Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

Trade Labour Linkage Within WTO: The Conflict Of Protectionist

Rhetoric And Social Imperative
Ayushi Singh1

Introduction
The World Trade System has concerned itself with evolving priorities, reflective of
the changing dynamics of the world economy, since its formalised establishment
with the General Agreement on Tariffs and Trade (GATT) in 1947. This was
followed by its metamorphosis into the World Trade Organisation (WTO) and its
progress since then. This focal point of international trade has come a long way from
a “rich man’s club”2 with a relatively homogeneous membership operating on
traditional theories such as Ricardo’s Comparative Advantage to a stage where
varied perspectives, particularly in relation to developing economies, are
considered.2 By the eclipse of the GATT, the perception and scope of the agreement
had relatively expanded to incorporate provisions of exceptions, waivers, and
subsystems of preferences within the existing trade order aimed at addressing
concerns of developing countries.4 This contextual evolution of WTO as it
progressively added depth to the multilateral structure of trade has been significant
to its success. The author, through the course of this article, aim to analyse whether
the contentious proposition of trade-labour linkage is one of the elements that should
be considered at this critical juncture of impending upheaval within the trading
system. It attempts to answer the question of whether such social policy aims can
suitably be placed within an institution originating to dismantle economic barriers. 3

From one perspective, Labour Standard clauses become potentially relevant as a

negotiation point in bilateral trade agreements since import-competing producers of
developed countries find it in their interests to push for higher labour standards in

1
Penultimate year student of law, Dr. Ram Manohar Lohiya National Law University, Lucknow 2
Francine Mckenzie, GATT and Global Order in the Postwar Era (CUP 2020) 176.
2
WTO, ‘How the WTO Deals with the Special Needs of an Increasingly Important Group’ (WTO)
<https://www.wto.org/english/thewto_e/whatis_e/tif_e/utw_chap6_e.pdf> accessed 22 February 2022. 4 Jagdish
N. Bhagwati, Pravin Krishna and Arvind Panagariya (eds), The World Trade System: Trends and Challenges (MIT
Press 2016) 1-3.
3
Kofi Addo, Core Labour standards and International Trade: Lessons from Regional Context (Springer
Publication 2015) 4.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

the name of fair-trade4 to reduce the competitive advantage of low wage labour
intensive countries which they perceive as inherently unfair competition.
Moreover,it is argued that if some people can be forced to work against their will,
often for below-minimum wages, or even no wages at all, this reduces the demand
for labour and exerts downward pressure on wages and conditions of others.56The
term “race to the bottom” is often borrowed from the dissenting judgment 7 of J.
Brandeis to explain the perceived ripple effect of the competitive advantage gained
by way of low labour standards on the workers of importing countries.

While this represents a more “egoistical”8 reasoning governed by the purported

selfinterest of the more developed countries in protecting real wages and the labour
standards of their workers, it is supplemented by a more morally oriented argument
driven by “altruistic”9 intents of advancing labour standards worldwide since low
labour standards are likely to result in violation of workplace rights in the long-
term.10

This supportive stance on the matter of trade-labour linkage faces staunch

opposition from developing nations with low-cost export orientations such as
Brazil, Egypt, India, and Malaysia11 who built their case by poking holes in the
theoretical concerns raised by the side they perceive as protectionist in disguise
aiming to reduce the inherent competitiveness of the exporting countries.

4
Anuradha R.V. and Nimisha Singh Dutta, ‘Trade and Labour under the WTO and FTAs’ Centre for WTO
Studies Discussion Paper 9, 8 <https://wtocentre.iift.ac.in/Papers/Trade%20Labour%20Study.pdf> accessed 11
December 2021.
5
R. Zandvliet, ‘Trade, investment and labour: interactions in international law’, (Leiden University Repository,
6
) <https://scholarlypublications.universiteitleiden.nl/access/item%3A2977132/view> accessed on
4 December 2021.
7
Liggett Co. v. Lee 288 U.S. 517, 557–560 (1933).
8
Jagdish Bhagwati, ‘Free Trade and Labour’ 4 <http://www.columbia.edu/~jb38/papers/pdf/ft_lab.pdf>
accessed on 4 December.
9
ibid.
10
Jonathan P. Hiatt & Deborah Greenfield, ‘The Importance of Core Labour Rights in World
Development’(2004) 26 MichJ of Intl L39, 48.
11
Anuradha R.V. and Nimisha Singh Dutta, ‘Trade and Labour under the WTO and FTAs’ (n 5) 7.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

NLIU International Trade

Thus, an evaluation of both sides of the equation is required before one could argue
in favour of trade-labour linkage. The inclusion of raising standards of living and
sustainable development as WTO objectives in the Preamble to the Agreement
establishing the WTO alone is insufficient to posit that there is a glaring absence of
explicit provisions for enforcement of labour rights within the WTO mandate. Even
more so since this deliberate omission within the WTO Framework is not for lack
of discussions on the matter. It is so because the matter of trade-labour linkage has
been put under the microscope time and again 1213 at the instance of the developed
side of the world economy often represented by the United States and the European
Union.14

The Present Position of WTO

As it stands, the WTO members have expressed their outwardly support to a
narrower set of internationally recognised “core” standards, reflective of basic
human rights recognised internationally. The International Labour Organisation
(ILO) Declaration on Fundamental Principles and Rights at Work 15 reflects a
consensus on these core labour standards that include freedom of association and
the effective recognition of the right to collective bargaining; the elimination of all
forms of forced or compulsory labour; the effective abolition of child labour; and
the elimination of discrimination in respect of employment and occupation.

Pertinently, these core labour standards do not entail the controversial discussion of
other labour standards such as wages, working hours, vacations since a consensus

12
WTO, ‘A Difficult Issue for Many WTO Member Governments’
<https://www.wto.org/english/thewto_e/minist_e/min01_e/brief_e/brief16_e.htm> accessed 9 December 2021 14
Kofi Addo (n 4) 7.
13
ILO, ‘Declaration on Fundamental Principles and Rights at Work’(1998).

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
was difficult to reach and reassurances were assumed on the grounds that these
objectives could be realised under the umbrella right of “collective bargaining”.14

Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

Regardless of its importance, the minimum wage has not been included in the
fundamental principles of labour protection by the ILO. This is despite the fact that
in 2014 General Survey on minimum wage systems, the ILO’s Committee of
Experts on the Application of Conventions and Recommendations (CEACR)
suggested that there is renewed interest in minimum wage policy which could be
linked to the increase in the number of vulnerable workers, the widening income
inequality in many countries and concerns about the erosion of the purchasing
power of wages due to inflationary tendencies. 17

Moreover, since conventional trade theories as well as contemporary trade relations

rely extensively on comparative advantage owed to labour efficiency or factor
endowments and the differences in domains thereof for countries to manufacture
trade relations, the WTO has explicitly retained its support for their continued
existence.18 It can be argued that this is due to the apprehension that inclusion of
labour standards would operate to the detriment of the comparative advantage
enjoyed by ‘particularly low-wage developing countries’19. Conventionally, the
approach of WTO towards Labour Clauses has been to firmly reject the use of such
clauses as protectionist barriers to trade as agreed upon in the 1996 Ministerial
Conference of WTO in Singapore. Limiting its role to ensuring free trade flow for
sustainable growth and development, WTO asserts that flourishing international
trade and liberalisation encourages the promotion of labour standards. Moreover,

ILO, General Survey of the reports on the Minimum Wage Fixing Convention, 1970 (No. 131), The Minimum
14

Wage Fixing Recommendation, 1970 (No. 135) (Report III (Part 1B), ILC, 103rd Session, Geneva, 2014) 62–67.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
while it supports the progressive approach of the ILO in principle, WTO essentially
identifies labour concerns as the primary responsibility of the ILO and precludes the
enforcement of such obligations under the WTO mechanism.

Opposition to Trade-Labour Linkage

It is important to understand that labour standards other than core standards such as
minimum wage or working hours and conditions, can be seen to have a substantial

17
Fundamental Principles and Rights at Work: From Challenges to Opportunities, (ILO, Report VI, ILC, 106th
Session, Geneva, 2017) 16.
18
Singapore Ministerial Declaration (18 December 1996) WT/MIN (96)/DEC.
19
ibid.
NLIU International Trade

and direct impact on both sides of the equation. Firstly, they have the most direct
and tangible impact on living conditions for workers. Secondly, these categories of
labour standards clearly have a demonstrable impact on competitive advantage as
experienced by labour intensive exporting countries- as maintaining these standards
relatively low decreases their cost of production, which is conventionally associated
with higher trade.

However, the suggestion of enforcing such social clauses by way of trade sanctions
permitted within WTO is argued against on multiple grounds that empirically erode
the presumptions operated upon in favour of the linkage. A holistic understanding
of trade-market behaviour has led certain studies to conclude that countries with low
core labour standards do not necessarily enjoy a better global export performance
than high-standards countries; in fact, studies associate higher core labour standards
with economic growth and productivity. 15 Moreover, the proposition of race to the
bottom also lacks empirical support.

15
Dale Andrews and Douglas Lippoldt, International Trade and Core Labour Standards (OECD 2000) 33. 21
Robert Stern and Katherine Turrell, ‘Labour Standards and the World Trade Organization’ (WTO, 2003)
<www.wto.org/english/forums_e/ngo_e/labour_standards_e.doc.>.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
The opponents go a step further to highlight that the linkage could be fruitless in
terms of implementation since arguably mandatory standards will not improve
wages and working conditions of workers in poor countries. 21 In fact, immediate
enforcement of such standards might adversely impact the workers’16 economic
welfare worldwide, including developing nations along with developed and
industrialised nations. 17 Essentially, their argument boils down to opposing this
attempt at protectionism with the evasive position that the solution to the problem
lies in assisting developing countries to achieve economic growth and development
that, in turn, would enhance labour standards. 24 Jagdish Bhagwati18 makes another
pertinent observation that the incorporation of social clauses as enforceable under
WTO means relying on trade sanctions. However, understandably complex
problems such as child labour cannot be solved through trade sanctions and instead
require a ground-root approach with cooperation between the State and voluntary
sector instead of trade sanctions.

However, while these conclusions may appear obvious and correct in the first
instance to sufficiently declare the proposition of trade-labour linkage to be another
attempt at trade distortion, we need to lookbehind the curtain to analyse other
reasons for supporting the linkage.

The Rationale for WTO Intervention

The Limitations of ILO

Initially, it is pertinent to understand that the International Labour Organisation,

despite its success, has its limitations and lacks the persuasive factor of absolute
economic interests that is inherent to any negotiations that are done under the
purview of the WTO or trade negotiations in general. In the case of the ILO, the
adoption of the conventions is of a voluntary nature falling within the ambit of
private law as regulated by employment law practices pertaining to domestic

16
ibid.
17
Raj Bhala, ‘Clarifying the Trade-Labour Link’(1998) 37 Colum J Transnatl L 11, 17. 24
Kofi Addo (n 4) 6.
18
Jagdish Bhagwati, ‘Free Trade and Labour’ (n 8) 5.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
enterprises. The WTO law, on the other hand, deals with public international law by
restraining WTO Members from taking trade-restrictive measures and by ensuring
that a greater degree of equity in international economic relations is achieved.
Furthermore, the ILO conventions and standard settings are non-binding, and as
such, the ILO cannot legally enforce them, in sharp contrast to the provisions of
international trade law, which are legally enforceable. Thus, the proponents contend
that since ILO seems to lack the enforcement power to achieve compliance, the
WTO is the appropriate venue for setting legally binding standards protecting labour
rights, especially since the dispute settlement processes typically included in trade
agreements can be seen as a distinct advantage in ensuring that labour standards are
enforced.19 A significant advantage is that under the rules of the WTO, the reports
of the panel and the Appellate Body are automatically adopted by the

WTO Dispute Settlement Body, unlike the GATT era, whereby a WTO Member
could block the adoption of the panel report. 27
However, this proposition is tenuous at best when we assess the functioning of the
WTO currently. The infrastructural cracks within the member-consensus-driven
WTO28 have aggravated over the years to reach a critical point of breakdown of the
Dispute Settlement Understanding (DSU) which is primarily responsible for
enforcement of rights and obligations of members. WTO is plagued by stalled
negotiations pertaining to an amendment to the rulebook or progress on the
development agenda29, resulting in an increase in the number of regional, inter-
regional and bilateral agreements within members. 30 DSU faces inordinate delay and
blocked appointments, particularly rendering the Appellate Body ineffective. 31
Moreover, the recourse to DSU can be taken in accordance with Article XXIII:1 of
the GATT 1994 that allows claims where any Member considers that a benefit
accruing to it directly or indirectly under the GATT 1994 is being nullified or
impaired because of the failure of another Member to carry out its obligations. In
pursuance to this, any incorporation of labour clauses within the General Exceptions
as often proposed will put the onus on the Member state setting labour standards to
defend any challenges to them principally for violation of substantive obligations

19
Kofi Addo (n 4) 25.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
under WTO.32 This, instead of facilitating the universal transition towards higher
standards, would operate to the detriment of the purpose.
The Empirical Relation between Trade and Labour Standards

With this understanding of why the entire discussion is relevant for the WTO, the trade-
labour linkage is put more into perspective when we consider the economic parameters.
The empirical data exists in support of either side and certain studies

27
Arts. 16.4, 17.14, Dispute Settlement Understanding (WTO).
28
Article IX:1, Agreement Establishing the World Trade Organisation, 1995. 29 WTO, ‘Day 5:
Conference ends without consensus’ Geneva, 2003,
1<https://www.wto.org/english/thewto_e/minist_e/min03_e/min03_14sept_e.htm> accessed on 27 February
2022.
30
Kofi Addo (n 4) 10, 11.
31
Jennifer Hillman, ‘Three Approaches to Fixing the World Trade Organisation’s Appellate Body’, Institute of
International Economic Law Georgetown University Law Center
<https://www.law.georgetown.edu/wpcontent/uploads/2018/12/Hillman-Good-Bad-Ugly-Fix- to-WTO-
AB.pdf> accessed on 1 March 2022.
32
Appellate Body Report, United States- Standards for Reformulated and Conventional Gasoline, Report of the
Appellate Body 35 1.L.M. 626, 627, May 20 1996.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
happen to be in favour of affective correlation between progressive social conditions such
as minimum labour standards and the affluence of trade33. According to the
Organisation for Economic Co-operation and Development (OECD), core labour
standards will not necessarily affect comparative advantage negatively and indeed
may have a positive effect.34 Palley (1999) refers to evidence in the OECD 1996
study that, on average, countries that improved the rights of freedom of association
experienced an increase in GDP growth and manufacturing output in the five-year
period afterwards.35 However, the same cannot be said for minimum wage
requirements. While there is considerable research that favours a negative
correlation between labour standards and trade performances, the OECD refers to
Rodrik (1996)36 as a reliable study. Here in looking at a range of determinants of
comparative advantage, Rodrik found that labour standard variables are not
statistically significant overall with a caveat that when the sample is divided into
high- and low-income countries, the child labour variable becomes statistically
significant in some specifications. The OECD further discusses a methodological
weakness of studies that are carried out on the links between labour standards and
trade performance. Prevailing labour standards that are observed occur
endogenously, as a consequence of broader industrial or development policies seen
collectively. But the studies treat them exogenously37, such that impact of these
standards on corresponding trade metrics is seen only as a consequence of the
particular labour legislation instead of the larger policy context. Accordingly, this
leads to econometric results showing a positive correlation between export
performance and suppression of labour rights that are capturing the relative success
of various developmental strategies rather than the impact of labour standards
themselves.

35
Sarosh Kuruvilla, ‘Linkage Between Industrialization Strategies and Industrial Relations/Human Resource
Policies: Singapore, Malaysia, the Philippines, and India’(1998) Industrial and Labour Relations Rev 49, 635657;
Keith E. Markus, ‘Regulatory standards in the WTO: Comparing intellectual property rights with competition
policy, environmental protection, and core labor standards’ (2002) 1 World Trade Rev 144, 145-152. 36 Dale
Andrews (n 19).
37
Ibid.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
The False Conception of Competitive Advantage
However, even more significant than these debatable studies from either side of the
proposition that can be interpreted to suit the conclusions of the authors is that the
very foundation of the debate i.e. the supposed creation or reduction of competitive
advantage through its link to labour, can be put under the microscope. Ricardo’s
original theory is based on a perfect market while undeniably, numerous distortions
pervade global markets and the current trade order exists within various barriers to
free trade despite the obvious objectives of WTO and other trade bodies, such as
intellectual property protections, the marketing power of major brands,
anticompetitive practices, and large volumes of intra-corporate trade.20 Moreover,
the implication of this theory that high-wage countries would be unable to compete
with low-wage countries is heavily countered by economic theories that posit that
lower wages reflect low productivity levels, and such sector-specific variations in
productivity and costs determine trade patterns. 39 Consequently, it is often observed
that a relatively small portion of the world’s exports are traded in a perfect market
which implies that Ricardo’s theory has not truly materialised 21, meaning that
reasonably the debate of trade-labour linkage cannot be concluded entirely on
empirical studies influencing competition and economic growth.
Limitations of Liberalisation for Developing Countries

This provides us room to question whether the promise of trade liberalisation has
lived up to its true potential for developing countries to be an instrument for
alleviating poverty and promoting and protecting economic, social, and cultural
rights. In this respect, economists Joseph Stiglitz and Andrew Charlton reported in
2005 that, by some estimates, forty-eight of the least developed countries have
suffered annual economic losses of close to USD 600 million since they began
implementing WTO agreements,41 losses that no doubt reduced those states’
capacities to ensure economic, social, and cultural rights.

20
Joel R Paul, ‘Do International Trade Institutions Contribute to Economic Growth and Development?’ (2003)
44Va J Intl L 285, 292–96 <https://repository.uchastings.edu/faculty_scholarship/627/>. 39 International
Monetary Fund, ‘International Labour Standards and International trade’ (1997)
<https://www.imf.org/external/pubs/ft/wp/wp9737.pdf> accessed on 28 February 2022.
21
Dinah Shelton (ed), The Oxford Handbook of International Human Rights Law (OUP 2013) 646.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative
This arguably points to a systemic bias against developing nations within the WTO
which can arguably exacerbate the trade-labour linkage. However, another
perspective on the matter is the insufficiency of the current system to deliver on its
inherent objective of addressing poverty and living standards.
An interesting observation as to the objectives of WTO was made by Dani Rodrik 42
where he pointed out that while originally expanding trade was viewed as a means
towards the end of raising standards of living and encouraging sustainable
development- in practice, maximizing trade has attained significance and trade has
become the lens through which development is perceived rather than the other way
around. Further, according to Lacarte (Former Chairman of the WTO Appellate
Body, “behind the terminology of the Preamble of the WTO Agreement and the many
provisions. . . there is the living reality that affects untold millions of people. This is
a crucial facet of trade that is imperfectly conveyed and understood”.43
Significantly, it is often observed that while WTO strengthens the world economy
by promoting trade and investment, there is not necessarily a corresponding increase
in employment and income growth and in case there is, the quality of such
employment is dubious. This insight puts the issue of labour standard clauses into
perspective such that the swift side-lining of their significance in trade negotiations
appears fundamentally ignorant of the original principles of WTO.
Moreover, it can be argued that liberalization itself may trap a developing state in
primary production and low cost and unskilled manufacturing 44, where it has a
current comparative advantage owing to technological and investment limitations,
but which may prove to be disadvantageous in the long term since it operates on
eroding or preventing the installation of the requisite social security nets to prevent

41
Joseph E Stiglitz and Andrew Charlton, Fair Trade for All: How Trade Can Promote Development
(OUP 2005) 47.
42
Rodrik, One Economics, Many Recipes: Globalization, Institutions, and Economic Growth
(Princeton, NJ: Princeton University Press 2007) 213-214.
43
J.A. Lacarte, ‘Transparency, public debate and participation by NGOs in the WTO: A WTO
perspective’(2004) 7 J of Intl Economic L 686. 44 Dinah Shelton (n 39) 647.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

exploitation of the work force. This effectively calls for the promotion of certain
safeguards within the existing structure to prevent the impairment to the capacity of
states to engage in the progressive development of economic, social, and cultural
rights. This may be argued to cause shrinkage of the policy space for the developing
countries but the existing WTO rules impose liberalisation in a manner that
threatens the regulatory capacities of a state in respect to essential services and
utilities already.45 Therefore, the trade-labour linkage appears a more balanced
approach to offset the disadvantages of conventional trade liberalisation, essential
to create a synergy between economic law regimes and economic social and cultural
rights, as well as civil and political rights in a manner more holistic than the
customary focus on promoting the rights of a privileged few, namely foreign
tradersand investors.46
The equation of Rights and
Costs

Since every right is said to have cost, 47 our linkage proposition requires a figurative
cost-benefit analysis of measuring the cost of labour rights to trade interests which
would require a rather subjective understanding of value not agreeable to the
capitalistic sensibilities but aligning with a more human-oriented perspective such
that high-quality jobs encourage more security, productivity and growth. There is a
section of scholars that argue that economic human rights can not only induce
greater productivity but also reduce wasteful administrative costs, leading to
improvements in overall economic and social well-being.48
Even still, one can argue ensuring human economic rights such as those centred
around workers cannot be without economic cost. However, this cost must be
evaluated in the context of widening income inequalities,49 which was clearly
attested to during the COVID-19 Pandemic. This cost cannot be addressed within
the conventional law and economics structure wherein the simple assumption is that

45
ibid
47
Jose E Alvarez, ‘Critical Theory and the North American Free Trade Agreement’s Chapter Eleven’ (1997) 28
U Miami Inter-Am L Rev 303, 307–309. 48 Martha T. McCluskey, Frank Pasquale & Jennifer Taub, ‘Law and
Economics: Contemporary Approaches’ (2016) 35 Yale L & Pol’y Rev297, 303.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

49
Frank Pasquale, ‘Eleven Things They Don’t Tell You About Law & Economics: An Informal
Introduction to Political Economy and Law’ (2019) 37 (1) L & IneqI 97, 108-109
<https://scholarship.law.umn.edu/lawineq/vol37/iss1/8> accessed 11 December 2021.
50
UNDESA, World Social Report 2020 <https://www.un.org/development/desa/dspd/world-social-
report/2020-2.html> accessed 12 December 2021.

essentially market order transcends trade and politics without considering how re-
structuring of the market could generate better economic and social outcomes. The
author relies on a more realistic political perspective addressing economic concerns,
that posits that legal entitlements do not necessarily intervene in naturally
productive market production; instead, it may enable the shrugging off of existing
market constraints in order to lead the economy to a more sustainable version of
prosperity.51 The argument essentially boils down to a contentious perception that
adequate labour standards ought to be the norm that fosters economic growth instead
of promoting economic gains at the cost of such standards which are essential to a
sustainable and welfare-oriented approach to development.
Understanding State and Trade Order

We can easily see the merit of this argument when we contextualise it in the modern
disposition of state and welfare. It is posited that combined market forces along with
globalisation are weakening the welfare state which will fail to survive in its present
size.52 Thus, the nature of the welfare state will need to reconstruct itself in a way
to address maximization of economic opportunity but that may manifest itself in
various forms for different countries. One solution to such a requirement in the
modern context is going beyond ad-hoc methods of redistribution of income by way
of welfare policies and instead operating on the legal rules and governance systems53
to orient them intrinsically towards more egalitarian access to economic opportunity
free from abuse and exploitation at the hands of the few. The author proposes that
trade-labour linkage is one such avenue of correcting the scale of power, ensuring
an environment that fosters individual achievement instead of thrusting generations
into the vicious cycle of poverty.
A historical analysis further assists in highlighting the significance of the author’s
proposition. According to Ruggie, the initial trade order in the post-war decades

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

51
Frank Pasquale (n 47) 107.
52
Dennis Patterson and Ari Afilalo, The New Global Trading Order: The Evolving State and the Future of
Trade (Cambridge University Press 2008) 34. 53 Frank Pasquale (n 47) 107.
can be evidently perceived as a “fusion of power and legitimate social purpose”54,
essentially pointing out that the multilateral system had elements of domestic
interventionism that were instruments for ensuring policies such as full
employment. For instance, the permeation of domestic social concerns was
significant enough to permit the use of otherwise prohibited quantitative restrictions
to address the balance of payment issues arising out of domestic policies. 22
Consequently, Varellas III56 argues that there is a need for the post-neoliberal age of
international trade order to operate on the organising principle of working towards
a more balanced trading system akin to the original socially protective one that
orients itself in favour of human needs before the rights of multinationals and
investors.23 The balance would be restored to the trade order with the elevation of
social concerns like the protection of society, human needs, and other conditions
conducive to human flourishing in the broadest sense over maximizing corporate
profits.24 The viability of this theoretical proposition is supported by the recent shift
in WTO dynamics wherein major players like the US and the European Union have
demonstrated tangible intent to incorporate social clauses within their Regional
Trade Agreements (RTA).25
Scope of Trade-Labour Linkage within WTO
Traditional Trade

The suggestion of Trade-labour linkage is of course not foreign to the very fabric of
WTO. In fact, proponents have analysed the existing framework to justify at least a
tentative narrative of compatibility of such linkage within the larger scheme of WTO

22
John Gerard Ruggie, ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar
Economic Order’ (1982) 36 Intl Org 38, 393. 56 Frank Pasquale (n 47) 44-45.
23
Ibid 136.
24
ibid 140.
25
Karl Polanyi, The Great Transformation (Beacon Press Books 1957) 257-258.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

aspirations2627, even if they cannot assert labour clauses as independently

enforceable without further amendments to the provisions of the WTO Agreement.
Interestingly, prior to WTO, historically, countries imposed duties against ‘social
dumping’ in order to offset the comparative advantage of foreign goods that were
produced by workers who worked excessive hours, prison workers, or other
violations28 of international labour standards.62 We understand this proposition
based on the definition provided by Charnovitz who describes social dumping as
“the export of products that owe their competitiveness to low labour standards”.63 A
caveat needs to be attached here that this definition uses a threshold that is not
necessarily related to international obligations or domestic law where other scholars
take a more restricted approach. The essence of Charnovitz’s discussion of social
dumping can be connected to his proposition that policy coordination enhances the
effectiveness of policies, especially in the case of the labour standards–trade
relationship29 given the impact of trade relations on labour which is a factor of
production. Thus, it can be tenuously argued that there is at least room for such
discussions regarding the utility of standard labour clauses within the WTO to
enforce fairer trade practices even though dumping specifically is aimed at
industries and not workers.
Interpretative space after Singapore Declaration

Secondly, Zandvliet 30 very relevantly points out that numerous scholars have
considered the legal implications of the Singapore Declaration. According to
Guzman, it shows that the WTO is “determined to keep labor issues at a distance.”
Other scholars have argued that mentioning labour standards is already a large step31

26
Kofi Addo (n 4) 11.
27
Appellate Body Report, European Communities-Conditions for the Granting of Tariff Preferences to
Developing Countries Report of the Appellate Body,WT/DS246/AB/R, 7 April 2004.
28
Steve Charnovitz, ‘The Influence of International Labour Standards on the World Trading Regime: A Historical
Overview’(1987) 126 Intl Labour Rev 565, 576-577. 63 ibid 565,566.
29
Steve Charnovitz, ‘Environment and Health Under WTO Dispute Settlement’ (1998) 32 The Intl Lawyer 916,
901– 21.
30
Zandvliet (n 6) 83.
31
Thomas Cottier and Alexandra Caplazi,‘Labour Standards and World Trade Law: Interfacing Legitimate
Concerns’ in Thomas Cottier (ed) The Challenge of WTO Law: Collected Essays (Cameron May 2007) 10. 67 Cf.
Robert Howse, ‘The World Trade Organization and the Protection of Workers’ Rights’(1999) 3 Jof Small and
Emerging Business L131, 168.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

and that the Declaration may be dismissive of the option of an amendment to the
WTO Agreements, but it does nothing to prevent taking an approach towards
expansive interpretation of existing provisions67 by using the Singapore Declaration
as a “justification” to take labour standards into account when interpreting the WTO
Agreements.32

General Exceptions

Thirdly, we need to consider the provision of General Exceptions that allow member
states to implement trade-restricting measures on the ground of human rights
concerns to determine whether the provision can realistically expand its scope to
operate over labour concerns as well. These are relevant since one reading of WTO
rules suggests that the national treatment obligation69 would consider measures on
the basis of production or processing methods that could involve human rights or
labour rights violations as trade-restrictive33 and consequently be in violation of the
substantive principle, requiring an exception for implementation. GATT 1994
Article XX does provide for certain exceptions to free trade provisions. Article XX
permits a Member to impose barriers to trade, not otherwise permitted under GATT,
for certain reasons relating to social policy. Members may impose barriers to trade
as an exception under GATT for measures “necessary to protect human, animal or
plant life or health”34 provided they can demonstrate appropriate regulatory intent,
and the measure should not be an 'arbitrary or unjustifiable discrimination between
countries where the same conditions prevail'. This provision is significant in its
potential in an argument that measures seeking to enforce human and labour rights
in supply chains are necessary to protect the health of workers.
Extraterritorial Extension
However, the argument is plagued with uncertainty on many grounds, including
firstly, the issue of extraterritoriality since to the extent that measures seek to protect

32
Hendrik Andersen, ‘Protection of Non-Trade Values in WTO Appellate Body Jurisprudence: Exceptions,
Economic Arguments, and Eluding Questions’(2015) 18 Jof Intl Economic L 383, 404- 405. 69 Article III, GATT,
1994.
33
European Parliament, WTO rules: Compatibility with human and labour rights (2021) 4
<https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/689359/EPRS_BRI(2021)689359_EN. pdf>
accessed on 11 December 2021.
34
Article XX(b), GATT, 1994.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

the health of another country's citizens, they would constitute extraterritorial

measures. This is highlighted by the GATT Panel in the case of US–Tuna Dolphin
II72 where they stated that those measures which force other countries to change their
policies and are only effective when such changes have occurred, could not be
considered necessary for the protection of animal life or health in the sense of Article
XX (b).
The primary line of argument against this supposition is the accepted extraterritorial
nature of provision of Article XX Paragraph (e) which is the only explicit reference
to labour conditions in the WTO legal framework. It allows member states to take
trade-restrictive measures “relating to the products of prison labour.” This is
premised upon the idea that prison labour leads to unfair competition with free
labour, as prisoners are often required to work and minimum wage legislation is not
applicable.73 To put it into perspective, we consider how the moral element of prison
labour is disappearing with contemporary human rights law where there is a clear
separation between prison labour and forced labour, In fact, the ILO Convention No
29 explicitly excludes “any work or service exacted from any person as a
consequence of a conviction in a court of law” from the definition of forced labour74
along with other instruments. Consequently, the economic parameters of a
comparative advantage appearing out of non-compliance with minimum wage
regulations become the most relevant. By a theoretical extension, it can be argued
that economic limitations operate as coercive pressure to force workers into jobs
without adequate renumeration.75

WTO’s detachment from human rights

Secondly, it is also very relevant that conventionally, WTO dispute settlement body
hardly ever concerns itself directly with human rights, although several panel
decisions have concerned challenges to environmental and health measures. Even
in such cases, there is an overwhelming percentage of negative findings regarding
the compatibility of challenged social measures with WTO rules that may reinforce

72
Panel Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna
Products, Report of the Panel WT/DS381/R, 15 September 2011.
73
Zandvliet (n 6) 48.
74
Art 2.2(c), ILO Forced Labour Convention (No. 29) (1930).
75
People's Union For Democratic Rights v Union Of India & Others 1982 AIR 1473, 1983 SCR (1) 456.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

the chilling effect of WTO law 35 on the policy space of states. Thus, any
interpretations in favour of the linkage would be a drastic leap.

Interpretative Leaps
Thirdly, even with this tentative positioning of labour clauses within WTO, there
are other challenges that need to be confronted before any success can be
envisioned. Firstly, deciding on an adequate benchmark to determine the level of
protection that the importing state would deem adequate for workers in the
exporting state without impeding the latter’s regulatory sovereignty. To put into
perspective how difficult a proposition this is would require a reference to treaties
such as the 1981 Occupational Safety and Health Convention which does not
prescribe a certain level of standards. Instead, it requires states to “formulate,
implement and periodically review a coherent national policy on occupational
safety, occupational health, and the working environment.”36 The convention is
therefore too indeterminate to be used as a benchmark that the WTO Dispute
Settlement Body can rely on.
Moreover, any measures relating to labour clauses would need to comply with the
requirements set forth in the introductory paragraph of Article XX. The chapeau of
Article XX requires that “measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries
where the same conditions prevail” and that they do not constitute “a disguised
restriction on international trade.” Importantly, the interpretation of these conditions
is influenced by the essential objective of the Chapeau which is the prevention of
‘abuse of the general exceptions.’37
When considering discrimination, the justification of the measures is an open-ended
exercise under the Chapeau wherein legitimate objectives can optimistically include
recognised needs set out in the WTO Agreement or in multilateral instruments
adopted by the international organisation38, leaving considerable breathing-space

35
Dinah Shelton (n 39) 654.
36
Art 4.1, Occupational Safety and Health Convention (No. 155), 1981.
37
US-Gasoline (n 31).
38
Appellate Body Report, European Communities—Conditions for the Granting of Tariff Preferences to
Developing Countries, Report of the Appellate Body WT/DS246/AB/R, 20 April 2004.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

for policy39. However, the import restrictive measure must be ‘necessary’ such that
no alternate measures reasonably available to the member would achieve the same
objective in a less discriminating manner 40, rendering the defence of labour clauses
a complex tussle between opposing views.
While the first issue of non-arbitrariness requires observation as to the implicit
difficulty in arriving at a universal standard, the second issue is even more of a
roadblock in a substantive manner since the dual role of labour clauses as disguised
trade-restrictive measures is a prominent argument made by countries. Firstly,
labour clauses would operate disparately on member states depending on their level
of development and prevailing regulations. Since the Chapeau limits this condition
to countries with “same conditions”, the labour standards-based measures would
need to incorporate sufficient flexibility in the definition of standards along with
time-bound obligations to not inordinately provide unfair advantages to one
producer country over the other.41
Bartel’s analysis4243 of this second condition of the Chapeau presents two alternates
that vary in their degree of restrictive control on regulatory autonomy. “Disguise”
has been interpreted to mean the implementation of measures for improper purposes
by cloaking them under the guise of ostensibly legitimate purposes. The prohibition
of measures with any illegitimate purpose, however minor compared to the
legitimate purpose, along with measures solely or primarily for illegitimate
purposes, is likely to reduce the potential space for labour clauses within this
exception.
Given the linkage’s precarious balance on these conditions, it is important to note
to assuage opponents that a further safeguard in the form of good faith is already
erected within the framework to prevent the abusive exercise of states’ rights.84
Bartel constructed the spectrum of understanding that can be attached to the doctrine

39
Lorand Bartels, ‘The Chapeau of the General Exceptions in the WTO GATT and GATS Agreement: A
Reconstruction' (2015) 109 American Jour of Int Law, 118, 95-125.
40
US-Gasoline (n 31).
41
Permanent Court of Arbitration, North Atlantic Coast Fisheries (UK v US), (1910) 11 RIAA 189.
42
Lorand Bartels (n 77).
43
Appellate Body Report, United States: Import Prohibition of Certain Shrimp and Shrimp Products, Report of
the Appellate Body WT/DS58/RW, 15 June 2001. 85 US-Gasoline (n 31).

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

of abuse of rights read into the Chapeau85 which at its most extended scope, would
prohibit measures that unnecessarily harm or discriminate against a

WTO member under any of the subparagraphs of Article XX. Thus, these
instrumentalities attached to the Chapeau would ensure adequate scrutiny of labour
clauses on different parameters to assuage concerns of purported protectionism.
Conclusion

Labour provisions are increasingly becoming more common in free trade

agreements and regional mostly between developed and developing countries, 86
over the last couple of decades, especially G7 regional trade agreements where they
are a usual feature that lays emphasis on upholding labour standards while also
providing enforcement measures for their compliance. The European Union is also
progressively evolving its commitment to core labour standards and as a remarkable
first, sought to enforce labour standard obligations against a partner State, South
Korea.87 With these operating analogous international bodies laying down newer
benchmarks in their support for global labour concerns and incorporating them as
an indispensable part of trade negotiations, it can be argued that the WTO should do
the same.

It must be said that while there are substantial empirical economic studies arguable
from both sides of the proposition, the moral and jurisprudential arguments for
enforcement of labour standards simultaneously with trade, focusing on
reconciliation of economic interests with legal and social equity, are invariably
compelling from the perspective of sustainable development. The sustainability
factor is compelling from the perspective that there is a pattern of social behaviour
which surfaces as a result of the collision between the marketization of life and what
Polanyi called “the reality of society” inevitably leads to political and social
movements that seek to restore social protection.”88

The proponents of the inclusion of labour standard provisions in trade agreements

are further supported by the fact that the introduction of new areas, including trade

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

86
Kofi Addo (n 4) 7.
87
D. Van ‘t Wout, ‘The enforceability of the trade and sustainable development chapters of the European Union’s
free trade agreements’ (2021) Asia Eur J 1.
88
Karl Polanyi, The Great Transformation (Beacon Press Books1957) 257-258.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative44

in services and protection of intellectual property rights, under the ambit of WTO is
setting a precedent for the protection of labour standards in trade agreements. Their
stance effectively questions why intellectual property rights and worker rights should not
be treated as equally important and deserving of protection89, especially with the close
connection of labour to trade as a factor of production.

As of now, WTO lends recognition to core standards without any enforcement but
in a more real context, the contemporary requirement goes beyond and demands
an address of the widening income inequalities contributed to by international trade
in its own right. This begets the question as to what obligations, and to what extent,
can be placed on the WTO in search of universal labour standards. A collaborative
structure or close liaison45 between ILO and WTO is often proposed with the WTO
supporting full integration of developing countries within the multilateral trading
system and lending the review mechanism while the ILO ensures conducive
conditions for raising of labour standards, particularly through its supervisory and
enforcement mechanism. 46 Not only will these nexus establish a multilateral
enforcement mechanism building on the procedure of each body, but it will also
assist in bridging the gap between the non-governmental organisations such as
employers’ associations, and global unions on behalf of all workers and the WTO
decision-making body. Building on the framework of RTAs but replacing the same,
this joint commission could operate on an ad-hoc basis to deal with individual
labour issues.92 Utilising the General Exceptions for the purpose of establishing the
linkage offers a relatively bleak opportunity given the Chapeau and potential for
drawn-out challenges unless negotiations can move decisively in the direction of
turning labour standards into substantive obligations for members, even on limited
grounds.

44
Kofi Addo (n 4) 8.
45
ILO Declaration of Philadelphia, 1944.
46
Kofi Addo (n 4) 28.
92
ibid 322.

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 Trade Labour Linkage within WTO: The conflict of protectionist rhetoric and social imperative

However, it is also undeniable that there are legitimate concerns regarding the
potential dangers of incorporation of labour standards in WTO such as the coercive
impact on sovereign policy space, abuse of the process where developing nations
are incapable of meeting the established benchmarks for reasons of genuine
limitations, and ample literature pointing towards the inability of the linkage to
deliver on the objective of improving living standards of workers.93 This intensifies
the trade-labour linkage by introducing the next element of appropriate
enforcement mechanism to be considered to be ideally incorporated within the
WTO. The negative ramifications of using trade sanctions against the countries
failing to meet the requisite labour standards are crucial to the future of this linkage
and can easily dismantle any progress that may be achieved. In place of trade
sanctions, it is suggested that a system of incentives such as tariff reductions and
preferential treatment 94 for developing countries to promote higher labour
standards can be introduced. While the non-binding nature of such provisions may
be considered counterproductive to the objective or rendering it futile,
supplementing it with a comprehensive package of financial assistance and
capacity building95 can work as an effective incentive in the long run and is likely
to ensure sustainable improvements. At the same time, the lack of political will that
is currently eroding the viability of the WTO as a platform for negotiations needs
to be countered by procedural tools that would facilitate consensus and unstick
negotiations such as by use of authoritative interpretations wherein a three-fourths
majority vote to resolve ambiguities in the WTO text.96

*********

93
Anuradha R.V. and Nimisha Singh Dutta, ‘Trade and Labour under the WTO and FTAs’ (n 5) 11. 94
ibid 35.
95
ibid.
96
Robert Lighthizer, “Opening Plenary Statement of USTR Robert Lighthizer at the WTO Ministerial
Conference” (2017) <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/
opening-plenary-statement-ustr> accessed 1 March 2022.
Competition Policy, Digital Platform Regulation and Trade Law

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