Linkages: Need to Bridge the Gap

November -2001

A multilateral competition policy appears to be one agenda item at the WTO where the developing countries might end up losers if they do not take part actively right from its formulation stage. It is immaterial whether they sign any final accord that emerges from the negotiations.


There are no two opinions about the importance and necessity of environmental and labour standards. But for the world trading system these issues are extraneous and any linkages with trade would further burden the bewildered and incapacitated South, which is in any case not getting a fair deal under existing trade regime.

There should not be any further contamination of WTO agenda with non-trade issues, which started off with inclusion of Trade Related Intellectual Property Rights (TRIPs) during the Uruguay Round (UR). We believe that “Two wrongs do not make one right” and since TRIPs is there, it does not mean that we can bring in anything and everything through the prefix: ‘trade related’.

Trade and Environment

The trade and environment debate has over the years undergone many changes and developments. While yesterdays’ priorities have lost their urgency, some new problems have become pressing issues. However, all of them need different set of solutions, which can be provided by organisations having specialisation in them.

We believe that there is no inherent contradiction between WTO and the pursuit of a high level of environmental protection. Even if we go by the recent history, most of the environment related trade disputes have gone in favour of environmentalists. Moreover, environmental objectives can be achieved outside the WTO, in expert organisations like United Nations Environment Programme (UNEP), in a much more effective manner.

The WTO Committee on Trade and Environment (CTE), in this regard, is making good progress on these issues for the last few years, and it should continue to discuss all ten items on its agenda to formulate a consensus among all parties.

EU’s Three Point Agenda

We are critical of the three point environmental agenda of the European Union (EU), which is motivated by protectionism and talks about issues of only its own interest. The EU should not forget that it’s insistence on these three items which include Multilateral Environmental Agreements (MEAs), precautionary principle and ecolabelling and lack of interest on problems of developing countries has been responsible for the slow progress in the CTE.

There is also a voice that if the EU is really concerned about the environment then it should focus on the burning issues of trade in domestically prohibited goods (DPGs) & toxic waste, and the relationship between environment and the TRIPS agreement, which are issues of immediate concerns.

While there seems to be no urgency to touch MEAs issue, monitoring of process and production method (PPM) standards is not only technically infeasible but also impossible for the WTO secretariat with an annual budget of merely US$100mn.

On the other hand, demand for precautionary principle is clearly mooted to protect the European farm sector. There is a general feeling among developing countries and rightly so, that since the EU is obliged to lower agricultural trade barriers, it will simply keep out farm products by finding some ‘green’ excuses.

Market Access and Environment

The potential of environmental measures including product requirements, standards and technical regulations, eco-labelling, packaging and recycling requirements which may negatively affect market access for the products of developing countries, need to be considered.

Also the impact of standards related to Sanitary and Phytosanitary measures and Technical Barriers to Trade on market access of developing countries has to be emphasised upon. Restricting market access by environmental requirements might backfire on the overall objective of sustainable development.

Trade in Domestically Prohibited Goods (DPGs)

DPGs are the products that are either banned or have severe restriction on their use in the country of origin, for instance certain pesticides, cosmetics and pharmaceuticals, but they are freely exported to other countries. Merchants of the poison in rich countries, which are otherwise very vocal about environmental issues are still producing these goods and exporting to poor countries and putting lives of millions at risk.

Ironically, the issue of DPGs was one of the firsts in the debate on trade and environment, but it is being discussed since the last two decades without any resolution or forward movement.

Multilateral Environmental Agreements (MEAs) and Trade Measures

Most of the developing countries have called the debate on MEAs, a non-issue. According to them this problem does not need fixing. Only 20 or so, out of more than 200 MEAs actually regulate trade or contain trade measures. Of these 20 or so, that have these provisions, even fewer are of notable significance to the environment-trade interface.

Furthermore, all MEAs are working effectively without WTO intervention and there is not a single example of an MEA that has been prevented from coming into being as a result of the WTO. The WTO should better focus on more pragmatic issues as they arise. Additionally Article XX allows for MEAs to take measures, necessary for the protection of the environment. Therefore, there seems to be no immediate need to clarify or amend Article XX of the GATT.

Furthermore in most of the cases positive measures have been more helpful in ensuring compliance rather than negative measures.

Trade Rules and Transfer of Environmentally Sound Technology

This is an important issue which is being discussed in the CTE, wherein generation, access to, and transfer of environmentally sound technology and products (EST&P), including the provision for financial and technology transfer in selected MEAs is being emphasised upon. These have to be further strengthened.

Additionally, the protection and enforcement of intellectual property rights should also contribute to the promotion of technological innovation and to the transfer and dissemination of technology, in a manner that is conducive to social and economic welfare and to a balance of rights and obligations.

Trade and Labour Standards

The debate between trade and labour standards has almost completed a full circle. It was during the 1996 Singapore Ministerial Conference, the WTO members renewed their commitment to the observance of internationally recognised core labour standards, rejected the use of labour standards for protectionist purposes and recognised that the ILO is the competent body to set and deal with core labour standards. The first Draft Ministerial Declaration (DMD), which was released by the General Council (GC) on 26th September 2001, once again reaffirmed the declaration made at Singapore.

Between Singapore and Doha, it has seen many ups and downs, touching its peak level at the Seattle WTO Ministerial Conference in 1999. The issue of labour standards might be down today but it is definitely not out of the ambit of the WTO. Since the 1999 Seattle Ministerial Conference, protagonists like the USA have softened their stance but we are still far away from any convergence of viewpoints.

Some of the hardcore proponents like International Confederation Free Trade Unions (ICFTU) and the American Federation of Labour – Congress of Industrial Organisation (AFL-CIO) have not budged an inch from their original position. Moreover, the USA is trying to enforce it through bilateral and regional trade routes. Developing countries are equally stubborn in their opposition to any such linkages.

Evaluating the Case for Linking Trade and Labour Standards

The two main arguments generally given by protagonists of linkages between trade and labour are “race to the bottom” and unfair competitive advantages for poor countries. Both these arguments lack theoretical and empirical support.

The “race to the bottom” has infact turned out to be “race to the top”. United States, the most vocal proponent of linkages received more foreign investment than all the developing countries put together. The FDI in US increased from $11bn in 1991 to $280bn in 2000. During the same period FDI in all developing countries put together increased only from $39bn to $240bn.

This “race to the top” raises its own questions. The poorest nations remain by and large isolated from trade and investment. The above empirical facts clearly show that the US is not having any competitive disadvantage because of high wages and workplace standards. Thus, the fear of a “race to the bottom” in which companies abandon nations with high labour standards to find low wages is simply unfounded.

The assumption that low standards confer an “unfair advantage” finds little support either in theory or in practice. In a 1996 study of trade and labour standards, the Organisation for Economic Cooperation and Development (OECD) compared the export performance with enforcement of labour rights, in particular freedom of association. The study concluded, “There is no evidence that low-standards countries enjoy a better global export performance than high-standards countries”.

There are some more empirical evidences, which counter the argument of linking trade with labour standards. According to a study by the US International Trade Commission, wages, salaries, and labour standards are higher in export-oriented sectors than in those that produce non-traded goods. A report by the US Department of Labour found: “Only a very small percentage of all child workers, probably less than five percent, are employed in export industries in manufacturing and mining. And they are not commonly found in large enterprises; but rather in small and medium-sized firms and in neighbourhood and home settings”.

The Role of ILO

In recent years, more particularly since the 1999 Seattle Ministerial Conference, the International Labour Organisation (ILO) has shown some degree of increased activism. A number of positive initiatives have been undertaken to strengthen monitoring of core labour standards by the ILO. Since October 1995, the number of ILO Member states ratifying all of the original fundamental conventions has more than doubled. The number of countries that ratified all ILO fundamental conventions, which form the core labour standards increased from 27 in 1996 to 63 in 2000.

In June 2001, after seven years of indecision, the ILO agreed to take the lead in multilateral discussions on the social dimension of globalisation. The ILO’s existing Working Party on the Social Dimension of Globalisation, which includes representatives from government, employer groups and labour unions, has agreed to boost its mandate.

Very recently, the ILO sent a high level Mission to Myanmar to assess the actions by the government concerning forced labour. This is for the first time that the ILO had an opportunity to travel around a country to make its own direct assessment of the forced labour situation.

These are definitely steps in right direction and also vindicate the stand of many developing countries, who hold the view that ILO is the more appropriate forum to address labour issues.

Conclusions: What are the Solutions?

A close examination of various arguments in favour of linkages between trade and labour standards demonstrates that a logically consistent case does not exist. This issue requires solution both at the political as well as economic level. We need to bridge the gap between diverging viewpoints of the North and the South, which has to be addressed politically.

Secondly, the issue of labour standard is directly related to economic development. This is evident from the fact that most of the rich countries have relatively better labour standards. Moreover, the trade sanction approach instead of improving the standards, worsens it further. This has been proved in case of the child labour. So, if the international community is really serious in improving labour standards, the first things it should ensure that the WTO works to make trade more free and fair. And ILO should be given more teeth to deal effectively with the labour issues.

This Viewpoint Paper is written by Pranav Kumar and Sandeep Singh of and for the CUTS Centre for International Trade, Economics & Environment.


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