A proposal by the United States to introduce trade and laour issues into the World Trade Organisation system has greatly upset diplomats from developing countries who had believed that the issue had been settled at a 1996 WTO meeting that decided the WTO should not deal with labour issues. The US proposal has generated new tensions and divisions at the WTO and further complicated efforts to prepare for the organisation's Seattle ministerial conference.

By Martin Khor

November 1999

The process of preparing for the World Trade Organisation's Ministerial Conference (starting 30 November in Seattle) was mired in even greater controversy in early November when the United States tabled a proposal that the WTO introduce labour issues in its agenda and system by establishing a Working Group on Trade and Labour.

The move has generated greater tension and divisiveness as the WTO members struggle to make progress on an already overloaded agenda for the Seattle meeting.

The issues to be discussed by the Working Group include but go far beyond 'core labour standards' that had been earlier proposed, and rejected, as an issue for the WTO during the1996 WTO Ministerial Conference in Singapore.

The additional issues include employment, social protections and safety nets, child labour, and derogation from national labour standards (including in export-processing zones).

Moreover, the proposal would like to link some of these topics (employment, labour standards, social protection, derogation from national labour standards) not only to trade but also to investment.

The US proposal was made by its WTO Ambassador, Rita Hayes, at a WTO meeting in Geneva on 30 October.

Many diplomats from developing countries privately expressed dismay at the US move at such a late stage of the Seattle preparatory process, on a subject they have long made clear is taboo for them as an issue even for study or discussion at the WTO.

'We are also shocked by the breadth of the proposal that includes so many issues besides labour standards that we had already rejected,' said one. 'This is simply unacceptable. We are already behind time with the negotiations and this labour proposal will certainly complicate matters further and set us back.'

The fear of developing countries is that labour issues will be used as a protectionist device to block the exports of developing countries from entering the developed countries.

By arguing that workers in developing countries have a lower standard of rights, social security (and perhaps eventually also living standards) than those in developed countries, developed countries would be able to argue that the poorer countries are unfairly 'subsidising' their exports.

Thus, the developed countries could then seek to impose countervailing (or higher) import duties on the imported products of those developing countries found to have such lower labour standards.

Developing countries argue that if their workers have lower labour or living standards, this is mainly due to the lower level of development of the countries, which should thus not be penalised. Their lower labour costs are a legitimate comparative advantage, and their being better to export due to this advantage would help provide jobs and improve workers' living conditions.

The developing countries had made this point successfully (or so it seemed) at the WTO's Ministerial Meeting in Singapore in 1996, where it was included in the meeting's Declaration.

By reopening the subject, and in such a broad-ranging way, the US is risking a major split in the WTO that could spill over into Seattle.

At a press briefing, Amb. Hayes stressed that the US was not intending to set up a protectionist vehicle or a Trojan Horse through its proposal, and that the Group's mandate would only be to 'discuss and analyse' and not to formulate rules.

However, when asked what would happen if the Working Group after two years recommended that WTO rules were inadequate and should be changed, and whether there could then be negotiations for changing the rules, Hayes said: 'I do not want to prejudge the issue. I won't say one way or the other. We are looking for an unbiased study.'

In a paper, the US proposed that at the Seattle meeting, WTO Ministers should agree to establish a WTO Working Group on Trade and Labour to cover the following issues:

* Trade and employment - examination of the effects of increased international trade and investment on levels and composition of countries' employment;

* Trade and social protections - relationship between increased openness in trade and investment and basic social protections and safety nets;

* Trade and core labour standards - relationship between economic development, international trade and investment, and the implementation of core labour standards;

* Positive trade policy incentives and core labour standards - the scope for positive trade policy incentives to promote implementation of core labour standards;

* Trade and forced or exploitive child labour - the extent of forced or exploitive child labour in industries engaged in international trade; and

* Trade and derogation from national labour standards - examination of the effects of derogation from national labour standards (including in export-processing zones) on international trade, investment and economic development.

The Group will produce a report on its discussions for the next Ministerial Meeting two years later. The paper claimed that the proposal fully conforms and is fully consistent with the consensus on trade and labour at the WTO's Singapore meeting.

This claim is certain to be disputed. The Singapore Ministerial Declaration had made clear that the International Labour Organisation is the competent body to set and deal with labour standards, and that the WTO and ILO secretariats will continue their existing collaboration. There is no indication that there would be any future work programme on labour issues at the WTO.

Moreover, in his Chairman's statement, presented at the closing session of the Singapore meeting, Singapore Trade Minister Yeo Cheow Tong interpreted the paragraph on labour in the Singapore Ministerial Declaration to mean that 'it does not inscribe the relationship between trade and core labour standards on the WTO agenda' and that 'there is no authorisation in the text for any new work on this issue'.

He also said: 'Some delegations had expressed the concern that this text may lead the WTO to acquire a competence to undertake further work in the relationship between trade and core labour standards. I want to assure these delegations that this text will not permit such a development.'

Malaysia's International Trade Minister, Rafidah Aziz, who had played a leading role among developing countries during the Singapore meeting, gave the same interpretation: 'There will be no more talk of labour standards in the WTO. No way, no discussions, no continuing work, nothing.'

It is impossible to justify, as the US paper does, how the US proposal of a new WTO Working Group on labour is 'fully consistent with the Singapore consensus', especially since the proposed issues for the Group go far beyond even the 'core labour standards' that had been rejected by Ministers in Singapore as an issue for discussion in the WTO.

At her press briefing, Hayes said the Working Group's mandate is only to discuss and analyse. There would be no rules and procedural constraints. It was thus clear, she said, that there is no threat to any WTO member.

'I asked for constructive consideration from other members and we hope it won't create any undue anxiety. Our publics in developed and developing countries have already placed these issues on the agenda and we are facing these issues from our domestic constituencies, and we must respond to their concerns.'

When asked why the US had ratified only 11 of the 178 ILO conventions, and only one of the five relating to core labour standards, Hayes said ratification is a very complex issue in a federal republic, and moreover non-ratification does not mean non-adherence.

Hayes was asked what would happen if, in two years, the study showed that the WTO did have negative effects on workers and the rules were inadequate and should be changed, would the process on trade and labour then move into negotiations for an agreement or change of rules?

She said that she did not want to prejudge, and would not say one way or the other. 'We are looking at an unbiased study.'

Asked further why the US wanted the study to be conducted at the WTO and not at the ILO or other bodies, since the WTO is a rule-making body and that would imply a possibility of rules changing or being created, Hayes reiterated the US was not trying to use the issue as a protectionist vehicle or a Trojan Horse. She also said that there has not been an initiative in other organisations to do this. - Third World Network Features


About the writer: Martin Khor is Director of the Third World Network.