| GB.267/WP/SDL/2
267th Session November 1996 |
|
Working Party on the Social Dimensions
of the Liberalization of International Trade |
WP/WP/SDL |
SECOND ITEM ON THE AGENDA
Report of the Organisation for Economic Cooperation and
Development on trade, employment and labour standards
1. The Working Party will recall that, at its meeting in March, it was agreed that it would examine the above report when it was in the public domain.(1)
2. Begun in 1994, the OECD study of trade and labour standards was finalized in May 1996 and submitted to the Ministers of the OECD at their meeting on 23-24 May. It covers three major themes and identifies a small set of labour standards which it describes as "core" standards, which are very widely recognized to be of particular importance. These are:
- the elimination of child labour exploitation;
- the prohibition of forced labour;
- freedom of association;
- the right to organize and bargain collectively;
- non-discrimination in employment.
3. The report then reviews the links between certain core labour standards, trade, investment and economic development. In the final part, the report discusses the effectiveness of a number of mechanisms that are either already operational or could be introduced to promote respect for these core standards.
4. The Employment, Labour and Social Affairs Committee of the OECD and its Trade Committee drew a number of conclusions from the study in the form of a joint report(2) which they presented to the Ministers of the OECD at their meeting in 1996 and which is reproduced in the Appendix to the current paper.
5. The Ministers welcomed the conclusions of the report as an important contribution to understanding of the problem. The study has accordingly been issued and is now available as an OECD publication.(3)
6. The preparation of this study was an opportunity for highly positive cooperation between the OECD secretariat and the Office. The ILO supplied a large amount of information and data to the OECD officials in charge of the study, and submitted comments on successive drafts, many of which were taken into consideration (if not all of them, as the OECD secretariat also had to take into consideration the comments of other members, not all of which concurred). Naturally, however, the OECD is fully responsible for the methodology used and the final results.
7. Three preliminary observations can be made. First, the fact that the OECD focused its study on core standards should be welcomed, as the Director-General had already specifically emphasized their particular significance and relevance in the context of the liberalization of trade in the first Office paper submitted to the Working Party.(4) Secondly, because they come from an organization other than the ILO, the conclusions that respect for core standards may be a factor affecting economic efficiency, and that countries failing to respect such standards do not necessarily thereby secure better overall export performance than others, are of particular significance and are very encouraging to the ILO. Thirdly, the question raised in the report regarding whether and to what extent the core standards coincide with the corresponding ILO Conventions, even if it seems a legitimate one, will no doubt give rise to further questions and discussions.
8. It is interesting to note in this connection that on 3 and 4 October this year the report was the subject of an informal discussion "workshop" with representatives of "dynamic non-member economies". On the basis of the study's findings, participants were invited to answer a number of questions on the three themes that are discussed in it, namely:
- core labour standards and their application;
- possible links between core labour standards, trade and economic development;
- the promotion of core labour standards.
9. Participants in the workshop, to which the Office was invited to send a representative, welcomed the study on trade, employment and labour standards as an important contribution to the debate offering clarification on the issues involved. A broad consensus emerged on three of the main points in the study --
| (i) | the importance of focusing the debate on the core standards that incorporate fundamental human rights; |
| (ii) | the fact that the absence or inadequacy of core standards is not a significant factor increasing competitive advantage in international trade; |
| (iii) | the fact that there is a positive interaction between the liberalization of international trade and the application of core rights. |
10. It is also important to note that a broad consensus was reached that the ILO was the organization chiefly responsible for the promotion of such core standards, and the vast majority of participants were also in favour of strengthening the ILO's role in this area.
Geneva, 22 October 1996.
1. Statement by the Chairperson, GB.265/WP/SDL/D.1, para. 6.
3. Trade, employment and labour standards: A study of core workers' rights and international trade. Arrangements have been made between the publications units of the OECD and the ILO for a number of copies to be made available to the ILO at a concessionary price.
Trade, Employment and Labour Standards
A Study of Core Workers' Rights and international Trade
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuant to Article I of the Convention signed in Paris on 14th December 1960. and which came into force on 30th September 1961. the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed:
- to achieve the highest sustainable economic growth and employment and a rising. standard of living in Member countries. while maintaining financial stability. and thus to contribute to the development of the world economy;
- to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development: and
- to contribute to the expansion of world trade on a multilateral. non-discriminatory basis in accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium. Canada. Denmark, France, Germany, Greece. Iceland. Ireland. Italy, Luxembourg. the Netherlands, Norway. Portugal, Spain. Sweden, Switzerland. Turkey. the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter. Japan (28th April 1964). Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994). the Czech Republic (21st December 1995) and Hungary (7th May 1996). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).
Publié en francais sous le titre:
LE COMMERCE, L'EMPLOI ET LES NORMES DU TRAVAIL
Une étude sur les droits fondamentaux des travailleurs et l'échange international
© OECD 1996
Applications for permission to reproduce or translate all or part of this
publication should be made to:
Head of Publications Service. OECD
2. rue André-Pascal, 75775 PARIS CEDEX 16. France.
This study has been prepared in response to a request given to the Organisation by OECD Ministers to undertake an analysis of areas where further progress with liberalisation and the strengthening of the multilateral system may be required. One such area was trade, employment and internationally recognised labour standards, including basic concepts, empirical evidence on trade and investment patterns, and current mechanisms for promoting higher labour standards world-wide.
The study begins with a Report agreed by the two OECD Committees which oversaw the work, i.e. the Employment, Labour and Social Affairs Committee and the Trade Committee. The agreed Report reflects the findings of a detailed analytical report of the OECD Secretariat as well as extensive discussions by the two Committees and other Committees involved in the work, notably the Committee on Investment and Multinational Enterprises. The Secretariat's analytical report itself is presented after the agreed Report and is published under the responsibility of the Secretary-General of the OECD.
This report was prepared by Corinne Deléchat, Mariarosa Lunati, Anne Richards and Raymond Torres, with specific contributions from Rolf Alter, Stéphanie Baile, Crawford Falconer. Evdokia Moisé, Nicholas Vanston and Craig VanGrasstek, under the general supervision of John Martin and Jacques de Miramon.
Abbreviations
Joint Report on Trade, Employment and Labour Standards
by the Employment. Labour and Social Affairs Committee
and the Trade Committee of the OECD
- Selection of core labour standards and their implementation
Links between core labour standards, trade, economic development and employment
Mechanisms to promote core labour standards world-wide
PART I
LABOUR STANDARDS IN OECD AND SELECTED NON-OECD COUNTRIES
- Selection of core labour standards
ILO Conventions
UN provisions on workers' rights
Observance of core labour standards in selected countries
Notes
PART II
POSSIBLE LINKS BETWEEN CORE LABOUR STANDARDS, TRADE, FOREIGN DIRECT INVESTMENT, ECONOMIC DEVELOPMENT AND EMPLOYMENT
- Economic properties of core labour standards
Core labour standards and trade performance
Core labour standards and trade liberalisation
Core labour standards and foreign direct investment
Trade, employment and wages
Notes
PART III
MECHANISMS TO PROMOTE CORE LABOUR STANDARDS WORLD-WIDE
- An overview of the ILO monitoring system
The contribution of development co-operation programmes
Proposed mechanisms in international organisations
Regional and unilateral government actions
International standards for the conduct of firms
Private-party mechanisms
Notes
Analytical Appendix
Core Labour Standards, Economic Efficiency and Trade
Annex
Methods Applied in Part II, "Core labour standards and trade liberalisation"
- Index of compliance with ILO Conventions 87 and 98
Indicators of trade liberalisation
References
JOINT REPORT ON TRADE, EMPLOYMENT AND LABOUR STANDARDS
(by the Employment, Labour and Social Affairs Committee
and the Trade Committee of the OECD)
Since the end of the Uruguay Round. the issue of trade and labour standards has come to the forefront of the policy agenda. The protracted rise in unemployment in many OECD countries and in wage inequality in some countries has led some observers to look for external explanations, including claims of unfair trade practices associated with competition from firms that allegedly base their comparative advantage on low labour standards. This view is challenged by those who see internal structural rigidities as the key factor behind unemployment and growing wage inequality and who claim that differences in labour standards do not have any significant impact on trade flows or foreign direct investment.
The debate has focused on the human rights dimension of certain labour standards. It is argued that some labour standards reflect basic human rights and that all countries in the world should therefore adhere to these standards. Claims are also made that i) those labour standards that embody basic human rights can stimulate economic development and are therefore in the interest of all workers (and countries) in the world; and ii) observance of these labour standards could neutralise protectionist pressures, thus securing support for free trade.
However, there are significant differences of opinion on how such labour standards can be promoted. Some take the view that the international community should exert pressure on those countries that do not observe these standards, with the possibility of trade sanctions as a last resort. Others remain unconvinced that new international promotion mechanisms are required, in addition to those available in the International Labour Organisation (ILO), and fear that the defence of human rights would be captured by protectionist interests. More fundamentally, the issue arises as to whether economic development (associated, for example, with trade liberalisation) will gradually improve labour standards, or whether additional actions (for example, through the imposition of conditionality criteria in international trade agreements) are needed.
In June 1994, Ministers invited eth OECD Secretariat to undertake an analysis of "areas where further progress with liberalisation and the strengthening of the multilateral system may be required". These areas included "trade, employment and internationally recognised labour standards, including basic concepts, empirical evidence in trade and investment patterns, and current mechanisms for promoting higher labour standards world-wide". Responding to this mandate, the Trade Committee and the Employment, Labour and Social Affairs Committee began jointly an analytical programme to examine these issues, in close co-operation with other relevant OECD Committees and Directorates as well as other international organisations, in particular the ILO. The attached study is the result of this exercise. Its purpose is to shed some light on the analytical aspects of this issue, while also evaluating mechanisms to promote core labour standards world-wide.
Selection of core labour standards and their implementation
The debate on trade and labour standards has been made more complex because of a lack of agreement on a list of the labour standards that are relevant to this issue and their definition. Part I of the study identifies a small set of labour standards, termed "core" for the purposes of the study, which are widely recognised to be of particular importance: elimination of child. labour exploitation, prohibition of forced labour, freedom of association, the right to organise and bargain collectively, and non-discrimination in employment.
The choice of these labour standards is based primarily on the fact that they embody important human rights and that they derive from the Universal Declaration of Human Rights. The universality of these basic labour rights has been highlighted in the conclusions of the recent World Social Summit. In addition, three United Nations acts (the Covenant on Economic, Social and Cultural Rights, the Covenant on Civil and Political Rights and the Convention on the Rights of the Child), which contain relatively detailed provisions on core labour standards, have been ratified by over 120 countries, suggesting that these standards receive near-universal adherence. It is also important to note that all countries which are members of the ILO subscribe to the principles of freedom of association and collective bargaining by virtue of their membership.
Certain ILO Conventions provide for internationally negotiated definitions of core standards: Conventions 87 and 98 provide detailed provisions on freedom of association, the right to organise and collective bargaining; Conventions 29 and 105 establish the prohibition of all forms of forced labour; and Convention 111 provides for non-discrimination in employment. Although there is general agreement on tie underlying principles behind these Conventions, the study suggests that certain provisions of some of these Conventions or their interpretation may find themselves at variance with national laws or regulations, thereby providing one explanation why so few ILO member countries have ratified all five Conventions in question. Finally, there is no ILO Convention that addresses the issue of child labour exploitation as such. Instead, Convention 138 provides for a minimum employment age, while remaining silent on the possibility of non-exploitative forms of child labour. Therefore, some OECD countries are of the view that ILO Conventions do not provide a unique and comprehensive set of definitions for the core standards selected in this report.
It is difficult to make a precise assessment of the degree of enforcement of core labour standards across countries, as available information is sparse and incomplete. 'Re lack of reliable indicators of enforcement of standards on child labour, forced labour and non-discrimination is especially acute. Available evidence in this area is mostly anecdotal, making any attempt to analyse the economic implications of these standards problematic. But, on the basis of ILO reports and other sources, the study makes a tentative assessment of the state of freedom-of-association rights in over 70 countries throughout the world. It highlights wide cross-country differences in the degree of enforcement of freedom-of-association rights. There is a weak positive association between the degree of enforcement of these rights and the level of economic development. Finally, there seems to be a trend towards better compliance in low-standards countries.
Links between core labour standards, trade, economic development and employment
The theoretical discussion in Part II suggests that proper implementation of some core labour standards can support economic development, permitting an expansion in trade. Improved enforcement of non-discrimination standards might raise economic efficiency by ensuring that the allocation of labour resources moves closer to a free-market situation. Elimination of forced labour and child labour exploitation can also contribute to improving allocative efficiency. Child labour exploitation, moreover, is likely to undermine long-term economic prospects to the extent that it hampers children's education possibilities and degrades their health and welfare. The economic effects of freedom of association and the right to collective bargaining depend on a variety of factors. On the one hand, these rights can help upgrade production processes, while also raising workers motivation and productivity. On the other hand, they can introduce a new distortion in the market if unionised workers succeed in raising their wages and working conditions above market levels. The net outcome on economic efficiency depends on the relative importance of these two effects. However, freedom of association as well as the other core labour standards cannot be considered primarily as a means to improve market efficiency, as they are fundamental rights of workers.
The empirical analysis presented in Part 11 refers almost entirely to only two core standards, freedom of association and the right to collective bargaining. This limitation of the analysis is unavoidable given the lack of data regarding the other core standards and the considerable technical difficulties encountered when trying to link the observance of labour standards with a range of economic outcomes.
Within these limitations, this analysis suggests that the output effects of greater freedom-of-association and collective bargaining rights are likely to be negligible compared with other factors such as shifts in technology, raw-material prices and terms of trade. More generally, the actual economic effects of core labour standards are likely to be small.
Part II also analyses the possible relationship between trade flows and core standards. Several points emerge:
- theoretical analysis suggests that, in general, trade improves aggregate economic welfare, irrespective of whether or not core standards are observed by all trading partners;
- standard trade models show that patterns of specialisation are likely to be determined by fundamental factors such as relative factor endowments, technology and economies of scale;
- empirical research suggests that there is no correlation at the aggregate level between real-wage growth and the degree of observance of freedom-of-association rights;
- there is no evidence that low-standards countries enjoy a better global export performance than high-standards countries;
- a detailed analysis of US imports of textile products (for which competition from low- standards countries is thought to be most intense) suggests that imports from high-standards countries account for a large share of the US market. Moreover, on average, the price of US imports of textile products does not appear to be associated with the degree of enforcement of child labour standards in exporting countries;
- some cases have been recorded where governments appear to deny core standards to workers or deliberately do not enforce them with the aim of improving sectoral trade competitiveness or attracting investment into export-processing zones (EPZs); the expected economic gains from such a strategy are, however, likely to prove short-lived and could be outweighed in the longer term by the economic costs associated with low core standards;
- an analysis of selected trade liberalisation episodes does not prove unambiguously whether trade reforms or freer association rights came first. There is no evidence that freedom-of-association rights worsened in any of the countries that liberalised trade. Nor is it apparent that the promotion of these rights impeded a subsequent trade liberalisation. The strongest finding is that there is a positive association over time between successfully sustained trade reforms and improvements in core standards;
- while core labour standards may not be systematically absent from the location decisions of OECD investors in favour of non-OECD destinations, aggregate FDI data suggest that core labour standards are not important determinants in the majority of cases. In these circumstances, host countries may be able to enforce core labour standards without risking negative repercussions on FDI flows. Observance may work as an incentive to raise productivity through investment in human and physical capital.
These results imply that concerns expressed by certain developing countries that core standards would negatively affect their economic performance or their international competitive position are unfounded; indeed, it is theoretically possible that the observance of core standards would strengthen the long-term economic performance of all countries.
The debate on trade and core standards is also motivated by concern that trade between low-standards countries and high-standards countries has led to a rise in unemployment, especially for unskilled workers, and/or growing wage inequality in the latter countries. Part H reviews research in this area, including The OECD Jobs Study, and shows that any shift in total employment associated with changes in trade patterns should be small. However, there is no agreement among researchers on the magnitude of the trade impact on sectoral employment patterns relative to the impact of other forces, e.g. technological progress and institutional changes. While the majority view is that trade with low-wage countries has had only a small impact on wage inequality over the past 15 years, some studies find larger impacts. It seems clear that further theoretical and empirical work is needed to resolve these issues.
Mechanisms to promote core labour standards world-wide
Even though efforts to improve observance of core standards may be facilitated by economic growth and freer trade, there are reasons to doubt that market forces alone will automatically improve core standards. Hence, the importance of more direct promotion mechanisms. Part III of the study reviews and evaluates different mechanisms that are currently in use or have been proposed to promote core labour standards. These mechanisms may take the form of either incentives or disincentives (i.e. sanctions as the most extreme form), which are channelled through government decisions at the multilateral, bilateral or unilateral level, or alternatively, through private actions.
To evaluate the effectiveness of the various mechanisms, one must first determine the extent to which they address the very issue under consideration, that is the existence of low core labour standards and its causes. Once this is done, the effectiveness of particular promotion mechanisms will depend upon the broad coverage of these mechanisms in terms of countries and economic agents, their character (e.g. legally binding versus voluntary), their political acceptability and, finally, their economic and social impacts.
In cases of systematic violations of basic worker rights by non-democratic regimes, it is up to the international community to decide what should be done. In such situations, the solution lies in political and legislative changes within the countries concerned with a view to ensuring that the effective implementation of these rights becomes an objective of national policy. For example, there are cases in recent history where serious violations of human rights have been condemned by the UN system. Trade sanctions (either unilateral or by the consensus of the international community in exceptional circumstances) and/or consumer boycotts have also been used.
Relatively few countries systematically deny core labour standards. 'Me more common case is the non-observance of core standards in certain sectors or the inadequate enforcement of national legislation. A variety of promotion mechanisms, in effect or proposed, have been examined with respect to such cases.
Enhancing the role of the ILO
The ILO's distinguishing features -- its mandate, unique tripartite structure and quasi-universal membership -- make it an appropriate international forum for the promotion of core labour standards. It also provides the only functioning and directly relevant supervisory mechanism. Its monitoring/peer review procedures are specifically aimed at raising the level of standards and ensuring that they are universally recognised and properly implemented.
The special procedure on freedom of association appears to be relatively effective. There is some evidence that governments respond to complaints presented under this procedure. Its effectiveness could be increased if more attention were given to countries where union rights are not fully protected and if important recommendations formulated by the Freedom of Association Committee were given more publicity.
Recent proposals to promote application of the principles of prohibition of forced labour and non-discrimination in employment in all Member states include, on the one hand, the extension of the freedom-of-association procedure and, on the other. requests for regular reports on obstacles to ratification and application of fundamental ILO Conventions (a procedure now existing only for Convention 111). While the latter option is being given serious consideration, the former has met with scepticism, and discussion in the ILO has not proceeded very far at this stage.
At present there exist practical obstacles to ratification, which prevent some countries from ratifying core ILO Conventions, even when their laws and practices are consistent with the principles embodied in these Conventions. Some of these countries argue that revision and updating of the Conventions in question may help attract more ratifications.
An additional problem is that there is presently no mechanism to monitor cases of child labour exploitation. However, the ILO Governing Body has decided to place the issue of child labour on the agenda of the 1998 International Labour Conference. More generally, it would help the debate if the ILO could provide reliable and up-to-date information on the enforcement of core standards, an area where information is presently sparse and incomplete.
In sum, the current ILO monitoring system has proven to be reasonably effective, within the limits of its applicability. In particular, the ILO has an important role as a focal organisation where universal agreement on core labour standards can be reached. It can also persuade countries that it is in their own interest to promote basic labour rights and to avoid the exploitation of workers, while also informing the international community on cases o non-respect o core labour standards. In poor countries, the ILO technical assistance may also contribute to the eradication of child labour exploitation.
The ILO has also established a Working Party on the Social Dimensions of the Liberalisation of International Trade. The Working Party has decided to suspend any discussion of the link between trade and labour standards through trade sanctions. Instead, it has agreed a future work programme of (i) research and country studies on the impact of trade liberalisation on core standards; and (ii) reviewing the ILO's means of action to promote core standards.
Development co-operation and actions through other international organisations
Insofar as the non-enforcement of some core labour standards, in particular the prohibition of child labour exploitation, is linked to issues of poverty and economic development, development co-operation programmes can make a positive contribution by addressing the underlying causes. An important advantage of such positive mechanisms is that they can produce concrete and practical results -- e.g. getting children into schools, helping strengthen labour codes or enforcement capabilities -- without generating major economic distortions or political frictions. On the contrary, these measures are more likely to attract the support of all concerned countries, including developing ones. This links with the broader emphasis in today's development co-operation programmes on strengthening capacity for human rights and good governance, as embodied in the DAC Statement on Development Partnerships in the New Global Context. More can now be achieved in this direction by documenting and sharing experience as well as by assessing the effectiveness of different types of development co-operation in reducing the incidence of child labour and in promoting basic human rights.
Proposals have also been made to harness WTO disciplines in order to foster core labour standards. Existing WTO provisions have not been designed for promoting core standards. Some of the suggestions under discussion would imply a reinterpretation of WTO practices and procedures, while others would require to a greater or lesser extent renegotiation and amendment of WTO articles. Extending the WTO's Trade Policy Review Mechanism procedure to include labour standards would fall into the former category, while other proposals would fall into the latter. In all cases, a consensus among WTO Members on the appropriateness and effectiveness of using WTO procedures to promote core labour standards and on the institutional changes required would have to be reached. Such a consensus does not exist at present. However, while some countries continue to call for discussion of the issue in the WTO and others are opposed, this remains an issue for international consideration. The debate on this issue and on the associated conceptual and practical difficulties will continue.
Finally, it has been suggested to make international financial assistance conditional on the respect of core labour rights by borrowing countries, as there is no practical experience of such a mechanism, it is impossible to evaluate it. However, some difficulties can already be envisaged. First, it would target only those countries which apply for multilateral loans. Second, it is doubtful that restricting one important means of improving national welfare is likely to result in faster improvement of labour standards.
Other mechanisms at national or regional level
Other types of measures include unilateral or plurilateral government actions. Regarding unilateral government actions, the evidence from the US Generalised System of Preferences (GSP) Program suggests that conditioning eligibility for GSP benefits on the respect of core labour standards induced a positive change in the behaviour of some countries. This has prompted the EU to attach a similar set of conditions to its GSP, to become effective as of I January 1998. Both systems refer explicitly to internationally recognised labour standards, thus enhancing their credibility and ensuring their consistency with other international actions to promote core labour standards.
Compared with unilateral measures, making the respect of core labour standards part of regional trade agreements, as in the case of the NAFTA side agreement on labour co-operation, has the advantage that all concerned parties must agree to a preestablished set of norms and a well-defined dispute-settlement mechanism. However, the NAFTA side agreement aims to enhance the enforcement of existing national labour laws, but does not explicitly refer to norms defined in relevant ILO Conventions. It is also far too early to assess the effectiveness of this particular mechanism.
In sum, the influence of these mechanisms depends not only on the sanctions but also on the review process. In any case, their effectiveness is clearly related to the size of the US and EU markets, as well as to the steady erosion of GSP preferences for developing countries under the implementation of the Uruguay Round Agreements.
International standards for the conduct of firms
International codes of conduct for firms. such as the ILO Tripartite Declaration and the OECD Guidelines for Multinational Enterprises (MNEs), can also play an important role. In a globalising environment, MNEs are a prime vehicle for the transfer of technology, innovation and modern management practices. Nevertheless, the impact of MNEs on the promotion of core labour standards should not be overstated. The most direct effect MNEs can have is on raising the labour standards of their own labour force. MNEs can also exert an indirect influence by requesting that good labour practices be applied by their suppliers and other local partners. Indeed, the variety of existing codes of conduct for firms seems to reflect the increasing importance of business ethics in the regular operation of enterprises. The fact that such codes are voluntary also makes them easier for firms to adopt. However, evidence is lacking on their effectiveness in promoting core labour standards in developing countries.
Private-sector mechanisms
In situations where non-enforcement of core labour standards is not necessarily due to poverty, but is an act of individual employers motivated by potential economic benefits, private-party mechanisms can help create counterincentives, whereby the respect of core labour standards, and not their denial, is economically rewarded. These mechanisms take various forms:
- Ethical standards for firms have been used in the past, in particular with the aim of eliminating apartheid in South Africa. Though these private sector codes of conduct have had certain effects, in particular with respect to the operations of large MNES, they have not been specifically directed to the set of core labour standards under consideration in this study. In addition, they have two weaknesses: i) since they are voluntary, firms are free not to follow them; and ii) they are not subject to satisfactory review procedures.
- Another mechanism consists in persuading consumers to base their purchases not only on price but also on moral principles. This may take the form of boycotts of products which can be connected with nonobservance of core labour standards. The effectiveness of these mechanisms is variable and uncertain, since they depend on widespread consumer acceptance. In addition, boycotts can have an impact on trade and run the risk of being manipulated to suit narrow domestic interests.
- "Social labelling" of products allows consumers to buy goods that meet certain criteria deemed to be socially desirable. The advantages of such a mechanism are that it takes the form of an incentive rather than a sanction and that it requires the co-operation of both manufacturers and importers. This enhances its effectiveness. But, as in the case of all labelling programmes, care must be taken that the criteria for attribution are properly defined and monitored, and that all the components/parts of a given product also comply with these criteria. It is unlikely that social labelling could deal with all cases of low core standards.
- "Socially responsible investment schemes" aim to promote firms which implement high standards of social policies. Investment fund managers either screen and select such firms for their funds or reject those firms which violate the set criteria. These schemes have, so far, been run on a limited scale and therefore their economic (and social) impact is difficult to gauge. In any case, they generally target only one or two core labour standards, such as freedom of association and child exploitation, and, by their very nature, impact only on those countries in which firms listed on the stock exchange operate or invest.
In sum, such private codes and mechanisms can help in certain specific cases, particularly if they reinforce other, more broadly based mechanisms, but they are unlikely to provide a general solution. More generally, an important question that needs to be addressed in connection with these mechanisms is that of how to ensure that the information on which private-sector actions are based is accurate and free from manipulation.
Conclusion
Combining the range of situations and objectives outlined above with a variety of existing or potential promotion mechanisms highlights the multifaceted nature of the problem. In particular, all the mechanisms reviewed in the study can potentially address at least one of the reasons for non-observance of core labour standards. However, none of them can solve all problems at the same time.
The issue of trade and labour standards is not a new one. It first arose in the 19th century when concern was expressed about the risk of "unfair" trade associated with competition from firms producing under socially unacceptable practices (Follows, 1951). In fact, this concern was one of the motivations behind the creation of the International Labour Organisation (ILO) in 1919. More recently, the protracted rise in unemployment in many OECD countries has led some observers to look for external explanations, including claims of unfair trade practices associated with competition from countries that allegedly base their comparative advantage on low labour standards. This view is challenged by others who lay stress on internal structural rigidities in labour and product markets as the key factor behind unemployment and who claim that differences in labour standards have no significant impact on trade flows and foreign direct investment patterns, and that, consequently, trade between the North (equated to high-standards countries) and the South (equated to lowstandards countries) is not a significant cause of unemployment in the OECD area.
The issue is also strongly motivated by a concern with human rights. It is argued that some labour standards reflect basic human rights which should be observed in all countries, independently of their levels of economic development and sociocultural traditions. The universality of these basic labour rights is highlighted in the conclusions of the recent World Social Summit in Copenhagen. Claims are also made that i) those labour standards that embody basic human rights can stimulate economic development and are therefore in the interest of all workers (and countries) in the world; and ii) observance of these labour standards could neutralise protectionist pressures, thus securing support for free trade.
Attention then focuses on the choice of the most appropriate mechanisms to ensure world-wide promotion of these basic rights. Trade sanctions (or the threat of them) are sometimes advocated as a mechanism of last resort to achieve observance of these basic human rights at the workplace. Acceptance of a human rights justification for certain labour standards does not lead automatically to agreement that a link should be established between these standards and trade policies. For example, it is sometimes argued that human rights should be enforced in a manner that is consistent with the specific socio-economic conditions prevailing in each country. On the issue of trade sanctions, some argue that they could be counter-productive since free trade is a powerful engine of economic development and social progress. More generally. there is concern that the alleged human rights nature of certain labour standards could be used as an excuse for adopting protectionist solutions.
The Ministerial Mandate does not question the importance of promoting, as widely as possible, the observance of human rights and the labour standards that embody these rights. Endorsement by OECD countries and many non-OECD countries of several international conventions and declarations on human rights lends support to this view,
The aim of this report is rather i) to assess whether there is any relationship between those labour standards that are held to embody basic human rights on the one hand, and trade and foreign direct investment flows and policies on the other; and ii) to discuss current mechanisms proposed to promote those standards. Part I provides basic concepts and definitions and identifies a set of core labour standards that are likely to be important from the human rights point of view. The extent to which existing ILO Conventions embody these core standards is also discussed, and observance of these standards in a wide range of countries is described. Part II is devoted to an economic analysis of core labour standards, with a view to assessing the impact of core standards on economic development, trade and foreign investment patterns, and employment. Part W reviews a range of existing and proposed mechanisms to promote core labour standards and draws some tentative conclusions as to their effectiveness.