Should Core Labor Standards Be Imposed Through International Trade Policy?

Numerous proposals have surfaced recently to incorporate a labor-standards clause into the rules of the World Trading Organization (WTO). Such a clause would require recognition and enforcement by each WTO member of certain core labor standards (CLS): freedom from forced labor, absence of discrimination, elimination of exploitative use of child workers, and rights of workers to associate freely and engage in collective bargaining with employers. Failure to provide CLS would then be subject to international trade sanctions. This paper analyzes linkages between CLS and international trade policy. It develops a series of simple models to see whether limitations on CLS in export sectors of developing countries can result in improved price competitiveness in export markets. Perhaps the main conclusion is that deficient provision of CLS, rather than improving export competitiveness, generally diminishes it because of the distortionary effects of such deficiencies. This comes through in a wide class of models of discrimination and repressed labor rights. Therefore, widely expressed concerns about the negative impacts of limited standards in developing countries on employment, wages, and labor standards in developed countries are largely misplaced. One exception is the exploitative use of child labor, which could expand exports in highly laborintensive sectors. However, the theory indicates that potential wage spillovers into developedeconomy labor markets must be trivial, while there is no empirical evidence that the use of child labor provides measurable competitive advantages. The primary policy issue addressed is whether there is a legitimate and effective role for international trade sanctions in penalizing countries that fail to observe CLS. The analysis points out that trade restrictions are blunt and indirect instruments that could be counterproductive in that they harm the individuals they are designed to help, and are ineffective at achieving their goals. There is little economic basis for a social clause based on labor standards in the WTO, while the approach bears considerable promise for reducing global efficiency in return for small gain. Better approaches may be designed. For example, compensation programs from wealthy countries that are concerned about CLS, focused directly on poverty alleviation and improved educational access, are likely to be far more effective and less costly than trade restrictions in discouraging the use of child labor. The paper also reviews major international institutional policy frameworks for dealing with CLS, including procedures of the International Labor Organization (ILO). Ratification by member countries of the ILO Conventions aimed at protecting fundamental workers’ rights is sporadic, suggesting that the existing approach to procuring global agreement on CLS is ineffective. There is scope for improving ILO monitoring and publicity efforts in order to raise consciousness about labor standards.