The Social Clause

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THE SOCIAL CLAUSE: ISSUES AND CHALLENGES

5. How Would a Social Clause Work?

5.1 Some Social Clause Type Mechanisms

Proponents of the social clause have not always been clear as to how the link betweencore labour standards and trade can be made, either in the WTO or the ILO. As noted

by Leary, most proposals are limited to a request for a working group to study theissue. This section attempts to take matters a little further by examining a number of options for establishing a social clause. The first part begins by reviewing some of theunilateral, regional and private initiatives to establish a form of social clause. Thesecond and third parts describe some of the functions of the WTO and highlight theareas where a social clause link might be made.

5.1.1. Labour Standards in US Trade and Investment Legislation

The US has a long history of including labour standard provisions in its trade-relatedlegislation. The earliest of such provisions were directed against imports made by

prisoners ( see Table 2. 3). In the 1930s, a number of initiatives were taken to establishmeasures which permitted the entry of imports only if produced according to USdomestic fair labour standards, which include the right to organise and bargaincollectively. The main piece of legislation to emerge from this period was the 1930Smoot-Hawley Tariff Act which prohibited the import of products made by prison or forced labour. .

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

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

standards

Year Act Labour standard provisions

1890 McKinley Tariff Act Bans importation of goods, wares, articles and merchandisemanufactured by convict labour.

1930 Smoot-Hawley Tariff Act (Section 307)

Bans import of goods produced, mined or manufactured byconvict, forced or indentured labour. President authorised toadjust tariffs to equalise differences in cost of production.



(renewal) worker rights. On-going monitoring of progress andcomplaints procedure. Three countries were removed fromeligibility in early 1987.1986 Anti-Apartheid Act made itincumbent on US firms employing more than 25 persons in

South Africa to follow a code of conduct that includes fair labour standards.

1987 US participation inthe MultilateralInvestment andGuarantee Agency of the World Bank

Made US participation conditional on countries affordinginternationally recognised workers rights to their workers.

1988 Omnibus Trade andCompetitiveness Act

States that the principal negotiating objectives of the USregarding workers’ rights are: (I) to promote respect for

workers rights to GATT articles; (ii) to secure a review of the relationship of workers rights to GATT articles,objectives and related instruments with a view to ensuringthat the benefits of the trading system are available to allworkers; and (iii) to adopt as a principle of the GATT, thatthe denial of worker rights should not be a means for acountry or its industries to gain competitive advantage ininternational trade. Impact of this law is as yet difficult toassess.

1989 International

Development andFinance Act

Requires the Export-Import Bank to evaluate overseas

labour practices before granting assistance.

An interesting feature of the GSP is that organizations and individuals may requestthe Administration at public hearings to review the status of labour rights among

beneficiary countries. The Committee examining these petitions has recourse toinformation concerning workers’ rights in the annual Country Reports on HumanRight Practices prepared by the U.S. State Department, findings of the ILO, reportsfrom US Embassies and Consulates, and US International Trade Commission reportson the economic effects of GSP decisions. Potentially, the GSP is a powerful

instrument for enforcing international labour standards. However, it is tainted byallegations of bias in its enforcement. In the January 1987 GSP review, for instance,the AFL-CIO called for the denial of GSP benefits to ten countries. The Presidentconsidered that seven (Guatemala, Haiti, the Republic of Korea, the Philippines,Surinam, Zaire and "Taiwan, China") were taking steps to improve workers’ rights

but that three were not. Of these three, Romania and Nicaragua subsequently lost their GSP beneficiary status and it was suspended for Paraguay. This led the AFL-CIO toaccuse the Reagan Administration of applying a double standard, in the sense that itwas cracking down on left-wing governments but was taking a more lenient attitudeto right-wing dictators.

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



The question of what constitutes adequate "steps" is then, at present a very subjective one...Critics argue that all petitions be reviewed but that the GSPSubcommittee has exercised too much latitude in deciding whether to acceptor reject petitions. Critics further charge that the Administration’s decisionsare politically motivated, often relating directly to the state of the United

States’ relations with the particular country.

In 1985, the Act establishing the US Overseas Private Investment Corporation(OPIC), a government agency which offers insurance to US companies operating indeveloping countries, was amended to include a clause requiring participatingcountries to take steps to adopt and implement laws which promote a set of internationally recognised labour standards. Perhaps the most significant developmenthas been the use of the provisions under Section 301 of the 1988 Omnibus Trade andCompetitiveness Act (amending Section 301 of the Trade Act of 1974) to take actionagainst nations that do not accord internationally recognised worker rights. The 1988Trade Act also expanded the requirements of the Departments of State and Labor to

submit periodic reports to Congress on human rights abuses and foreign adherence tointernationally recognised worker rights.

A flexibility provision is also included, allowing the United States TradeRepresentative (USTR) to find a pattern of violations to be not unreasonable if either "the foreign country has taken or is taking, actions to demonstrate a significant andtangible overall advancement in providing throughout the foreign country (includingany designated zone within the foreign country) the rights and other standardsdescribed in the law" or that "such acts, policies and practices are not inconsistentwith the level of economic development of the foreign country". So far, this provisionhas been threatened but not used. The USTR has not received any formal petitionasking it to take action against labour-rights violations nor have any specific cases

been included in the USTR annual National Trade Estimate Report on Foreign TradeBarriers.

In addition, there have been repeated but so far unsuccessful efforts in the US toimpose a ban on the importation of products made by child labour. In the 102nd(1991-92) and 103rd (1993-94) Congresses, US legislators introduced the "ChildLabor Deterrence Act", commonly known as the Harkin Bill. This proposedlegislation requires the Secretary of Labor to compile and maintain a list of industriesin foreign countries that use child labour in the production of exports to the US. The

Secretary of Treasury is then required to prohibit any further importation from theidentified industry. The President is also urged in the proposed Bill to seek anagreement with other governments to secure an international ban on trade in the

products of child labour. Senator Harkin and other sponsors continue to press for approval of the Bill.

Apart from creating labour standard provisions in domestic legislation, the US hasalso been very active in calling for a multilateral agreement on the social clause. For instance section 131 of the Uruguay Round Agreements Act. calls for theestablishment of a WTO working party "to examine the relationship of internationallyrecognized workers rights.. to the articles, objectives and related instruments of the

GATT 1947 and of the WTO respectively", and that the working group develop inter alia "methods to coordinate the work program of the working party with the



International Labour Organization". From this brief review, it is evident that corelabour standards have become explicitly linked with US trade and investment policyin a number of different legislative measures in the past decade.

However, US action on the social clause has received sharp criticism from various

quarters. In particular, it has been noted that the US Administration has been highlyinconsistent in its interpretation of workers’ rights violations and has not takensufficient account of ILO interpretation of international labour standards. Alston, for instance, points out that:

The policy assumptions embodied in current US "international workers rights" legislation.....as well as the manner in which that legislation is beingimplemented are highly questionable from an international law perspective.Specifically, there are several matters which warrant careful examination by

proponents of an international rule of law in relation to both trade and humanrights matters. They include: the use of rhetoric but not the substance of

"international standards"; the application to other countries of standards thathave not been accepted by those countries and which are not generallyconsidered to be part of customary international law.

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

5.1.2 The NAFTA Side Agreement on Labour

The North American Free Trade Agreement (NAFTA) is the latest stage in the process of economic integration in North America that started to accelerate in themid-1980s. Labour issues were critical to the successful completion of the NAFTA

negotiations. In the US in particular, it was argued that the agreement would lead to job losses and to downward pressure on wages and working conditions. As NAFTAwas already ratified by the Presidents of the three countries concerned, its terms couldnot be changed and it therefore became necessary to negotiate a ‘side’ or ‘parallel’agreement. The North American Agreement on Labor Cooperation (NAALC), alsocommonly known as the NAFTA Side Agreement on Labor, was thus established andcame into force at the same time as NAFTA on 1 January 1994.

The NAALC promotes mutually-recognised labour principles including core labour standards and other standards such as the occupational health and safety of workersand the protection of migrant workers. An interesting feature of the NAALC is that it

does not seek to harmonise labour standards and policies among the contracting parties but emphasises the transparent and effective enforcement of existing labour



laws in each country through cooperation and the exchange of information. It allowscomplaints or petitions to be submitted by any person with a recognised interest under the law of any party to the NAALC. However, the dispute settlement procedure can

be quite lengthy: over two years may elapse before measures such as the imposition of action plans or trade sanctions may be enforced ( see Box 3). Areas on which

complaints can be made are limited to only three: child labour, minimum wage, andsecurity and hygiene. Complaints cannot be brought on cases relating to freedom of association, right to bargain collectively and forced labour.

Box 3: The North American Agreement on Labor Cooperation (NAALC)

This agreement seeks to promote greater understanding among the Parties in a broad range of labour areas; to establish the obligation of each Party to ensure the enforcement of itsdomestic labour laws; to provide mechanisms to permit problem solving consultations; and toenable the Parties to initiate evaluations of patterns of practice by independent committees of experts.

A Trinational Labor Commission facilitates the achievement of the objectives of theAgreement. This Commission consists of a Ministerial Council; an International Co-ordinating Secretariat; and three National Administrative Offices (NAOs) which serve as a

point of contact for other Parties. With regard to questions related to the enforcement of labour laws, the Agreement provides for the exchange of information, discussion of issuesand resolution of problems through various levels of consultation. Mechanisms establishedfor this include:

• NAO consultations to exchange data and information, clarify or explain Parties’

labour laws and labour market conditions;• ministerial consultations regarding issues related to the obligations of the Agreement;

and

• evaluation Committees of Experts (ECEs) to provide comparative analyses of howmatters referred to them are treated in all three countries, provided comparablelegislation exists. ECE reports may include problem solving recommendations to theMinisterial Council.

Resolution of disputes:

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

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



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

In the event that a Party complained against fails to pay the fine or continues in itsfailure to enforce its labour law with respect to health and safety, child labour andminimum wage, the Party is liable to face enforcement actions. In the case of Canada,the Commission, on the request of a complaining Party, collects the fine and enforcesan action plan in summary proceedings before a Canadian court of competent

jurisdiction. In the case of Mexico and the US, the complaining Party or Parties maysuspend NAFTA benefits based on the amount of the fine.

Most commentators studying the NAALC have found it wanting as a means of protecting labour in the three countries. One of the major failings of the NAALC isthat its focus is on the enforcement of each country’s own labour laws and not on the

application and enforcement of internationally recognised labour standards. Indeed,reference to internationally recognised labour standards is not made anywhere in the

NAALC. In addition, persistent failure to enforce freedom of association, the mostfundamental of all labour standards, may not be addressed through the disputesettlement procedure. Complaints concerning other issues are reviewed only by the

NAO and if judged appropriate may be forwarded for ministerial consultation.

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

After a hearing in Washington, the NAO issued a report finding that Mexico had notfailed to enforce its labour laws on the grounds that the employees had the option of continuing their complaints about the companies under Mexican law or acceptseverance pay. In January 1995, the Electrical Workers Union withdrew from further hearings on its charges against General Electric, calling the NAO report "blatantly

inadequate" and charging that the NAO reviewed the testimony in "an extremelycursory fashion and generally ignored the evidence presented". It is also oftenhighlighted that the procedures of the NAALC are highly complex and time-consuming. It is however perhaps too early to draw conclusions on the effectivenessof the NAALC; despite its failings, it remains to be seen whether the NAALC couldlead to effective improvements in the enforcement of relevant national labour standards in the member countries.

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

Other examples of labour standards in trade-related legislation outside of the US

include the British Foreign Prison Made Goods Act of 1897, the ArgentinePresidential Decree No. 1933 of 1931 and the Australian Customs Act (Part IV,



Division 1, No. 52) of 1901. In particular, the international campaign for stamping outthe slave trade in the late nineteenth century was an important precedent for regulating international trade on moral grounds. The General Act for the Repressionof African Slave Trade, Article LXII (1890), which emerged from the BrusselsConference of 1889-90 was the first legislative instrument of this kind. Also of note

were measures taken during the 1920s by various countries, including the UK,Czechoslovakia and Cuba, to authorise additional duties on imports produced by low-

paid labour under inferior conditions of employment ( see Table 2.4).

More recently in Europe, there have been attempts to include a type of ‘social clause’in preferential trade arrangements with the African, Caribbean and Pacific (ACP)group of developing countries. In the 1984 Lom� Convention there was a very

general reference to "fundamental human rights" and to "the equal rights of men andwomen" but no follow-up or control mechanism was established. However, in themid-term review of Lom� IV (a ten-year accord in force since 1990), issues of human rights, democratic values, the rule of law and good governance were raised as

items for negotiation. These negotiations are still underway and remain a source of much contention.

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

Year Legislation

1890 General Act for the Repression of African Slave Trade, Article LXII (theBrussels Conference of 1889-90).

1897 British Foreign Prison Made Goods Act.

1901 Australian Custom Act bans import of goods made by prison labour.

1910s US, UK, New Zealand and South Africa prohibit import of goods made by prison labour.

1919 Covenant of the League of Nations contains provisions pledging member statesto secure humane and fair conditions of labour both in their own territory and"in all countries to which their commercial and industrial relations extend".

1920s UK, Czechoslovakia, Cuba and other countries impose additional duties onimports produced under "inferior conditions of employment".

1931 Argentine Presidential Decree No. 1933 bans import of products of forcedlabour.

1984 Lom� Convention for the African, Caribbean and Pacific (ACP) countries

refers generally to "fundamental human rights" and the "equal rights of menand women". Repeated in Lom� IV (1989). Limited impact because not

enforced through the price stabilisation scheme (Stabex) for ensuring aminimum price for raw materials.



1994 Council Regulation No. 3281 of the European Commission provides for possible temporary withdrawal by the European Council of tariff preferencesfor certain industrial products originating in developing countries which are inviolation of ILO Conventions 29 and 105 on forced labour. EU GSP (revised)

"social incentive clause" (based on ILO Conventions 87, 98 & 138) to takeeffect in 1998.

In 1994, a direct link between trade and labour standards was established in theEuropean Union’s (EU) GSP system. The EU’s approach consists of both incentivesand disincentives. Countries which implement core labour standards are awardedadditional GSP benefits, while countries denying core labour standards are suspendedfrom GSP benefits. Starting from 1 January 1998, countries can apply for "specialincentive arrangements in the form of additional preferences", provided that they haveadopted and apply the substance of ILO standards concerning freedom of associationand collective bargaining (ILO Conventions 87 and 98) and the provisions on childlabour as laid down in ILO Convention No.138. The intensity and modalities of theseincentive clauses are to be defined in the course of 1997 by the Council, on the basisof a proposal from the Commission in the light of a review of the matters and on the

basis of internationally-accepted criteria.

As from 1 January 1995, trade sanctions in the form of temporary suspension of the preference scheme can be taken in circumstances such as the practice of forced labour or export of goods made by prison labour. Investigation by the Commission can beinitiated by member states or any natural or legal persons or associations. Sanctions, if any, cannot be implemented before a year of investigation and a decision by the

(qualified) majority of the Council. Following complaints by the European TradeUnion Confederation (ETUC) and the International Confederation of Free TradeUnions (ICFTU), in January 1996 the European Commission initiated its firstinvestigation of forced labour practices, in Myanmar.

In December 1996, the European Commission called for the suspension of Myanmar’s trade privileges on the grounds that Rangoon’s military regime sanctionsthe use of forced labour. This action set a precedent in the Commission’s bilateraltrade relations by linking trade and core labour standards for the first time. TheCommission proposed that the EU withdrew trade privileges enjoyed by Myanmar and EU finance ministers subsequently endorsed this action. The proposal to suspend

Myanmar from the GSP scheme followed a year-long investigation which drewevidence from written submissions and testimonies from eye witnesses, lawyers andtrade unions. The evidence highlighted the fact that the practice of forced labour was

particularly widespread in the military sector, where people have been forced to act as porters for troops and on large infrastructure projects. It is believed that around800,000 people in Myanmar are forced to work without pay or against their will,contributing around one tenth of the country’s economic output . Pakistan was alsorecently identified for possible trade reprisals by the European Union over childslavery in its carpet industry. The European Parliament has warned the PakistaniGovernment that reprisals could be effected through a resolution. that was adoptedfollowing complaints to the European Commission by the ETUC and ICFTU.



The positive approach introduced by the EU is interesting, as it implicitly recognisesthe argument that improved export performance fosters economic growth and that thisin turn may lead to higher levels of labour standards. A problem with this approach isthat contracting parties to the Uruguay Round, by agreeing to substantially reducetariffs and other barriers to trade, have reduced the real value of GSP preferences for

developing countries. Thus the potential Impact of the EU approach has been diluted.In addition to the positive approach, the US GSP refers to a larger set of labour standards than those used by the EU. In particular, the US GSP includes provisionswhich are not usually defined as core labour standards, such as minimum wages,hours of work, and occupational safety and health.

5.1.4 International Commodity Agreements

References are made to core labour standards in a number of international commodityagreements. These include the International Sugar Agreements (successive), the TinAgreement of 1981, the Cocoa Agreement of 1986 and the International Rubber

Agreement of 1987. Table 2.5 provides a description of the labour clauses to be foundin these agreements.

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

Table 2.5: Labour Provisions in International Commodity Agreements

Commodity Agreement Text of labour clause

Article 45 of 1981 TinAgreement

Members declare that in order to avoid the depression of living standards and the introduction of unfair competitiveconditions in world trade, they will seek to ensure fair labour standards in the tin industry.

Article 64 of 1986 CocoaAgreement

Members declare that in order to raise the living standardsand provide full employment, they will endeavour tomaintain fair labour standards and working conditions in thevarious branches of cocoa production in the countriesconcerned , consistent with their stage of development, as

regards both agricultural and industrial workers employedtherein.

Article 28 of 1987 Sugar Agreement

Members shall ensure that fair labour standards aremaintained in their respective sugar industries, and as far as

possible shall endeavour to improve the standard of livingof agricultural and industrial workers in the various

branches of sugar production and of growers of sugar caneand sugar beet.

Article 53 of 1987 NaturalRubber Agreement

Members declare that they will endeavour to maintain thelabour standards designed to improve the living standard of



workers in their respective natural rubber sectors.

5.1.5 Voluntary Codes of Conduct and Social Labelling

As a result of public awareness and pressure from consumer organizations, tradeunions and human rights groups, a number of companies have adopted Codes of Conduct on the treatment of workers in manufacturing enterprise, not only in theenterprises that the companies own, but also in the plants of their suppliers and sub-contractors. The genesis of ethical standards for firms can in most cases be traced

back to the lengthy campaign to eliminate apartheid in South Africa. In Europe, these pressures eventually led to the establishment of an EU Code of Conduct. In the UScompanies were urged to adhere to the voluntary Sullivan principles.

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

There has recently been a renewed interest in private sector codes of conduct. In 1995,

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

Some of the major companies which have adopted their own codes of conduct includeGAP, Levi's, Reeboks, Walmart and Sears. Levi’s has terms of engagement with its600 contract manufacturers around the world in which it states that it will not do

business with contractors who use child or prison labour. Sears has also pledged thatit will not import products made with prison labour. Walmart’s code calls for amaximum 60-hour work week and prohibits its suppliers from using workers under the age of 15. Other new initiatives include an agreement by international sportsgoods companies to establish a code of conduct aimed at eradicating the exploitationof child labour by manufacturers. Executives from Nike and Reebok of the US,Adidas of Germany, Pentland of the UK and other members of the World Federationof Sporting Goods Industry met recently in London, amidst growing criticism from

child welfare pressure groups and trade unions, to discuss the establishment of such acode. FIFA, soccer’s world governing body, also adopted a code of conduct for



manufacturers, after it emerged that souvenir balls for the Euro ‘96 championship had been produced by child workers in Pakistan. Pressure from trade union organizations,including the ICFTU, was instrumental in getting FIFA to adopt this code.

The FIFA code establishes labour standards for suppliers of FIFA-approved balls,

covering the minimum working age, hours and conditions, and union representation.Building on this experience, the trade union movement in Australia is currentlycampaigning for a code of conduct to ensure that all equipment utilised at theOlympic Games to be held in Sydney in the year 2000 are not produced by childlabour. These initiatives are not directed exclusively at workers in developingcountries. C&A, a Dutch retail group, recently urged the UK government to form anational forum of retailers, manufacturers, municipal authorities and governmentrepresentatives to improve working conditions in the clothing industry. C&A’s callfor a national forum came after the Financial Times published the results of a two-month investigation into the pay and conditions of staff at clothing manufacturers

based in Birmingham. The Financial Times had found that several large retailers were

using UK-based clothing suppliers paying their staff as little as �1.50 ($2.35) anhour to work long shifts in often squalid conditions.

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

In addition to codes of conduct, there has since the 1970s been a growing concernwith "ethical consumerism". Consumers are increasingly basing their consumptiondecisions not only on price considerations but also on moral principles, relating to the

conditions of production. Social labelling programmes providing consumers withinformation on goods that meet certain ethical standards have thus grown in number and importance. Examples of social labelling programmes include the Fairtrade Mark (certifying that workers get a fair share of the returns from sales of the product); theRugmark (certifying that handmade carpets were not produced with child labour); andthe Union Label (certifying that the product in question was produced by members of a trade union).

In addition to social labelling, a number of organizations have also established their own range of ethically produced products. Max Havelaar Coffee in the Netherlandsand Caf � Direct in the UK guarantee small producers a decent price through direct

purchase. Comparable initiatives also exist for handicrafts, sugar, rice, chocolate,honey and tea. In the Netherlands, a group of NGOs has drafted a "Charter for Fair



Trade". This is a code of conduct, focused mainly on the clothing trade, whichspecifies minimum production conditions based mainly on ILO standards. Firms whosign the Code commit themselves to an independent verification of compliance withthe terms of the code.

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

A recent report by the NGO Human Rights Watch claims that public action andserious insistence on human rights can work. It notes that growing public pressureabout conditions of work faced by textile workers have forced large importingcompanies to change their sources of supply or make their sources follow decentlabour practices. The report shows that major manufacturers from GAP to Nike have

been forced to own up to myriad abuses of workers in a number of developingcountries. Ultimately, however, corporate codes of conduct, being voluntarymeasures, cannot replace a well-organised multilateral social clause. Mounting public

pressure for socially responsible business behaviour suggests that there is widespreadsupport for some form of government action on this matter.

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

5.2 Labour Standards and Trade Disciplines

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

1. The Members recognize...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 recognize that unfair labour conditions, particularly in the 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 itsterritory.

2. Members which are also members of the International Labour Organizationshall cooperate with that organization in giving effect to this undertaking.

3. In all matters relating to labour standards that may be referred to theOrganization....[under dispute settlement provisions of the Charter] it shallconsult and co-operate with the International Labour Organization.

The Havana Charter was however not ratified by the US and as other countriesdecided not to go ahead without the US, the ITO was not established. The GeneralAgreement on Trade and Tariffs (GATT) survived as a separate agreement and has

been provisionally applied since 1948. The GATT was limited to traditionalcommercial aspects of trade in goods and since it was assumed that the ITO wouldsupersede the GATT, the ITO chapter on employment and labour (among many

others) was not included in the GATT. Apart from Article XX(e) which permitsgovernments to ban trade in goods produced by prison labour, no further reference ismade to labour standards in the GATT. The demand for the inclusion of labour standard provisions in the GATT has nevertheless been raised repeatedly duringintervening years, and surfaced especially during the concluding negotiations of theUruguay Round.

5.2.1 The WTO: a New Multilateral Trading System

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

Out of a potential membership of 152 countries and territories, 76 governments became members of the WTO on its first day, with some 50 other governments at

various stages of completing their domestic ratification procedures, and the remainder engaged in negotiating their terms of entry. The WTO Agreement contains 29individual legal texts covering inter alia agriculture, textiles and clothing, intellectual

property, government procurement, rules of origin and services. The basic objectiveof the WTO is to remove barriers to trade in goods and services. Two simple andfundamental principles guide the work of the WTO:

Most Favoured Nation (MFN) Clause: According to Article 1 of GATT1994, members are bound to grant to the products of other members treatmentno less favourable than that accorded to the products of any other country.Thus, no country is to give special trading advantages to another or to

discriminate against it - all are on an equal basis and all share the benefits of any moves towards lower trade barriers.



National Treatment: Article II of GATT 1994 requires that once goods haveentered a market, they must be treated no less favourably than the equivalentdomestically-produced goods.

The structure of the WTO is dominated by its highest authority, the Ministerial

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

Decision making in the WTO is by consensus and not by voting. Where consensus isnot possible, the WTO Agreement allows for voting. In such circumstances, decisions

are taken by a majority of votes cast and on the basis of one country, one vote. Four specific voting situations can occur. First, a majority of three-quarters of the WTOmembers can vote to adopt an interpretation of any of the multilateral tradeagreements. Second, and by the same majority, the Ministerial Conference maydecide to waive an obligation imposed on a particular member by a multilateralagreement. Third, decisions to amend positions of the multilateral agreements can beadopted through approval either by all members or by a two-thirds majoritydepending on the nature of the provision concerned. However, such amendments canonly take effect for those WTO members who accept them. Finally, a decision toadmit a new member is taken by a two-thirds majority in the Ministerial Conference.

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

The early trade rounds were concerned with reducing tariff barriers. Relative successin these early rounds has led to a shift in focus in the later rounds towards non-tariff

barriers, usually in the form of domestic legislation on production standards and product specifications. The Uruguay Round also saw the extension of the multilateraltrading system to cover new "trade-related" issues such as environment andintellectual property. The multilateral trade regime is thus continually changing inresponse to developments in the world economy. In addition, recent experience hasshown that it has not been possible to keep issues of general economic policy anddevelopment - and even justice and ethical issues - from finding a place within tradenegotiations.



For instance, preferential treatment for developing countries is permitted by GATTand Article XX provides for exceptions from provisions of the Agreement for, inter

alia, protection of human, animal and plant life, and health and prison labour.Together with the fact that agreements during the Uruguay Round recognised therelationship of intellectual property and the environment to trade, this makes it

increasingly difficult to argue that core labour standards have no place in tradeagreements. Moreover, globalization makes it increasingly meaningless to maintainstrict boundaries delineating trade- and non trade-related issues. The question is notwhether core labour standards have an intrinsic link with trade, but rather how toestablish adequate frameworks to deal with the social, economic and political factorswhich both impact upon and are affected by trade flows. The following sectionsreview some of the key functions of the WTO and consider how a social clause might

be introduced into existing trade disciplines.

5.2.2 The Trade Policy Review Mechanism

Monitoring national trade policies is an important WTO activity which is conducted by the Trade Policy Review Mechanism (TPRM). It has been suggested that corelabour standards be reviewed in the context of the TPRM. Before discussing thefeasibility of this proposal it is useful to briefly explain how the TPRM functions. The

purpose of the reviews is to increase transparency and understanding of trade policies,to improve the quality of public and intergovernmental debate on the issues, and toenable a multilateral assessment of the effects of policies on the world trading system.

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

prepared by the government under review and a detailed report preparedindependently by the WTO Secretariat.

It has been proposed that the ILO might play an active part in the review process bydrawing attention to the labour policies of the country under review, in the hope that

publicity and peer pressure might eventually improve the situation of core labour standards. The ICFTU has recently undertaken and publicly released documents

reviewing labour standards for those countries undergoing a WTO trade policyreview. The difficulty is that the focus of the TPRM is trade and trade policiesArticles A(i) and (ii) of the TPRM Annex states that the subject matter of the reviewis to be a background for better understanding and assessment of a country’s trade

policies and practices, and cannot be used as a basis either for dispute settlement procedures or for imposing new policy commitments. Its remit would have to bewidened if it is also to adequately review labour policies.

5.2.3 The Dispute Settlement Procedures

One of the major achievements of the Uruguay Round was the strengthening of the

WTO dispute settlement mechanism. A proper mechanism encourages WTOmembers not to take unilateral action but to seek a settlement and to abide by the



WTO’s rulings and findings. The WTO General Council convenes as the DisputeSettlement Body (DSB) to deal with disputes arising from any agreement contained inthe Final Act of the Uruguay Round. The DSB has the sole authority to establish

panels, adopt panel and appellate reports, maintain surveillance of implementation of rulings and recommendations, and authorise retaliatory measures in cases of non-

implementation of recommendations.

Strict time limits for each phase of the dispute settlement mechanism ensure that longdelays are avoided. The dispute settlement mechanism encourages the concerned

parties to find a mutually-acceptable solution to a problem before seeking the rulingof the DSB. If after initial consultations the dispute is still unresolved, and if both

parties should agree, the case at this stage can be brought to the WTO Director-General, acting in an ex officio capacity, who will offer good offices, conciliation or mediation to settle the dispute. If consultations fail to arrive at a solution after 60days, the complainant can ask the DSB to establish a panel to examine the case.

The panel is mandated to examine the complaint in the light of the agreement and tomake findings that will assist the DSB in making recommendations or in givingrulings provided for in that agreement. The WTO Secretariat will suggest the namesof three potential panellists to the parties to the dispute, drawing as necessary on a listof qualified persons. If there is real difficulty in the choice, the Director-General canappoint the panellists. The panellists serve in their individual capacities and are notsubject to government instructions. The panel’s final report is normally ready withinsix months. In cases of urgency, the time-frame is shortened to three months. Panelreports are usually adopted by the DSB within 60 days of issuance, unless one partynotifies its decision to appeal or a consensus emerges against the adoption of thereport.

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

of implementing the recommendations.

If the party concerned fails to implement the recommendations, it is obliged to enter into negotiations with the complainant in order to determine a mutually acceptablelevel of compensation - for instance tariff reductions in areas of particular interest tothe complainant. If the concerned party fails to implement the recommendations andto offer compensation, the complainant may request authorisation from the DSB tosuspend concessions or obligations. In principle, concessions should be suspended inthe same sector as that at issue in the panel case. If this is not effective or practicable,and if the circumstances are serious enough, the suspension of concessions may bemade under another agreement or a different sector. The DSB will keep under

surveillance the implementation of adopted recommendations or rulings, and anyoutstanding case will remain on its agenda until the issue is resolved.



The DSM of the WTO is a powerful enforcement tool. Individual countries havetransferred considerable power to the WTO to decide upon their trade disputes. Theyare bound by, and cannot legally delay nor block, the final adoption of paneldecisions. Countries usually abide by panel decisions as the overall benefits arisingfrom WTO membership are generally felt to outweigh the costs which may arise from

compliance with its trade disciplines. It is obvious that linking the core labour standards to an agreement which could potentially be enforced through the DSMwould add teeth to the enforcement of these standards. Two questions must first beanswered: where might it be possible to introduce a social clause dimension to theexisting WTO system, and how could the ILO and the WTO work together inimplementing a social clause?

5.2.4 Articles of GATT 1994 Pertinent to the Social Clause

One option would be to extend the general exceptions provided for any ContractingParty by the general exceptions clauses of Article XX of GATT 1994. As mentioned

above, this provision allows any Contracting Party to adopt or enforce measuresrestricting trade justified by public order or economic considerations, and in particular measures necessary to protect human or animal life or health, as well as measuresrelating to products of prison labour. Any Contracting Party seeking to invoke these

provisions must demonstrate that the "measures are not applied in a manner whichwould constitute a means of arbitrary or unjustifiable discrimination betweencountries where the same conditions prevail; or a disguised restriction on internationaltrade".

A major problem with these exception clauses is that remedies are determinedindependently by the Contracting Parties. There are no safeguards as far as equalityand proportionality of the treatment are concerned. Contracting Parties, arenevertheless required under Article XX (h) to adopt restrictive measures "in

pursuance of obligations under any intergovernmental commodity agreements whichconforms to the criteria submitted to the Contracting Parties and not disapproved bythem or which is itself so submitted and not disapproved". The problem here is thatthe "fair labour standards" provisions in international commodity agreements areweak and do not provide any clear guidelines as to the restrictive measures which can

be taken in the event of violation.

The second option is to consider wilful non-compliance with core labour standards as

a form of social dumping which unfairly affects firms in countries where there isgreater compliance with core labour standards. In this respect, it is proposed that anti-dumping duties are applied in accordance with Article VI of GATT 1994. A productis considered liable to anti-dumping duties if subject to normal market conditions, the

product’s export price is less than its comparable domestic price. Determining when a product is dumped can be very complex as the investigating authority must establishactual price discrimination. In addition, anti-dumping duties can only be levied inrespect of a dumped product if that product is causing or threatening to cause materialinjury to the domestic producers of the like product in the importing country. Shouldthese criteria be fulfilled, the duty to be applied must not exceed the margin of dumping.



Applying the anti-dumping concept to core labour standards is difficult as it is still anopen question as to whether there is a causal relationship between core labour standards and price. Moreover, even if it can be shown that there is a relationship

between these two factors, the question remains as to how to define ‘normal’ and‘abnormal’ levels of observance. Another way of dealing with the problem of anti-

dumping is to invoke Article XVI of GATT 1994 and the WTO Agreement onSubsidies and Countervailing Measures. A subsidy is defined as either a financialcontribution or any income or price support by the government. For this article toapply to core labour standards, it must be shown that wilful non-compliance withthese standards represents a form of subsidy. This is difficult as it is unclear how non-compliance with core labour standards, even when it is wilful, could be viewed aseither a financial contribution or income or price support. Thus while governmentsmay have sought to assist exports by violating core labour standards, most notably inthe EPZs, it is difficult to establish these as Article XVI cases for action.

The third option is to invoke the nullification and impairment provisions under Article

XXIII of GATT 1994 and Article 26 of the Understanding on Rules and ProceduresGoverning the Settlement of Disputes. Under these Articles, a Contracting Party may

bring an action if it believes that any benefit accruing to it under the Agreement is being nullified or impaired by failure of another Contracting Party or Parties to meetobligations under the Agreement. The recourse that the injured party can take under Article XXIII is to make written representations or proposals to the Contracting Partyor Parties causing the injury. If the matter is still not resolved, it may be referred tothe Contracting Parties, who will either make appropriate recommendations to thoseinvolved or give its ruling on the matter. Paragraph 2 of Article XXIII allows theContracting Parties to consult with the Economic and Social Council of the UN andwith any appropriate intergovernmental organization.

The fourth option which has been proposed is to use the opt-out provisions of ArticleXXXV of GATT 1994. Under this opt-out clause, a Contracting Party is allowed uponits own accession to WTO or upon the accession of another party to declare that it willnot apply the Articles of GATT 1994 in its trade relations with a specific ContractingParty. This provision first emerged in response to India’s concerns over the accessionof South Africa, the issue of concern being that of apartheid. Although apartheid hasnow been abolished, this provision remains open to Contracting Parties to use againstnew members for whatever reason. Such an approach is however rather inflexible andthis provision has seldom been used in the past.

The fifth option is to make ratification and compliance with the main ILOconventions relevant to core labour standards obligations attaching to membership inthe WTO. This option is however unlikely to succeed given that the ILO has notmanaged to impose such membership conditions on its Member States, apart from theright to freedom of association.

5.2.5 Which Option Is the Best for Making the Link?

Which is the best option for establishing a link between core labour standards andtrade disciplines? There is at present no consensus on the matter. In 1995 a

background paper submitted to the ILO Working Party on the Social Dimensions of the Liberalization of International Trade tentatively suggested that if a link were to be



made between the procedures of the WTO and labour standards it might be pursuedthrough Article XXIII (nullification and impairment provisions). By makingobservance of core labour standards as defined by the relevant ILO Conventions a

provision within the Trade Agreement, the establishment of a violation under theseConventions would make it possible to trigger the remedies offered by Article XXIII.

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

The possibilities for linking core labour standards and trade through the generalexception clauses of Article XX, should also be given further consideration. Unlikethe anti-dumping and nullification and impairment provisions, enforcement under

Article XX does not require a Contracting Party to demonstrate that it has sufferedsome form of economic injury. On the other hand, should a social clause link be madeunder the anti-dumping provision, the issue would not be, for example, forced labour

per se but whether the use of forced labour somehow confers an unfair competitiveadvantage. In the above example, if it can be shown that the use of forced labour didnot confer an unfair competitive advantage, then no action could be taken under theanti-dumping provision no matter how morally reprehensible the use of forced labour might be. Similarly, the nullification and impairment provisions of Article XXIIIrequire the injured party to demonstrate how benefits accruing to it under theAgreement have been nullified by the actions of another party. Should human rights

be dependent on economic outcomes? Surely the answer to this question must be no.However, given that the WTO is a trade-based organization, it can only act onviolations of core labour standards if it can be shown that there is a significantrelationship between trade performance and the degree of enforcement of core labour standards.

This raises a significant challenge for proponents of the social clause. On the onehand, it has been observed that enforcement of core labour standards does notnecessarily depend upon the level of economic development in a given country. It hasalso been observed that despite perceptions to the contrary, repressing core labour standards neither appears to confer a special competitive edge nor does it necessarily

improve trade performance. Thus proponents of the social clause have rightly arguedthat fears of adverse economic consequences due to greater observance of core labour standards are groundless. However, this finding is also used by opponents of thesocial clause to argue that if there is no economic relationship between core labour standards and trade, then there are no grounds for a social clause to be establishedwithin the WTO.

This conclusion is wrong. Article XX of GATT 1994 already permits a ContractingParty to take action by prohibiting the import of goods on ethical and social grounds.Whether there is a link to trade performance or not is immaterial. Put simply, there aresome government policies and practices that are beyond the pale. In this respect, the

Leutwiler Group report to the Director-General of GATT found that "there is nodisagreement that countries do not have to accept the products of slave or prison



labour". For these reasons, it is submitted that extension of the general exceptionclause to include goods produced under conditions which violate core labour standards, as defined by relevant ILO Conventions, is the best option available for introducing a social clause into the existing WTO system. It is both technicallyflexible and maintains the principle that upholding human rights should not depend on

economic considerations. Nevertheless, the problem with Article XX is that countriesare allowed to unilaterally impose remedies in the form of trade barriers on the basisof their own assessment. This makes the provisions of Article XX open to abuse for

protectionist reasons. One way around this is to add a clause requiring independentassessment of the reported violation. The ILO should be the body responsible for undertaking this task. Based upon the conclusions of an ILO report on the matter, aWTO panel would then assess whether the claimed exception is permissible under Article XX.

Any further action would be subject to the ruling by the WTO panel. Amendments tothe existing clause should also require the concerned parties to make full use of

WTO’s strengthened dispute settlement mechanism before imposing any punitiveunilateral measures. While the details of such an extension will have to be worked outcarefully, there does appear to be some scope for using Article XX to enforce corelabour standards. Cooperation between the ILO and the WTO would be crucial for ensuring that the procedures are transparent and applied objectively and equally. The

possible modalities for such cooperation are given further consideration below.

5.3 How Can the ILO and WTO Work Together?

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

It is thus inconsistent to argue that the WTO cannot concern itself with labour issuesfor reasons of mandate. Given that the ILO is the specialised agency for labour andthe WTO the specialised agency for trade, it is logical that both organizations should

be involved in the implementation of a social clause. It is also helpful that nearly allmember states of the ILO are or will be members of the WTO. As noted in the ILOWorking Party paper referred to above, "..membership of both organizations meansthat the States concerned endeavour in good faith to take account in each of theseorganizations of the objectives and obligations they have undertaken in the other".

What should be the respective roles of these organizations in implementing the social

clause? One possible scenario is that in the first stage the ILO will continue to be



responsible for monitoring the enforcement of core labour standards and providingtechnical assistance to help rectify the problem in the offending countries ( see Box 4).

Continued non-compliance will, however, trigger a second stage. In this stage, theILO will notify the WTO of persistent offenders. These offending countries will then

be liable to WTO enforcement procedures, including trade sanctions in the mostextreme cases. Obviously, the modalities for cooperation will have to be worked outcarefully and there are a number of technical issues which would have to smoothedout, but these can be resolved provided the existence of sufficient political will amongthe member States to permit a multilateral social clause to work.

5.3.1 The Trade Union Proposal

During the Uruguay Round negotiations, the ICFTU, the World Confederation of Labour (WCL) and the European Trade Union Confederation (ETUC) prepared a

joint statement on the social dimension of international trade which delineated in

detail a proposal for a social clause. It was suggested that a Joint Advisory Committeeof the ILO and the WTO be established and that this body, in cooperation with theILO Committee on Freedom of Association and its Committee of Experts on theApplication of Conventions and Recommendations, should draft a social clauseincorporating the core labour standards. It was further suggested that on the basis of specific complaints from the tripartite constituents of the ILO, the Joint AdvisoryCommittee would examine the extent to which the Contracting Parties were meetingtheir obligations under the social clause and make recommendations accordingly.

Box 4: Supervision and enforcement of ILO Conventions

The ILO has developed a diversified system for supervision of its conventions over the years.The procedures fall into two main groups: (i) ex officio supervision based on the examinationof the periodical reports of governments; and (ii) Supervision based on complaints .

(i) Reports by Governments: Governments are required to submit a report every two or fiveyears on the application of the Conventions they have ratified. They can sometimes berequested to submit reports more frequently. Copies of these reports are examined by theCommittee of Experts on the Application of Conventions and Recommendations and are alsosent to the most representative employers’ and workers’ organizations in the country under examination. These organizations are invited to comment on the report and, if necessary, to

contradict it or provide additional information concerning the application of the Conventionin question. The Committee of Experts examines compliance on the basis of the report andcomments, and in turn submits a report to the Conference Committee on the Application of Conventions and Recommendations. The report contains a general overview of the maintrends and problems, a review of the implementation of obligations by particular countriesand a summary of national laws and practises based on reports submitted by member states.In light of the report, the Conference Committee may ask governments to explain intendedmeasures to fulfil their obligations.

(ii) Complaints: Two complaints procedures are provided in the ILO system:

The first is the representations procedure. Under this procedure, an employers’ or workers’



organization may submit allegations of failure by a member State to adopt satisfactorymeasures within its legal system for the application of a Convention to which it is a party.These representations are sent to an ad hoc tripartite committee designated by the GoverningBody. The government examined may be asked for further information and the findings of

the ad hoc tripartite committee may be published.

The second complaints procedure allows any member State or a delegate to the Conference or the Governing Body to file a complaint against another member which, in its opinion, has notadopted the necessary measures to give proper effect to a Convention ratified which both thecountry complaining and the country complained against has ratified. These complaints areexamined by an Independent Commission of Inquiry, set up by the Governing Body. TheCommission can issue recommendations. The government concerned then informs the ILOwhether it accepts the recommendations or proposes to bring it to the International Court of Justice (ICJ) whose ruling is final.

(iii) Freedom of association: A special procedure exists for the Convention on Freedom of Association allowing the Committee on Freedom of Association to examine allegations of infringements of freedom of association, regardless of whether or not the country concernedhas ratified the relevant Conventions. Complaints can come from either employers’ andworkers’ organizations of the country concerned, from international organizations of employers and workers when one of their members is directly concerned with the complaint,or from international organizations of employers and workers with consultative status at theILO.

(iv) Direct contacts: This is not strictly speaking a supervisory procedure. Its purpose is to

enable a representative of the ILO Director-General to examine with the governmentconcerned how to overcome any difficulties in applying a ratified Convention or anyobstacles in the way of ratification. The ILO approach is a combination of public pressureand moral persuasion. None of the supervisory bodies may impose economic sanctions of anykind, though their conclusions are sometimes regarded as moral and political sanctions.

When a country was found to be falling short of its obligations, the Joint AdvisoryCommittee would recommend measures to be taken within a specified period thatshould not exceed two years. The ILO would also offer technical assistance to thecountry concerned, perhaps funded by a new international social fund. At the end of the specified period, a further report would be prepared which would state that the

country was now fulfilling its obligations; or that progress was being made,specifying the additional time needed to deal with the problem; or that thegovernment had failed to make adequate efforts. In the latter case trade sanctionswould be applied. These sanctions could consist of increased tariffs to be levied by allGATT/WTO Members on the offending country’s exports.

5.3.2 Joint ILO/WTO Implementation of a Social Clause

There are few detailed proposals for joint ILO and WTO implementation of a socialclause. This is not surprising given the complexity of the matter. The most logicalapproach would be to retain as much of the existing systems as possible and to avoidcreating new structures. The ILO has over the years developed a supervisory system



which has received much praise. Equally, its method of enforcement based on moral persuasion has not been without effect. The other major advantage of the ILO is thatits tripartite system allows representation and complaints to be made by employers’and workers’ organizations. The WTO, on the other hand is solely an inter-governmental organization. Linking core labour standards with trade disciplines does

not mean replacing existing ILO mechanisms but complementing them with anadditional instrument, should moral persuasion fail to produce the expected results.

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

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

Second, once it has been ruled that a legitimate infringement has taken place under Article XX and that non-compliance continues, the case can then be taken through theWTO dispute settlement mechanism ( see Section 5.2.3). This would ensure thatlinkage under Article XX does not open up a flood of unilateral actions for

protectionist purposes. The panel established by the DSB should be composed of amix of trade and labour specialist, and be appointed by the WTO Director-General inconsultation with the ILO Director-General. The dispute settlement process wouldthen be put in place as established by the WTO Understanding on Rules andProcedures Governing the Settlement of Disputes ( see Figure 2.1).

A number of deviations from the usual dispute settlement procedures are however

required. First, as pointed out above, the composition of the panel would have toinclude labour standards specialists. Second, the DSB allows compensation in theform of tariff reductions for non-compliance.

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

6. CONCLUSION

At the WTO Ministerial Meeting in Singapore in late 1996, Ministers focusedconsiderable attention on labour rights in their final declaration but stopped short of



endorsing the use of trade measures to enforce labour rights. The Ministers said intheir Declaration:

We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the

competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth anddevelopment fostered by increased trade and further trade liberalizationcontribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantageof countries, particularly low-wage developing countries, must in no way be

put into question. In this regard, we note that the WTO and ILO Secretariatswill continue their existing collaboration.

The text embodies some important elements. On the positive side, trade Ministerscommitted themselves to the implementation of core labour standards for the first

time and maintained that the ILO is the competent body to set these standards. Theyalso affirmed support for the ILO’s work, rejected the use of labour standards for

protectionist purposes, and said the comparative advantage of low-wage countries"must in no way be put in question". On the negative side, Ministers failed toincorporate additional work on the relationship between trade and core labour standards into the WTO Agenda. However, mention is made of collaboration betweenthe WTO and ILO Secretariats.

From the trade union perspective, the fact that commitment to core labour standardswas obtained in the WTO Ministerial Declaration is a significant step towards theestablishment of a multilateral social clause. Continual pressure is now required to

promote the message that protecting the rights of workers is just as important as therights of investors and traders. While the WTO is an important forum, and the linkage

between trade and labour standards is a major priority for the trade union movementother measures are also required to ensure the move towards a globalised economythat does not undermine core labour standards. For many people around the worldtoday, globalization is being identified with economic insecurity and exploitation. Thegeneral public is receptive to the notion that global capital has to operate according toa set of humane principles. This is evidenced by the growing pressure by NGOs andconsumer groups for the establishment of codes of conduct and boycotts of companiesand countries which violate core labour standards and human rights. Trade unions are

joining forces with such movements and together such coalitions are starting to exertsome influence over the implementation of labour standards.

In addition, governments are coming to the view that if globalization continuesunchecked it will breed resentment, leading to political and economic instability.Disenchantment with global markets may eventually result in greater protectionismand lead the world back into the ‘beggar-my-neighbour’ policies of the GreatDepression. Trade unions are attempting to advance constructive suggestion abouthow best to deal with the economic, social and labour related problems brought about

by globalization. By being seen as part of the solution and not as part of the problem,trade unions are gaining credibility and in turn influence over the direction of future

policy and legislation.



Many countries opposing the social clause allege that it would be used as a cover for protectionism. However, this paper has sought to demonstrate that a multilateralsocial clause, if implemented properly, could not be used in this way. It would not beup to individual governments to decide whether a country was in breach of the clause

but an independently composed Committee of the ILO. Equally, enforcement through

trade measures would only be possible after a long series of consultations between theconcerned parties and after the country concered was given the opportunity to receivetechnical assistance from the ILO and the possibility to rectify the problem. Arbitraryuse of sanctions would not be allowed.

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

It is true that labour standards and workers’ rights are critical issues in the South, involving the fair distribution of development benefits and social justice. Also the

poverty of the general population should not be an excuse or pretext for exploitingworkers in particular companies or industries. Workers, their unions and other publicorganizations in the South have a legitimate right to organise against exploitation, andgovernments must recognise these rights of organization. The fight for better wagesand working conditions is a legitimate one, especially in those countries wheredemocratic freedoms are absent or severely limited, and where there is a powerfulalliance between corporate interests, the landed and propertied elite, bureaucracy and

politicians. The struggle of workers and poor farmers for their rightful share of economic benefits is often difficult and in some countries subject to repression.

The Social Clause

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Transcript of The Social Clause