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close this bookThe Courier N 145 - May - June 1994- Dossier : European Union: the Way forward - Country Report: Ethiopia (EC Courier, 1994, 104 p.)
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View the documentSocial clauses in trade - Protecting the rich or helping the poor?

Social clauses in trade - Protecting the rich or helping the poor?

In the end, the social clause did not make it to the official signing ceremony of the GATT agreements in Marrakesh on 15 April. Its detractors, particularly the fast-growing developing nations of South East Asia and Latin America, only had to put up with a brief mention of social rights in the chairman's speech. But they heard the gunfire and, in managing to duck it, they probably won only a battle, not the war. The USA. the European Parliament, the Commission, the unions and the champions of human rights in developed and developing countries alike want the social clause, K for different reasons, and with different commitments, and they intend returning to the attack. The social clause will be on the agenda of the World Trade Organisation (WTO) which is taking over from GATT on 1 January next year.

For weeks, in fact ever since Bill Clinton's January meeting with Jacques Delors, President of the Commission, and Mr Papandreou, Prime Minister of Greece and President of the European Council, the United States had been pressing for the social clause to be included in GATT at the closing session in Marakesh on 12-15 April, something they hoped would be more than just an official ceremony. And despite a few jarring notes, by and large Europe agreed with the Americans. But the underlying motivation on either side of the Atlantic was more than superficially different.

The public hearing which the European Parliament's Committee on External Economic Relations held in Brussels on 29 March confirmed Parliament's intention of adding a dose of social medicine to GATT or the charter of the future World Trade Organisation. But it also revealed that the various supporters of the new provision were far from being in step. The organisers of the hearing, which was open even to questions from the general public, very creditably gave the floor to people of every opinion; representatives of Parliament and the Commission, representatives of South East Asia and Brazil, American officials, delegates of international organisations such as theILO, employers' organisations, unions and NGOs. The USA pushed the interests of American workers, while the European Parliament stressed the unique social character of the proposal in its Sainjon report (so named after the rapporteur) for workers in countries which practised social dumping.

This report was apparently written with the didactic aim of explaining Parliament's position to the developing nations and heading off any witch hunt on a charge of protectionism. This went for form as well as content, for, after the official introduction, with the usual list of 'whereases', much 'considering' and the inevitable 'requests' to the Commission, the body of the report is almost journalistic in style, sometimes going so far as a set of questions and answers. There is the usual indictment of the over-exploitation of workers in many developing countries and, implicitly, of the social dumping that goes with it, to the detriment of countries with good welfare systems and high wages. The picture, in outline, is this:

The Europeans, used as they are to seeing the European economy as a counterweight to American influence in the North Atlantic, have been taken by surprise by recession, unemployment and losing their competitive position to Japan and the new industrialised nations in South East Asia (and, to a lesser extent, Latin America, led by Mexico and Brazil), particularly when it comes to new technology and labour-intensive industries such as textiles, clothing, leather goods, toys and assembly.

A new international division of labour has come about, with, typically, more and more industrial production delocating to (some of) the developing countries and production becoming increasingly internationalised because of the liberalisation of trade and capital movements, together with a shift in competition between the multinationals. This is encouraging new types of industrial practice, such as flexible specialisation, which keeps firms near their suppliers and customers as a way of cutting production costs and leads to a focus on national and regional markets.

As things stand, Europe, the USA and Japan form a world economic triangle, with the combined trade in the three units worth almost $1500 billion p.a. and the trade between them upwards of $1500 billion p.a. But delocation has brought in one or two outsiders to spoil the fun. More than 50% of the European Union's textile products now go to the countries of Central and Eastern Europe for processing and European firms see themselves as prime victims of social dumping. The USA may be leading the social clause crusade, but the initiative came from the countries of Europe. The President of the European Commission was the first to call for social norms in the GATT agreements a year ago and he was joined soon after by French President Frans Mitterrand and Prime Minister Edouard Balladur. In the USA, it was the anti-NAFTA (North American Free Trade Association) faction which originally pointed to social dumping in Mexico in a bid to sink the agreement.

The long history of social clauses

Social clauses in international trade are something we have all heard about but never seen. Ever since the International Labour Organisation (ILO) was set up in 1919, the question of fair labour standards has been up for discus sign. The need for a set of social norms, along with fair competition, was mooted in the allied negotiations before the end of World War II and there was some thought of enshrining the maintenance of reasonable labour standards in international trade in the Havana Charter, the forerunner of GATT, as early as 1948,. But when GATT itself was set up, it studiously ignored the problem, being anxious to safeguard comparative advantages (capital and brainpower for some and plentiful labour and raw materials for others), although it did prescribe import restrictions where work was done by prisoners. Parliament's report emphasises that the European Union has never applied this clause, but suggests that the time has come to do so in the case of the People's Republic of China, which is in the throes of economic revolution and stands accused of using what is virtually slave labour on a grand scale. Parliament in fact heard statements by an Amnesty International representative and a former inmate of one of the detention camps purporting to be industrial enterprises, in which millions of people are alleged to work. Since China is not a member of GATT, it could be forced to adhere strictly to the slave labour provision, the report maintains, if it wanted to join.

Social dumping - not really dumping at all

Typically, MEPs deplore the way the term social dumping is lumped together with the anti-competitive practice of dumping as defined and penalised by international regulations - an emanation of protectionism fuelled by a fear of the new economic dragons which are putting spokes in the wheels of European and American firms on all the world markets. The term 'social dumping' reflects a difference in labour costs in different parts of the world and does not, on the face of it, go against the theory of comparative advantages - unless it crosses the boundary into over-exploitation of workers to the point where it is morally reprehensible.

What we need to do now is draw the line beyond which that moral objection comes into play rather than make an all-out attack on social dumping. The ILO's international labour code already points the way with its bans on child labour and forced labour and its conventions on fair pay, the right of association and the right to collective bargaining, and the whole undertaking should be made easier by the fact that virtually all the countries accused have actually signed these conventions. But words are one thing, deeds are another. The head of the ILO told Parliament's hearing the deplorable fact that 200 million children around the world were working in poor conditions - 11% of children in Asia (in absolute terms, 44 000 000 in India alone), 20% in Africa and as much as 26% in some parts of Latin America in 1992. There are also many others working in relatively decent conditions. The head of UNICEF's European operations took the opportunity of pointing out some home truths to those normally found wagging the finger - the USA, for example, where 5.5 million 12-17 year - olds have jobs and where breaches of the child labour regulations increased by 250% between 1983 and 1990 - and deplored the situation in various Eastern European countries where hundreds of thousands of children had been squeezed out by economic liberalisation and thrown into the streets, where they were willing to work even for criminal organisations.

Parliament's proposal sets out to be more flexible than the ILO provisions by, say, accepting child labour within reasonable limits, for such things as helping with harvesting, but it prohibits long, exhausting work in places like carpet factories and the far worse case of parents selling their children into slavery to pay off their debts, as sometimes occurs in India.

And while its object is not to bring wages in developing countries up to the level of those in the developed world, it does plead for consultation between employers and employees.

Those in the anti-social clause faction were not short of arguments either. All maintained that they did not practice the kinds of forced labour so abhorrent to Parliament - the Brazilian Ambassador did reluctantly admit to a faint possibility of unorthodox practices in the far reaches of Amazonia, but said that the country was so big and surveillance so difficult that the government could not possibly be held responsible - and then put up a defence that was often more in the nature of an attack on protectionism by the rich. The extent of forced labour in the world was limited, they said, and accounted for a negligible percentage of international output. Non-tariff barriers in the shape of social clauses would have an adverse effect on consumption and public opinion, and social aims could be attained only through basic development. This is what had happened in the West over a very long period and it would be only fair to give the developing countries the same chance. The rich countries had the advantage of possessing capital, the poor had only their labour and raw materials. The poor countries were expected to pay their labour forces very well, so why, in the name of fair trading, were the industrialised countries not expected to fix the constantly tumbling prices of Third World raw materials at a proper level? The representatives of the new dragons said their piece on the delicate subject of child labour too, claiming that a lack of social security made child labour essential as a way of keeping children and their old or handicapped parents alive. They objected to a single moral standpoint being taken and suggested concentrating on proven infringements, something in fact already covered by various international regulations, including the European Commission's anti-dumping rules.


Several international accords - the rubber agreement of 1979, the tin agreement of 1981 and the sugar agreement of 1987 - already include social clauses and some western firms have set an example too. For instance, Migros del Monte, a Swiss cooperative, has an agreement (and the right to check that it is enforced) whereby its pineapple supplier in the Philippines has to provide social benefits for his workers. Levi's, which was invited to Parliament's hearing, is another, much-quoted example. This company, which manufactures clothing, one of the sectors most open to criticism, requires its subcontractors to adhere to very stringent specifications on child labour and forced labour, with the help of the local trade unions, and it has in fact withdrawn its business from China.

But this is just the tree hiding the forest. If MEPs are anything to go by, there can be no progress until there is a social code in the generalised system of preferences (GSP) and GATT. The Community GSP, which was started in 1971 and had a 10-year revision in 1992, should be ready this year. The Commission could go for the stick or the carrot - either a negative clause, eliminating or reducing the preference margins, or an incentive or positive clause to reward good behaviour with more preferences, an extension of the margins or other forms of aid for training children, health, the rehabilitation of political prisoners or the creation of free unions, all of which are likely to improve social criteria. MEPs are leaning more towards the carrot. In addition to the possible GSP measures, they feel that the social demands of international trade should be managed by GATT rather than the ILO, which is the developing countries' candidate, because the ILO has no means of coercion. How GATT or the organisation that takes over from it adopts the social clause is not a matter for enforcement, but for negotiation by all parties, and the resultant commitments will be controlled by a more powerful ILO.

The countries against introducing the social clause into international trade know the battle is a tough one and are willing to make sacrifices, but they are in favour of the ILO, and UNICEF when children's interests are at stake, rather than GATT.

But the ILO has sent the ball into touch. It is willing to join the debate, but refuses to be associated with restrictions on trade or the equalisation of social costs, which would be in contradiction with the dual principles on which it is founded - the beneficial effects of liberalising trade on development and cooperation rather than coercion. Its officials maintain that the right to sanction has to be left to an external 'secular arm', GATT of course. The ILO, along with the countries being accused, recognises that social dumping is virtually impossible to identify unless it involves flagrant abuse and that the way to encourage the developing countries to accept a social charter is by positive measures. It might well draw up a convention recognising GATT's role in this respect.

Unexpected alliances

A representative of UNICE, the European Union industrialists' union, claims social clauses are a pipe dream designed to protect employment 'here and elsewhere' at one and the same time. And he wonders what guarantee there is that sanctions will not be applied for protectionist reasons under media and public opinion pressure on the politicians. His opinion is by no means shared by all the members of his organisation and certainly not by those who are feeling the full force of competition from South East Asia. However, those who are shifting part of their production are setting themselves up as the heralds of total deregulation. And UNICE is not the only organisation with a fault line running through it - there are many others, starting with the European Union. Although France soon slid into the lead on opposing social dumping, the free market United Kingdom casts a very jaundiced eye on super-authoritarian regulation and the poorer countries of the Union, such as Portugal, are unhappy about accepting too strict a definition of child labour, which has not entirely disappeared from their territories - which is perhaps why the European Commission is taking its time over adopting a position on it. Jacques Delors, the President of the Commission, has always said he wanted to see social dumping fought, but the members are still not unanimous. Sir Leon Brittan, the Commissioner responsible for external trade, claims to be in favour of social clauses, but was very measured in his choice of words when he spoke to MEPs, and a top official in charge of applying the Community GSP was even more unforthcoming, in fact adding fuel to the opposition's fire by saying that all trade restrictions were incompatible with greater social progress and wondering what point there was in taking children out of factories to throw them on the streets - to the point where several MEPs urged the Commission to make its position clear.

The discussion on social clauses also provoked a number of unexpected alliances, with trade unions, human rights champions and ultra-protectionist lobbies all standing shoulder to shoulder.

But as the debate went on consensus seemed to emerge on one thing, and that is that, whatever international body makes itself responsible for introducing social clauses in international trade, decisions cannot be taken unilaterally and those accused must be warned in advance and given time to put their own point of view across before any penalties are exacted. That body is likely to be the WTO. For the rest, Parliament's public hearing was not supposed to be a round of negotiations, but a forum for all the parties concerned. But one party was conspicuously missing. The ACPs.