Labor issues in trade
The final act of the seven-year Uruguay Round of trade negotiations is now ready for signing in Marrakesh, Morocco, after the Trade Negotiation Committee in Geneva settled the dispute between the developing and the industrialized countries over the U.S. proposed clause to link trade and international labor standards. Such a link could indeed become a new source of non-tariff barriers that are the type of protectionist walls to be removed by the new multilateral trade agreement. They could also amount to linking trade and human rights.
It would indeed have been tragic had the proposal been accepted, because it would have created big loopholes for erecting new non-tariff barriers at the expense of proper implementation of the new global trade accord. However sympathetic we are to unemployment in the U.S. and most other industrialized countries, blaming their job losses on low-cost exports from developing countries is irrational. Trying to set and apply international standards to stem imports from developing countries would also be a futile exercise.
The clause would have been a massive setback for the current process of economic globalization, as it amounts to a rejection of a basic principle of economics that says a country will be able to create more jobs and output if it specializes in industries where it possesses the strongest comparative advantage. It is this international division of labor that has led to the adoption of the free trade pact.
Peter Sutherland, the chief of the General Agreement on Tariffs and Trade brought home the point when he noted in Toronto last month that resistance to economic restructuring in the advanced countries on the grounds of threats from cheap-labor countries will impoverish industrialized societies all the faster.
Almost all private-sector economists see it as totally wrong to blame the loss of manufacturing jobs in the industrialized nations on the violation of workers rights, that allegedly enables developing nations to "dump" exports.
Harvard University economist Robert Lawrence, who has conducted a study on the impact of trade on the labor markets in the industrialized countries, said that protection against cheap imports from the developing countries stifles the most dynamic part of the world economy. His study found that exports from the developed countries to the developing markets have been growing much faster than their imports from those countries.
Another noted economist, Paul Krugman from the Massachusetts Institute of Technology, concurred that it is a dangerous to blame the loss of jobs in the developed countries on imports from developing nations. After all, Krugman argued on the basis of official statistics in the U.S., manufacturing accounted for only 18 percent of gross domestic product and 17 percent of employment. In fact, he said, the domestic spending on goods has declined from 46 percent of total expenditures in 1970 to 4.07 percent in 1991 due partly to the low prices of imported goods.
The root of the problem, according to most economists, is low investment in human resource development and consequently low productivity growth. We wonder why the U.S., which has always boasted of being the champion of free trade, came up with such an insensible proposal. First of all, simply agreeing on a clear-cut definition of international labor standards would be a monumental, highly delicate task. Moreover, the living standards in a country are determined largely by domestic factors rather than by international market competition. That means that the lower costs of labor in developing countries can not automatically be seen as the result of violations of worker rights.