Asia's Race to Capture Post-MFA Markets: A Snapshot of Labor Standards, Compliance, and Impacts on Competitiveness

Article excerpt

Labor regulations designed to protect workers, promote workplace equality, and improve working conditions achieve social objectives and affect international competitiveness. Considering these dual outcomes has taken on added urgency as Asian economies adjust to an increase in global competition in textiles and clothing following the end of the Multi-Fiber Agreement, with large projected gains for the People's Republic of China and potential losses for other Asian producers. Countries that stand to lose from the MFA phase-out face low cost and high quality production from the People's Republic of China, whose competitive threat lies in its extremely poor compliance record with its own and international labor standards. Yet empirical evidence generally supports the argument that the costs of raising and enforcing labor standards are offset by dynamic efficiency gains and macroeconomic effects. This evidence supports the case for Asian economies to pursue the "high road" in their race to capture post-MFA markets in textiles and clothing.

I. INTRODUCTION

Labor standards that protect basic worker rights, enhance workers' job security, and improve their terms of employment may have the unintended effect of raising labor costs and undermining international competitiveness. Considering the potential tradeoffs between social objectives of labor standards and their economic competitiveness has taken on added urgency as textile- and clothingexporting countries in Asia adjust to a sudden increase in global competition following the end of the Multi-Fiber Agreement (MFA). Quota eliminations are expected to cause significant changes in world patterns of textile and clothing production and trade, with large expected gains for the People's Republic of China (PRC) and India and potential losses for most other low-cost producers that are not protected with alternative favorable trade arrangements (USITC 2004, OECD 2003). Any shift in production will cause disproportionate job losses for women workers, especially in clothing production where they constitute around three quarters of employment.1 The PRC's competitiveness in textiles and clothing stems from a combination of factors, including low labor costs. Less clear is the extent to which the PRC's low labor costs are explained by weak labor laws.

Global policy dialogues are focused on what countries can do to respond to this change in trade rules. One potential response of Asian exporters is to dismantle or weaken labor regulations in order to compete with the PRC on the basis of labor costs. This option is consistent with the policy conclusions of static microeconomic theory that shows the adverse effects of labor regulations on the demand for labor. Alternatively, these countries could increase compliance with labor market regulations and invest in the skills of workers. Such measures allow the pursuit of an export strategy that enhances international competitiveness on the basis of higher labor costs consistent with higher productivity. This strategy is supported by an argument that highlights dynamic microeconomic efficiency gains, macroeconomic effects, and social benefits from higher labor standards. Either strategy could also be enhanced by improvements in nonlabor costs, such as infrastructure, ease of entry, and operations in order to enhance international competitiveness. Given the high share of female workers in textiles and clothing, either of these options will have gendered effects.

This paper evaluates which scenario is more likely by examining the theory and evidence on the relationship between labor standards and international competitiveness. We also examine statutory labor regulations and actual compliance across Asia to determine the PRC's relative standing on labor standards. Our findings indicate that the PRC has low labor standards both in terms of its ratification of International Labour Organization (ILO) conventions on core labor standards and its national laws on the core standards, job security provisions, and terms of employment. …