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Should Labor Standards Have a Role in U.S. Trade Agreements?

Discussants: Charles Kernaghan, and Claude R. Barfield
Updated: June 15, 2007

The Bush administration and congressional Democrats are negotiating language that would insert tougher provisions on labor and other issues into pending trade agreements with Peru, Panama, Colombia, and South Korea. Proponents of including core labor standards in such agreements say it is essential to uphold internationally observed rights for workers. But critics say, among other things, it amounts to a form of protectionism for U.S. industries with much higher labor costs than partners from the developing world.

Claude Barfield, a resident scholar at the American Enterprise Institute, debates Charles Kernaghan, director of the National Labor Committee, a nongovernmental organization that promotes worker rights, on the suitability of labor standards in U.S. trade agreements.

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claudebarfield

Most Recent

June 15, 2007

Claude Barfield

The anecdotes utilized by Mr. Kernaghan represent valid—if skewed—snapshots of the huge changes that are taking place in the developing world (though this can be a doubled-edged sword: in citing the plight of the 11-year Bangladesh garment worker, he doesn’t acknowledge that a heavy-handed effort, forced by U.S./EU pressure, to ban child labor in that country some years ago resulted in the firing of thousands of young girls, most of whom then ended up in brothels).

If one backs away, however, from these microvignettes, the big picture is clear and incontestable. Over the past half-century, those developing countries that have adopted more open trade and investment regimes have experienced faster growth and larger increases in per capita income.

To take East Asia as an example, the number of persons living on $2 per day fell by 500 million between 1990 and 2005. These numbers would rise by an additional 150 million if India were included (World Bank, East Asian Renaissance, 2007). Average per capita income rose about 6 percent annually from 1986 to 2004. Though there were setbacks—the 1997-1998 Asian financial crisis—trade liberalization steadily accelerated (with average tariffs now less than 10 percent). Further, beginning in the late 1980s, there was a major turnaround in the attitude toward foreign direct investment (the surest way to technological and management upgrading). Mr. Kernaghan’s “greedy” multinationals made major investments in Asian economies, with FDI rising from 5 percent of GDP in the mid-1980s to 20 percent of GDP in recent years.

Compare this experience with that of hapless sub-Sahara Africa, where high tariffs and miniscule FDI, combined with rampant corruption and vicious civil conflicts, have worked to keep the region mired in poverty.Despite abundant natural resources in many areas, per capita income growth averaged .18 percent from 1986 to 2004, according to the World Bank. And Bank figures show that since 1987, the poverty level ($2 per day) has fallen only 5 percent, from 77 to 72 percent of the total regional population. This means that this year over 500 million sub-Saharan Africans are living on $2 dollars or less per day.

What are we to take from these contrasting records? Certainly, open markets and investment by multinationals are not panaceas. Unless accompanied by honest bureaucracies, investment in education, sensible macroeconomic policies, an impartial judiciary, and solid property rights, they will not lift countries out of poverty. But if they are buttressed by the aforementioned policies and institutions they are powerful partners for growth and prosperity—all without labor standards dictated by the United States.


charleskernaghan

June 14, 2007

Charles Kernaghan

The first responsibility of any government is to protect its people. No one wants poisonous toothpaste or pet food entering the United States, Costa Rica, Panama, or anywhere else.

No worker, in America or Asia, wants to be reduced to a cipher on some corporate spreadsheet extended across the global economy. While I was meeting with some workers in the Dominican Republic in the mid-1990s they took me to a garbage dump near their free trade zone. After a little digging, we found the cost reduction plan of a major pharmaceutical company. The plan consisted of taking 14 million units of production (IV sets) out of the United States and relocating it to the Dominican Republic. Though only about 120 jobs were involved, the annual saving for the company amounted to $3.3 million—$27,500 for every job they took out of the United States. Calculations like this are going on twenty-four hours a day in board rooms everywhere. Today, corporations seek out low-wage havens where labor law enforcement is lax, labor ministries dysfunctional, and civil society and unions weakened through decades of repression. This race to the bottom is not an abstraction for workers stuck in sweatshops.

When the American people found out that dogs and cats were being slaughtered in China to provide fur collars on jackets being exported to the United States, they were outraged. So was Congress, which—without a single nay vote—passed the Dog and Cat Protection Act of 2000, which prohibits the import, sale or export of dog and cat fur to the United States. Now that we have defended dogs and cats in China—which was the right thing to do—why can’t we defend the legal rights of human beings in the global economy?

This is exactly what the Decent Working Conditions and Fair Competition Act will do. In a March 2006 Harris Poll, 75 percent of respondents, including moderates, conservatives and liberals, said they wanted their member of Congress to protect worker rights in the global economy.

I deeply believe in the Universal Declaration of Human Rights, which states that: “Everyone has the right…to just and favorable conditions of work…to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity.”

We owe it to workers around the world to reestablish enforceable checks and balances to control corporate greed, so that workers—be they in the United States or in China—have the legal rights they need to ensure that global trade lifts all boats—not just a few yachts.


claudebarfieldJune 13, 2007

Claude Barfield

Just so we are clear, I actually do “complain” that corporations—abetted by governments—have pushed to load up trade agreements with extraneous issues that are best handled by sovereign, democratically elected governments. My complaint, however, runs across the political spectrum. It stems from concerns of democratic legitimacy. Thus, I have not determined that “workers do not need laws to protect their basic legal rights”—that’s up to them to decide as a part of the political process in their own country. My complaint is that it is the pinnacle of arrogance for the United States—or any other large developed country—to force labor laws, environmental laws, and specific health and safety regulations on countries that are not run by dictators. Last time I looked, Korea, Costa Rica, Panama, and Peru had democratically elected governments that ought to decide these issues for themselves.

On labor standards, for the United States there is the additional stench of hypocrisy. Of the eight ILO “core labor standards” we are trying to force upon our free trade agreement (FTA) partners, only two have actually been ratified by this country. Some ILO standards go back to the 1930s, so that for some seventy-odd years both Democrats and Republicans have rejected them as not in the U.S. interest. Similarly, with regard to the new demand that in order to qualify for an FTA with the U.S., countries must ratify five specifically-named UN environmental treaties, does anyone believe that the U.S. Congress would bow to such a fiat on the Kyoto Treaty—which the U.S. Senate turned down by a 98-0 vote [in 1998]?

Swinging over to the right, yes it was also a mistake and overreach for Bush administration to demand that our FTA trading partners ban capital controls and forego price controls on pharmaceutical products. Capital controls and pharmaceutical price controls, I believe, are both very bad policies that will backfire on the countries’ invoking them. But they, not we, will live with the consequences—and such questions have no place in trade agreements.

The bottom line is that both overzealous liberals and overweening conservatives have foisted their ideological baggage on the trading system, with increasingly disastrous results. There are, no doubt, a number of reasons why the WTO Doha Round is failing; but certainly, one cause is that the WTO, like the FTAs, is being pushed ever deeper into issues that should be settled by national democratic electorates and not by trade negotiations where conflicting—and equally legitimate—cultural, social, political and economic mores and policies do not lend themselves mercantilist tradeoffs.


charleskernaghanJune 12, 2007

Charles Kernaghan

The United States grants greater market access and imports more goods from the developing world than any of the other major markets—including the European Union and Japan.  Even in 2002, a full two-thirds of imports entered the United States duty-free.

We are not only hemorrhaging well-paid manufacturing jobs, but according to research by Princeton University professor and former Federal Reserve Board vice chair Alan Blinder, as many as 40 million white collar jobs could be outsourced over the next decade or two.

Mr. Barfield has determined that workers do not need laws to protect their basic legal rights.  On the other hand, Mr. Barfield does not complain that corporations have demanded and won all sorts of laws—intellectual property and copyright laws—backed up by sanctions to defend their trademarks and products.  These same corporations refuse to extend similar laws to protect the rights of the 16-year-old girl in Bangladesh who sewed the garment.  The companies say this would be an “impediment to free trade.” So as things stand now, the label is protected, but not the human being who made it. Outside the Beltway, the American people feel this is ridiculous and immoral.

Ninety percent of Americans believe that corporations have too much control over our government and 69 percent have no trust in global companies to operate in the best interests of society.

A report in May 2006 noted that tens of thousands of foreign guest workers were trafficked to Jordan, where they were stripped of their passports and held under conditions of involuntary servitude in factories exporting duty-free to the U.S.  In the Western factory producing for Wal-Mart, they were forced to work 16 to 20 hours a day, seven days a week, without pay.  Workers who passed out from exhaustion were struck with a ruler to wake them.  Young teenaged girls were sexually abused.

In Guatemala, according to a March 2007 report, 13-year-old girls were forced to work 12 to 14 hours a day processing broccoli for export to the United States.  Despite near freezing temperatures, the children were forbidden to where sweaters, as management feared that lint could get into the produce.  Everyone was sick.  The girls worked standing all day in an inch of water.  Their feet would swell, crack and bleed.  No one received the legal minimum wage and everyone was cheated of their overtime pay.

The vast majority of American people find such exploitation abhorrent, which is why we need—and will win—laws to protect the rights of workers that are as strong as those afforded to corporate profits.


claudebarfieldJune 11, 2007

Claude Barfield

Charles Kernaghan opens his comment with a flat misstatement, and the analysis goes downhill from there: “The United States is the most open market in the world, bar none.”   Has he ever heard of our fellow WTO members, Singapore and Hong Kong?  Or of U.S. anti-dumping actions; trade barriers on sugar and rice;  textile and clothing quotas/tariffs that impoverish least-developed economies while raising the price of essential goods for the poorest U.S. consumers; or agricultural subsidies that depress world prices for developing country crops such as cotton and essential grains?

Moving on, the record U.S. trade deficit he bemoans is the result of a multitude of factors, but the most important derive from flawed U.S. domestic policy.  Put simply, the United States for decades has persistently failed to amass enough public and private savings to cover its consumption and investment—therefore, we depend on others to do this for us, with imports of both capital and goods.  Free trade has nothing to do with this, and calls by some Democrats and labor unions to cut back imports from nations such as China or Japan are futile: so long as we persist with our own profligate ways, imports from these alleged culprits would just be replaced by goods from other nations.

If labor standards are the key to the “brutal exploitation of workers across the developing world,” why do democratically elected leaders of major developing countries so fiercely resist including them in trade agreements.  Recently, India’s leaders told the European Union to “stuff it” when the EU attempted to foist extraneous social issues into trade negotiations.   And Brazilian President Lula da Silva, a former trade union leader himself, has refused to negotiate a hemispheric FTA that included labor standards.

Why are these developing country leaders so adamant?   It is primarily because they see that the demands do not stem from any high-purpose altruism but from more base motives related to economic advantage. As the distinguished trade economist Jagdish Bhagwati has correctly noted, they see these demands as a form of “non-transparent and invidious export protection.” (Letters, Financial Times, February 2, 2007) Rather than push for outright protection through tariffs and exposing themselves to strong criticism from northern NGOs, those demanding labor standards aim to achieve the same result through the mandated increase of labor costs for developing country competitors.  Thus, they hope to salvage dying industries in the developed world on the backs of developing country laborers.


charleskernaghanJune 11, 2007

Charles Kernaghan

The United States is the most open market in the world, bar none.

On the other hand, last year’s record trade deficit of $764 billion is, by all accounts, unsustainable.  Despite surging worker productivity gains of nearly 20 percent since 2001, more than three million good-paying manufacturing jobs have been lost, real wages are stagnant and annual household income is down by $2,000.  A worker losing his or her job today has a 73 percent chance of either not finding work or returning to work at a lower wage and benefits.  Today, the middle class in the United States is being destroyed.

Wall Street knows exactly what is going on, proclaiming that U.S. wages and benefits—especially those of union members—are no longer sustainable in the global economy. 

The other face of our failed trade policies is the brutal exploitation of workers across the developing world who are producing goods for export to U.S. companies.

Halima worked in the Harvest Rich factory in Bangladesh assembling Hanes underwear for sale in Wal-Mart.  She worked standing, 14 hours a day, seven days a week.  If she fell behind her production goal or made a mistake, her supervisor—a man much larger than she—would violently slap her face.  Halima is 11 years old.  They paid her 6 ½ cents an hour, 53 cents a day and just $3.20 for the week.  Over a million young women garment workers in Bangladesh are being cheated of the legal minimum wage due them.  This is just one of countless stories that could be told. 

Without enforceable worker rights standards in the global economy, corporations are free to pit American workers against other workers in a race to the bottom based on who will accept the lowest wages, least benefits, fewest rights and most miserable living and working conditions.

It does not have to be this way.  The good news is that things are about to change.  Under the leadership of Sen. Byron Dorgan (D-SD)and Rep. Michael Michaud (D-ME), anti-sweatshop legislation has been introduced in both houses of Congress with bipartisan support.  The Decent Working Conditions and Fair Competition Act will for the first time hold corporations legally accountable to respect worker rights.  The legislation bans the import, sale or export of sweatshop goods that are made under conditions which violate local labor laws or the International Labor Organization’s core internationally recognized worker rights standards.

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