Book Description

August 1997 Weak provision of core labor standards in developing countries has complex effects on competitiveness and trade. The problem cannot be treated effectively by imposing trade sanctions, but should instead be approached through programs aimed directly at poverty reduction, education reforms, and disclosure of information. Numerous proposals have surfaced recently to incorporate a clause about labor standards in the rules of the World Trade Organization (WTO). Such a clause would require each WTO member to recognize and enforce certain core labor standards: forbidding forced labor, discrimination, and the exploitation of child workers and guaranteeing the rights of workers to associate freely and engage in collective bargaining with employers. Failure to provide core labor standards would subject a country to international trade sanctions. Maskus analyzes links between core labor standards and international trade policy. He develops a series of simple models to see whether limiting core labor standards in export sectors of developing countries can improve the countries' price competitiveness in export markets. He concludes that deficient provision of core labor standards generally diminishes export competitiveness rather than improving it, because of the distortionary effects of those deficiencies. In other words, concerns about the negative impact on industrial countries of limited wage, employment, and labor standards in developing countries are largely misplaced- one exception: exploiting child labor could expand exports in highly labor-intensive sectors. But wage spillovers into industrial economy labor markets must be trivial, and there is no empirical evidence that the use of child labor provides measurable competitive advantages. Do international trade sanctions serve a legitimate, effective role in penalizing countries that fail to observe core labor standards? Maskus points out that trade restrictions are blunt, indirect instruments and may be counterproductive, harming the people they are designed to help and ineffective in achieving stated goals. Thus, including in WTO rules a social clause guaranteeing core labor standards would reduce global efficiency for a small gain. Some approaches- compensation programs from wealthy countries, focused on poverty reduction and better access to education- be more effective and less costly than trade restrictions. At the same time, the International Labor Organization could improve its monitoring and publicity efforts, to raise international consciousness about labor standards. This paper-a product of the Development Research Group-is part of a larger effort in the group to analyze trade barriers facing developing countries.