THE SOCIAL CLAUSE: ISSUES AND CHALLENGES

5. How Would a Social Clause Work?

5.1 Some Social Clause Type Mechanisms

Proponents of the social clause have not always been clear as to how the link between core labour standards and trade can be made, either in the WTO or the ILO. As noted by Leary, most proposals are limited to a request for a working group to study the issue. This section attempts to take matters a little further by examining a number of options for establishing a social clause. The first part begins by reviewing some of the unilateral, regional and private initiatives to establish a form of social clause. The second and third parts describe some of the functions of the WTO and highlight the areas where a social clause link might be made.

5.1.1. Labour Standards in US Trade and Investment Legislation

The US has a long history of including labour standard provisions in its trade-related legislation. The earliest of such provisions were directed against imports made by prisoners (see Table 2. 3). In the 1930s, a number of initiatives were taken to establish measures which permitted the entry of imports only if produced according to US domestic fair labour standards, which include the right to organise and bargain collectively. The main piece of legislation to emerge from this period was the 1930 Smoot-Hawley Tariff Act which prohibited the import of products made by prison or forced labour. ^.

The 1980s saw a resurgence of US trade policy and legislation on labour standards. In particular, there have been a number of legislative actions establishing labour standards criteria for trade preference eligibility. These include the Caribbean Basin Economic Recovery Act (CBERA) of 1983 and the 1984 renewal of the Generalized System of Preferences (GSP). The GSP, adopted by the US Congress in 1974, amended in 1984, and recently continued for one year on a provisional basis, provides temporary duty-free treatment to certain products from developing countries. Decisions concerning eligibility are decided each year and the GSP status of a country may be suspended, terminated or continued. Under this programme, the President may not designate a country as a GSP recipient if it "has not taken or is not taking steps to afford internationally recognised worker rights to workers in the country".

Table 2.3: US trade and investment legislation with provisions on labour standards

An interesting feature of the GSP is that organizations and individuals may request the Administration at public hearings to review the status of labour rights among beneficiary countries. The Committee examining these petitions has recourse to information concerning workers’ rights in the annual Country Reports on Human Right Practices prepared by the U.S. State Department, findings of the ILO, reports from US Embassies and Consulates, and US International Trade Commission reports on the economic effects of GSP decisions. Potentially, the GSP is a powerful instrument for enforcing international labour standards. However, it is tainted by allegations of bias in its enforcement. In the January 1987 GSP review, for instance, the AFL-CIO called for the denial of GSP benefits to ten countries. The President considered that seven (Guatemala, Haiti, the Republic of Korea, the Philippines, Surinam, Zaire and "Taiwan, China") were taking steps to improve workers’ rights but that three were not. Of these three, Romania and Nicaragua subsequently lost their GSP beneficiary status and it was suspended for Paraguay. This led the AFL-CIO to accuse the Reagan Administration of applying a double standard, in the sense that it was cracking down on left-wing governments but was taking a more lenient attitude to right-wing dictators.

This has led the Lawyers Committee for Human Rights, a New York based human rights organization examining the GSP, to report that:

In 1985, the Act establishing the US Overseas Private Investment Corporation (OPIC), a government agency which offers insurance to US companies operating in developing countries, was amended to include a clause requiring participating countries to take steps to adopt and implement laws which promote a set of internationally recognised labour standards. Perhaps the most significant development has been the use of the provisions under Section 301 of the 1988 Omnibus Trade and Competitiveness Act (amending Section 301 of the Trade Act of 1974) to take action against nations that do not accord internationally recognised worker rights. The 1988 Trade Act also expanded the requirements of the Departments of State and Labor to submit periodic reports to Congress on human rights abuses and foreign adherence to internationally recognised worker rights.

A flexibility provision is also included, allowing the United States Trade Representative (USTR) to find a pattern of violations to be not unreasonable if either "the foreign country has taken or is taking, actions to demonstrate a significant and tangible overall advancement in providing throughout the foreign country (including any designated zone within the foreign country) the rights and other standards described in the law" or that "such acts, policies and practices are not inconsistent with the level of economic development of the foreign country". So far, this provision has been threatened but not used. The USTR has not received any formal petition asking it to take action against labour-rights violations nor have any specific cases been included in the USTR annual National Trade Estimate Report on Foreign Trade Barriers.

In addition, there have been repeated but so far unsuccessful efforts in the US to impose a ban on the importation of products made by child labour. In the 102nd (1991-92) and 103rd (1993-94) Congresses, US legislators introduced the "Child Labor Deterrence Act", commonly known as the Harkin Bill. This proposed legislation requires the Secretary of Labor to compile and maintain a list of industries in foreign countries that use child labour in the production of exports to the US. The Secretary of Treasury is then required to prohibit any further importation from the identified industry. The President is also urged in the proposed Bill to seek an agreement with other governments to secure an international ban on trade in the products of child labour. Senator Harkin and other sponsors continue to press for approval of the Bill.

Apart from creating labour standard provisions in domestic legislation, the US has also been very active in calling for a multilateral agreement on the social clause. For instance section 131 of the Uruguay Round Agreements Act. calls for the establishment of a WTO working party "to examine the relationship of internationally recognized workers rights.. to the articles, objectives and related instruments of the GATT 1947 and of the WTO respectively", and that the working group develop inter alia "methods to coordinate the work program of the working party with the International Labour Organization". From this brief review, it is evident that core labour standards have become explicitly linked with US trade and investment policy in a number of different legislative measures in the past decade.

However, US action on the social clause has received sharp criticism from various quarters. In particular, it has been noted that the US Administration has been highly inconsistent in its interpretation of workers’ rights violations and has not taken sufficient account of ILO interpretation of international labour standards. Alston, for instance, points out that:

The ability and willingness of the US to impose such unilateral measures is a threat to the world trading system, especially since such measures are often the subject of domestic political demands. In particular, as unemployment continues to rise in the developed countries, imports from developing countries will increasingly be cited as one of the main causes, despite the growing number of studies which cast doubt on this view. By objecting to multilateral discussions on the social clause, developing countries may inadvertently be strengthening the position of those seeking to use labour standards for protectionist purposes. This is neither good for trade nor for workers. The establishment of a multilaterally-agreed social clause would help undermine these protectionist forces and lend real support to safeguarding the human rights embodied in the set of universally-agreed core labour standards.

5.1.2 The NAFTA Side Agreement on Labour

The North American Free Trade Agreement (NAFTA) is the latest stage in the process of economic integration in North America that started to accelerate in the mid-1980s. Labour issues were critical to the successful completion of the NAFTA negotiations. In the US in particular, it was argued that the agreement would lead to job losses and to downward pressure on wages and working conditions. As NAFTA was already ratified by the Presidents of the three countries concerned, its terms could not be changed and it therefore became necessary to negotiate a ‘side’ or ‘parallel’ agreement. The North American Agreement on Labor Cooperation (NAALC), also commonly known as the NAFTA Side Agreement on Labor, was thus established and came into force at the same time as NAFTA on 1 January 1994.

The NAALC promotes mutually-recognised labour principles including core labour standards and other standards such as the occupational health and safety of workers and the protection of migrant workers. An interesting feature of the NAALC is that it does not seek to harmonise labour standards and policies among the contracting parties but emphasises the transparent and effective enforcement of existing labour laws in each country through cooperation and the exchange of information. It allows complaints or petitions to be submitted by any person with a recognised interest under the law of any party to the NAALC. However, the dispute settlement procedure can be quite lengthy: over two years may elapse before measures such as the imposition of action plans or trade sanctions may be enforced (see Box 3). Areas on which complaints can be made are limited to only three: child labour, minimum wage, and security and hygiene. Complaints cannot be brought on cases relating to freedom of association, right to bargain collectively and forced labour.

Resolution of disputes:

If following an ECE report and consultations, the Council cannot resolve a dispute involving a Party’s alleged persistent pattern of failure to effectively enforce labour laws with respect to health and safety, child labour and minimum wage, a situation involving mutually-recognised labour laws, and the production of goods or services traded between the Parties, any Party may request an arbitral panel.

If a panel makes a finding that a Party has indeed engaged in a persistent pattern of failure to effectively enforce its labour laws in the above-mentioned areas the Parties may, within 60 days, agree on a mutually satisfactory action plan to remedy the non-enforcement.

If there is no agreed action plan, then between 60 and 120 days after the final panel report, the panel may be reconvened to evaluate an action plan proposed by the Party complained against or set out an action plan in its stead. The panel would also make a determination on the imposition of a fine on the Party complained against.

In the event that a Party complained against fails to pay the fine or continues in its failure to enforce its labour law with respect to health and safety, child labour and minimum wage, the Party is liable to face enforcement actions. In the case of Canada, the Commission, on the request of a complaining Party, collects the fine and enforces an action plan in summary proceedings before a Canadian court of competent jurisdiction. In the case of Mexico and the US, the complaining Party or Parties may suspend NAFTA benefits based on the amount of the fine.

Most commentators studying the NAALC have found it wanting as a means of protecting labour in the three countries. One of the major failings of the NAALC is that its focus is on the enforcement of each country’s own labour laws and not on the application and enforcement of internationally recognised labour standards. Indeed, reference to internationally recognised labour standards is not made anywhere in the NAALC. In addition, persistent failure to enforce freedom of association, the most fundamental of all labour standards, may not be addressed through the dispute settlement procedure. Complaints concerning other issues are reviewed only by the NAO and if judged appropriate may be forwarded for ministerial consultation.

So far, trade unions and human right organizations have found the performance of NAOs disappointing. In early 1994 the United Electrical, Radio and Machine Workers of America (UE) filed the first submission to the US NAO alleging that General Electric had violated the rights of association of its Mexican employees by firing or forcing resignations by a number of workers active in organising or by forcing voluntary resignations. It was also alleged that the company had jeopardised the health and safety of employees at the Juarez motor plant, known as Compania Armadora or CASA.

After a hearing in Washington, the NAO issued a report finding that Mexico had not failed to enforce its labour laws on the grounds that the employees had the option of continuing their complaints about the companies under Mexican law or accept severance pay. In January 1995, the Electrical Workers Union withdrew from further hearings on its charges against General Electric, calling the NAO report "blatantly inadequate" and charging that the NAO reviewed the testimony in "an extremely cursory fashion and generally ignored the evidence presented". It is also often highlighted that the procedures of the NAALC are highly complex and time-consuming. It is however perhaps too early to draw conclusions on the effectiveness of the NAALC; despite its failings, it remains to be seen whether the NAALC could lead to effective improvements in the enforcement of relevant national labour standards in the member countries.

5.1.3 Non-US Initiatives, the Lomé Convention and the EU GSP System

Other examples of labour standards in trade-related legislation outside of the US include the British Foreign Prison Made Goods Act of 1897, the Argentine Presidential Decree No. 1933 of 1931 and the Australian Customs Act (Part IV, Division 1, No. 52) of 1901. In particular, the international campaign for stamping out the slave trade in the late nineteenth century was an important precedent for regulating international trade on moral grounds. The General Act for the Repression of African Slave Trade, Article LXII (1890), which emerged from the Brussels Conference of 1889-90 was the first legislative instrument of this kind. Also of note were measures taken during the 1920s by various countries, including the UK, Czechoslovakia and Cuba, to authorise additional duties on imports produced by low-paid labour under inferior conditions of employment (see Table 2.4).

More recently in Europe, there have been attempts to include a type of ‘social clause’ in preferential trade arrangements with the African, Caribbean and Pacific (ACP) group of developing countries. In the 1984 Lomé Convention there was a very general reference to "fundamental human rights" and to "the equal rights of men and women" but no follow-up or control mechanism was established. However, in the mid-term review of Lomé IV (a ten-year accord in force since 1990), issues of human rights, democratic values, the rule of law and good governance were raised as items for negotiation. These negotiations are still underway and remain a source of much contention.

Table 2.4: Examples of non-US sources of law pertaining to the social clause

In 1994, a direct link between trade and labour standards was established in the European Union’s (EU) GSP system. The EU’s approach consists of both incentives and disincentives. Countries which implement core labour standards are awarded additional GSP benefits, while countries denying core labour standards are suspended from GSP benefits. Starting from 1 January 1998, countries can apply for "special incentive arrangements in the form of additional preferences", provided that they have adopted and apply the substance of ILO standards concerning freedom of association and collective bargaining (ILO Conventions 87 and 98) and the provisions on child labour as laid down in ILO Convention No.138. The intensity and modalities of these incentive clauses are to be defined in the course of 1997 by the Council, on the basis of a proposal from the Commission in the light of a review of the matters and on the basis of internationally-accepted criteria.

As from 1 January 1995, trade sanctions in the form of temporary suspension of the preference scheme can be taken in circumstances such as the practice of forced labour or export of goods made by prison labour. Investigation by the Commission can be initiated by member states or any natural or legal persons or associations. Sanctions, if any, cannot be implemented before a year of investigation and a decision by the (qualified) majority of the Council. Following complaints by the European Trade Union Confederation (ETUC) and the International Confederation of Free Trade Unions (ICFTU), in January 1996 the European Commission initiated its first investigation of forced labour practices, in Myanmar.

In December 1996, the European Commission called for the suspension of Myanmar’s trade privileges on the grounds that Rangoon’s military regime sanctions the use of forced labour. This action set a precedent in the Commission’s bilateral trade relations by linking trade and core labour standards for the first time. The Commission proposed that the EU withdrew trade privileges enjoyed by Myanmar and EU finance ministers subsequently endorsed this action. The proposal to suspend Myanmar from the GSP scheme followed a year-long investigation which drew evidence from written submissions and testimonies from eye witnesses, lawyers and trade unions. The evidence highlighted the fact that the practice of forced labour was particularly widespread in the military sector, where people have been forced to act as porters for troops and on large infrastructure projects. It is believed that around 800,000 people in Myanmar are forced to work without pay or against their will, contributing around one tenth of the country’s economic output . Pakistan was also recently identified for possible trade reprisals by the European Union over child slavery in its carpet industry. The European Parliament has warned the Pakistani Government that reprisals could be effected through a resolution. that was adopted following complaints to the European Commission by the ETUC and ICFTU.

The positive approach introduced by the EU is interesting, as it implicitly recognises the argument that improved export performance fosters economic growth and that this in turn may lead to higher levels of labour standards. A problem with this approach is that contracting parties to the Uruguay Round, by agreeing to substantially reduce tariffs and other barriers to trade, have reduced the real value of GSP preferences for developing countries. Thus the potential Impact of the EU approach has been diluted. In addition to the positive approach, the US GSP refers to a larger set of labour standards than those used by the EU. In particular, the US GSP includes provisions which are not usually defined as core labour standards, such as minimum wages, hours of work, and occupational safety and health.

5.1.4 International Commodity Agreements

References are made to core labour standards in a number of international commodity agreements. These include the International Sugar Agreements (successive), the Tin Agreement of 1981, the Cocoa Agreement of 1986 and the International Rubber Agreement of 1987. Table 2.5 provides a description of the labour clauses to be found in these agreements.

These clauses are essentially statements of intent and no special sanctions or control mechanisms are established. Their usefulness in securing greater respect for core labour standards is thus limited.

Table 2.5: Labour Provisions in International Commodity Agreements

5.1.5 Voluntary Codes of Conduct and Social Labelling

As a result of public awareness and pressure from consumer organizations, trade unions and human rights groups, a number of companies have adopted Codes of Conduct on the treatment of workers in manufacturing enterprise, not only in the enterprises that the companies own, but also in the plants of their suppliers and sub-contractors. The genesis of ethical standards for firms can in most cases be traced back to the lengthy campaign to eliminate apartheid in South Africa. In Europe, these pressures eventually led to the establishment of an EU Code of Conduct. In the US companies were urged to adhere to the voluntary Sullivan principles.

In the 1970s several multilateral initiatives were taken to establish a system of guidelines for multinational corporations. The OECD adopted its Guidelines for Multinational Enterprises in 1976 and the ILO its Tripartite Declaration of Principles Concerning Multinationals and Social Policy in 1977. The OECD Guidelines are voluntary and consequently not legally enforceable. The ILO Declaration is also voluntary and is essentially a statement of principles on issues such as basic human rights, conditions of work, equality of treatment and industrial relations. As it is voluntary, it cannot be enforced in the same way as an ILO Convention. The effectiveness of the ILO Declaration and the OECD Guidelines have has thus been questioned by some trade unions.

There has recently been a renewed interest in private sector codes of conduct. In 1995, the Clinton Administration encouraged US corporations and organizations to develop their own voluntary codes of conduct for their foreign operations based on a set of Model Business Principles. The United Nations Children Fund (UNICEF) in the State of the World’s Children 1997 report has called on TNCs to adopt codes of conduct which prohibit the use of child labour by their suppliers in developing countries. At the recently-concluded ILO Enterprise Forum in Geneva, there was broad agreement amongst the participants - which included executives from Body Shop, Ikea, Bechtel, Lufthansa, Hitachi and Shell, as well as academics, trade unionists, employer representatives and government officials - that more generally-applicable guidelines were needed.

Some of the major companies which have adopted their own codes of conduct include GAP, Levi's, Reeboks, Walmart and Sears. Levi’s has terms of engagement with its 600 contract manufacturers around the world in which it states that it will not do business with contractors who use child or prison labour. Sears has also pledged that it will not import products made with prison labour. Walmart’s code calls for a maximum 60-hour work week and prohibits its suppliers from using workers under the age of 15. Other new initiatives include an agreement by international sports goods companies to establish a code of conduct aimed at eradicating the exploitation of child labour by manufacturers. Executives from Nike and Reebok of the US, Adidas of Germany, Pentland of the UK and other members of the World Federation of Sporting Goods Industry met recently in London, amidst growing criticism from child welfare pressure groups and trade unions, to discuss the establishment of such a code. FIFA, soccer’s world governing body, also adopted a code of conduct for manufacturers, after it emerged that souvenir balls for the Euro ‘96 championship had been produced by child workers in Pakistan. Pressure from trade union organizations, including the ICFTU, was instrumental in getting FIFA to adopt this code.

The FIFA code establishes labour standards for suppliers of FIFA-approved balls, covering the minimum working age, hours and conditions, and union representation. Building on this experience, the trade union movement in Australia is currently campaigning for a code of conduct to ensure that all equipment utilised at the Olympic Games to be held in Sydney in the year 2000 are not produced by child labour. These initiatives are not directed exclusively at workers in developing countries. C&A, a Dutch retail group, recently urged the UK government to form a national forum of retailers, manufacturers, municipal authorities and government representatives to improve working conditions in the clothing industry. C&A’s call for a national forum came after the Financial Times published the results of a two-month investigation into the pay and conditions of staff at clothing manufacturers based in Birmingham. The Financial Times had found that several large retailers were using UK-based clothing suppliers paying their staff as little as £1.50 ($2.35) an hour to work long shifts in often squalid conditions.

A major problem with these codes of conduct is that since they are voluntary, firms are not legally bound to follow them. Another weakness stems from the lack of satisfactory monitoring and enforcement procedures. Nike and Reebok, for instance, monitor their codes themselves. However, after reports that children were employed to make top brand sports shoes, Reebok called upon Nike in September 1996, to introduce joint monitoring of manufacturing conditions in Asia. The World Federation of Sporting Goods Industries plans to set up its own monitoring body to enforce the code. Any companies which break the code will be expelled from the Federation. Trade unions and consumer pressure groups have however repeatedly stressed the fact that independent monitoring of compliance to these codes of conduct is essential. Despite most companies’ pledges to provide fair wages and humane working conditions, the reality is often far different. The paper by Jill Murray, contained in this volume, explores issues related to corporate codes of conduct in greater depth.

In addition to codes of conduct, there has since the 1970s been a growing concern with "ethical consumerism". Consumers are increasingly basing their consumption decisions not only on price considerations but also on moral principles, relating to the conditions of production. Social labelling programmes providing consumers with information on goods that meet certain ethical standards have thus grown in number and importance. Examples of social labelling programmes include the Fairtrade Mark (certifying that workers get a fair share of the returns from sales of the product); the Rugmark (certifying that handmade carpets were not produced with child labour); and the Union Label (certifying that the product in question was produced by members of a trade union).

In addition to social labelling, a number of organizations have also established their own range of ethically produced products. Max Havelaar Coffee in the Netherlands and Café Direct in the UK guarantee small producers a decent price through direct purchase. Comparable initiatives also exist for handicrafts, sugar, rice, chocolate, honey and tea. In the Netherlands, a group of NGOs has drafted a "Charter for Fair Trade". This is a code of conduct, focused mainly on the clothing trade, which specifies minimum production conditions based mainly on ILO standards. Firms who sign the Code commit themselves to an independent verification of compliance with the terms of the code.

The effectiveness of private initiatives for safeguarding core labour standards hinges upon the reliability of information, public awareness and the importance of non-price factors to the consumer. Despite the voluntary nature of these codes of conduct, there are indirect ways in which they can make a real contribution to the promotion of core labour standards. First, if adhering to such standards improves a firm’s image, making consumers more willing to buy its product, other firms may want to join in for fear of losing market share. Second, voluntary adherence to ethical codes of conduct by large firms may lead them to insist that their suppliers, which often consist of small subcontracting firms located in developing countries, also respect core labour standards.

A recent report by the NGO Human Rights Watch claims that public action and serious insistence on human rights can work. It notes that growing public pressure about conditions of work faced by textile workers have forced large importing companies to change their sources of supply or make their sources follow decent labour practices. The report shows that major manufacturers from GAP to Nike have been forced to own up to myriad abuses of workers in a number of developing countries. Ultimately, however, corporate codes of conduct, being voluntary measures, cannot replace a well-organised multilateral social clause. Mounting public pressure for socially responsible business behaviour suggests that there is widespread support for some form of government action on this matter.

Given that there is a valid case for linking core labour standards with trade disciplines, how should this be established? How might the existing rules and mechanisms of the WTO and the ILO be adapted to accommodate a social clause? These are some of the critical issues which proponents of the social clause need to try to clarify. The following sections reviews the basic enforcement procedures of the WTO and the ILO, and explores the practicalities involved in establishing and enforcing a social clause.

5.2 Labour Standards and Trade Disciplines

The proposal to link labour standards with trade disciplines is not new. During the UN Conference on Trade and Employment of 1946-48 , it was proposed that a social clause be included in the Havana Charter, which was meant to create the International Trade Organization (ITO), the forerunner to the WTO. The provision on labour standards in the 1948 draft Havana Charter (Ch.II, Art.7) reads:

The Havana Charter was however not ratified by the US and as other countries decided not to go ahead without the US, the ITO was not established. The General Agreement on Trade and Tariffs (GATT) survived as a separate agreement and has been provisionally applied since 1948. The GATT was limited to traditional commercial aspects of trade in goods and since it was assumed that the ITO would supersede the GATT, the ITO chapter on employment and labour (among many others) was not included in the GATT. Apart from Article XX(e) which permits governments to ban trade in goods produced by prison labour, no further reference is made to labour standards in the GATT. The demand for the inclusion of labour standard provisions in the GATT has nevertheless been raised repeatedly during intervening years, and surfaced especially during the concluding negotiations of the Uruguay Round.

5.2.1 The WTO: a New Multilateral Trading System

The new WTO, established on 1 January 1995, incorporates the updated (to 1994) GATT and the Uruguay Round Agreements, and effectively takes the role which the ITO would have had. Thus, although the Havana Charter never entered into force, it is an important precedent for linking core labour standards with trade disciplines. The WTO is not, however, a simple extension of the GATT but the legal and institutional foundation of the multilateral trading system. It provides the principal contractual obligations determining how governments frame and implement domestic trade legislation and regulations. It is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication.

Out of a potential membership of 152 countries and territories, 76 governments became members of the WTO on its first day, with some 50 other governments at various stages of completing their domestic ratification procedures, and the remainder engaged in negotiating their terms of entry. The WTO Agreement contains 29 individual legal texts covering inter alia agriculture, textiles and clothing, intellectual property, government procurement, rules of origin and services. The basic objective of the WTO is to remove barriers to trade in goods and services. Two simple and fundamental principles guide the work of the WTO:

The structure of the WTO is dominated by its highest authority, the Ministerial Conference, composed of representatives of all WTO members, which is required to meet at least every two years and which can take decisions on all matters under any of the multilateral trade agreements. The day-to-day work of the WTO falls to a number of subsidiary bodies: the General Council, the Dispute Settlement Body and the Trade Policy Review Body. Under the General Council are three other major bodies: Councils for Trade in Goods, Trade in Services, and Trade-Related Aspects of Intellectual Property Rights. In addition to these bodies there are numerous committees and working parties.

Decision making in the WTO is by consensus and not by voting. Where consensus is not possible, the WTO Agreement allows for voting. In such circumstances, decisions are taken by a majority of votes cast and on the basis of one country, one vote. Four specific voting situations can occur. First, a majority of three-quarters of the WTO members can vote to adopt an interpretation of any of the multilateral trade agreements. Second, and by the same majority, the Ministerial Conference may decide to waive an obligation imposed on a particular member by a multilateral agreement. Third, decisions to amend positions of the multilateral agreements can be adopted through approval either by all members or by a two-thirds majority depending on the nature of the provision concerned. However, such amendments can only take effect for those WTO members who accept them. Finally, a decision to admit a new member is taken by a two-thirds majority in the Ministerial Conference.

The WTO is a rules-based organization. Contrary to popular descriptions, it is not a free-trade institution, as it does permit tariffs and in certain circumstances other forms of protection. It is more accurately described as an institution dedicated to maintaining a system of rules for open, fair and undistorted competition. The main instrument used by the WTO to liberalise international trade are trade rounds. Trade concessions are negotiated on a package basis, making these rounds long and complicated. One of the main advantages of this approach is that concessions which are necessary, but would otherwise be difficult to defend on domestic political terms, can be made more easily in the context of a package which contains other politically and economically attractive benefits.

The early trade rounds were concerned with reducing tariff barriers. Relative success in these early rounds has led to a shift in focus in the later rounds towards non-tariff barriers, usually in the form of domestic legislation on production standards and product specifications. The Uruguay Round also saw the extension of the multilateral trading system to cover new "trade-related" issues such as environment and intellectual property. The multilateral trade regime is thus continually changing in response to developments in the world economy. In addition, recent experience has shown that it has not been possible to keep issues of general economic policy and development - and even justice and ethical issues - from finding a place within trade negotiations.

For instance, preferential treatment for developing countries is permitted by GATT and Article XX provides for exceptions from provisions of the Agreement for, inter alia, protection of human, animal and plant life, and health and prison labour. Together with the fact that agreements during the Uruguay Round recognised the relationship of intellectual property and the environment to trade, this makes it increasingly difficult to argue that core labour standards have no place in trade agreements. Moreover, globalization makes it increasingly meaningless to maintain strict boundaries delineating trade- and non trade-related issues. The question is not whether core labour standards have an intrinsic link with trade, but rather how to establish adequate frameworks to deal with the social, economic and political factors which both impact upon and are affected by trade flows. The following sections review some of the key functions of the WTO and consider how a social clause might be introduced into existing trade disciplines.

5.2.2 The Trade Policy Review Mechanism

Monitoring national trade policies is an important WTO activity which is conducted by the Trade Policy Review Mechanism (TPRM). It has been suggested that core labour standards be reviewed in the context of the TPRM. Before discussing the feasibility of this proposal it is useful to briefly explain how the TPRM functions. The purpose of the reviews is to increase transparency and understanding of trade policies, to improve the quality of public and intergovernmental debate on the issues, and to enable a multilateral assessment of the effects of policies on the world trading system.

The reviews are conducted on a regular periodic basis. The four biggest traders - the EU, the US, Japan and Canada - are examined approximately once every two years. The next 16 countries in terms of their share of world trade are examined every four years, and the remaining countries every six years; with the possibility of a longer interim period for the least-developed countries. The reviews are conducted in the Trade Policy Review Body (TPRB) on the basis of two documents; a policy statement prepared by the government under review and a detailed report prepared independently by the WTO Secretariat.

It has been proposed that the ILO might play an active part in the review process by drawing attention to the labour policies of the country under review, in the hope that publicity and peer pressure might eventually improve the situation of core labour standards. The ICFTU has recently undertaken and publicly released documents reviewing labour standards for those countries undergoing a WTO trade policy review. The difficulty is that the focus of the TPRM is trade and trade policies Articles A(i) and (ii) of the TPRM Annex states that the subject matter of the review is to be a background for better understanding and assessment of a country’s trade policies and practices, and cannot be used as a basis either for dispute settlement procedures or for imposing new policy commitments. Its remit would have to be widened if it is also to adequately review labour policies.

5.2.3 The Dispute Settlement Procedures

One of the major achievements of the Uruguay Round was the strengthening of the WTO dispute settlement mechanism. A proper mechanism encourages WTO members not to take unilateral action but to seek a settlement and to abide by the WTO’s rulings and findings. The WTO General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes arising from any agreement contained in the Final Act of the Uruguay Round. The DSB has the sole authority to establish panels, adopt panel and appellate reports, maintain surveillance of implementation of rulings and recommendations, and authorise retaliatory measures in cases of non-implementation of recommendations.

Strict time limits for each phase of the dispute settlement mechanism ensure that long delays are avoided. The dispute settlement mechanism encourages the concerned parties to find a mutually-acceptable solution to a problem before seeking the ruling of the DSB. If after initial consultations the dispute is still unresolved, and if both parties should agree, the case at this stage can be brought to the WTO Director-General, acting in an ex officio capacity, who will offer good offices, conciliation or mediation to settle the dispute. If consultations fail to arrive at a solution after 60 days, the complainant can ask the DSB to establish a panel to examine the case.

The panel is mandated to examine the complaint in the light of the agreement and to make findings that will assist the DSB in making recommendations or in giving rulings provided for in that agreement. The WTO Secretariat will suggest the names of three potential panellists to the parties to the dispute, drawing as necessary on a list of qualified persons. If there is real difficulty in the choice, the Director-General can appoint the panellists. The panellists serve in their individual capacities and are not subject to government instructions. The panel’s final report is normally ready within six months. In cases of urgency, the time-frame is shortened to three months. Panel reports are usually adopted by the DSB within 60 days of issuance, unless one party notifies its decision to appeal or a consensus emerges against the adoption of the report.

Appeals, if any, are heard by a standing Appellate Body established by the DSB. Appeals can only be made on points of law covered by the panel report. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of the panel. As a general rule, the appeal proceedings are not to exceed 60 days. Thirty days after it is issued, the DSB adopts the report of the Appellate Body which is unconditionally accepted by the parties to the dispute - unless there is a consensus against its adoption. Prompt implementation of dispute settlement decisions is stressed by the Understanding. At a DSB meeting held within 30 days of the adoption of the panel or appellate report, the party concerned must state its intentions in respect of implementing the recommendations.

If the party concerned fails to implement the recommendations, it is obliged to enter into negotiations with the complainant in order to determine a mutually acceptable level of compensation - for instance tariff reductions in areas of particular interest to the complainant. If the concerned party fails to implement the recommendations and to offer compensation, the complainant may request authorisation from the DSB to suspend concessions or obligations. In principle, concessions should be suspended in the same sector as that at issue in the panel case. If this is not effective or practicable, and if the circumstances are serious enough, the suspension of concessions may be made under another agreement or a different sector. The DSB will keep under surveillance the implementation of adopted recommendations or rulings, and any outstanding case will remain on its agenda until the issue is resolved.

The DSM of the WTO is a powerful enforcement tool. Individual countries have transferred considerable power to the WTO to decide upon their trade disputes. They are bound by, and cannot legally delay nor block, the final adoption of panel decisions. Countries usually abide by panel decisions as the overall benefits arising from WTO membership are generally felt to outweigh the costs which may arise from compliance with its trade disciplines. It is obvious that linking the core labour standards to an agreement which could potentially be enforced through the DSM would add teeth to the enforcement of these standards. Two questions must first be answered: where might it be possible to introduce a social clause dimension to the existing WTO system, and how could the ILO and the WTO work together in implementing a social clause?

5.2.4 Articles of GATT 1994 Pertinent to the Social Clause

One option would be to extend the general exceptions provided for any Contracting Party by the general exceptions clauses of Article XX of GATT 1994. As mentioned above, this provision allows any Contracting Party to adopt or enforce measures restricting trade justified by public order or economic considerations, and in particular measures necessary to protect human or animal life or health, as well as measures relating to products of prison labour. Any Contracting Party seeking to invoke these provisions must demonstrate that the "measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail; or a disguised restriction on international trade".

A major problem with these exception clauses is that remedies are determined independently by the Contracting Parties. There are no safeguards as far as equality and proportionality of the treatment are concerned. Contracting Parties, are nevertheless required under Article XX (h) to adopt restrictive measures "in pursuance of obligations under any intergovernmental commodity agreements which conforms to the criteria submitted to the Contracting Parties and not disapproved by them or which is itself so submitted and not disapproved". The problem here is that the "fair labour standards" provisions in international commodity agreements are weak and do not provide any clear guidelines as to the restrictive measures which can be taken in the event of violation.

The second option is to consider wilful non-compliance with core labour standards as a form of social dumping which unfairly affects firms in countries where there is greater compliance with core labour standards. In this respect, it is proposed that anti-dumping duties are applied in accordance with Article VI of GATT 1994. A product is considered liable to anti-dumping duties if subject to normal market conditions, the product’s export price is less than its comparable domestic price. Determining when a product is dumped can be very complex as the investigating authority must establish actual price discrimination. In addition, anti-dumping duties can only be levied in respect of a dumped product if that product is causing or threatening to cause material injury to the domestic producers of the like product in the importing country. Should these criteria be fulfilled, the duty to be applied must not exceed the margin of dumping.

Applying the anti-dumping concept to core labour standards is difficult as it is still an open question as to whether there is a causal relationship between core labour standards and price. Moreover, even if it can be shown that there is a relationship between these two factors, the question remains as to how to define ‘normal’ and ‘abnormal’ levels of observance. Another way of dealing with the problem of anti-dumping is to invoke Article XVI of GATT 1994 and the WTO Agreement on Subsidies and Countervailing Measures. A subsidy is defined as either a financial contribution or any income or price support by the government. For this article to apply to core labour standards, it must be shown that wilful non-compliance with these standards represents a form of subsidy. This is difficult as it is unclear how non-compliance with core labour standards, even when it is wilful, could be viewed as either a financial contribution or income or price support. Thus while governments may have sought to assist exports by violating core labour standards, most notably in the EPZs, it is difficult to establish these as Article XVI cases for action.

The third option is to invoke the nullification and impairment provisions under Article XXIII of GATT 1994 and Article 26 of the Understanding on Rules and Procedures Governing the Settlement of Disputes. Under these Articles, a Contracting Party may bring an action if it believes that any benefit accruing to it under the Agreement is being nullified or impaired by failure of another Contracting Party or Parties to meet obligations under the Agreement. The recourse that the injured party can take under Article XXIII is to make written representations or proposals to the Contracting Party or Parties causing the injury. If the matter is still not resolved, it may be referred to the Contracting Parties, who will either make appropriate recommendations to those involved or give its ruling on the matter. Paragraph 2 of Article XXIII allows the Contracting Parties to consult with the Economic and Social Council of the UN and with any appropriate intergovernmental organization.

The fourth option which has been proposed is to use the opt-out provisions of Article XXXV of GATT 1994. Under this opt-out clause, a Contracting Party is allowed upon its own accession to WTO or upon the accession of another party to declare that it will not apply the Articles of GATT 1994 in its trade relations with a specific Contracting Party. This provision first emerged in response to India’s concerns over the accession of South Africa, the issue of concern being that of apartheid. Although apartheid has now been abolished, this provision remains open to Contracting Parties to use against new members for whatever reason. Such an approach is however rather inflexible and this provision has seldom been used in the past.

The fifth option is to make ratification and compliance with the main ILO conventions relevant to core labour standards obligations attaching to membership in the WTO. This option is however unlikely to succeed given that the ILO has not managed to impose such membership conditions on its Member States, apart from the right to freedom of association.

5.2.5 Which Option Is the Best for Making the Link?

Which is the best option for establishing a link between core labour standards and trade disciplines? There is at present no consensus on the matter. In 1995 a background paper submitted to the ILO Working Party on the Social Dimensions of the Liberalization of International Trade tentatively suggested that if a link were to be made between the procedures of the WTO and labour standards it might be pursued through Article XXIII (nullification and impairment provisions). By making observance of core labour standards as defined by the relevant ILO Conventions a provision within the Trade Agreement, the establishment of a violation under these Conventions would make it possible to trigger the remedies offered by Article XXIII.

The advantage of this Article is that instead of allowing the injured Contracting Party to administer its own remedy, provision is made for a system of representations which may finally be decided upon by all the Contracting Parties. This provides some safeguard as to the equality and proportionality of any action taken. Article XXIII also allows the Contracting Parties to consult with relevant intergovernmental organizations, which in the case of core labour standards would be the ILO.

The possibilities for linking core labour standards and trade through the general exception clauses of Article XX, should also be given further consideration. Unlike the anti-dumping and nullification and impairment provisions, enforcement under Article XX does not require a Contracting Party to demonstrate that it has suffered some form of economic injury. On the other hand, should a social clause link be made under the anti-dumping provision, the issue would not be, for example, forced labour per se but whether the use of forced labour somehow confers an unfair competitive advantage. In the above example, if it can be shown that the use of forced labour did not confer an unfair competitive advantage, then no action could be taken under the anti-dumping provision no matter how morally reprehensible the use of forced labour might be. Similarly, the nullification and impairment provisions of Article XXIII require the injured party to demonstrate how benefits accruing to it under the Agreement have been nullified by the actions of another party. Should human rights be dependent on economic outcomes? Surely the answer to this question must be no. However, given that the WTO is a trade-based organization, it can only act on violations of core labour standards if it can be shown that there is a significant relationship between trade performance and the degree of enforcement of core labour standards.

This raises a significant challenge for proponents of the social clause. On the one hand, it has been observed that enforcement of core labour standards does not necessarily depend upon the level of economic development in a given country. It has also been observed that despite perceptions to the contrary, repressing core labour standards neither appears to confer a special competitive edge nor does it necessarily improve trade performance. Thus proponents of the social clause have rightly argued that fears of adverse economic consequences due to greater observance of core labour standards are groundless. However, this finding is also used by opponents of the social clause to argue that if there is no economic relationship between core labour standards and trade, then there are no grounds for a social clause to be established within the WTO.

This conclusion is wrong. Article XX of GATT 1994 already permits a Contracting Party to take action by prohibiting the import of goods on ethical and social grounds. Whether there is a link to trade performance or not is immaterial. Put simply, there are some government policies and practices that are beyond the pale. In this respect, the Leutwiler Group report to the Director-General of GATT found that "there is no disagreement that countries do not have to accept the products of slave or prison labour". For these reasons, it is submitted that extension of the general exception clause to include goods produced under conditions which violate core labour standards, as defined by relevant ILO Conventions, is the best option available for introducing a social clause into the existing WTO system. It is both technically flexible and maintains the principle that upholding human rights should not depend on economic considerations. Nevertheless, the problem with Article XX is that countries are allowed to unilaterally impose remedies in the form of trade barriers on the basis of their own assessment. This makes the provisions of Article XX open to abuse for protectionist reasons. One way around this is to add a clause requiring independent assessment of the reported violation. The ILO should be the body responsible for undertaking this task. Based upon the conclusions of an ILO report on the matter, a WTO panel would then assess whether the claimed exception is permissible under Article XX.

Any further action would be subject to the ruling by the WTO panel. Amendments to the existing clause should also require the concerned parties to make full use of WTO’s strengthened dispute settlement mechanism before imposing any punitive unilateral measures. While the details of such an extension will have to be worked out carefully, there does appear to be some scope for using Article XX to enforce core labour standards. Cooperation between the ILO and the WTO would be crucial for ensuring that the procedures are transparent and applied objectively and equally. The possible modalities for such cooperation are given further consideration below.

5.3 How Can the ILO and WTO Work Together?

Most proposals for a social clause call for some form of cooperation between the ILO and the WTO. Opponents of the social clause, on the other hand, argue that all labour issues should be dealt with solely by the ILO and that the WTO only has a mandate to deal with trade issues. They also argue that WTO’s system of rules and dispute settlement procedures cannot accommodate a labour standards provision. In respect of the matter of mandate, complex issues such as labour and trade usually involve a number of intertwined factors and will thus often overlap. The WTO, for instance, has established an agreement on intellectual property despite the fact that the World Intellectual Property Organization (WIPO) is the organization specialising in such issues. Similarly, the WTO also has an agreement on environment, despite the mandates of United Nations Environmental Program (UNEP) and the Commission on Sustainable Development.

It is thus inconsistent to argue that the WTO cannot concern itself with labour issues for reasons of mandate. Given that the ILO is the specialised agency for labour and the WTO the specialised agency for trade, it is logical that both organizations should be involved in the implementation of a social clause. It is also helpful that nearly all member states of the ILO are or will be members of the WTO. As noted in the ILO Working Party paper referred to above, "..membership of both organizations means that the States concerned endeavour in good faith to take account in each of these organizations of the objectives and obligations they have undertaken in the other".

What should be the respective roles of these organizations in implementing the social clause? One possible scenario is that in the first stage the ILO will continue to be responsible for monitoring the enforcement of core labour standards and providing technical assistance to help rectify the problem in the offending countries (see Box 4).

Continued non-compliance will, however, trigger a second stage. In this stage, the ILO will notify the WTO of persistent offenders. These offending countries will then be liable to WTO enforcement procedures, including trade sanctions in the most extreme cases. Obviously, the modalities for cooperation will have to be worked out carefully and there are a number of technical issues which would have to smoothed out, but these can be resolved provided the existence of sufficient political will among the member States to permit a multilateral social clause to work.

5.3.1 The Trade Union Proposal

During the Uruguay Round negotiations, the ICFTU, the World Confederation of Labour (WCL) and the European Trade Union Confederation (ETUC) prepared a joint statement on the social dimension of international trade which delineated in detail a proposal for a social clause. It was suggested that a Joint Advisory Committee of the ILO and the WTO be established and that this body, in cooperation with the ILO Committee on Freedom of Association and its Committee of Experts on the Application of Conventions and Recommendations, should draft a social clause incorporating the core labour standards. It was further suggested that on the basis of specific complaints from the tripartite constituents of the ILO, the Joint Advisory Committee would examine the extent to which the Contracting Parties were meeting their obligations under the social clause and make recommendations accordingly.

When a country was found to be falling short of its obligations, the Joint Advisory Committee would recommend measures to be taken within a specified period that should not exceed two years. The ILO would also offer technical assistance to the country concerned, perhaps funded by a new international social fund. At the end of the specified period, a further report would be prepared which would state that the country was now fulfilling its obligations; or that progress was being made, specifying the additional time needed to deal with the problem; or that the government had failed to make adequate efforts. In the latter case trade sanctions would be applied. These sanctions could consist of increased tariffs to be levied by all GATT/WTO Members on the offending country’s exports.

5.3.2 Joint ILO/WTO Implementation of a Social Clause

There are few detailed proposals for joint ILO and WTO implementation of a social clause. This is not surprising given the complexity of the matter. The most logical approach would be to retain as much of the existing systems as possible and to avoid creating new structures. The ILO has over the years developed a supervisory system which has received much praise. Equally, its method of enforcement based on moral persuasion has not been without effect. The other major advantage of the ILO is that its tripartite system allows representation and complaints to be made by employers’ and workers’ organizations. The WTO, on the other hand is solely an inter-governmental organization. Linking core labour standards with trade disciplines does not mean replacing existing ILO mechanisms but complementing them with an additional instrument, should moral persuasion fail to produce the expected results.

Take for instance the following scenario. A member State of the ILO submits a complaint to the relevant ILO Committee on the violation by another member State of one of the core labour standards specified in the social clause. The complaint is upheld and a set of recommendations to rectify the violation is issued. Suppose that on subsequent review it is found that the infringing country has yet to implement the recommendations and no progress has been made. At this stage, the main recourse for the ILO to force compliance would be through moral persuasion and pressure.

Further action can however be taken if a link exists with WTO trade disciplines. First, Article XX of GATT 1994 must be extended to include all the core labour standards. In addition, it must specify that action taken under Article XX is only possible if the alleged infringement has been upheld by the relevant ILO Committee. In other words, a Contracting Party would not be able to invoke Article XX without first taking the complaint through the ILO supervisory and enforcement mechanism. This ensures that the allegation is independently verified, and that the ILO’s supervisory and enforcement mechanisms remain as the first port of call in redressing violations of core labour standards included in the social clause.

Second, once it has been ruled that a legitimate infringement has taken place under Article XX and that non-compliance continues, the case can then be taken through the WTO dispute settlement mechanism (see Section 5.2.3). This would ensure that linkage under Article XX does not open up a flood of unilateral actions for protectionist purposes. The panel established by the DSB should be composed of a mix of trade and labour specialist, and be appointed by the WTO Director-General in consultation with the ILO Director-General. The dispute settlement process would then be put in place as established by the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (see Figure 2.1).

A number of deviations from the usual dispute settlement procedures are however required. First, as pointed out above, the composition of the panel would have to include labour standards specialists. Second, the DSB allows compensation in the form of tariff reductions for non-compliance.

This may not be appropriate in the case of violations of core labour standards. Third, surveillance of implementation of adopted recommendations or rulings should be conducted by the appropriate organ of the ILO and not the WTO. The outstanding case should remain on the agenda of the DSB until notified otherwise.

6. CONCLUSION

At the WTO Ministerial Meeting in Singapore in late 1996, Ministers focused considerable attention on labour rights in their final declaration but stopped short of endorsing the use of trade measures to enforce labour rights. The Ministers said in their Declaration:

The text embodies some important elements. On the positive side, trade Ministers committed themselves to the implementation of core labour standards for the first time and maintained that the ILO is the competent body to set these standards. They also affirmed support for the ILO’s work, rejected the use of labour standards for protectionist purposes, and said the comparative advantage of low-wage countries "must in no way be put in question". On the negative side, Ministers failed to incorporate additional work on the relationship between trade and core labour standards into the WTO Agenda. However, mention is made of collaboration between the WTO and ILO Secretariats.

From the trade union perspective, the fact that commitment to core labour standards was obtained in the WTO Ministerial Declaration is a significant step towards the establishment of a multilateral social clause. Continual pressure is now required to promote the message that protecting the rights of workers is just as important as the rights of investors and traders. While the WTO is an important forum, and the linkage between trade and labour standards is a major priority for the trade union movement other measures are also required to ensure the move towards a globalised economy that does not undermine core labour standards. For many people around the world today, globalization is being identified with economic insecurity and exploitation. The general public is receptive to the notion that global capital has to operate according to a set of humane principles. This is evidenced by the growing pressure by NGOs and consumer groups for the establishment of codes of conduct and boycotts of companies and countries which violate core labour standards and human rights. Trade unions are joining forces with such movements and together such coalitions are starting to exert some influence over the implementation of labour standards.

In addition, governments are coming to the view that if globalization continues unchecked it will breed resentment, leading to political and economic instability. Disenchantment with global markets may eventually result in greater protectionism and lead the world back into the ‘beggar-my-neighbour’ policies of the Great Depression. Trade unions are attempting to advance constructive suggestion about how best to deal with the economic, social and labour related problems brought about by globalization. By being seen as part of the solution and not as part of the problem, trade unions are gaining credibility and in turn influence over the direction of future policy and legislation.

Many countries opposing the social clause allege that it would be used as a cover for protectionism. However, this paper has sought to demonstrate that a multilateral social clause, if implemented properly, could not be used in this way. It would not be up to individual governments to decide whether a country was in breach of the clause but an independently composed Committee of the ILO. Equally, enforcement through trade measures would only be possible after a long series of consultations between the concerned parties and after the country concered was given the opportunity to receive technical assistance from the ILO and the possibility to rectify the problem. Arbitrary use of sanctions would not be allowed.

It is time to recognise that protecting the basic human rights of workers is not only a moral imperative but a practical necessity. It is also time to recognise that those for and against the social clause are not that far apart on many positions. In this respect, it is apt to close with a statement from the Third World Network, a grouping of organizations and individuals staunchly against the establishment of any link between core labour standards and trade.

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