STATEMENT OF
ABRAHAM KATZ
PRESIDENT
UNITED STATES COUNCIL FOR INTERNATIONAL BUSINESS
BEFORE
SENATE FINANCE COMMITTEE
Washington, DC
January 28, 1999
Mr. Chairman, thank you for the opportunity to testify on
labor and environmental issues related to trade policy. Your review of U.S. trade policy is
especially timely as we approach the WTO Ministerial meeting later this
year. Labor and environment issues will
no doubt figure prominently in the discussions; indeed, if not properly
handled, they may undermine U.S. trade policy objectives in the coming trade
negotiations.
As you may know, my organization, the U.S. Council for International
Business (USCIB), represents American business in the International Chamber of
Commerce (ICC), the Business and Industry Advisory Committee to OECD (BIAC),
and the International Organisation of Employers (IOE), whose members represent
business in the tripartite International Labor Organization (ILO).
We are
therefore called upon to formulate and promote American business views in the
main international organizations dealing with economic, labor and environmental
policy. For this purpose, we have
strong corporate policy committees on a whole range of issues including--and
notably relevant to this discussion--trade, investment, labor, and
environment. For many years--and well
before the NAFTA negotiations--we have been concerned with the nexus between trade, investment, labor and the
environment.
Let me summarize the business position.
First, business has a major stake in the success of future trade
negotiations. These should build upon
the achievements of trade liberalization which have accounted in large measure
for world and American growth and prosperity since the Second World War.
Second, business shares the growing concerns and interest in improving
the conditions of workers not only in our country but worldwide. Similarly, business shares the concern of
protecting the ecology of the planet and has a major stake in assuring that
development is truly sustainable. Business is convinced that both objectives require continued
economic growth, which, in turn, depends on further liberalization of trade and
investment.
Third, the difference between business on the one hand and organized
labor and environmental NGOs on the other is on the basic approach to pursuing
these objectives in our relations with foreign countries, especially developing
countries and emerging markets. Labor
and environmental groups advocate a unilateral sanction-based approach, using
trade as a weapon to impose their objectives on foreign countries. Business continues to assert the importance
of multilateral cooperation, not only in trade but in matters relating to labor
and the environment. Business fears
that a unilateral sanction-based approach would undermine the rule-based
trading system in which most countries have a stake, destroying the certainty
and predictability that is essential to future growth.
Fourth, the majority of countries will reject any attempt to impose on
the rule-based international trading system a unilateral sanction-based
approach under which their legal and contractual rights could be overridden by
political decisions in this or other industrialized countries. No matter how high minded the purpose, they
see such attempts as a protectionist threat, depriving them of their
comparative advantage, an unacceptable interference in their internal
governance and a violation of their sovereignty.
Fifth, from a business point of view, American corporations which,
according to numerous impartial studies, have led the way in both labor
relations and environmental management, would be at risk if their trade and
investments were to be seriously impaired by sanctions imposed on the countries
in which they do business for reasons totally extraneous to the companies’
actions.
Sixth, how our government articulates its policy on environmental and
labor matters in relation to trade policy will be closely watched abroad. I include the outcome of the debate on fast
track legislation. Other countries are
sensitive to even implicit espousal of the unilateral sanction-based
approach. As the experiences at the WTO
Ministerial meetings in Marrakech (1994) and Singapore (1996) have
demonstrated, they are not buying.
Returning to the charge will threaten the achievement of our trade
policy objectives and undermine our ability to make progress on our labor and
environmental objectives through multilateral cooperation.
Seventh, business recognizes that if it is to be persuasive on a
multilateral cooperative approach, it must contribute constructively and
creatively to achieving the fundamental objectives of improved conditions of
workers throughout the world and environmental protection. I believe that the initiatives we have taken
thus far have made such a contribution.
If business is to continue to be successful in countering the unilateral
sanction-based approach, it must continue to work for a multilateral
cooperative approach.
My remarks thus far concern the basic concept relating to both labor
and the environment. I will now
illustrate my points by describing some of our constructive initiatives in each
of the subject areas.
LABOR
Let me turn first to the labor question. For many years now, the international trade union movement has sought
to introduce the "social clause" into the international trade
system. The idea, which had its origin
in the last century, was to equalize labor costs across borders either by a
cost equalization tax, as the U.S. and the U.K. did in the early thirties, or
by the threat of use of trade sanctions against countries that do not adhere to
what are described as core labor standards.
This approach was basically rejected in favor of voluntarily adopted
standards when the ILO was set up by the Treaty of Versailles. On the trade side, it has been repeatedly
rejected by both the GATT and the World Trade Organization. Nevertheless, this innocuous sounding
"social clause" has a long shelf life. The arguments in its favor are spurious. Both the OECD and GATT cite empirical
studies that low labor standards do not lead to a "race to the
bottom." Nor is labor an item in
international commerce like commodities, services, or intellectual property
which are subject to contractual agreements under GATT rules providing for the
withdrawal of concessions. Sanctions
will not improve labor rights abroad; growth through trade and investment will.
In the context of the NAFTA negotiations, business argued successfully
that worker rights should be kept out of the trade agreement. Instead, they were made part of a broader
cooperative sidebar labor agreement.
The USCIB, even before the negotiations got under way, initiated a
cooperative program with Mexican business associations to exchange best
practices in human resource management.
In the context of the North American Agreement on Labor Cooperation, we
continue to emphasize cooperative programs rather than resorting to
confrontational complaint procedures which can prove counterproductive.
In the global context, I am proud to say that USCIB played a key role
in moving the multilateral cooperative approach forward through the ILO's
Declaration on Fundamental Principles and Rights at Work. This was basically our idea. We first sold it to the IOE which, at its
June 1996 General Assembly, incorporated it in a resolution against the social
clause. We ultimately succeeded in
winning the support of the ILO's tripartite structure encompassing labor,
business, and government. And the
constructive, collaborative work on the U.S. side with the U.S. Department of
Labor and the AFL-CIO, and internationally between the IOE and the ICFTU, bore
fruit against what seemed at times insurmountable odds.
What will the Declaration do?
Put simply, the Declaration provides a political track, as distinct from
the ILO's traditional juridical track, for the protection of workers'
rights. The Declaration, and a
follow-up mechanism being developed as we speak, will allow ILO members to deal
with egregious cases of violation of workers' rights in deliberate and
persistent patterns of bad governmental behavior. We believe that "sunshine," in the form of peer review
and publicity, and targeted technical assistance will do much more--and much
more quickly--to promote workers' rights than the sledgehammer approach of
trade sanctions, which is bound to encounter strong resistance from other
countries.
I should point out that negotiating the Declaration with developing
countries was made difficult by previous attempts by the Administration to link
trade and labor standards and by the explicit statements and actions of trade
union leaders and labor activists. That
is why developing countries insisted that the Declaration include a paragraph
that states explicitly:
"...labor standards should not be used for protectionist trade
purposes, and that nothing in this Declaration and its follow-up shall be
invoked or otherwise used for such purposes; in addition, the comparative
advantage of any country should in no way be called into question by this
Declaration and its follow-up."
The President has announced that the U.S. will contribute $25 million
to support the implementation of this Declaration and to help, on a project
basis, with necessary technical assistance to poorer countries that lack the
institutional framework and infrastructure to meet their obligations under the
Declaration. I would argue that we
should do all in our power--and together--to make the Declaration work. This is an approach that is likely to prove
most effective in lifting up labor standards in developing countries.
The U.S Congress could help ensure the success of this effort by fully
funding the Administration's initiative.
The Congress should make clear in any future Fast Track legislation that
the proper approach to improving labor standards internationally is to make
this particular Declaration work and charge the ILO with vigorous action to
bring about that result. Such a
statement would build on language in S.2400 which you considered last
year. It should make clear that the
ILO, not the WTO, is the appropriate body to address concerns about labor
rights.
The President has also mentioned a U.S. contribution of $30 million to
the ILO's program on the Elimination of Child Labor (IPEC). He also referred to the convention being
negotiated in the ILO on the most abusive forms of child labor. I am proud to say that the idea of this
convention also sprang from an employer initiative in the form of a resolution
adopted at the same IOE General Assembly that I mentioned earlier. The basic concept is to deal with the most
egregious forms of child labor through cooperative programs which provide
alternatives to the children and their families in the form of schooling and
income support. The guiding principle
is to assure that the children and their families are not worse off as they
might well be under a heavy-handed trade sanction or boycott approach. The employers of the IOE have not waited for
the convention to take action. By the
same resolution of 1996, they commissioned a manual of best practices to guide
employers’ organizations as to what has worked in other countries in
eliminating and alleviating the problems associated with child labor.
ENVIRONMENT
Let me now turn to environmental issues. Clearly, we in the business community, like all Americans, are
anxious to do all that we can to protect the ecology of this planet. But we do not see, as many environmentalists
apparently do, any inherent conflict between preserving the earth's environment
on the one hand and trade liberalization and economic growth on the other. As in the case of labor, empirical studies
have established that there is no "race to the bottom." Indeed, under the business community's
concept of sustainable development, the technological innovations, management
systems, and financial resources generated by global economic growth can
be--and must be--harnessed to bring about environmental improvements. Economic growth is necessary to generate the
resources needed to develop and invest in clean technologies. The WTO secretariat makes this point, adding
that "trade and growth can encourage the development and dissemination of
environment-friendly production techniques as the demand for cleaner products
grows and trade increases the size of markets." It also points out that international companies may also
contribute....by using the most modern and environmentally clean technology in
all their operations.
This is the concept underlying the Business Charter for Sustainable
Development, an initiative of the International Chamber of Commerce, which I am
proud to say was importantly backed by the USCIB. The Charter, incorporating sixteen principles of corporate
environmental management, was promulgated by the ICC in 1991 and continues to
provide a practical guide to corporate environmental management. For example, the ICC, working together with
the United Nations Environment Programme, developed detailed training kits on
environmental management based on the Charter.
I mentioned earlier the USCIB initiatives taken before the NAFTA
negotiations to exchange best practices with the Mexican business community on
labor matters. We did a parallel
exchange on environmental management which was very successful and continues to
this day under the aegis of the Commission for Environmental Cooperation.
Environmental improvements and the further development of the
international trading system go hand in hand.
In that regard, I would like to quote a highly influential and
thoughtful study by the OECD:
"In general terms, trade liberalization will have a positive
impact on the environment by improving the efficient allocation of resources,
promoting economic growth and increasing general welfare, provided effective
environmental policies are implemented.
OECD Governments view trade liberalization as a positive agent which
could provide resources for environmental improvement, particularly for
developing countries and economies in transition."
However, many in the environmental community challenge that analysis
and see trade as harmful to environmental protection. Only recently, a prominent environmental NGO attempted a
point-by-point public refutation of the OECD's publication, Open Markets
Matter. In the view of a number of
environmental NGOs, the globalization of production and markets has had
negative environmental effects.
Accordingly, they favor the use of trade measures to enforce
environmental standards. Some would go
further in urging the use of unilateral trade sanctions to force governments to
adopt stricter environmental standards.
They argue this position on the grounds of the primacy of the
environmental cause.
In the view of business, the issue is not which set of policies--trade
or environment--should have priority.
Both can be legitimate expressions of national interest. But there is a clear need to manage
conflicts between trade and environmental policies in ways that protect the
integrity of a rule-based, open trading system, while also permitting governments
to address national and international environmental concerns. In other words, the task is to reach
international agreement on the appropriate use of trade measures for the
pursuit of environmental goals. Without
such agreements, governments will find themselves caught between public
pressure for unilateral action to achieve an environmental goal and opposition
from both business and other governments because of the potentially adverse
commercial impact of such actions. When
governments either find it impossible or undesirable to resist the pressure for
unilateral action, trade conflicts will almost inevitably arise.
In 1996, we in USCIB, working with other business organizations,
developed a proposal to establish internationally agreed criteria for the use
of trade measures in Multilateral Environmental Agreements (MEAs). We proposed an arrangement within the WTO
whereby trade measures called for in an MEA that met certain criteria would be
exempt from other international trade rules.
We further refined these proposals, suggesting ways of giving guidance
to WTO Dispute Panels on how to resolve disputes involving conflicts between
MEAs and international trade rules. We
presented these views to USTR's Trade and Environmental Policy Advisory
Committee, but, unfortunately, they went no further because some environmental
NGOs could not accept the notion of the WTO having any jurisdiction over
any environmental dispute. They
even advanced the proposition that such disputes should be referred to the
World Court in The Hague.
Mr. Chairman, we believe that our approach still has merit and deserves
further exploration both within the USG and in the WTO. As you may know, the WTO established a
Committee on Trade and the Environment (CTE) to deal with such issues, but it
has made no tangible progress in meeting the objectives assigned to it by Trade
Ministers in 1994. The glacial pace of
these talks, largely attributable to the absence of U.S. leadership because of
a policy stalemate in Washington, is especially disturbing since many NGOs have
stepped up their campaign for expanded use of trade sanctions to meet their
environmental goals.
We hope, therefore, that the Administration will take advantage of the
upcoming WTO High Level Meeting on Trade and Environment to accelerate work on
these critical issues. U.S. leadership
could breathe some much needed life into these discussions and perhaps pave the
way for a necessary clarification of international trade rules to reduce the
risk of damaging international disputes over environmental policies.
THE NEGOTIATING CONFLICT
Finally, let me say a few cautionary words about the attitudes of our
trading partners, especially in the developing world, about proposals to use
trade sanctions to meet labor and environmental objectives.
I need not remind you that WTO, as GATT before it, has no provision for
adopting sanctions against its members.
Article XX allows a contracting party to take measures under certain
conditions for specified purposes. If,
by any chance, additional provisions were added, the actions of individual
contracting parties would wreak havoc with the MFN system and cause innumerable
disputes. To amend the WTO to change
the fundamental nature of the organization would be next to impossible. On the trade and labor front, developing
countries are highly suspicious of the attitudes of the U.S. and some other
Western governments, which have continued to push without success the idea of
bringing labor issues into the WTO.
They believe that these governments are more concerned about protecting
their markets from low-priced competition than about the observance of labor
standards. And in the case of the WTO
Committee on Trade and the Environment, they demonstrated a similar suspicion
of Western motives. They strongly
resist the notion of giving a trade body the right to judge a country's
adherence to that which they consider to be matters of domestic
governance.
Public statements by labor leaders and labor and environmental
activists as well as by our own Administration's leaders--and, I might add, the
debate about fast track--have fed this suspicion. Is it any surprise that the Latin Americans have rejected
American attempts to set up working parties on labor and the environment in the
context of the FTAA? The Latin
Americans have relegated hemisphere labor issues to the forum of Hemisphere
Labor Ministers. Despite U.S. efforts
to create separate working groups on labor and environment, Latin governments
agreed only to a Committee on Civil Society, which will receive the views of
the trade union leaders and environmentalists in writing and incorporate them
in reports to the negotiators.
The ILO's Declaration on Fundamental Principles and Rights at Work
rests on a fragile consensus between developed and developing countries because
of these suspicions on the part of the latter.
The best way to undermine the good work undertaken in reaching agreement
on the Declaration and then promoting its implementation would be a high
profile effort by the U.S. and other sympathetic governments to try--once
again--to introduce labor issues into the WTO.
Let us keep our eyes on the ball.
If we are serious about improving the lot of workers in developing
countries, we must give the ILO's Declaration a chance to work.
Similarly, we can expect strong opposition to any effort to force our
trading partners to give up their WTO rights in the name of environmental
protection. They argue frequently and
fiercely that their stage of development does not permit an elaborate and
advanced environmental regulatory regime as in developed countries. We face a strong challenge in overcoming the
suspicions of developing countries simply in obtaining a clarification of
GATT/WTO rules on the use of trade measures in MEAs. The notion of giving some other body such as the World Court the
right to arbitrate trade and environmental disputes is fanciful. Other countries have paid for their WTO
rights through trade concessions, and they will not abandon those rights simply
because environmentalists oppose on principle giving the world trade body any
jurisdiction over environmental matters.
There are, of course, many things the WTO can and should do to improve
the transparency of Dispute Panel proceedings, which are the source of so much
controversy. The U.S. Government has
put forward some sensible suggestions to that effect which we in the business
community fully support. That is the
direction we should follow.
These thoughts about the concerns of our trading partners are important
as the Congress begins to consider the negotiating objectives that you may wish
to include in any new Fast Track legislation.
If you set the bar too high, U.S. negotiators, no matter how skilled, or
how much influence the U.S. seemingly should have in international
organizations, will not be able to deliver the goods. And we in the business community would very much regret it if new
trade opportunities that may arise at the conclusion of a new round of trade
talks were to be held hostage to labor and environmental conditions that were
unattainable from the start.
Mr. Chairman, thank you again for giving me the
opportunity to share my thoughts with you on these important matters.
