producers of the same commodity. If you raise the costs of making rugs
by replacing child with adult labor, the handwoven rug industry will not move to
<elgium, though some consum ers may shift their purchase of rugs to <elgium's
artificial textile products. $conometric estimates of the elasticities of developing
country exports and developedcountry imports from developing countries are not
that large 21oldstein and 0han *+8,4.
.onsider the polar opposite case, in which production of traded output in low
wage goods teeters between developing and advanced countries so that modest
increases in costs due to higher standards can greatly change the locus of
production of, say, apparel or shoe manufacturing. If this were true, the growth of
trade with developing countries in the past must have had a huge adverse effect on
lowskilled ;estern workers. <ut most economists who have studied the issue
re?ect the notion that such trade is the root cause of the economic problems of
;estern workers. Gow could it be, when the group most directly competing with
develop ingcountry workers, such as lowskilled women, have actually done
better in the ?ob market than lowskilled men, who do not in general compete
with these imports 27reeman and :evenga *++,4D If you agree that trade has had
only modest effects on the distribution of income within the ;est, you are led
naturally to re?ect the claim that higher labor standards will devastate developing
countries' comparative advantage.
drik 2*++-4 and the "$.> 2*++-4 have examined the linkage from labor
standards to labor costs' and ultimately to trade using crosscountry empirical
evidence. <oth use new indicators of labor standards.drik measures standards
by the number of basic I(" conventions to which a country has agreed and by
reports on lax child labor standards, based on /S embassy reports. The "$.>
focuses on violations of I(" .onven tions 8B and +8, which relate to trade
unionism and collective bargaining, that are listed in the I("'s new data base.
drik examines three outcome variables)labor costs, trade in clothing, and
foreign direct investment 27>I4)and finds that standards are correlated with
outcomes, though not always in the anticipated direction. The number of basic
conventions and superior child labor standards to which a country adheres are
associ ated, in particular, with considerably higher labor costs, when 1>= per
capita is held constant. <ut the number of I(" conventions is uncorrelated with
developingcountry textile and apparel exports, while lax child labor standards and
other measures of labor standards have only weak effects on those exports. 7inally,
7>I by /S ma?orityowned foreign affiliates is unrelated to I(" conventions and is
negatively associated with lax child labor standards: /S firms appear to prefer
countries with stronger stan dards.
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There are problems with these findings)the estimated effect of labor standards
on labor costs is too high to be accepted at face value and is inconsistent with the
positive relationship between 7>I and child labor standards that leadsdrik to
term them ''suggestive.''
-
Still, they raise the possibility that standards may have
greater effects on trade than I would have expected.
The "$.>, by contrast, finds no evidence for any effect of compliance with
standards on trade outcomes. .ountries with greater freedom of association have
not experienced greater increases in real wages nor in export performance 2"$.>
*++-, chart I, M4. The "$.> notes, for example, the large share of highstandards
countries in /S imports of textile prod ucts and the similarity in prices by
country even though freedom of association rights differ 2"$.> *++-, table *A4.
B
=erhaps most important, improvements in freedom of association are unrelated to
changes in eco nomic growth or export performance 2"$.> *++-, table B4.
7rom its study, the "$.> 2*++-, B4 concludes, ''These results imply that
concerns expressed by certain developing countries that core stan dards would
negatively affect their economic performance or their inter national competitive
position are unfounded. . . .'' As the "$.> analysis is based on comparisons of
outcomes with minimal control for possible confounding factors, I find this
conclusion a bit strong. Still, the absence of any simple relation between freedom
of association)the core standard that might be expected to have the most
substantive effects on outcomes) and outcomes across countries and over time, as
countries increase free dom of association, leads one toward re?ecting the claim
that core stan dards substantively affect developingcountry comparative
advantage.
5either thedrik nor the "$.> study is definitive. The effect of labor
standards on comparative advantage and trade is one of empirical magnitude,
which further research should be able to clarify. ;e need studies with alternative
measures of standards, models, and samples of countries. ;e also need
complementary microeconomic evidence from firms operating in developing
countries about the costs of enforcing stan dards at their workplaces and about
their perceptions of how standard induced increases in costs might affect exports,
as well as additional cross country analysis, before we can declare confidently that
core standards have no effect 2like the "$.>4 or some, albeit not fully consistent,
effects
2a ladrik4. At this point, the safest conclusion is that while core labor N
standards maymodestly affect developingcountry comparative advan
tage, this effect is hard to pin down.
-. The estimates suggest that child labor standards have effects on costs of H,,AAA or so, while adherence
to the basic I(" conventions has effects of around H*,8AA.drik 2*++-, IA4 notes that ''the parameter
estimates are probably giving us an indication of the aggregate effects of all OstandardsP.'' $ffects of this
si!e should greatly reduce foreign direct investment, which depends inversely on labor costs.
B. This may simply indicate that the products are in fact close substitutes.
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The lesson to draw from inconclusive findings depends on where you think the
burden of proof in the tradestandards debate lies. If you value trade per se highly
and labor standards ?ust a little, so that you are unwilling to risk anyreduction in
trade that improved standards might cause, the results may be enough to convince
you that standards should not be part of any discussion of world trade. <ut if you
value standards highly, the results should convince you that there is not much to
worry about from improving core standards. @ost people, aside perhaps from
trade economists, have the latter preferences. @ost seem willing to pay a price for
policies that would reduce forced labor, improve the conditions of child labor, and
assure core standards for employees worldwide. The smaller the price of standards
in the form of reduced trade, the less plausible is the argument that the trading
community should oppose international core labor standards as a protectionist
threat to the global economy.
National/International Trade Policies and
Labor Standards
That core labor standards may have only modest effects on trade does not imply
that standards should be made part of trade agreements, either through addition of
a social clause to the ;T" or in some other way. =erhaps trade policy is an
ineffective mechanism for promoting core labor standards worldwide. To
understand how to raise labor standards, I ask two #uestions: ;hat are the
bottlenecks that prevent governments from enforcing the nearuniversal
commitment to core labor standardsD .an
trade policy help remove those bottlenecksD
"overnment #nforcement of Standards
1iven that most countries accept core labor standards and that many have signed
various I(" conventions, enforcement rather than enactment is often the
bottleneck to achieving acceptable standards. 7or example, India prohibits bonded
and forced labor, bans employment of children under age *9 in ha!ardous work,
and has appropriate regulations for health and safety. It is signatory to many I("
conventions. <ut scarcity of government resources and lack of political initiative,
combined with incentives by private parties to avoid some standards, renders
some of the legislation ineffectual.
In general, less developed countries do not ade#uately enforce their labor laws,
particularly in small firms 2;orld <ank, World Development Report 1995,figure
**.I, B-4. @inistries of labor do not generally carry great weight in national
deliberations, nor can they obtain the resources needed to carry out their
responsibilities. At the ground level, government
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inspectors may be so lowpaid as to neglect violations of law in return
for modest bribes and may be too insufficiently trained to be effective.
Some officials may also decide that enforcement is socially undesirable. In *+89
I visited Sri (ankan brick factories where - to 8yearolds worked. ''<ut this is
against the law,'' I said to a (abor @inistry official. '';hy isn't something doneD''
The officials replied, ''6ou want them to starveD'' ;hile government officials cannot
readily say so, some discretion with enforcement can be better than perfect
regulation 27reeman *++IC S#uire and Suthiwart5arueput *++,4.
The labor supplemental agreement to 5A7TA, the 5orth American Agreement
on (abor .ooperation 25AA(.4, recogni!ed the enforcement bottleneck in @exico
and re#uired the parties to ''promote compliance with and effectively enforce its
labor laws through appropriate govern ment action'' 25AA(., Article M, *9
September *++M4. It also included a dispute resolution system and potential
penalties to support the accord.
=roblems with enforcing labor laws are not uni#ue to developing coun tries.
The /nited States has problems of its own, as the current American concern over
the growth of sweatshops within the country makes clear and as one of the initial
cases @exico brought under 5AA(. highlighted. The /S >epartment of (abor
has relatively few inspectors to monitor violations of labor laws and relies
extensively on individuals' reporting violations or suing in court over violations.
(egal enactment seems most effective in changing behavior where there is a
general social consensus that the relevant standard is appropriate 2as with
antidiscrimination legis lation4 or when there are many private institutions, such
as unions or employer federations, with incentives to monitor compliance 2as in
much of ;estern $urope4.
There are three ways to improve developingcountry standards via
increased efficiency of government regulation of markets:
:aise the competence of the relevant ministries through technical assis tance.
The I(" has been the ma?or international organi!ation involved in this activity.
:aise the incentive for developingcountry governments to enforce stan
dards by putting international pressure on them. The I(" has a well developed
system for treating problems with the freedom of association. $ven though the
I(" cannot penali!e countries found guilty of violating conventions, it can
create sufficient publicity and pressure to produce some changes. In addition,
the 5AA(. dispute&enforcement mecha nism raises the costs of
nonenforcement to @exico and should increase the weight the @exican
government gives to enforcement of labor laws.
Strengthen the competence of nongovernmental organi!ations con
cerned with workplace regulations. In the *++, World Development Report, the
;orld <ank praised the role of trade unions in monitoring
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employers' compliance with government regulations and called for a
greater union presence in developing countries 2much to the surprise of the
world labor community4. $ffective trade union movements in developing
countries would go a long way to alleviating world concerns over standards. If
employees have freedom of association, they ought to be able to gain other
standards as well, and increase compliance in their countries. This strategy
makes freedom of association central to any effort to rely on private parties to
improve enforcement of stan dards.
The extent to which international assistance or pressure can increase the
effectiveness of departments of labor, unions, and other nongovernmental
organi!ations 251"s4 in poor countries is, however, unclear. >evelop ment
economists have been struggling to explain why some governments manage the
development process well while others do not. =ressures or assistance from
abroad may be a very minor factor in determining government effectiveness. The
5AA(. experience should be telling in this regard, though the post5A7TA woes
of the @exican economy are potentially far more important in determining
@exican enforcement of labor laws than the 5AA(..
"overnment Protection of Low Standards
There is another more troublesome obstacle to high standards: the con scious
policies of some governments to suppress standards, either in particular areas,
such as export processing !ones 2$=Qs4, or nationwide.
In *++, there were approximately ,AA $=Qs located in BM countries 2"$.>
*++-, 9M4. @uch of Asian growth in exports is linked to $=Qs. They would appear
to be the most natural place to apply and enforce international labor standards,
given that it is relatively easy to monitor labor conditions in these sites, that the
producers are subcontractors to multinationals if not multinationals themselves,
and that the sole purpose of $=Q business is to produce for the world market.
$=Qs should be leaders in labor standards, but in many countries they are not
2though pay and benefits may be above national averages4. The /S >epartment of
(abor reports that in several of the $=Qs it investigated labor rights were more
restricted than in other sectors.
;hen labor rights are restricted in $=Qs relative to the rest of a country, this
restriction smacks of an illegal trade subsidy 2.harnovit! *++I4. Since $=Qs live
on trade, the labor conditions in these areas are, in some sense, the responsibility of
the world trading community. If there is a case for linking labor standards with
trade, and a place where trade pressures might prove effective, that place is with
the $=Qs. =ermitting countries to deny core standards in $=Qs is unconscionable if
something can be done about it with little effect on developingcountry comparative
advantage.
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The second area of suppression of standards occurs in dictatorial regimes, most
of which outlaw independent trade unions for fear of the pressure unions bring for
democrati!ation. The big fish here is .hina, where onefifth of the world's
population resides. .hina has a poor record of enforcing standards on forced labor,
among other violations of core standards, ?ust as it has a poor record of enforcing
other trade regulations, such as those to curb piracy of intellectual property rights.
<ut its policies on unions are not a matter of poor enforcement: the .hinese
government is committed to preventing the development of free trade unions.
;hat, if anything, can be done about .hinese violations of standardsD $ach year
or so, the /nited States threatens .hina with the loss of most favored nation trade
status for its human rights violations and&or its failure to control piracy of
intellectual property rights. There have been agreements to curtail sales of goods
made by prison labor. 1iven the growing si!e of the .hinese market and the
expansion of the market economy in .hina, it is unlikely that the /nited States
will actually act on trade threats, leastways without cooperation from other
advanced countries, unless it blunders. The right strategy for increasing standards
in .hina may be to increase contacts, make protests, educate the next generation
of .hinese leaders, and watch democratic practices expand with economic growth
rather than to engage in a trade war over standards. =erhaps this is a case where
consumer pressures have greater potential than government actions for raising
standards.
The .hinese example suggests that government pressures through trade may
have greater potential for success on the policies of smaller economies with more
democratic regimes, as opposed to large dictatorships. Trade union complaints to
the /S government or to the I(" about violation of worker rights against Thailand
or 1uatemala are more likely to improve labor standards in those countries than
complaints against .hina, even though many in the /S .ongress worry about
.hinese violation of human rights. As Srinivasan 2*++9, M-4 notes, ''The potential
costs of business interests in the /nited States of withholding Omostfavored nation
status from .hinaP are substantial enough for them to lobby against it.'' $ven with
smaller economies that are dependent on trade with the ;est, though, there is
good reason to ask, how effective can trade pressures be
in raising standardsD
The strongest case against making labor standards part of trade agree ments is a
simple one: that trade pressures may have only a limited effect in inducing
countries to change their policies. Absent experimentation with a social clause in
the ;T" to observe how it would work, our best assessment of what trade
pressures might accomplish comes from examining the effectiveness of past
government economic sanctions with respect to labor standards and other issues.
;ith respect to labor standards, the /nited States has explicit policies regarding
''worker rights'' among its trading partners, with rights provi
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sions added to a host of trade and investment laws, including the /S
1enerali!ed System of =references.
8
The 1S= links trade status to labor rights in
/S trading partners and establishes a review process for assessing worker rights in
countries benefiting from tariff preferences.
.omplaints about practices have come largely from the A7(.I" and activist
groups. 7or instance, in *++M the A7(.I" made submissions against Thailand,
centering on child labor violations, the right to organi!e, and the right to bargain
collectively. 1S= complaints were brought against 9A countries from *+89 to *++,,
of which about half were deemed suffi ciently meritorious to lead to a review of
country practices. Absent a serious investigation of the outcomes of these cases, it
is difficult to ?udge their effects, but the "$.> notes that ''progress in raising core
standards has been made in most of the countries petitioned'' 2"$.> *++-, 8-4.
The /nited States has on occasion applied trade sanctions to particular countries,
such as .uba, for political reasons. "ther countries have also used economic
sanctions as a tool for affecting policy)for instance, against :hodesia when it
established an independent whiteminority regime. Studies of the effectiveness of
trade policy instruments in achiev ing nontrade goals in general find that these
sanctions are of limited effect and dependent on particular circumstances
2Gufbauer, Schott, and $lliott *++A4. >ifficult though it may be to both sides in the
tradestandards debate to believe, trade policy is not Superman in disguise.
.ountries can prosper in the face of trade sanctions or maintain unacceptable
policies even when sanctions noticeably reduce their economic wellbeing.
That trade policy is unlikely to be a panacea for establishing core labor
standards does not mean that it may not be a useful tool, however. ;hat other
tools exist in the world community's arsenalD InvasionD .IA subversionD
$ducationD I believe that simply by raising the standards issue, the groups and
countries that seek to add a social clause to the ;T" have performed a valuable
service in forcing the bankers, finance ministers, trade specialists, and
multinationals who dominate rule setting for world trade to recogni!e that many
citi!ens have concerns about standards that affect working people around the
world. <ut I would not expect addition of a social clause to the ;T" to
dramatically improve global labor standards, any more than the labor supplemental
agreement to 5AA(. has revolutioni!ed labor practices in @exico.
Conclusion
This chapter has made these arguments:
There is a legitimate demand for international labor standards that is
derived from consumer preferences.
8. There are provisions in at least eight separate pieces of trade and foreign aid legislation, of which the
1S= program is the most important.
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The private sector can meet some of this demand with product
labeling but is not wellsuited to satisfy the publicgoods dimension of the
demand for standards.
Adherence to core standards will not substantially affect developing
countries' comparative advantage nor will it have more than a minimal effect on
trade.
1overnment regulation of the labor market is sub?ect to substantial
shortcomings of enforcement and needs to be supplemented with 51" activity
within developing countries.
Trade pressures are a legitimate tool for trying to increase standards,
particularly in export processing !ones, but will not be a panacea for low
standards everywhere.
If you accept these premises, then you will be naturally led 2at least I
was4 to a threepronged policy for enhancing standards:
Substantial reliance on the private market in advanced countries to ''buy'' higher
standards through consumer labeling. 1overnments con cerned with standards,
such as the /nited States, 7rance, and other $/ countries, as well as
international agencies should promote this effort. The ;T" and I(" might
convene a ?oint committee on trade and labor to consider ways to encourage
voluntary labor standards labeling. The I(" might consider ways it can provide
assistance in any labeling activity, using its detailed knowledge of labor
conditions. "ne impor tant issue is to obtain agreement on standards with
respect to child labor.
A second line of attack calls for some international mechanism for
dealing with egregious cases of low standards or mislabeling and for
monitoring labor conditions in export processing !ones. =erhaps the ;T" and
I(" could work together to develop codes for $=Qs and to suggest some type of
sanctions for $=Qs that do not meet core standards. Since $=Qs are the creation
of governments, it is natural to have govern ments or international organi!ations
take a lead in pressuring countries on this front.
A third line of attack is to strengthen developingcountry regulatory
agencies and nongovernmental organi!ations, notably unions, so that these
countries can better enforce their own labor codes. Gere, the I("'s I=$. program
on child labor, with the help of other nongovernmental groups, may provide a
useful model. <ut strengthening freedom of association rights may re#uire
considerable governmental pressures as well. =erhaps the I(" can undertake a
ma?or study of the factors that have led many developing countries to accept
greater trade union activ
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ity and to determine what role the world community can play in this
transition to greater democracy.
I favor a threepronged effort to raise labor standards)with consum
ers&activists pressuring firms, governments and international organi!a tions
pressuring governments, and the world community seeking to strengthen 51"s
in developing countries)because the evidence suggests that a single approach,
including addition of a social clause to trade agreements, is unlikely to suffice.
.onsumers want more goods produced with acceptable labor standards. They want
to buy foreign and domestic commodities knowing that they are produced under
acceptable conditions by workers with some basic human rights, and they are
willing to pay more for goods produced under acceptable standards. @any want
their governments to do more to ensure that core standards in the global economy
are met. The trade community should not try to suppress, deny, or demoni!e this
demand, but rather should seek the best way to help meet it, in con?unction with
other policies. To those committed to freer trade, I say: make the legitimate desire
for decent standards your friend, not your foe. 6ou have plenty of real foes to
worry about.
References
Aggarwal, @. *++,. ''International Trade and thele of (abor Standards.'' In International
Economic Review.;ashington: /S International Trade .ommission 2August4.
.harnovit!, Steve. *+8-. ''7air (abor Standards and International Trade.'' Journal of World
Trade Law23anuary&7ebruary4.
.harnovit!, Steve. *+8B. ''The InFuence of International (abour Standards on the ;orld
Trading :egime: A Gistorical "verview.'' International Labour Review*I-, no. , 2Septem
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.harnovit!, Steve. *++I. ''$nvironmental and (abour Standards in Trade.'' The World Econ-
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@arch.
7ields, 1ary. *++9. ''(abor Standards and International Trade.'' @anuscript. .ornell /niver
sity, August.
7reeman, :ichard. *++I. ''(abour @arket Institutions and =olicies: Gelp or Gindrance to
$conomic >evelopmentD'' In Proceedings of the World Bank Annual Conference on Develop- ment
Economics. ;ashington: ;orld <ank.
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7reeman, :ichard. *++9. ''A GardGeaded (ook at (abour Standards.'' In ;. Sengenbergee
and >. .ampbell, eds. International Labour Standards and Economic Interdependence. 1eneva:
I(".
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3ob @arketsD'' $.A:$&.$=II .onference on International Trade and $mployment, I, September,
=aris, and presented at (ondon School of $conomics, *I 5ovember.
1oldsmith, 3ames. *++9. The Trap. 5ew 6ork: @acmillan.
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1oldstein, @., and @. S. 0han. *+8,. ''Income and =rice $ffects in International Trade.'' In
n 3ones and =eter 0enen, eds. Handbook of International Economics, vol I. Amsterdam: 5orth
Golland.
1ootaert, .hristiaan, and :avi 0anbur. *++9. ''.hild (abor.'' ;orld <ank background paper
for World Development Report 1995.=hotocopy, I8 September. ;ashington: ;orld <ank.
Gufbauer, 1ary .., 3effrey 3. Schott, and 0imberly Ann $lliott. *++A. Economic Sanctions
Reconsidered: History and Current Policy.;ashington: Institute for International $co nomics.
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and Social Justice.1eneva.
International (abor "rgani!ation 2I("4. *++9. Defending Values, Promoting Change.:eport
of the >irector1eneral. 1eneva.
0rueger, Alan. *++-. ''(abor Standards and International Trade.'' ;orld <ank Annual .on
ference on >evelopment $conomics, I,I- April.
(iemt, 1i?sbert van. *+8+. ''@inimum (abour Standards and International Trade: ;ould a
Social .lause ;orkD'' International Labour Review*I8, no 9: 9MM98.
@arshall, Alfred. O*8+AP *+-*. Principles of Economics, +th ed. (ondon and 5ew 6ork: @acmil
lan for theyal $conomic Society.
@untarbhorn, Kitit. *++-. ''International =erspectives and .hild =rostitution in Asia.'' In
Forced Labor: the Prostitution of Children.;ashington: /S >epartment of (abor, <ureau of
International Affairs.
"rgani!ation for $conomic .ooperation and >evelopment 2"$.>4. *++9. Employment Out-
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"rgani!ation for $conomic .ooperation and >evelopment 2"$.>4. *++-. Trade and Labor
Standards.."@&>$$(SA&T>2+-48&:$K*. =aris.
"tero, 3. *++,. ''The 5orth American Agreement on (abor .ooperation: An Assessment of
Its 7irst 6ear's Implementation.'' Columbia Journal of Transnational LawMM 2Spring4: -MB-*.
:eebok. *++9. Report on Reebok Human Rights Production Standards. Stoughton, @A. @arch.drik,
>ani. *++-. ''(abor Standards in International Trade: >o They @atter and ;hat >o
;e >o about ThemD'' =hotocopy. .olumbia /niversity 27ebruary4.
thstein, :ichard. *++M. Setting the Standard: International Labor Rights and US Trade Policy.
$conomic =olicy Institute <riefing =aper IAA. ;ashington: $=I.
Servais, 3ean@ichel. *+8+. ''The Social .lause in Trade Agreements: ;ishful Thinking or
an Instrument of Social =rogressD'' International Labour Review*I8, no 9: 9IMMI.
S#uire, (yn, and Sethaput Suthiwart5arueput. *++,. The Impact of Labor Market Regulations.
=olicy :esearch ;orking =aper *9*8. ;ashington: ;orld <ank.
Srinivasan, T. 5. *++9. ''International (abor Standards "nce Again.'' In /S >epartment of
(abor, <ureau of International Affairs, International Labor Standards and Global Economic
Integration: Proceedings of a Symposium.;ashington: /S >epartment of (abor.
Swinnerton, 0en. *++-. ''An $ssay on $conomic $fficiency and .ore (abor Standards.''
;ashington: /S >epartment of (abor, <ureau of International Affairs.
/S >epartment of (abor, <ureau of International Affairs. *++A. Labor Standards and Develop-
ment in the International Economy.;ashington.
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 111
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/S >epartment of (abor, <ureau of International Affairs. *++9a. International Labor
Standards
and Global Economic Integration: Proceedings of a Symposium. ;ashington 23uly4.
/S >epartment of (abor, <ureau of International Affairs. *++9b. By the Sweat and Toil of
Children, volume I: The Use of Child Labor in US Manufactured and Mining Imports.;ash ington.
/S >epartment of (abor, <ureau of International Affairs. *++,. By the Sweat and Toil of
Children, volume II: The Use of Child Labor in US Agricultural Imports and Bonded Child Labor.
;ashington.
/S >epartment of (abor, <ureau of International Affairs. *++-. Forced Labor: The Prostitution
of Children.;ashington.
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doc_241731942.docx
International labor standards refer to conventions agreed upon by international actors, resulting from a series of value judgments, set forth to protect basic worker rights, enhance workers job security, and improve their terms of employment on a global scale. The intent of such standards, then, is to establish a worldwide minimum level of protection from inhumane labor practices through the adoption and implementation of said measures. From a theoretical standpoint, it has been maintained, on ethical grounds, that there are certain basic human rights that are universal to humankind
5
International Labor Standards and
World Trade: Friends or Foes?
Richard B. Freeman
This chapter examines the demand for international labor standards in the global
economy and evaluates mechanisms for meeting that demand.
It makes five substantive points about standards:
There is a legitimate concern for international labor standards that
comes from consumer preferences. This concern can be partially met with
product labeling of the labor conditions under which goods are produced. Since
product labeling and corporate codes of conduct rely on the competitive market,
they have some advantages over political mechanisms for raising standards.
The view that standards are disguised protectionism is erroneous. The
distinction between core and cash standards, made by virtually every advocate
of standards, is fundamental. Adherence to core standards will not substantially
affect the comparative advantage of developing countries nor have more than a
minimal effect on trade.
There is a publicgoods dimension of the demand for standards that
private labeling cannot meet. This leads citi!ens in advanced countries to
pressure their governments to take action to get developingcountry
governments to raise standards.
"ne of the problems with developingcountry standards is inade#uate
enforcement of labor laws, which can be addressed through technical
Richard B. Freeman is Herbert Ascherman Professor of Economics, Harvard University; program director
for labor studies, National Bureau of Economic Research; and executive director for the London School of
Economics' Programme in Discontinuous Economics.
87
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assistance and advancedcountry pressures for enforcement, and by
promoting nongovernmental organi!ations concerned with labor rights in
developing countries.
Trade pressures are a legitimate tool for trying to increase international
standards, particularly in export processing !ones, but are unlikely to be the
superpolicy that advocates believe.
This analysis leads me to support a threepronged policy for enhancing
standards: substantial reliance on the private market in advanced coun tries to
''buy'' higher standards through consumer labeling, an interna tional mechanism
for dealing with egregious cases of low standards& mislabeling and for monitoring
labor conditions in export processing !ones, and a program to strengthen
government regulatory agencies and nongovernmental organi!ations, notably
unions, in developing countries so that they have greater capacity to enforce their
own labor codes.
(abor standards)norms or rules that govern working conditions and labor
relations)have become a key issue in public discourse about the future of
international trade. In *++,+- you had only to turn on your television to reali!e
this. In .anada, a young boy attained national renown campaigning against child
labor in less developed countries. In the /nited States, television host 0athie (ee
1ifford used her celebrity status to ''shine the light on the cockroaches'' who
operate sweatshops 2Boston Globe, * 3une *++-4, after having learned that apparel
with her logo was produced in .entral American and 5ew 6ork sweatshops.
Standards have also been on the agenda in trade negotiations. In the 5orth
American 7ree Trade Agreement 25A7TA4, the /nited States insisted on side
agreements re#uiring the trading partners to enforce their own labor laws. In *+8-
and *++9 the /nited States sought to link workers' rights and labor standards with
the conduct of trade in the /ruguay
und of trade negotiations and to the agenda of the ;orld Trade "rgani !ation 2;T"4. 7rance has also strongly supported
linking workers' rights and trade. <ut these efforts have been stymied by
opposition from the governments of some less developed countries. At the *++-
annual meet ing of the International (abor "rgani!ation 2I("4, both countries
renewed calls for the ;T" to consider how trade policy might be used to implement
core labor standards, even though the I(" ;orking =arty on the Social >imension
of the (iberali!ation of ;orld Trade had earlier re?ected push ing for a social
clause in the ;T" due to opposition from some developing countries and
businesses.
$ven so, most people regard labor standards as akin to motherhood and apple
pie. 5early everyone supports standards in some form, at least in principle. All
countries enact standards for their workers. @ost have ratified some I("
conventions 2-,AAA ratifications of *B9 conventions, and *B+ agreementsC see I("
*++9, 9*4. Among the conventions most
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commonly ratified are those on forced labor, freedom of association and
the right to organi!e, collective bargaining, and discrimination.
*
To appreciate the
desire for labor standards, try arguing with your friends, spouse, taxi driver, or
religious leader against them. Are you in favor of slave labor, unsafe working
conditions, or ,yearolds sweating in a hor
rific factoryD .ockroachE
5onetheless, many in the trade community are suspicious of interna tional
labor standards and oppose linking them to trade policies. 1overn ments in less
developed countries worry that protectionism is behind the call for such standards.
Since some politicians and analysts attribute the problems of lowskilled workers
in advanced countries to developing country trade and thus seek to limit that
trade 21oldsmith *++9, *++,4, these concerns have merit. 7earing protectionist
policies, most trade econ omists balk at the notion that countries should try to
inFuence the labor standards of their trading partners through trade policies.
Is the demand for international labor standards truly a threat to efforts to lower
trade barriersD ;hat are the best ways to attain acceptable labor standards around
the worldD Should trade policy be used to improve
standards, or is the risk of exploitation by protectionists too greatD
This chapter addresses these #uestions. It first describes the demand for
standards that results from the preferences of consumers and lays out some
emerging privatesector modes for meeting this demand. 5ext, it addresses the
fears that protectionist interests may high?ack these demands. 7inally, it assesses
national government and international agency efforts to attain acceptable labor
standards.
Demand for Standards
Consumers today hold companies accountable for the way products are made, not just the
quality of the product itself.
):eebok statement 2as cited in .ompa and Ginchliffe>arricarrere *++,, --84
To evaluate society's demand for standards, consider two shirts, which are identical
in #uality. "ne is manufactured by Slea!o Inc. using political prisoners in a labor
camp, sexually harassed women in a free trade !one, convict labor, employees
whose efforts to unioni!e are suppressed by army brutality, and&or immigrants in a
sweatshop. The other is manufac tured by your runofthemill decent firm, whose
employees work under reasonable standards with or without an independent union
and whose government protects their basic rights.
The products are the same. The price is the same. ;hich do you chooseD
*. The /nited States is a signatory to conventions on hours worked and occupational health and safety,
though it has not signed as many conventions as other advanced countries.
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 89
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Table 1 Responses to Marymount University Excel
Omnibus
survey (percent by level ! "nc#e$
If you were aware of a retailer tat sol! "arments ma!e in sweatsops in te
Unite! #tates$ woul! you avoi! soppin" tere%
Ye%& '(l) *v") %+pp"n, t+ere
All --.5/
015&222
015345&666
045376&666
052356&666
052&222
-1.5 -4.5
85.- 81.6
-6.5
If you were buyin" a "arment tat cost &'($ woul! you be willin" to pay up to a
!ollar more if it were "uarantee! to be ma!e in a le"itimate sop%
Ye%& '(l) p*y #re "! #*)e "n * le,"t"#*te %+p
All 85.4/
015&222
015345&666
045376&666
052356&666
052&222
-5.8
82.-
64.-
62.9
85.1
S(rce: M*ry#(nt :n"ver%"ty& Center !r Et+"c*l Cncern%& G*r#ent Wr;er% St()y&
Nve#ber 1665.
5ow the vendor raises the price. The shirts produced under the better standards
cost ,A cents, H*, HI, or H*A more than those produced under
poorer standards. ;hich do you buy nowD
At the same price, most consumers would choose the product made under better
working conditions. @ost would pay some premium for that product, though as the
premium rises, the number willing to pay the extra charge will fall, producing a
demand curve for labor standards in the product market. Gow large a premium
different people would pay for products made under acceptable labor conditions is
unclear. A *++, survey of Americans reported that most respondents said they
would shun a retail store whose products came from /S sweatshops and would pay
an extra dollar on a HIA garment to guarantee that the product be made under
decent conditions 2table *4. Gow many of the respondents will behave as they say
when facing the actual choice is unclear, but if only onehalf actually were to pay
the extra buck for the product produced under acceptable standards, the effect on
the product market would be substantial.
I know of no comparable survey regarding willingness to pay extra money for
products produced under acceptable conditions in other coun tries. @y guess is
that American consumers have a greater aversion to goods produced under low
standards in the /nited States than to those made under low standards in foreign
countries, and that they recogni!e that some standards must differ by level of
national 1>= per capita. <ut
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while Americans may be more upset about the sweatshop in 5ew 6ork
than the one in .alcutta, they still want some standards in the .alcutta products
they consume. @oreover, as >ani
drik points out, American consumers may careabout standards in .alcutta not so much because of ''humanitarian concerns for
foreigners than for ensuring labor standards for domesticworkers do not erode''
2
drik *++-, **4. Treating standards as a byproduct for which consumers are willing to
pay money parallels Alfred @arshall's treatment of working conditions as a product
for which workers are willing to sacrifice pay through com pensating differentials.
In his classic Principles of Economics2*8+A4, @ar shall differentiated between the
bricklayer who cares whether he works in a palace or a sewer and the maker of
bricks, who couldn't care less if the bricks were used for the palace or the sewer.
The bricklayer's concern creates compensating wage differentials in the ?ob
market: lower pay for palace work relative to sewer work. .onsumers' concern
with the conditions of production adds a product market dimension to the compen
sating differential story. The consumer who cares whether the worker makes
products in a palace or sewer consumes not only the physical good but the
associated work conditions)an ''extended product,'' as it were. This will create
compensating price differentials in the product market analogous to compensating
wage differentials in the labor market: higher prices for goods produced under
better conditions.
There is, however, an important difference between workers' and con
sumers' assessments of workplace conditions. The bricklayer knows if he is in a
sewer or in a palace. The consumer, by contrast, does not observe the conditions of
production. 7or some products, she may rely on the reputation of the firm: ''Jerox
is a good company and must have good labor standards, even in developing
country J.'' <ut many companies use subcontractors, whose practices they do not
monitor. @any produce generic commodities, where reputation is irrelevant. As a
result, most consumers and many firms have little information about the
conditions under which the products they buy are produced. Gow, then, might
consumer preferences for standards be expressed in the marketD
"ne way is through product labeling of work conditions: a label that
says, for instance, ''These shirts are produced in country J under accept able labor
conditions.'' .onsumers can then penali!e or reward enterprises according to their
underlying preference for labor standards. ;hen con sumers shun goods produced
using poor standards, the market share of firms making these goods will fall,
raising the average level of standards. Some firms that initially produced under
poor standards will find it profitable to improve standards to avoid having to
reduce their prices to maintain customers, further raising average standards.
=roduct labeling has two virtues as a means of dealing with the demand
for standards. 7irst, labeling relies on the competitive market, not on
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politics, to determine the appropriate level of standards. The preferences
of consumers)how much they are willing to pay for higher standards) and the
cost of raising those standards decide which standards prevail in the marketplace.
5ationally, this avoids the danger that importcompeting groups might combine the
rhetoric of standards with political muscle to attain protectionist legislation that
they otherwise could not win. Interna tionally, it avoids the danger that some
developingcountry governments, fearful of incipient ;estern protectionism
and&or beholden to exporters who profit from low standards, will block efforts to
reach international accords.
Second, labeling has generally desirable distributional effects. (abeling re#uires
those who want higher standards)consumers in highincome countries 2or
developing countries4)to pay for what they want. The transfer is from
consumers to firms that meet the standards and to the inputs used by those firms.
I
The result is a net benefit to the world economy: production of new desired goods
)sneakers, shirts, or chil dren's toys)produced under higher labor standards
that meet the mar ket test.
Problems with Labeling
If only it were that simple.
(ike other goods based on information, labeling has problems. The market for
labels is not simple because labels are cheap to attach to items and hard to verify,
as anyone who recently bought a 1ucci watch for HI, in the local street market
knows. (owstandards producers have an incentive to lie to consumers about the
labor conditions in their work places. The consumer must rely on someone other
than the firm to verify the information in labels: producers' associations, retailers,
consumer based agencies 2.onsumer :eportsC 1ood Gousekeeping4, trade unions
2in the /nited States, the union label was once the premiere label, worth money in
the marketplace4, national governments, or international organi !ations.
Institutions that give labels in turn face the difficult problem of deter mining
conditions at thousands of workplaces. The information problem is immense.
.onsider Sears
ebuck and .ompany. Sears gets its goods from *A,AAA companies worldwide, many of which hire subcontractors, and all of which buy
goods from yet other firms. Gow is Sears to guarantee that the products it sells are
made under acceptable labor standardsD
I. ;ithin the developing countries, the distributional conse#uences are a bit complex. If there are
compensating wage differentials for poor work conditions 2which is #uestionable4, the inframarginal
workers who accept those conditions plus high pay are among the losers, while the winners are
inframarginal workers who prefer working under better conditions at low pay.
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Sears re#uires contractors to sign an agreement that the goods are made
in compliance with national labor laws, but it cannot monitor all the firms with
which it deals any more than labor ministries can monitor all the firms under their
?urisdiction. The firm probably most committed to high standards, (evi Strauss, has
on occasion been embarrassed to find substan dard conditions at some
subcontractors.
The incentive and information problem in labeling suggests that there is no
single institutional solution to attaching an accurate ''7air (abor .onditions'' label
to goods. @arkets might develop alternative ways to provide the relevant
information, depending on conditions. 7or some goods, there may be competing
labels operated by activist consumer groups. 7or other goods, ma?or producers or
producer associations may develop a label for which they vouch. 7or yet others,
retailers, who may face consumer pressures for selling goods produced under poor
condi tions, might take responsibility. 1iven the information problem, retailers
cannot guarantee that all goods are made under appropriate conditions but can
promise to spotcheck subcontractors and respond rapidly to complaints. In other
situations, government agencies might be the appro priate vehicle for alerting
consumers about work conditions in overseas producers. In yet others, an
international organi!ation such as the I(" or some trade organi!ation might play a
role, encouraging some form of labeling and providing some verification of the
bona fides of labeling groups.
The ''labeling solution'' becomes even more complicated if, as is likely, consumers
care not only about the conditions involved in producing the goods they consume
but also about labor conditions in general. It is not only the purchasers of Slea!o
shirts that may want to stamp out the appalling work conditions in the Slea!o
factory, where management locks the doors to keep workers from taking breaks or
Feeing abusive supervi sors. (abeling Slea!o products as ''produced under
dangerous conditions'' might end the practice, but maybe not. If enough
consumers, perhaps a small minority, don't care about the work conditions and buy
Slea!o shirts anyway, the firm will remain in business, producing at low standards,
to the detriment of those who want higher labor standards. In this case, citi!en
preferences are such that labor conditions are a public good: your wellbeing
suffers from Slea!o's operation even if you do not buy its prod ucts.
;hat can you do to improve its standardsD 6ou can talk to other consumers
and try to convince them not to patroni!e Slea!o products. If you are particularly
offended and aggressive, you might even rip the Slea!o shirt off your neighbor's
back. <ut as the millions who suffer from secondary smoke know, such tactics are
costly to use and have only limited success.
The most common way to deal with publicgoods problems within a country is
through legal enactment. 6ou use some of your political capital
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 9)
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to get a law passed on national labor standards and insist that the labor
ministry enforce the law. To be sure, laws are blunt and imperfect instru ments.
(egal enactment of a single labor standard seeks to force some consumers)those
lowlifes who buy Slea!o products)to purchase more standards than they want. It
re#uires enforcement against the interests of Slea!o and its clientele, which may
prove costly. <ut to the extent that consumers care about substandard labor
conditions per se, legal enact ment&enforcement has the virtue of dealing headon
with the problem.
The situation with respect to general labor conditions in foreign coun tries
raises further issues. /S consumers cannot directly affect laws in some foreign
country whose labor standards appall them. ;hat, then, can they doD "ne market
solution is for consumers to penali!e a country with a reputation for ''bad
standards'' by restricting purchases of its exports, even though exporters
themselves might adhere to standards 2Srinivasan *++94. This re#uires that
consumers know something about general labor conditions overseas, perhaps
through extensive advertising by consumer groups, and that they be willing to
engage in secondary boycotts. <ut again, since this is a publicgood problem, the
natural mode of response is political: to press one's own government to use its
power) for instance, through trade agreements)to force the other country's gov
ernment to enact or enforce labor standards acceptable to the consumer.
=ursuing this logic, >ani
drik 2*++-, I-4 has argued, ''"nce the demand for labor standards is viewed as having a public element . . . the attractiveness of
labeling is greatly weakened.'' Strike the ad?ective greatly, and I agree 27reeman
*++94. (abeling and other forms of consumer infor mation are not panaceas. They
have advantages and disadvantages, ?ust as legal enactment and the use of trade or
other policies do. <ut use of labeling and consumer information is, I believe,
necessary to any effort to raise labor standards and should be promoted both by
advocates of standards and by those leery of including social clauses embodying
stan dards in trade agreements.
=roduct labeling and other forms of consumer information)such as corporate
codes of conduct)are, moreover, not simply a free marketeers' blackboard model
of how the unfettered economy should work. (abeling is increasingly used by
privatesector actors concerned with labor condi tions around the world. I
anticipate that labeling strategies will become even more important in the new
world of global information via the Internet's ;orld ;ide ;eb.
Private-Sector Labeling and Codes of Conduct
Table I provides a short, nonexhaustive list of some recent efforts to use consumer
labeling and codes of corporate conduct to guarantee that firms produce goods
under acceptable standards.
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Table ' +abelin" an! information initiatives to enforce
labor
stan!ar!s
,onsumer-pro!ucer "roups
R(,#*r; C*#p*",n. :n)er t+e *(%p"ce% ! t+e C+"l) L*br C*l"t"n<N*t"n*l
Cn%(#er% Le*,(e& * nnpr!"t !
*t"n& t+e c*#p*",n l*bel% +*n)3;ntte) r(,% *% be"n, #*)e by *)(lt% nly *n) "ncl()e% "n%pectr%. L*r,ely cn)(cte) "n Ger#*ny& t+e
c*#p*",n '*% e=ten)e) t t+e :n"te) St*te% "n 1669.
>*"rtr*)e >
*t"n. L*bel% te*% pr)(ce) er ,) cn)"t"n% '"t+ %c"*l bene!"t% !r 'r;er% n te* e%t*te% *n) per*te% t+r(,+ #*?r ret*"ler%& %(c+ *% S*"n%b(ry.
N S'e*t Tren)%etter L"%t. :S ret*"ler% *n) #*n(!*ct(rer% ple),e t er*)"c*te
%'e*t%+p% "n t+e :n"te) St*te%
er t+e *e,"% ! t+e :S Dep*rt#ent ! L*br. Clt+"n, "n)(%try %(##"t. Hel)
er t+e *(%p"ce% ! telev"%"n per%n*l"ty @*t+"e Lee G"!!r) *n) t+e :S Dep*rt#ent ! L*br& "t p(bl"c"Ae% cnnect"n% bet'een %'e*t%+p% *n)
clt+"n, #*;er%.
Cle*n Clt+e% C*#p*",n. A E(rpe*n e!!rt t 'r; n %t*n)*r)% "n *pp*rel t+*t "% b*%e)
"n t+e Net+erl*n)%.
Intern*t"n*l Ty C*#p*",n. A E(rpe*n e!!rt t 'r; n %t*n)*r)% "n ty% t+*t "% b*%e)
"n Ln)n.
In!ivi!ual firms
Lev" Str*(%% B C#p*ny. A)pte) c)e ! cn)(ct& !ll'"n, )"%cvery ! prble#%.
W"t+)re' 052 #"ll"n !r# C+"n* t prte%t +(#*n r",+t% v"l*t"n%. In 1664 t+e
c#p*ny p*") %c+l t("t"n !r * B*n,l*)e%+" cntr*ctrC%
er*,e e#plyee% t , t %c+l *n) ret(rn t 'r; *!ter *,e 15.
Reeb;. H*% "n pl*ce * vl(nt*ry c)e ! cn)(ct !r %(bcntr*ctr%& '"t+ H(#*n R",+t%
Dr,r*#.
T+e G*p. >*c"n, pre%%(re& %",ne) *n *ccr) '"t+ t+e N*t"n*l L*br C##"ttee !r
"n)epen)ent +(#*n r",+t% #n"tr"n, ! "t% pr)(ct"n !*c"l"t"e% "n El S*lv*)r.
L"A Cl*"brne Clt+e%. Al%
er pre%%(re& +*% be,(n t 'r; '"t+ "n)epen)ent ,r(p% t #n"tr !*c"l"t"e%.
St*rb(c;% C#p*ny. >*c"n, pre%%(re !r# *n *ct"v"%t ,r(p& "t )evelpe) * c)e !
cn)(ct t+*t "nvlve% %t*n)*r)% !r c!!ee pr)(cer %(bcntr*ctr% "n G(*te#*l*.
.ctivist "roups
A#ne%ty Intern*t"n*l. Cncerne) '"t+ +(#*n r",+t% v"l*t"n%& "ncl()"n, l*br.
H(#*n R",+t% W*tc+. Cncerne) '"t+ +(#*n r",+t% v"l*t"n%& "ncl()"n, l*br.
N*t"n*l L*br C##"ttee. E)(c*t"n !
"n %(pprt ! 'r;er *n) +(#*n r",+t% "n Centr*l A#er"c*& !r#e) by :S (n"n% cncerne) '"t+ l*br cn)"t"n% "n re,"n.
Intern*t"n*l L*br R",+t% >
. L*r,ely (n"n3%pn%re) ,r(p +e*)e) by !r#er :S Secret*ry ! L*br R*y M*r%+*ll& t pr#te l*br %t*n)*r)% "n t+e :n"te) St*te% *n) t+e
'rl).
:S<G(*te#*l* L*br E)(c*t"n Dr?ect. C*l"t"n ! c##(n"ty& rel","(%& *n) (n"n
,r(p% pre%%(re) St*rb(c;% C!!ee t )evelp c)e ! cn)(ct !r 'r;er% "n
G(*te#*l*n c!!ee pl*nt*t"n%.
C+"l) L*br C*l"t"n. Cn%"%t% ! tr*)e (n"n%& rel","(% ,r(p%& *n) pl"t"c*l ,r(p% *n) "%
cncerne) '"t+ c+"l) l*br e=pl"t*t"n.
Dre%% !r C+*n,e. Cncerne) '"t+ N";e %(bcntr*ctr%.
All"*nce !r Re%pn%"ble Tr*)e. C*l"t"n ! *b(t 142 ,r(p% "n t+e :n"te) St*te% *n)
Me="c& pl(% 52 r % "n C*n*)* *n) C+"le& cncerne) '"t+ NA>TA.
S(rce: B*%e) n )"%c(%%"n% '"t+ *ct"v"%t%& crpr*te c)e ! cn)(ct %t*te#ent%& *n)
ne'%p*per reprt% (%ee *l% C#p* *n) H"nc+l"!!e3D*rr"c*rrere 1665$.
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In the corporate world, (evi Strauss is widely lauded for its effort to
ensure high labor practices in developingcountry subcontractors. Accord
ing to .hief $xecutive "fficer
bert Gass, ''In today's world, a TK expose Lon working conditions can undo years of effort to build brand loyalty.
;hy s#uander your investment when with commitment reputational problems can
be avoidedD'' 2Business Week, * August *++9, ,I4. The firm pulled out of .hina and
@yanmar 2<urma4 because of human rights violations in those countries.
"ther firms have also made efforts to ensure that overseas contractors
follow reasonable standards, often responding to information&pressures from
activist groups 2table I4. "ne of these, :eebok .orporation, in *++A re#uired its
.hinese contractors to certify that they did not use prison labor. In *++I it
initiated a formal worldwide code for contractors that barred child or compulsory
labor, discrimination, overtime without com pensation, and that called for fair
wages, freedom of association, and a healthy and safe workplace. In *++M :eebok
began auditing factories to ensure compliance 2:eebok *++94. "ther firms that
have corporate codes of conduct covering overseas subcontractors include Sears,
3. =enney, ;al@art, Timberland, Gome >epot, and =hilipsKan Geusen 2.ompa
and Ginchliffe>arricarrere *++,4.
=erhaps the bestknown effort by private firms to raise labor standards
in a foreign country occurred in South Africa under the apartheid regime. The
Sullivan =rinciples, adopted in *+BB by many /S firms investing in South Africa
under pressure from :everend (eon Sullivan, a member of the 1eneral @otors
board of directors, committed the firms to nondiscrim ination in their employment
practices and to make some efforts to improve the economic position of their
nonwhite workers.
7inally, table I lists some /S activist groups that have been pressing
for higher labor standards in the nation's trading partners. @any of the activist
groups have tiny staffs or operating budgets. @any are #uite speciali!ed: one
group worries about 1uatemalan coffee pickers 2which led to the Starbucks
policy4, another about Indonesian workers for 5ike. The main function of these
groups is to provide information and to threaten to embarrass ma?or firms with
that information. They do not organi!e boycotts or carry out largescale protests
against products. @any of the groups have a strong union inFuence, which may
arouse suspicions that they are fronts for specialinterest protectionism.
;hatever their motivation, the activist groups are an intrinsic part of
any privatesector effort to raise standards through labeling and consumer
information. The targeted firms may not appreciate it, but the activists are the
entrepreneurs in the market for standards, providing information and pricking the
consciences of consumers and management.
7or the private sector to succeed in promoting standards through label
ing and corporate codes, four elements are necessary: consumers who
90 THE WORLD TRADING SYSTEM: CHALLENGES AHEAD
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care, firms that want to meet the consumer demand for standards and
their own principles, modes of publici!ing the facts about labor conditions, and
activists.
In sum, there is a growing privatesector effort to ensure that goods are
produced in developing countries' and elsewhere under specified labor conditions.
The greater the consumer expressions of concern about conditions and the more
activist heat that is generated, the greater the amount of attention firms will give
to this issue. =roduct labeling and consumer information are key weapons for
raising standards throughout the world, wielded by individuals in the competitive
marketplace.
The Fear of Disguised Protectionism
The real danger of using trade sanctions as an instrument for promoting basic rights is that the
trade-standards link could become highjacked by protectionist interests attempting to preserve
activities rendered uncompetitive by cheaper imports.
);orld <ank, World Development Report 1995, B+
Western governments openly propose to eliminate the competitive edge of East Asia. . . . [T]he
professed concern about workers' welfare is motivated by selfsh interest . . . to put as many
obstacles as possible in the way of anyone attempting to catch up and compete with the West.
)@ahathir bin @ohamad 2International Herald Tribune, *B @ay *++9, -4
The fear that demands for higher labor standards is motivated by a desire to raise
costs in developing countries to benefit workers in the ;est underlies much
opposition to international labor standards and to the use of trade as an instrument
to impel developingcountry producers to raise standards. The campaigns of Sir
3ames 1oldsmith and
ss =erot against developingcountry trade, as well as activist suggestions that seemingly seek to remove these countries' lowwage
advantage, play into
these fears.
M
The fact that some favor labor standards to reduce trade with develop ing
countries does not mean that standards are a protectionist wolf in lambs' clothing.
It does not mean that standards are designed to benefit domestic producers of
importcompeting products. 5or does it mean that, whatever the goal, enforcement
of basic labor standards will reduce world trade. To the contrary, the view of
standards as protectionism is the red herring in the standardstrade debate, and it
may have blinded some free
M. .onsider the following suggestion: the /nited States should re#uire that ''a developing country's
minimum wage . . . have the same relationship to the 5orth American minimum . . . as its labor
productivity in traded goods bears to 5orth American labor productivity in similar goods'' 2
thstein *++M, *84. As the /S minimum is about the lowest in the world relative to national productivity, this
suggestion might in fact not lead to higher minima overseas, but higher minima in the /nited States,
were it to be made reciprocal.
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traders from recogni!ing the reality of the demand for standards and
led them into logical inconsistencies, such as favoring harmoni!ation of technical
product standards while finding merit in diversity in labor standards 2$lliott
*++-a4.
otivation
There is one aspect of world trade in which advocates of standards explic itly seek
to end a highly lucrative developingcountry activity. They make no bones about
their desire to end this traded service, which I will label J:
(egislative and other measures should be taken to prevent and combat J, both in the countries
from which the customers come and those to which they go. . . . The ;orld Trade
"rgani!ation should be encouraged to convene an experts meeting designed to offer practical
measures to combat J.'' 2@untarbhorn *++-,
*-*B4
Aha, you say. The cat is out of the bag. Theywant the ;T" to end trade in J
on the grounds of labor standards. A protectionist plot to shift demand to domestic
producers, if you ever saw one.
;hat is JD
J is sex tourism based on child prostitution. The motivation for eliminat
ing child sex tourism in developing countries is not to shift demand to ;estern
children, though this may be an unintended side effect. The motivation is utterly
different: to stamp out this practice in poor as in wealthy countries 2/S
>epartment of (abor *++,4.
I have picked an extreme example, but my point is general. @ost advo cates of
standards are not protectionists. @ost advocates of standards want what they say
they want: to guarantee as far as is possible certain basic human rights to workers
around the world.
9
Any reductions in developing countries' comparative advantage
or in trade is purely inci dental.
"ne way to see that individual moral preferences underlie the demand for
standards is to examine the particular standards that advocates endorse. If most
advocates favored standards that would greatly reduce the labor cost advantage of
lowwage countries, such as a world minimum wage, free traders would have good
reason to #uestion their motivation.
9. As Timothy ;irth, counselor at the /S >epartment of State put it, '';e do not seek to use worker
rights as a new form of trade protectionism . . . we eschew such vague terms as social dumping. ;e don't
seek to nullify the natural comparative advantage of developing countries based on labor costs as long as
those labor costs are not artificially depressed by the denial of basic internationally recogni!ed worker
rights'' 2/S >epartment of (abor *++9a, *84.
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Table ) ,ore versus cas labor
stan!ar!s
,ore labor stan!ar!s
Dr+"b"t"n ! >rce) L*br (ILO Cnvent"n% 46 *n) 125$
Dr+"b"t"n ! D"%cr"#"n*t"n (ILO Cnvent"n% 122 *n) 111$
>ree)# ! A%%c"*t"n (ILO Cnvent"n 8-$
R",+t t Cllect"ve B*r,*"n"n, (ILO Cnvent"n% 68 *n) 155$
.r"uable core stan!ar!s
M"n"#(# A,e !r C+"l) L*br (ILO Cnvent"n 178$
Dr+"b"t"n ! E=pl"t*t"ve C+"l) L*br
M"n"#(# Occ(p*t"n*l He*lt+ *n) S*!ety
,as labor stan!ar!s
M"n"#(# W*,e >"="n, (ILO Cnvent"n 171$
M"n"#(# D*y ! Re%t (ILO Cnvent"n 15$
R",+t t Occ(p*t"n*l He*lt+ *n) S*!ety St*n)*r)% (ILO cnvent"n% cver"n, %pec"!"c
"%%(e%$
Sc"*l Sec(r"ty (ILO Cnvent"n 124$
S(rce: B*%e) n ILO cnvent"n% *n) v*r"(% )"%c(%%"n% ! cre %t*n)*r)% "n OECD
(1669$& :S Dep*rt#ent ! L*br (1665*$& *n) S'"nnertn (1669$.
<ut, as table M shows, advocates of standards continually distinguish ''core
standards'' regarding human rights from ''cost standards'' that should, and must, vary
with levels of 1>= per capita. .ore standards rule out a small number of
undesirable market outcomes such as violating human rights and re#uire some
democratic processes for workers to organi!e independently and bargain
collectively, which may only indirectly affect costs. =rohibitions of slave labor or
convict labor and of discrimination, and guarantees of the right of free association
and collective bargaining will not destroy .hina's cost advantage in producing
handmade rugs or inexpensive toys.
There is wide agreement in the world community about the core stan dards that
the world should establish 2I(" *++9C "$.> *++-C ;orld <ank, World
Development Report 1995, chapter **4. 5early every democratic country has its
own labor code that adheres to those standards or goes beyond them, though
dictatorships often outlaw freedom of association and sometimes use forced labor.
The member states of the Association of Southeast Asian 5ations, which has come
out against linking trade and standards, do not oppose a social clause in the ;T"
because they favor forced labor, discrimination, and exploitation of child labor.
They are against these practices and have increasingly improved freedom of
association.
;hile most core standards are thus universal, there is some division of thought
about the standards to apply to child labor 2Swinnerton *++-4. Some who favor
standards believe child labor should be banned: the :ugmark label guarantees
that its rugs are produced by adults. "thers, worried that the loss of employment
could force children into worse
INTERNATIONAL LABOR STANDARDS AND WORLD TRADE 99
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situations in the market, favor policies that create other programs for
them as part of the process. The (evi Strauss solution to child labor in its
<angladeshi operations provides a useful model here: the firm provides some
money so that previously employed children can go to school and return to their
?obs when they are of age. The "rgani!ation for $conomic .ooperation and
>evelopment 2"$.>4 distinguishes between child labor exploitation and child
labor per se. The I(" stresses the need for Fexibility in dealing with child labor to
ensure that such restrictions benefit the children. "ngoing discussion and the
experience of programs in the I("'s International =rogram on the $limination of
.hild (abor 2I=$.4 may help find the best solution to the problem of developing a
core standard, if any, regarding child labor.
There is a similar, though not widely examined, problem with occupa
tional health and safety standards. The most modern and expensive tech nology
may be safer than *+BAs technology in producing, say, autos, but to set a health and
safety standard that re#uires developing countries to choose the more expensive
technology would be putting the cart before the horse, to mix travel metaphors.
:ates of occupational fatalities are markedly higher in the same sector in
developing than in advanced coun tries 2;orld <ank, World Development Report
1995, B-4. The assurance that workers have egress in a facility might be part of a
core standard on health and safety, but many other safety conditions are a cash
standard, whose level must depend on 1>= per capita.
A second way to examine the motivation for international labor stan
dards is to assess who supports them in advanced countries. In *++, /S
legislators proposed a .hild (abor >eterrence Act that would have prohibited the
importation of goods produced abroad with child labor. ;ere these legislators
motivated by the hope that lessskilled Americans
in their district would benefit from reduced importsD
Alan 0rueger 2*++-4 has examined this #uestion, using the share of the
population in the relevant congressional districts with less than a high school
degree as an indicator of potential beneficiaries. Ge found that representatives
from districts with many high school dropouts were less likely, not more likely, to
have sponsored the bill. :epresentatives from states with high apparel and textile
employment have traditionally opposed lower tariffs but did not take a stand
against child labor. 0rueger 2*++-, *84 concludes: ''Although support for child
labor standards does not appear to be related to constituents' economic interests,
support for tariffs and #uotas does appear to reFect constituents' economic
interests.'' That is, the politicaleconomy opposition to trade shows up in support
of good oldfashioned tariffs and #uotas, not in the demand for standards.
<ut what about trade unionsD Table I showed that unions are in the
forefront of standards activism. 0rueger found that representatives from districts
with a high union representation were more likely to cosponsor
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the .hild (abor >eterrence Act and to oppose 5A7TA 2on which the
A7(.I" had taken a strong position4, though they had not opposed 1ATT. Isn't
this a sign of protectionist sentiment behind the cloak of standardsD If the typical
/S union worker competed with child labor or lowwage developingcountry
workers, one might suspect that it was. <ut, in fact, /S union workers compete
with $/ workers 2who work under higher standards than Americans4 or 3apanese
workers. /nion support of labor standards is not motivated by the possible indirect
gains to members' income from higher standards in developing countries. /nion
support for standards represents a principled commitment to improving the
situation for workers around the world, and in particular to strengthening the
position of unions in developing countries.
In sum, while the banner of standards attracts some protectionists, it is wrong to
treat the call for standards as largely arising from protection
ist motives.
,
Labor Standards! Costs! Trade
Forget motivation. What matters are the efects of international labor standards. If they increase
labor costs in LDCs and those costs shift production in labor intensive goods to advanced
countries, that's bad for economic efciency and the truly poor in the world.
)Archetypical skeptic of standards
There are two empirical issues in assessing the economic effects of labor standards:
the costs of implementing core standards and the elasticity of demand for
developingcountry products with respect to changes in costs.
I do not believe that core standards are all that costly to firms. .ore standards
involve changes in labor relations practices)how workers are treated)that affect
costs only indirectly. >oes a policy of nondiscrimina tion or protection against
sexual harassment or the right to freedom of association raise costs greatlyD
Swinnerton 2*++-4 has argued that some core standards are efficient and thus
would reduce costs. The "$.> concurs on some points. <ut one does not have to
believe in the efficiency of, say, nondiscrimination to accept the weaker claim that
the costs of standards are modest relative to the costs of production. $ven child
labor does not, according to the I(", have great laborcost savings 2cited in "$.>
*++-, *9I4.
The effect of cost increases on production depends on the elasticities of product
demand for the relevant imports. To the extent that developing countries speciali!e
in different goods than lowwage firms in the same
,. Gere I disagree with Srinivasan 2*++9, M-4, who believes that ''the demand for linkage between trading
rights and observance of standards with respect to the environment and labor would seem to arise largely
from protectionist motives.'' =rotectionists such as 1old smith, <uchanan, =erot, and their allies do not
disguise what they want.
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sector in advanced countries, substitution in the product market between
developingcountry goods and advancedcountry goods is likely to be modest: the
substitution will be between commodities, rather than in headon competition
between producers of the same commodity. If you raise the costs of making rugs
by replacing child with adult labor, the handwoven rug industry will not move to
<elgium, though some consum ers may shift their purchase of rugs to <elgium's
artificial textile products. $conometric estimates of the elasticities of developing
country exports and developedcountry imports from developing countries are not
that large 21oldstein and 0han *+8,4.
.onsider the polar opposite case, in which production of traded output in low
wage goods teeters between developing and advanced countries so that modest
increases in costs due to higher standards can greatly change the locus of
production of, say, apparel or shoe manufacturing. If this were true, the growth of
trade with developing countries in the past must have had a huge adverse effect on
lowskilled ;estern workers. <ut most economists who have studied the issue
re?ect the notion that such trade is the root cause of the economic problems of
;estern workers. Gow could it be, when the group most directly competing with
develop ingcountry workers, such as lowskilled women, have actually done
better in the ?ob market than lowskilled men, who do not in general compete
with these imports 27reeman and :evenga *++,4D If you agree that trade has had
only modest effects on the distribution of income within the ;est, you are led
naturally to re?ect the claim that higher labor standards will devastate developing
countries' comparative advantage.
drik 2*++-4 and the "$.> 2*++-4 have examined the linkage from labor standards to labor costs' and ultimately to trade using crosscountry empirical
evidence. <oth use new indicators of labor standards.
drik measures standards by the number of basic I(" conventions to which a country has agreed and by
reports on lax child labor standards, based on /S embassy reports. The "$.>
focuses on violations of I(" .onven tions 8B and +8, which relate to trade
unionism and collective bargaining, that are listed in the I("'s new data base.
drik examines three outcome variables)labor costs, trade in clothing, and foreign direct investment 27>I4)and finds that standards are correlated with
outcomes, though not always in the anticipated direction. The number of basic
conventions and superior child labor standards to which a country adheres are
associ ated, in particular, with considerably higher labor costs, when 1>= per
capita is held constant. <ut the number of I(" conventions is uncorrelated with
developingcountry textile and apparel exports, while lax child labor standards and
other measures of labor standards have only weak effects on those exports. 7inally,
7>I by /S ma?orityowned foreign affiliates is unrelated to I(" conventions and is
negatively associated with lax child labor standards: /S firms appear to prefer
countries with stronger stan dards.
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There are problems with these findings)the estimated effect of labor standards
on labor costs is too high to be accepted at face value and is inconsistent with the
positive relationship between 7>I and child labor standards that leads
drik to term them ''suggestive.''
-
Still, they raise the possibility that standards may have
greater effects on trade than I would have expected.
The "$.>, by contrast, finds no evidence for any effect of compliance with
standards on trade outcomes. .ountries with greater freedom of association have
not experienced greater increases in real wages nor in export performance 2"$.>
*++-, chart I, M4. The "$.> notes, for example, the large share of highstandards
countries in /S imports of textile prod ucts and the similarity in prices by
country even though freedom of association rights differ 2"$.> *++-, table *A4.
B
=erhaps most important, improvements in freedom of association are unrelated to
changes in eco nomic growth or export performance 2"$.> *++-, table B4.
7rom its study, the "$.> 2*++-, B4 concludes, ''These results imply that
concerns expressed by certain developing countries that core stan dards would
negatively affect their economic performance or their inter national competitive
position are unfounded. . . .'' As the "$.> analysis is based on comparisons of
outcomes with minimal control for possible confounding factors, I find this
conclusion a bit strong. Still, the absence of any simple relation between freedom
of association)the core standard that might be expected to have the most
substantive effects on outcomes) and outcomes across countries and over time, as
countries increase free dom of association, leads one toward re?ecting the claim
that core stan dards substantively affect developingcountry comparative
advantage.
5either the
drik nor the "$.> study is definitive. The effect of labor standards on comparative advantage and trade is one of empirical magnitude,
which further research should be able to clarify. ;e need studies with alternative
measures of standards, models, and samples of countries. ;e also need
complementary microeconomic evidence from firms operating in developing
countries about the costs of enforcing stan dards at their workplaces and about
their perceptions of how standard induced increases in costs might affect exports,
as well as additional cross country analysis, before we can declare confidently that
core standards have no effect 2like the "$.>4 or some, albeit not fully consistent,
effects
2a la
drik4. At this point, the safest conclusion is that while core labor Nstandards maymodestly affect developingcountry comparative advan
tage, this effect is hard to pin down.
-. The estimates suggest that child labor standards have effects on costs of H,,AAA or so, while adherence
to the basic I(" conventions has effects of around H*,8AA.
drik 2*++-, IA4 notes that ''the parameter estimates are probably giving us an indication of the aggregate effects of all OstandardsP.'' $ffects of this
si!e should greatly reduce foreign direct investment, which depends inversely on labor costs.
B. This may simply indicate that the products are in fact close substitutes.
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The lesson to draw from inconclusive findings depends on where you think the
burden of proof in the tradestandards debate lies. If you value trade per se highly
and labor standards ?ust a little, so that you are unwilling to risk anyreduction in
trade that improved standards might cause, the results may be enough to convince
you that standards should not be part of any discussion of world trade. <ut if you
value standards highly, the results should convince you that there is not much to
worry about from improving core standards. @ost people, aside perhaps from
trade economists, have the latter preferences. @ost seem willing to pay a price for
policies that would reduce forced labor, improve the conditions of child labor, and
assure core standards for employees worldwide. The smaller the price of standards
in the form of reduced trade, the less plausible is the argument that the trading
community should oppose international core labor standards as a protectionist
threat to the global economy.
National/International Trade Policies and
Labor Standards
That core labor standards may have only modest effects on trade does not imply
that standards should be made part of trade agreements, either through addition of
a social clause to the ;T" or in some other way. =erhaps trade policy is an
ineffective mechanism for promoting core labor standards worldwide. To
understand how to raise labor standards, I ask two #uestions: ;hat are the
bottlenecks that prevent governments from enforcing the nearuniversal
commitment to core labor standardsD .an
trade policy help remove those bottlenecksD
"overnment #nforcement of Standards
1iven that most countries accept core labor standards and that many have signed
various I(" conventions, enforcement rather than enactment is often the
bottleneck to achieving acceptable standards. 7or example, India prohibits bonded
and forced labor, bans employment of children under age *9 in ha!ardous work,
and has appropriate regulations for health and safety. It is signatory to many I("
conventions. <ut scarcity of government resources and lack of political initiative,
combined with incentives by private parties to avoid some standards, renders
some of the legislation ineffectual.
In general, less developed countries do not ade#uately enforce their labor laws,
particularly in small firms 2;orld <ank, World Development Report 1995,figure
**.I, B-4. @inistries of labor do not generally carry great weight in national
deliberations, nor can they obtain the resources needed to carry out their
responsibilities. At the ground level, government
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inspectors may be so lowpaid as to neglect violations of law in return
for modest bribes and may be too insufficiently trained to be effective.
Some officials may also decide that enforcement is socially undesirable. In *+89
I visited Sri (ankan brick factories where - to 8yearolds worked. ''<ut this is
against the law,'' I said to a (abor @inistry official. '';hy isn't something doneD''
The officials replied, ''6ou want them to starveD'' ;hile government officials cannot
readily say so, some discretion with enforcement can be better than perfect
regulation 27reeman *++IC S#uire and Suthiwart5arueput *++,4.
The labor supplemental agreement to 5A7TA, the 5orth American Agreement
on (abor .ooperation 25AA(.4, recogni!ed the enforcement bottleneck in @exico
and re#uired the parties to ''promote compliance with and effectively enforce its
labor laws through appropriate govern ment action'' 25AA(., Article M, *9
September *++M4. It also included a dispute resolution system and potential
penalties to support the accord.
=roblems with enforcing labor laws are not uni#ue to developing coun tries.
The /nited States has problems of its own, as the current American concern over
the growth of sweatshops within the country makes clear and as one of the initial
cases @exico brought under 5AA(. highlighted. The /S >epartment of (abor
has relatively few inspectors to monitor violations of labor laws and relies
extensively on individuals' reporting violations or suing in court over violations.
(egal enactment seems most effective in changing behavior where there is a
general social consensus that the relevant standard is appropriate 2as with
antidiscrimination legis lation4 or when there are many private institutions, such
as unions or employer federations, with incentives to monitor compliance 2as in
much of ;estern $urope4.
There are three ways to improve developingcountry standards via
increased efficiency of government regulation of markets:
:aise the competence of the relevant ministries through technical assis tance.
The I(" has been the ma?or international organi!ation involved in this activity.
:aise the incentive for developingcountry governments to enforce stan
dards by putting international pressure on them. The I(" has a well developed
system for treating problems with the freedom of association. $ven though the
I(" cannot penali!e countries found guilty of violating conventions, it can
create sufficient publicity and pressure to produce some changes. In addition,
the 5AA(. dispute&enforcement mecha nism raises the costs of
nonenforcement to @exico and should increase the weight the @exican
government gives to enforcement of labor laws.
Strengthen the competence of nongovernmental organi!ations con
cerned with workplace regulations. In the *++, World Development Report, the
;orld <ank praised the role of trade unions in monitoring
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employers' compliance with government regulations and called for a
greater union presence in developing countries 2much to the surprise of the
world labor community4. $ffective trade union movements in developing
countries would go a long way to alleviating world concerns over standards. If
employees have freedom of association, they ought to be able to gain other
standards as well, and increase compliance in their countries. This strategy
makes freedom of association central to any effort to rely on private parties to
improve enforcement of stan dards.
The extent to which international assistance or pressure can increase the
effectiveness of departments of labor, unions, and other nongovernmental
organi!ations 251"s4 in poor countries is, however, unclear. >evelop ment
economists have been struggling to explain why some governments manage the
development process well while others do not. =ressures or assistance from
abroad may be a very minor factor in determining government effectiveness. The
5AA(. experience should be telling in this regard, though the post5A7TA woes
of the @exican economy are potentially far more important in determining
@exican enforcement of labor laws than the 5AA(..
"overnment Protection of Low Standards
There is another more troublesome obstacle to high standards: the con scious
policies of some governments to suppress standards, either in particular areas,
such as export processing !ones 2$=Qs4, or nationwide.
In *++, there were approximately ,AA $=Qs located in BM countries 2"$.>
*++-, 9M4. @uch of Asian growth in exports is linked to $=Qs. They would appear
to be the most natural place to apply and enforce international labor standards,
given that it is relatively easy to monitor labor conditions in these sites, that the
producers are subcontractors to multinationals if not multinationals themselves,
and that the sole purpose of $=Q business is to produce for the world market.
$=Qs should be leaders in labor standards, but in many countries they are not
2though pay and benefits may be above national averages4. The /S >epartment of
(abor reports that in several of the $=Qs it investigated labor rights were more
restricted than in other sectors.
;hen labor rights are restricted in $=Qs relative to the rest of a country, this
restriction smacks of an illegal trade subsidy 2.harnovit! *++I4. Since $=Qs live
on trade, the labor conditions in these areas are, in some sense, the responsibility of
the world trading community. If there is a case for linking labor standards with
trade, and a place where trade pressures might prove effective, that place is with
the $=Qs. =ermitting countries to deny core standards in $=Qs is unconscionable if
something can be done about it with little effect on developingcountry comparative
advantage.
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The second area of suppression of standards occurs in dictatorial regimes, most
of which outlaw independent trade unions for fear of the pressure unions bring for
democrati!ation. The big fish here is .hina, where onefifth of the world's
population resides. .hina has a poor record of enforcing standards on forced labor,
among other violations of core standards, ?ust as it has a poor record of enforcing
other trade regulations, such as those to curb piracy of intellectual property rights.
<ut its policies on unions are not a matter of poor enforcement: the .hinese
government is committed to preventing the development of free trade unions.
;hat, if anything, can be done about .hinese violations of standardsD $ach year
or so, the /nited States threatens .hina with the loss of most favored nation trade
status for its human rights violations and&or its failure to control piracy of
intellectual property rights. There have been agreements to curtail sales of goods
made by prison labor. 1iven the growing si!e of the .hinese market and the
expansion of the market economy in .hina, it is unlikely that the /nited States
will actually act on trade threats, leastways without cooperation from other
advanced countries, unless it blunders. The right strategy for increasing standards
in .hina may be to increase contacts, make protests, educate the next generation
of .hinese leaders, and watch democratic practices expand with economic growth
rather than to engage in a trade war over standards. =erhaps this is a case where
consumer pressures have greater potential than government actions for raising
standards.
The .hinese example suggests that government pressures through trade may
have greater potential for success on the policies of smaller economies with more
democratic regimes, as opposed to large dictatorships. Trade union complaints to
the /S government or to the I(" about violation of worker rights against Thailand
or 1uatemala are more likely to improve labor standards in those countries than
complaints against .hina, even though many in the /S .ongress worry about
.hinese violation of human rights. As Srinivasan 2*++9, M-4 notes, ''The potential
costs of business interests in the /nited States of withholding Omostfavored nation
status from .hinaP are substantial enough for them to lobby against it.'' $ven with
smaller economies that are dependent on trade with the ;est, though, there is
good reason to ask, how effective can trade pressures be
in raising standardsD
The strongest case against making labor standards part of trade agree ments is a
simple one: that trade pressures may have only a limited effect in inducing
countries to change their policies. Absent experimentation with a social clause in
the ;T" to observe how it would work, our best assessment of what trade
pressures might accomplish comes from examining the effectiveness of past
government economic sanctions with respect to labor standards and other issues.
;ith respect to labor standards, the /nited States has explicit policies regarding
''worker rights'' among its trading partners, with rights provi
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sions added to a host of trade and investment laws, including the /S
1enerali!ed System of =references.
8
The 1S= links trade status to labor rights in
/S trading partners and establishes a review process for assessing worker rights in
countries benefiting from tariff preferences.
.omplaints about practices have come largely from the A7(.I" and activist
groups. 7or instance, in *++M the A7(.I" made submissions against Thailand,
centering on child labor violations, the right to organi!e, and the right to bargain
collectively. 1S= complaints were brought against 9A countries from *+89 to *++,,
of which about half were deemed suffi ciently meritorious to lead to a review of
country practices. Absent a serious investigation of the outcomes of these cases, it
is difficult to ?udge their effects, but the "$.> notes that ''progress in raising core
standards has been made in most of the countries petitioned'' 2"$.> *++-, 8-4.
The /nited States has on occasion applied trade sanctions to particular countries,
such as .uba, for political reasons. "ther countries have also used economic
sanctions as a tool for affecting policy)for instance, against :hodesia when it
established an independent whiteminority regime. Studies of the effectiveness of
trade policy instruments in achiev ing nontrade goals in general find that these
sanctions are of limited effect and dependent on particular circumstances
2Gufbauer, Schott, and $lliott *++A4. >ifficult though it may be to both sides in the
tradestandards debate to believe, trade policy is not Superman in disguise.
.ountries can prosper in the face of trade sanctions or maintain unacceptable
policies even when sanctions noticeably reduce their economic wellbeing.
That trade policy is unlikely to be a panacea for establishing core labor
standards does not mean that it may not be a useful tool, however. ;hat other
tools exist in the world community's arsenalD InvasionD .IA subversionD
$ducationD I believe that simply by raising the standards issue, the groups and
countries that seek to add a social clause to the ;T" have performed a valuable
service in forcing the bankers, finance ministers, trade specialists, and
multinationals who dominate rule setting for world trade to recogni!e that many
citi!ens have concerns about standards that affect working people around the
world. <ut I would not expect addition of a social clause to the ;T" to
dramatically improve global labor standards, any more than the labor supplemental
agreement to 5AA(. has revolutioni!ed labor practices in @exico.
Conclusion
This chapter has made these arguments:
There is a legitimate demand for international labor standards that is
derived from consumer preferences.
8. There are provisions in at least eight separate pieces of trade and foreign aid legislation, of which the
1S= program is the most important.
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The private sector can meet some of this demand with product
labeling but is not wellsuited to satisfy the publicgoods dimension of the
demand for standards.
Adherence to core standards will not substantially affect developing
countries' comparative advantage nor will it have more than a minimal effect on
trade.
1overnment regulation of the labor market is sub?ect to substantial
shortcomings of enforcement and needs to be supplemented with 51" activity
within developing countries.
Trade pressures are a legitimate tool for trying to increase standards,
particularly in export processing !ones, but will not be a panacea for low
standards everywhere.
If you accept these premises, then you will be naturally led 2at least I
was4 to a threepronged policy for enhancing standards:
Substantial reliance on the private market in advanced countries to ''buy'' higher
standards through consumer labeling. 1overnments con cerned with standards,
such as the /nited States, 7rance, and other $/ countries, as well as
international agencies should promote this effort. The ;T" and I(" might
convene a ?oint committee on trade and labor to consider ways to encourage
voluntary labor standards labeling. The I(" might consider ways it can provide
assistance in any labeling activity, using its detailed knowledge of labor
conditions. "ne impor tant issue is to obtain agreement on standards with
respect to child labor.
A second line of attack calls for some international mechanism for
dealing with egregious cases of low standards or mislabeling and for
monitoring labor conditions in export processing !ones. =erhaps the ;T" and
I(" could work together to develop codes for $=Qs and to suggest some type of
sanctions for $=Qs that do not meet core standards. Since $=Qs are the creation
of governments, it is natural to have govern ments or international organi!ations
take a lead in pressuring countries on this front.
A third line of attack is to strengthen developingcountry regulatory
agencies and nongovernmental organi!ations, notably unions, so that these
countries can better enforce their own labor codes. Gere, the I("'s I=$. program
on child labor, with the help of other nongovernmental groups, may provide a
useful model. <ut strengthening freedom of association rights may re#uire
considerable governmental pressures as well. =erhaps the I(" can undertake a
ma?or study of the factors that have led many developing countries to accept
greater trade union activ
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ity and to determine what role the world community can play in this
transition to greater democracy.
I favor a threepronged effort to raise labor standards)with consum
ers&activists pressuring firms, governments and international organi!a tions
pressuring governments, and the world community seeking to strengthen 51"s
in developing countries)because the evidence suggests that a single approach,
including addition of a social clause to trade agreements, is unlikely to suffice.
.onsumers want more goods produced with acceptable labor standards. They want
to buy foreign and domestic commodities knowing that they are produced under
acceptable conditions by workers with some basic human rights, and they are
willing to pay more for goods produced under acceptable standards. @any want
their governments to do more to ensure that core standards in the global economy
are met. The trade community should not try to suppress, deny, or demoni!e this
demand, but rather should seek the best way to help meet it, in con?unction with
other policies. To those committed to freer trade, I say: make the legitimate desire
for decent standards your friend, not your foe. 6ou have plenty of real foes to
worry about.
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