Stake of Labor in the WTO Seven years of trade negotiations at last gave birth
to the World Trade Organization (WTO) in 1995, the U.S. labor movement was one
of its leading skeptics. A world trade organization, labor supporters argued,
would only accelerate the headlong rush to laissez-faire by dismantling national
regulations. It would overwhelm attempts by nations to defend living standards
and the ability of unions to fight for wages and health and safety laws—and it
would make it harder for nations to defend the rights of workers to join unions.
Labor lobbied hard against the WTO. But now, ironically, the WTO could become a
critical venue for advancing workers' rights worldwide. For the WTO has the
power to review nations' domestic laws that create unfair trade advantages
including, potentially, labor laws. The WTO could define fair trade to include
labor standards. Such linkage would be a historic change in the world's trading
regime, and labor's stake in it. The idea of linking labor rights with trade
policy has been around since shortly after World War II when efforts to create
an international trading regime began in earnest. However, the WTO represents
the first opportunity since 1948 to give the issue serious attention. Proponents
of linking labor rights to trade rules build on the conventional case for free
trade. For international commerce to be free, markets within countries must not
be rigged to encourage exports and discourage imports. This is the fundamental
principle of free trade and it is the central precept of the WTO. Labor markets
are a special case, because they are not conventional free markets. Minimum-wage
laws and guarantees of free collective bargaining change the wages that market
forces might otherwise produce. But the economic mainstream in advanced
industrial countries has long accepted that some regulation of wages and working
conditions can enhance overall economic efficiency, as well as fairness. If
employers are compelled to treat workers decently, they will deploy them more
productively. By that logic, certain labor practices common in undemocratic
countries, such as child labor, prison labor, and denial of the right to form
unions, can be seen as unfair trade practices—and, potentially, violations of
WTO principles that trade should reflect acceptable rules of market competition.
Since wages affect all traded products and services, labor issues are central to
the ultimate credibility of the WTO as the arbiter of a consistent rule-based
international trading system. To the extent that wages are artificially held
down because labor rights are abrogated, an indirect subsidy is extracted from
these workers by their governments' policies, which arguably violate the WTO's
free trade philosophy. During the WTO's second-year review in late 1996 in
Singapore, the United States actively sought to link labor rights with trade.
However, this effort was blocked by a coalition of Third World nations (who saw
the initiative as a form of protectionism) and the European Union (which was
then dominated by conservative governments). Nonetheless, the attempt put the
U.S. government on the side of trade-labor linkage and forced WTO members to
officially consider the issue of linkage for the first time. Even Sir Leon
Brittain, the Thatcherite vice-president of the EU who actively opposed
trade-labor linkage, was compelled by sister EU governments to affirm that
"labor standards and other apparently domestic political issues are now the
legitimate concern of the WTO because they are concerns of our
constituents." The United States, according to the U.S. Trade
Representative's office in Geneva, will continue pushing for linkage. THE
ORIGINS OF THE WTO Established in the wake of World War II, the WTO's
predecessor, the General Agreement on Tariffs and Trade (GATT) formed the third
pillar of the Bretton Woods system, which included economic development loans
through the World Bank and monetary stabilization via the International Monetary
Fund. While the IMF and the World Bank date to the original Bretton Woods
conference of June 1944, trade rules were first addressed in a 1946 meeting that
set tariff levels and developed a draft charter for an International Trade
Organization (ITO) that was presented at the 1948 UN Conference on Trade and
Employment in Havana. John Maynard Keynes, the original architect of the Bretton
Woods system, had hoped to develop worldwide trading rules that would avoid the
destructive protectionism prevalent during the Great Depression, while
preserving a commitment to full employment. The ITO charter contained sections
on employment, commodity agreements, business practices, international
investment, and services. However, the ITO was to be stillborn. And the
prominence of employment in the construction of the 1948 ITO would be lost in
the creation of the 1995 WTO. Between 1946 and 1948, the start of the Cold War
had closed what, in retrospect, was a very narrow window for postwar
internationalism in the United States that included an activist role for
government. GATT was far weaker than the proposed ITO, but even GATT was opposed
by the American right, as an infringement on American sovereignty. Conservative
commentator Fulton Lewis, Jr., coined the slogan, "a GATT in your
ribs," from the popular James Cagney and Edward G. Robinson Hollywood genre
of the day, in which guns, in gangster slang, were called "gats." When
in 1950 the Truman administration realized that it lacked congressional support,
the ITO died. In its place the key trading nations adopted the earlier and more
limited 1946 agreements and established the "provisional"
GATT—pending a final transformation into some type of permanent treaty
obligation. It took longer than expected—47 years—to convert the provisional
GATT into a permanent WTO, whose structure and provisions are not terribly
different from the original 1948 ITO, except that the primary employment purpose
of world trade became lost amid the free trade ideology popularized since then.
W hen the WTO replaced GATT on January 1, 1995, all of the GATT rules and its 47
years of precedents were folded into the WTO. Broader in scope than GATT, the
WTO establishes rules of open trade in a variety of industries, including
manufacturing, services, and agriculture, as well as intellectual property. A
December 1997 agreement adds financial services and banking. National laws
restricting the rights of foreigners to buy banks must be swept aside. While
GATT relied solely on pressure and persuasion, the WTO has the power—through
its trade policy review process—to pass judgment on domestic laws,
regulations, and practices that affect trade. Although the WTO has not yet added
basic labor rights to the list of fair trade practices subject to its rulings,
decisions about how far the WTO can go to enforce labor rights will likely be
reached within the next five years. Labor's best hope for mitigating the effects
of competition from low-wage countries will thus be decided under the aegis of
the WTO, where the battle lines are being drawn between a handful of industrial
countries that seek to link trade rules with labor rights and an alliance of
Third World countries with their corporate patrons who resist doing so. (These
developing nations have been joined by some industrial-country governments,
notably Australia, New Zealand, and Great Britain under John Major's Tory
government.) Low wages do provide a comparative advantage, often legitimately,
because they reflect lower productivity. Low wages can help poor countries
promote exports and develop economically. But if the world trading system
embraces rules that uphold a minimum set of labor rights, this could prevent
artificially low wages. A linkage of labor rights and trade rules would help
promote a "high-road" form of development in the Third World by
relieving those countries of a competitive race to the bottom in which they are
pressed to guarantee a union-free and regulation-free labor market to a Nike or
Wal-Mart supplier. If labor rights become part of the regulatory regime
governing international trade, countries that deny basic labor rights to their
workers will no longer enjoy an artificial competitive advantage, and workers
will be less threatened by their corporate employers with flight to low-wage
sanctuaries that offer an unfree labor market through government policies that
produce low wages. The only international institution that monitors labor rights
today is the International Labor Organization. Since 1919, the ILO has sought to
eliminate labor practices that stifle human progress. Its constitution states
that the "failure of any nation to adopt humane conditions of labor is an
obstacle in the way of other nations which desire to improve the conditions in
their own countries." Over the years the ILO has produced conventions that
it then asks its member countries to adopt. Central to this process is a set of
five categories of conventions that form what are called core labor standards,
which address practices concerning prison labor, bonded labor, child labor,
discrimination, and rights of labor to organize and bargain collectively. The
ILO has historically played a much less significant role in global trade than
GATT because it could only resort to moral suasion. While the ILO has achieved
some limited success by investigating and publicizing gross violations, and by
exerting pressure on countries through human rights campaign techniques, it
cannot issue sanctions or other penalties. Without the economic power to
pressure nations that fail to adhere to its core labor standards, the ILO lacks
any real leverage. But if the WTO were to take up labor standards, the ILO
vision would receive a huge boost. HOW THE WTO WORKS Bureaucratically, the WTO
is an organization of some 500 highly paid professionals, mostly lawyers, who
work in a building in Geneva that resembles a stylish nineteenth-century chateau
an interior of dark wood, plush leather furnishings, and floor-to-ceiling
windows. Sitting alongside the Botanical Gardens just off Lake Geneva, the
building feels more like a placid retreat than a working edifice. At a distance
from the hurly-burly of domestic politics, government representatives and the
WTO staff make significant decisions about international trade out of the
public's view. It has no written bylaws, makes decisions by consensus, and has
never taken a vote on any issue. It holds no public hearings, and in fact has
never opened its processes to the public. Its meeting rooms do not even have a
section for the public to observe its activities. And its court-like rulings are
not made by U.S.-style due process. Yet the WTO today rivals the World Bank and
International Monetary Fund in global importance, because it has a dispute
settlement mechanism with enforcement powers. In the basic architecture of the
current trading regime, three minimalist GATT principles continue to operate
through the WTO. The first is the famous most-favored-nation status (MFN):
Products traded among GATT members must receive the best terms that exist in any
bilateral trading agreement. The necessity for an MFN clause arises because
countries have bilateral trading agreements. So if the United States imposes,
say, a 10 percent tariff on product X from country Y, it must use that same
tariff on all other members of the earlier GATT and the present WTO. Today
nearly all countries are either members of the WTO or would like to be. Twenty
years ago, however, only a minority of nations were GATT members and the MFN
concept had more force, because those outside of GATT could not receive MFN
treatment except by specific bilateral extension. The annual congressional fuss
over China's trade status occurs because China, which is not in the WTO, does
not automatically receive MFN treatment. Congress must choose to grant it,
withhold it, or subject MFN treatment to special conditions. In lending China
MFN status, the United States voluntarily allows China to receive the rewards of
WTO membership as it pertains to trade between the two countries, even though
China has been denied membership to the trade organization as a whole. The
second GATT standard is called non-discrimination, which demands that countries
not discriminate between foreign and domestic products. Goods produced
domestically and abroad must receive the same "national treatment"
equal access to domestic markets. The third GATT principle is
"transparency," which requires that any trade protection be obvious
and quantifiable like a tariff. Finally, in addition to these rules, the WTO has
the authority to resolve disputes and to issue penalties and sanctions.
Moreover, its jurisdiction has been extended beyond manufacturing policy to
include domestic policies that affect trade. The WTO can now apply to many
service industries including banking, insurance, management consulting, and
travel the same policies that GATT applied to manufacturing. Patents,
trademarks, and copyrights, the bedrock of national policies that restrict trade
in intellectual property, now fall under the WTO's jurisdiction. Investment
issues can also be subject to WTO rules when restrictions on investment among
countries restrain free flows of capital and goods. Any member country can
challenge another's practices and file a claim, which then triggers a formal
procedure for resolving the dispute. Panels are established to look at each
dispute there have been about 30 established since 1995 and, after several
layers of appeals have been exhausted, the findings of these panels are binding.
While GATT had a similar process, it did not have the power to recommend and
enforce penalties, sanctions, and compensation the WTO panels do, and the
signatories to the WTO have agreed to abide by the findings. So far, every
country found to be in violation of WTO rules has voluntarily accepted the
findings and taken steps to correct its practices. (When a country first rejects
a WTO panel's findings, the organization will face probably its most difficult
challenge: enforcing a finding.) Once a special panel makes a decision about a
specific dispute, a country found to be in violation of WTO rules has several
options, including repaying the aggrieved country for its losses or changing its
policies to comply with the panel's findings. In the event that a nation in
violation elects not to abide by its rulings, the WTO allows the complaining
party as a last resort to retaliate through the use of counter trade sanctions.
T he most far-reaching new power of the WTO is its jurisdiction over national
policies that affect trade. This has already allowed the organization to grapple
with a wide variety of issues. Including the use of growth hormones in U.S. beef
production; U.S. chicken production methods; India's process-based patent laws
that allow its domestic pharmaceutical industry to re-engineer drugs developed
in other countries; EU claims that more of its cheese should be allowed to enter
U.S. markets; the way Mexico catches tuna; and Thai, Malaysian, and Indian
shrimp harvesting techniques that kill sea turtles. To this list are added
intellectual property claims by France over the use of its regional wine labels
and Switzerland's assertion that only it can use the Swiss Army Knife
appellation. As more nations learn about WTO procedures, such examples will
multiply. Although these trade policy reviews have just begun, they offer
opportunities to introduce uniform global stipulations into domestic policies,
with predictable outcries and controversies. The consequent reports that will
emerge are one of the WTO's levers for introducing standards for internal
policies that influence trade, such as labor rights. LABOR RIGHTS AND TRADE The
idea of linking labor rights and trade was included in the Havana charter of
1948. Article 7 of the ill-fated charter proclaimed that "members recognize
that unfair labor conditions, particularly in production 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." GATT lacked such a sweeping commitment and only
allowed a country to restrict another's exports based on the use of prison
labor. The deliberations leading up to the formation of the WTO did not take up
the issue of labor rights until almost the last moment. Because the Reagan and
Bush administrations were uninterested, the issue did not receive attention
until the late fall of 1993, and it only became a factor then because, in order
to win congressional support for WTO approval, the Clinton administration needed
to regain labor support lost during the NAFTA debate. When the Clinton
administration did finally raise the issue of labor rights and trade, the
ensuing uproar among Third World delegations forced the issue to the sidelines.
It did not become part of the agreement, but the signatories agreed to take up
the matter in the future. This could be construed as either a victory or a
defeat, and in fact it was both. Labor rights did not become part of the WTO.
But the opportunity for tying labor rights to trade policy is significant, and
subsequent maneuvers within the WTO have nudged labor's concerns closer to the
playing field. Shortly after the inauguration of the WTO in 1995, the
International Labor Organization was commissioned to come up with a program for
introducing labor rights into the development of WTO trade regulations. Its
draft produced such a firestorm of controversy that it never saw the light of
day. Even now, few people have seen it, and those who have will not talk about
it. That experience has made the organization wary of treading onto this terrain
unless its mandate is more clearly defined, although the issue of linkage
surfaced again during the WTO's second-year review. Organized labor and its
friends would do well to make the WTO a priority issue. The labor movement's
attention, divided as it is among so many demands, has not focused on Geneva in
part for historical reasons. For years, the ILO afforded equal status to trade
unions from communist countries. As a result, the AFL-CIO became disenchanted
with the ILO and encouraged the United States to withdraw from the organization,
which it did between 1977 and 1980. This Cold War legacy continues to cool the
AFL-CIO's relationship with the ILO despite the potential linkage of
international labor rights to trade policy and the importance of the WTO to this
process. In addition, American labor should connect the WTO's interest in
linking labor rights to trade with efforts to end child labor, which is
certainly an issue destined to receive widespread support if the WTO begins to
focus on labor practices. So far, these issues have not been integrated, and so
the campaign against child labor remains a moral crusade, rooted in labeling and
consumer consciousness and detached from enforceable trade sanctions and
penalties. But there are at least several concrete ways in which the WTO could
soon be used to link labor rights to trade policy. The first opportunity will
arise when China is proposed for admission to the WTO. Previous congressional
statutes (specifically the Jackson-Vanik amendment) give Congress the
opportunity to vote on China's accession to the WTO although congressional
approval is not required for other countries. So if members of Congress choose,
China's WTO membership could be conditioned upon the WTO's adoption of labor
rights protections. Second, future negotiations about specific products—with
textiles being the most likely candidate—might tie trade rules to labor
standards. The Third World's eagerness to accelerate the elimination of existing
import quotas can be connected to their acceptance of labor rights as part of
the WTO trading system. The whole linkage issue won much greater prominence
during the recent congressional rejection of renewal of fast-track negotiating
privileges for the President. Now might be the time to press for the linkage of
labor rights to trade rules in the WTO. The introduction of labor rights into
the WTO framework is central to any strategy of softening global pressures on
labor. It would allow the United States, for example, to file a claim against
Indonesia for prohibiting trade union organization; Germany could object to
Pakistan's use of children in the production of carpets; and the use of bonded
and prison labor could be challenged wherever it occurs. This would be a major
advance for labor in industrial countries, for human rights, and for the welfare
of the most marginalized people in Third World countries.

Bibliography
The WTO and the Battle Over Labor Standards" by Martin Khor, Third World
Network published by Third World Network Features January 13, 1997 http://www.wto.org/
Handbook of WTO/GATT Dispute Settlement (Pierre Pescatore, William J. Davey
& Andreas Lowenfeld eds., Transnational Publishers, 1991- )(ISBN:
1-57105-032-9). Includes full text of WTO/GATT panel reports. Kept up-to-date by
looseleaf supplements. The International Trade Law Reports (London : Cameron
May, 1996- )(ISSN: 1364-9205). Looseleaf including decisions of the World Trade
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0379213583). Looseleaf service includes Dispute Resolution binders containing
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