Remarks by Abraham Katz

President, International Organization of Employers

(also former U.S. Ambassador to the OECD and President Emeritus of USCIB)

“Trade and Labor”

Delivered to the ILO Governing Body

Geneva, March 25, 2007

I am not a member of the Governing Body: others will speak for employer members of the Governing Body. I speak to you on behalf of the world’s employers as organized in IOE.

Any observation: I was impressed by the study. It sheds valuable light on the policy issues in both employment and trade and their interaction.

But we must, recognize, as the study does, that trade is only one of the factors impacting employment on labor markets.

FDI swamps trade in size – some aspects of FDI are mentioned but there is much to be said. On the negative side, I have seen domestic companies fight FDI because it generally brings more progressive labor relations and productivity and competitiveness. FDI was one of the issues not included in the Doha Round Singapore 1996 Declaration.

But there is no denying beneficial effects on receiving, as well as on sending countries, of most FDI in terms of bringing needed capital, technical skills and spurring local industries.

Technological change is recognized but it is increasingly clear that it is far more significant than trade in affecting wage structures. And of course there are macro policies and financial developments.

All are included in the concept of globalization, and by now there is oft commented fact that perceptions in my country, in Europe and other developed countries is that globalization is the source of considerable anxiety in many countries about increasing insecurity and inequality.

The study correctly raises necessary policies to alleviate these anxieties – examples:

• country social dialogue
• active labor market policies
• retraining; education for lifelong learning
• portability of pensions, health insurance

All this implies an assumption that globalization is inevitable and irreversible and lets put a human face on it by policies which mitigate the pain and facilitate adjustment.

But I personally am concerned that globalization can suddenly go into reverse. Perhaps it’s the Cassandra in me but I fear we are today in danger of that happening and again the possible cause lies in the trade arena.

The paper speaks of trade reforms. I do not know what that means. Economists have often said trade liberalization is good for you and can well be done unilaterally – in fact, it might be better if tailored to a country’s needs.

However, we know that politically trade liberalization can only be accomplished by negotiating tit for tat balancing off import access for export access whether multilaterally (which I think we all agree in the best way) or bilaterally or regionally – most should feel it is a winner.

Assume then with me that one or more major trading power – I mean large markets – is suddenly impaired significantly its ability to negotiate.

Assume therefore that trade liberalization suddenly stops cold or is severely reduced – what does this do to confidence which is essential to globalization, to investment, to growth, to employment, to workers’ welfare, to decent work, to work.

We are in danger of this happening now. A populist wave expressing the anxieties that we are all aware of gives new impetus to the old 19th century idea of the social clause.

The IOE’s social partner, the International Trade Union Confederation, has posited new regulation of trade and investment to cope with the perceived iniquities and although they speak of doing this in the long run, they clearly mean the social clause.

But the discussion today is not theoretical or hypothetical; it is imminent and extremely political.

As an American, I do not think it appropriate to go into details about current policies in my country nor as President of the IOE about the movements and various signals coming out of other countries.

Let me simply cite Jagdish Bhagwati and other academics as well as Rod Abbot. If Doha fails it may be because of the political elevation of the social clause. I fear the entire study may become moot and we may suddenly find ourselves in a World reminiscent of the thirties when there was national legislation in major markets implementing the social clause, the spread of protectionist policies and drastic shrinking of foreign trade – sauve qui peut.

Not only will the trading system become a victim, but also the ILO, which is based on voluntarism and cooperation will become an anachronism.

Quoting from the letter of Rod Abbot to the FT, former European Commission trade negotiator and Deputy Director-General of the WTO:

“Given the fragile state of the Doha Round negotiations at present, and the past history of developing country members rejecting ideas for broader rules in the WTO (on investment and competition issues, and on procurement), any renewed effort in the labor arena would likely be the “kiss of death”.

and further from a more trenchant letter to the same newspaper from Jagdish Bhagwati, speaking of major developing countries they:

“…oppose the demands for inclusion of such standards in trade treaties, seeing them as continuing generalized, non-transparent and invidious export protectionism by fearful rich-country trade unions and politicians acting out of fear and self-interest to raise the cost of production abroad rather than from the altruism and empathy they occasionally profess.”

What are we talking about? Aren’t we all in favor of improving and assuring workers’ rights? Giving the benefit of the doubt to all those who seek to impose and improve those rights, especially in developing countries, for altruistic motivations we should look to their own statements for a clarification.

I cite part of a recent statement on TPA by the American trade unions:

“Congress should lay out “readiness criteria” to assess any potential trade agreement partner. These criteria should include economic opportunities for U.S. workers, firms and farmers; a country’s legal framework and enforcement regimes; a country’s compliance with International Labor Organization Standards, multilateral environmental agreements and fundamental human rights; and the existence of a democratic governance system. Only countries that meet these readiness criteria would be eligible for trade negotiations.”

Thus one major trading power would judge the eligibility of other trading partners for trade negotiations, both bilateral and multilateral. Let us assume further, however, that we could multilateralize this judgment of eligibility through some reform of trade and labor regulations and while ILO would judge transgression, the WTO would apply or authorize trade sanctions. Would it be likely to attain the unanimous consent of WTO and ILO members who would always be suspicious that the social clause cannot be repeated from its protectionist roots and impulses?

This is an old issue – the framers of our ILO Constitution eschewed compulsion or coercion through the trading system as some advocated at the time and adopted a voluntary approach, which informs the procedures and all the activities of this House.

Employers – the IOE as their organized representative – do still believe and support the principles, which are our foundation. They recognize that much remains to be done in the area of workers’ rights. This is why we actively supported the conclusions of the High-level meeting of 1987, which dealt with the problem of adjustment to exigencies of globalization and which spelled out nine tasks the ILO should undertake to facilitate adjustment. This is why we sponsored and supported what became the Convention on the worst forms of child labor. This is why we initiated and actively promoted the Declaration of Principles and Rights at Work.

Employers recognize that much remains to be done to assure the effectiveness of the Declaration. We have indications that our worker colleagues share this view and we stand ready with our tripartite partners to work on new ideas to accomplish this. In testifying before the Senate on the same issues after the Uruguayan Round, my colleague from the AFL/CIO complained that the ILO lacked teeth. Making the Declaration follow-up more effective is the way to go and not the surgical implantation of teeth – through the trade mechanism, which can lead to disastrous results for the world economy and especially for the workers themselves.

More on the International Organization of Employers

More on USCIB’s Labor and Employment Committee

ILO website