Source: Carnegie

Reprinted with permission from the South China Morning Post, January 20, 2003

A debate has raged between the governments of developed and developing countries for several years on the need for a global agreement on minimum labour standards that would be enforced at the international level, through the World Trade Organisation or some other mechanism. That debate has become stale and ritualised. In the meantime, the world has changed. For developing countries, the environment in which global labour standards must be considered was transformed last year.

First, China's accession to the WTO means that its exports cannot be blocked from the 144 member countries' markets. With China's huge pool of low-wage labour, it can potentially out-compete export industries in virtually all other developing countries. China's productivity, infrastructure and the education of its workforce also compare favourably to many other developing countries.

China's neighbours in Asia will find it particularly difficult to compete, as transport costs and times to the major United States and European Union markets are similar to those for China. In the textile and apparel sectors, it is only the Agreement on Textiles and Clothing - which apportions market access among developing countries through quotas - that has shielded other developing countries from the full brunt of Chinese competition until now. But that agreement will be phased out by the end of next year.

Meanwhile, in developed countries, a second set of changes has occurred that favours developing countries. These include passage in the US of trade legislation that allows the American president to negotiate bilateral, regional and global trade agreements, provided that he secures commitments from US trading partners to enforce internationally recognised labour rights. In return, trading partners would gain greater access to the huge US market.

The EU, meanwhile, has adopted a Generalised Scheme of Preferences in January 2002 that doubles the tariff cuts for developing countries on a range of sensitive products if the EU finds those applicant countries do protect basic worker rights.

These developments create a new strategic opportunity for developing countries to link trade liberalisation with labour standards, to both reap gains and avoid harm. For those countries that already protect their workers' rights, there are major trade advantages to be gained in the short and medium term. For those that do not, it is time for them to reconsider their position, because labour-unfriendly states will no longer be able to compete with China simply by allowing greater abuse of their workers. At the same time, they risk losing market access advantages to other developing countries that do provide basic protections for their workers.

There is another ongoing, underlying reason for all developing countries to protect their workers' basic rights. Minimum protections for workers - including the right to organise unions and bargain over wages, freedom from discrimination, policies to keep children out of the work force and in school, and acceptable minimum working conditions - are all policies that directly help to alleviate poverty and produce more equitable income distribution. Countries that have pursued labour market policies that guarantee worker rights have not only enjoyed greater income equity and faster poverty alleviation but in many cases have grown faster for longer periods than those that have not.

If all developing countries were to cooperate on a strategy of constructing a global labour standards regime that they themselves could help to enforce, they would all gain. It would significantly shift the terms of trade in their favour, since the value-added of their exports - and therefore their income - would increase relative to the cost of their imports from high-wage countries. They would continue to enjoy the comparative advantage of low-cost labour compared with more developed high-wage countries, but they would not face the beggar-thy-neighbour strategies whereby footloose investors, producers and buyers play one low-wage country off against others, putting continued downward pressure on wages and working conditions.

As the country with the largest low-wage labour force, China itself has the most to gain from a global agreement on basic labour standards and decent working conditions.

Developing countries that are seriously concerned about reducing poverty and inequality while they try to sustain economic growth will have to break from their current, self-defeating stance against linking trade and labour standards. In its own self-interest and in solidarity with other developing countries, China should lead a developing country effort to construct a global floor for labour standards. An enforceable regime that requires employers in all countries to respect basic labour standards and provide acceptable minimum conditions of work is a means to improve the terms of trade for developing countries, distribute the gains from trade more broadly within those countries and make real and lasting progress toward alleviating poverty.

Sandra Polaski is a senior associate at the Carnegie Endowment for International Peace and is author of Trade and Labor Standards: A Strategy for Developing Countries (www.ceip.org).