LABOUR STANDARDS

IN THE GLOBAL TRADE AND INVESTMENT SYSTEM

NOVEMBER 1996

The Trade Union Advisory Committee

Foreword
PART I: FOREIGN DIRECT INVESTMENT, TRADE AND LABOUR STANDARDS
PART II: TRADE AND LABOUR STANDARDS : THE LINKAGE OF TWO MULTILATERAL SYSTEMS
THE IMPACT OF GLOBALISATION ON LABOUR
THE VIEW FROM A DEVELOPING COUNTRY
CORE LABOUR STANDARDS - THEIR ECONOMIC AND SOCIAL ROLE
ERADICATING CHILD LABOUR
LABOUR STANDARDS AND FOREIGN DIRECT INVESTMENT - THE RESULTS OF THE OECD STUDY
LABOUR STANDARDS, FOREIGN DIRECT INVESTMENT AND GOVERNMENT POLICIES
A TRADE UNION INITIATIVE ON VOLUNTARY SCHEMES
IMPLEMENTATION OF LABOUR STANDARDS IN THE MULTILATERAL SYSTEM
PART III: THE DEBATE ON "THE ROAD TO SINGAPORE"
ANNEX

FOREWORD

The relationship between International Trade and Labour Standards has a long history. It was at the heart of the decision to create the International Labour Organisation (ILO) in 1919. Following the Second World War in 1948 governments gave a clear statement on the linkage between trade and labour standards in the Havanna Charter which was to have created the International Trade Organisation. Article 7 said:-

"The members recognise that measures relating to employment must take fully into account the rights of workers under inter-governmental declarations, conventions and agreements. They recognise that all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit. The members recognise that unfair labour conditions, particularly in product for export, create difficulties in international trade, and accordingly, each member shall take whatever action may be appropriate and feasible to eliminate such conditions within its territory."

With the creation of the World Trade Organisation after the Uruguay Round in 1994 the issue has again come to the fore in policy discussions as an international debate has grown over the "social dimension" of the global trade and investment system that is developing.

In view of the importance of this debate, the Trade Union Advisory Committee to the OECD (TUAC), the Danish Confederation of Trade Unions (LO), and the Council of Nordic Trade Unions (NFS) held a seminar on "Labour Standards in the Global Trade and Investment System" in Copenhagen on 22-23 April, 1996. The LO generously sponsored the event.

Some 80 participants attended the seminar including:- trade union representatives from both the OECD and non-OECD area, as well as international trade union organisations; the OECD secretariat; the ILO; OECD governments; and employer representatives. The seminar was followed on 24  April by a public hearing on the subject organised at the Parliament Building in Copenhagen by the LO.

Part I of this report reproduces the background document for the seminar. Part II contains the seminar proceedings. Part III contains the Executive Summary of the OECD Report on Trade, Employment and Labour Standards together with TUAC's comments. This work was commissioned by the OECD Ministerial Council in 1994. It provided a basis for discussion at the Seminar. The full Report was subsequently published by the OECD in October 1996 and discussed with non-member countries at a workshop in Paris on 3-4 October 1996.

The Seminar and subsequent OECD meetings have shown that there is now a broad agreement on the core labour standards of universal relevance and importance covering:- freedom of association, right to collective bargaining, freedom from forced or compulsory labour, freedom from child labour and freedom from discrimination in respect of employment and equal remuneration for men and women. These were also identified by the 1995 United Nations Social Summit.

The OECD work has also shown that implementation of these rights can support economic development providing a closer link between markets and social development.

The OECD's review of the relationship between the observance of trade union rights and economic development found that countries which suppressed these rights did not have better economic performance and concluded that "concerns expressed by certain developing countries that core standards would negatively affect their economic performance are unfounded." Rather, there is a positive two way relationship between trade and labour standards. The OECD also found that with regard to Foreign Direct Investment "host countries may be able to enforce core standards without risking negative repercussions on FDI flows. Observance may work as an incentive to raise productivity through investment in human and physical capital".

However the reality for the international trade union movement which was expressed clearly at the Copenhagen Seminar is that in the new "global economy" trade union rights are being violated. The ICFTU's annual survey of violation of trade union rights has shown a trend of increasing suppression of trade unions for misguided economic reasons rather than political or ideological ones. Organising trade unions in many parts of the world remains a difficult and hazardous process. The establishment of "free trade" or "export processing zones" especially in developing countries is further undermining poor labour rights as shown in the background document for the seminar.

Representatives of developing country trade unions at the Seminar pointed out that the move by some countries to respect and enforce core labour standards is being undermined by negative "policy competition" between governments who wish to attract foreign investment through the suppression of labour rights. Cases were given of governments denying core standards to workers in export processing zones.

There was however opposition expressed from some governments and employers representatives over discussing these issues in the forum of the World Trade Organisation. This opposition has been repeated in the debates leading up to the December 1996 World Trade Organisation (WTO) Conference in Singapore. The OECD work has described many of the trade related enforcement measures which are now appearing. It has noted that with the regard to the use of Generalised System of Preferences (GSP) in the United States "conditioning eligibility for GSP benefits on the respect of core labour standards induced a positive change in the behaviour of some countries". The European Union now has similar arrangements. The Report also reviewed the NAFTA side agreements and International Codes of Conduct on Multinational Enterprises. It went on to look at "private sector mechanisms" such as consumer boycotts, social labelling, and codes, but concluded whilst helping in certain cases "they are unlikely to provide a general solution".

The OECD work has concluded that "all the mechanisms reviewed in the study can potentially address at least one of the reasons for non-observance of core labour standards. However, none of them can solve all the problems at the same time". The issue now confronting the international trade officials in the WTO is not whether they should discuss trade and labour standards but whether they can afford not to.

John Evans

General Secretary

TUAC

FOREIGN DIRECT INVESTMENT, TRADE

AND LABOUR STANDARDS

Roy Jones, John Evans, Andreas Botsch
TUAC-OECD

I. Introduction
II. A definition of core labour standards
III. FDI promotion and core labour standards
IV. Wider issues of employment standards
V. Future OECD work on FDI and labour standards

Introduction

Over the last decade, global FDI has grown four times as fast as GDP, and three times as fast as trade. Whereas in the post-war era until the 1970s international trade drove the expansion of the world economy, since the 1980s FDI growth has become the dominant driving force. The recent economic upturn in much of the world economy has led to a rapid increase in FDI since 1993. According to UNCTAD (World Investment Report 1996), investment inflows in 1995 increased by 40 per cent to reach $315 billion; led by developed economies which invested $270 billion (an increase of 42 per cent over 1994), which in turn received some $203 billion (an increase of 52 per cent). In total, FDI flows doubled between 1980 and 1984 relative to both global gross fixed capital formation and world GDP. On the stock side, by 1995 parent firms had invested around $2.7 trillion in their affiliates. 1995 also saw rises in FDI flows into developing countries, which totalled $100 billion. Moreover, outward investment from developing countries reached $47 billion in that year.

Because of this the role of multinational enterprises (MNEs) is becoming more central in government policy making at both the national and international level. Their number has risen from 7,000 in the early 1970s to around 39,000 in 1995, with around 270,000 foreign affiliates. Just one per cent of firms account for 50 per cent of global FDI and 95 per cent originates in developed countries. 73 million people are now employed by multinationals worldwide.

It is estimated by UNCTAD that one third of all trade consists of intra-firm transactions. MNEs, therefore, are a key mechanism through which national labour markets are affected by international capital flows and regional changes in goods and services markets. A significant development since 1992 has been the growth in FDI in non-OECD countries. The expected adoption of a new legally enforceable Multilateral Agreement on Investment (MAI) in 1997, and its opening up to non-OECD participants, will add momentum to this process.

Against this background of "globalisation" TUAC has argued that the OECD's programme of work on trade, investment and labour standards must be a continuing priority for the organisation as a whole, developing a dimension comparable to the work on trade and environment. It should continue beyond the publication of the OECD Report on Trade, Employment and Labour Standards which was given a cautious welcome by TUAC, as a significant contribution to the international debate on the social dimension of the world trading and investment system. TUAC welcomed the Report's findings with respect to FDI that "host countries may be able to enforce core standards without risking negative repercussions on FDI flows. Observance may work as an incentive to raise productivity through investment in human and physical capital." However, more work needs to be done in this area.

FDI can be a significant element in economic development strategies to raise working people's economic and social welfare. Evidence from the OECD and others also suggests that the respect of core labour standards is not a hindrance to either the growth of trade or long-term foreign direct investment. However, on a daily basis the international trade union movement is confronted by grave violations of core labour standards motivated by economic goals (ICFTU Annual Survey of Violations of Trade Union Rights). This is particularly the case in Export Processing Zones in developing countries. There appears to be growing policy competition between governments in a misguided attempt to attract FDI, based in part on the suppression of core labour standards. This undermines social progress and distorts wider economic efficiency. It does not lay the foundation for sustainable growth which is beneficial for societies as a whole. It is for this reason that trade unions have supported calls to include core labour standards in international trade agreement and the WTO, and for the effective incorporation of the OECD Guidelines for Multinational Enterprises into the MAI alongside the guarantee of core labour standards.

The impact of regionalisation and globalisation on labour standards in general is an issue for workers and trade unions over and beyond the WTO. The development of a social dimension to the European Union and the labour side agreements in NAFTA are examples of different reactions to this fact. Firms and regions appear increasingly divided between those seeking to invest and compete on the basis of high labour standards and those competing on the basis of low standards. This is a process also evident in some regions of OECD countries.

TUAC affiliates will see the relevance of the OECD to them in the future in the light of its work on these issues and its ability to encourage global integration based on high not low standards. The OECD Guidelines for Multinational Enterprises could represent a key element if they were effectively applied.

Section II of this discussion paper recalls those ILO core standards which are relevant to trade agreements. Section III discusses the link between FDI and labour standards, specifically the reasons why companies invest abroad, plus government action to suppress labour standards, with a focus on Export Processing Zones (EPZs). Section IV raises broader issues affecting FDI and labour standards within OECD countries. Section V proposes the next steps for OECD work on FDI and labour standards; it also discusses the relationship between the MAI and the OECD Guidelines for Multinational Enterprises. Annex I attaches examples of promotional literature being used by some government authorities to promote investment in EPZ's.

A definition of core labour standards

Universal international labour standards are those embodied in the Conventions of the ILO. There has been a debate as to which ILO Conventions constitute a "core" which could serve for the purposes of a social clause in international trade agreements. Opponents of a social clause have sought to confuse the issue by arguing that proponents of a social clause are promoting a varying set of ILO Conventions on wages, working hours, benefits, or health and safety regulations as core Conventions. It is also noted that the ILO itself does not formally identify a category of core Conventions. The international trade union position on this matter is clear. Together with other international and national trade union organisations, TUAC has all along proposed that the following seven ILO Conventions, and only these constitute core labour standards:

- ILO Convention 87 - freedom of association;

- ILO Convention 98 - the right to collective bargaining;

- ILO Conventions 29 and 105 - the prohibition of forced labour;

- ILO Conventions 100 and 111 - covering non-discrimination in employment and remuneration; and

- ILO Convention 138 - minimum age for employment - to eliminate child labour.

All governments have already explicitly committed themselves to the implementation of these labour standards in the Declaration of the World Summit on Social Development, held in Copenhagen in March 1995.

These ILO Conventions constitute basic human rights applicable to all countries, irrespective of their level of development. Furthermore, membership of the ILO demands adherence to the principles of freedom of association and collective bargaining. The Governing Body of the ILO has recently discussed the implementation of these core Conventions. It has specifically noted that they belong to a set of Conventions which are not in need of revision, although in this context some divergent views on Convention No. 138 were expressed. Proposals have been made on how to strengthen the supervision of Conventions No. 29, and 105 on forced labour and No. 100 and 111 on discrimination. One real possibility is the establishment of a Committee to deal with the violations of these Conventions in the same or a similar way as the Governing Body Committee on the Freedom of Association does concerning violations of Conventions No. 87 and 98.

Child labour has received increased international attention. From the fundamental labour standards' point of view Convention No. 138 has posed some problems, as its nature is more technical and not quite comparable to the others which are human rights Conventions. In any event, the ILO has begun work on a new Convention, aimed at eliminating the exploitation of children in working life. This will run in parallel but not replace Convention No. 138.

FDI promotion and core labour standards

The reasons for which investors are attracted to foreign locations are wide ranging and also subject to considerable changes in firms' assessment over time. Business representatives usually give various and diverging motives for investing abroad. The overriding objective is to gain or keep a competitive edge and this is to be achieved through strategies of maintaining market access and penetrating new and promising markets. The transfer of know-how, economies of scale, pre-emption of potential competitors, the availability of a well-trained labour force, new networks of suppliers for global sourcing, and various cost advantages are cited as factors affecting location. Amongst these factors the question has arisen "whether international production with its increased scope for locational choice might result in a downward adjustment of social and labour standards as local policy environments, including labour market policies and practices, compete for a share of international production" (A. Parisotto, Recent trends in employment in transnational corporations, in: FDI, Trade and Employment, OECD (1995), p. 70).

One if not the most important factor in the global competitiveness strategy of enterprises is to gain the most out of existing differences between countries (B. Madeuf, Foreign Direct Investment, Trade and Employment: Delocalisation, OECD (1995) p. 41-65). These differences may consist of a broad range of direct incentives offered to investors, the avoidance of potentially unfavourable exchange rate fluctuations, less stringent environmental regulations, and in wage and non-wage labour cost related to employment, e.g. labour market and social policy institutions and regulations.

Enhanced public knowledge of good environmental standards, the ensuing environment policy response in many OECD countries, and greater corporate attention to environment issues have created a business climate in which so-called "three D's jobs" (dirty, dangerous and difficult) are becoming less prevalent in the OECD area. At the same time, however, the combination of lax environmental regulation and enforcement on the one hand and low labour standards in occupational health and safety as well as the suppression of freedom of association has become a factor affecting investment in the non-OECD area. The cases of EPZ's reported below are clear examples of competitive advantage being perceived to be achieved by OECD MNEs at the expense of global environmental concerns and core labour standards at the same time.

The competition amongst and between both OECD and non-OECD countries for FDI is intense and puts the process of global economic integration at risk. To attract multinational companies and their investment, non-OECD governments are increasingly offering incentive packages, including exemptions from domestic labour law provisions to attract inward investment. This is in part a response to their inability to match the financial incentives offered to inward investors by industrialised countries: a factor which is driving the "race to the bottom"in terms of labour standards. There are also plenty of examples of cut-throat competition undermining those developing countries in particular who have sought to follow the "high route" to development. Organising trade unions in many parts of the world remains a difficult and hazardous process. The establishment of "free trade" or "export processing zones" in which labour protection is minimal or simply outlawed is undermining further the limited labour rights which exist. Both new and old labour legislation in several countries allow labour rights to be suspended by administrative decree.

Export Processing Zones (EPZ's)

Many developing and transition economies have promoted certain geographic areas as export processing zones. A 1971 UN study defines an EPZ (also known as free zones, industrial free zones, and special economic zones) as a zone which:

"permits the importation of the means of production and equipment, raw material requirements, and components free of duty and without customs control, provided that these goods as well as semi-manufactured or finished goods there from do not cross the border limit of the free zone into the customs territory".

The special legal conditions for EPZs isolate them and reduce positive spill-over effects on the domestic economy. The volume of goods produced by firms in EPZs which can be sold domestically is often subject to quantitative restrictions. There are also limits for removing equipment and machinery from EPZ firms to locations outside the zone. In addition, inward investors are given fiscal and financial incentives to invest there. They are frequently exempted from the labour legislation that covers domestic firms, or where labour legislation remains, enforcement is weak or non-existent. EPZs are normally set apart from those areas containing domestic firms. Special areas such as "free ports" also exist in OECD countries but derogations from domestic law are usually limited and national labour legislation is applied.

The background document prepared by the Secretary-General to the United Nations Sub-Commission on Human Rights in July 1995 stated that:

"It is primarily in the EPZs that workers rights to join a national union for collective bargaining/and or to strike are largely restricted by Governments, based on the belief that unions will discourage foreign direct investment in the country....in some instances these restrictions were introduced in response to conditions laid down by TNCs as a prerequisite for investment; in some countries due to pressure from certain TNCs from the electronics industry,-wide trade union activities in the industry were prohibited and only in-house unions were allowed. In other instances trade unions have been banned altogether. In still other cases, legislation governing strikes, lockouts and conciliation are not to be applied for 10 years after the commencement of operations in EPZs".

Quantifying the exact number of "operational" EPZs and the number of workers employed by them is a difficult task. This is mostly due to under-reporting, or in some instances non-reporting by the governments concerned - a situation acknowledged by the ILO. In its report for the Sixth Survey on the effect given to the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy the ILO noted:

"At its 245th (February-March 1990) Session the Governing Body noted with regret that some member States in which MNEs had considerable activities had never replied to any of the surveys and that countries with important export processing or special economic zones, had either not responded at all or only partially to questions relating to their experience with the Tripartite Declaration and its application". (section IV. The Tripartite Declaration and various economic and industrial sectors)".

The UN put the number of operational EPZs at around 200 in 60 developing countries in the late 1980s: this has since risen to 70 countries, but an unknown number of EPZs. Between 1975-1984 the UN estimate employment growth averaged around 9 per cent per year, and 14 per cent per year from 1986-1990.

A conservative estimate from the ILO is that approximately 6 million workers (mostly women) are employed in EPZs. This figure is for 36 countries, and as noted under-reporting by governments is common. China is an example of this as indicated in paragraph 23 below. The OECD Report on Trade and Labour Standards (page 99) estimates the number of EPZs at around 500 in 73 countries. Currently, Asian EPZs account for about 64 per cent of world-wide EPZ employment. This may change, however, as other regions and countries adopt a more export orientated model of economic development. Clear discrepancies exist as to the true world-wide situation regarding EPZs in terms of their numbers, employment, and more importantly the labour rights situation therein. The CIME as part of a work programme on FDI and labour standards should work with other relevant international organisations such as the ILO and UN to prepare an assessment of the quantitative significance of EPZ's.

Many non-OECD governments are suppressing workers' rights to gain FDI. As the quote from the UN in paragraph 18, notes many MNEs are demanding that restrictions be applied to the activity of workers' representatives as a precondition for inward investment. Several examples of such behaviour are described below.

The Case of China

FDI into China from the OECD and Asia is increasing at a fast rate, much of which is located in the Special Economic Zones (SEZs) and "open cities". In December 1992 the ILO estimated that, of the 6 million workers employed globally in EPZs, 3.5 million or over one-half were employed in four EPZs in China. This figure certainly is an underestimate. Other research (Asia Monitor Resource Centre - Hong Kong) suggests that up to 30 million workers are employed in China's five "special economic zones". Furthermore, the inclusion of the 14 "open cities" (which enjoy similar status) is said to increase the numbers of employees in Chinese forms of EPZs to over 60 million.

China claims that over six million workers in some 167,000 companies are partly or wholly dependant on foreign investment. The last few years have witnessed a "gold rush" of foreign investors into China, and private entrepreneurship is taking root there. However, for the workers concerned the situation is bleak. Migrants from other parts of China must obtain a border pass, work permit and temporary resident pass to work in the SEZs. China's first "comprehensive" labour law passed in July 1994 does not protect the right to organise, to bargain collectively and to strike. The other provisions are widely recognised to be cosmetic and enforcement is weak or non-existent in the SEZs. Moreover, regional labour laws (mostly in SEZs) have been endorsed that allow companies to sack and discriminate against workers who try to organise independently outside of the official All China Federation Trade Union (ACFTU). Unionisation is in any case weak: in 1993 only 10 per cent of workers in foreign owned/joint venture firms belonged to the ACFTU. The rights of workers are not generally supported by the ACFTU, whose Constitution states "The premise of the union is to carry out the tasks of the Party".

Around eighty per cent of SEZ workers are women, mostly between the ages of 16-25. By the age of 25, women are usually refused work and required to return to their province of origin; migrants cannot live in SEZs, even if they marry a local resident. Workers are usually housed in dormitories which are attached to the factory or warehouse. Safety regulations are abused and workers are frequently locked into the factories. Factory fires are common and workers unable to escape are burnt to death. Over 20,000 workers are reported to have died in industrial accidents in 1993. In the Guandong SEZ, the death rate is rising by 62 per cent a year.

Reports of the supply of prison labour to foreign owned firms are common. Many such "prisoners" are guilty of nothing more than attempting to set up independent trade unions. "Prisoners" are detained under the notorious Laogai system of "Re-education through labour" which allows for detention without trial, and which the ILO Committee on Freedom of Association has characterised as a form of forced labour. Official estimates of the number of independent trade union organisers detained in prisons and labour camps are not given, but the ICFTU puts the figure at several hundreds. The total number of prisoners in labour camps runs into millions, some of whom are working for foreign owned enterprises.

The Case of Malaysia

Malaysia is an example where workers' rights within EPZs have been suppressed or curtailed to gain comparative advantage in a specific sector. Building on previous legislation to diversify the economy, the government in 1971 passed the Free Trade Zone Act which paved the way for the setting up of EPZs. The government's development strategy targeted the electronics sector as a growth industry, providing special incentives, including the banning of national trade unions in that sector. Now approximately 96 per cent of all workers in seven EPZs are employed by foreign MNEs, with electrical and electronic firms accounting for 65 per cent of all employment in the EPZs -- prior to this electrical industries played a marginal role in the economy.

Trade unions exist in most industries in the Malaysian EPZs, except in electronics, where the government first refused organising rights to the relevant trade union in 1974. Subsequent requests have been blocked by the government on the grounds that:

"Allowing the electronics workers to be unionised by an established union [Electrical Industry Workers Union (EIWU)], would create a disincentive for foreign investors in this field, who might leave the country, and would make the EIWU too unwieldy".( Government letter to the EIWU, May 1980".

In 1988 the Malaysian government did announce that electronics workers would be allowed to establish unions of their own choosing, but two weeks later reversed its decision following threats by foreign MNEs to relocate elsewhere.

Minimum wages are also not enforced in Malaysian EPZs on the grounds that foreign investors would relocate. Labour legislation restricting night work for women has been rescinded, enabling the factories to operate 24 hours a day. Women make up the bulk of the labour force in EPZs and account for around 80 per cent of the electronics industry. Employment security is low. A recent survey by the ILO found that only 50 per cent of those female electronics workers interviewed had permanent contracts, about 20 per cent were on probation and the remaining 30 per cent were temporary workers. The ILO also found in a 1992 survey that more than 90 per cent of females worked more than 48 hours per week; in some instances women are required to work a further eight hours over-time following their standard eight hour shift. Promotion prospects are low for women who are predominantly employed as semi-skilled or unskilled workers. Apart from initial training, opportunities for further training are low.

The Case of Sri Lanka

Sri Lanka's first EPZ was established in 1978, partly as a means to attract FDI, and as part of an economic liberalisation package, which was itself a condition for financial support by the World Bank and the IMF under the structural adjustment programme. Three EPZs are in existence today, and inward investing companies enjoy among other things, tax holidays, and exemption from controls and taxes on imports and exports. In theory, trade unions are covered by legislation covering the right to organise and bargain collectively. In practice, however, workers are barred from joining independent trade unions and are only allowed to participate in "joint consultative councils". Union officials cannot enter the heavily guarded EPZs without permission, and this is never granted. Other restrictions mean that all persons and vehicles entering and leaving the zones are subject to physical security checks and entry permits must be obtained for all visitors.

Around 80 per cent of the workforce in the EPZs are women, with more than 75 per cent classed as trainees, unskilled and semi-skilled. Promotion prospects are low, and training opportunities other than initial on the job training are few. A recent survey by the ILO produced contrasting views on the working conditions in the EPZs. Government officials and top-level management saw them as progressive, while the personnel managers and workers interviewed gave a different assessment. This suggested that the situation in the Sri Lankan EPZs differed little from other EPZs in other countries. Workers, and especially women, did not enjoy security of employment, wages were low, gender disparities existed, and women were subjected to sexual harassment and abuse. In addition working hours exceeded those laid down by law, and the available accommodation was of a low standard. Furthermore, occupational health and safety standards were low and poorly enforced.

The Case of Costa Rica

The ILO Committee on Freedom of Association (Case No. 1780) recently found in favour of a complaint brought by the Latin American Central of Workers Union (CLAT) on the grounds that ILO Conventions 87 and 98 had been breached in a Costa Rican EPZ. In this instance, within two to five days of the Trade Union of Construction, Metallurgical and Related Workers (SICMA) being set up in an enterprise in the Alajuela EPZ, a group of workers, including members of the Executive Board of the union were dismissed. Following the dismissals the CLAT requested the government to mediate between the parties with a view to reaching a solution in line with Costa Rica's Constitution and ILO Conventions 87 and 98, both of which guarantee the right to freedom of association and collective bargaining. In turn, and following a lengthy delay the government rejected the trade union complaint against the company. In finding against the government and ordering the reinstatement of the workers concerned and observance of their trade union rights, the ILO "deplored" ( Case No. 1780 § 141) the time taken to process the trade union complaint, and the nature of the government's response given that the employers actions were "all clear indications of the anti-union nature of the dismissals" (ibid § 141).

The Case of South Korea

The first two EPZs in Korea were established in the early 1970s in Masan and Iri. Their history sheds light on how locational decisions of foreign investors have changed over time. In the early years of the Masan EPZ, low wages and tax exemptions were the main factors that attracted foreign investors to the Zone (Korea Institute for Economics and Technology (1990), Study on the Development Plan for the Masan EPZ). Under military rule, trade unions and industrial action in the Zones were prohibited by law in order to attract FDI. The investments showed no positive spill-overs to local subcontracting firms. This lack of support for local activities as well as largely adverse effects on the environment as a result of legal waivers for EPZ investors are the main features of the Masan EPZ. Labour standards are generally lower in the EPZ than outside, and very little training is provided. More than 70 per cent of the workers are young women employed in low- and semi-skilled jobs in the electronics and textile industries.

In the years after the announcement of democratisation in Korea in 1987, the Masan EPZ saw a sharp decline in investment and employment. Disputes on core labour rights (mainly freedom of association and collective bargaining) and wages alongside with changes in the exchange rate led several MNEs to relocate their production facilities, e.g. to EPZs in Malaysia, in most cases without prior notice to the employees. The resulting total loss of employment amounted to almost 50% of the workforce. In the early 1990s, the Masan EPZ has started to lose its relative importance for foreign investors compared to low-cost countries in East and South-East Asia.

General Trend of Suppressing Trade Union Rights

The cases cited above are only some of the many examples where governments have actively suppressed or permitted the suppression of labour standards to attract FDI into EPZs. Government sponsored advertisements have appeared that show the lengths to which some development authorities are going to attract inward investment. Hourly wage costs of US $1 in Mexico are being undercut by the Dominican Republic's offer of 56 cents per hour. The Bangladesh government actively promotes its EPZs by citing the fact that trade unions are forbidden by law and strikes are illegal.

Legislation also prohibits strikes and other trade union activities in EPZs in Pakistan. In El Salvador and Guatemala, workers rights which exist on paper are not respected in practice. OECD governments should also be aware that abuses of workers rights in these and other countries are not confined to EPZs. The use of the EPZ examples by TUAC merely highlights the worst excesses of some governments which pursue misguided economic development strategies at the expense of their workforce.

The EPZ experience raises questions for the OECD and the MAI, other than those relating to abuses of labour standards to attract FDI. These questions relate to the principle of National Treatment and Conflicting Requirements for MNEs. Government policy towards EPZs, where MNEs are at an advantage when compared to those MNEs operating outside of an EPZ but within the same country could be in breach of the requirements of the twin principles of National Treatment and Conflicting Requirements. The OECD should evaluate the country-wide economic distortions being generated and sustained by the use of EPZs as part of its wider work on trade, FDI and labour standards. Furthermore, these issues should also be on the agenda of the Negotiating Group on the MAI.

Wider issues of employment standards

Corporate Employment Strategies

Over and above questions of the observation of core labour standards the employment strategies of MNEs appear to be in a state of change. The traditional factors affecting investment locations outlined in paragraph 12 may be undergoing significant modification with the combined effects of globalisation and technological change. There appear to be two divergent trends - on the one hand firms seeking to compete on the basis of high standards and high productivity and on the other those seeking to compete on the basis of ever lower labour costs.

Observance of the OECD Guidelines for Multinational Enterprises can be taken as a proxy for the pursuit of a positive employment strategy by firms. TUAC would accept that OECD home based MNEs operating in other OECD countries usually comply with the labour standards of the OECD Guidelines. However, there have been over 30 occasions when TUAC and governments have had to raise questions within the CIME, or seek clarifications under the Guidelines when the principles of the Guidelines have been breached.

The accelerated spread of new technologies, especially the new micro-electronics-based information and communications technologies, has lead to new patterns of international division of labour between both countries and affiliates of MNEs at global level. Recent OECD work has found that technology has increasingly become skill-biased (Interim Report on Technology, Productivity and Job Creation to the 1995 OECD Council at Ministerial level). In the framework of globalisation with new competitors in Asia and Latin America one conclusion that could be drawn from this is that low-skilled low-wage production is shifted to countries with low labour cost while the deriving loss of employment would be compensated for with a move towards more specialised, high-skilled and thus high productivity based production in advanced OECD countries.

While this may be true in the context of standardised "taylorist" manufacturing there are also new trends in firms which have embarked on flexible, "post-taylorist" production schemes at global level (Charles Oman (1994), Globalisation and Regionalisation: The Challenge for Developing Countries, OECD Development Centre Studies). Advanced and sophisticated technologies in manufacturing have enabled whole sectors to produce the same goods of the same quality almost everywhere in the world - using even less-skilled labour. In a context of trade and investment liberalisation the mobility of machinery and equipment tends to make decisions on locations for high value-added production less dependent on factor endowments. At the same time, global competition entails a higher degree of product standardisation and greater harmonisation of production techniques.

In many sectors global sourcing for global production has led to the creation of global product markets in which competition is taking a new shape. When input factor prices for capital and energy are given, the cost of the remaining factors of labour and the environment is the area where competition ultimately takes place. Global product markets are tending to create global labour markets. Trade unions are increasingly confronted with pressure from the employer's side to revise existing collective agreements on wages and benefits downwards for the sake of international competitiveness. In many cases the pressure is exerted with a more or less open threat to relocate production elsewhere.

The Case of South Carolina

An example of direct incentives offered to the investor within the OECD area can be shown in the circumstances that led to the decision of a German company to locate an overseas automobile production site in South Carolina, USA. After the announcement in 1992 of plans to build a $400 million plant, providing 2000 jobs with a $66 million annual payroll, the State of South Carolina acquired 1000 acres of land (value: $36.6 million), and further offered the company a $130 million incentive package, including $71 million in tax breaks and the extension of an airport runway allowing for big cargo plane air traffic. The State also agreed to place job advertisements for the company, to further reduce hiring costs by screening potential employees and guaranteeing five qualified applicants for each job vacancy. Technical schools adopted the company's specific training needs into their curriculum.

South Carolina has advertised itself as a "right to work" state with low wages and low cost, promising higher returns for potential investors. Altogether, there are 22 "right to work" states in the southern sun belt. The State's industrial policy to attract investment is based on the view that workers can be "priced into jobs" as long as costs remain sufficiently low compared to other regions. A constituent part of this strategy is to keep the State's unionisation rate very low (less than 3 per cent of the workforce is unionised) and to avoid organising campaigns from the outset. Organising is discouraged in practice. Human Resource Managers are offered special training courses by the local chamber of commerce on how to beat unionisation and specialised law firms advertise their ability to screen job applicants for their potential inclination to trade unions.

For the production of the same high value-added goods, namely luxury cars, workers in the company's home country enjoy wages which in dollar terms are approximately two thirds higher than those of their South Carolina counterparts. The workers' wages in the company are higher than the average South Carolina wage in manufacturing, but lower than the average US wage in the automobile industry. German workers are represented by a strong trade union and there is a well functioning system of industrial relations in place in which the metalworker's union negotiates wages and working conditions. The union and the management cooperate under the terms of co-determination provided by company law. None of this has been "exported" to the US site. (International Herald Tribune, 11 May, 1995).

Similarly, in 1993, Mercedes-Benz invited US States to bid for a new car plant. The winner of this reverse auction process, Alabama has now run into financial problems to fund the $300 million subsidy package offered to Mercedes-Benz. To maintain its payments to the company, the State is now borrowing from its pension fund at penal rates of interest, after first trying to raid its education budget.

In other countries cases of companies have recently become known where foreign investment projects were made conditional on the non-application of freedom of association. The US-based toy distribution "Toys r us"chain failed in these attempts after a long labour dispute on union recognition in Sweden. In this case, the interest of market penetration finally outweighed the management's anti-union stance. A Korean MNE Samsung attempted to get round of existing labour legislation in Germany for the establishment of a Works Council at its European headquarters but failed and subsequently relocated to the UK.

Corporate Codes and the Rule of the OECD Guidelines

A reaction to negative publicity and bad industrial relations that these attempts have brought have led some companies to introduce voluntary guidelines for their foreign based subsidiaries and their suppliers. One such example is the Levi Strauss and Company "Business Partner Terms and Engagement and Guidelines for Country selection". This is a good example of a MNE acting in a responsible way.

However, the adoption of voluntary guidelines covering corporate behaviour is no guarantee of their effective application, as acknowledged by the OECD Report on Trade, Employment and Labour Standards (page 19). One multinational sportswear company has such guidelines that cover its subsidiaries. Recently, American trade unions raised their concerns over working conditions in this firm's "partner" factories. In response in a letter to the AFL-CIO, the President of the company stated: "It is a common assumption that ---- (parent company) is directly responsible for all elements of the manufacturing process for products bearing the --- (trade) mark. This is not the case....(parent company) has established (the following guidelines) which are substantially controllable by our individual business partners". One such guideline notes that the company will only "continue to do business with partners" that fairly compensate their workers and allow freedom of association. On the alleged safety and human rights violations the President further stated: "you must appreciate that (the parent company) is not in a position, nor qualified, to determine if (your) allegations....are true....until proved otherwise, (the parent company) must trust that its business partners are acting within our guidelines" (letter to AFL-CIO September 1995). Companies can adopt guidelines covering their suppliers, but they often will bear no responsibility or exercise no control over their implementation.

Resistance is often encountered by trade unions and others when promoting the adoption of voluntary guidelines by companies and trade associations. In response to the growing number of fires and deaths in Asian subsidiaries of Hong Kong toy manufactures the ICFTU and others urged the Hong Kong Toy Council to adopt a 'Toy Safety Charter' to ensure that workers health and safety and labour rights are respected in the toy factories. In response to this initiative the Chair of the Toy Council responded that the Council's members knew best how to run their factories and so outside intervention was unnecessary. However, following increased pressure by the international trade union movement and others, the International Council of Toy Industries (ICTI) adopted on 21 May 1996 a Code of Business Practices. As welcome though this move is it still falls short of what is needed in the toy industry. The code does not include the right for workers to organise and bargain collectively, and neither does it allow for any independent verification of its provisions.

TUAC welcomes the adoption by MNEs of effective voluntary corporate guidelines, but these are not an alternative to the obligations all enterprises have under the OECD Guidelines for Multinational Enterprises which have been adopted by governments and supported by BIAC member organisations. Likewise, governments cannot evade their responsibility for the effective implementation of the Guidelines, whether in their own borders or in the subsidiaries of home based MNEs operating in non-OECD countries.

More specifically, MNEs operating within EPZs have, on occasion, far from raising standards applied pressure to ensure the continuing violation of standards. The Malaysian example noted above is a case in point where following an announcement by the government that it would allow workers to establish unions of their own choice, employers threatened to relocate elsewhere. One MNE said it would consider relocation to Thailand and placed guards on its buses transporting its workforce in order to prevent their contact with trade union organisers; another threatened the dismissal of trade unionists; and yet another threatened to relocate to China ( ICFTU 1991 Survey of Violations of Trade Union Rights).

Future OECD work on FDI and labour standards

FDI has now displaced trade as the dominant force driving the world economy. Market driven forces are being followed by the liberalisation of national and international investment governance regimes. Over and above the existing and often ad-hoc agreements, involving unilateral, bi-lateral and regional liberalisation measures, the ratification of the OECD MAI in 1997, which will be open to non-OECD countries will be an important step towards the creation of a global treaty governing investment arrangements. It can only be a matter of time before the WTO addresses this issue. During the MAI negotiations, it has often been said that, investment protection, national treatment and a dispute settlement mechanism form the core of the Agreement. However, for trade unions the other side of the investment protection coin is worker protection.

While FDI can bring significant welfare gains to workers and their families, it is equally true, as shown by this paper, that workers' rights are being violated on a daily basis as governments compete to attract MNEs and their inward investment. This is particularly so, but not confined to EPZs. The incorporation of the OECD Guidelines for Multinational Enterprises into the MAI and the guarantee of core labour standards in the MAI would, if they were effectively implemented, provide a floor of minimum standards for workers employed by MNEs. However, outstanding concerns related to the Guidelines, and FDI and labour standards in general remain that must be addressed by the OECD. TUAC is, therefore, proposing that the CIME in cooperation with other OECD Committees and outside experts initiate a work programme on FDI and labour standards. The following proposals have been made by some OECD Delegations for future CIME work in this area:

- a broader review of the literature on motives for FDI; and the effects of FDI on host country economic growth, incomes and labour markets;

- closer sector and region specific analysis of the link between FDI and core labour standards, including in particular the issues of child labour exploitation, EPZs and subcontracting of MNEs; and

- an evaluation of the impact of the OECD Guidelines and consideration of their amendment to cover all core labour standards.

TUAC would also suggest that this work be broadened to include a review of the effectiveness of the National Contact Points and of the follow-up process in the CIME; an evaluation of the link between FDI and the environment, with a view to the possible revision of the Guidelines' chapter on the environment; and an evaluation of the impact of the MAI on labour standards in developing countries. The results of this work should feed into and guide the 1997 review of the Guidelines. In addition, in light of the current move toward more horizontal cooperation between OECD Directorates, and in order to broaden the expertise and to tap into the comparative advantage elsewhere, the Employment and Environment Directorates should be involved in this work. In addition, and as required relevant ILO staff could be involved in the project.

PART II

TRADE AND LABOUR STANDARDS - THE LINKAGE OF TWO MULTILATERAL SYSTEMS

Geza Feketekuty
Director, Center for Trade and Commercial Diplomacy
Monterey Institute for International Studies
Former Chairman of OECD Trade Committee

This Joint Seminar can make an important contribution to the international consensus building process on the policy linkage between trade and labour standards. This meeting is timely, since the topic will be on the agenda of the OECD Ministerial Meeting in May and the WTO Ministerial in December, and building a consensus in support of a future work programme in the WTO on this issue remains a tough challenge. I am encouraged, however, by the fact that this issue has a prominent place on every conference that is being held to discuss the future work programme of the WTO. I am also encouraged by the constructive role a number of key countries are playing. It nevertheless is probably an understatement to say that international consensus is yet to be achieved on whether and how the WTO and the ILO should discuss a linkage between the international trading system and the international system for promoting labour standards.

It is my view that at this juncture of world history, a discussion of labour standards in the WTO would enable both the WTO and the ILO to carry out their respective missions more effectively. A role for the WTO in the promotion of labour standards could help the WTO to maintain political support for trade liberalization in face of a heightened sense of economic insecurity among workers and increasing public awareness of exploitative working conditions in some parts of the world. At the same time, institutional involvement by the WTO in labour standards issues could also help the ILO to generate the political attention and support it needs from world leaders to renew itself, so it can carry out its mission more effectively.

The very success of past trade liberalization efforts have unleashed global competitive forces that have created a heightened sense of economic insecurity among workers around the world. This has been demonstrated most recently in the United States by Buchanan's ability in the Republican primaries to attract a following with his protectionist rhetoric. While I believe that the public in the United States and in other major countries is not eager to adopt protectionist policies, they are uneasy and genuinely worried about the uncertainty and increased economic insecurity created by rapid economic change and global competition. At the same time, the universal coverage and immediacy provided by modern communications, has created an increased awareness and sensitivity to working conditions in other parts of the world.

The widespread sense of economic insecurity stems not only from the globalisation of production, but also from other fundamental structural changes. Automation of production has reduced the demand for unskilled workers in manufacturing. The downsizing of corporations and outsourcing of inputs has reduced the number of relatively secure jobs. The flattening of corporate structures has reduced security for middle managers. Budgetary pressures have forced many governments to reduce their social welfare expenditures in areas such as pensions, unemployment benefits and health insurance. Competitive pressures are forcing many governments to revise their labour laws.

I happen to believe that most of these changes are unavoidable and in the long run will increase economic productivity and raise standards of living. From the point of view of most workers, however, they add a great deal of economic insecurity and anxiety, concerns that will have to be dealt with to maintain public support for the open trading system.

Public concerns about increased economic insecurity have revived concerns that international competition in trade will lower labour standards. This is not a new worry. This is a concern that has surfaced repeatedly at critical junctures of world history. Indeed, widespread concerns that trade would undermine gains in working conditions and social welfare programmes was an important factor in the creation of the ILO. Similar concerns undoubtedly motivated the inclusion of a chapter on labour standards in the Havana Charter, which gave birth to the GATT.

Studies undertaken by the OECD and other research institutions have shown that labour standards have not measurably affected any country's competitive position in the past. The aggregate empirical evidence presented in these studies, however, is weakened by anecdotal evidence that particular people lost their jobs when particular factories moved abroad to take advantage of the absence of unions or tough labour laws. Moreover, these studies do not touch on the core issue, namely that evidence of the exploitation of workers in other countries creates a moral outrage and erodes the legitimacy of international competition. In the context of increased public fears about the economic future, moral outrage and a reduced legitimacy of international competition are readily translated into protectionist solutions.

Many opponents of a WTO role in labour standards will concede many of these points and argue that the appropriate instrument for dealing with these public concerns about exploitation of workers is the ILO. Let me offer some counter arguments. First, without some institutional linkage between the ILO and the WTO on labour standards, the valuable efforts of the ILO in promoting labour standards are given little currency in the public debate over trade. Second, a WTO role in labour standards could help the ILO to do a better job in carrying out its mission in two ways.

A discussion of labour standards in the WTO, and an institutional linkage between the WTO and the ILO, could help build political support for internal reforms in the ILO that would enhance the effectiveness of that organization, and enhance the political effectiveness of ongoing promotion, monitoring and enforcement efforts in the ILO. Issues discussed in the WTO have more public visibility, and are given more political weight by government leaders. A discussion of an issue in the WTO thus automatically confers on it greater attention by both the public at large and by government leaders.

I don't need to tell this group that the ILO has accomplished a great deal in defining and promoting international labour standards. At the same time, more needs to be done in developing a set of standards that are universally accepted and implemented, and in establishing a monitoring and enforcement process that is seen as effective. Moreover, fundamental structural changes in the world economy have altered some of the assumptions that are built into conventions negotiated in an earlier era, and this may call for a review and updating of these conventions.

While the "heavy lifting" in carrying out a reform of the ILO will have to be done by the ILO itself, the added political attention provided by a discussion in the WTO can help provide external political support for that effort. A little institutional competition can also have the salutary effect of overcoming institutional inertia inside the ILO. In fact, the debate over whether or not the WTO should take up labour standards has already increased the public awareness of labour standards issues, and has spurred internal reform efforts within the ILO.

An ongoing future WTO role in the monitoring, promotion and implementation of labour standards could provide the same kind of external political support on an ongoing basis. Simply put, the WTO has more political clout, even without the use of trade sanctions.

Better international cooperation on labour standards cannot remove the economic uncertainty that is at the root of public concerns, and it would be a real mistake to argue that a linkage between trade and labour standards would remove that uncertainty and restore the economic security of individual workers. Economic change and adjustment are a prerequisite for growth and for raising standards of living in the world today. Economic security for individuals will increasingly have to come not from job guarantees and assured benefits provided by individual employers, but from regulatory measures and government programmes that assist workers in making the transition from one job to another. Indeed, such domestic reforms will be as crucial, if not more crucial, to future public support for open trade policies.

By the same token, these essential domestic reforms cannot be a substitute for improved international cooperation on labour standards. While the right kind of domestic policies can reduce fears about the future and better equip workers for the economic adjustment they need to confront, only a clearer and more effective international agreement on labour standards will assure the public of the legitimacy of increased international competition.

This brings me to the way forward. As noted earlier, a great deal of work is still needed to establish an international consensus on future work in the WTO and the ILO on the linkage between trade and labour standards. Before such a consensus can be achieved, it will be necessary to establish an informal agreement on the objectives and the scope of such discussions, and on what should be avoided.

A consensus on objectives will need to encompass the economic and political interests of developing as well as developed countries, and of enterprises as well as labour unions. This will require a comprehensive assessment of these interests. It will also be necessary to acknowledge the fears and concerns of those countries and business leaders who are currently opposed to any institutional linkage between trade and labour standards.

I have already discussed some of the broad objectives and benefits that could be derived from an institutional link between the WTO and the ILO on labour standards. To these objectives and benefits might be added the common global interest in removing sources of social instability in individual countries. Social instability and conflict in any one country can easily spill over into other countries. Moreover in an economically interdependent world, social disruption in any one country can adversely affect the economic interests of other countries. Beyond these practical considerations, one needs to acknowledge the moral dimension to basic human rights, as reflected in the UN Charter on Human Rights.

An understanding on the nature of these common, global interests, needs to be augmented by an understanding of the economic interests of countries in different economic circumstances and the economic interests of the different social partners. I don't want to go into a detailed analysis of these interests here, particularly since that will be an important focus of the discussion in Session III of this Joint Seminar. Let me just mention that all countries and social partners can benefit from the increased social stability that can be expected to follow from the observance of the core labour standards.

Turning to the fears and concerns of various countries and social partners, let me just note a few. Developing countries are concerned that any agreement in this area would be used by developed countries as a protectionist tool to keep out cheap imports from developing countries. They are also concerned that they will be forced to accept inappropriate standards on issues such as the minimum age for the employment of children.

Employers are concerned that such an agreement will be used to harass their foreign investments, or as a tool for greater government intervention in labour issues under domestic laws.

Officials charged with responsibility for the WTO are concerned that an agreement in this area will inject troublesome political issues into the operation of the organization thus undermining the effectiveness of the organization, which in part has been due to the ability of the GATT to keep out of international political conflicts and avoid unnecessary intrusion into the internal affairs of individual countries.

These fears and concerns are best addressed by a set of conclusions outlining what a WTO role in labour standards should not do. For example, there is now widespread agreement that such a role should not deteriorate into a protectionist device.

With respect to the scope of coverage, there seems to be wide agreement that the area of possible collaboration between the WTO and the ILO should principally focus on the core labour standards, which are the subject of the most widely ratified ILO Conventions, and which are encompassed by the UN Human Rights Convention, and by the Conclusions of the 1995 Copenhagen Social Summit. It remains to be seen, however, whether the relevant ILO conventions can serve as something more than a rough map for the standards to be covered and, specifically, whether the detailed text of these conventions and the associated jurisprudence is viable vehicle for the operational involvement of the WTO in the monitoring, promotion and implementation of the standards. Having read the U.S. report on its own ratification prospects, I rather doubt it.

In order to advance beyond an initial discussion of the linkage between trade and labour standards to an exploration of the ways and means of cooperation between the two institutions will require a mutual understanding of the institutional, legal and political differences between the ILO and the WTO.

You probably have noticed that I have been a bit vague as to the precise nature of the WTO role, beyond the initial discussion of the issue. This was quite deliberate. Partly because I believe the key issue now is to get a work programme going. Partly, because the nature of the role envisioned will hinge on a more detailed analysis of the two organizations and their rules. This is a topic for another conference.

THE IMPACT OF GLOBALISATION ON LABOUR

Charles Oman
OECD Development Centre

There are three main conclusions I hope you will draw from my comments. One is the importance of looking beyond international trade and investment flows in order to understand the main problems that confront labour today. Second, is the importance for governments to promote social cohesion within, as well as between, countries as they develop policies to deal with globalisation. A final, critical, point is the importance for workers, and their representatives, to go out of their way to promote North-South labour solidarity in the current context of globalisation.

Let me begin with the definition of "globalisation" ¾ a concept widely used but rarely defined ¾ which I find most useful, not least because it is a broad, generic definition that is relatively uncontroversial: globalisation can be understood as the growth, or more precisely the accelerated growth, of economic activity that spans politically defined national and regional boundaries.

Defined this way, of course, globalisation is not a new phenomenon. The last 100 years alone have witnessed three major periods, or waves, of strong globalisation.

We are in the midst of one wave today, in the 1980s and 1990s.

The previous wave came during the 1950s and 1960s. Then, as now, barriers to international trade fell significantly, and trade grew rapidly. Then, as now, international investment grew even faster than trade, led by the phenomenal proliferation and growth at the time of multinational corporations, notably US multinationals. That wave of globalisation tapered off in the 1970s, when productivity growth slowed markedly in the leading economies (North America, Europe and Japan), and stagflation ¾ high inflation combined with slow growth and high unemployment ¾ emerged, in the latter half of the decade, in North America and Europe.

Prior to the 1950s and 1960s, it was the 50 years or so which ended in World War I that witnessed a big wave of globalisation. Then, as now, trade grew rapidly, world-wide; and the size of international and inter-continental investment, especially in the form of financial flows, was as big, or bigger, relative to output levels, as it is today. That wave of globalisation came to an end with World War I and the beggar-thy-neighbour policies that led to the collapse of globalisation and the economic disasters of the 1920s and 1930s.

So, I ask you: What is so special about globalisation today? Is there anything that makes globalisation today very different from past waves of globalisation? Indeed, some economists, including some of our most respected OECD colleagues, have argued that there is not anything particularly new about "globalisation".

There are, I believe, a number of features that distinguish globalisation today from previous waves. One, in particular, nevertheless remains poorly understood ¾ and it is especially important for this seminar: the new flexible approaches to organising work, to organising the production of goods and services both within firms and in the way firms simultaneously compete and co-operate with other firms. I shall return shortly to this critical phenomenon, which I see as the principal microeconomic force driving and shaping globalisation today. But first a few words on four other sets of factors which have been more widely discussed in the literature, and which have also helped to facilitate and stimulate the current wave of globalisation, individually and in combination, since the late 1970s and early 1980s.

(i) One factor has been the move to deregulate markets in the advanced countries. That move was launched in the late 1970s, by the Carter administration, as the principal US policy response to stagflation and stagnant productivity growth (along with monetary shock treatment to cut inflation). It was followed quickly by Margaret Thatcher in the United Kingdom and, from 1980, by the Reagan administration in the United States. Focusing mainly on services ¾ finance, airlines, trucking, telecommunications (and energy in the United States) ¾ Anglo-Saxon deregulation put strong pressure on continental Europe to follow suit, which led to the European Community’s Single Market Programme, launched in 1985. The latter in turn led the United States to pursue regional integration at home, first with Canada and then with Mexico, which led to the signing of NAFTA in 1992. The combined effect of the Single Market Programme and NAFTA (amplified for several years by the prolonged difficulties to conclude the Uruguay Round of GATT negotiations) has been to help stimulate a global proliferation of regional-integration agreements.

(ii) A second key factor has of course been the advent and rapid diffusion, across countries and across industries (including services), of the new microelectronics-based information and communications technologies. So much has been said, and written, about the far-reaching impact of the new microelectronics-based technologies that I wish here simply to warn against two sweeping generalisations that have gained widespread currency, but which, in fact, are largely mistaken. One is that thanks to the new technologies we have reached the age of truly global, "borderless" production. Though valid for some firms in a few industries, this statement is largely untrue; cross-border sourcing, which is indeed growing, has tended to grow faster within than it has between each of the major regions; and proximity matters (whence the widespread corporate emphasis on "global localisation" for example). The other mistaken generalisation is that the new technologies have greatly increased productivity levels across manufacturing and service industries; the truth is that although the new technologies are widely applied by firms across manufacturing and service sectors, it is flexible post-taylorist enterprises and networks, much more than taylorist firms (as I shall explain below), which have largely benefited since the late 1970s from the advent and rapid diffusion of the new technologies ¾ notably the new flexible automation technologies ¾ in terms of their ability to enhance significantly their productivity levels and gain competitive strength.

(iii) A third factor is the globalisation of financial markets. It was only in the 1960s that international financial activity began, slowly, to pick up again ¾ after its collapse during the inter-war period ¾ with the creation of the "Euro-dollar" and other unregulated "offshore" financial markets. It grew significantly after the 1971-1973 breakdown of the Bretton Woods system of fixed-but-adjustable exchange rates (a breakdown for which speculative activity in the offshore markets was itself an important catalyst) and with the recycling of petro-dollars after 1973; it has gown explosively since the late 1970s, due in part to the combined effects of financial deregulation in the advanced countries and the application to international finance of the new information and communications technologies.

The globalisation of financial markets is the principal cause of the perceived weakening of national economic policy sovereignty. With some $1.4 trillion dollars in foreign-exchange transactions alone per day, on average (some 100 times the value of all trade), it has certainly become more difficult for central banks to control exchange rates. But that is the tip of the iceberg, in policy terms. As governments increasingly use interest rates to try to stabilise exchange rates, which they see as increasingly important as their economies become more open to trade and financial flows, interest rates become correspondingly less available as a tool to help stimulate growth (often, on the contrary, governments need to raise interest rates). It has also become much more difficult to tax capital, which means the tax burden tends to fall more heavily on the less mobile factor of production (labour); and government attempts to sustain their fiscal base by increasing taxes on consumption have a regressive impact in terms of their incidence on different income strata. A further effect is to increase pressures on governments to engage in regulatory "arbitrage", i.e. to engage in a competitive process of downgrading regulations that many have compared to competitive devaluations. All these phenomena contribute to the general weakening of national economic policy sovereignty, vis-à-vis other governments and, especially, vis-à-vis global financial markets.

(iv) A fourth factor is the opening of non-OECD economies, both developing and ex-socialist, to market forces. Most striking, perhaps, is the fact that into the 1980s only a handful of relatively small non-OECD countries ¾ basically Hong Kong, Singapore, Korea and Taiwan ¾ were strongly export-oriented, and among these, only the two city-states were highly open to inward as well as outward flows of goods and capital; now however, in the space of barely a decade, most of the non-OECD world ¾ with four-fifths of the world’s population, and including such huge developing countries (some with rapidly growing economies) as China, India, Indonesia and Brazil, and the ex-socialist countries of central and eastern Europe with their relatively well-educated labour forces ¾ has opened-up to market forces, and is moving to compete on world markets.

Contrary to widespread perceptions at least in OECD countries, however, there is no general acceleration of redeployment to non-OECD countries of production destined to serve OECD markets. There is rather a deceleration of such redeployment, due, among other reasons (a) to the declining share, on the whole, of variable low-skilled labour costs in firms’ total costs, and (b) to the growing importance, especially as firms adopt more flexible approaches to the organisation of production, of proximity between firms and both their customers and suppliers. Insofar as firms continue to show some interest in redeploying production for OECD consumers to production sites in low-wage countries, moreover, that redeployment tends to be intra- rather than inter-regional, as noted earlier. That is, if one defines "greater Europe" to include central and eastern Europe, and perhaps North Africa, production to serve high-wage European consumers that is redeployed to a low-wage production site is more likely to go to southern or eastern Europe, Ireland or perhaps North Africa, than it is to a site in Asia or Latin America (and, by the same token, European firms that invest in production capabilities in Asia and Latin America ¾ even when part of the output there is to be shipped to Europe ¾ increasingly undertake such investment more to serve the rapidly growing markets in Asia and in Latin America, respectively, than to produce for European markets).

Thus, while it makes sense to speak of a globalisation of inter-firm competition, and of many corporate functions, including investment, and to speak of a globalisation of corporate systems, networks and alliances, it is wrong to speak of a globalisation of production stricto senso. Firms’ international sourcing of goods and services is growing much more within the major regions ¾ within "greater" Europe, within the Western Hemisphere, within Asia as a whole ¾ than it is between those regions. It makes more sense to speak of a regionalisation, than of a globalisation, of production per se.

Flexible production

Let me turn now to the microeconomic foundations of globalisation. Put simply, the microeconomic phenomenon that drove globalisation in the 1950s and 1960s was the on-going development and rapid international diffusion, at that time, of Taylorism, or what Frederick Taylor himself liked to call "scientific management". Tayloristic approaches to organising work combined three main features ¾ all nicely illustrated by Charlie Chaplin’s movie Modern Times: (i) a tendency to separate "thinking" and "doing", i.e. to separate the responsibilities of conception from those of execution, throughout an organisation; (ii) a tendency toward a very high degree of specialisation, which meant narrowly defined job responsibilities, at all levels of an organisation; and (iii) a belief in "one best way" of doing things (whence the term "scientific" management).

It was only after World War II that Taylorism really took root and spread in Europe, and it was also during the 1950s and 1960s that it spread to the so-called "modern sector" in many developing countries, and was implemented in many centrally planned economies as well. The spread of Taylorism served greatly to raise productivity levels during that period, worldwide. But, over time, it also built serious rigidities into the organisation of production (and into the fabric of society) especially in the advanced countries where Taylorism was most developed. Those rigidities were, in turn, a major cause of the marked slowing of productivity growth in the 1970s, in virtually all OECD countries, and of the emergence of "stagflation" in the United States and Europe (where it was called Eurosclerosis) in the latter half of the 1970s.

Today, those rigidities are still a problem. They are a major cause of the severe labour-market problems both in the United States (where they take the form of stagnant average wages, growing inequality and growing numbers of working poor) and in Europe (where they take the form of high long-term unemployment).

Many US firms and some European firms in the 1970s and 1980s relocated some of their more labour-intensive production to low-wage sites in a few developing and newly industrialising countries. They did so, in many cases, to escape from their organisational rigidities at home, as well as to cut labour costs per se.

Since the 1980s, however, a growing number of firms in OECD countries have moved to adopt more flexible forms of organisation at home. These flexible organisations, which take many forms, have a common denominator in that they tend to invert the logic of Taylorism: (i) they tend to integrate thinking and doing in production; (ii) they tend to define job responsibilities broadly, and to use much more teamwork; and (iii) they emphasize continuous improvement and innovation in the way things are done, as well as in the goods and services they produce. They are learning organisations which, compared to Taylorist organisations, much more fully exploit the human intelligence, creativity and knowledge-based-on-experience of their workers.

The problem today is that the crisis of Taylorism, which only gradually became apparent in the 1970s, has been amplified in more recent years by the growing competitive strength of flexible post-Taylorist organisations; yet a large part of economic activity is still managed according to the precepts of Taylorism, which remain deeply rooted especially in Europe and North America. There is, moreover, considerable resistance to change, accompanied in recent years by a tendency ¾ understandable, but largely mistaken ¾ to point fingers at "globalisation", at imports from developing countries and, in some cases, at immigrants, as the culprits behind the serious labour-market problems referred to earlier and what is widely perceived as the growing threat to jobs and living standards in Europe and North America. Much of the resistance to change comes from top managers who have built highly successful careers as "scientific managers" and for whom it is often difficult to perceive problems, much less solutions, other than through Taylorist "glasses". Middle managers, understandably, are also often a major source of resistance because their jobs are directly threatened with elimination (too many layers of middle management is dysfunctional in flexible organisations) or are likely to be changed beyond recognition. Many skilled workers who have accumulated highly specialised knowledge, often over a lifetime of work experience, are also threatened; and low-skilled workers are threatened because the new flexible organisations have much less use for them than do Taylorist organisations.

What does all this mean?

For government policy makers it means many things. First and foremost, it means avoiding a process of competitive deregulation. This implies the need to look more closely at the effects of financial globalisation, in particular, and probably a need to "throw some sand in the wheels" of global finance, as propounded by such authors as James Tobin and Barry Eichengreen. To what extent financial-market regulations can be introduced that will help restore some necessary policy sovereignty to governments, without sacrificing too much of the potential gains from globalisation (notably through productivity growth in the "real" sector); to what extent such regulations should seek to strengthen national policy sovereignty or rather strengthen collective policy sovereignty of governments vis-à-vis the market (more than vis-à-vis one another); and, in either case, how best to do so, are difficult questions that deserve more attention.

Secondly, and also very important, the analysis points to a need for governments to promote the transition to flexible production in the "real" sector in ways that do not weaken social cohesion. To cite only one example, in the realm of education policy, it suggests that more emphasis should be given to the development of social and inter-personal communications skills, along with basic literacy and numeracy, and perhaps less emphasis should be given to highly specialised vocational skills, because of the growing importance of teamwork and broad problem-solving skills along with innovation as part of the production process itself. It also suggests that governments should move away from their own widespread tendency to organise themselves, and to operate, according to the precepts of Taylorism, with the inherent building up of bureaucratic rigidities that implies.

Conclusion

By way of conclusion, I would like simply to highlight four points. First, "flexibility" should not be seen by workers as a dirty word; when policy makers emphasize the need for flexibility they are not necessarily wrong. But there may indeed have been some tendency in recent years to focus too much attention on the need for flexible labour markets at the expense of too little understanding on how management, and systems of corporate governance, are responsible today for resistance to the kind of change that is needed, and that would be less threatening to social cohesion.

Second, flexible post-Taylorist approaches to the organisation of work should not be portrayed as some kind of panacea for workers. Successful flexible enterprises can significantly increase workers’ productivity, compared to Taylorist enterprises, by more fully exploiting workers’ capacity to perceive and creatively find solutions to new problems, continuously. There may even be somewhat more "empowerment" of workers, within limits, at the enterprise level under flexible production. But, by the same token, the blurring of Tayloristic distinctions between job responsibilities (along with the blurring of traditional boundaries between industries and sectors) tends to undermine the Tayloristic foundations of industry-specific labour unions, which can weaken labour ¾ at least until a successor is developed (e.g. at the enterprise or network level, worldwide).

Third, the competitive strength and dynamism of post-Taylorist forms of organisation, due precisely to their greater productivity and flexibility, mean that despite all the resistance to change, the move from Taylorist to post-Taylorist forms of organisation will be unrelenting in the advanced countries.

My fourth and final point concerns the question of trade with developing countries and the issue of core labour standards. My personal view is that a strong case can be made for international recognition of the basis human rights of workers to organise and to bargain collectively (including in export-processing zones) and to be protected, at any age, from forced labour. I see no economic reason why any country, regardless of its level of development, should not recognise ¾ and its government not actively enforce ¾ these rights, as basic human rights.

I am equally convinced, however, that even if all countries recognised these basic rights, and all governments did a good job of defending them, it would not do much to resolve the very serious labour-market problems that currently plague OECD countries ¾ problems whose origins lie in the rigidities of Taylorism at home, and in the difficulties of making the transition to post-Taylorism. I am also worried that legitimate concern in OECD countries for the recognition and defense in developing countries of basic workers’ rights, and basic human rights, can easily be co-opted or diverted by protectionist special-interest groups in OECD countries ( I am not referring here to labour unions) which would be to the serious detriment of the common interest shared by workers in the developing and developed countries.

The way forward, it seems to me, must involve promoting more trade and investment between developing and developed countries, certainly not restricting such trade and investment. Given the very real risk of unilateral restrictive actions by some of the most powerful developed countries today, I also believe that ultimately it is in the best collective interest of developing countries to bring the discussion of core labour standards into the WTO.

I also believe it is in the interest of the developed countries, and of the world, that governments and political leaders better educate voters in the developed countries about the microeconomic forces that are driving and shaping globalisation today.

And I believe it is in the interest of North-South labour solidarity, and of global development, that in arguing for the eventual use of WTO sanctions to enforce core labour standards internationally, OECD countries’ labour representatives should focus their efforts to bring international pressure to bear in favour of three core standards in particular: the right of workers to organise; the right to bargain collectively; and the right of all people, children and adults, to be free from the threat of forced labour. To include the prescription of child labour per se on the list of core labour standards, may, unfortunately, raise as many problems as it solves, and blunt the effect of efforts to define workers’ rights to organise, bargain collectively and be free from forced labour the world over.

THE VIEW FROM A DEVELOPING COUNTRY

Zahoor Awan
General Secretary
All Pakistan Federation of Trade Unions

According to the ILO Director-General, liberalisation of trade and investment and globalisation of production have created vast new opportunities for higher rates of growth and job creation. However, most of the Asian region is afflicted with a growing number of poor, unemployed and malnourished people as well as extremely high rates of growth, of labour force and widening income disparities. At the same time, the level of education, professional skills and environmental protection is also low.

The trade union movement needs to get answers to the following issues :

- How far first and foremost the increasing integration of developing countries could be made smoother and frictionless?

- How could the transition process be managed effectively for ensuring the promotion of free and fair trade based on multilateralism?

- What efforts are needed from governments, employers and trade unions to overcome the uneven effects of trade liberalisation?

- How could the newly founded WTO be made more effective and useful for conflict resolution in trade matters among the nations of the world?

- What should the trade union strategy in a changing global economy, given the increasing influence of multinational companies, their operation as traders, investors, disseminators of technology and movers of people to strengthen the links among national and international market?

- How could the unions access be made to Export Processing Zones for free unionisation and collective bargaining?

- What concrete measures are to be adopted to promote human resource development?

- How could investment in people bring about a boost in living standards of poorer workers?

- How can we ensure that social justice is not sacrificed on the altar of global competition?

- How can the persistent abuse of workers' rights, the non-observance of labour standards and the full respect of trade union and other human rights be guaranteed in the international trading regime?

These concerns of workers and their movements are part and parcel of the globalising economy. In fact globalisation has already speeded up the structural adjustment process and thus multinational enterprises are more attracted to countries where de-regulation policies are implemented. They tend to move their investments to the areas of the highest competitive advantage. A Social Clause in international trade agreements establishes minimum rights for workers who shall have a say in how their conditions of work are decided. However, developing countries fear protectionist measures under the belief that as protectionism protects nobody, the free trade union movement should be against any form of protectionism !

Furthermore the trade union movement in the present era has to emphasize the need for evolving a transparent and uniform mechanism of privatisation in a gradual and phased manner, thereby providing sufficient time for adjustment, particularly for displaced workers. Proper legislation in the South Asian region is required so as to ensure minimum wages for workers. It is strongly urged that there be greater solidarity to ensure at least a continuation of social security benefits for those who have been forced to work in a non-formal segment of essentially formal activity. The internationalisation of trade and investment unfortunately entails hidden costs and such unhealthy practice goes against the workers' interest in the host countries.

The whole set of labour laws need to be reviewed so as to adequately reflect the changes brought about by a modernising economy in an environment of international competitiveness, trade and investment. Tripartism should become the guiding principle in labour legislation.

The existence and continuation of child labour needs to be condemned in its present socio-economic context. An integrated programme of action with compulsory primary education, availability of gainful employment for adult workers, legislation and its proper implementation must lead to the eradiction of child labour.

CORE LABOUR STANDARDS

THEIR ECONOMIC AND SOCIAL ROLE

Werner Sengenberger

Director of Employment Department

International Labour Office

There are various rationales, or justifications, given for labour standards:

- a moral or ethical rationale:

• labour standards are a good thing per se; they are an element of civilized social relationships, both national and international;
• core labour standards are seen as part and parcel fundamental human rights;

- a political justification:

• labour standards contribute to democracy and political stability; they help to contain forces of social disintegration, social uprising and political upheaval;

- thirdly, there is an economic rationale for labour standards:

• they are an essential precondition, and a vehicle for, sustainable economic development;
• labour standards an instrument for economic growth; and economic efficiency.

While the moral and political justifications are widely accepted and approved today, the economic rationale is not. It is controversial. Labour standards have become a much contested terrain since the slowdown of economic growth and the rise of unemployment in OECD countries beginning in the 1970s. This slowdown has been attributed to rigidities in the labour market, and the negative effects of labour market rigidity has been conflated with labour standards per se. Labour market rigidities, it is said moreover, would be especially harmful in the era of growing globalisation when enterprises need to adapt rapidly to changing market. Moreover, labour standards are perceived by their critics more and more exclusively as a cost, not as a benefit. Conclusion: We can no longer afford labour standards.

Given this criticism, I concentrate my remarks on the economic role of labour standards.

My conclusion is that:

- labour standards are not a luxury, but an indispensable precondition of sustainable economic growth and efficiency;

- labour standards are conducive for economic performance, independently from the level of economic development of a country;

- there is no conflict between the moral, political and economic effects of labour standards; on the contrary, they are mutually supportive; they go hand in hand;

- I would, furthermore argue that the moral rationale for labour standards is a sufficient justification for core labour standards; for example, forced labour and lower pay for women for work of equal value are morally reprehensible; this is a sufficient justification that all countries should observe the ILO conventions that prohibit these practices;

- if the use of forced labour is economically inefficient, as it was shown in the OECD study of labour standards, this may be seen as an additional argument for the convention; but, if it had been found that forced labour is not inefficient, should it then be acceptable? Of course not. Then, we would have to say that we should be willing to pay a price for having freedom from forced labour standards.

In what way do labour standards promote economic development?

The role of labour standards in a world of increasing international interdependence is to channel competition into positive, socially desirable directions.

Firstly, they are essential to prevent destructive competition; they define universal rules of the game for all international competitors. They prevent that some country gains a presumptive economic advantage from the suppression of trade unions, the use of forced labour, the use of child labour, discrimination, etc., or from the downscaling of wages, or social security, employment security, or occupational safety, or the working of long hours.

In the absence of universal minimum standards there is the risk that the protection of workers and the investment into human resources cannot be covered by the product prices; hence, there is the risk of downward directed "positional" competition in the global economy. If one country does not observe a labour standard others may be tempted to follow suit in order to gain the same competitive advantage.

If everyone follows the bad practice then no one will have an advantage; the only sure result is that everybody will be worse off.

Positional competition is visible not only in Asia and Latin America (e.g. in their EPZs). There is currently the great risk for it in Europe; insofar as European countries may feel that by lowering their social standards they may gain competitive advantages vis-à-vis competitors, for example in East Asia, or even competitors in Europe.

Secondly, labour standards are essential for eliciting and promoting constructive competition; if firms are prevented from competing through lower wages, or benefits, or countries are prevented from competing through lower social security standards, then there is an incentive to seek competitive advantages in more positive ways, such as:

• through better products, e.g. higher quality products;
• through enhanced productivity and better production processes (e.g. technology and work organisation, etc.);
• through finding new market opportunities.

It seems to me that these forms of competition, which economists call "dynamic efficiency", as compared to the "static" efficiency of cost reduction we want to promote, while downscaling of labour conditions we want to avert.

Thirdly, I would hold that labour standards are a prerequisite for good economic performance, because they are necessary for economic cooperation - at all levels (plant level, industry level, national level and international level).

An example: it is widely agreed that information is a key source of competitiveness in the modern economy. (As recognised by the OECD), free exchange of information is necessary for efficient production and functioning markets. However, without some degree of employment security, workers will not share information with co-workers or with management because they might think that this could be to their disadvantage. They will rather monopolize information and experience.

Economic strength in the modern economy relies increasingly on cooperation: coop among workers; between workers and management; cooperation between firms (such as joint ventures and strategic alliances for the saving of resources, or the joint development of techniques). Cooperation will not come about without mutual trust; and trust will be undermined if firms or nations try to outcompete each other through lowering labour standards.

At the international level, cooperation also depends on the mutual respect for standards. From the very beginning this was clear in the ILO: "The failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve conditions in their own countries" and "poverty anywhere is a threat to prosperity everywhere" are axioms of the ILO.

The effects of labour standards on efficiency and performance hold for every country, no matter what the state of development is.

Therefore, labour standards are not a luxury for the developed countries; they are beneficial for all economies.

Is there empirical evidence for the beneficial effects of standards for economic performance?

I think, yes there is such evidence.

- Enterprises with high labour standards and high environmental standards are the most profitable.

- The countries with the best record on labour standards are also the countries with the best economic outcomes.

The OECD in its report on trade, employment and labour standards finds that :

"There is no evidence that low standards countries enjoy a better export performance on aggregate than high standards countries".

Countries with the highest labour standards are the most open economies; economic integration through FDI takes place mainly between countries with high labour standards.

Again, the OECD finds that :

"There is a positive association over time between successfully sustained trade reforms and improvements in core labour standards."

Why is that so? Without genuine worker rights, and without an effective system of social protection of the working population an economy will not be able to sustain free trade. You need this system to protect the workforce against the heightened risks of adaptation and structural adjustment. Therefore, only countries with labour standards can sustain open economies.

The U.S. is a good illustration of this point. They were a comparatively protectionist country until the 1930s. Only through the New Deal and its enabling labour legislation was the U.S. in a position to open up to the world market.

Are the dynamic economies in East Asia, which have shown the fastest growth and great successes in exports during the past decade, evidence to the contrary?

It is true that these countries leave something to be desired with regard to a number of labour standards.

Their competitive strength is derived from labour standards in a wider sense, including:

• development of human resources through general and vocational training;
• fast real wage growth; productivity gains were passed on to wages; there was no negative downward real wage flexibility;
• comparatively equitable distribution of land, income and wealth in income distribution permitted high rates of savings and investment; productive investment was systematically promoted by state authorities.

What makes labour standards work?

Critics of labour standards hold that in the age of global competition we can no longer afford standards. They are a luxury; we have to become more modest to keep pace.

My argument: we suffer not from an excess of labour standards, but rather, from too little.

There are three kinds of labour standards: standards of participation, protection and promotion; they mutually reinforce one another; in most countries, some type of standard is missing or underdeveloped, so that the other standards do not work properly.Example: it can be shown that legal protection from dismissal does not function unless there is an effective trade union or works council at the plant level to make sure that the law is actually observed.

Counter-productive economic practices appear where trade unions are not accepted.

Labour standards is to a large extent not a problem of costs; it is a management problem; it requires good management.

The high wage countries cannot compete through the lowering of social standards. This would not only be at the detriment of low labour cost countries; because it would deprive them of their competitive advantages; scaling down standards would be harmful to the developed countries themselves because it would take away the very base for their economic strength. For example, it would risk to weaken the trade unions and cooperative industrial relations which are among the greatest assets for productivity, constructive conflict resolution and social stability.

The high wage countries must compete through product and process innovation. This would not be harmful to developing countries.