Labor Standards And International Trade in Developing Countries

The ethical controversy of labor standards and international trade has become a hot topic between developing countries and the more advanced. The major issue is the poor working conditions that are putting many at risk in developing countries. Many argue these are “unfair” labor practices and the US should be improving such conditions. There is a constant battle between advocates of global labor standards and those opposed to the standards is based on economic and political conflicts between advanced and developing countries. The basis of labor standards have been known as “legal instruments drawn up by the International Labor Organization’s (ILO) constituents (governments, employers and workers) and setting out basic principles and rights at work.”(ilo.org).

The ILO is the main source for enforcing labor standards today. They report regularly on the nations implementing the standards they ratified and if there are complaints the ILO investigates (brookings.edu). However, they can’t authorize disciplinary trade measures, instead it provides technical help to member countries to bring their labor laws and social control procedures into compliance (brookings.edu). Many of the developing countries have laws to maintain “good” working conditions. However, because of their weak economy and lack of resources and inability to enforce labor codes, this hinders the improvement of labor standards. Thus why we continue to have the controversy over working conditions and labor standards overseas.

Why do multinational companies still do business overseas if there is such a controversy? One benefit to relocating overseas is the taxes. Due to a more lenient tax regime companies can save huge amount by moving their profits through overseas. If we look back in the past, the US businesses faced a corporate income tax rate of 35 percent, while countries overseas such as Ireland hit companies with 12.5 percent. Another huge benefit is the labor costs. In the US the minimum wage stands pretty high today, where as major corporations can pay half that in countries like China and India. With outsourcing certain business operations it can have a positive impact on operating costs of a company in the US. Not only labor but cheaper land and resources can also be obtained.

Another aspect that comes with labor are regulations. Due to many labor laws and regulations in developed countries such as the US, companies can’t get by with paying employees cheap wages and long hours. When doing business overseas in a country with less strict regulations, a company has more ability to grow and take risks. Companies are attracted to economies that allow them to operate with minimal control and interference, which is why a company might decide to relocate, to avoid competition, price fixing and labor laws. Although cost is a huge benefit when companies move overseas, it may not be enough to make outsourcing the best option for all companies. Labor costs in most underdeveloped countries are very low, making them save more. However, companies still have to pay for costs such as training and supervising these employees, which can make their costs increase over time, diminishing the fact for saving money. Many companies outsource solely for the fact they can’t find the skills or equipment needed to produce in the US. Outsourcing your production can help get your product to the market sooner. Instead of having to hire employees, build a factory, etc you can hire already skilled workers.

Another huge factor is the public image of a company. One perspective can be portrayed as the company being helpful in bringing needed jobs to underdeveloped countries. On the other side, US employees can see it as a negative. When a company moves their jobs overseas, when there is a high unemployment rate in the US, it can hurt their image. Even though fewer regulations can help a company operate for less in other countries, environmental damage and labor abuses of allegations in the news towards companies can hurt their image even more. Like spoken before, labor standards are a huge controversial issue that US companies and consumers debate over. There have been many boycotts and riots due to labor standards against companies. Such riots were the result of child labor or sweatshops companies use and are still using today to produce their products. Labor standards can be seen as a positive or negative thing, depending on the perspective you decide to look at. A lot of the controversy comes from companies outsourcing production but having their workers suffer from working conditions. One major retail company, H&M, has had past allegations of workers suffering from human rights and labor abuses. One report comes from the perspective of the workers entitled “Workers’ Voice from Global Supply Chains: A Report to the ILO 2016,” speaking about their experience (h&m).

In 2015, six thousand workers in Cambodia organized to protest employment practices in multinational corporations such as H&M and other international retailers for fair wages and working conditions. In India, garment workers from six factories that produce for brands including H&M rallied in agreement. Many of the findings came from actual factory workers through interviews. The retail company publicized commitments to changes and better working conditions for their workers in the past, but despite those actions there were significant gaps in their implementation which lead to rights violations. Athit Kong, Vice President of the Coalition of Cambodian Apparel Workers’ Democratic Union said “H&M proudly announced reduced overtimes, higher wages and increased worker satisfaction in the company’s living wage pilot programs. However, these outcomes are impossible to verify, as H&M has refused to disclose the names of these model factories or the methodology for determining wages,”(h&m). H&M has spoken upon improving conditions, but has yet to actions. The report speaks about the many incidents within their factories. For example, 9 out of 12 workers said they experienced sexual harassment and many women workers reported witnessing or experiencing termination due to being pregnant during employment.

Another major commitment H&M lacked in was failing to pay its workers both a living wage or basic minimum wage. Even though H&M signed a sustainability commitment in 2015, which protected the payment of wages, no action has been proven that they actually established this. The basic living wage includes support for all family members, such as nutritional needs, housing, health care, education, etc. Workers employed by H&M in India reported they received inadequate compensation. With the growth of global production networks, it is a great source of employment in many underdeveloped countries. However, these jobs typically result in low wages, excessive working hours, and poor working conditions. This brings us back to the question of whether labor standards should be included in trade agreements.

Many advocates believe that labor standards provided in trade agreements “level the playing field because they require countries to meet an acceptable level of labor conditions and eliminate a source of ‘unfair’ economic advantage” (race). Labor standards differ between country because of the social economic conditions, there have been conversation to achieve some sort of standards that can apply to all equally. There are many parties when dealing with trade and labor. The government of both countries play a huge role. They are the ones who support or deny certain agreements and address international issues. Another large party is the WTO (World Trade Organization). They are the only global international organization dealing with the rules of trade between nations. This is where government can settle disputes over trade and agree on trade policies. The ILO (International Labor Organization) as mentioned before plays a role as well. This was formed at the end of WWI to improve living conditions of humans and emphasize the importance of workers rights. This organization today helps improve basic labor market issues and is the only international organization where non-governmental organizations are included.

Many argue that poorer countries have set standards for workers, but the issues comes from that these existing laws are not heavily enforced within those countries. The developing countries feel as though the implementation of such labor standards will have to be executed properly in order to be successful. The implementation falls on the countries political will, which many of the underdeveloped countries lack. According to the ILO, “developing countries have not agreed on substantive commitment in respect of labour standards in agreements, but rather frequently mention joint projects, exchange of information, and amicable consultation as examples of cooperation (Haberli et al., 2012).” In order to make sure labor standards are applied efficiently we must make sure such countries are ready.