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Labour Issues In APEC
A Paper For The Australian APEC Study Centre
1 Introduction - What Are The Key Issues?
1.1 The APEC Process
One of the main challenges facing governments, business and the community in the 1990s
has been the integration of the fast-growing economies of the Asia Pacific region. This
has been highlighted formally by the recent summits of the national political leaders of the
region under the Asia Pacific Economic Cooperation (APEC) banner. Whilst the APEC
summits have been considered important (and indeed prestigious) diplomatic events in
recent international affairs the analysis of the economic and social effects of APEC is still
in its infancy.
All groups in society that have an interest in the APEC process are
attempting to understand the implications of economic integration and what APEC can or
should do for national economies.
Whilst APEC summits have concentrated on trade liberalisation (including the
implementation of the Bogor Declaration) and investment issues, there has been to date no
discussion of labour issues or income distribution questions. Labour movements around
the region have not been widely involved (and in most cases not invited) to the APEC
Leaders' Summits, Ministerial Meetings, Senior Officials Meetings, Economic Committee,
Committee on Trade and Investment, Working Groups etc. To date non-government
organisations (NGOs) and community groups also have had little involvement. However,
it is clear that the APEC leaders are keen to have business input through the APEC
Business Advisory Council (ABAC) which continues the work of the APEC Pacific
Business Forum (PBF).
The International Confederation of Free Trade Unions (ICFTU) - the international trade
union confederation to which the ACTU is affiliated - has taken steps to have a labour-type
forum initiated along the same lines as business groups at APEC. A labour delegation
Labour Issues in APEC
February, 1997
from APEC countries, for example, met the Japanese Prime Minister at the 1995 Leaders'
meeting and the Philippines President at the 1996 meeting. However, whilst the host
leaders met the delegations on each occasion there was no plan to issue formal invitations
to labour or community groups to future APEC Leaders' meetings. Labour and NGO
groups were more like "gate-crashers" than formal invitees at the Osaka and Subic Bay
1.2 What Will APEC Do?
Whilst there has been some debate about what form APEC may take i.e. whether it be an
Organisation for Economic Co-operation and Development (OECD) for the Asia Pacific
region, or a trade liberalisation type organisation like the World Trade Organisation (WTO)
for the region, there has been little analysis of the economic and social impact of APEC.
Some of the views from all quarters - business, union, government, communities - have
been positive and upbeat, whilst others have been negative and suspicious of APEC (in the
same vein as the scepticism generated about the GATT, WTO, UN and other international
The positive views of APEC include several a priori assumptions that:
the integration of the world's most influential economies must be a positive
thing in terms of economic growth, employment, wealth and living
standards for the citizens of APEC economies;
the APEC process will assist the already considerable economic dynamism
of the region;
integration of trade and investment in APEC will assist economic
development and enable APEC economies to provide a more equitable
distribution of income, particularly in the poorer APEC economies.
Labour Issues in APEC
February, 1997
On the other hand, there have also been some negative views of the APEC agenda. These
consist of the following assumptions:
That economic integration will lead to a 'race to the bottom' in terms of
environmental standards in all APEC economies;
That economic integration will lead to a 'race to the bottom' in terms of
social policies, labour standards and human rights in all APEC economies;
That APEC will do nothing to improve income distribution and associated
social and political stability in APEC economies, particularly in the poorer
That APEC gives capital major advantages, but gives labour and the
community no advantages or any means of defending its hard won gains.
It is important, however, that certain aspects of the APEC process be analysed rigorously
rather than relying on a priori views that are either positive or negative.
1.3 Labour's Role in APEC
In terms of labour's role in APEC, the Asia Pacific labour movement has several issues to
focus on.
First, it is important to understand APEC and how it will affect workers' employment
opportunities, job security, wages, incomes, labour standards, health and safety etc.
Analysis of trade and wages has played an important role in economic literature (see
section 3). But APEC is not just about trade, it is also about investment flows, customs
procedures, standards and conformance, government procurements, rules of origin,
intellectual property etc. These issues also have potential labour implications.
Labour Issues in APEC
February, 1997
Secondly, it is important to make a decision about labour's role in the APEC process. For
example, do international union bodies become involved in the process formally or do
national union centres simply lobby their own national Governments in the lead up to
APEC summits ? Do individual unions involve their resources in the formulation of
individual action plans (IAPs) - for example ? Do unions negotiate with employers on
industry lines based on product market considerations or do they
negotiate on a
cross-industry collective basis ?
There is also a question of how best to use the union movements' scarce resources (relative
to those of business and government) by focussing on key parts of the APEC process. For
example, the Human Resource Development Working Group would be an appropriate part
of the APEC process for union contributions.
How APEC economies can improve
productivity through investment in human capital by education and training is a key issue
in economic development and growth. Unions typically have a good grasp of skills and
training issues and could make an important contribution to skill and human resource
Thirdly, there is the much more complicated question of social integration in APEC to
accompany economic integration. What is the best means of improving living standards in
APEC economies? What are the mechanisms by which freer trade and investment lead to
improved real wages and living standards for workers and their families? There is also the
related question of how global economies have become.
If business considers the
economy to be 'global' and capital mobile then surely labour issues will take on a more
'global' perspective too. How do we integrate different national labour systems at the same
time as capital becomes more mobile and integrated and competition policy becomes
international? If we really are serious about having integrated economies, our approaches
to workplace issues must also be included in the discussion.
Integration should be
harnessed to improved living standards and social considerations as well as improving
business opportunities and economic expansion.
Fourthly, the labour movement should be aware of the human development/social
development aspect of the APEC agenda. The "APEC Economic Leaders' Declaration
from Vision to Action" (The Subic Declaration) developed at the 1996 summit in the
Labour Issues in APEC
February, 1997
Philippines recognised that liberalised trade should contribute " sustainable growth and
equitable development and to a reduction in economic disparities" [Leaders' declaration,
point 15].The declaration also recognised that the principles for economic and technical
co-operation should be "giving a human face to development" [point 16]. The social
agenda of APEC includes labour-related issues such as human resource development as
well as questions of income distribution and community development. The question is how
the labour movement can position itself on the social agenda of the APEC process.
This paper is an introduction to what will be a series of detailed studies on APEC from the
labour perspective. It covers the background to labour involvement in trade policy, the
economic debate over trade and labour conditions, and some brief suggestions on labour
movement strategies for the region. It is intended as a discussion paper only - and has no
formal status in the labour movement in Australia or elsewhere in the Asia Pacific.
2. Background - Trade Policy Institutions
2.1 Introduction
There are a number of trade policy institutions governing trade and investment rules in the
international economy. These include the major multilateral arrangements such as the
General Agreement on Tariffs and Trade (GATT), now administered by the WTO, regional
agreements such as the North American Free Trade Agreement (NAFTA) or the ASEAN
Free Trade Area (AFTA). There are also unilateral measures that countries use such as the
Generalised System of Preferences (GSP) used by the US Government and the European
Union (EU). This section looks at efforts by the labour movement and governments to
use various trade policy institutions to protect workers' rights and labour conditions.
In the lead-up to the signing of the GATT in Marrakesh, Morocco in April 1994, the
negotiating parties were divided over the linkage between international trade and labour
standards. The United States, along with some European nations, strongly supported an
incorporation of labour issues in the GATT, whilst other nations saw labour issues as a
Labour Issues in APEC
February, 1997
protectionist mechanism for developed economies to harm developing countries'
comparative advantage in low-cost labour. The vigorous debate at the eleventh hour of the
signing of the GATT brought into focus the problem of labour issues in a global economy,
and how trade policy institutions can or should be used to ameliorate poor working
conditions and problems of poverty and income distribution in general.
The debate has continued since the formation of the World Trade Organisation (WTO) at
Marrakesh in 1994.
The WTO, which was formed to administer the GATT, met at
ministerial level in Singapore in December 1996. At the Singapore Ministerial Meeting
the WTO again came under pressure to deal with labour issues.
Despite the recent prominence of labour issues in the WTO, the question of trade and
labour linkages is not new in terms of the history of trade policy institutions. For example,
in 1948 when the GATT was first formulated as one of the international policy institutions
set up at Bretton Wood, a parallel agreement was being drawn up for an International Trade
Organisation (ITO) to administer the GATT. The parallel agreement was known as the
'Havana Charter'. The Commonwealth Governments' Report on Labour Standards in the
Asia-Pacific Region' (also known as 'the Duffy Report' see Commonwealth of Australia
(1996)) has summarised the role of the Havana Charter and the GATT (at page 9). The
Charter never came into force because of opposition from the US Congress.
Included in the Charter's chapter on "Employment and Economic Activity" was an article
on "Fair Labour Standards". The draft charter noted that:
"All countries have a common interest in the maintenance of fair labour standards,
particularly in the case of production for export, since otherwise one country's product
may be undercut by those of another in which labour is unfairly exploited. Labour
standards, cannot, of course, be uniform in all countries, but must be related to national
productivity. But there was wide support for the view that governments should agree to
take whatever action might be appropriate and feasible to eliminate sub-standard
conditions of labour in their production for export and generally throughout their
[Duffy Report, p.9]
Labour Issues in APEC
February, 1997
The International Confederation of Free Trade Unions (ICFTU), which was the major
non-communist international trade union peak council at the time [and since the end of the
cold war is the major international labour movement body] was vigorous in the debate over
the Havana Charter at the time.
Whilst the Havana Charter was never implemented, and the ITO never formed, some
provisions with regard to prison-made labour and other 'non-trade' issues were incorporated
in the GATT.
As the Duffy report notes:
The GATT incorporates certain non-trade considerations in tis provisions through
general exceptions to its rules and obligations, such as provisions on public morals,
human life and health and trade controls taken pursuant to obligations under the UN
Charter for the maintenance of international peace and security. Article XX(e) of the
GATT provides an exception to allow adoptions and enforcement of measures relating to
the products of prison labour. It does not itself restraint trade in prison made goods, but
allows Members to impose unilateral prohibitions if they so wish."
[Duffy Report, p.8-9]
The USA continued to advocate the incorporation of fair labour standards in the
multilateral trading system.
As noted by the ILO (1994):
"Since 1953 the US has made several attempts to take up the issue of fair labour standards
in the GATT. The US legislation providing negotiating authority for both the Tokyo
Round and the Uruguay Round specially directed the President to seek an agreement on
labour standards as part of the negotiations. The Omnibus Trade and Competitiveness
Act of 1988, in particular, stated that the principal negotiating objectives of the United
States in the Uruguay Round regarding labour standards, or "worker rights" as they are
defined in that legislation, are:
Labour Issues in APEC
February, 1997
(a) to promote respect for internationally-recognised worker rights;
(b) to secure a review of the relationship of worker rights to GATT articles, objectives
and related instruments with a view to ensuring that the benefits of the trading system are
available to all workers; and
(c) to adopt, as a principle of the GATT, that the denial of worker rights should not be a
means for a country or its industries to gain competitive advantage in international trade.
However, each of these initiatives were unsuccessful in obtaining necessary support from
other GATT members.
In part, these efforts foundered on differences over which
internationally recognised labour standards were relevant to world trade."
[ILO (1994), p.1-2]
Under both Republican and Democratic Administrations the USA has attempted to set up a
internationally-recognised labour standards and the international trade system. This has
occurred throughout the most recent GATT negotiations, the signing at Marrakesh, and at
the WTO Ministerial Meeting in Singapore.
The WTO meeting in Singapore ended with the following section of labour standards in the
Singapore Ministerial Declaration:
We review our commitment to the observance of internationally recognised core
labour standards. The International Labour Organisation (ILO) is the competent body to
set and deal with these standards, and we affirm our support for its work in promoting
them. We believe that economic growth and development fostered by increased trade and
further trade liberalisation contribute to the promotion of these standards. We reject the
use of labour standards for protectionist purposes, and agree that the comparative
advantage of countries, particularly low-wage developing countries, must in no way be put
into question. In this regard, we note that the WTO and ILO Secretariats will continue
their existing collaboration."
[WTO, Singapore Ministerial Declaration, 9-13 December, 1996, p.2]
Labour Issues in APEC
February, 1997
The significance of the wording has been interpreted differently by different nations but it
is clear that the ICFTU vigorously lobbied the WTO Director General, Renato Ruggiero.
This occurred despite the exclusion of the ILO Director General, Michael Hausenne from a
ICFTU Conference which was preliminary to the WTO meetings. There is still sensitivity,
particularly from several ASEAN leaders, concerning the role of the ILO in trade-type
2.3 Other Trade Measures
Whilst the GATT/WTO institution has the highest profile in trade policy - this is due to its
multilateral and legally binding nature - there have been other trade policy measures where
labour issues have been included.
2.3.1 GSP Generalised System of Preferences (GSP)
For instance the USA has used its unique legislative approach to trade policy through its
Generalised System of Preferences (GSP) and authorisation from the Overseas Private
Investment Corporation (OPIC) to incorporate worker rights provisions as part of US trade
law. The USA has used this in its Caribbean Basin Initiative (CBI) in its own region and
also by putting economic pressure on certain regimes on worker and human rights grounds,
such as the former Apartheid regime in South Africa, the Pinochet regime in Chile, and
former communist regimes such as Romania. This is outlined in detail by Perez-Lopez
(1988), Van Liemt (1989) and Charnowitz (1987). The European union has also adopted
this approach, particularly when dealing with nations committing human rights abuses such
as Burma.
2.3.2 European Union's Social Charter
Another example is the EU's development of the 'Community Charter for the Fundamental
Social Rights of Workers' ('the Social Charter'). The Social Charter lays down guiding
principles of the European model of labour law. It comprises a basic set of social rights to
be guaranteed and implemented by EU member states. It includes provisions relating to
freedom of association and collective bargaining, equal pay and equal opportunity for
Labour Issues in APEC
February, 1997
women and men, occupational health and safety, protection of children, and rights for the
elderly and disabled.
2.3.3 North American Agreement on Labor Cooperation (NAALC)
The NAALC was incorporated in the North American Free Trade Agreement, as a 'side
agreement' at the insistence of the US, Canadian and Mexican labour movements. This
was promised by President Clinton when he was a candidate in the 1992 election. It was
joined by a side agreement on the environment.
The Canadian Labor Congress has noted:
"Despite official claims that the labour "side-agreement" had "teeth", and that it was "a
landmark deal linking labour rights with trade", independent analysts note that NAFTA
took only "half a step" in that landmark direction, because the NAALC was extremely weak
and "overburdened with procedural barriers and ponderous processes, that has done little
to protect workers from abuse". The central drawback of the labour "side-deal" is that it
obliges each country only to respect and enforce its own labour laws and does not specify
a common set of mutually agreed and enforceable rights and standards. (See Appendix
One for details of the NAALC). Further, complaints and investigations can be initiated
only by governments."
[CLC (1996) p.61]
The CLC notes that despite the negative views of NAALC, there has been some use of its
provisions on the grounds that countries have not been observing their domestic labour
law. There have been four challenges against Mexico and one against the USA. There
has also be a cooperative work program of workshops, seminars and conferences on
industrial relations, employment standards, and occupational health and safety. These are
designed to assist exchange of information on labour issues across national borders.
2.4 APEC - A New Forum for Labour
Labour Issues in APEC
February, 1997
The question of APEC and labour standards was raised by the Duffy Report. APEC is a
consensus-based institution rather than a legally-binding institution like the WTO. It has
not developed into an institution like the European Union either.
The Duffy Report noted the uniqueness of APEC as an informal non-negotiating forum. It
" APEC works on a consensus approach aiming to reach decisions supported by, and
thus likely to be implemented by, all members. This style allows APEC to have a broad
membership, including members who would opt out of a more formal process. However,
this does limit the APEC agenda to those items which can attract broad support."
[Duffy Report, p.23]
In its recommendations, the Duffy Report believed the APEC forum has the potential to
gradually develop "a constructive dialogue on core labour standards".
The Duffy Report noted:
"The Working Party notes that there is indeed, currently very little support amongst APEC
members for the discussion of labour standards in APEC. However, having regard to the
growing significance of the labour standards issue in international fora........the Working
Party is of the view that, notwithstanding the present lack of consensus on the inclusion of
labour standards in APEC, it will, at some stage, be necessary for APEC to address labour
operations, the Australian Government should play a positive role in encouraging its
APEC counterparts to move towards a constructive dialogue on core labour standards.
[Duffy Report, pp 72-3]
The Duffy Report suggested that Australia, with its commitment to trade in the region and
its key role in international labour fora in the past, would be a good 'honest broker' in any
discussion of labour issues in APEC. Indeed the references to social/human development in
the Subic Declaration in the Philippines suggests that these types of issues cannot be
Labour Issues in APEC
February, 1997
outlawed from any future APEC agenda.
The integration of labour issues into
social/human development, equity, community development issues would given the labour
movement a forum to be part of the APEC process. The move towards social issues in the
Subic Declaration assists the Duffy Report recommendation on a dialogue on labour issues
in APEC.
2.5 Summary
In summary, labour standards have been a part of the development of international trade
policy institutions since Bretton Woods. In fact, the formation of the ILO in 1919, whose
objective is to raise labour and social standards with a view to advancing social justice and
ensuring world peace, essentially put labour standards on the international agenda. There
is a historical precedent for the discussion of labour and social standards in international
economic policy fora. However, it must be asked why labour standards have become so
controversial in the discussion of international trade in the latter half of the twentieth
century. It could argued that the internationalisation of all forms of economic life should
naturally lead to some sort of integration of social and labour institutions across national
borders? The reasons could be partly based on the post-cold war tensions that are said to
exist between the developed and developing world and/or the geographic/economic
division that between the USA-Europe and East Asia. The reasons could also be partly
due to developments in economic policy. This has also occurred since the collapse of the
communist bloc's planned economies. An international consensus has developed that
market economies work better than any alternative economy. Free Trade has won the
battle over protectionism (at least in the economics profession), flexible exchange rates are
more fashionable than fixed exchange rates, financial markets have been deregulated etc.
However, the debate on labour markets and income distribution is as divided as ever.
There is considerable doubt over whether labour market 'deregulation' will deliver full
employment and increasing real incomes. There is also debate over the extent to which
trade liberalisation affects workers in terms of wages, employment and conditions. The is
considerable debate about growing inequality in developed and developing economies.
This has perhaps pushed the economic policy of problems of distribution to the
international stage. Nations who can no longer affect their own income distribution by
domestic economic policy alone, find it necessary to look for some sort of distributive
Labour Issues in APEC
February, 1997
mechanism for workers internationally. The debate on how international trade integration
affects labour is the subject of the next section of the paper.
3. The Economic Debate - Trade And Labour Standards
3.1 Introduction - The Economic Debate
The effect of international competition of workers has always been of concern to organised
labour. This prompted the push for the inclusion of labour standards in trade policy
institutions such as the WTO as outlined in section 2. This has occurred since Bretton
Woods and has intensified with the international economic integration of the 1990s (often
termed 'globalisation').
Similarly, some elements of the business sector have used international competition as its
arguments for labour market 'reform' in a policy sense whilst individual employers use
trade-related examples to strengthen their hand at the bargaining table with workers (e.g. "I
am competing with China", "I can always go offshore if your wage claims are too high"
etc.). Most of these arguments are based on the joint premise that trade and increased
competition reduces the scope to improve wages and labour standards, and that increased
wages and labour standards reduce international competitiveness. Both these premises
tend to be asserted without rigorous analysis.
However, there are also employers who support the improvement of labour standards and
human capital development as a way of improving competitiveness.
In the APEC context it is an extension of this argument that if Australia is to meet the 2010
elimination of trade barriers, then it must reduce its labour standards to the APEC average.
This assumes that the other APEC countries' standards are not to be "levelled up", nor does
it consider that improved labour standards in Australia may, in fact, increase productivity
and Australia's capacity to compete in the APEC region.
3.2 'Does Trade Hurt Workers?'
Labour Issues in APEC
February, 1997
In terms of the effect of international trade integration on labour standards, this issue is the
subject of debate in the economics literature. Economic theory offered several competing
theories on the link between trade and wages.
The most influential are the
Heckscher-Ohlin model of international trade and the Stolper-Samuelson theorem on
protection and real wages. Both theorems came to prominence in the 1940s.
The Hecksher-Ohlin theorem predicts that free trade equalises commodity prices between
countries sharing the same technology and producing the same commodities, which, in turn
equates wages and rents in both countries. In this way factor prices such as wages and rent
are 'equalised'. In contrast, the Stolper-Samuelson theorem assumed that any interference
with trade that drives up the local import price must unambiguously benefit the productive
factor used intensively in producing the import-competing goods. It was argued that
tariffs on imported goods to Australia, such as clothing, would hence drive up the real
wages of clothing workers (as the clothing industry was labour intensive).
These theorems have been influential in the 1990s debates among economists about what
trade does for/to workers. This has, in part, emanated from the views of right- wing
populist US politicians like Pat Buchanan and Ross Perot that trade with the developing
world has hurt unskilled workers in the developed world. Many economists have argued
that trade is a small factor in the decline of wages and employment prospects of first-world
unskilled workers. These include Bhagwati and Kosters (1994), Lawrence (1994), and is
shown in studies by the ILO, World Bank, and OECD [see Duffy Report, p.42].
contrast, Wood (1995) argues that trade has had a detrimental effect on both wages and
employment for unskilled workers in industrialised economies. [Summaries of the debate
have been provided by Burtless (1995) and Freeman (1995)].
Wood's analysis is also supported by several practical studies, including an analysis by the
Canadian Labour Congress (CLC) on the labour effects of NAFTA. However, in the case
of the CLC study they argue that NAFTA has not only hurt 'first world' workers in USA
and Canada but in turn has automatically hurt 'third world' workers in Mexico too. [See
Canadian Labour Congress (1996)].
Labour Issues in APEC
February, 1997
Wood (1995) notes the "five points of fact" on which most participants in the debate agree.
These are:
"First, the demand for unskilled labour (defined as workers with no more than a basic
education) has fallen substantially over the past couple of decades, relative to the demand
for skilled labour, in most developed countries. This shift in demand has increased wage
inequality, or , where labour market institutions have propped up unskilled wages, as in
Europe, raised unemployment among the unskilled (Freeman, 1994)
Second, over the same period in these countries, employment in manufacturing, as a share
of total employment, has fallen much faster than would have been predicted from its earlier
trend (Sachs and Shatz, 1994, pp. 6-7; Wood, 1994, pp. 201-3).
Third, the timing of these changes in labour markets has coincided with rapid growth of
imports of low-skill-intensive manufactures from developing countries (Sachs and Shatz,
1994, p.34; Wood, 1994, pp. 257-60).
Fourth, these changes in labour markets have also coincided with rapid diffusion of
computers in the workplace, and hence the most plausible alternative explanation of the
declining demand for unskilled workers is an autonomous surge of technical progress
biased against them.
Fifth, most empirical studies find that trade has made some contribution to these changes
in developed-country labour markets, but only a small contribution, and so conclude by
default that the main casual force must have been new technology. Recent examples are
Borjas, Freeman and Katz (1992) and Sachs and Shatz (1994), but many earlier studies
(reviewed in Wood, 1994, chs. 3 and 7) arrived at much the same conclusion."
[Wood (1995) 58]
Wood then looks at the main theoretical issues - based primarily on the Heckscher-Ohlin
theory. He also discusses the empirical issues involved in estimating the effects of trade
on labour markets. This involves calculating 'factor-content', that is, as Wood notes:
Labour Issues in APEC
February, 1997
"Figuring out how much skilled and unskilled labour is used in producing a country's
exports and how much would have been used to produce imports.
The deficiencies
between exports and imports are then interpreted as the impact of trade on the demand for
skilled and unskilled workers - by comparison with what it would have been in the absence
of trade [or if trade has remained at some earlier lower level." [Wood (1995, p.64)].
Wood sees the debate as empirical concerning the size of the effect of trade on labour
factor content calculations. He also notes the disagreement over the cases of past events
(past trade liberalisation) and what may occur in the future (future trade liberalisation).
He notes:
"The debate concerns the causes of past events, but what about the future? It is striking
that even some of the people who argue that trade has so far had only minor effects go on
to predict that it will have major effects in the future (for example, Sachs and Shatz, 1994,
pp. 51-7; Slaughter, 1994).
They argue that the emergence as exporters of
labour-intensive manufactures of such vast countries as China and India will greatly
expand the effective world supply of unskilled labour, to the serious detriment of the
unskilled in developed countries........
Relatively unskilled workers in developed countries do, however, have two other things to
fear from trade in the future.
One is stiffer competition in the world market for
middling-skill-intensive manufactures, partly through developing nations such as Korea
accumulating skills and partly from the countries of easter Europe and the former Soviet
Union, whose labour forces are already well educated. The second worry is increased
tradeability of services, due to changes in technology and trade rules, which will expose
the unskilled to foreign competition in previously sheltered sectors. And it is clearly just a
small step from discussing trade in services to the even more thorny issue of unskilled
[Wood, 1995, pp77-78]
In terms of policy solutions, Wood notes that even economists who believe that trade hurts
unskilled workers do not advocate trade protectionist responses. Wood supports a direct
Labour Issues in APEC
February, 1997
approach such as subsidies to assist unskilled labour. The solution is seen in terms of the
labour market not trade policies. In this sense the solution would be the same for any
factor reducing the demand for unskilled labour, whether it be trade, technology etc.
Freeman (1995) has noted that:
"Other factors have been more important than trade in the well-being of the less skilled:
technological changes that occur independent of trade; unexpected political developments,
such as German reunification and instability in various regions of the world; policies to
educate and train workers; union activities; the compensation policies of firms; and
welfare state and related social policies."
[Freeman, 1995, 31]
Whilst noting that "Economists do not have a good record as soothsayers". Freeman is not
convinced that future international trade liberalisation will hurt unskilled workers in
developed countries.
He notes:
"As more and more low-skilled western workers find employment in the non-traded goods
service sector, the potential for imports from less-developed countries to reduce their
employment or wages should lessen.
In the standard trade model, a factor used
exclusively in non-traded goods has its pay determined by the domestic economy. The
closer western countries get to this situation, the smaller should be the trade-induced
pressures on low-skilled workers.
Wildly heralded trade agreements such as the
U.S.-Canadian agreement, the Common Market, and NAFTA have not dominated our
wages and employment in the ways their advocates or opponents forecast."
[Freeman, 1995, p.31-2]
Singh (1997, p 415-6) points out the flaws in the Wood analysis and most orthodox
economic policy responses that ignore demand-side and growth influences. He believes it
should not be seen as a 'North-South' issue but that on the contrary:
Labour Issues in APEC
February, 1997
"Faster economic growth in the OECD countries will help developing countries by
increasing demand for Southern products; by improving the South's terms of trade; by
greater capital flows from the North to the South and hopefully also by the governments of
the North being able to afford and willing to provide greater aid programmes."
He adds :
" This should, ceteris parabis lead to faster employment and output growth in the LDCs.
Similarly, greater employment and faster output growth in the South would help the
North by a positive feedback through greater Southern imports."
Singh rejects the " post-1980 labour market flexibility doctrine" as the policy solution to
the labour market problems of both OECD and LDC economies.
The Duffy Report's discussion of the issue generally supported the proposition that trade
liberalisation benefited workers (see pages 39-42). However, the Report did note the
existence of labour exploitation in traded-goods sectors such as the forced prison labour
'Laogai' system in China and anti-labour practices in Export Processing Zones (EPZs) in
several Asian Countries. The ICFTU has also reported on investors being attracted to
EPZs because of promises by host governments' of low wages and anti-union legislation.
In summary, if you believe that trade does hurt workers, then there is still a debate
how much it will hurt. Secondly there is a question of who wins and who loses. Finally
there is the policy question of how you compensate the losers. Is it through
policy or labour market assistance ? Most economists think it is not a trade policy
question but other policy makers see trade policy covering a number of traditional
'non- trade' issues in an integrated world economy.
3.3 'Do Workers Hurt Trade?'
The other side of the question of "does trade hurt workers?" is "do workers hurt trade?"
This issue concerns the employer arguments that labour standards must be altered to assist
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February, 1997
international competitiveness.
The question also relates to whether a raising (not
lowering) of labour standards will actually assist a nation's competitive position.
The Duffy Report considered this question in Chapter V of its report titled 'Economic
Analysis of Labour Standards'.
They note:
Neo-classical economic theory suggests that if labour markets exhibit the
conditions of a perfect market (perfect competition, perfect information, freedom-of-choice,
and perfect factor mobility) the imposition of regulations, including those in the form of
core labour standards, will cause inefficiencies. However, given the real world situation
of imperfect labour markets, there are arguments to support the view that core labour
standards could work towards enhancing economic efficiency. For example, the practices
of forced labour and child exploitation depart from the freedom-of-choice condition of
efficient markets. Economic efficiency is also eroded by artificial barriers to employment
caused by discrimination between groups of people based on class, religion, ethnicity or
gender, leading to, among other things, restrictions on labour mobility and the
development of segments of the labour market that receive vastly different compensation
levels, despite the equivalence of their productivity. The allocation of labour market
resources thus can be distorted by restricting workers' capacity either to work in a position
better suited to their skills, where they may be more productive and better paid, or to
pursue some activity other than work; for example, in the case of exploited child labourers,
education, recreation or rest."
As a resulting policy response the Duffy Report had a positive view on the provision of
labour standards:
Promoting core labour standards can therefore work to overcome or
counterbalance existing market distortions and improve economic efficiency.
responses could include:
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February, 1997
- ensuring freedom of association and collective bargaining to act as a counter-balance
to any monopsonistic market power of employers (where employers have the power to set
the price for labour, and may therefore undervalue labour) and to provide conditions for
enterprise-based efficiency improvements (promoting a better exchange of information
between employers and employees);
- regulations on non-discrimination in employment aimed at improving freedom of choice
and reducing barriers to labour market mobility across occupations and sectors;
- prohibition of forced labour aimed at meeting the freedom of choice condition for
market efficiency as well as improving resource mobility; and
- prohibition of exploitative forms of child labour aimed at improving freedom of choice
and preserving and improving the quality of the workforce, which is likely to depreciate
rapidly in an exploitative work environment and which will suffer through lack of
[Duffy Report, p.38]
This was shown to be the case in the East Asian economies during industrialisation. The
OECD in its analysis of trade and labour standards notes:
"In conclusion it can be said that in order to raise people's material living standards,
countries should seek economic growth, using trade and labour market policies as
appropriate means to that end.
Labour standards and international trade can be
complementary. Such complementaries should be sought by countries and by companies
and fostered by the international community."
[OECD (1995) p.21, emphasis added]
The World Bank, too, sees labour standards as beneficial to economic development,
productivity and competitiveness. In particular, the presence of unions and collective
bargaining is seen as beneficial to productivity. As the World Bank notes:
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February, 1997
"Trade union activities can be conducive to higher efficiency and productivity. Unions
provide their members with important services. At the plant level, unions provide workers
with a collective voice.
By balancing the power relationship between workers and
managers, unions limit employer behaviour that is arbitrary, exploitative, or retaliatory.
By establishing grievance and arbitration procedures, unions reduce turnover and promote
stability in the workforce - conditions which, when combined with an overall improvement
in industrial relations, enhance workers' productivity.....
There are very few studies of the relationship between trade unions and productivity in
low-and middle-income countries, but a recent analysis of Malaysian data provides some
support for the view that unions can enhance productivity and efficiency (Table 12.1).
Unionised Malaysian firms tended to train their workers more and to use job rotation to
productivity-raising innovations relating to technological change, changing product mix,
and reorganisation of work." [World Bank (1995) p.80]
Considerable evidence exists that improving labour standards will improve productivity
and hence a nation's competitiveness.
3.4. Summary
The questions of 'does trade hurt workers?' and 'do workers hurt trade?' are clearly complex
and have been vigorously debated in the economic literature. The research is mainly
focussed on developed versus developing country questions (Wood, Bhagwati etc.) and
considers the GATT and trade agreements like NAFTA.
Most economists who may have different views on the size of the impact of trade on
labour, or on the extent to which labour standards boost productivity, agree that policy
solutions to these problems lie in the labour market not in trade policy. Nearly all
economists oppose a return to trade protection (even if they think that free trade has hurt
unskilled workers).
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February, 1997
These questions are yet to be applied in the APEC context. The questions that would
apply include:
How will the Bogor Declaration (elimination of trade barriers by 2010, 2020
for developing countries) affect unskilled and skilled labour in each APEC
How would an APEC Leaders' agreement on labour standards 'improve
productivity and competitiveness for each country and how would this effect
the regions' productivity and development of human capital;
How will the IR system in the APEC countries be affected - will they
converge to a common 'model' or diversify according to national
It is these questions which the labour movement in APEC needs to understand in
developing strategies on APEC.
4. Summary - Implications For Labour In APEC
This paper has discussed the implications for labour of the growth of the Asia Pacific
region and the formation of APEC. The labour movement in the region must be aware of
the implications for workers' wages, conditions and employment prospects of trade
integration. It also must be aware of the past efforts to link labour issues to trade policy
institutions such as the WTO.
The labour movement also needs to advocate labour
standards as being beneficial to competitiveness and human capital development in APEC
There are several key issues emanating from this survey. They include the following:
i. It is not clear whether trade integration is detrimental to workers' living standards.
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February, 1997
ii. Labour standards and trade unions can and do have a positive impact on a nation's trade
performance, human capital stock, productivity and competitiveness.
iii. The appropriate policy response may not be limited to trade issues - it may include a
labour market policy response.
As a first step in this process the ICFTU formed an Asian Pacific Labour Network for
union peak councils in APEC countries. This is an appropriate move for, whatever the
trade and economic developments of the region, workers will be better served by
international cooperation by labour bodies in APEC rather than unions acting alone in
isolation in their own countries. The labour movement should also take a positive role in
education and training, skill development, and human resource development issues in the
APEC HRD process. The World Bank evidence, for instance, shows unions can add value
in these areas and help improve productivity and the development of human capital.
This paper is only a preliminary survey of the issues facing the Asia Pacific Labour
Movement. It is hoped that it can start the debate and make some contribution to the
development of labour market strategies in the APEC region.
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February, 1997
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February, 1997
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February, 1997