Commentary: Free Trade Needs A Nod From Labor

The World Trade Organization meeting that starts in Seattle on Nov. 30 is shaping up to be a pivotal moment for free trade. Representatives from 134 countries are gathering to push for a new round of trade liberalizations over the next few years. It won't be the usual quiet, ministerial affair, though. More than 50,000 demonstrators will also descend on Seattle, pressing their case that the trade body ignores labor rights and environmental issues.

The most serious threat will come from U.S. unions, which plan to wage battle on two fronts. One will be the streets: Already, unions are preparing banners and floats about greedy capitalists and exploited workers that will attack the WTO as fundamentally flawed. The aim is to block further trade deregulation until the body agrees to use sanctions to enforce labor rights, just as it does with other trade violations. "Until these concerns are addressed, we'll do what we can to stop further trade liberalization," vows AFL-CIO President John J. Sweeney. Inside the convention hall, however, labor will pursue a more pragmatic approach, hoping just to get a seat at the table. It's pushing the Clinton Administration to demand that the WTO set up a working group to examine the issue of labor rights and ultimately to consider enforcing them with trade sanctions.

HOLLOW GESTURE. Meanwhile, business groups are playing their own poker game. In late October, a business-dominated Presidential advisory committee on trade endorsed the idea of a working group, reversing years of resistance. But business lobbyists insist that such a group won't take up the issue of how to enforce labor rights. Instead, it should only look broadly at trade and labor problems, they say. Indeed, business is counting on developing countries to prevent a working group from actually creating real labor standards. Countries such as Malaysia and India have long rejected such standards as Western protectionism.

The danger for business is that the Seattle protests may fuel the U.S. public's longstanding mistrust of global trade. Organized labor has shown in recent years that it can tap that sentiment to block trade deals in Congress. And the AFL-CIO vows to fight fiercely to avert passage of any new liberalization that doesn't include labor rights. To prevent that outcome, the WTO should address the issue head on. Otherwise, world trade could face a serious setback. "Business recognizes that it has enormous stakes in Seattle," says Thomas M.T. Niles, president of the U.S. Council for International Business. "Pursuing trade advances is like riding a bicycle: If they don't move forward, they can fall over and fail."

The battle over labor rights has been brewing for decades (table). Most countries in the WTO long ago ratified the core labor standards of the International Labor Organization (ILO), a U.N. body. But developing countries, business groups, and most European countries for years have rejected labor demands that the WTO and its predecessors enforce the ILO standards. Their primary argument: The U.S. would use sanctions against low-wage imports to preserve its dominance of world trade.

The standoff led the WTO to exclude labor rights from global trade rules at its 1995 founding. Today, countries can't tax or limit imports made under labor conditions found to be unfair or unsafe. The exception: goods made by prison labor, a carryover from prior pacts. If the U.S. were to block imports for other labor-related reasons, the WTO could slap it with stiff penalties.

The U.S. again pushed for labor rights at the first WTO ministers meeting in Singapore, in 1996. The move was roundly defeated, but as a compromise, the WTO agreed to work with the ILO on the issue. That outcome infuriated the AFL-CIO, which sees the ILO as a toothless agency.

RIPE TIMING. The Seattle meeting gives labor a second shot. For the first time, WTO ministers are meeting on U.S. soil, where unions can mount massive demonstrations to force the issue into the public eye.

The Chamber of Commerce and other business groups hope to blunt the opposition with their more conciliatory stance. On Oct. 25, a Presidential advisory committee endorsed the Administration's renewed push for a labor working group in Seattle. The 35-member group includes companies with extensive trade interests, plus Chamber President Thomas J. Donohue, who spearheaded the endorsement with fellow member Sweeney.

This follows similar efforts by other corporate groups. In May, the Business Roundtable suggested that the WTO should ban forced and child labor as well as prison labor. And in September, AT&T CEO C. Michael Armstrong sent President Clinton a letter recommending stronger labor measures in Seattle. Armstrong acted as head of the President's Export Council, a group that includes United Steelworkers President George Becker, who pushed for the letter.

By agreeing to talk about labor issues, companies aim to neutralize the AFL-CIO, which has inflicted pain in the past. In 1997 and again in 1998, the federation mounted lobbying campaigns that defeated the President's request to Congress for fast-track authority on trade. Fast-track forces Congress to vote yes or no on complex trade deals as a whole, instead of approving some provisions and vetoing others--an outcome other WTO nations almost certainly would reject. "Congress can't get fast track without us," says Becker.

At the same time, business is counting on blocking any newly formed labor working group from endorsing sanctions. Vows Donohue: "We have not opened the door to that."

The problem for freetraders is that the Seattle meeting may trigger a process that neither business nor developing countries can control. In 1996, the Administration pushed a labor working group without support. But today, left-leaning European governments such as France and Germany are more open to the notion. Even developing countries such as South Africa now may back it.

And if a working group really is set up in Seattle, it could lead to enforceable labor rights faster than business groups think. The WTO already has more than 40 working groups on other subjects, including the environment. The work they do--gathering expert testimony and pronouncing policy--can be used by countries pursuing trade disputes before the WTO, says Peter G. Morici, a trade expert at the University of Maryland. Working groups' findings function somewhat like case law in a regular court, he says, creating precedents that can be cited as legal evidence before the WTO.

Enforceable labor rights remain anathema to free traders. But unless the WTO comes to grips with the issue, free trade could suffer a setback in Seattle.

Before it's here, it's on the Bloomberg Terminal.