Doc. 7682
8 October 1996

REPORT1 on the World Trade Organisation and social rights

(Rapporteur: Mr GROSS, Switzerland, Socialist Group)

Summary

      Following the conclusion of the Uruguay Round, which resulted in the setting up of the World Trade Organisation (WTO), countries have not reached agreement regarding social standards. Developing countries see social provisions as protectionist measures in favour of developed countries. Developed countries suspect developing countries of engaging in social dumping.

      Nevertheless, the Assembly believes that it is wrong for social standards to be excluded from current international trade negociations

I. Draft recommendation

1.       The Assembly regrets that the globalisation of trade, acknowledged, by the setting up of the World Trade Organisation (WTO) in the place of GATT, has not been accompanied by provisions guaranteeing fundamental social rights.

2.       It is, however, convinced that economic development and social development must go hand in hand and that sooner or later, ignoring social rights will inhibit economic development; to think that development will be speeded up if social rights are put off until later is a mistake.

3.       It notes that social rights are part and parcel of the rights of the individual and as such must be recognised regardless of a country's stage of development.

4.       The Assembly believes that it is not possible to exclude labour standards - and only such standards - from current international trade negotiations when the scope of the negotiations has been enlarged to include even such questions as protection of intellectual property and the coexistence of trade and environmental policies.

5.       The basic labour standards upon which both developed and developing countries agree concern freedom of association, the right to collective bargaining, the prohibition of slavery and forced labour, equality of remuneration, non-discrimination and the minimum age for employment, all rights guaranteed by the European Convention on Human Rights and the European Social Charter.

6.        The Assembly stresses that, in laying down these minimum social standards, the aim is not to introduce protectionist measures in favour of developed economies but to foster a fairer distribution of the greater profits achieved by the opening up of markets and the dismantling of trade barriers, to all people in all parts of the world.

7.        If the tendency to growth and higher benefits generated by free trade do not profit all sectors of the population throughout the world to the same extent, it is not only the principle of free trade which will be quite fundamentally called into question in the future, but world peace will be threatened, and there will be a growing structural danger that the gulf between the prospects of the poorest and the richest will widen yet further.

8.        The Assembly is convinced that mutual accusations of social dumping on the one side and veiled protectionism on the other side are not only sterile and hardly likely to foster trust, but quite fundamentally question the legitimacy of the liberalisation of world trade as a whole and also serve as a potential source of encouragement to protectionist and even xenophobic and other politically dangerous trends in different countries and parts of the world.

9.        The Assembly would like to point out that, historically, social progress in this or that state has always been the fruit of a difficult - sometimes characterised by duress and hardship - but always successful combination of economic progress and the further extension and development of social legislation in favour of the weaker and less privileged members of society. This trading-off process only worked because most workers were citizens who, through universal suffrage, were able to exert political pressure on governments and economic policy-makers to achieve the concessions and agreements required. For the time being however the prerequisites for a corresponding transnational legislative framework are on the whole lacking , which is why the guarantee and respect of minimum social and civilising standards in world trade must be laid down no longer unilaterally and not only bilaterally but above all multilaterally in treaties such as those to be implemented by WTO.

10.        The Assembly is convinced that this is the only means, on the one hand, of avoiding a situation in which, social standards predominantly enshrined in national legislation would be eroded in individual states and regions, particularly those with high levels of economic development, in the face of transnational world trade, global integration of the money market and a world market with no barriers. On the other hand, it will in this way also be possible to avoid minimum social standards for protecting children from exploitation and the right of workers to organise and to negotiate wage levels and labour relations in partnership with management to be denied to the most underprivileged sectors of the world's population in the less developed countries.

11.        As regards the ministerial conference in Singapore in December 1996, to discuss the future of WTO, the Assembly urges the Committee of Ministers to invite governments of member states to take steps to:

i. encourage all WTO members to strive to make the inclusion of social clauses in WTO a focal point of both the conference agenda and reform efforts in the coming years;

ii. press all treaty partners engaged in world trade to refrain from pursuing short-term commercial benefits at the cost of minimum social standards to help the poorest sectors of the population, and instead to strive for development that is both sustainable in social terms and ensures that workers receive a fairer share of the higher profits generated by more intensive trade;

iii. secure agreement in Singapore for the setting up at least of a working party to consider possible ways of enshrining a social clause in WTO and seek new consensus in the coming years;

iv. enter into specific talks with the governments of countries which are radically opposed to the inclusion of social clauses, in order to convince them of the potential dangers of their stance and foster the necessary learning process, possibly with offers of special assistance in the social and political spheres.

II. Explanatory memorandum

by Mr GROSS

The issues

A lack of consensus

      The first issue to be addressed in the current debate on trade and labour standards is the apparent deadlock in multilateral negotiations on the issue. On the one hand, the case is made that for this reason there is little point discussing the issue in the World Trade Organisation (WTO) or anywhere else, and that to press the issue when there is no consensus risks creating splits within WTO at a time when the organisation has a great deal to do and needs a period of consolidation rather than major change. On the other hand, the case can be made that international commercial diplomacy is covering more and more issues in which consensus is unlikely to be achieved without serious negotiation. If commercial diplomacy is to reach deeper into the competence of national governments on a range of issues from the protection of intellectual property through investment to linking trade and the environment, why should labour standards be the only area excluded from the WTO agenda? In these other areas a form of understanding, if not full consensus, was ultimately agreed despite initial differences, so why should labour standards be different?

Core standards and the rest

      If any consensus or agreement is to be reached it will be necessary to discuss which labour standards one is dealing with. Much of the rhetoric in the political debate on trade and labour standards, neglects (sometimes on purpose) the distinction between core labour standards and the rest of ILO conventions. As OECD has very recently shown, there is a group of core labour standards which have found wide support among developed and developing countries. These concern freedom of association, free collective bargaining, slavery and forced labour, equal remuneration, non-discrimination and more controversially a minimum age for employment. These are the standards which proponents of enhanced international standards want to promote by including labour standards in the agenda for commercial diplomacy in the 1990s.

      In the political debate, opponents of efforts to link trade and labour standards in a "social clause" argue that this would deny developing economies their rights under GATT/WTO and their comparative advantages. This line of argument takes little or no account of the difference between labour standards. Proponents of such a clause argue that fundamental labour standards do not have a direct effect on the costs of employment and do not therefore affect comparative advantages. It is therefore argued that they should apply regardless of the level of development. Perhaps the key issue in the current debate, however, is that many developing country governments simply do not believe that a social clause would stop at such core standards. These countries believe that once a link has been established, it will be extended to include other labour standards which have more direct bearing on the cost of labour .

      A third issue of central importance is the risk of politicisation. Considerable efforts have been made to insulate the WTO/GATT rules from politicisation. Recent developments in WTO rules, such as in the area of dispute settlement, are seen as (potentially) strengthening the rules-based over the power-based resolution of trade disputes. There is also a broad exemption for trade sanctions, so that, for example, trade sanctions against the former Apartheid regime in South Africa took place under a UN action. But core labour standards are by their nature closely related to fundamental human rights. This raises the possibility that linking trade with labour standards will lead to a politicisation of trade and thus of WTO. There was enough evidence in ILO during the 1960s and 1970s that labour standards can become political, not to mention the current issue of human rights in China.

      These three key issues must be resolved before any debate on trade and labour standards can be successful. First, some means must be found of breaking the existing deadlock on the issue that spreads across WTO, ILO and probably OECD as well. Second, a means must be found of drawing a line between core standards and the rest, in order to ensure that any link between trade and labour standards is not used as a protectionist device. Il will also be necessary to make very clear the modalities according to which any trade measure is to be applied. Finally, some means will have to be found of ensuring that the linkage does not result in a politicisation of WTO which would almost certainly undermine its effectiveness.

A long history of debate

      The current debate on trade and international labour standards must be seen again a history of controversy dating back to the early 19th century. Efforts to introduce legislation to improve working conditions in factories were opposed by employers for fear of lost competitiveness, For this reason it was believed that international rules were needed. But efforts to establish international standards made no progress until they received the backing of powerful governments. In 1890 Germany provided such backing and organised the Congress of Berlin, in an effort to establish agreed international labour standards out of concern that a failure to improve labour standards would lead to social and thus political unrest. But the German agenda was too ambitious and failed. The more pragmatic, step by step and focused approach that followed was more successful. This took the form of the establishment of an international labour office in Basel to improve information on labour conditions. In this context were adopted a number of specific international conventions on, for example, the prohibition of the use of poisonous substances in production processes. But the work was interrupted by the First World War.

      The next major initiative came in the Treaty of Versailles, which considered improved labour standards as necessary for the legitimacy of the post-war international system. Again the main motivation for efforts to introduce international labour standards was political in that improved standards were seen as contributing to peace. There was a need for international standards because the "failure of any nation to adopt human conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries". The third part of the Treaty set out standards that, in some respects, went further in 1918 than the core standards that figure in the current debate. They included, for example, wages for a reasonable standard of living. But the Treaty of Versailles provided no trade sanction, no social clause in order to ensure that the provisions of the treaty were complied with. As a result the approach to enforcement adopted by the ILO was one based on peer pressure. Although ILO has done much to raise labour standards throughout the world, the case can be made that these standards have been less than rigorously enforced, despite repeated efforts by the ILO and the use of three separate review procedures (see below).

      There are justifiable and understandable reasons why the standards set out as long ago as 1918 have not been achieved. Many new countries have joined ILO, so much of the focus after 1945 was on improving standards in developing countries through training and aid rather than enforcing compliance. The tripartite nature of ILO (governments, unions and employer organisations) also made agreement on any strengthening of the enforcement mechanism difficult. But it is ultimately the failure of ILO to ensure effective implementation and enforcement of its Conventions which has created the pressure to use the ultimate threat of trade sanctions as a means of achieving basic labour standards. There is a direct analogy with intellectual property where the World Intellectual Property Organisation (WIPO) has been seen as equally ineffective in enforcing minimum standards for the protection of intellectual property rights. It was therefore thought necessary to bring intellectual property within the feld of action of WTO/GATT and provide for trade sanctions in the case of non-compliance.

      In the vacuum left by ineffective implementation of ILO conventions, regional and unilateral standards and enforcement mechanisms have emerged. In Europe there was first the Council of Europe's 1961 Social Charter. This drew on ILO conventions to create a list of 19 rights and principles. These reflected the aspirations of the time in that they included the right to work and the right to social security. Social rights now appear out of place in an era of high unemployment and efforts to curtail social security budgets in most developed economies. The Treaty of Rome (EEC) included elements of social rights, such as non-discrimination, but it was many years before these were confirmed by the European Court of Justice. The real pressure for strengthening European provisions on labour standards came as momentum for further liberalisation intensified. Thus the Single European Act was accompanied by the introduction of qualified majority voting on health and safety issues (Art 118a) and of social dialogue (Art. 118b).

      The initiative to create a genuine single market within Europe implied agrement of member states to sacrifice even more sovereignty in order to protect working conditions and social provision. As a consequence there was pressure to accompany the liberalisation of trade in goods and services and investment with a social dimension. Again the pressure for adopting labour standards and other social provisions came as a result of political pressure associated with the need to retain the legitimacy of the system of rules being established. Without a social dimension it was feared, by for example Commission President Delors, that the single market initiative would be undermined by organised labour. The 1989 European Community Charter of Fundamental Social Rights was thus a means of legitimising the liberalisation process for working people. If the single market was to be seen as simply the removal of barriers for goods and investment, it would ultimately fail to find support among those affected. The EC's Social Charter referred to no less than 60 ILO conventions in defining its 13 rights. This proves that the Charter was about more implementing existing ILO Conventions than defining new standards.

      In other regions also there have been efforts to enforce international labour standards. For example, the "side agreement" to NAFTA, negotiated in 1993/94, which was added to ensure that NAFTA was adopted by the US Congress, includes a North America Agreement on Labour Cooperation (NAALC). This stops short of harmonised labour standards, but requires each party to NAFTA to enforce national labour laws effectively. In the US there has also been an effort to enforce labour standards through bilateral or unilateral agreements. The 1984 US Trade and Tariff Act linked trade to labour standards by requiring countries that benefited from the US General System of Preferences (GSP) scheme to meet certain labour standards. In this case ILO conventions were not directly used as the US has ratified few of them. Between 1984 and 1994, 34 cases were referred under this GSP social clause. An analogous scheme has now also been introduced by the European Union.

      Section 301 of US trade legislation, the main instrument of US unilateral trade actions, also provides the possibility of trade sanctions when a country behaves "unreasonably" by a persistent pattern of conduct that, among other things, denies workers the right of association, free collective bargaining, permits forced labour or excludes laws on a minimum age for employment. To date Section 301 provisions have not been used to force countries to introduce labour standards, but in the absence of agreed multilateral rules there is always a possibility that they may be.

      The current debate must therefore be seen against in this historical context which shows that the issue is by no means new. Efforts to raise national standards have always been associated by "level-playing-field" arguments in favour of international standards. The history suggests that, improvements in labour standards have continued despite trade liberalisation, but it also shows that there has been an ever present need to legitimise major liberalisation initiatives by including some provision for strengthening international labour standards.

The cases for and against a social clause

      It is worth restating the main arguments for and against any linkage between trade and labour standards. The case against is that such a linkage contains the seeds of new forms of protectionism, because it would provide an outlet for protectionist pressure that can undermine the rights of - especially weaker or developing - members of WTO. Once a link is established it will be impossible to limit coverage to core standards. A second, related argument is that it is inappropriate to impose the standards of developed, industrialised countries on poorer developing economies. Such an imposition would in any case threaten to rob these countries of their comparative advantage in international trade and thus their chances of development.

      There is also a more practical case against the introduction of trade and labour standards in WTO, and this is that the addition of such issues will overburden the organisation at a time when it should be focusing on consolidation and the completion and implementation of the Uruguay Round of trade negotiations and on establishing the credibility and effectiveness of the new WTO. To add labour standards to the WTO agenda would jeopardise these aims and risk recreating the split between the "North" and the "South" which existed during the 1970s.

      The case for strengthening efforts to improve international labour standards is that there are certain fundamental social rights that should be respected regardless of the level of development of an economy. These include the core labour standards noted above. If economic development is to be sustainable, it must provide for some means of redistributing the wealth created in order to ensure both the political legitimacy of the process and domestic purchasing power. Without certain basic rights, there is a danger that development can be used to further the interests of a ruling élite, which profits from liberal trade through the repression of labour standards. The elimination of discrimination and the replacement of child labour with improved education would also enhance long term growth in productivity in the economies concerned.

      Seen from the point of view of the multilateral trading system, basic rules on labour standards are needed if continued liberalisation and globalisation of the world economy is to be supported by those most directly affected by the costs of adjustment that this implies. International commercial diplomacy is becoming more comprehensive. It now includes, for example, agreed international standards on the protection of intellectual property, rules on how to accommodate trade and environmental policies, investment and possibly competition policy. In such circumstances it is not possible to exclude labour standards - and only labour standards - without politicising trade, as multilateral commercial diplomacy will be seen as a means of protecting the interests of international capital and undermining the interests of labour. Finally, without agreed multilateral rules the vacuum will inevitably be filled by unilateral or regional measures which would ultimately weaken and undermine the multilateral system as surely as any overburdening of the WTO agenda.

The current state of negotiations

      At the conclusion of the Uruguay Round in Marrakesh there was no agreement between countries on a reference to social standards, only reference to the importance attached, by certain delegations, to the relationship between the world trade order and internationally recognised labour standards.

      The strongest proponent for the inclusion of trade and labour standards on the WTO agenda was the United States, with some less than unanimous support from members of the European Union, but there was unanimous opposition from developing countries. With no consensus on the issue and insufficient commitment to it on the part of the leading developed members of WTO to enable them to force it through, the issue was dropped.

      Subsequently the tactic of the proponents of some linkage was to promote efforts at achieving some degree of consensus in other international fora, such as OECD and ILO. It was hoped that enough progress could be made in these to enable a further attempt to get trade and labour standards onto the WTO agenda at the December 1996 WTO ministerial meeting in Singapore.

The International Labour Organisation (ILO)

      ILO had a number of informal discussions on the social clause in the 1980s and come back to the subject in 1991. At the 75th Conference of the ILO in 1994, the Director General raised the question of the social clause. As the international institution most concerned with labour standards, it was difficult for the organisation to "stand aloof from the debate (on the social dimension of trade liberalisation) without the risk of being relegated to the sidelines". Some members of the ILO Governing Body, especially the US, French and trade union delegates spoke in favour of the ILO addressing the issue. Despite opposition from developing countries delegates, a formal working party was established.

      The first meetings of the working party were characterised by statements of the differences between the various participants. At a second meeting in April 1995, India tried to close down discussion on the basis that no progress appeared possible. Perhaps in response to this and as a means of continuing the debate, the union representatives - thanks to the work of the International Conference of Free Trade Unions, there was a common view among almost all the union representatives - suggested that the issue of sanctions, that is the linkage between trade and labour standards, should be put aside for the time being in order to concentrate more on the interaction between the two. The focus in recent ILO meetings has therefore been on how to increase ratification of ILO conventions and improve existing ILO implementation measures. There have been proposals to strengthen implementation by making use of a procedure analogous to that used to enforce the freedom of association obligation, which is in the ILO Treaty itself.

      There are three ILO procedures for dealing with non-compliance. There is the representation procedure, in which employers 'or workers' representatives can submit allegations of failure by a member country to adopt satisfactory measures. This has been used very little during the life of ILO. There is the complaints procedure, which provides for a delegate of the ILO Conference (including workers and employers) or a member of the ILO Governing Body, to file a complaint. Such a complaint is then considered by a Commission of Enquiry, which makes recommendations. If a member country fails to effect the recommendations the ILO Governing Body may recommend any measure it deems necessary. In theory this could take any form, including a trade sanction, but in practice no sanctions of any consequence have ever been applied in any of the 24 complaint procedures followed since the founding of ILO. The third procedure is used for freedom of association cases, in which complaints go before a special Committee on Freedom of Association. This body examines the complaint and passes its findings to the ILO Governing Body. There have been 1,800 cases examined under this procedure and the studies of the Committee have developed a body of precedent on the interpretation of the ILO provisions in this field. This body of precedent is seen as a means of bringing about more effective conformity because it has developed a set of interpretative rules which can accommodate, in a flexible fashion, the different circumstances in the countries involved. But any extension of this type of ILO procedure to cover other labour standards is likely to be slow, with two reports only to be produced in 1996 on forced and child labour.

Organisation for Economic Cooperation and Development (OECD)

      OECD began to work on trade and labour law during 1993 in order to explore some of the evidence concerning the effects of social clauses and investigate what a social clause might look like.

      With the encouragement of the US Government and support of the EU, the OECD Secretariat was asked to produce a report on trade and labour standards for discussion in the Trade and Employment, Labour and Social Affairs Committees of the OECD. These committees considered a first paper in April 1995.

      OECD work was based on three objectives. The first involved the identification of the core standards, as noted above. The second was to study the application of these standards in some 75 ILO member states at different levels of development and the third was to assess the economic linkage between the core labour standards and trade and development. The OECD work found that there were few direct links between labour standards and trade. In some cases countries were able to implement labour standards and increase their competitiveness and share of trade. In other cases countries increased their share of trade without labour standards.

      OECD also considered why countries did not implement ILO conventions even though they had ratified them. Here also different conclusions were reached. In some cases it was because the political system was not democratic and the introduction of core labour standards was seen as threatening by the existing régime. In some cases countries had passed the implementing legislation, but did not have the administrative means to enforce the law. In both these cases, OECD argued that trade sanctions would have little effect. In the former case because the country would resist any linkage for political reasons, in the latter case because trade sanctions would not increase the ability of the country to administer the laws, although arguably it would provide a greater incentive to improve domestic administration. In only a very few cases were countries found to be not implementing the laws in the belief that this would attract foreign investment or give the country concerned a competitive advantage. Only in these countries, argued OECD, would trade sanctions have a potential benefit.

      OECD is also considering existing means of promoting international labour standards and has picked out the ILO Freedom of Association procedures as a possible model for more effective implementation of other core labour standards. Broadly speaking the OECD report picks up US experience which suggests that even when there are teeth, such as in the US GSP scheme, peer pressure and positive incentives may be more effective.

      OECD is continuing its work and a revised report will be shortly produced. It remains to be seen whether a consensus will emerge on the issue within the OECD. Evidence from the Quad (the meeting of the US, EU, Canada and Japan) in April 1996 suggests that there it will not. Without a common position among OECD countries it is unlikely that the issue will get onto the WTO agenda.

      OECD might also be the forum for efforts to link international labour standards to international investment. In the 1970s a voluntary code of conduct for investment by multinational companies was negotiated in OECD. This included certain provisions on, for example, the environment. OECD is now where a Multilateral Agreement on Investment (MAI) is being negotiated and organised labour interests are seeking to include in the MAI some requirement that multinational companies respect basic labour rights in all their operations.

Options for the future

      In the short term there is little possibility of introducing a social clause in WTO member states. It is unrealistic to believe that any agreement can be reached in the short or even medium term or that the few industrialised members of WTO can force the issue through against the opposition of all the developing countries. This would indeed risk a major split within the organisation at a time when there is a genuine need for consolidation. It is, however, equally unrealistic to believe that labour standards can be ignored while standards to protect international investment and intellectual property continue to be developed within WTO, without this lack of symmetry resulting in a politicising of WTO. One option would therefore be to establish an informal working group within WTO, perhaps along the lines of the Committee on Trade and the Environment, but without the expectation that this was a preliminary phase to fully fledged negotiations. Such an approach could seek to improve exchanges of views between developed and developing economies towards a consensus on core standards.

      A second but not exclusive option, would be to progress work in ILO on the introduction of procedures equivalent to the freedom of association committee. Once again the focus could be on the other core standards. All parties agree that this is a legitimate field for ILO, but given past experience of slow progress in ILO it would be on ILO to develop more effective forms of enforcement , for if it cannot do so the pressure to use trade measures as an ultimate sanction for non-compliance will mount.

      A third option promoted by international trade unions for some time is the inclusion of provision in international investment agreements to the effect that companies investing internationally should respect certain minimum labour standards. This is unlikely to find support among companies engaged in international foreign direct investment that have been the main supporters of the OECD led MAI.

      Yet another option would be to encourage voluntary measures on the part of international investors. A number of companies have already made commitments to respect core labour standards in their investments in developing countries, in part as a result of bad publicity concerning child labour and poor labour conditions in factories producing goods for sale in the developed economies. Empowering consumers in the industrialised West to avoid purchasing goods produced by workers who do not have the benefit of core labour standards may be as effective in imposing trade sanctions, if not more so. But there would need to be a means of improving transparency and information on working conditions for consumers to be able to exercise this power.

Reporting committee: Social, Health and Family Affairs Committee

Budgetary implications for the Assembly : none

Reference to committee : Doc. 7161 and Reference No. 1970 of 3 October 1994

Draft recommendation adopted by the committee on 24 September 1996 with 2 abstentions

Members of the committee: Mr Gusenbauer (Chairman), Mr Rathbone (Vice-Chairman), Mr About, Mrs Albrink, Mrs Andnor, Mr Arnau, Mrs Aytaman, Mr Banks, Mrs Belohorska, Sir Andrew Bowden (Alternate: Lord Dundee), MM. Bugli, Buzatu, Carvalho Martins, Christodoulides, Chyzh, Dees, Deguara, Dinçer, Dionisi, Djerov, Mrs Fleetwood, Mrs Gatterer, Mr Geoffroy (Alternate: Mr Birraux), Mrs Golemi, MM. Gross, Haack, Hegyi, Mme Hoegh, MM. Horn, Jacquat, Janecek, Jirousova, Jonsson, Keller, Kollwelter, Kotlar, Mrs Kusnere, Mr Leitner, Mrs Luhtanen, MM. Maginas, Malachowski, Marmazov, Mrs Maximus, MM. Mazzone, Melnikov, Mozetic, Nestor, MM. Niza, Pattison, Paunescu, Mrs Poptodorova, Mrs Pulgar, MM. Raskinis, Scaglioso, Sharapov, Valk, Valkeniers (Alternate: Weyts, Vice-Chairman), Mrs Vermot-Mangold, MM. Volodin, Vrettos, Wielowieyski.

N.B. The names of the members present at the meeting are in italics.

Secretaries to the committee: Ms Coin and Ms Meunier

1 ¹ by the Social, Health and Family Affairs Committee