Documente Academic
Documente Profesional
Documente Cultură
∗
Universidad San Pablo CEU, Madrid, huroca@ceu.es
†
Universidad San Pablo CEU, Madrid, pargerey@ceu.es
Copyright
2008
c The Berkeley Electronic Press. All rights reserved.
Social Dumping: The Debate on a Multilateral
Social Clause∗
Inmaculada Hurtado and Patricia Argerey
Abstract
Competition between countries has rapidly increased in the current context of economic glob-
alization. Both indirect competition (through trade) and direct competition (through illegal immi-
gration) can breed social dumping, exerting downward pressure on labor conditions in developed
countries. In this paper we show the need for a social clause in order to prevent firms from illegally
obtaining a comparative advantage. The adoption of a social clause, based on agreed labour rights
by all signatories to ILO Conventions and on the compliance by multinationals, would eliminate
social dumping.
Linking labor standards and trade at the multilateral level has received a lot of criticism. Some
claim that this is just another strategy to masquerade the protectionist ambitions of developed
countries. We believe that it should be adopted at the multilateral level in order to favor an ethical
behavior in both trade and investment. This is particularly crucial for less developed countries that
have inserted themselves in the international economy.
A balanced analysis of the arguments in favor and against the adoption of a social clause reveals
that there is a patent need for an international harmonization of workers’ rights regardless of the
instruments.
∗
Martha Carro Fernández has translated this article from its original in Spanish.
Hurtado and Argerey: The Debate on a Multilateral Social Clause
1. Introduction
The relationship between international trade and labor market conditions has been
subject to analysis for some time now. Trade liberalization has resulted in short-
term production and employment redistribution at the international level. To be
sure, production and employment increase in those economies that experience the
highest productivity efficiency while decreasing in those economies with lower
productivity levels. In the long term, trade has a clear positive effect both on
employment and salary levels1.
There are three critical perils that put at risk the benefits obtained through
trade liberalization: (a) the increase in salary divergences among the countries that
have liberalized trade; (b) the increase in salary differences between skilled and
non-skilled workers; and (c) changes in labor patterns within sectors. Trade
liberalization and increased capital and labor international mobility have forced
certain firms to look for cost-reducing strategies that enable them to achieve
higher indices of international competitiveness. It is important to point out that
trade liberalization coincided, since the late 80s, with international capital flow
liberalization. While capital has not flowed as expected from rich to poor
countries, lower relative costs in developing countries has certainly attracted
international firms seeking to become more competitive at the international level.
Resource seeking investment and its impact on the labor market is one crucial
aspect of our investigation. This type of horizontal investment can encourage
firms to consider low labor standards as a location factor that improves the firm
comparative advantage. On the other hand, developing countries seek to attract
this type of investment either as a financing source or as tool to increase their
export competitiveness vis-à-vis other developing economies. There are,
therefore, changes to the traditional international economic scenario. Developed
countries are witnessing how their relative dominance over international trade is
being threatened by several developing countries, such as China and India.
This article is structured in three sections. We first analyze the current state of
the issue by exploring whether industrialized countries are extracting an
illegitimate comparative advantage through relatively lower labor standards,
therefore incurring in social dumping, or whether such standards are linked to a
given development level. Secondly, we define social dumping and social clause
and explain the options available to regulate, at the multilateral and regional level,
international trade and labor rights. Finally, we analyze the main arguments in
favor and against the implementation of a multilateral social clause as a tool to
improve international trade.
1
Some of the most recent studies on trade and labour are Harvey, et. al. (2007); Jansen and
Lee (2007); and Dehesa (2007).
2
Chan and Ross (2003).
3
Other labor conditions that do not affect labor costs are kept at a minimum level.
4
Cordella and Grilo (1998).
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
5
Golub (1997).
6
Lim (2007).
7
Malaysia, for example, has enacted legal restrictions to the workers’ right of association in
the electronics sector where the country enjoys a strong comparative advantage.
8
ILO is a United Nations agency that seeks to promote labor rights, encourage decent
employment opportunities, enhance social protection and strengthen dialogue in handling work-
related issues. (ILO, 2007). The organization organizes periodical international summits, reviews
the labor rights policies of its members, it issues recommendations and encourages the signing of
international conventions. However, the ILO does not enjoy enforcement capabilities. The
International Labour Organization (ILO) is devoted to reducing poverty , achieving fair
globalization and advancing opportunities to obtain decent and productive work in conditions of
freedom, equity, security and human dignity. As a tripartite organization the ILO works with
governments, employers and workers' organizations. Through the engagement and commitment of
its tripartite constituents, the ILO plays a major role in facilitating the integration of the Decent
Work Agenda into strategies for poverty reduction and a fair globalization.
developed countries revealing the influence of new domestic factors as well as the
dependence on migrant workers9.
We believe that in facing social dumping it is necessary to adopt a social
clause as a multilateral mechanism that prevents certain firms from taking
advantage of relatively lax labor regulations and from the violation of labor
standards commonly accepted by the vast majority of WTO countries.
On the other hand, the introduction of a social clause in international trade
agreements, both South-South and North-South, has been put forward to avoid
unfair competition through labor standards violations. The social clause option is
especially relevant given the sharp increase in the number of trade and integration
agreements signed in the last two decades. Such increase is even more poignant in
the case of developed and transition economies.
Recently, several regional integration agreements signed by Latin American
countries include the protection of basic labor rights. Among these agreements,
we cite the 1994 North American Agreement on Labor Cooperation (NAALC)
linked to NAFTA, the 1997 Canada-Chile Free Trade Agreement, the 2002
Canada-Costa Rica Free Trade Agreement and the Dominican Republic-Central
America-United States Free Trade Agreement; and the recent Trade and
Investment Framework Agreement between the Eastern Republic of Uruguay and
the United States of America (January 2007).
Graph 1 shows the percentage of trade agreements signed between developed
countries (DC), less developed countries (LDC) and transition economies (TC)
vis-à-vis total trade agreements according to WTO data. As it is clear from graph,
more than 25% of trade agreements signed by 2005 involve countries with
different degrees of economic development (North-South). Moreover, more than
20% of the total corresponds to agreements between LDCs. These figures show
that almost half the agreements are susceptible of social dumping practices
suggesting the need for the adoption of a social clause at a regional level.
9
Within Europe, unemployment and migration (the so-called polish plumber) together with
the influence of mass media have revealed working conditions in sweatshops located in
developing countries. This, in turn, has resulted in increased awareness on social dumping among
trade unions, public opinion and politicians.
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
13%
29%
26%
5%
21% 6%
Source: Authors’ own elaboration based on WTO data updated up to February 2005. DC:
developed countries; LDC: developing and less developed countries; and TC: transition
economies.
The debate over the protection of basic human rights has drastically changed in
the last twenty years. While the first insights on the relationship between labor
standards and international trade dates from the mid-XIX century10, the debate
was energized during the GATT’s Uruguay Round.
The arguments have experienced a sharp change since the conclusion of the
Uruguay Round. The reason for this change has already been advanced. The
tradable goods that are more susceptible to international competition encourage
more competition between South-South than among North-South economies. Low
wages and labor standards conveyed through international trade to developing
countries are no longer a threat to their living standards. In turn, migratory flows
become a key analytical variable. To be sure, foreign labor force could replace
the domestic one, especially in the informal sector where hiring of immigrants is
critical and does not generally comply with labor standards and/or public health
and safety regulations.
10
Sengerberger (1991).
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
11
The purpose of the generalised system of preferences (GSP) is to assist developing
countries to reduce poverty by using tariff preferences to help them obtain international trade
revenue. The GSP applied by the European Union since January of 2006 includes three different
schemes: the general scheme, the scheme of incentive to sustainable development and good
governance gobierno (GSP+) and the Everything But Arms initiative. The GSP+ replaces the
former drugg production and trafficking scheme and the environmental and social incentives
regime. The products included in this framework are almost all industrial products and a relevant
group of agricultural and fishery products that become tariff-free. The GSP+ is granted to
countries considered as vulnerable that, among other requisites, ratify and effectively apply 16 UN
and ILO human rights and labor standards conventions. The scheme retains the right to temporaly
suspend the preferences granted to countries that incurre in severe and systematic violations of
human rights and labor standards and/or unfair trade. See CE Council Regulation nº 980/2005
(June 27, 2005) relative to the application of a generalized system of preferences, DOUE L 169/1
(June 30, de 2005).
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
4. Conclusions
Although the debate about the need for a social clause has been in stand-by mode
for several years, academics and politicians should not be alarmed by the
reluctance of some developing countries to link basic labor standards to
international trade. Moreover, the debate over the issue cannot cloud the pressing
need for the international protection of human rights. It is necessary to engage in
the conception of a transparent multilateral device, such as the social clause, that
compels countries to comply with the basic labor standards contained in the ILO
Declaration (See table 2 in the annex).
Social policy is currently leading many crucial integration processes at the
regional level. The disregard for the social clause could even result in the
dismantling of the open character of regional integration negotiations. From the
perspective of bilateral trade agreements it seems unreasonable not to include a
social clause; first because North-South agreements cannot seek to obtain
illegitimate comparative advantages and secondly because South-South
agreements cannot carry out a race to the bottom.
It is not suitable to blend economic matters, such as the minimum salary and
working conditions, with moral aspects such as individual freedoms. A social
clause must not include wage regulations. While the social clause should embrace
workers’ rights to trade union representation and guarantee collective bargaining,
it should not establish an international minimum salary.
Moreover, any social clause scheme must impose sanctions on the violation of
internationally agreed labor standards. The sanction system could be designed
along the lines of the principle of negative conditionality. Examples include the
barring from agreements that grant preferential trade status such as the GSP used
by the European Union and the United States or the Most Favored Nation Clause;
the adoption of quotas or any other quantitative trade barriers, and; the enacting of
full restrictions on imports of specific products manufactured by the non-
compliant countries.
The social clause should exclusively include labor regulations that comply
with universally agreed principles. It is, therefore, crucial that it is based on the
existence of a multilateral consensus on the aspects to be included, that is, on the
basic labor standards. Currently, there are eight basic labor standards agreed
within the framework of the ILO Collective Labor Conventions (table 2 in the
annex). There are four additional principles that are considered as institutional
priorities (table 3 in the annex).
Finally, we also need to take into account the role to the played by the
multilateral institutions. We believe that adopting the social clause within the
framework of the World Trade Organization (WTO) could be interpreted as a
trespassing of the institution’s purpose. However, the WTO is responsible for the
cooperation with the rest of international organizations and could create a new
pillar within their organizational chart oriented towards the cooperation with the
ILO. Such inter-institutional body should (a) analyze and monitor the multilateral
compliance with a minimum degree of workers’ rights and the evolution of trade
agreements that include a social clause and (b) become responsible, as a dispute
resolution system, for all the international aspects of the trade-labor relationship.
As a matter of fact, given that the ILO Conventions do not seek to impose an
inflexible harmonization of labor standards, the aforementioned mechanism could
be interpreted as a review of ILO’s responsibilities enhancing its role.
To sum up, the adoption of a social clause refers to the inclusion of legal
provisions that prohibit labor exploitation in both, international and regional trade.
This mechanism would also enable multilateral institutions, such as the WTO and
the ILO, to act as dispute settlement organizations by adopting retaliatory
measures against those countries that do not comply with a set of minimum
agreed labor standards when producing and exporting certain goods and services.
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Hurtado and Argerey: The Debate on a Multilateral Social Clause
Annex
References
Abarca, O. (2002), La cláusula social y la ventaja comparativa ilegítima, Revista
InterSedes, Vol. III: 5, Digital Edition 06/01/2006.
Bhagwati, J. (2001), Free trade and Labour, Nihon Keizai Shimbun, September
10th.
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