The World Trade Organization and the Social Clause

Article excerpt

The conclusion of the Uruguay Round and the birth--after 47 years in gestation--of the World Trade Organization (WTO) have given rise to a debate on the possibility of linking free trade to a social clause. Its purpose would be to make the reduction of trade barriers prescribed by the General Agreement on Tariffs and Trade (GATT) subject to a condition, namely, observance of minimum labour standards. While some claim this would ensure fair competition, others see it as a disguised form of protectionism and still others as a means of ensuring an equitable distribution of the benefits of free trade or protecting the basic rights of workers more effectively.

"There is no one ready-made product called the social clause which should or should not be integrated into trade policies and measures. There are many explanations and very many misrepresentations, some of them deliberate, on what we mean by this issue". This comment by Mr. Tapiola, the Workers' delegate of Finland to the International Labour Conference,(1) illustrates the flavour of the current debate. It reflects the contradictions and tension between economic globalization and the world's institutional fragmentation. Can the growing liberalization of trade, capital flows and choice of industrial locations proceed without a set of rules especially social rules--applying on the same worldwide scale? The scope of today's rules tends to be regional. Another issue is the substitution of multilateral action for unilateral countermeasures, which still predominate in cases of alleged unfair competition. This, in turn, raises a corollary question as to whether such multilateral action should be based on cooperation or on compulsion. At the heart of the debate lies the interdependence of economic development and social progress. Yet, proponents and opponents of the social clause have not necessarily taken sides according to the traditional divides between workers and employers or governments of the North and governments of the South.

FROM HAVANA TO MARRAKESH

Under the Havana Charter, adopted by some 20 countries at the first World Trade Conference in 1948, member States "recognize that all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit". The Conference also decided to establish an International Trade Organization with the aim of promoting international trade. But the ITO never materialized, largely because the Congress of the United Sates failed to ratify it. The Havana Charter remained a dead letter. However, the transitional arrangement, i.e. the GAIT, lasted 47 years and completed eight rounds of trade negotiations, the latest of which has just been concluded with the signing of an agreement that provides for the establishment of the World Trade Organization (WTO). In the meantime, the number of States parties to the GATT increased from 22 to over 120 and the value of international trade from some US$ 25 billion to more than US$ 3,500 billion; and the developing countries had stepped onto the stage originally dominated by the industrialized countries.

THE BIRTH OF THE WTO

The Uruguay Round has achieved the most significant breakthrough to date in liberalizing world trade in goods and services. Tariffs are to be slashed by up to 40 per cent and reduced to less than 5 per cent on average. The industrialized countries will scrap them altogether in eight sectors, including pharmaceuticals, building materials, medical equipment and farm machinery. Textiles will be gradually brought back within the ambit of the common regime through the lifting of quotas imposed on developing country exports to the rich countries under the multifibre agreement. For the very first time, services will be--at least partly--subject to the rules of international trade. Trade in agricultural products will be liberalized through a reduction of export subsidies and the conversion of existing non-tariff barriers into tariffs. …