An Article Submitted to
The Law and Development Review
Manuscript 1012
To What Extent Should Labor and Environmental Standards Be Linked to Trade?
Magda Shahin*
Trade-RelatedAssistanceCenter, American Chamber, Egypt, *
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To What Extent Should Labor and Environmental Standards Be Linked to Trade?*
Magda Shahin
Abstract
The re-emergence of the ever-lingering trade linkage debate, falling between the prevailing financial crisis unprecedented in its worldwide implications and the persistent failure of the negotiations of the Doha Development Agenda (DDA), underscores the contentiousness of incorporating non-trade values on labor and the environment as standards in the rules-based trading system. Is the World Trade organization (WTO) ready and well disposed to enter into full-fledged negotiation to devise additional rules to deal with labor and the environment? Is the timing ripe to add new obligations onto member states when they are struggling with the " development round" and there is hardly an end in sight?
This paper assesses the "real possibility" and the "extent" to which social and environmental standards should be incorporated in the rules-based trading system. The paper argues that at present there is no need for elaboration or the explicit accommodation of particular environmental or labor standards within WTO agreements. Nor is there any indication that consensus on the content of such standards could be achieved. The constructive ambiguity which is so characteristic to multilateralism at play, and the provisions in existing WTO agreements, in particular General Exceptions Article XX, already provide sufficient and flexible accommodation for these key values. The inclusion of specific and rigid standards governing non-trade matters in the WTO would be opening a Pandora's Box and if hastily addressed could have long-term and dangerous implications for the system as a whole, and its developing country members in particular.
Keywords: international trade, economic development, labor and environmental standards
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* Dr. Magda Shahin is former Assistant Minister of Foreign Affairs for International Economic Relations and currently Director of the Trade-Related Assistance Center (TRAC) at the American Chamber of Commerce in Egypt. The author is grateful to Julia St. Thomas , LLM and Economic Researcher at TRAC for her contribution.
I. Introduction
The renewal of the trade linkage debate, falling between the prevailing financial crisis unprecedented in its worldwide implications and the persistent failure of the negotiations of the Doha Development Agenda (DDA) to the detriment of the stability and further liberalization of the trading system, underscores the contentiousness of incorporating non-trade values on labor and the environment as standards in the rules-based trading system. Our prime concern with today’s multilateral trading system should be to save the failing Doha Development Agenda (DDA), not to overload it with additional constraints. Is the timing ripe to add rights and obligations to member states when they are struggling with the "development round" when there is hardly an end in sight? Is the World Trade Organization (WTO) ready and well disposed to enter into full-fledged negotiations to devise additional rules to deal with labor and the environment?
This paper aims at setting a benchmark for a very sensitive issue that has been on and off the agenda in the trade context for at least the last 20 years, if not more, as environment was already a topic of the General Agreement on Tariffs and Trade (GATT) and labor issues have been on the table even earlier in the Havana Charter (1947)[1]. The trade-labor linkage, however, was not pursued subsequently in the GATT, with the exception of prison labor[2] considered today as the main social clause in the trading system. The notion of including a labor clause was not reintroduced to the multilateral trading system until the first Ministerial held in Singapore, which confirmed its inappropriateness in the trade regime and cited the International Labor Organization (ILO) as the sole body to deal with labor standards.[3] The Singapore Ministerial was considered an outright victory for developing countries, having successfully subverted the linkage between trade and labor standards to guard against their usage for protectionist purposes.[4]
Still, the issue of enforcing labor and environmental standards via trade was not a foregone conclusion. Though the impasse was most visible in the framework trade negotiations, domestic trade policies continued to grapple with these issues. The lack of progress in the framework trade negotiations was exacerbated by an equal deadlock in the US trade policy throughout the nineties when Republicans and Democrats could not agree on the model of trade-labor and trade-environment linkage to include in new “fast track” or the “Trade Promotion Authority” Legislation. This was only settled in August 2002, when the US Congress approved TPA which includes labor standards as trade negotiating objectives and requires “equivalent” dispute settlement procedures and remedies for labor and environmental, as well as for commercial objectives.[5] The position of the EU as regards labor standards in the WTO is quite different from some of the mainstream positions in the US debate on these issues. The 2001 Communication from the European Commission on Promoting Core Labor Standards recognizes that promoting labor standards is based on strengthening the ILO’s role and rejects any sanctions based approaches. It further stresses the idea that “poverty, poor governance and extensive informal sectors are often the main cause of the weak implementation of core labor standards in developing countries” and proposes to make the ILO the more effective enforcer.
This paper does not address the economic arguments in terms of the pros and cons of the linkages between trade and labor and trade and environment[6], nor does the paper attempt to argue the notion of the “race to the bottom” phenomenon and/or “social dumping” often referred to when addressing labor and environment standards.[7] Again, the issue of whether pursuing core labor standards is being motivated by humanitarian concerns or merely for protectionist measures – although an important topic – is also not dealt with as it does not serve the purpose of the analysis[8]. The reason for refraining from going into this line of argumentation is that I am convinced that to date positions and views have not been brought closer. We still witness extreme views on both sides. Some continue to reiterate contentions that the trade/labor and environment link is a reflection of protectionist tendencies and aims at blocking the potential benefits accruing to developing countries from increased market access. Others maintain that if WTO takes no interest in labor and environmental standards, which have become consumers’ main concerns, the WTO and the aim of liberalization of trade risk losing its appeal and public support, notably in view of developed countries’ consumers.
Rather than attempting to reconcile these polarized views, this paper confines itself to assessing the ‘real possibility’ and the ‘extent’ to which social and environmental standards should be incorporated in the rules-based trading system. To this end, the paper starts by looking at the role and relevance of both voluntary and mandatory standards in the trading system; identifying the underlying logic and the implications of embedding such standards in the WTO. The paper then goes on to examine the controversial interpretation of Process and Production Methods (PPMs)—at the heart of the trade and environment debate—and the implications of evolving Appellate Body jurisprudence for the inclusion of new standards or the expansion of existing exceptions in WTO agreements. The proliferation of labor and environmental standards in bilateral and regional trade agreements as conditionalities to trade will also be addressed. Highlighting the difference in approaches followed by the US and the EU in this respect, the paper argues that this is yet another stumbling block to reaching agreement on the treatment of labor and environment standards in the multilateral forum.
In making its case, the paper argues that at present there is no need for elaboration or the explicit accommodation of particular environmental or labor standards within WTO agreements. Nor is there any indication that consensus on the content of such standards could be achieved. The constructive ambiguity which is so characteristic to multilateralism at play, and the provisions in existing WTO agreements, allow the WTO Dispute Settlement Body (DSB) to effectively settle disputes on a case-by-case basis without tampering with the system as a whole. The inclusion of specific and rigid standards governing non-trade matters in the WTO would be opening a Pandoras box and if hastily addressed could have long-term and dangerous implications for the system as a whole, and its developing country members in particular.
Lastly, the paper will examine the newly introduced topic in the DDA (sub-paragraph 31(iii)), which calls for the reduction or elimination of tariffs and non-tariff barriers to environmental goods and services (EGS). The very fact that the endless debate has tilted towards refraining from negotiating a definition for environmental goods and services and opting for a list approach, with still various facets to be discussed, has not rendered the task easier. In view of the continued misgivings in the circles of many developing countries that accepting EGS would amount to giving a blank check to introducing environmental standards into the WTO, the argument is being made for the adoption of the "narrow definition" of environmental goods according to end-use criteria based on a PPM-free rationale.[9]
The strong enforcement mechanism in the WTO is a boon to proponents of embedding labor and environmental standards in the legal regime, while it is a threat to those members uncertain of their capacity to meet such standards. The reluctance of these members does not then stem from an absence of will to improve the environment or labor conditions; it is merely the use of sanctions and other negative tools tantamount to protectionism to achieve these ends. The paper concludes that although it is currently unrealistic to attempt to incorporate labor and additional environmental standards in the WTO trading regime in a sustainable manner, this does not undermine the existing links between trade, labor and environment on several fronts: (a) WTO provisions and agreements, including article XX; (b) bilateral and regional FTAs and (c) Environmental goods and services, if they are passed in the DDA. Ideas to amend the trading system or develop a ‘collective understanding’ for re-interpreting article XX (ex ante approach), have not gathered significant momentum or provided the basis for any emerging consensus. Maintaining the status quo remains the most popular option to date.
II. Voluntary versus mandatory standards
It is important to acknowledge at the outset that voluntary standards, in general, be they for labor or the environmentare often considered as non-tariff barriers to trade or as a new form of protectionism, which has emerged in response to the success of the WTO thus far in promoting trade liberalization through significant reductions in tariffs.
Voluntary standards in contrast to technical regulations, which are mandatory standards developed and implemented by governments, are mostly developed and implemented by private bodies. The pressure on companies to adopt environmental and social standards is primarily a derivative of market forces, including other private companies, consumer demand and pressure from civil society groups. The corporate social responsibility (CSR) agenda is also an important contributor to this trend. These dynamics are forcing environmental and social standards through supply chains.[10] In addition to the power of market forces, the promulgation of labor and environmental standards is often politically motivated and designed in response to the internal needs and requirements in most of the developed countries. They ebb and flow according to the prevailing circumstances and the necessity dictated by domestic policy implications. It comes as no surprise then that these dynamics and their subsequent policy outcomes are being projected onto the multilateral stage by developed countries in an effort to subject all WTO members to the same rigor.
Yet, standards are effectively addressed in the WTO. The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), covers standards and technical regulations related to human, plant and animal health, including food safety; the Agreement on Technical Barriers to Trade (TBT), covers technical regulations and international standards for all other areas; and GATT Article XX, General Exceptions, allows for derogation from GATT norms to protect proscribed vital interests. All WTO agreements are negotiated between governments, and therefore define only the rights and obligations of government bodies. While many of the standards covered under the SPS agreement are developed by governmental bodies, most other standards are developed and implemented by non-governmental bodies.
The inclusion of environmental standards in the WTO currently garners far more attention as compared to labor standards, as they have been “admitted” for deliberation purposes, which is done extensively under the umbrella of the committee on trade and environment (CTE).[11] The purpose of the CTE, which has no formal authority for rule-setting, was to “identify the relationship between trade measures and environmental measures in order to promote sustainable development” and “to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open, equitable and non-discriminatory nature of the system”. Numerous and repeated attempts to integrate environmental standards in the WTO have been made, ranging from explicitly listing "environment" as an exception under article XX, to the most recent proposal to negotiate the inclusion of environmental goods and services in the DDA.
While there is no provision under Article XX explicitly stating 'environment,' sub-paragraphs (b) and (g) cover measures necessary to protect human, animal or plant life or health and those relating to the conservation of exhaustible natural resources respectively. Additionally, sub-paragraph (e) contains the social clause pertaining to prison labor. Also, one cannot disregard that – if stretched – under sub-paragraph (a) dealing with public morals; the case for labor rights can also be made. However, this has hardly been put into effect or revoked so far. One is curious to see how the WTO DS mechanism will deal with such a case if addressed.
The ambiguity of Article XX and its varied interpretation by WTO panels and the AB has incited a long-fought debate on whether to leave the panels and the AB to decide on a case by case basis, or whether to alter the text of Article XX to accommodate additional inconsistent WTO trade measures. Jurisprudence emerging from the prevailing case-by-case approach has provided greater clarity on the interpretation of Article XX and has demonstrated the flexibility of Article XX as a mechanism to accommodate legitimate trade and environment conflicts, as we will see in the forthcoming section.
Still, the promotion of additional obligations through the transformation of voluntary standards into mandatory standards in the WTO persists and raises a number of questions, the majority of which remain unanswered. What do developing countries stand to gain by accepting the lowering of tariffs in exchange for legitimizing a proliferation of technically sophisticated standards in the WTO conditioning their market access? Would that not amount to the same effect of higher tariffs and quotas, which they negotiated for seven long and tedious years in the Uruguay Round and made enormous concessions to that effect, particularly in exchange for the liberalization of key exports such as textiles and clothing, and forestry?[12] Could voluntary standards, including process and production methods (PPMs) as an essential part of the supply chain, be legalized in the WTO or do they fall outside its jurisdiction? What triggered in effect the urge from the North to consider seriously the WTO as a suitable forum to deal with environmental standards at a time when the international community had concluded the successful Earth Summit in Rio de Janeiro (1992)?
The ink of Agenda 21, a full-fledged and detailed program of action for the environment, had not yet dried, when moves were made in Geneva – where trade negotiators were on the verge of concluding a comprehensive trading agenda and establishing a new trade organization – to incorporate environment as yet another new non-trade topic, followed by a less visible though similar outcry for labor standards. Two strong, mutually supportive reasons form the underlying logic behind the Northern determination to incorporate labor and environment standards in the WTO.