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International economic integration is drawing increasing attention to the issue of worker rights. This Congressional Budget Office (CBO) memorandum analyzes U.S. efforts to promote such rights in developing countries. It was requested by the Ranking Minority Member of the House Committee on Banking and Financial Services to assist the Congress in its deliberation on the issue of international worker rights.

The memorandum was prepared by Victoria A. Greenfield, formerly of CBO's Natural Resources and Commerce Division, under the supervision of Jan Acton and Elliot Schwartz. The author wishes to thank Kimberly Ann Elliott, Gary S. Fields, Marvin H. Kosters, Roger G. Noll, Robert M. Stern, Kenneth A. Swinnerton, and Karen E. Thierfelder for their valuable comments on an earlier draft of this analysis. Within CBO, Juann Hung, Eric Labs, and Stephanie Weiner provided many useful suggestions on the initial draft.

Christian Spoor edited the manuscript, and Marlies Dunson provided editorial assistance. Rae Wiseman prepared the memorandum for publication.
 
 

SUMMARY AND INTRODUCTION

HOW THE UNITED STATES AND INTERNATIONAL ORGANIZATIONS DEFINE WORKER RIGHTS

• Worker Rights and Human Rights
• Worker Rights and Standards

ECONOMIC ISSUES SURROUNDING WORKER RIGHTS

• The Benefits of International Economic Integration
• Do Labor Policies in Developing Countries Affect Workers in the United States?
• What Effect Would Higher Standards Have on Workers in Developing Countries?

U.S. POLICIES FOR PROMOTING WORKER RIGHTS

• Preferential Programs and Foreign Assistance
• General Provisions
• Multilateral Forums
• Voluntary Efforts by the Private Sector

KEY ISSUES FOR THE CONGRESS

• The Debate on Fast-Track Authority
• Trade Relations with China
• Other Proposals That Would Impose Sanctions
• Reviewing Preferential Trade and Investment Programs
• Encouraging Private Voluntary Programs

APPENDIXES

A State Department Guidelines for Reporting on Worker Rights
B International Organizations and Agreements on Worker Rights
C Worker-Rights Petitions, Actions, and Decisions Under the U.S. Generalized System of Preferences
 

TABLES
1.	The OECD's Core Labor Standards and Related ILO Conventions
B-1.	ILO Conventions That the United States Has Ratified
BOXES
1.		Provisions for Workers Rights in U. S. Law
2.		Objectives and Guiding Principles of the North American Agreement on Labor Cooperation
3.		The Uruguay Round Agreements Act: The Proposal for a Working Party on Worker Rights
4.		Fair Labor Practices and International Financial Institutions
5.		Voluntary Codes of Conduct for Corporations
B-1.		The Constitution of the ILO (Part XIII of the Treaty of Versailles)
B-2.		The Philadelphia Declaration of 1944

 

SUMMARY AND INTRODUCTION

The United States government attempts through various policies to promote "internationally recognized worker rights" in developing countries. According to the Trade Act of 1974, such rights include freedom of association, freedom to organize and bargain collectively, a prohibition on any form of forced or compulsory labor, a minimum age for employing children, and acceptable working conditions in such areas as minimum wages, hours of work, and occupational safety and health.

U.S. policies on worker rights are motivated by a combination of economic and humanitarian concerns about working conditions in developing nations (also known as less developed countries, or LDCs). Some policymakers seek to raise standards in LDCs primarily for the benefit of U.S. workers--that is, to protect U.S. workers from what they perceive as unfair competition. Others are moved by the desire to help workers in the LDCs.

Among the first group, concerns about labor standards arise in part from more general concerns about the effects of international economic integration. Economists have shown that the overall economic benefits of freer international trade and investment outweigh the costs. But moves toward freer trade and investment tend to create "winners" and "losers." In particular, the net benefits of such integration come from shifts in the structure of production and trade. As countries eliminate barriers to international trade and investment, they shift resources--such as labor and capital--from less productive to more productive uses. Such shifts impose real costs on the resources employed in less competitive industries. Thus, increased trade with LDCs means that U.S. workers in industries that use low-skilled labor will feel stronger competitive pressures and face possible displacement even if the LDCs do not engage in any unfair practices.

Do labor policies in developing countries affect workers in the United States, as many policymakers fear? The weight of the evidence suggests that low standards per se have little direct bearing on the majority of U.S. workers. Most economists believe that the low cost of labor in LDCs generally reflects low productivity--stemming from the relative abundance of low-skilled labor--rather than unfair trade or labor policies. And even where the cost of labor (including wages, fringe benefits, and the value associated with other working conditions) appears to be too low compared with the productivity of labor, higher standards are unlikely to affect U.S. workers, for various reasons. A significant one is that few developing countries are in a position to influence the world prices of the products they export. Thus, they can affect neither the prices of U.S. imports nor the prices of goods produced in the United States, which implies that they also cannot affect the wages of U.S. workers. Several economic studies suggest that factors other than international trade, such as changes in technology, are more important in determining conditions in U.S. labor markets.

Policymakers who seek to raise standards in LDCs primarily for the benefit of workers in those countries operate from two main motivations. They may seek higher standards in order to promote worker rights, as defined in the Trade Act, or they may seek higher standards as an intermediate goal, with an eye toward overall reforms in economic, social, and political institutions in LDCs.

What effects would higher labor standards in LDCs have on workers in those countries? Neither economic theory nor empirical studies provide a definitive answer. To a large degree, whether the effects would be positive or negative depends on existing conditions in the developing country. If the low cost of labor reflects low productivity, then higher standards could force resources into less productive uses, resulting in additional hardship for workers there. If, however, the low cost of labor results from repressive labor or human rights policies, higher standards could directly benefit workers by helping to build or improve institutions that support free markets.

U.S. policy on worker rights operates along three tracks--unilateral, multilateral, and private. Unilateral programs, such as the Generalized System of Preferences (GSP) and the Overseas Private Investment Corporation (OPIC), form the core of U.S. efforts. In many cases, the government ties access to U.S. markets, trade preferences, investment programs, and foreign aid to a country's observance of worker rights. The United States also supports such rights multilaterally through its participation in the International Labor Organization (ILO) and the United Nations.¹ The United States has also sought provisions for worker rights in international financial institutions such as the World Bank, in the General Agreement on Tariffs and Trade (GATT), and in the recently formed World Trade Organization (WTO) that grew out of the GATT. And as part of drafting the North American Free Trade Agreement (NAFTA), the United States negotiated a side agreement on labor standards. In addition, the federal govenrment encourages private-sector action on eliminating exploitative forms of child labor and promoting other worker rights.

The issue of international worker rights is likely to be hotly debated this year as the Congress considers the President's request for new authority to negotiate international trade agreements under "fast-track" procedures. (Such procedures bind the Congress to a direct up-or-down vote on trade agreements.) In the wake of NAFTA, a schism has developed between lawmakers who strongly support including a specific labor provision in new legislation to authorize fast-track negotiations and those who just as strongly oppose including such a provision.

Other legislative proposals considered during the 104th Congress, and likely to be reintroduced in the 105th Congress, would place additional restrictions on trade, investment, and aid, both unilaterally and multilaterally. For example, the proposed International Child Labor Elimination Act of 1996, which had bipartisan support in the House of Representatives, would impose economic sanctions on countries that allow child labor. In particular, it would prohibit any product made with child labor from entering the United States and would restrict bilateral and multilateral assistance to countries using such labor. Trade with China will be subject to Congressional review as part of the debate on the Chinese Slave Labor Act (H.R. 320) and during the annual debate on renewing that country's "most-favored-nation" tariff status. Finally, the Congress is likely to consider proposals to renew the authority of existing trade and investment programs, such as the Generalized System of Preferences and the Overseas Private Investment Corporation.

In addition to such government actions, private firms will most likely continue to address their foreign labor practices through such means as developing and subscribing to codes of conduct and employing third-party certification of labor conditions. They have been encouraged to take those steps both by the federal government and because of market pressures resulting from negative publicity about their labor standards.

1.The ILO is a specialized agency of the United Nations whose mission is to set standards for working conditions, promote compliance, and provide technical assistance to developing countries. It sets standards in "conventions" that create treaty-like obligations for the countries that ratify them, but compliance is voluntary. For a partial list of conventions, see International Labor Organization, Summaries of International Labor Standards, 2nd ed. (Geneva: International Labor Office, 1991). The United Nations addresses worker rights in declarations and covenants.

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