Labour standard and trade agreements
Should labour standards be incorporated in international trade agreements?
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Some exporting developing countries deliberately lower the bar on their domestic labour conditions (...
Some exporting developing countries deliberately lower the bar on their domestic labour conditions (most notably wages). This makes their products cheaper and thus international demand for them rises. This gives them an unfair advantage against other exporting countries, and against import-substituting producers in the countries they export to. This leads to a ‘race to the bottom’: if the importing countries want to remain competitive, they have no choice but to lower their labour standards as well. Making labour standards an essential condition of trade agreements prevents this from happening.
History shows that a ‘race to the bottom’ in labour standards never actually happens: there are many cases of countries starting out with relatively worse labour standards, at first outcompeting other countries. But as soon as welfare rises, the domestic demands for higher labour standards rise as well. Almost all of the so-called “Asian tigers” are good examples of this. By freely trading with those countries, we are helping this longer-term development. \
It would also be unfair for rich developed countries to impose labour standards on poorer states, as they themselves once exploited weak labour conditions to gain a competitive edge in their rise to economic dominance. Why should they deny to others an economic choice they once embraced?
Firstly, labour interests and more left-leaning parties in general are not afraid to call for protec...
Firstly, labour interests and more left-leaning parties in general are not afraid to call for protectionist measures publicly when need be (it can actually win politicians votes!), so calling this a “disguised” form is missing the point. But more importantly, sometimes it is important to protect certain domestic industries, for example to protect infant industries, protect industries crucial for national defence, or protect against foreign firms dumping goods below cost price in order to drive domestic manufacturers out of business. Most relevantly, it is also important to protect against the overspecialization of a domestic economy and thus creating structural maladjustment of the labour market. Suppose for example that the US economy becomes overspecialized in financial and IT-services, with all manufacturing jobs outsourced. If you are then born in the US with a special aptitude for manufacturing-type jobs, but with no talent for finance or IT-services, how could you then find a job?
Labour standards are actually a disguised form of protectionism – meaning that the importing country only wants to protect an economically unviable, but politically powerful, domestic industry. Protectionism, or any measure that restricts free trade for that matter, is bad because it hinders the most efficient allocation of resources, and thus destroys welfare. Particularly, this has two negative consequences: the first is that domestic consumers have to pay more for a product which they could have bought more cheaply, and secondly, that an inefficient domestic economy does not have the incentive to adapt and innovate and find a new niche in which it actually will enjoy a comparative advantage. The idea of comparative advantage is that each country should specialize in producing that in which they are individually most efficient, and then trade the excess production for other goods. This will minimize opportunity costs for all countries involved and thus maximize prosperity.
Some labour standards are universal – like the labour standards preventing forced labour, child labo...
Some labour standards are universal – like the labour standards preventing forced labour, child labour, or other forms of gross exploitation. Even if a specific country does not respect them, we should know better than to take advantage of that by buying their cheaper products under the claim that “it’s their comparative advantage”. This is especially true when a country lacks democracy and uses authoritarian power structures to prevent workers from organising to demand rights, or its citizens from expressing a view on how they are governed. Violating basic rights should be no one’s comparative advantage, and that’s why we need to take a stance against it.
Labour standards are typically something a country sets for itself. If some developing countries choose to be less strict with certain standards like work-hours or wages because it will provide a competitive edge, which could very well kick-start their longer-term development, then who are we as a “developed” country to judge their choices? If they themselves believed their labour standards are so crucial, they would legislate for them domestically themselves without outside pressure.
Incorporating labour standards into trade agreements is a very good way of spreading knowledge and e...
Incorporating labour standards into trade agreements is a very good way of spreading knowledge and experience within the originating industries on how to implement them. Very often, workers in developing countries don’t actually know how to organize themselves and stand up for their rights. By demanding that they do, they learn how to do this – and their example might spill over to sectors that don’t produce for international trade as well.
Incorporating labour standards into trade agreements doesn’t do much to help raise labour standards overall: most of the gross exploitation in developing countries actually takes place in sectors that don’t produce for international trade (e.g. local agriculture, local extractive industries like mining, etc). Those sectors can’t be reached via international trade agreements whatsoever.
For consumers in developed countries, sustainable production is increasingly becoming an important b...
For consumers in developed countries, sustainable production is increasingly becoming an important buying-criterion. Part of this is that a product was produced under fair conditions to the people involved in the production process. If that is what consumers in more developed countries actually want, then their governments should also take that preference seriously, and take up labour standards in trade agreements.
True, some consumers might be willing to pay more for “sustainably” produced “fair trade”-goods. But some aren’t, and they should not be forced to do so. Governments from developed countries should not take away the right to choose of some consumers to buy whatever they want, simple because some of those consumers demand more sustainably produced goods.
What do you think?