The world of work in the context of economic integration and trade

The world of work in the context of economic integration and trade liberalization

From the vantage point of the Americas

Working Paper No. 45

Daniel Martínez

Policy Integration Department International Labour Office

Geneva

October 2004

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Working paper No. 45 i

The world of work in the context of economic integration and trade liberalization

Contents

Page

Preface............................................................................................................................................... iii

Foreword by the author ..................................................................................................................... v

List of acronyms................................................................................................................................ vii

I. Integration, free trade and globalization ............................................................................ 1 1.1 Integration and free trade.............................................................................................. 1 1.2. Integration and globalization ........................................................................................ 6 1.3. Social actors, integration and free trade........................................................................ 8

2. Latin America and the Caribbean: Economic, integration, trade liberalization and labour standards ............................................................................................................ 11

2.1 Processes of economic integration in Latin America and the Caribbean ..................... 11 A MERCOSUR ...................................................................................................... 11 B. Andean Community............................................................................................ 12 C. Central American Integration System ................................................................ 13 D. Caribbean Community and Common Market .................................................... 14

2.2 Free trade agreements in the American region ............................................................. 15 2.3 Labour standards in integration agreements in the Americas ....................................... 20 2.4 Labour standards in free trade agreements in the Americas ......................................... 27 2.5 Labour standards in generalized systems of preferences .............................................. 33 2.6 Integration, market liberalization, multinational enterprises and

fundamental rights at work ........................................................................................... 34 A. Framework Agreements in Multinational Enterprises........................................ 34 B. OECD Guidelines on Multinational Enterprises ................................................ 36 C. The ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy ...................................................... 38

3. Latin America and the Caribbean: Economic integration, trade opening, labour markets and social protection levels........................................................................ 39

3.1 The expected effects of economic integration and market liberalization...................... 39 3.2 The situation observed in the context of economic integration and trade liberalization.................................................................................................. 41

A. The employment situation .................................................................................. 42 B. Labour productivity, wages and income............................................................. 44 C. Vocational training ............................................................................................. 45 D. Social protection................................................................................................. 46

ii Working paper No. 45

3.3 The evolution of poverty............................................................................................... 48 3.4 Movement of workers and labour migration ................................................................ 50 3.5 Can the causes of this situation in the labour market and in social protection levels be clearly identified?........................................................... 53

4. Integration and labour standards: Comparing the Americas with other regions of the world .................................................................................................... 53

4.1 Integration and labour standards in Africa.................................................................... 54 4.2 Integration and labour standards in Asia ...................................................................... 55

A. Association of Southeast Asian Nations (ASEAN)............................................ 55 B. Asia-Pacific Economic Cooperation (APEC)..................................................... 56

4.3 Integration and labour standards in Europe .................................................................. 57 4.4 Comparing Latin America and the Caribbean with other regions of the world............ 59

5. The world of work in China: Its effects on Latin American trade ................................... 59 5.1 China’s political context and economic modernization................................................ 60 5.2 China’s economic growth ............................................................................................. 60 5.3 Chinese - Latin American Trade................................................................................... 61 5.4 Chinese investments in Latin America ......................................................................... 63 5.5 The world of work in China.......................................................................................... 64

A. Reforms in individual labour relations: .............................................................. 64 B. Reforms in collective labour relations................................................................ 65 C. Labour administration reforms ........................................................................... 65 D. Social protection reforms ................................................................................... 65

5.6 The strategic relationship between Latin America and China ...................................... 66

6. The link between economic integration, market opening, labour standards and the labour maket............................................................................................................ 67

6.1 The impact of trade on labour standards....................................................................... 67 6.2 The impact of labour standards on trade and economic growth ................................... 69 6.3 Effective social and economic policy coordination ...................................................... 74

7. Points of consensus reached, pending issues and the bet on a social dimension for integration in the Americas ......................................................................... 75

7.1 Points of consensus reached ......................................................................................... 75 7.2 The most important pending issues............................................................................... 77 7.3 The need for a “social” dimension in processes of integration..................................... 79

8. By way of conclusion............................................................................................................. 80

Annexes............................................................................................................................................. 85

Bibliography...................................................................................................................................... 99

Working paper No. 45 iii

Preface

In February 2004, the World Commission on the Social Dimension of Globalization reported that freer trade along with greater foreign investment and financial flows have benefited many while leaving too many others vulnerable and voiceless. Fair rules, better international policies and more accountable institutions are needed. At the same time, however, the World Commission found that under the right circumstances, the forces of globalization held great potential to create opportunities not just for a select few but for all. The Commission’s report, A fair globalization, suggested a number of steps to take towards this goal.

One of these involves using regional economic integration as a stepping stone to fairer globalization, with key roles for actors at the regional and subregional levels. Not simply a strategic choice, this recommendation acknowledges that regional integration has taken hold across the globe as a broader approach to trade liberalization. As such, it is positioned to incorporate a wider range of economic and social policies. Whether ASEAN or SAARC in Asia, ECOWAS, the EAC or SADC in Africa, MERCOSUR or NAFTA in the western hemisphere, or the European Union, the policies of such communities form part of the globalization debate. They have an undeniable impact on local working populations. Regional integration links “beginning at home” with a way of making global rules work more fairly.

Regional economic integration has been consistently high on the policy agenda in Latin America and the Caribbean, a part of the world which has incorporated social policies and non-State actors into many integration processes. Trade and other economic agreements in the region commonly give priority to many of the principles enshrined in ILO standards, and some include mechanisms to allow active participation by organizations representing workers and employers. The recent history of integration in the Americas offers numerous examples of how to deepen economic linkages between countries while remaining responsive to social needs.

This study, prepared by Daniel Martínez, Regional Director ad interim of the ILO Regional Office for the Americas and the Caribbean, is a welcome contribution to the growing body of work devoted to understanding the impact of regional economic integration on employers and workers. It is based on a presentation to the Fourteenth “Specialized Course for Latin American Labour Relations Experts,” which was held at the ILO International Training Centre in Turin, Italy in August-September 2003.

The Working Paper takes the analysis one step further by comparing these developments in the Americas with those in other parts of the world.The Policy Integration Department is pleased to have sponsored its translation into English and its publication as a Working Paper. The translation was prepared by Carolyn Palma and René Robert assisted in editing. The Spanish original was published by the ILO Turin Centre as El mundo del trabajo en la integración económica y la liberalización comercial.

iv Working paper No. 45

We hope that this paper will be useful not only to work underway in the Americas but in other regions as well.

Comments on the paper are most welcome.

Anne Trebilcock Deputy Director Policy Integration Department

October 2004

Working paper No. 45 v

Foreword by the author

This document offers a fairly succinct examination of the impact made on the world of work (legislation, employment, protection, labour productivity, competitiveness, etc.) by the various processes of economic integration and trade liberalization and the effects these processes produce in the labour area. Conversely, it investigates just how the world of work affects those processes.

This study can be traced to a paper presented at the Colombian Congress of Labour Lawyers in May 2003, which was later redrafted and expanded upon at the request of the ILO International Training Centre in Turin, Italy, in an effort to provide answers to some of the major questions being raised today in regard to the link between economic integration and trade liberalization and the world of work. This monograph was finalized in April 2004.

These are basically the questions to be answered: first, are economic integration and market liberalization separate processes, or are they different phases of a single process of economic globalization? If they are separate processes, then by the same token their consequences could also be different in the social and labour areas, or could vary in intensity. Second, in what direction have the processes of integration and the contents of free trade agreements evolved and how has the socio-labour content of these processes and agreements changed? Third, are supranational framework agreements in place between multinational enterprises and their workers or do labour guidelines offer this same coverage? Fourth, do processes of integration have a socio-labour dimension and, if not, should they? Why? Fifth, if the answer to the previous question is yes, what should this socio-labour dimension have as its content? Sixth, is there is synergic link between observance of labour standards, social development and economic development and trade? Seventh, how far has the Latin American and Caribbean region advanced in these areas, compared with other regions? And last, what are the consensuses and disagreements on the subject today and what prospects does the future hold?

The document is organized as follows: Chapter I presents the different economic integration modalities (some analysts consider them phases or steps) and the positions in defence of the linear nature of the process of integration are discussed. The conceptual differences between integration and globalization are explored, together with the role of social actors in the development of the two processes.

Chapters II and III summarize the regulatory labour standards built into the process of Latin American and Caribbean integration (Chapter II), and their effect on the labour market and social protection levels in the region (Chapter III). The text distinguishes, in the case of regulatory labour standards, between standards and principles that are a part of the integration and free trade agreements, and the labour agreements that multinational enterprises and their trade unions are signing in growing numbers. A further matter of study is how gender issues have been incorporated into the different economic integration agreements, protocols and instruments.

vi Working paper No. 45

Chapter IV briefly discusses the development of the labour dimension in the processes of African, Asian and European economic integration and trade and compares this with the labour advances made in Latin America and Caribbean processes.

Chapter V broadly outlines China’s political, economic and labour situation and touches on the effects Chinese exports have on Latin American foreign trade. Furthermore, some general proposals regarding economic and trade relations between China and the region are explored.

Chapter VI seeks to identify the possible impact of processes of economic integration and market opening on labour standards and labour market performance and, conversely, the effect these standards have on the progress of trade and economic growth.

Chapter VII summarizes what I consider to be the most important consensuses reached to date in regard to the link between economic integration and trade liberalization processes and the world of work and on the principal issues that are pending in this area and the need to give economic integration a socio-labour dimension.

Lastly, Chapter VIII offers a recapitulation of the text, organized according to the consensuses that have been reached, pending issues and future prospects. Three annexes and a bibliography complete the study.

The author assumes, as is customary in such cases, responsibility for all of the comments made and viewpoints expressed in this document, which in no way can be considered binding on the ILO.

Thanks go to the International Training Centre of the ILO in Turin for publishing this monograph in Spanish and to the Policy Integration Department of the ILO in Geneva for providing the support for its translation and publication in English.

Working paper No. 45 vii

List of acronyms

AFL-CIO American Federation of Labour – Congress of Industrial Organizations AISP ASEAN Integrated System of Preference AMU Arab Maghreb Union APEC Asia Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations CAN Andean Community CARICOM Caribbean Community and Common Market CAUCA Central American Uniform Customs Code CCALC Canada-Chile Agreement on Labour Cooperation CEATAL Business Technical Advisory Committee on Labour Matters of the OAS Inter-

American Conference of Ministers of Labour CEPGL Economic Community of the Great Lakes Countries CEPT Common Effective Preferential Tariff COMESA Common Market for Eastern and Southern Africa COSATE Trade Union Advisory Council to the OAS Inter-American Conference of

Ministers of Labour ECCAS Economic Community of Central African States (ECCAS) ECLAC Economic Commission for Latin America and the Caribbean ECOWAS Economic Community of West African States EFTA European Free Trade Association EU European Union FCES-MERCOSUR Economic and Social Consultative Forum of the MERCOSUR FTA Free Trade Agreement or Free Trade Area FTAA Free Trade Area of the Americas (FTAA) GATT General Agreement on Tariffs and Trade ICFTU International Confederation of Free Trade Unions IDB Inter-American Development Bank IGAD East African Intergovernmental Authority for Development ILO International Labour Organization IMF International Monetary Fund IOC Indian Ocean Commission KBO Kagera Basin Organization LAIA Latin American Integration Association (LAIA) LCA Labour Cooperation Agreement ME Multinational Enterprise MERCOSUR Southern Common Market MIF Multilateral Investment Fund NAALC North American Agreement on Labour Cooperation (NAALC) NAFTA North American Free Trade Agreement OAS Organization of American States OCAS Organization of Central American States OECD Organization for Economic Cooperation and Development PTA Preferential Trade Area RIS Regional Integration System SACU Southern African Customs Union SADC Southern African Development Community SATUCC Southern Africa Trade Union Coordination Council SICA Central American Integration System UDEAC Central African Customs and Economic Union WCL World Confederation of Labour WTO World Trade Organization

viii Working paper No. 45

Working paper No. 45 1

I. Integration, free trade and globalization

1.1 Integration and free trade

Integration (subregional, regional, and world) is generally considered to be a process that evolves through a series of phases,1 starting with free trade agreements or agreements that create an area or zone benefiting from certain economic preferences extended by more developed countries or country blocs (i.e. the generalized system of preferences applied by the United States of America to Central American and Caribbean countries that fulfil given requirements) and that could culminate in an economic and political union, such as the European Union as aspired.

The stages or phases of this process of integration are basically the following, in ascending order in terms of the sphere or intensity of the integration: (a) Economic preference areas or zones; (b) Free trade areas or zones; (c) Customs union; (d) Common market; (e) Monetary union; (f) Economic and monetary union, and (g) Political union.

Each of these phases or stages is described as follows:

Economic Preference Area or Zone: Area or zone whose component countries enjoy trade preferences with each other or where preferences have been negotiated by one country with another or others in the area without necessarily covering the main items of trade between the signatory countries.

Free Trade Area: Trade is conducted duty-free within the group of countries in the preference area, but each member is free to set its own customs tariffs on imports from non-member countries2 (i.e., the North American Free Trade Agreement and the Association of Southeast Asian Nations (ASEAN) Free Trade Area).

Customs Union: All members of a free trade area impose the same customs tariffs on imports from non-member countries (the European Union, for example)3.

Common Market: Stage following the customs union, in which factors (labour and capital) move around freely and common rules have been adopted for their regulation.

Monetary Union: Use of a single currency or a reference currency based on a “basket” of the respective national currencies, with a common Central Bank and monetary policy. A monetary union is a stage following the establishment of a common market.

1 Van Liemt, G., The Social Dimension of Regional Integration . A “Think Piece” prepared for the ILO Policy Integration Department (Geneva, Mimeograph, 2002), (Geneva, Mimeograph, 2002), p. 4.

2 WTO definition.

3 Ibid.

2 Working paper No. 45

Economic and Monetary Union: An existing customs union and monetary union establishes a common economic policy or at least adopts certain common economic policy commitments (inflation and fiscal deficit targets, etc.).

Political Union: Union of countries that share common environmental, social, labour and cultural policies; supranational institutions are provided for to regulate and “administer” the process of integration, foreign policy, etc.

Most countries today are involved in one phase or another of a process of integration. Trade agreements are proliferating in Europe, as well as among the countries of Northern Africa. The Sub-Saharan countries in Africa have plans to achieve an economic and monetary union in 2028. Trade agreements have been signed in central Asia to fill the gaps left by the collapse of the old Soviet Union’s economic and trade structure. Japan, for its part, in 2002 entered into its first free trade agreement, with Singapore. Agreements are in place, as well, between the member countries of ASEAN and APEC. After having already signed a series of bilateral and trilateral free trade agreements, such as NAFTA and G3, the countries of Latin America and the Caribbean are moving towards the adoption of a hemispheric free trade agreement (FTAA) in 2005.

Table 1 below briefly maps out the different types of existing integration agreements.

Table 1

Integration Agreements, by modality and coverage

Continents Regional trade agreements

Incorporation into a customs union

Free trade agreement

Service agreement

Others

Europe 7 9 82 11 -

America 6 - 10 5 -

Asia 5 - 4 1 3

Africa 5 - - 1 -

Oceania 3 - 2 - -

Countries in different

continents

4 - 45 3 -

TOTAL 30 9 143 21 3

Source: WTO, 2003.

The table above shows that there are 206 different types of integration agreements today that have been notified to either the GATT or the World Trade Organization (WTO)4. The greater part of these agreements –69%-- are bilateral or trilateral free trade agreements and association agreements between a bloc of countries that are already parties to the same free trade agreement and a third country. There are 82 free trade agreements of the latter type in effect in Europe in the form of agreements between the European Union and a non-member

4 Online: <http://www.wto.org>


European or Eurasian country (the 9 European customs union incorporation agreements are a like case). Similarly, the 45 free trade agreements between countries on different continents for the most part correspond to agreements between the EFTA (Stockholm Convention) and a third country.

The “Uruguay Round” of trade negotiations, which gave rise to the creation of the WTO, among other things, triggered the “explosive” development of different phases or stages of integration processes over the past two decades. As a matter of fact, fully 75% of the free trade agreements have been signed since 1995. This does not mean to say, however, that it is only recently that the world has moved toward greater integration. On the contrary, as Hoekman and Kostecki point out, economic integration agreements have been around a long time. As early as 1664, a customs union was proposed in France; Austria signed free trade agreements with neighbouring countries in the eighteenth and nineteenth centuries, and, moreover, customs unions were the precursors to the creation of new States like Germany and Italy.5

Another element in addition to the conclusion of the Uruguay Round appears to have been instrumental in this worldwide “explosion” of trade agreements: the so-called “Washington consensus,” which placed special emphasis on eliminating obstacles to free market operation as a precondition for sustained and heavy economic growth and, through it, the creation of more and better employment. Without going into an evaluation of to what extent the forecasts of the “Washington consensus” have been borne out (these are examined to some degree in Chapter III) or of the current proposal (for embarking on a new stage of the consensus, based on institutional policies, capital market policies and corruption control policies), it is an indisputable fact that the consensus strongly influenced world opinion in favour of free trade.

Even so, as we examine the significant development of integration, it is worth asking ourselves whether the process is a single one, with different stages or phases, as the WTO apparently believes, or whether we should distinguish between integration, on the one hand, and free trade, on the other. There appear to be four good reasons for asking this question.

In the first place, the objectives and political will that spur processes like the European Union and MERCOSUR --to take just two examples--, are completely different from the objectives and decisions that underlie free trade agreements like those between Canada and Chile or between the United States and Jordan, among others.

The goals of the ongoing European Union process, many of which have already been reached, are the establishment of the Customs and Monetary Union and economic policy standardization (aiming towards the implementation of a common policy in this area); establishment of common principles in social, labour and environmental policies; common treatment of investments; creation of supranational institutions (some with authorities elected by European citizens); common foreign policy (being crafted) and, in the future, a possible European defence system and, to some degree, a political union with the adoption of Europe’s first continental constitution.

5 Hoekman, B.M. and Kostecki, M.M., “The Political Economy of The World Trading System”. The WTO and Beyond (Oxford University Press, 2001).


The European process of integration–and to some extent that of MERCOSUR also–rested on a strategy of bloc formation that afforded a large degree of protection to the members. In the 1950s, the creation of the European Economic Community was marked by the desire of the countries to apply import substitution strategies to further their industrialization; as a result, protectionist barriers were raised and intervention in the economic activity of the member countries was heavy in the early years.6

At the other extreme, free trade agreements are confined to adopting shared rules for regulating trade in goods and services between two or three signatory countries and rules for supervising the investments (public and private) of one country in another and, to a lesser degree, the common treatment of certain specific issues like patents and licences to use given goods (medicinal products, for example) and services (television, for example). All of these agreements provide for dispute settlement procedures and only a very few (generally those signed by the United States or Canada with a third country) include certain environmental and socio-labour commitments. The labour commitments are designed basically to ensure the enforcement of national labour legislation guaranteeing that workers’ core rights established in the ILO 1988 Declaration on Fundamental Principles and Rights at Work and its Follow-up are respected.

In the second place, integration agreements like those of the European Union or, in lesser degree, MERCOSUR or the Andean Community (CAN) can be seen to encompass and develop a social dimension (including a labour dimension) that is not present in free trade agreements (with the few exceptions indicated) or simple customs unions. Good examples of instruments that further develop this social dimension include the European Social Charter, revised in 1996, the MERCOSUR 1998 Social and Labour Declaration, the CARICOM 1995 Declaration of Labour and Industrial Relations Principles and the recently adopted Andean on instruments on social security, labour migrations and occupational safety and health. There are noticeable differences in both the targets these processes have set themselves and society’s degree of identification with the aims of each.

As already indicated, the social dimension of economic activity has been under discussion for a long time now. In fact, the link between workers’ rights and trade was first brought up some 150 years ago. In the nineteenth century, the issue was addressed in terms of improving working conditions in commercial activities, for there were those who considered that legislation prohibiting child labour or regulating the working day would place countries at a disadvantage vis-à-vis other countries where such regulations had not been enacted.7

The more liberal positions today, however, in the light of experiences like those of Europe or the Southern cone countries of America, hold that the “social protection effect” is the true and only socio-labour dimension of economic integration and trade liberalization-driven economic and trade growth. They consider that social charters, commitments to respect the fundamental rights of workers, and so forth have a political, but no economic, significance and could even go so far as to produce distortions in market operation that would end up by impairing the possibilities for growth.

6 ibid.

7 ibid.


Some analysts in Latin America consider that the Free Trade Area of the Americas, FTAA, currently under negotiation and slated to become operational in 2005, would constitute an intermediate course between free trade and economic integration. In point of fact, the Declarations and plans of action of American and Caribbean Presidential summits have insisted on the need to promote social development (particularly, health and education) and to guarantee full respect for the fundamental rights at work spelled out in the ILO Declaration of 1998. The Chile Summit plan of action included efforts in the following areas: (a) modernizing the government labour sector; (b) workers’ basic rights, and (c) migrant workers. Similarly, the “Trade Promotion Authority” approved by the United States Congress in 2002 requests the U.S. government to guarantee in all its trade negotiations, including the FTAA negotiations, that the signatory countries effectively comply with domestic labour legislation and the fundamental rights at work established by the ILO.

Neither these Declarations, nor the plans of action, nor the domestic legislation of the United States is reflected in the FTAA negotiating structure, however. In fact, none of FTAA negotiating groups is currently discussing the social and labour agreements adopted at the Presidential summits.

In the third place, although there is nothing to keep the most economically powerful country in the world from signing a free trade agreement with the world’s poorest country, this type of association would be even more difficult to achieve in the case of an integration agreement with the broad objectives and ambitions of the European Union or MERCOSUR, for example. The reason for this is that a process of integration would be hard put to move ahead if the member countries show widely varying levels of development (productivity, income, consumption); the poorest economies would set the pace, thus draining away the potential and vigour of the process. In fact, in the case of Europe, the Union was forced to set up structural funds financed by the wealthiest countries in the region to finance the development of countries like Spain, Greece and Portugal, which lagged behind the rest economically. As Lazo8 points out, free trade is not the proper vehicle for resolving investment, productivity, income, consumption capacity, education, and other imbalances among countries.

In the fourth place, integration is a process that is forged day by day; measures adopted earlier are revised and adjusted and new proposals in different areas and on varying subjects are placed on the agenda and negotiated almost daily. With free trade agreements, the case is different. Once a final agreement has been reached, it becomes a binding commitment to be implemented; in very few cases is it necessary for parts of the agreement to be renegotiated or disputes over its implementation settled. In other words, integration is a living process and the involvement of social actors and the pressures brought to bear by the people are responsible for its continuing growth. This is definitely not true in the case of free trade agreements.

It is for these reasons that I have chosen to clearly distinguish between European or Latin American and Caribbean style integration processes (without overlooking the unique features and differing degrees of development of each) and strictly trade agreements per se in the analysis made in the following sections. As already pointed out, integration processes possess a permanently (and sometimes intermittently) growing social dimension, while trade agreements are limited strictly to the area of trade and investment, except in the cases already indicated, which I will return to later.

8 Lazo, Pablo, El ALCA y las normas laborales (Chile, Friedrich Ebert Stiftung, 2003).


This distinction raises the question of whether there is a possible difference between integration and globalization. Trade agreements appear to be more in line with economic globalization, while integration movements are a part of regional or sub-regional development processes that contribute to a better positioning within the global economy.

1.2 Integration and globalization

The advance of globalization undeniably produces winners and losers among both countries and social sectors9. All one needs to do is review investment growth rates in countries on different continents or the evolution of poverty or informality rates to see that, despite the economic progress that has been made and advances in trade, the benefits of globalization have not yet reached a large number of African, Southwest Asian or Eurasian countries.10

Integration, for its part, seeks to promote and harmonize the economic development of all of the countries involved in the process and thereby link up with the world economy under the best possible conditions. It goes beyond economic development, to contribute to social cohesion, the building of citizenship across national borders and, finally, the consolidation and development of democracy; these are accomplishments (or objectives) that do not necessarily materialize in a globalized economy.

To sum up, economic integration, unlike globalization, which depends largely on the efforts of international financial and trade organizations and large transnational enterprises that are interested in having a presence in different countries to the North and South in order to maximize their profits (a process that does not necessarily allow differences in productivity, income and levels of development among countries to be reduced), is based on agreements between States to coordinate their economies more closely and thereby attain better and more balanced economic growth, with democratic development and more social cohesion.

The link between social cohesion (using income concentration as an indicator of social cohesion) and democracy was recently analysed in Latin America.

9 See World Commission on the Social Dimension of Globalization, A Fair Globalization: Creating Opportunities for All (Geneva, February 2004).

10 Martínez, D. and Vega Ruiz, M.L., La globalización gobernada. Estado, sociedad y mercado en el siglo XXI, Tecnos (ed.) (Madrid, 2001), pp. 116-118.


Chart 1

Correlation between the Gini coefficient and support for democracy (by percentage)

Source: Panorama Laboral de América Latina y el Caribe 2002. ILO (with an ECLAC 2002 data base).

Chart 1 reveals the existence of a high rate of correlation between income distribution and commitment to democracy. Support for democracy, according to surveys, is higher in counties with better income distribution, such as Costa Rica, Argentina and Panama (Uruguay could also be included, although this is not reflected in the chart), than in countries where income is distributed more poorly, like Brazil, Ecuador, Chile and Bolivia, among others. The question to be asked here is whether integration helps improve income distribution or not.

The ILO 2002 report for Latin America and the Caribbean11 points out that the countries where income distribution improved over the nineties were Brazil, Mexico, Panama, Paraguay and Uruguay: four members of MERCOSUR and one of NAFTA. Together with Costa Rica, Argentina continues to have one of the most progressive income distribution structures, despite its slight worsening. In other words, it is the member countries of the most developed process of integration in the region, MERCOSUR, that show either an improvement in distribution or a progressive income structure, despite a slight decline in the latter case.

Even though processes of integration are more multidimensional (political, social, labour, etc.) in nature, the more developed countries are markedly in favour of free trade agreements12, as interpreted in this document. Latin America and the Caribbean are a good example of this. While the United States and Canada are enthusiastically betting on a major Free Trade Agreement (FTAA), many countries in the Latin American region –particularly the southernmost-- are still undecided over whether to participate individually in the FTAA negotiations or to give priority to building up and developing their own processes of integration first and only then to participate in the FTAA negotiations as a bloc. The importance of the matter should not be underestimated, for this, as I will explain below, is

11 ILO, Panorama Laboral de América Latina y el Caribe (ILO/Lima, December 2002).

12 Except for the European Union.

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one of the core issues of the link between trade and labour relations and must be resolved in the course of the FTAA negotiations. These differences in approach to the FTAA became patent during the meeting of Trade Ministers of the Americas held in Miami in November 2003 and resulted in a deadlock between the United States and Canada, on the one hand, and MERCOSUR, on the other. The failure to harmonize positions resulted in the decision to adopt an “a la carte” approach to the FTAA, in which each country would be allowed to select only two topics of interest from the menu for negotiation with the rest.

To what can we attribute this difference in order of priorities between the developed countries of the north and the emerging countries of the south?

There are undoubtedly several factors involved. In the first place, the matter has much to do with current geopolitical tensions over a unipolar versus a multipolar distribution of world power. For the member countries of the Group of 8, the formation of integration blocs using either of the two strategies is just one more way of transferring part of their quota of power to third countries. Free trade, on the other hand, does not affect the distribution of power; in fact, in the existing circumstances, it reinforces that distribution. We should not be surprised, then, that some conservative United States politicians consider that proposals for stronger governance of globalization (as synonymous with free trade) “constitute a threat to U.S. sovereignty.”

In the second place, the differences in level of development among the member countries – differentials in economic productivity, in the final analysis– create a serious problem for the formation of integration blocs. If the handling of this problem has already proven to be difficult for the more advanced movements (the European Union, where new members are given long adjustment periods and structural funds are set up to finance the progressive closure of gaps in productivity, and MERCOSUR, where the treatment of less developed economies like the Paraguayan creates noticeable tension), it will be almost impossible in cases where more parties are involved (Latin America, for example) and the differences among countries in level of development are more marked. Free trade sidesteps this problem in the degree to which it concentrates on the tariff treatment of a series of specific products, using an already agreed timetable for application, etc.

In short, while free trade is clearly seen to share the very essence of globalization, the case is not the same for integration. Globalization cannot exist without free trade. By the same token, integration is impossible without progressive market liberalization. But, even so, economic and social integration may move ahead irrespective of the pace of globalization.

1.3 Social actors, integration and free trade

Neither employers’ nor trade union organizations reject processes of economic integration in the region. This does not mean, however, that in certain cases organizations will not voice their disapproval in regard to specific issues (tariff level or labour commitments, for example). Social actors consider integration an appropriate vehicle for enlarging markets, providing that mechanisms are in place to defend members against the use of aggressive trade practices by third countries (i.e. the agricultural subsidy policy of developed countries) and social policies exist to help gradually convert the benefits of economic growth into social progress, thereby allowing for more governance of the process.


The attitude of these organizations towards free trade agreements, whether bilateral or multilateral, is quite different. Generally speaking, while employers’ organizations support agreements of this kind, trade union organizations exhibit either an attitude of outright opposition to existing processes of trade liberalization or, in the best of cases, of critical support, with demands for changes in course on key issues. Trade liberalization being one of the core elements of the ongoing globalization process, it is not surprising that different social organizations, including labour, reject globalization, as their demonstrations in Seattle, Milan, Barcelona, Evian and many other cities have shown.

The support of employers’ organizations for these free trade processes centres on the “trade element” per se. Unlike trade union organizations, employers’ organizations accept the establishment of a link between trade and labour standards only if those standards are restricted to the fundamental rights at work established in the ILO 1998 Declaration on Fundamental Principles and Rights at Work. Such are the cases of the free trade agreements signed by the United States and Canada with third countries, which enjoy the general backing of employers’ organizations, although differences may arise over certain specific points.

At the risk of oversimplifying in the case of trade union organizations, we could say that while unions belonging to the International Confederation of Free Trade Unions (IFCTU) clamour for integration and free trade processes to develop a dimension that goes beyond labour issues to generally seek to guarantee the region’s integrated development (by setting up compensation funds to reduce imbalances among countries or creating supranational levels to ensure proper implementation of the agreements, including those concerning labour), organizations belonging to the World Confederation of Labour (WCL) propose that Latin America first achieve integration so that it will be better equipped to negotiate an expansion of the process’s coverage.

Generally speaking, in a strict sense, trade union organizations are not opposed to trade per se. What they do oppose, rather, is the existing trade liberalization systems, for it is their understanding that trade is developed within these systems at the cost of the deterioration of labour market conditions and the debasement of labour relations. In the case of trade unions belonging to the WCL, this opposition is even more radical, if that is possible, particularly towards the FTAA, which they consider an exercise in “neo-colonialism.” The membership of the International Confederation of Free Trade Unions (IFCTU), for its part, while also demonstrating an attitude of opposition to the existing systems, proposes that issues like the following be included in the new round of negotiations with the WTO for the benefit of developing countries:

(a) more generous aid programmes to developing countries, including trade assistance;

(b) help for developing countries in the proper use of WTO dispute settlement mechanisms;

(c) use of capital controls to avoid financial destabilization;

(d) opening of world trade to agricultural products;

(e) renegotiation of WTO intellectual property agreements;

(f) annulment of tariffs and quotas on imported products from relatively less developed countries;


(g) spurring of the domestic demand in developing countries;

(h) inclusion of a labour clause that would link up trade and workers’ fundamental rights and consider establishing an advisory ILO/WTO body to supervise the application of that clause13.

In the inter-American sphere, the two social advisory institutions to the Organization of American States’ Inter-American Conference of Ministers of Labour have clearly expressed their opinions about integration and free trade. The Business Technical Advisory Committee on Labour Matters (CEATAL) pointed out the following in a declaration of principles made at the beginning of July 2003: “CEATAL supports the efforts being made to reach a broad-based integration through the Summits of the Americas process. Integration has the capacity to boost economic growth, create wealth, improve working conditions, alleviate unemployment and underemployment and result in a better division of labour among the countries based on competitive advantage. CEATAL reiterates its intention and its commitment to work to ensure that the process of regional integration leads to the entire hemisphere’s social development.”14

CEATAL further states that “the International Labour Organization (ILO) is the only international organization possessing a mandate to seek an improvement in working conditions worldwide through the establishment of standards, technical cooperation, and dialogue and the dissemination of other cases and examples.”

The Trade Union Technical Advisory Council (COSATE), for its part, stated the following in July 2003: “During the XII Conference, COSATE, as well, clarified its approach in favour of the processes of integration, under the slogan of Another America is possible, devised by the Hemispheric World Alliance. It has taken care to distinguish between these processes of integration and those that are limited to free trade (or investment). While the former target the nations’ development, only big capital benefits from the latter.”15

This same COSATE document goes on to state “civil society’s demand for processes of economic integration to have a built-in social dimension, highlighting the constructive efforts made by the governments of the MERCOSUR and CARICOM groups to deal with labour issues.”

In short, social actors’ organizations clearly support integration processes. But in the case of free trade agreements, labour organizations are critical of the trade liberalization systems currently being put into operation and propose a renegotiation of basic aspects of those systems in an effort to bring globalization under appropriate governance.

13 Certain precedents for the application of a trade-related labour clause can be found in the 1948 Havana Charter. The draft declaration of the Conference that was held in that city to seek the establishment of what would have been the International Trade Organization (ITO) proposed that “[the] members (of the ITO) recognize that unfair working conditions, particularly in producing for export, create problems for international trade and, as a result, each Member should take appropriate measures, as feasible, to eliminate such conditions within its territory.”

14 Los Temas y Cuestiones de Discusión de la XII CIMT. Los principios que deberían guiar los futuros debates referentes a la dimensión sociolaboral de la integración regional, position document (CEATAL, 2003).

15 Balance sobre la XII Conferencia (de la CIMT) y la participación sindical. COSATE, July 2003.


All social organizations are clamouring for more participation in both processes of integration and free trade agreements, inasmuch as this is almost nonexistent in some cases (in the FTAA, for example).

2. Latin America and the Caribbean: Economic, integration, trade liberalization and labour standards

Economic integration agreements have an undeniable impact on given aspects of the world of work that include at least the following four areas: (a) the adjustment of regulations in terms of workers’ fundamental rights; (b) aspects connected with labour costs, productivity and competitiveness and, more concretely: recruitment methods, wage policies, legislation on the termination of employment, occupational safety and health, and social security; (c) aspects relating to employment, industrial restructuring and vocational training; and (d) aspects concerning workers’ freedom of movement.16

This chapter briefly examines the first of these effects generated by both the integration agreements in Latin America and the Caribbean and the free trade agreements that are in force in the region. The three other effects cited will be taken up in the following chapter (III).

2.1 Processes of economic integration in Latin America and the Caribbean

A. MERCOSUR

The Southern Common Market (MERCOSUR), the Andean Community (CAN), the Central American Integration System (SICA) and the Caribbean Community and Common Market (CARICOM) are the economic integration agreements that are in effect in the region today.

MERCOSUR was established in 1991, with Argentina, Brazil, Paraguay and Uruguay as its members. A combined population of over 200 million and a gross national product estimated at that time at one thousand million dollars a year made MERCOSUR the largest economic integration group in Latin America and in the southern hemisphere. Bolivia and Chile have since signed economic and trade association agreements with MERCOSUR and more recently Peru signed a free trade agreement with the bloc.

Up until 1997 all of the MERCOSUR member countries, except Argentina, enjoyed heavy economic growth triggered for the most part by foreign investment that was attracted by the privatising of public enterprises, together with an acceptable labour performance. The outbreak of the Asian crisis that year, however, ushered in a bout of economic and social instability that culminated in Argentina’s 2002 crisis and its damaging effects on the economies of the other Common Market members.

16 Martínez, D., Tokman, V.E. and Wurgaft, J., Las dimensiones laborales de la integración económica en América Latina y el Caribe ILO Working Paper No. 8 (Lima, 1995), pp. 7-10.


MERCOSUR has both the most developed labour and social dimensions and the largest group of participating social actors of all the integration movements in the region. Some years ago, a Subcommittee of the existing Subgroup 11 examined the situation in the subregion with a view to harmonizing the labour force, social security, wages and employment in the area. The Group’s chosen method was to select 21 ILO Conventions and promote their ratification by the four MERCOSUR member countries in order to create a common doctrine. In July 1998, Subgroup 10 (which replaced the above-cited Subgroup 11 in MERCOSUR’S new organizational structure) launched a debate about incorporating a possible labour agreement that would include part of the contents of the letter submitted by the workers.

As a result of that debate, MERCOSUR’s Social and Labour Declaration was adopted that year, expressly recognizing freedom of association, collective bargaining, the right to strike, the elimination of forced labour, the special protection of child labour, the obligation to practice non-discrimination and effective equal rights in employment or occupation.

MERCOSUR also has a permanent tripartite Social-Labour Commission, which, together with the Declaration, is one of the pillars on which the development of its socio-labour dimension rests.

B. Andean Community

The Andean Community (CAN), made up of Bolivia, Colombia, Ecuador, Peru and Venezuela, has a total population of 113 million, with a gross national product (GNP) that in 2000 amounted to 270 million dollars.

The best-known instruments for developing the social and labour dimensions of this process of integration are probably the Simón Rodríguez Convention (amended), the Andean Social Security Instrument (Decision 546), the Andean Occupational Safety and Health Instrument (Decision 547), the Andean Labour Migration Instrument (Decision 545) and the Andean Labour Administration Instrument.

The Simón Rodríguez Convention, approved in 1973, promotes integration in the social and labour areas. This Convention ceased to be applied in 1993 and was subsequently revised to adjust it to the existing socio-economic situation in the subregion and the objectives of the process of integration. The Protocol amending the Convention introduced a key innovation: three-party participation in its application.

The Andean Social Security Instrument establishes a common policy in regard to the right of insured parties to receive benefits in another Community country in cases of sickness, maternity, occupational injuries and diseases, old age, disability and death.

The Andean Occupational Safety and Health Instrument establishes fundamental occupational safety and health standards that will underpin the progressive harmonizing of legislation and regulations that govern given labour situations in each Member Country. At the same time, this Instrument should spur the Member Countries to adopt guidelines for occupational safety and health management systems and for establishing a national occupational safety and health system.

The Andean Labour Migration Instrument, for its part, establishes a common policy on the rights and obligations of workers who emigrate to other Community countries for employment reasons and the procedures that are applicable to them.


The regulations are now being prepared for these three decisions and Decision 533 establishing the guidelines for the Integrated Social Development Plan to reduce poverty has started being applied. At the same time, work is proceeding on the new Andean Labour Administration Instrument and another Instrument on the abolition of child labour is under preparation.

In addition to these instruments, the CAN has within its institutional structure both a Labour and a Business Advisory Council, whose functions are to hand down opinions about programmes or activities being implemented by the integration movement and to attend meetings of the Andean Council of Foreign Ministers and of experts or of working groups connected with the CAN.

An attempt in 1999 to adopt a Charter of Social Rights in the Andean Community met with failure. In May of that same year, however, the Eleventh Andean Presidential Council approved the Declaration of Cartagena, which arranged for a multidimensional social agenda to be carried out, “its key lines of action being in the areas of job creation, education, health and housing. It should incorporate the bases for a common migration policy, a policy to protect the fundamental rights of migrant workers... .”

C. Central American Integration System

The Central American Integration System (SICA). The signing of the Charter of San Salvador on October 14, 1951 creating the Organization of Central American States (OCAS), together with the adoption of reciprocal bilateral trade and preference agreements laid the groundwork for Central American integration. Important multilateral agreements were subsequently adopted and on December 13, 1960, the General Treaty on Central American Economic Integration (Treaty of Managua) was signed, creating the Central American Common Market.17 Under this Treaty, all of the bodies of the Central American Economic Integration Programme became a part of OCAS.

The Protocol of Tegucigalpa was signed at the Eleventh Summit of Central American Presidents in 1991, updating the legal framework of the Organization of Central American States, which was replaced on that occasion by the Central American Integration System (SICA), made up of the original members of OCAS (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) and Panama. At that moment, SICA started to operate within the institutional framework of Central American regional integration.

17 For further information about the history and creation of this integration system, see Centro Iberoamericano de Cooperación, Organismos Interamericanos (Madrid, Ediciones Cultura Hispánicas, 1978), p. 271 and following.


A series of trade agreements were subsequently signed,18 as well as agreements on democratic stability and complementary integration instruments, with a view to achieving a regional system of economic and social protection and justice for the Central American nations .19

The instruments that have been signed within the framework of this experience in integration have regulated trade matters for the most part. Little attention has been given to labour institutions in the various legal instruments that regulate those institutions, a matter that will later be discussed in detail.

D. Caribbean Community and Common Market

The Caribbean Community and Common Market, CARICOM, was created in 1973 and has the following member countries: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

The most important accomplishments of this process of integration in developing its social and labour dimensions have been: the Charter of Civil Society (1997); The Declaration of Labour and Industrial Relations Principles (1995); the CARICOM Agreement on Social Security (1996) and the adoption of common principles for designing, adopting and implementing a multi-annual plan to develop an Information System on the Labour Market in the Caribbean subregion.

The CARICOM Declaration goes far beyond being a mere statement of principles and for the Community countries constitutes a veritable framework for labour regulation. This Declaration is the bedrock upon which model Community laws are being drawn up with regard to: the recognition of trade unions, occupational safety and health, and equal opportunity and treatment. Furthermore, a project for drafting common labour legislation for the entire Community was launched in 1993.

The specific labour provisions of the various agreements, protocols and instruments of the processes of integration are analysed under heading 3 of this chapter.

18 Protocol of Amendment to the Central American Uniform Customs Code (CAUCA II); Second Protocol to the Central American Agreement on the Tariff and Customs Regime (Puntarenas, Costa Rica, November 5, 1994); Third Protocol to the Central American Agreement on the Tariff and Customs Regime (San Pedro Sula, Honduras, December 12, 1995); Declaration of Montelimar II (Nicaragua, May 9,1996); Free Trade Agreement in Central America – Dominican Republic; Protocol to the Free Trade Agreement in Central America – Dominican Republic (Santo Domingo, April 16, 1998).

19 Nature, principles and objectives of the Agreement on Democratic Security in Central America (San Pedro Sula, Honduras, December 15, 1995); Declaration of San Pedro Sula (San Pedro Sula, December 15, 1995); and Joint Declaration of the Third Meeting of Heads of State and of Government of the Member Countries of the Tuxtla Mechanism for Dialogue and Concertation (San Salvador, July 17, 1998).


2.2 Free trade agreements in the American region

The only region wide trade agreement is the Latin American Integration Association (LAIA) “created by the 1980 Treaty of Montevideo and which operates as a framework that legally supports other bilateral or subregional Agreements”.20

The North American Free Trade Agreement and with the Free Trade Agreement of the Group of 3 (Colombia, Mexico and Venezuela) are the only such Agreements in the region that involve more than two parties. Signed in 1992 by Canada, the United States and Mexico, NAFTA promotes the unhampered flow of goods and services between the territories of its member countries, but not the free movement of people. No labour provisions were incorporated at the time of its signing but later, at the urging of the AFL-CIO (American Federation of Labour – Congress of Industrial Organizations) and of the United States Democratic Party, the so-called North American Agreement on Labour Cooperation (NAALC) was signed. The main objective of this agreement is to ensure compliance with each country’s labour standards within a promotional context and under the conditions specified in its respective domestic legislation. The key labour principles those standards should develop and respect is spelled out in detail.21

Judging by the text of the Agreement on Labour Cooperation, all of the fundamental rights at work have been consistently addressed, as the following paragraphs explain. Some of the working conditions and employment rights have also been built in. However, neither labour administration, nor social security issues have been dealt with, except for employment accident benefits.

The Agreement places special emphasis on mechanisms for consultation and coordination among the parties, on the assumption that social progress is a shared objective and that a consensus on expanding trade cannot not be reached on the basis of the workers’ exploitation. The other premise is based on the objective fact that the national legislation of the three countries incorporate the core principles, while the right to observe them varies according to the countries’ level of development and is not due to a deliberate effort to avoid compliance.

20 Rosenthal, G., Di Filippo, A., and Franco, R., Aspectos sociales de la integración, Volume I, Serie Políticas sociales No. 14 (ECLAC, 1997), p. 34.

21 For an in-depth history of the North American Agreement on Labour Cooperation, see De Buen, Néstor, “El Tratado de Libre Comercio de América del Norte”, in Revista de Relaciones Laborales en América Latina – Cono Sur (Relasur), No. 1 (Montevideo, 1993), pp. 57-65; “Las maniobras de la AFL-CIO”, in Análisis Laboral, vol. XVIII, No. 209 (Lima, November 1994), pp. 12-13; “Los Acuerdos paralelos al Tratado de Libre Comercio entre México, Canadá y Estados Unidos”, in Análisis Laboral, vol. XVII, No. 193 (Lima, July 1993), pp. 11-12; “Los aspectos laborales del Tratado de Libre Comercio de Norteamérica”, in Análisis Laboral, vol. XVIII, No. 203 (Lima, May 1994), pp. 6-8; and “Derecho del Trabajo e Integración”, in Revista Ius et Veritas, Year V, No. 8 (Lima, June 1994), pp. 75-80. See also Vasquez Parraga, Arturo, “Consecuencias Laborales del NAFTA (La Perspectiva de los Estados Unidos)”, in Análisis Laboral, vol. XVII, No. 194 (Lima, August 1993), pp. 10-14.


The results attained thus far by NAFTA and, more particularly, by the Agreement on Labour Cooperation, have not been free from censure. The established procedure for evaluating and processing accusations of violation of labour legislation is criticized, for example. An ILO study22 points out the following:

“A former President of the Canadian Labour Congress argued:

In addition, the process for a NAALC labour dispute to eventually get to the final steps of monetary assessment could take as many as 1,320 days --nearly four years. This is in sharp contrast to mechanisms of the NAFTA itself, in which investors and defenders of intellectual property rights are granted access, both civil and criminal, to a process to defend their rights. Surely, labour negotiators could find a mechanism to streamline the unreasonably arduous NAALC process.23

Even some representatives of the employer community agree that the NAALC lacks enforcement mechanisms. As one Canadian employer representative argued:

“All NAALC does is to ensure that each country abides by its own labour laws with effectively no sanctions…It is currently non-functional.”

Another business representative explained: The role of business and labour has been basically to generate complaints under NAALC as part of the implementation process. Since we question the linking of trade with labour issues, we really don’t see any role for them…And NAALC looks like a document designed to have issued raised, but makes them difficult to resolve.”

The differences of opinion are not limited to the procedures used, but extend to the results achieved in terms of employment and the quality of that employment. That same ILO study points out the following:

“In a 2001 presentation to the National Foreign Trade Council, U.S. Trade Representative Robert Zoellick suggested that NAFTA enhanced each country’s GNP and resulted in increased trade and investment in North America. To support this assertion, he presented the following data:

When the Congress approved NAFTA in 1993, trade between the United States and Mexico totaled $81 billion. Last year, our trade hit $247 billion –nearly half a million dollars per minute. U.S. exports to our NAFTA partners increased 104 percent between 1993 and 2000; U.S. trade with the rest of the world grew only half as fast. Today we export more to Mexico than to Britain, France, Germany, and Italy combined.24

22 Kay, Tamara et al., The Labour Dimension Within Regional Integration and Free Trade Agreements in the Americas (Geneva, ILO, June 2003), pp. 44-64.

23 Comments made by Robert White in “Review of the North American Agreement on Labour Cooperation.” 24Comments prepared by Robert B. Zoellick, United States Trade Representative, for a presentation before the National Foreign Trade Council, July 26, 2001.


Zoellick also argued that NAFTA created a significant number of new jobs in North America:

In the seven years since NAFTA’s implementation, U.S. exports to Mexico and Canada now support 2.9 million American jobs –900,000 more than in 1993. Such jobs pay wages that are 13 to 18 percent higher than the average American wage.25

Although new jobs were certainly created in NAFTA’s wake, critics argue that many were lost. The U.S. government administers Trade Act programs to deal with such economic dislocations. According to the U.S. Department of Labour, Trade Act programs are available to assist individuals who have become unemployed as a result of increased imports (Trade Adjustment Assistance), imports specifically from Canada and/or Mexico, or a shift in production to Canada and/or Mexico (North American Free Trade Agreement-Transitional Adjustment Assistance). The goal is to help such laid-off workers return to suitable employment as quickly as possible.

A Canadian business representative conceded that certain jobs were lost, but argued that the benefits of increased trade made up for that loss: No doubt there have been dislocations due to NAFTA, but these have been offset by the increased trade it has brought about. Each country has its own mechanisms in place to deal with such dislocation...it’s up to each individual country to ensure that its workers have the appropriate skill levels, quite apart from any international arrangements.

Labour and human rights advocates disagree. Many argue that it is the responsibility of governments at the national and regional level to address asymmetries among the three countries. As one U.S. labour scholar and lawyer explained, at the national level, stronger aid and adjustment policies are needed, like expanded and lengthened unemployment insurance and retraining assistance for younger and mid-aged workers, early retirement opportunities for older workers; in the U.S., addressing the scandal of the lack of health insurance for affected workers is key to adjustment. At the regional level, structural assistance policies like those of the European Union that helped Spain and Portugal when they entered the EU are needed, as are more coordinated migrant worker policies.

Moreover, many contend that NAFTA should not be judged a success based on the creation of new jobs, but rather, based on the kinds of jobs that are lost or created. As one Mexican scholar argued: While NAFTA has benefited a few sectors of the economy, mostly maquiladora industries and the very wealthy, it has also increased inequality and reduced incomes and job quality for the vast majority of workers in Mexico. In many ways (such as the stagnation of the manufacturing share of employment), the entire process of development has been halted, and in some cases it even may have been reversed. NAFTA has created some of the most important challenges for Mexico’s development in the 21st century.

In his report “NAFTA At Seven: Its Impact on Workers in all Three Nations,” Jeff Faux evaluated NAFTA’s effects on workers after seven years. He concluded that NAFTA failed to improve the lives of North American workers: ……increased gross volumes of trade and financial flows in themselves testify to NAFTA’s achievements. But most citizens of North America do not support themselves on their investments. They work for a living. The overwhelming majority has less than a college education, has little leverage in bargaining with employers, and requires a certain degree of job security in order to achieve a minimal, decent level of living. NAFTA, while extending protections for investors, explicitly

25 Ibid.


excluded any protections for working people in the form of labour standards, worker rights, and the maintenance of social investments. This imbalance inevitably undercut the hard-won social contract in all three nations. As the three reports in this paper indicate, from the point of view of North American working people, NAFTA has thus far largely failed.”26

Not all is criticism, however; the virtues of the Agreement have also come in for praise. Below is an example taken from the ILO study:

“Despite the flaws attributed to it by its critics, the NAALC is credited with drawing attention to labour rights abuse issues in North America. As one U.S. union leader argued: On one hand, the NAFTA's NAALC plays the role of a toothless tiger. If you were one of the unfortunate individuals to lose your job due to a plant relocation from the USA to Mexico or a mistreated worker in Mexico being stifled by bureaucrats, this readily becomes obvious. On the other hand, it serves as a beacon of hope to a few of us that seek trade agreements that promote fair trade v. free trade by keeping both parties alert to workers' concerns... In the future, I suggest an ADR [alternative dispute resolution] process with teeth.”(Kay, op. cit.)

As for bilateral free trade agreements, while these are proliferating in the region, most lack labour stipulations. One of the best known and most studied of the agreements that concern themselves with labour issues is the Free Trade Agreement between Canada and Chile, which was ratified in 1997 and then complemented by a Labour Cooperation Agreement (LCA). This LCA established certain principles, objectives, institutions and initiatives to avoid social dumping and to promote core labour principles and rights. Structured along the lines of the NAALC, it became operational in 1998.

Chile and the United States recently signed a new free trade agreement incorporating labour stipulations. A free trade agreement between the United States and the Central American countries, pending ratification by the Congresses of the signatory countries, provides for similar treatment of labour issues. In neither case are labour issues addressed in a supplemental or parallel Agreement, but are built into the body of the free trade agreement itself. The systematic violation of labour provisions is penalized in both agreements by monetary sanctions or the suspension of trade benefits. These features set the two agreements apart from the North American Agreement on Labour Cooperation (NAALC) and the Labour Cooperation Agreements between Canada and Costa Rica and Canada and Chile, respectively, and from other agreements signed by the United States government with third parties, such as Jordan. In order to obtain trade benefits, the latter agreements impose trade sanctions if legislation on fundamental rights at work fails to be observed.

In the light of these differences, V. Tokman points out that27 “the free trade agreements that have been promoted by the United States and Canada appear to have followed a course whose starting point was NAFTA, in which obligations were comprehensive and sanctions possible and could even affect trade. The innovation introduced by the Canada-Chile Agreement (subsequently) ruled out trade sanctions. A more demanding model now exists. Labour issues like fundamental rights at work and occupational safety and health are now

26 “NAFTA At Seven: Its impact on workers in all three nations,” Economic Policy Institute Briefing Paper.

27 Tokman, V.E., Libre comercio y estándares laborales: un vínculo en evolución, paper presented at the Second Meeting on Labour Standards (Buenos Aires, IDB-LASTN, 2003), pp.25-26.


an essential part of the agreements and must be submitted to the same dispute settlement procedure as trade issues –all of this should be in place in 9 months’ time. This is the model followed in the U.S.-Jordan Agreement, in which only the obligations have been relaxed and there is an informal U.S. commitment to turn to trade sanctions only if all other courses have failed.”.

An examination will be made later of the labour provisions that have been built into these free trade agreements.

An innovative system is under negotiation today: “The Free Trade Area of the Americas” (FTAA), which takes in all of the countries in the region, including the Caribbean. Presented and approved at the Miami Presidential Summit (December 1994), it was ratified at the Second Presidential Summit in Santiago in 1998. The Heads of State meeting in the city of Quebec at the Third Presidential Summit set a February 2005 deadline for the negotiations.

The following thematic groups have been set up for the FTAA negotiations: (a) market access; (b) investment; (c) services; (d) government procurement; (e) dispute settlement; (f) agriculture; (g) intellectual property rights; (h) subsidies, antidumping and countervailing duties; and (j) competition policies. The present negotiation structure appears to be totally lacking in a socio-labour dimension, as I pointed out earlier, and trade unions and other civil organizations are clamouring insistently for its inclusion.

If the FTAA negotiations are broadened to take account of labour issues, many analysts consider that it will be a question of adopting either the U.S.-Chile or U.S.-Singapore Free Trade Agreement model or the MERCOSUR model described previously. The model developed by the Free Trade Agreement between the United States and Chile is doubtlessly better suited to the negotiating strategy of countries like the United States and Canada (for reasons explained above). Countries such as Argentina and Brazil, on the other hand, which would like to see the progress already made the area of socio-labour integration by the Southernmost countries of the Americas serve as a trampoline for future negotiations and, furthermore, wish to avoid linking labour standards and trade in any way, as in the case in the MERCOSUR model, would favour an interbloc negotiation strategy.

The already cited ILO study by Kay has the following to say about those who favour having the FTAA follow the model of the U.S.-Chile or U.S. Singapore bilateral Agreement (although the study refers to the U.S.-Jordan pact model):

“Some labour advocates point to the U.S.-Jordan agreement as a possible model for the FTAA. A Human Rights Report recommends: A NAALC-like accord, or one drawing on the NAALC and other such agreements, such as the recently concluded U.S.-Jordan free trade agreement, should be included as an integral element of the Free Trade Area of the Americas (FTAA). Formal debate on linking labour rights and trade should take place in the context of talks designed to establish the FTAA.28

Structurally, the U.S.-Jordan pact overcame some of the limitations of the NAALC. The signatories integrate its labour stipulations into the body of the accord, providing them with as much force as the pact’s provisions on trade and intellectual property rights. In addition, the accord does not divide its labour principles into tiers, with certain levels permitting stronger mechanisms to promote resolution of violations than others, as does

28 Human Rights Watch, Trading Away Rights: The Unfulfilled Promise of NAFTA’s Labour Side Agreement (New York, April 2001), p. 6.


the NAALC. Finally, where defined, the time periods for action under the dispute settlement mechanisms are shorter than they are for the NAALC, although no time frame is given for the naming of members of a dispute settlement panel under the U.S.-Jordan accord.

Although the small amount of annual trade between the U.S. and Jordan perhaps makes the model more palatable to business and government representatives, it does set a standard that can and should be emulated.29 That is, it promotes labour standards by incorporating them into the agreement itself, and provides stronger enforcement mechanisms. Therefore, labour scholars argue, the Labour Ministers should build these mechanisms into the FTAA. In addition, they could advocate for the inclusion of ILO principles in the FTAA and other regional trade agreements.

The poor results obtained in the latest round of FTAA negotiations in Miami and the outcome of the recent Presidential Summit of the Americas in Monterrey, Mexico are indicative of the problems that have arisen in the FTAA negotiation process. Blanco and Zabludovsky30 point to the existence of five major problems: 1) a large number of countries (34) are involved in the negotiations; 2) the participants are heterogeneous, witness the glaring differences in levels of economic and institutional development, technical resources available for the negotiations, legal advances and agreement enforcement capacity; 3) the FTAA negotiations overlap with both multilateral –particularly the Doha round—and subregional negotiations; 4) the FTAA shares the stage with other regional Agreements, especially MERCOSUR; 5) a considerable number of U.S. Senators have doubts about the possible advantages and disadvantages of the FTAA to the United States. The meeting of Ministers of Trade of the Americas, held in Miami in November 2003, is indicative of the different approaches taken to the multiple issues for negotiation, discussed in the previous pages, that further complicate the picture.

2.3 Labour standards in integration agreements in the Americas31

The integration agreements that operate in the Americas are addressed in this chapter and the specific labour standards promoted by their varying instruments are identified.32

The following processes of integration have different instruments in place that entail labour commitments: 1) Organization of American States – OAS33; 2) Central American Integration System – SICA; 3) Andean Community - CAN; 4) Caribbean Community and Common Market – CARICOM; and 5) Southern Common Market – MERCOSUR.

29 ibid., citing statistics published by the U.S. Census Bureau, revealing that trade between United States and Jordan in 1999 totaled $300 million.

30 Blanco, H. and Zabludovsky, J,. Foreign Affairs in Spanish. Vol. 3, No. 4 (Mexico, 2003). 31 This Chapter is based, in part, on Ciudad Reynaud, Adolfo, Labour Standards and the Integration Process in the Americas (Lima, ILO, 2002).

32 For another approach to the subject, see Martínez, D., Tokman, V.E. and Wurgaft, J., Las dimensiones laborales de la integración económica en América Latina y el Caribe, ILO Working Paper No. 8 (Lima, 1995).

33 While the OAS is not, strictly speaking, an integration mechanism or system, it is included because of the importance, for this analysis, of the American Declaration of the Rights and Duties of Man.


The labour standards developed by these processes can be broken down into the following categories: (a) fundamental rights at work34; (b) working conditions; (c) employment; (d) labour administration; (e) social security; and (f) promotional and supervisory bodies.

Insofar as fundamental rights are concerned, all of the integration agreements, except for SICA, and the instruments and declarations subsequently approved within the framework of those agreements refer expressly to freedom of association,35 the right to collective bargaining, elimination of forced labour, abolition of child labour, elimination of discrimination and equal pay. The CAN has no specific instruments to address fundamental labour rights, but a recommendation has been made by the Community Advisory Council of Labour Ministers to raise the level of compliance with “core” ILO Conventions. Non-discrimination at work is the only reference made by the SICA to fundamental labour rights.

In the case of working conditions, the agreements, instruments and declarations of the OAS and CARICOM refer to the following rights: the right to work, the working day, rest, fair or adequate wage, employment stability, promotion, standards on working women, the disabled, vacations, holidays, occupational safety and health, and labour dispute settlement mechanisms. As for the three other processes of integration, the SICA is concerned only with fair and adequate wages, the CAN has just approved a new occupational safety and health instrument, and MERCOSUR has regulations in place for conflict resolution mechanisms.

Employment promotion, labour mobility or migrant workers, vocational training and vocational guidance are the labour issues addressed in the area of employment.

The agreements, instruments and declarations of the CAN, CARICOM and MERCOSUR in regard to labour administration refer to labour administration per se and to labour inspection, but neither the OAS Declaration nor the SICA’s agreements, protocols, etc. mention the subject.

The processes of integration address social security issues in general in their agreements, instruments and declarations, together with employment accident benefits, medical care, funeral grants, unemployment benefit, old age benefit and survivors’ benefit. In the SICA’s case, references to social security issues are hard to find.

All the integration agreements, except the SICA, deal with the issue of promotional and supervisory bodies to ensure that the various regulatory instruments are enforced.

34 The basis for this analysis is the ILO Declaration on Fundamental Principles and Rights at Work, adopted by the International Labour Organization in Geneva on June 18, 1988, which acknowledges the following rights to be fundamental: (a) freedom of association and effective recognition of the right of collective bargaining; (b) elimination of all forms of forced labour; (c) effective abolition of child labour; and d) elimination of discrimination in respect of employment and occupation.

35 The Committee on Freedom of Association (CFA) of the ILO Governing Body has always considered that the right to strike is one of the workers’ fundamental rights and that it constitutes an expression of the right to freedom of association, as well as being one of the essential means available to workers and their organizations for promoting and defending their occupational interests. See ILO: Freedom of Association, Compilation of decisions and principles of the ILO Governing Body Committee on Freedom of Association, 4th ed. (rev.) (Geneva, ILO, 1996), pp. 111 et seq.


In short, all five American processes of integration have built-in labour standards (Table 2), some fuller or more extensive than others, but in some cases these standards have been incorporated merely for declarative or generic purposes.

These processes, with the exception of the OAS, have been moved basically by economic or trade-oriented concerns, leading them to establish mechanisms that permit or facilitate the free movement of capital, goods and services. As a result, they failed to give due attention --at least in the early stages-- to the labour aspects that are necessarily a part of all integration efforts.

The case studies reveal that it was generally only in a later stage, and sometimes many years afterwards, that the labour dimension was addressed in specific or supplemental instruments.

Despite their varied nature, the labour institutions built into the agreements, instruments and declarations of those processes have become a coherent series of mutually complementary institutions. In light of this, the further and harmonious development of a set of labour standards adopted by consensus among the American processes of integration appears to be a good possibility.

The kinds of labour standards the different integration movements incorporate vary; while some processes have favoured fundamental rights at work, others have emphasized employment and social security.

Some processes of integration have failed to speak out about certain fundamental rights, like freedom of association, collective bargaining, the right to strike, forced labour and the protection of child labour. Such are the cases of the Central American Integration System – SICA, which adopted only the obligation of non-discrimination, and the Andean Community, which limited itself to recommendations on the subject and failed to build in any fundamental right. In all of these cases, pronouncements about employment and social security issues were preferred.

The OAS - in the American Declaration of the Rights and Duties of Man -, the Caribbean Community (CARICOM) and the Southern Common Market (MERCOSUR), on the other hand, emphasized the treatment of core labour rights, without neglecting working conditions and employment and social security issues.

Those processes incorporated all the fundamental rights at work spelled out in the ILO 1998 Declaration. The only exception was the failure of the OAS to include the right of collective bargaining.

CARICOM stands out as the only experience in integration to have all the fundamental rights at work institutions and working and employment conditions built into its regulatory provisions, without overlooking the most important issues of labour administration, social security and promotional bodies.

MERCOSUR has no provisions on working conditions, except with regard to labour dispute settlement, but it does incorporate all the employment-related institutions.

The breakdown made for this study (see Table 2) reveals that CARICOM is the process with the largest number of labour provisions, thirty-one (31), followed by the OAS with twenty-eight (28), MERCOSUR with seventeen (17) and the Andean Community with fifteen (15). The SICA has the smallest number of labour prescriptions: only seven (7).


Employment promotion is the only labour institution common to all of the processes of integration studied.

It is followed, by number of times included in integration agreements and instruments, by the non-discrimination obligation, protection of migrant workers, and vocational training (included 4 times); all other fundamental rights, fair wages, and occupational safety and health (included 3 times).

Coverage of the other rights in integration instruments varies widely. The right to employment stability is recognized in only two experiences in integration, the OAS and CARICOM; the latter has prepared model legislation on the subject.

Four of the experiences in integration have included provisions about promotional bodies and only two with regard to supervisory bodies.


Table 2 Latin America and the Caribbean: Labour standards built into integration

agreements and institutions

OAS

SICA

CAN

CARICOM

MERCOSUR

I. FUNDAMENTAL RIGHTS Freedom of association ♦ ♦ ♦

Collective bargaining ♦ ♦

Strike ♦ ♦ ♦

Forced labour ♦ ♦ ♦

Protections for children ♦ ♦ ♦

Non-discrimination ♦ ♦ ♦ ♦

Equal pay ♦ ♦ ♦

Sub-total I. 6 1 7 7

II. WORKING CONDITIONS Right to work ♦ ♦

Working day ♦ ♦

Rest ♦ ♦

Fair and adequate wage ♦ ♦ ♦

Employment stability ♦ ♦

Promotion ♦ ♦

Women ♦ ♦

Disabled ♦ ♦

Vacation ♦ ♦

Holidays ♦ ♦


OAS

SICA

CAN

CARICOM

MERCOSUR

Safety and health ♦ ♦ ♦

Dispute settlement

mechanisms

♦ ♦

Sub-total II. 11 1 1 12 1

III. EMPLOYMENT Employment promotion ♦ ♦ ♦ ♦ ♦

Labour mobility ♦ ♦ ♦ ♦

Vocational training ♦ ♦ ♦ ♦

Vocational guidance ♦ ♦ ♦ ♦ ♦

Sub-total III. 3 4 4 4 4

IV. LABOUR ADMINISTRATION Labour administration ♦ ♦

Labour inspection ♦ ♦

Sub-total IV. 2 1 1

V. SOCIAL SECURITY Social Security ♦ ♦ ♦ ♦ ♦

Employment accident

benefits

♦ ♦ ♦

Occupational disease

benefits

♦ ♦ ♦

Medical care ♦ ♦ ♦


OAS

SICA

CAN

CARICOM

MERCOSUR

Funeral assistance

benefit

♦

Unemployment benefit ♦ ♦ ♦

Old age benefit ♦ ♦ ♦

Survivors’ benefit ♦

Sub-total V. 6 1 7 6 2

VI. PROMOTIONAL AND SUPERVISORY BODIES Promotional bodies ♦ ♦ ♦ ♦

Supervisory bodies ♦ ♦

Sub-total VI. 2 1 1 2

TOTAL I-VI 28 7 15 31 17

Source: Text of the agreements, instruments and declarations

Although the incorporation of labour commitments in the processes of economic integration is moving ahead vigorously, the major task yet to be accomplished is, as in the case of national legislation, the full and appropriate enforcement of those provisions. The ILO Committee of Experts on the Application of Conventions and Recommendations has warned that violations are rampant and repeated among the countries in the region.

In addition to the existing shortcomings in the application of labour standards, there is a noticeable trend toward progressively “delaboralizing” work, as a growing number of enterprises turn to the recruitment of workers under service or similar contracts that are governed not by labour legislation, but by commercial legislation.

At the same time, most informal production units fail to apply labour standards comprehensively, but for other reasons. These units, often family-run, achieve very low levels of productivity and are often hard put to cope with the high cost of formal operation (taxes, labour costs) and lack the means to make the “leap” to formal status. They practice a strategy of bare bones economic survival, as they await a chance that rarely arises for their business to “take off.”


The problem to be faced is not so much one of incorporating labour standards into processes of integration for development purposes, but of, on the one hand, applying those standards in their entirety and, on the other, the progressive reduction of their sphere of application.

2.4 Labour standards in free trade agreements in the Americas

While the region abounds with free trade agreements, particularly bilateral agreements, few have built-in labour commitments or have a parallel or supplemental labour agreement. Today there are six agreements of this kind in the region which have a labour content: Canada-Chile FTA; Canada-Costa Rica FTA; U.S.-Chile FTA; U.S.-Central America FTA (pending ratification); North American FTA (NAFTA); and the FTA of the Group of Three (G3 FTA), consisting of Colombia, Mexico and Venezuela. Three other agreements are currently under negotiation, the Free Trade Agreements of the United States with Colombia and with Peru and the Free Trade Area of the Americas (FTAA).

Canada and Chile signed a Free Trade Agreement (FTA) in 1997, together with a supplemental Labour Cooperation Agreement; unlike the case of the United States agreements, these two agreements are separate and, as a result, no link is created between labour standards and trade.

The Agreement on Labour Cooperation establishes the commitment of the Parties to respect fundamental rights at work, as defined by the ILO, including the rights to strike and of non-discrimination, unlike the case of the United States agreements. Commitments are also made in the Agreement to protect migrant workers.

The Agreement makes no provision for sanctions to be imposed for the systematic abuse of fundamental rights at work, but monetary contributions are to be made into a Cooperation Fund to help the country avoid such violations in the future.

Labour issues in the Free Trade Agreement between Chile and the United States are addressed in a chapter (number eighteen) of the Agreement itself, rather than in a supplemental agreement, as in the case of the Canada-Chile FTA. In the U.S.-Chile Agreement, the Parties reaffirm their commitment to the ILO 1998 Declaration on Fundamental Principles and Rights at Work. Even so, nothing is said in defining those principles (article 18.8) about non-discrimination in respect of employment and occupation, one of the fundamental rights covered in the ILO Declaration. The Agreement does refer to principles and rights connected with “acceptable working conditions as to minimum wage, hours of work and occupational safety and health,” in addition to freedom of association, collective bargaining, the prohibition of forced labour, the minimum working age, and the prohibition and elimination of the worst forms of child labour.

The Agreement also provides for a labour cooperation mechanism to be created to promote reciprocal assistance in the following areas: (a) fundamental rights at work; (b) labour relations, including labour dispute settlement; (c) working conditions, particularly occupational health and safety; (d) promotion of fundamental rights at work, of good working conditions and of occupational health and safety in small and medium-sized enterprises; (e) training, retraining, and social security; and (f) labour statistics.

Although the Parties’ commitment centres on fundamental rights at work, by including issues such as those cited in the previous paragraph, the cooperation mechanism encompasses far more than just those rights.


In addition to this promotional mechanism, the Agreement creates a Council on Labour Matters that is responsible for supervising the application of chapter eighteen on labour and monitoring the advances that are made in that area.

The labour content of the recent Free Trade Agreement between the United States and the Central American countries is similar in that it is a part of the Agreement itself and is not covered in a supplemental agreement. The fundamental rights which the Parties pledge to observe in their respective national legislation are those indicated in the ILO Declaration, except for that of non-discrimination. A Labour Council is also set up, with the duties of supervising and reviewing the Labour Cooperation Mechanisms and the Development of Capacities created by the Agreement itself. Furthermore, in the event that one of the Parties ceases to effectively enforce its labour legislation, either through action or through failure to take action, in such a way that trade between the Parties is impaired, the Parties will avail themselves of the dispute settlement mechanism established by the Agreement.

The Agreement on Labour Cooperation between Costa Rica and Canada is a side agreement to the Free Trade Agreement, was signed by the two countries during the same period (2001), and does not differ in any essential respect from the Agreement between Canada and Chile.

The Agreement establishes the commitment of the Parties to “respect and promote the principles and rights recognized in the ILO 1998 Declaration on Fundamental Principles and Rights at Work: Freedom of association and protection of the right to organize; the right to bargain collectively; the right to strike; prohibition of forced labour; labour protections for children and young persons; elimination of discrimination, and equal pay for men and women.”

The Parties are also committed to promote, subject to each Party’s domestic legislation “...minimum labour standards; prevention of occupational injuries and diseases, and compensation in cases of occupational injuries and diseases.”

The supplemental Agreement makes no provision for trade sanctions or fines to be imposed in the case of the systematic violation of these commitments, but a review mechanism is established consisting of a panel of three independent individuals who will examine each complaint of violation and prepare both an initial and a final report. In the event that the systematic abuse by one of the Parties is proven and that Party takes no remedial measures, the other Party may suspend the Cooperation Agreement.

The FTA between Colombia, Mexico and Venezuela (G3 FTA), for its part, contains almost no labour clauses, with the exception of a general declaration about the positive effect increasing trade among the three parties will have on promoting employment.

The NAFTA side North American Agreement on Labour Cooperation (NAALC) establishes commitments among the three Parties with regard to fundamental rights at work, fair wages, the working day, occupational safety and health, employment promotion and employment accident benefits.

The Agreement establishes both a promotional and a supervisory body that has come in for heavy criticism on the grounds that its alleged complexity keeps claims of labour standard violations from being settled properly.

Fines are the only sanctions provided for in the Agreement, except in the case of relations between the United States and Mexico, where trade sanctions are possible, but have never been imposed.


The Agreement establishes a dispute settlement mechanism resting on the operation of panels of experts, which workers and employers alike have judged as being cumbersome, filled with red tape and extremely convoluted.

The legal provisions of both the North American Agreement on Labour Cooperation and the Canada – Chile supplemental labour agreement incorporate, together with fundamental labour rights, prescriptions that safeguard some of the institutions of working conditions (working day, minimum wage, and occupational safety and health), together with employment promotion and migrant worker protection institutions. Social security rights are given less attention, however.

The NAALC, like the other agreements studied in this section, considers national law supreme. Rather than adopt new legal provisions, these agreements establish the Parties’ commitment to fully enforce all domestic legislation on the institutions referred to.

In analysing these Agreements, V. Tokman has traced their noticeable evolution from the starting point of the NAALC-NAFTA and the Canada-Chile Agreement to the recently adopted Free Trade Agreements between the United States and Chile, Jordan and Singapore. “The more recent agreements, after the one signed with Jordan, belong to a new generation that maintain parts of the NAFTA model, but try to make it more effective. Fewer obligations are included, but all of these can be appealed. This makes these agreements more stringent than the NAFTA, in which only three obligations are appealable. Labour issues are an essential part of free trade agreements and are included in the general chapter on dispute settlement; this process can culminate in the imposition of monetary fines and, occasionally, in trade sanctions. Labour and trade dispute settlement differs, in that trade sanctions may be applied only if the monetary sanctions are not enforced. That decision remains in the hands of the accused country and not the claimant, however. The allotted term is half that provided for in NAFTA, but almost double that of the U.S.-Jordan Agreement. The current model is definitely more stringent than NAFTA in many aspects, but is clearly more flexible than the agreement with Jordan.”

The FTAA is currently under negotiation and its possible labour dimension is an open question. Even so, the various Presidential Summits have instructed negotiators to address the following labour issues in their negotiations: non-discrimination; equal pay, promotion of women’s rights, employment promotion, labour mobility and social security.

Speculation about a possible FTAA socio-labour dimension widespread. Some labour scholars, in referring to the FTAA and other free trade agreements, see36 that, for member countries, an alternative to establishing labour commitments could be to envisage FTAs as a development project. This means ensuring that the negotiations target not the establishment of trade regulations that safeguard certain labour rights, but cover the countries’ “development deficit,” in which specific roles are to be played by trade and labour provisions. This is, quite obviously, not the trend that is in effect today, which is, rather, towards a trade agreement that very rarely builds in certain labour rights and principles.

When the present Presidents of Argentina and Brazil took office in the first half of 2003, this touched off speculation that a new and alternative route to the FTAA would be opened up, consisting of first creating a Free Trade Area of South America (ALCASUR), and then using it as a platform to negotiate the FTAA on a bloc-to-bloc basis. Officials of the two countries have denied the existence of such a strategy and insist, rather, that strengthening

36 Lazo, op. cit.


trade relations among the South American countries will neither obstruct the present course, nor constitute an alternative one. The strategies used to negotiate the FTAA will become clear only within the next twelve or twenty-four months. This does not mean, of course, that the Free Trade Area of South America should not be created. In fact, if the Free Trade Agreement currently being negotiated by MERCOSUR and the Andean Community materializes, now that the decision has been made to conclude those negotiations in December 2004, the Free Trade Area of South America will be practically complete.

Table 3

Latin America and the Caribbean: Labour Standards built into Free Trade Agreements

Canada-Chile FTA

Canada-Costa Rica

FTA

U.S.-Chile FTA

U.S.- Central America

FTA*

NAFTA G3 FTA FTAA

I. FUNDAMENTAL RIGHTS Freedom of association

• • • • •

Collective bargaining • • • • •

Right to strike • •

•

Forced labour • • • • •

Protections of children • • • • •

Non-discrimination • •

•

•

Equal pay • •

•

•

Sub-total I. 7 7 4 4 7 2


Canada-

Chile FTA Canada-

Costa Rica FTA

U.S.-Chile FTA


FTA*

NAFTA G3 FTA FTAA

II. WORKING CONDITIONS Working day

• • • • •

Rest

Fair and adequate

wages •

•

Women •

Occupational safety

and health • • • • •

Dispute settlement

mechanisms

• • •

Sub-total II. 3 3 3 3 3 1

III. EMPLOYMENT Employment

promotion •

• • • • •

Labour mobility •

•

Vocational training • •

Sub-total III. 2 2 2 1 1 2

IV. LABOUR ADMINISTRATION Labour Administration

Labour inspection • •

Sub-total IV. 1 1


Canada-

Chile FTA Canada-

Costa Rica FTA

U.S.-Chile FTA


FTA*

NAFTA G3 FTA FTAA

V. SOCIAL SECURITY Social Security

• •

•

Occupational accident

benefits • • • • •

Sub-total V. 1 1 2 2 1 1

VI. PROMOTIONAL AND SUPERVISORY BODIES Promotional bodies

• • • • •

Supervisory bodies • • • • •

Sub-total VI. 2 2 2 2 2

TOTAL I-VI 15 13 14 14 14 1 6

Source: Texts of the agreements * Pending ratification

As the table above shows, the FTAA negotiations currently underway encompass very few labour institutions (to be more precise, those the Presidential Summits have prioritised, but there is no assurance that these institutions are being considered in the negotiations). The open question is whether or not the FTAA will have a socio-labour dimension. Opinions on the subject are divided; there are those who think it will not, while others consider it inevitable, given that the United States and Canada are expected to press heavily for its inclusion. If so, the question to be answered is what model will be adopted: the MERCOSUR model (a socio-labour charter of some kind with a tripartite advisory body) or the model followed by the Free Trade Agreements between the United States and Chile or Singapore. It is too soon to know.


2.5 Labour standards in generalized systems of preferences

Although the application by developed countries37 of preferences to products imported from developing countries that fulfil given conditions cannot be considered agreements in the strict sense of the word, it is important to consider these systems when studying the links that exist between trade and labour standards.

37 Individually, as in the case of the United States, or as a bloc, as in that of the European Union.

Economic Integration, free trade and gender in the Americas. Processes of economic integration and free trade are generally considered neutral on gender issues. It is not surprising, then, that most of the free trade agreement and economic integration agreements, protocols and instruments fail to incorporate gender-related institutions.

A few of them do include the subject, however, but almost exclusively in the context of non-discrimination by reason of sex.

By way of example, Article 11 of the North American Agreement on Labour Cooperation states that “the Council shall promote cooperative activities...regarding: .... [ensuring] the equality of women and men in the workplace.”

That same article establishes eleven guiding principles for this cooperation between the three countries, one of them being the elimination of discrimination in the workplace and another, equal pay for men and women.

The MERCOSUR 1998 Social and Labour Declaration, for its part, establishes in Article 1 the commitment to “guarantee the principle of non-discrimination and to take action to eliminate discrimination of any kind against disadvantaged groups in the market,” while Article 3 points out that “the States parties are committed to guarantee equal treatment and opportunities for men and women through their labour legislation and practices.”

In addition to the commitments assumed in the Social and Labour Declaration, MERCOSUR has set up the “Women’s Forum” and “Tripartite Commissions to Ensure Equal Opportunities for Women at Work.”

The Andean Community’s recently adopted Social Security Instrument, for its part, despite not referring explictly to women, does establish the commitment to “guarantee to both Andean workers and their beneficiaries the comprehensive application of the principle of equal treatment within the subregion and the elimination of discrimination in all its forms.”

Gender issues are not addressed in any of the CARICOM’s instruments. The national Constitutions of all the Caribbean countries, however, sanction discrimination and their national legislation establishes equal pay for men and women.

In the case of the SICA, the 1995 Treaty of Central American Integration establishes in Article 5 the principle of non-discrimination on the grounds of nationality, race, ethnic group, age, disease, disability, religion, sex, ideology, or family status and any other form of social exclusion. The 1995 Managua Protocol, for its part, establishes the commitment to “eliminate all forms of de facto or legal discrimination against women in order to improve their social position and enhance their quality of life.”

To conclude, it is surprising that none of the agreements on labour cooperation or the labour component of the free trade agreements signed by the United States and Latin American countries contain any reference to the principle of non-discrimination.


In order to benefit from these generalized systems of trade preferences (lower tariffs, larger import quotas, etc.), countries must fulfil certain requirements in the areas of labour (respect for the fundamental rights at work recognized by the ILO), the environment, intellectual property, etc. , set by the countries granting those preferences.

The two most important of these systems are the ones applied by the European Union and the United States.

In 2002, the European Union (EU) adopted a new Generalized System of Preferences Plan that doubles tariff reductions on a wide range of products imported from developing countries, if the EU decides that the applicant countries effectively protect the fundamental rights of workers. Under this new Plan, which now covers products that are particularly important to developing countries, such as agricultural goods, the customs tariffs that would otherwise be applied under the WTO to a broad range of products would be 8.5 percentage points lower for countries that request that benefit and respect those rights. The tariff reduction in the case of countries that fail to effectively protect fundamental rights at work is only 3.5%. The EU could, likewise, exclude from the Plan countries that systematically abuse those fundamental rights. I will return to this point in Chapter IV.

Under the Cotonou Agreements between the EU and African, Caribbean and Pacific countries, the EU also grants certain trade and technical cooperation advantages to countries that respect labour standards connected with the fundamental rights of workers.

The United States, for its part, applies the tariff benefits considered in its Generalized System of Preferences to countries that meet certain requirements, among them the adoption of appropriate measures to ensure respect for fundamental rights at work. While the System has benefited many countries over the past 20 years, 13 countries have lost those benefits and in 30 other cases countries that have been accused of violations have been forced to modify their labour legislation in order to continue benefiting from the System.

2.6 Integration, market liberalization, multinational enterprises and fundamental rights at work

A. Framework Agreements in Multinational Enterprises

Spurred by economic integration and opening markets --particularly markets for goods and services and capital markets-- and attracted by the more or less common treatment of foreign investment (resulting from the integration-driven standardizing of legal provisions) and domestic markets with reduced protection (resulting from market liberalization), many multinational enterprises extended their presence to countries where they had not been operating earlier.

Many of these enterprises have signed agreements with their workers or with the respective International Trade Union Federations (IPS) covering their particular branch of activity, on enterprise-worker labour relations and working conditions. These framework agreements cover not only workers at the enterprise and its subsidiaries in different countries, but may also extend to workers of enterprises under subcontract and suppliers. This is a new development, not in labour legislation, but in its implementation, particularly as regards freedom of association and of collective bargaining. This new framework for international labour legislation application is particularly important in the context of globalization.


These agreements mark a progressive, albeit slowly growing, awareness of and commitment to observe international standards on worker rights --particularly their fundamental rights-- in the face of a widespread feeling that multinational enterprises take advantage of countries where both the nature and application of labour standards is extremely lax. Their potential for broadening the sphere of application of labour legislation is immense. In fact, considering that today large transnational enterprises and their subsidiaries are responsible for three-quarters of all world trade, the importance of these agreements cannot be overestimated.

Annex 2 contains information about twenty-six (26) such agreements between multinational enterprises, most of them operating in Latin America and the Caribbean, and the international organizations that represent their workers.

All 26 Agreements are aimed at developing a code of conduct in the enterprises and point to the establishment of internal supervisory mechanisms that go beyond a merely voluntary and guidance function and whose main aim is to guarantee freedom of association and the right to collective bargaining. These agreements, then, are tied in with the ILO Conventions on freedom of association and the right to organize (No. 87 of 1948), application of the principles of the right to organize and collective bargaining (No. 98 of 1949), equal remuneration for men and women for work of equal value (No. 100 of 1951), and discrimination in employment and occupation (No. 111 of 1958) and the Recommendation on fixing minimum wages with particular reference to developing countries (No. 135 of 1970). It is necessary to insist on the fact that in this case the codes of conduct, unlike the traditional ones that constituted a unilateral and voluntary commitment on the part of the enterprise, are the result of an agreement reached between the enterprise and the trade unions; in practice, if not in a strict legal sense, then, these constitute an intermediate stage between the traditional code of conduct and classic collective bargaining.

Of the twenty-six (26) cases we have studied, nine (9) call for the formation of joint panels to supervise the agreement’s application and eleven (11) provide for an annual meeting, instead, to evaluate that application; in two (2) cases the trade union is responsible for supervision and in one (1) the enterprise’s worldwide joint panel, assumes that responsibility.

Differences over the agreement’s interpretation and/or application are settled in five (5) cases through meetings of the enterprise management and trade union leaders after the disagreement has surfaced, in three (3) by forming a special joint panel that is charged with resolving the conflict, and in one (1) by a comitte joint panel, which is entrusted with finding a solution. No conflict resolution mechanisms in this area are provided for in the other agreements.

In the event the enterprise plans to cut back on employment, only three (3) of the agreements establish its obligation to consult the labour union about those plans.

As for the agreements’ coverage, in fifteen (15) cases they are applicable to both subsidiaries, enterprises under subcontract and suppliers; in four (4), the agreement covers only the subsidiaries, and in two (2) it is applicable to the subsidiary and the enterprises under subcontract.


Although not reflected in the table in Annex 2, there are also agreements that either through an accord between the enterprise and the trade unions or at the enterprise’s unilateral initiative, are aimed at prohibiting children from working in the enterprise itself, its subsidiaries, the enterprises under subcontract and suppliers. The same is the case of multinational enterprise commitments to avoid discrimination on the grounds of race, sex or religion, although far fewer enterprises have explicitly assumed this commitment than the commitments in the case of child labour, freedom of association and collective bargaining.

B. OECD Guidelines on Multinational Enterprises

In 1976 the OECD adopted guidelines on multinational enterprises, which were later revised in 2000 to bring them into line with the fundamental principles and rights at work established in the ILO 1998 Declaration.

These OECD guidelines spell out the following in regard to employment and labour relations:

Enterprises should, within the framework of applicable law, regulations and prevailing labour relations and employment practices:

1. (a) Respect the right of their employees to be represented by trade unions and other bona fide representatives of employees, and engage in constructive negotiations, either individually or through employers’ associations, with such representatives with a view to reaching agreements on employment conditions.

(b) Contribute to the effective abolition of child labour.

(c) Contribute to the elimination of all forms of forced or compulsory labour.

(d) Not discriminate against their employees with respect to employment or

occupation on such grounds as race, colour, sex, religion, politics, national extraction or social origin, unless selectivity concerning employee characteristics furthers established governmental policies which specifically promote greater equality of employment opportunity or relates to the inherent requirements of a job.

2. (a) Provide facilities to employee representatives as may be necessary to

assist in the development of effective collective agreements.

(b) Provide information to employee representatives which is needed for meaningful negotiations on conditions of employment.

(c) Promote consultation and co-operation between employers and

employees on matters of mutual concern.

3. Provide information to employees and their representatives which enables them to obtain a true and fair view of the performance of the entity or, where appropriate, the enterprise as a whole.


4. (a) Observe standards of employment and industrial relations not less favourable than those observed by comparable employers in the host country.

(b) Take adequate steps to ensure occupational health and safety in their

operations.

5. In their operations, to the greatest extent practicable, employ local personnel and provide training with a view to improving skill levels, in co-operation with employee representatives and, where appropriate, relevant governmental authorities.

6. In considering changes in their operations which would have major effects

upon the livelihood of their employees, in particular in the case of the closure of an entity involving collective lay-offs or dismissals, provide reasonable notice of such changes to representatives of their employees, and, where appropriate, to the relevant governmental authorities, and co-operate with the employee representatives and appropriate governmental authorities so as to mitigate to the maximum extent practicable adverse effects.

In light of the specific circumstances of each case, it would be appropriate if management were able to give such notice prior to the final decision being taken. Other means may also be employed to provide meaningful co-operation to mitigate the effects of such decisions.

7. In the context of bona fide negotiations with representatives of employees on conditions of employment, or while employees are exercising a right to organise, not threaten to transfer the whole or part of an operating unit from the country concerned nor transfer employees from the enterprises’ component entities in other countries in order to influence unfairly those negotiations or to hinder the exercise of a right to organise.

8. Enable authorised representatives of their employees to negotiate on

collective bargaining or labour-management relations issues and allow the parties to consult on matters of mutual interest with representatives of management who are authorised to take decisions on these matters.


C. The ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy38

The ILO Governing Body adopted the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy at its 204th session in November 1977 and amended it at its 279th session in November 2000. This Declaration encompasses a series of principles that are recommended to the governments, workers and employers of the multinational enterprise host countries and countries of origin. Those principles refer to employment (employment promotion, equal opportunity and treatment, and employment security), training, working and living conditions (wages, benefits, and working conditions; minimum age; and safety and health), and labour relations (freedom of association and the right to organize; and collective bargaining).

The following recommendations are made about consultation, examination of grievances, and industrial dispute settlement:

“Consultation: In multinational as well as in national enterprises, systems devised by mutual agreement between employers and workers and their representatives should provide, in accordance with national law and practice, for regular consultation on matters of mutual concern. Such consultation should not be a substitute for collective bargaining.

Examination of grievances: Multinational as well as national enterprises should respect the right of the workers they employ to have all their grievances processed in a manner consistent with the following provision: any worker who, acting individually or jointly with other workers, considers that he has grounds for a grievance should have the right to submit such grievance without suffering any prejudice whatsoever as a result, and to have such grievance examined pursuant to an appropriate procedure. This is particularly important whenever multinational enterprises operate in countries that do not respect the principles of ILO Conventions pertaining to freedom of association, the right to collective bargaining, and forced labour.

Settlement of industrial disputes: Multinational as well as national enterprises, jointly with representatives and organizations of the workers whom they employ, should seek to establish voluntary conciliation machinery, appropriate to national conditions, which may include provisions for voluntary arbitration, to assist in the prevention and settlement of industrial disputes between employers and workers. The voluntary conciliation machinery should include equal representation of employers and workers.”

An Addendum was made to this Declaration in March 2000, adjusting the 1977 Declaration on multinational enterprises to the content of the ILO 1998 Declaration on the Fundamental Rights and Principles at Work and its follow-up.

38 Online: <http://www.ilo.org/public/english/standards/norm/sources/mne.htm>


3. Latin America and the Caribbean: Economic integration, trade opening, labour markets and social protection levels

Four aspects of the world of work that are affected by processes of integration were cited in the previous chapter. The first of these, labour standards, was studied in Chapter II. The remaining three (relating to employment, training, productivity, labour migrations, etc.) will be analysed in this chapter, also in reference to Latin America and the Caribbean, as in the first case.

Three processes have played out concurrently in Latin America and the Caribbean over the past 13 years - namely economic integration, trade liberalization (except in Mexico, where the opening was earlier) and structural adjustment,-- making it difficult to gauge the effects of integration on the evolution of the labour market and on social protection levels, as stated in the Introduction. Because it is not easy to pinpoint the effects of each aspect on the labour market (employment, unemployment, labour migrations, and wages) and on social protection levels (social protection and poverty reduction), I will refer to the effects of these processes globally, rather than attribute them to an individual aspect.

3.1 The expected effects of economic integration and market liberalization

“The expected effects of globalization,39” as V. Tokman40 points out, “are a positive combination of increased efficiency and growth, improvements in wages and employment levels and a reduction of inequality. The grounds for these expectations can be traced to international trade theory (mainly the Heckscher-Ohlin model and the theory of Stolper-Samuelson) which hypothesizes that liberalizing world trade will enable each country to make the most of its comparative advantages by concentrating on given lines of production and exports in which it demonstrates greater efficiency, while importing other goods from countries that are able to make them more inexpensively. The assumption is that all participating countries will be able to reach the same production level at a lower cost and that this is equivalent to reaching a higher level of economic efficiency and social protection.”

Market opening is based for the most part on tariff and para-tariff reductions, financial liberalization, foreign investment guarantees and profit repatriation. Economic integration, for its part, makes it possible to standardize economic and trade legislation among the countries involved in the process of integration, thereby helping to boost trade and investment as the underpinnings for heavy and sustained economic growth. Economic integration is also a vehicle for developing integrated social and labour policies and moving towards a monetary, economic, and political union.

39 Globalization construed as the fullest possible liberalization of domestic markets with a view towards facilitating and spurring North-South trade in manufactures, and not only in commodities by the South and manufactured products by the North, which was the hallmark of world trade in the sixties and seventies.

40 Tokman (2003), op. cit.


Economic theory holds that integration, combined with trade opening and structural adjustment, should have a positive effect on the countries’ economic situation and on the population’s level of social protection, and particularly that of the poorest sectors.

The economic effects of these three processes (integration, opening and adjustment) are quite different. Integration, by standardizing national regulations on trade and capital movements and removing both commercial and monetary restrictions internally, makes it possible to broaden markets. At the same time, the opening of these markets allows trade and investment to increase and the effects of international prices in an open market stabilize the economy. Adjustment, for its part, basically targets economic stabilization. The common denominator of these three processes, despite their differentiated effects, is that they all increase trade and investment, contribute to economic stabilization, and create employment.

Many countries in the region, in an effort to achieve macroeconomic stability, resorted to the use of a fixed exchange rate or exchange “bands” administered by their respective Central Banks. The utilization of this “exchange anchor” affects the labour market in general and employment in particular in four different ways.41

In the first place, the opening acts on labour productivity, with two results. Enterprises react to growing competition and rising exchange rates by importing new, more capital-intensive technologies (reducing employment) and by introducing more productive working methods, thereby enhancing their productivity. There is also a cyclical component to productivity changes. Productivity rises with economic growth and drops with recession. As labour becomes more productive, less employment is needed per production unit; if the product fails to grow fast and hard enough to offset this effect, unemployment will climb.

A second important result is that imported products replace domestic production. Many sectors of these economies, overly protected in comparison with their international competitors, were unable to compete with imports in the face of rising exchange rates inflated by stabilization efforts. A large part of the tradables production sectors accordingly shrank or were totally destroyed and those employments disappeared.

Thirdly, enhanced economic competitiveness brought on by market opening, combined with increased productivity, tends to push up exports and, with them, employment in the most competitive economic sectors.

Lastly, the increase in demand resulting from the effect of stabilization on relative prices and income redistribution in benefit of the relatively poorer groups spurs production and employment, particularly in the non-tradables sectors. The latter two effects help at least in part to offset the negative effects on employment produced by productivity increases and the replacement of domestic products by imported goods.

Many of these negative effects of using an “exchange anchor” to bring about stabilization could be seen in Argentina in the nineties, where the high level of labour productivity achieved went hand-in-hand with the destruction of employments in tradables production sectors and with rising unemployment.

41 Camargo, J.M., “Apertura económica, productividad y mercado de trabajo: Argentina, Brasil y México”, in Productividad y empleo en la apertura económica (Lima, ILO, 1999), pp. 12-14.


The processes of economic opening and stabilization played out differently in other countries (particularly Mexico as of 1994) where a flexible market-regulated exchange rate was used, instead of an “exchange anchor.” As a result, those countries were able to keep their enterprises from becoming less competitive with the market opening. The end result was that neither the processes of economic opening, nor the adjustment, had a negative impact on employment in the tradable goods sectors. In fact, the rise in employment kept productivity growth within bounds, unlike the case in Argentina or other countries that applied policies of economic opening and fixed exchange rates simultaneously.

Noticeable differences can be found in time frames for trade opening and financial opening, as well as in exchange policy. Argentina and Mexico offer the best examples in this case. While in Argentina the two processes of opening were carried out at the same time, in Mexico the trade opening had already taken place (mainly through the maquila industry) before the financial market was opened.

In order to determine why results were poor in some countries and to keep economic opening42 from being rejected outright, so that certain elements of macroeconomic policies that failed to bring about the desired employment and work results can be redirected, it is essential to differentiate between the opening and stabilization processes on the basis of exchange policy differences and the opening sequence followed.

3.2 The situation observed in the context of economic integration and trade liberalization

Trade opening and economic integration do not always produce the results expected, as the following data proves. There is no indication that the expected specialization in unskilled labour-intensive exports is taking place; nor can it be seen that the wage gap between skilled and unskilled labour is being narrowed or that poverty levels are being reduced.

These glaring differences between expectations and practical results are not limited to this hemisphere. They can also be found in Union Europe. A recent study by C. Díaz Mora43 into the impact of European integration on member country trade over the period 1985 – 1996 concludes that the expected inter-industrial specialization has not materialized, for the member countries continue to follow the same export pattern of past periods; even the new partners (Spain, Greece, Ireland, Portugal) have evolved towards a type of specialization similar to that of other Union countries, particularly Germany, France, Italy and the United Kingdom.

Where greater specialization can be found is in the vertical transactions carried out in Europe’s intra-industrial and regional trade –in other words, in the trade between the same industries of the same region. In this case, it has been noted that the specialization level is in keeping with the country’s income level. Spain and Portugal, etc. are specializing in lower quality sectors (with less purchasing power) in their inter-industrial trade, while more advanced countries like Germany and France concentrate on high tech sectors for the

42 A trend in economic thinking today is that globalisation and opening should not be considered synonymous, for some highly globalise countries (Chile tends to be cited as an example) where foreign capital accounts for a large percentage of total investments still have economic sectors that enjoy some degree of protection.

43 Díaz Mora, C., El impacto comercial de la integración económica europea. Período 1985-1996 (Spain, Colección Estudios, 2001), pp. 249-256.


affluent. Employing econometric analyses with data series constructed on the basis of Eurostat, Díaz Mora also concludes that greater inter-industrial specialization depends upon having a supply of more skilled human resources on which to draw. Countries with more highly skilled labour specialize in high-quality trade segments, while those with lower skills levels concentrate on lower quality segments.

This phenomenon can also be seen in world trade. Data supplied by Ffrench-Davis44 reveals that although world trade expanded at a rate of 6.1% per annum between 1983 and 1998, the lion’s share of the economy continues to produce for the domestic market and only about 20% of the output is exported. Most of this 20%, however, is traded within the regions. In the case of the European Union, 60% of the exports go to the member countries themselves.

This is not so very different from what happens in Latin America and the Caribbean, as we shall see below.

It is necessary to bear in mind, however, that the following analysis is based on the performance of a series of variables for the region as a whole. Using averages means that we cannot stop to evaluate each country’s situation individually. Even so, there are two elements that stand out in the region’s labour performance over the final decade of the twentieth century. The first is that the size of each country plays an important part. Studies have shown that countries like Brazil and Mexico have been able to weather recessions in the region better, thanks to their large domestic markets; these have allowed them to offset some of the effects of the violent (rapid) adjustment in national enterprise operation and competitiveness brought on by trade opening. The second, which is closely related to the first, is that large enterprises are better equipped to cope with this adjustment. It is an undeniable fact that micro and small enterprises have been the hardest hit by the abrupt market opening.

A. The employment situation

While trade opening and structural adjustment produced low inflation levels and the recovery of real income, these benefits were obtained in many countries of the region at the cost of a sharp rise in the real exchange rate, frequently brought on by the implementation of a fixed exchange rate policy. Imports rose and trade and external current account deficits ballooned, triggered by a rising exchange rate and the lowering of domestic market protection levels. As the flow of foreign investments and credit began to dry up towards 1997, the shadow of the crisis of the eighties started looming. Efforts to turn around this negative situation led countries to adopt more flexible exchange rate, wage growth control, and employment reduction policies and to even go so far as to take protectionist measures (although not on the same scale as before the opening) that worked against their own strategies to carve out a place for themselves in the world economy.

Foreign trade opening, by reducing or dismantling tariff and paratariff barriers to imports, is expected to have two unmistakable effects, the first being to cheapen the prices of importable goods. This should lead production to reallocate factors to the export-oriented sectors and consumers to buy imported products, now at less expensive prices than before the opening. The increase in exports would boost employment, while the relative cheapening of imported goods would push up people’s real income.

44 Ffrench-Davis, R., “Reformas económicas, globalización y gobernabilidad en América Latina”, in Nueva Sociedad (Santiago, Chile, 2002), pp. 157 et seq.


The second effect of trade opening should be to raise the relative price of unskilled labour-intensive goods. Inasmuch as developing countries would specialize in producing relatively unskilled labour-intensive goods and services (the most abundant factor), while importing relatively skilled labour-intensive goods (the factor in shortest supply), this second effect should be to generate an increase in the relative demand for unskilled workers in the medium and long terms, as the demand for skilled labour declines. Reducing employment in import-competitive goods production sectors counteracts or could counteract an increase in the employment of skilled or semi-skilled workers in the short term, for the very need to compete within a less protected domestic market calls for increasing productivity largely by reducing employment in those sectors, at least initially.

In practice, however, neither a larger growth in the employment of unskilled labour (as compared with skilled labour), nor a reduction in unemployment have been noted.

The unemployment picture in the Latin American countries as a whole is as follows: urban unemployment, which fluctuated between 5.5% and 6.5% between 1990 and 1994, started to rise in 1995, reaching levels approaching 8.5% at the end of the decade, and settled at 11% at the close of 2003.45 The situation is different in the larger Caribbean countries, which have shown a declining trend in unemployment (see Annex 3).

The rate of unemployed women is approximately 45% higher than the overall or average unemployment rate, while the youth unemployment rate is almost double the average rate.

Although the informal employment --synonymous with low skill levels and productivity-- of unskilled workers rose (46.5% of total urban employment was informal in 2002, up from 42.8% in 1990. See annex 3), this is not the employment that international trade theory means when referring to labour-intensive goods, for most informal jobs are in the areas of personal services and retail trade.

The inadequate growth of unskilled labour employment in the production sector and the rise in unemployment can be traced to a series of factors. One of the most important –if not the most important-- is that unskilled labour in Latin America is relatively expensive in comparison with Asia, for example. As a result, trade opening, with its attendant rising exchange rates, does not give many of the region’s countries a comparative advantage in labour, which is neither as plentiful nor as cheap as in other regions. Prior to the trade opening, almost all of the Latin American countries had a fixed exchange rate and a protectionist trade policy in place. After that opening, many countries started operating with a fixed rate, but with little or no trade protection. As a result, those countries were left without any instruments for safeguarding employment in the tradables sector, which had become less competitive with the loss of its previous high level of protection. In a different category are countries like Mexico where, as I pointed out earlier, the use of a flexible exchange rate enabled them to apply employment protection and promotion policies in the tradables sector.

45 ILO, Panorama Laboral (Lima, Peru, 2003).


B. Labour productivity, wages and income

Enterprises reacted to growing international competition and rising exchange rates by boosting their productivity through the importation of new, more capital-intensive technologies and the introduction of more productive working methods.

Even though labour productivity increased considerably in the more advanced economic sector (especially in the medium-sized and large enterprises), average productivity showed a modest growth of 1.1% per annum between 1991 and 2003. The fall-off in informal sector productivity was undoubtedly a contributing factor in this poor performance; in fact, it has become one of the main bottlenecks hampering economies from achieving sustained and equitable development. This low and falling productivity is responsible for keeping income in the sector at such low levels that, as I will explain later in more detail, many people prefer to seek better working opportunities in other countries (even if illegal) than to have to make do with the meagre informal employment offerings in their own countries.

Insofar as salaries and wages are concerned, by bringing down inflation levels, economic opening should raise real income. Furthermore, the demand for more unskilled or semi-skilled workers to produce goods or for business services should significantly reduce salary-wage differences.

This reduction in the income and wage differential has not taken place, however. While it is true that more people with lower skills levels are being employed (particularly in informal and microenterprise trade and services), the salary-wage differential has not improved; rather, it has worsened. Economic theory tends to give different explanations for this performance; these range from the explanation that the informal sector is fairly saturated and therefore cannot accommodate as many workers as in the past, even though the average income level has dropped in this sector (which would explain the widening salary-wage differential that has been noted), to the fact that workers have been disheartened by the lower income levels and have left the market, thereby reducing participation levels. Another possible explanation that has been offered is that the region never experienced a boom in exports. As a result, the demand for unskilled labour came from the non-tradables (particularly in the informal economy), rather than the export-driven sector; there was no way the gap between salaries and wages could have been narrowed in that case.

The purchasing power of wages improved in most countries over the 1990-2003 period: in the region, real industrial wages rose 1.6% per annum, and minimum wages, 1.3%. Even with this growth, however, minimum wages did not return to 1980 levels and today are equivalent to only 76% of their value of twenty-two years ago (see Annex 3).

In 2002, minimum wage levels in eight of the eighteen Latin American countries were not only lower than in 1980, but were more than 50% lower. The countries with the lowest wages in comparison with 1980 levels are Mexico (31.4%), followed by El Salvador (31.9%), Peru (32.5%), Haiti (33.7%), Ecuador (41.1%), Uruguay (42.6%), Bolivia (43.4%) and Venezuela (46.1%). Chile, Colombia, Costa Rica, Dominican Republic, Panama, and Paraguay are the only countries where minimum wages are higher than in 1980 (see Annex 3).


A study conducted by ECLAC46 reveals that the largest differences in income distribution are to be found in Latin America, no matter what measurement method is used. This is not a new development, for the situation has existed at least since the nineteen sixties. The study points out that in the nineties, the top 5% of the Latin American population received an average of 25% of the total income, while only 7.5% went to the lowest 30%. Comparatively, in Southwest Asia these percentages were 16% and 12.2%, respectively; in Africa, 24% and 10.1%; and in the developed countries, 13% and 12.7%.

Income distribution is known to depend upon access to production factors, ownership of those factors and the interplay of supply and demand for those factors. Skilled labour and capital are the factors in shortest supply in Latin America and the Caribbean, and the unequal and concentrated income distribution in the region can be traced to the people’s unequal access to quality education and capital.47

C. Vocational training

The Quebec Summit of the Americas stressed the importance of human resource development in the region. Similarly, one of the essential objectives of the various processes of integration is to give an education and labour training to all of the hemisphere’s population. However, only MERCOSUR has developed specific vocational training mechanisms. The Southern Common Market’s Social and Labour Declaration establishes the right to vocational training and its Consultative Forum in 1997 adopted a recommendation to the Common Market Group on “employment promotion policies,” in which the social actors emphasize just how important the vocational training and retraining of MERCOSUR workers is for employment promotion, social promotion and personal fulfilment.48 Similar proposals can be found in the documents drawn up by former Subgroup 11 and present Subgroup 10.

In addition to being important for boosting employment, raising productivity and personal fulfilment, vocational training is also key (together with education in general) to the success of the process of integration itself. In a certain sense, vocational training acts on the process and the latter must promote that training in order to continue moving ahead. The reason for this blunt assertion is quite obvious: (subregional or hemispheric) integration processes in Latin America and the Caribbean involve countries that have widely differing levels of productivity and, hence, of income and consumption. With such glaring differences in productivity between countries (consider the United States at one extreme and Haiti at the other, for example) and also within those same countries (consider the formal and informal sectors or subsistence and self-consumption agriculture), “the survival of the fittest”- to put it bluntly-- is unavoidable. In this context, it is more a matter of absorption or “phagocytosis,” than of integration. The same thing occurred in the relations of the European Union with its Mediterranean partners and could now happen in its relations with the Eastern European member countries.

46 Morley, S., La distribución del ingreso en América Latina y el Caribe (Santiago, Chile, ECLAC, 2000).

47 ibid. 48 Ferreira, M.C., La formación profesional en el MERCOSUR, Subregional workshop on challenges to professional training in the Andean subregion (Lima, Andean Community and Peruvian Ministry of Labour and Employment Promotion, Mimeograph, April 2003), p. 6.


The big question that arises then, is how can we narrow the gap in productivity and income level and, through this, the consumption capacity of citizens of countries and sectors that are so economically different? The classic answer, which I still consider valid, is that the only way to obtain a large and sustained productivity increase is by investing in technology, using effective modern production organization and management systems and by achieving harmonious labour relations and investing in human resources –in other words, by giving workers the necessary skills. This formula is as applicable to the formal as the informal sector and is as true in the urban area as the rural, and for producers of tradable goods and services as much as for producers of non-tradables.

In order for the process of integration to remain viable in the long run and not to result in the absorption of small, poor economies by the large, investment in education and training is essential. It is key to the continued existence and growth of the process of integration itself.

Assuming the former, and in the shorter term, processes of integration should have two immediate effects on vocational training systems and/or programmes: In the first place, to standardize those systems so that skills can be developed to meet the job requirements not of a given country, but of the group of member countries of the process, as well as of all economic sectors; and in the second, to develop international skills certification systems.

Has this happened in Latin America and the Caribbean? Reports and studies prepared by CINTERFOR-ILO reveal that vocational training is one of the fields in which the region has taken the greatest strides, but this does not mean that problems and major shortcomings no longer exist. The most significant shortcoming is, perhaps, that public and private training institutions offer very limited coverage of the informal sector and small agriculture, precisely the two sectors will the lowest productivity levels.

D. Social protection

Growing employment should make it possible for more people to join social security systems, giving social protection institutions a greater measure of financial stability. This is not the case in the region, where the percentage of social security paying formal wage earners dropped from 80.6% in 1990 to 78.9% in 2002, and informal wage earners, from 29.2% to 26.2% over the same period. The percentage of affiliates among the self employed and domestic workers is also very low (see annex 3).

Both regional and world occupational injury figures are disturbing. Every year approximately 350,000 people die from occupational injuries and over one and a half million lose their lives due to occupational diseases caught at their workplaces. On average, some 5,000 people die every day as a result of occupational injuries and diseases. The cost of dealing with these occupational injuries and diseases is estimated at 4% of world GDP, far more than it would cost to institute appropriate occupational safety and health standards. Roughly 27,000 people die every year in Latin America and the Caribbean due to occupational injuries – a rate of 13.5% of every one hundred thousand employed workers.

Very few countries in the region (Argentina, Chile, Uruguay and Venezuela) offer unemployment protection or unemployment insurance, and when it exists coverage is very limited.


A recently completed study of unemployment insurance systems in the region49 points out that “only in Argentina and Venezuela is the operational structure of unemployment insurance systems similar to that of traditional systems in use in industrialized countries –namely, a bipartite contribution system that is generally subsidized by the state either directly or indirectly; monthly benefits are paid according to the worker’s wage, generally in decreasing amounts and over a given period of time.”

Brazil has a fiscally-financed fund, supplemented by a benefit fund, the “Guarantee severance pay fund” that was set up in 1996, making it Latin America’s oldest fund of that kind.

The insurance system put into place in Chile only a few years ago combines a system of individual “compulsory savings” accounts with a distribution fund financed by employers and workers.

In Uruguay, unemployment insurance is a part of social security payments. Actuarial analyses of the financial viability of this insurance are very difficult to make because the country’s Social Security handles the cash in a single account.

Not only is the number of countries that offer unemployment benefits very small, but the coverage of these systems is very limited, as the following table shows.

Table 4

Unemployment insurance coverage in Latin America (percentage of total unemployed)

Argentina (1995-2000) 10.0 Brazil (2000) 11.8 Chile (2000) 6.7 Uruguay (2001) 14.7 Venezuela (1999) 7.2

Source: Islas, G., 2002

Several other countries that do not have unemployment insurance systems in place do operate a severance payment system that helps wage earners cope with the possible loss of employment. Under this system, employers pay given amounts into a fund or account that workers can draw on only at the time of dismissal. In some cases this money is kept in the enterprise itself50 and in others it is deposited into an interest-earning bank account in the worker’s name. Ecuador, Colombia and Peru, among other countries, have severance payment systems of this kind.

49 Mario Velazquez P., Seguros de desempleo, objetivos, características y situación en América Latina, Serie Financiamiento del Desarrollo No. 133 (Santiago, Chile, ECLAC, 2003), pp. 40-41.

50 This system generally leads to fraudulent practices, for although the enterprise informs workers that the fund has been set up, in practice this is not done and the enterprise is left without funds from which to make the appropriate severance payments to workers in the event of their collective dismissal or if it becomes bankrupt.


3.3 The evolution of poverty

Economic theory tells us that bringing down the inflation rate should increase the income of the relatively poorest population groups and, hence, allow them to buy more. This would be accomplished in two ways, to wit: first, through the transfer of income to the social groups hardest hit by heavy inflation and second, through a change in the relative prices of tradables and non tradables, making the latter goods less expensive.

Combined with a better targeting of public social spending, the increased income resulting from a reduction of inflation should reduce poverty levels. The fact is, however, that despite the existence of low inflation levels and better conceived and implemented public social policies, poverty has not declined. The number of poor throughout the world has increased by almost 100 million since the last decade of the twentieth century.

The Latin American countries have not witnessed the expected poverty reduction, either; according to figures prepared by ECLAC, the percentage of poor families and families living in extreme poverty rose between 1995 and 2000. By the end of the past decade, there were eleven million more poor people and a little over one million more households living in poverty than at the beginning of the decade. In 1999, 43.8% of Latin America’s total population lived in poverty, as did 35.3% of the households. The number of people living in extreme poverty, however, declined by almost four million and accounted at the close of the decade for 18% of the total population. With the opening of the new millennium, poverty and extreme poverty started an upwards spiral once again. ECLAC estimated the number of poor at 225 million (43.9% of the population) and the indigent at 100 million (19.4% of the total population) in 2003.

Poverty and extreme poverty continue to be more pronounced in rural areas than in urban. Between 1990 and 1997, the poverty rate among urban households in the region dropped from 35% to 30%, and among rural households from 58% to 54%. Even so, these rates are still too high. Over the same period, the rate of indigence or extreme poverty, for its part, declined from 12% to 10% among urban households and from 34% to 31% among rural households.

Table 5

Latin America: poor and indigent households and population

Poor Indigent Total urban rural Total urban rural million % million % million % million % million % million %

House-holds 1980 24.2 34.7 11.8 25.3 12.4 53.9 10.4 15.0 4.1 8.8 6.3 27.5 1990 39.1 41.0 24.7 35.0 14.1 58.2 16.9 17.7 8.5 12.0 8.4 34.1 1999 41.3 35.3 27.1 29.8 14.2 54.3 16.3 13.9 8.3 9.1 8.0 30.7

Population 1980 135.9 40.5 62.9 29.8 73.0 59.9 62.4 18.6 22.5 10.6 39.9 32.7 1990 200.2 48.3 121.7 41.4 78.5 65.4 93.4 22.5 45.0 15.3 48.4 40.4 1999 211.4 43.8 134.2 37.1 77.2 63.7 89.4 18.5 43.0 11.9 46.4 38.3

2002* 220.0 43.4 95.0 18.8 2003* 225.0 43.9 100.0 19.4

Source: Panorama Social de América Latina 2002-2003. ECLAC, October 2003. * ECLAC projected figures.


Two important aspects should be noted in regard to the level and evolution of these poverty rates, to wit: In the first place, despite the efforts of governments to broaden and enhance their poverty reduction policies, the outbreak of new crises cancels out all progress. The situation in Peru illustrates this. All of the advances made towards reducing poverty up until 1997 were lost when the crisis broke out that year, with the result that poverty levels today are higher than before the crisis. In the second, poverty rates are highest in rural areas. This points to the need to devise policies for incentivating private investments and to develop economic infrastructure, particularly means of communication, in those areas, which will help to develop more dynamic local markets and make the economy more geographically-oriented.

The former Executive Secretary of ECLAC had the following to say about the link between poverty and employment:51“as the major source of household income, employment (which produces 80% of the total) constitutes the key link between economic and social development. The social effects of closer regional integration with the global economy and of macroeconomic adjustment processes and efforts to adapt to changing international conditions, make themselves felt in the organization and operation of the labour market with its impact on income, social protection and distribution of the people’s social protection. Social exclusion and segmentation brought on by having no access to quality employment are, therefore, the triggers for the poverty and social inequalities that proliferate over time and are manifested in the heavy and persistent income concentration that prevails in the region.”

Furthermore, poverty is making greater inroads among women and children, in the latter case because high fertility rates among poor women mean that more children are born into poor households. Women’s poverty can be traced to their difficulty in gaining access to decent work –to employment or other alternatives for earning enough income to meet their basic needs. The percentage of women in the labour force, particularly those from poor households, despite having grown considerably in recent decades, continues to lag far behind the percentage of men (39 percent in low income sectors and 30 percent on average - Panorama Laboral, 1999). Unemployment and informal employment rates among women are still higher than among men. There are several reasons for this, to wit: (a) work continues be sex-oriented and women are given the main responsibility for performing domestic and family tasks, with the result that unless they have access to child care services, it will be very difficult for them to obtain paid jobs, particularly in the formal sector; (b) the labour market continues to be strongly oriented along occupational lines and the tasks performed mainly by women are valued poorly in both economic and social terms, meaning that the income they earn in those occupations is meagre; and (c) men have more and easier access to productive resources (credit, technology, information and training).

There is an undeniable link between poverty and child labour. Children from poor households have to go out to work, even in dangerous jobs, to contribute to family income. This keeps them from studying, with the result that when they reach adulthood their work will not be very productive and the household income will be low, meaning that even their small children will have to work to contribute to the family budget. This is a child labour-driven vicious circle of poverty.

51 Ocampo, José Antonio, Globalización y desarrollo social, presentation by the ECLAC Executive Secretary at the Second Meeting of Latin American Former Presidents (Santiago, Chile, April 22-23, 2002).


The reason why extreme poverty or indigence has declined as poverty in general has risen can be traced to a dual phenomenon: on the one hand, the improvement in the real wages of the poorest sectors as a result of low inflation and, on the other, better designed (targeted) and managed social policies. The rise in non-extreme poverty can be attributed to the impoverishment of the middle class.

3.4 Movement of workers and labour migration

We should not find it surprising that the lack of work or the poor quality of many jobs in the region is generating a phenomenon, which, although not new, is assuming enormous importance, yet not receiving enough attention. We are talking about the emigration of growing numbers of people to countries with higher levels of development in a search for new and better working opportunities. Large percentages of the populations of Bolivia, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua and Peru -- to cite just some of the countries where emigration is heaviest-- can be found outside their countries.

While the population of the recipient countries –whether these be Canada, the United States or countries belonging to the European Union or in the Southern Cone of our hemisphere-- tends to reject these immigrants on social grounds, there is a dawning awareness that immigration offers an antidote against the aging of society in the countries of the European Union. The view is taking hold that economic growth is possible only with open national borders, well-focused migrations and a younger-growing population. People are facing the fact that the regulated opening of national borders is necessary if old age, explosive costs, the bankruptcy of the pension system and migratory movements are to be avoided.

This growing emigration is having a positive impact on the emigrants’ countries of origin, which receive money sent by them to family members. The process is not free from negative effects whose seriousness has not yet been properly evaluated, however. One of these is the loss of huge groups of skilled and semi-skilled labour and, through this, the transfer abroad of the benefits of costly investments made in education and training by the home countries of those emigrants.52 There are known cases today of developing countries that are faced with the paradox of not having the necessary labour supply in key sectors like construction and of therefore having to hire workers from neighbouring countries.

52 An ILO study, América Latina y el Caribe Migraciones internacionales y el mercado del trabajo global: antecedentes para la agenda de trabajo decente (Santiago, Chile, November 2002), reveals that in the mid-nineties, nearly 55 per cent of Ecuadorians who had emigrated to other Andean countries had completed their secondary or university studies.


Table 6

Remittances sent by emigrants to their countries of origin, 2001

Millions of US dollars Country of origin Remittances % GDP % Exports

Bolivia 103 1.3 6.7 Brazil 2600 0.4 4.0 Colombia 670 0.0 2.4 Cuba 930 5.0 40.0 Dominican Rep. 1807 10.0 27.0 Ecuador 1400 9.0 20.0 El Salvador 1920 17.0 60.0 Guatemala 584 3.1 16.0 Haiti 810 24.5 150.0 Honduras 460 7.5 17.0 Jamaica 959 15.0 30.0 Mexico 9273 1.7 6.5 Nicaragua 610 22.0 80.0 Peru 905 1.7 10.6 Total53 23083 .... ::: Source: Fondo Multilateral de Inversiones, FOMIN

These resources are equivalent to a fair share of those countries’ GDP (see chart 2), particularly of the poorest countries, as in the cases of the Dominican Republic (10%), Ecuador (9%), El Salvador (17%), Haiti (24.5%), Honduras (7.5%), Jamaica (15%), and Nicaragua (22%).

The remittances also represent a large percentage of those countries’ export earnings (Chart 3) –from a little over 2% for Colombia to 60% for El Salvador, 80% for Nicaragua and 160% for Haiti. It is not an exaggeration to state, then, that emigrants’ savings finance those countries in part or in full, making emigration their foremost export “product”.

53 A report recently released by the IDB estimates that remittances could reach a level of US $40 billion in 2004.


Chart 2Emigrant remittances as a percentage of each country's GDP, 2001

1.3

0.4

0.0

5.0

9.0

17.0

3.1

24.5

7.5

15.0

1.7

22.0

1.7

10.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Bolivia

Brasil

Colombia

Cuba

Ecuador

El Salvador

Guatemala

Haití

Honduras

Jamaica

México

Nicaragua

Perú

Rep. Dominicana

Cou

ntrie

s

Percentage

Chart 3Emigrant remittances as a percentage of each country's exports, 2001

6.74.0

2.440.0

20.060.0

16.0160.0

17.030.0

6.580.0

10.627.0

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0

BoliviaBrasil

ColombiaCuba

EcuadorEl SalvadorGuatemala

HaitíHonduras

JamaicaMéxico

NicaraguaPerú

Rep. Dominicana

Cou

ntrie

s

Percentage


In other words, the labour market, which in the seventies and eighties adjusted to economic crises by adding to the number of unemployed and of informal workers employed in low- productivity and income activities, today, as in the past decade, adjusts by multiplying the number of emigrants. This reveals just how deep-rooted and serious the crisis is, for it suggests that in many countries the informal sector, traditionally “the refuge” for workers unable to find employment in the formal sector, now offers such low income levels that those people who had formerly turned to it as a refuge now prefer to take their chances working, even if illegally, in countries where incomes are higher.

3.5 Can the causes of this situation in the labour market and in social protection levels be clearly identified?

I pointed out at the beginning of this chapter that because economic integration, market opening and structural adjustments are processes that evolve simultaneously, it very difficult, if not impossible, to attribute to any one of them individually the poor performance of the labour market and of social protection levels in the region as of 1997, when the economic crisis broke out in Southeast Asia. Furthermore, we should not forget that many of these effects are tied in not only with the very nature of the processes, but also with the structural conditions that existed in each country when the economic opening and the processes of integration started to operate. I also mentioned, in this connection, that Mexico was much better prepared than other countries to open its markets and be integrated into a globalized economy.

Even though it is almost impossible to discern the causes for the poor labour performance of recent years, what appears to be quite obvious in the light of the many reports that have been written about the subject, is that if any process has failed to contribute to this poor showing and has in fact counteracted it in part, it is the process of economic integration. As I mentioned in a previous chapter, there is evidence that this process helps improve income distribution and contributes to the attainment of closer social cohesion. The reason for this is –as I will try to explain in a later chapter-- that the process of integration neither destroys employment, nor does it depress wages or directly cause poverty to rise; instead, it is an appropriate instrument for boosting trade and investment, thereby helping to energize the economy and create employment, although not strongly enough to offset the opposite effects produced by adjustment and, via the easiest vehicle for internalising external crises, the opening of markets.

4. Integration and labour standards: Comparing the Americas with other regions of the world

This is how the situation stands in regard to the progress made towards developing a labour dimension by Latin American and Caribbean integration and free trade processes. Are these advances similar to those made in other regions of the world? This chapter summarizes the progress made in other regions and compares it with that of the Americas.


4.1 Integration and labour standards in Africa54

There are four distinguishable subregions on the African continent insofar as integration movements are concerned: (a) Western Africa; (b) Eastern and Southern Africa; (c) Central Africa; and (d) Countries of the Arab Maghreb.

In Western Africa, the Economic Community of West African States (ECOWAS) was founded in 1993 as a successor to the earlier process of integration for the area created in 1975 with 15 Member States (Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leona y Togo). The 1993 treaty establishing ECOWAS stipulated that all existing West African supranational organizations would become specialized bodies of ECOWAS as of 2005, to ensure more centralized and coordinated decision-making. One of the most important of ECOWAS’ functions is to handle the monetary integration of the countries in the subregion.

A Preferential Trade Area (PTA) created in Eastern and Southern Africa in 1981, in 1993 became the Common Market for Eastern and Southern Africa (COMESA) comprised of 21 countries with cooperation in five areas as its objective: a) monetary, fiscal and financial; b) trade and customs; c) transportation and communications; d) industry, energy and the environment; and e) agriculture. COMESA is also working towards setting up a Customs Union, macroeconomic policy coordination and free currency convertibility.

There are two other processes of integration in that same subregion: The Southern African Development Community (SADC) and the Southern African Customs Union (SACU). The SADC has 14 Member States (Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, People’s Republic of the Congo, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe) and seeks to coordinate member customs policies more closely and to adopt common rules in order to attract foreign investment and facilitate free labour movement. Botswana, Lesotho, Namibia, South Africa and Swaziland comprise the SACU, the world’s oldest customs union.

The East African Community, in the works since 1991, was founded in 2000. Also to be found in Eastern Africa are the Intergovernmental Authority for Development (IGAD), with Eritrea, Ethiopia, Kenya, Sudan, Tanzania and Uganda as its member countries; the Kagera Basin Organization (KBO); and the Indian Ocean Commission (IOC), with a membership consisting at present of the Comoros Islands, Madagascar, Mauritius and Seychelles, but to be enlarged in the future through the incorporation of Australia, India, Singapore and South Africa.

The Central African Customs and Economic Union (UDEAC) was created in 1964, followed by the formation of the Economic Community of Central African States (ECCAS). Neither has made any appreciable progress to date. A third process of integration in the subregion, the Economic Community of the Great Lakes Countries (CEPGL), in which Burundi, the Democratic Republic of the Congo and Rwanda participate, is inactive today.

54 The source used for the case of Africa is Mohammed Mwamadzingo, Panorama de la integración regional en Africa, Cuaderno de Educación Obrera Nº 123 (ILO, 2001).


The Arab Maghreb Union (AMU), with Algeria, Libya, Morocco, Mauritania and Tunisia as its member countries, has not met with much success. In fact, no agreements have been adopted or steps taken to promote a Maghreb common market and the member countries of the Union still have trade barriers in place.

Economic, social and political problems plaguing many African countries, combined with glaring shortages particularly in transportation and communications infrastructure have slowed any possible advances in the processes of integration. A socio-labour dimension continues to be a distant goal, rather than even a start in the right direction, except in the case of the Southern African Development Community (SADC) in Eastern and Southern Africa. Even so, trade union organizations are making advances towards developing this dimension.

The Southern Africa Trade Union Coordination Council (SATUCC) adopted a Social Charter of Fundamental Rights of Workers in Southern Africa, which was subsequently taken up by the Southern African Labour Council, a subregional tripartite body.

The East African Trade Union Council, an institution that coordinates the trade unions operating in that subregion, is working to secure the ratification of ILO International Standards and the harmonization of labour legislation and policies in those countries. The Directorate for Human Development and Special Services (SHDSP) operates as a part of the SADC and is in charge of: harmonizing human resource development policies, providing social support to vulnerable groups, generating employment, and promoting and aligning labour standards.

The trade union coordination body in North Africa (Union of Maghreb Workers’ Unions - UMA) in 1991 adopted a Charter of Fundamental Social Rights of Workers in the Maghreb.

4.2 Integration and labour standards in Asia

A. Association of Southeast Asian Nations (ASEAN)

The Association of Southeast Asian Nations (ASEAN) with a membership consisting of Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam, is the best known process of regional integration in Asia. A series of widely varied systems are to be found under its umbrella (Free Trade Area, AFTA; ASEAN Integrated System of Preference, AISP; Common Effective Preferential Tariff Programme, CEPT; etc.), none of which is labour-oriented per se. Although commitments exist to defend human rights as defined in the Vienna Universal Declaration of Human Rights, the application of ILO Standards on Fundamental Rights at Work, which in Latin America are universally accepted, in Southeast Asia have run into serious problems. Many Asian governments believe that the application and defence of those rights would inhibit the creation of employment.

The Ministers of Economy, meeting in Brunei in September 2002, resolved to launch forty-four (44) programmes within the framework of the Plan of Action on Social Development, at a cost of 58 million dollars, to give new ASEAN member countries assistance in four priority areas, one being human resource development. In 1998, ASEAN started up a new Cooperation Plan in six different areas, including social development.


Once goods and services are able to move freely among the ASEAN countries, only the free movement of workers will remain pending. This issue is not even on the agenda for consideration, however. One reason for this is that given the huge productivity and income differences existing among member countries, if workers could move about freely many would move from the less developed to the more developed countries, creating labour absorption problems for the latter.

Generally speaking, the Asian countries have always been the most reluctant to give a labour dimension to their processes of economic integration and free trade. There has even been foot dragging on such basic aspects as fundamental rights at work that in other regions are usually accepted without much argument.

Given the need of the ASEAN member countries, as well as those of South Asia, to compete with Chinese economic growth fuelled by heavy external investments and extremely cheap labour, this trend could become even more pronounced. In fact, the redirection of foreign investment flows towards China meant a tremendous loss of investment funds for the ASEAN countries, which dropped from 33,000 million dollars in 1997 to 14,000 million in 2000.

B. Asia-Pacific Economic Cooperation (APEC)

APEC was established in 1989 as a forum for cooperation among the Pacific Rim countries. Initially its member economies were the United States, Canada, Australia and New Zealand, Japan, South Korea and the following ASEAN countries: Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Its membership has since been expanded several times: in 1991, by the People’s Republic of China, Taiwan and Hong Kong; in 1993, by Mexico and Papua-New Guinea; in 1994, by Chile; and in 1998, by Peru, Russia, and Vietnam.

APEC operates on the basis of annual summits of heads of state and of government, complemented by ministerial sector meetings. Its consultative bodies are the so-called “Eminent Persons Group,” consisting of scholars and businessmen, and a Business Advisory Council.

The Bogor summit (1994) decided on a two-speed process of integration: the more developed member economies of APEC would establish a Free Trade Area by 2010, while the less developed economies would move more slowly towards that objective, with a deadline ten years later, in 2020.

The United States proposed at the Vancouver Summit in 1997 that the free trade area should be constructed progressively by reaching agreements in specific economic sectors. As a result, the “Early Voluntary Sectoral Liberalization” program was designed for implementation in nine priority sectors: fishing, lumber, energy, environmental goods and services, medical equipment, telecommunications, toys, jewellery and chemical products. Chile and Mexico, however, are opposed to the programme, in Chile’s case because the country has a single tariff and cannot, nor is it in its interest to, liberalize some sectors before others.

Despite these differences in opinion, free trade agreements have proliferated between APEC member economies, among them the following: 1) Singapore has signed an FTA with New Zealand and is currently negotiating agreements with Japan, United States, Mexico, Canada and India; 2) A free trade agreement is currently under negotiation by New Zealand and Chile; and 3) Chile is negotiating agreements with the People’s Republic of China and with India.


4.3 Integration and labour standards in Europe

Socio-labour aspects are known to have been given considerable attention in the process of European integration. In fact, it can claim the greatest advances in these areas and literature on the subject is plentiful and available to anyone who is interested. Even so, little has been done by the European Union towards establishing a body of common European labour legislation. This task has always been in the hands of the State, which converts standards previously developed and adopted by society into law. The popular and national nature of working standards has made it almost impossible to take major steps towards building up supranational labour legislation that would be adaptable to societies with different cultural origins and whose only common denominator is their being European.

Far less is known about how the European Union deals with labour issues in its economic and trade relations with third countries. I will concentrate on this point in the text below.

The European Union has signed at least four different kinds of free trade agreements with third parties, to wit:

1) The so-called “European Agreements” signed with Central and Eastern European countries that are candidates to join the Union. These Agreements are aimed at creating free trade areas between those countries and the EU before the countries become actual members.

2) Agreements with Balkan countries that could become members of the European Union in the medium term. Under these agreements, customs duties on about 95% of the exports of those countries to the Union are eliminated.

3) Agreements with Mediterranean countries that are intended to create a Mediterranean Free Trade Euro Area in or before 2010, as agreed at the 1995 Barcelona Summit. To date, free trade agreements of this kind have been signed with Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine and Tunisia.

4) Agreements with other countries. This category encompasses free trade agreements signed by the EU with Chile and with Mexico. An agreement between MERCOSUR and the EU is currently under negotiation.

The European Union has put into practice an “everything but arms” initiative whereby the member countries have opened their markets without any restriction whatsoever to imports of all kinds (except weapons) from less developed countries (49 today).

Although the European Union does not establish any direct link between trade and labour standards, it does promotes cooperation in ensuring the observance of International Labour Standards in the agreements signed under the “everything but arms” initiative. This is part of what Europeans call “the promotion of fair trade” policy, as established by the European Commission in November 1999.


As Messner55 points out, “the underlying idea (in this link between fair trade-oriented integration and cooperation) is that a stable and dynamic world economy rests on closely interlinked economies. For the United States, on the other hand, the way to build that stable, dynamic economy is by opening markets, building free trade agreement-type free trade areas and establishing bilateral economic relations with “strategic allies,” to whom it offers special relationships and specific trade agreements.”

Where a clearly defined link between labour standards and trade can be found is in Europe’s System of Generalized Preferences, whereby manufactured products and some agricultural goods exported to Europe by developing countries are exempted fully or in part from customs duties under a special incentive arrangement to encourage countries to protect the workers’ rights that are considered in some International Labour Organization Conventions. The inducement is a 5 percent reduction in customs duties on particular sensitive products,56 over and above the 3.5 percent reduction that is applied to all countries that avail themselves of the system, bringing the possible total reduction up to 8.5 percent.

The special incentive arrangement57 considers the following “core” labour standards established in ILO Conventions: 1) No. 29 and No. 105 on elimination of all forms of forced or compulsory labour; 2) No. 87 and No. 98 on freedom of association and the effective recognition of the right to collective bargaining; 3) No. 100 and No. 111 on the elimination of discrimination in respect of employment and occupation; and 4) No. 138 and No. 182 on the effective abolition of child labour.

Some free trade agreements, for their part, do have a labour dimension. Such is the case of the Agreement on Trade, Development and Cooperation between the EU and South Africa, signed in 1999. The Preamble to the agreement reaffirms “the commitment of the Parties to economic and social development and to respect for the fundamental rights of workers, particularly through their support for the timely International Labour Organization (ILO) Conventions that address issues such as freedom of association, the right to collective bargaining, non-discrimination and the abolition of forced labour and of child labour.” This same commitment is repeated in the section of the Agreement that refers to Cooperation.

Title V of the Association Agreement signed by the European Union and Chile in 2002 sets out the agreement of the Parties to give priority to creating employment and “respecting fundamental social rights, particularly by promoting the International Labour Organization Conventions concerned with freedom of association, the right to collective bargaining, non-discrimination, the abolition of forced labour and of child labour and equal treatment for men and women.” The Agreement stipulates a series of measures to be taken in the areas of labour relations, vocational training, control of illegal immigration, social policy management, etc. to achieve these aims.

Although no specific reference is made to the fundamental rights of workers and to the ILO Conventions in the other free trade agreements signed by the European Union (with Lebanon in 2000 and Croatia in 2001), the Parties’ commitment to democratic principles and human rights is reiterated.

55 Messner, D., “La Gobernanza global y el futuro de los Estados nacionales a principios del siglo XXI. Una perspectiva europea”, in Nueva Sociedad (Santiago, Chile, 2002), p. 63.

56 Non-sensitive products are fully exempted from customs duties.

57 The terms used by the European Union to refer to each of the rights is not always the same as that employed in the ILO Conventions.


The treatment of labour issues in free trade agreements between the European Union and third parties is quite general as a rule and is restricted to the sections about cooperation, which also deal with the settlement of any objections that may arise over the violation of labour rights, particularly of fundamental rights at work.

4.4 Comparing Latin America and the Caribbean with other regions of the world

The socio-labour dimension is far more developed in the European Union than in any other process of development in the world. Even so, MERCOSUR has made more progress than other integration movements in the Americas and in other world regions.

As I have already pointed out, little has been done in Africa to give its processes of integration a socio-labour dimension, a situation similar, in the case of the Americas, to that which exists in the Central American Common Market; African processes are certainly lagging far behind MERCOSUR, the Andean Community and CARICOM as to socio-labour advances. The only exception to the generalized situation in Africa is to be found in the Directorate for Human Development and Special Services (SHDSP) that operates as part of the SADC.

Comparatively speaking, the labour dimension of Asian integration processes is very incipient and far less developed that of the Americas and even of the Central American Common Market.

5. The world of work in China: Its effects on Latin American trade

Fear is rising among the countries of Latin America (and also of Europe and in the United States) over the possible results of the People’s Republic of China’s aggressive export policy fuelled by low costs and a highly developed network of export centres –low costs that trade analysts in the competing countries attribute to the poor wages being paid and the use of working methods that violate ILO international standards that have been built into the labour legislation of most of the world’s countries. The effects of low-cost Chinese products on competing Latin American exports are making themselves felt on two fronts, the external and the internal, as both world and domestic demands for Latin American products fall in the face of the countries’ difficulty in competing with Chinese exports. Many of these countries openly accuse China of applying an alleged social dumping policy in its foreign trade.

For that reason, this chapter briefly examines the real or alleged effects of China’s export policy on Latin American trade and employment.


5.1 China’s political context and economic modernization

Communist Party economic policy experts after the demise of the Deng government devised the so-called “birdcage” strategy, in which the birdcage symbolized the Party’s political control and the economy was the bird, which could move around inside the cage with a “certain degree” of freedom. This birdcage metaphor is indicative of China’s new policy of greater economic freedom than under the Mao regime when the Party kept the bird firmly in hand. Even now, however, the economy is not free from the Party’s political control.

Chinese public debate centred in this context on two concrete aspects: on how large the birdcage should be and how deep and how swiftly enacted the reforms. Political events of recent years tend to suggest that those who champion a larger cage and swifter and more sweeping reforms are imposing their will on more conservative elements within the Communist Party. Evidence that the more open market-oriented sectors are taking the upper hand can be found in the recent reform of the Constitution committing the State to contribute to the private sector’s development under the Communist Party theory of three-fold representation.

5.2 China’s economic growth

China’s economy expanded at an annual rate of 8.1% between 1995 and 2003, as Table 7 shows.

Table 7

China: Annual GDP growth

Year Growth 1996 9.6 1997 8.8 1998 7.8 1999 7.1 2000 7.4 2001 7.3 2002 8.0 2003 9.1

As a result of this spectacular growth, China, which in 1952 accounted for only 5% of world GDP, now contributes 11%. Despite a large increase in population, the country’s per capita GDP rose 6% per annum between 1978 and 1995, far outpacing that of India (2.5%), Japan (2.7%), United States (1.5%) and Europe (1.5%) over the same period.

Fuelling this growth are the huge domestic demand (China’s middle class, estimated at between 200 and 250 million people, is larger than the total population of any individual Latin American country) and the heavy growth in exports, which reached an average rate of 7% per annum over the period 1995-2002, allowing the country to accumulate 260,000 million dollars in international reserves by the end of 2002 –equivalent to 11.3% of the world’s gold reserves that year.


The Chinese economy drew on three main sources to finance its growth: plentiful foreign currency reserves; foreign investment; and a high domestic saving rate that helped, by cutting down on consumption, to control inflation and free up reserves for investment.

Foreign direct investment, provided largely by transnational enterprises established in China, amounted to 41,700 million dollars in 1996, 45,300 million in 1997, 45,600 million in 1998 and 40,400 million in 1990, to reach the sum of 53,000 million in 2002 --a growth of 27% in only six years’ time.

The large transnational enterprises alone are not responsible for all foreign investment in China; equally as important or more so are the funds that come from overseas Chinese (the huaqiao). Although official investment figures do not make any distinction between the two sources, it is estimated that the huaqiao supply a larger percentage than the transnational enterprises.

Domestic savings as a percentage of GDP rose from 19% in 1996, to 21% in 1997 and on up to 24% in 1998, remaining steady at that level for the next few years.

5.3 Chinese - Latin American Trade

The level of trade between China and Latin America is still very low in comparison with Chinese trade with other world regions, and is almost the same as Chinese-African trade. In 2001, China imported 250,000 million dollars in goods, of which Latin America was responsible for only 6,700 million dollars: 2.7% of China’s imports and 2% of the region’s entire foreign trade.

Despite its low level, trade between Latin America and the Asian giant has grown heavily over the past twelve years, at rates fluctuating between 10% and 50% a year, except in 1998 and 1999 in the aftermath of the Southeast Asian crisis (see Table 8).

Table 8

Growth rate of Chinese - Latin American trade (1991 – 2003) (% compared with the previous year)

Year 1. Exports 2. Imports Total (1+2) 1991 19.8 32.1 27.7 1992 35.4 21.5 26.2 1993 65.1 1.6 24.6 1994 38.2 16.4 26.9 1995 28.2 32.0 30.0 1996 -0.9 21.6 10.1 1997 47.6 4.5 24.5 1998 15.6 -20.7 -0.8 1999 -0.1 0.1 -0.7 2000 36.4 80.9 52.5 2001 14.1 23.8 18.3 2002 15.7 24.4 19.6 2003 34.6 39.9 37.0

Source: Official Chinese trade statistics.


Inasmuch as the balance of trade has been in China’s favour in recent years (see Table 9), this trade growth has benefited China more than Latin America. In 1998 and 1999 this positive balance was over 2,000 million dollars in China’s favour, later declining to 1,775 million dollars in 2000, 1,500 million dollars in 2001, 1,153 million dollars in 2002 and 1,106 million dollars in 2003, giving China an average trade surplus of slightly over 600 million dollars a year between 1991-2003. A little over one-half of China’s total imports are materials such as parts and pieces of goods that are then reprocessed and reexported. China is also an important buyer of metals (mainly copper and aluminium) and agricultural products like soybeans.

Table 9 Chinese - Latin American Trade (1991/2003)

(Millions of dollars)

Year 1. Chinese exports to Latin America

2. Chinese imports from Latin America

Total (1+2) Balance of trade (1-2)

1991 795 1,563 2,358 -769 1992 1,076 1,900 2,976 -824 1993 1,776 1,931 3,707 -155 1994 2,455 2,247 4,702 207 1995 3,147 2,967 6,114 180 1996 3,121 3,608 6,729 -487 1997 4,606 3,769 8,376 837 1998 5,323 2,989 8,312 2,334 1999 5,269 2,991 8,260 2,278 2000 7,185 5,410 12,596 1,775 2001 8,200 6,700 14,900 1,500 2002 9,489 8,336 17,825 1,153 2003 12,772 11,666 24,438 1,106

average 5,016.46 3,416 7,450 617.6 Source: Official Chinese trade statistics.

The region’s adverse balance of trade with China can be traced to Colombian, Cuban, Mexican and Panamanian trade deficits with China, for other countries like Argentina, Brazil and Peru run a surplus (in Peru’s case due to the country’s mineral exports to China). The region’s trade deficit with China can be reduced heavily –by approximately 50%-- if we exclude Panama’s adverse trade balance, which is due to its acting as a transfer port in that trade.


Table 10 Total value of the accrued trade between China and its most important Latin American trading

partners, by country (in millions of dollars): 1991-2000

Country 1. Chinese exports 2. Chinese imports Total (1+2) Trade Balance (2-1)

Brazil 8,168 10,715 18,883 -2,546 Mexico 6,199 6,060 12,259 139 Chile 4,157 4,506 8,663 -349

Argentina 3,686 4,849 8,535 -1,163 Panama 6,607 33 6,640 6,574

Peru 979 3,994 4,973 -3,015 Cuba 1,744 1,261 3,005 483

Uruguay 800 720 1,520 80 Ecuador 414 480 894 -66

Colombia 611 106 717 505 Source: Official Chinese trade statistics.

5.4 Chinese investments in Latin America

While Chinese-Latin American trade figures are not large, what is significant is China’s investments in the region; furthermore, the investments of some American countries in China are becoming progressively more important.

Almost 50 Chinese companies have direct investments in Brazil (forestry, food processing, transportation and light industry) and many others in Mexico, while large investments have been made in copper mining in Peru. Cuba and Venezuela are other important recipients of China’s investments. By the end of 2002, roughly 362 officially approved and registered enterprises or corporations were operating in Latin America (50 of them in Brazil) with exclusively Chinese or mixed capital, 46 of them having set up in the region in 2002 alone.

Brazilian, Chilean and Mexican enterprises have begun to invest in China in joint ventures with Chinese enterprises.

In short, although trade today between Latin America and China is still very limited, it is growing day by day, as China invests heavily in the region and Latin American countries cautiously start investing in China. Trade between the two parties and their mutual investments can be expected to continue climbing strongly over the next few years because China’s economy is performing dynamically and the region has emerged from its economic recession.

While this growth is not sufficient to dispel Latin America’s concern over rising Chinese competition in the European and United States markets, its existence and the potential it offers are not always valued in their true dimension. The possibilities for attaining positive trade relations between China and Latin America are huge, even considering the low cost of labour in China, as are the possibilities for attracting the Chinese capital that is so necessary for the region’s development financing. Present trade and investment trends would tend to suggest that complaints will not do much towards changing the situation and that a far more constructive strategy would be for Latin America to make itself a partner to a much more powerful competitor like China.


5.5 The world of work in China

With the adjustments forced on State-owned enterprises by the effort to reduce public spending on them in the wake of China’s economic opening to private activity, both national and foreign, many of these enterprises had to close their doors. The immediate results of these measures were rising unemployment and a rethinking of the social protection system (mainly health and pensions), which up until then the enterprises themselves had handled using funds supplied by the State for that purpose.

The heavy expansion of the private sector is borne out in the figures for domestic private (DPE) and foreign-owned (FOE) enterprises, showing that they have been generating 50% or more of GDP since 1995, compared with previous decades when all production was concentrated in the hands of State (SE) and collectively-owned enterprises (COE). The growth of the private sector paralleled the decline of State enterprises and, hence, of public employment, some 17 million workers having been dismissed from these enterprises by the end of 1998.

Urban unemployment rose, fanned by the reduction in public employment already cited, by sharp EAP growth and by the migration of poor farmers to the cities. Although official figures place open unemployment at 4%, independent researchers have calculated that the actual level fluctuates at between 21% y 23%.

The adoption of the new economic philosophy and the worsening of the labour situation (unemployment, the breakdown of the social protection system, strikes, etc.) brought about by the transition from one economic model to the other, led the Chinese government to make important reforms in working relations (both individual and collective) and in social protection.

A. Reforms in individual labour relations:

- Recruitment and dismissal methods:

In 1986, regulations were adopted to cover fixed-term contracts, administrative personnel recruitment and worker dismissal.

The New Labour Law promulgated in 1994 once again regulated recruitment methods (fixed-term, indefinite-term and temporary contracts) and the probation period.

- Wages:

In 1985 a structural (floating) wage policy with three components was instituted, such being: basic wage, training or skill-determined wage, and tipping. It replaced the previous policy of uniform wages for the eight grades of manual workers, fifteen grades of technical workers and twenty-five grades of administrative personnel at their different levels. With the application of this change in wage policy, average wages increased 9.8-fold between 1978 and 1998. The new Labour Law in 1994 once again regulated the wage policy without introducing any major changes.


- Occupational safety and health: The care of workers in the event of accidents and illnesses was regulated in 1986.

B. Reforms in collective labour relations

- The New Labour Law was enacted in 1994, replacing previous provisions and regulating collective bargaining. No mention is made of the right to strike, however.

Trade unionism and collective bargaining figures reveal that China had 586,000 trade unions with 102 million members at the end of 1998. State-owned enterprises accounted for 53,634 trade unions in 1997, up from 4,274 in 1992, while among foreign-owned enterprises, 29,000 had trade unions by 1997.

Although there is no mention of the right to strike in the new Labour Law, the bankruptcy of many State-owned enterprises triggered a major outbreak of strikes starting at the end of the eighties. There were 15 strikes in Shanghai in early 1989 alone. Strikes in 1995 and 1996 averaged almost two thousand a year. In 1995 strikes hit thirty cities and involved 1,500,000 workers; in 1998, the number was 3,500,000. Mining, metallurgy and the textile industry were the sectors hardest hit by strikes.

Their effects have not been limited to State-owned enterprises, but also extend to foreign-owned and mixed capital private enterprises. The principal cause for strikes in the latter enterprises is the need to readjust salaries eroded by inflation, rather than the social security crisis, as in the case of State-owned enterprises.

C. Labour administration reforms

- The new 1994 Labour Law regulated labour inspection.

D. Social protection reforms

The People’s Republic of China never had a social protection system per se; each enterprise or production unit (danwei) was responsible for the welfare of its workers. The disappearance of the danwei and the introduction of a “free market with Socialist characteristics” has had traumatic consequences, fanning unemployment and bringing about the breakdown of the social security system, as I have already pointed out.

“The breakdown of social security was most apparent in the cities, where for decades urban workers were the only people who had truly benefited from the system. Almost all urban enterprises were State-owned and they managed the social services themselves using funds supplied by the State. These social services covered everything: pensions and benefits, health, occupational accidents, maternity and sick leave, child care facilities, schools and housing. Two major trends over the nineties made this system unworkable: a) a growing percentage of the urban population started seeking employment outside state-owned units; and b) State funding of the enterprises dwindled and social coverage provided to State employees with it.”58.

58 Folch, Dolores, “Las sombras del crecimiento en China: inseguridad y protesta social”, in El nuevo orden internacional en Asia Pacífico (Anaya, Spain, Ediciones Pirámide, 2002), p. 182.


At the same time, the progressive aging of the working population that benefited from the old social security system has swelled the mass of retirements, raising social security costs enormously. In effect, the ratio of active workers to beneficiaries has risen, from 26-2 in 1978 to 4-6 in 1995.

The reform of the social protection system, for all of those reasons, has become a pressing issue. Ever since the 1986 labour reform was instituted, the Chinese State has devoted its efforts to developing a universal retirement system funded by contributions from the State (through local governments), employers, and workers.

The World Bank, for its part, has proposed the establishment of a new three-pillar system. The first and foremost pillar would be a basic pension to ensure that retired workers live above the poverty line; the second would rest on compulsory enterprise and worker contributions; and the third would be based on voluntary contributions from enterprises or workers wishing to make them.

The Chinese State is moving ahead with a health system reform, as well. Spending on health in China amounted to only 3.8% of GDP at the end of the nineties and it is the intention of the State to progressively raise this figure to 9%, a level equivalent to that reached by developed countries.

5.6 The strategic relationship between Latin America and China

The text above would tend to belie certain Latin American beliefs about the world of work in China.

First, China does have labour legislation in place that concerns fundamental principles and rights at work, except for the right to strike. Even so, as I have already pointed out, strikes are fairly commonplace in the country.

Second, although wages are low, they reflect average productivity in the various economic sectors, on the one hand, and, on the other, the limitations faced by the Chinese State as a result mainly of the high cost of the old social protection system.

It is true, as much of the literature on the subject confirms, that the application of labour legislation is a serious problem in China. The fact remains, however, that the situation is not so different from what can be seen in many Latin American countries, as described in Chapter II. Many Latin American business sectors –particularly the producers of tradable goods and services (in other words, that export or compete with imports) -- have been, or are demanding that their governments apply safeguard clauses to protect themselves under WTO agreements from low-cost Chinese imports, adducing that China has no labour standards that offer its workers levels of protection comparable to those of the rest of the countries or that the country is not applying existing standards. Many others, particularly micro and small enterprises, could also have failed to comply with domestic labour legislation as a means of reducing absolute costs, becoming more competitive in that way.

Applying safeguard clauses, even if advisable in specific cases and for short periods of time, does not appear to be the best way to compete with China and even less so is lowering the level of legislative protection in the Latin American countries. Strange as it may seem, the best way of competing with China would be to become its partner.

That partnership should be based on: a) attracting Chinese enterprises and capital to Latin America; b) investing in China in sectors that are not very competitive and in which Latin


American countries enjoy competitive advantages; and c) working a change in the make-up of Latin American exports (which continue to heavily favour primary products with very little processing).

This would mean, as well, achieving greater coordination among the region’s countries, either within the LAIA or within the region’s processes of integration, such as the Andean Community, the Central American Common Market, MERCOSUR, etc. The region should take a lesson here from ASEAN, which has made progress in coordinating its policies with China.

6. The link between economic integration, market opening, labour standards and the labour maket

This chapter reviews the conclusions of some of the most important research into finding answers to two key questions about the subject under study. First, are labour legislation and its appropriate application helped by the globalization-spurred growth in trade? And second, do labour standards create incentives for the development of trade and economic growth?

6.1 The impact of trade on labour standards

As V. Tokman59 points out, “The existence of a link between working conditions and trade generates mixed feelings. The consensus of opinion is that increased trade is important for economic growth and that the latter creates a favourable climate for improving working conditions and augmenting workers’ income. This does not mean, of course, that everyone believes this improvement is automatic and symmetrical...”

On this point, A. Ghose adds that,,60 “the really new element that globalization has introduced is North-South trade in competing products and this means that some workers in the North are now in competition with workers in the South. It is this new kind of competition that has generated some new adjustment problems in Northern labour markets.”

The question that arises in this context is the following: Are there good reasons to believe that the growth of two-way trade in manufactures between developed and developing countries might be undermining the labour standards in developed countries by forcing them to “loosen” their labour standards in order to be able to compete?

Ghose turns to a classical example to answer this question. The assumption is that only two products are manufactured, machinery and textiles, and that the production of machinery is more skill-intensive and operates with higher labour standards than textile production, and that these standards are more developed (or are applied more stringently) in the developed countries (of the North) than in the developing countries (of the South).

59 Tokman, V.E., Libre comercio y estándares laborales: Un vínculo en evolución, paper presented at the Second Meeting on Labour Standards (Buenos Aires, IDB-LATN, June 2003), p. 12.

60 Ghose, A., Jobs and incomes in a globalizing world (Geneva, ILO, 2003), p. 96.


In a two-way trade in these products between North and South, the North will tend to specialize in machinery production and the South in textiles. The reason for this is that the North has more skilled labour and is able to operate competitively using more stringent labour standards than the South. As a result, it will tend to produce machinery, in which the South has less comparative advantages. The South, on the other hand, has an abundance of unskilled labour and its labour standards are laxer (in either development or application) and for that reason it will specialize in textiles.61. As a result of this, production, prices and employment in the Northern machinery industry will rise, as they will do likewise in the Southern textile industry. Conversely, production, prices and employment will decline in the textile industry in Northern countries, as it will do also in the machinery industry in the Southern countries.

In this case, what happens to the labour standards in the two areas or regions? Two things. First, labour standards will worsen in the textile industry as production becomes centralised mainly in the South where labour standards are lower. And second, average labour standards will improve as workers move towards the machinery production sector where labour standards are more demanding and prices are higher, while in the South labour skills in the textile industry will improve with the rise in prices, but decline in the case of workers who have to move from machinery production to seek employment in the textile sector. The net effect of trade on labour standards in the South will depend, therefore, on the number of workers who move from the machinery to the textile industry. Generally speaking, though, both labour standards and their application in the Southern countries can also be expected to become more stringent.

Can one reasonably assume that the stringency and application of labour standards will improve in both Northern and Southern countries due to their trade, as the theoretical example given above would tend to suggest? As Ghose himself points out in his study,62 there are no theoretical or empirical grounds for fearing (particularly on the part of trade unions) that trade in manufactured products between developed and developing countries will result in the deterioration of working conditions in the former. Available data (OECD) would tend to indicate precisely the opposite. But neither has it been conclusively proven that working conditions in the Southern manufacturing sector have improved, as the theory would tend to suggest. This is apparently the fault, not of trade per se, but of the composition of the manufacturing industry in each country, for it is the unregulated or informal subsector that has apparently shown the most growth. Wages could have risen just as high in the informal sector as the formal (this was not the case in Latin America between 1990 and 2002), but because of their informal status, these workers continued to lack social benefits (mainly social security) and were not entitled to certain working conditions, such as vacations, medical care in the case of accidents, etc. Furthermore, highly mobile global producers and buyers have been able to reduce the labour costs of many manufacturing processes concentrated in the hands of formal unskilled workers to extremely low levels, bringing one developing country into confrontation with another. The spread of the “maquila” industry over Southeast Asia, Mexico, Central America and the Caribbean is evidence that such production migrates in search of low labour costs and low taxes.

61 If a single region, the North, were to specialize in both products, there would be no trade, except in manufactures produced only in the North and raw materials and non-manufactured products made in the South. This was the hallmark of world trade before the advent of globalization.

62 Ghose, op. cit., pp. 99-100.


To sum up, there is nothing to indicate that trade has a negative impact on the level and application of labour standards; in fact, the expectation is precisely the contrary in both developed and developing countries. There is empirical evidence to the effect that if the level of such standards has not risen in developing countries, this is due to the existence in the manufacturing sector of a high productivity and income subsector with better working conditions side-by-side with a low-productivity and income subsector with poor working conditions. Both income and working conditions are productivity-driven, and productivity is not determined by trade, but by specific micro (enterprise) and macro (the country in general) policies.

6.2 The impact of labour standards on trade and economic growth63

There is no evidence that trade has a negative impact on the evolution of labour standards; in fact, there are more or less well-founded assumptions to the contrary. We should ask ourselves, then, whether labour standards have a positive or negative impact on the development of trade and on economic growth.64 In other words, the fact that trade does not have a negative impact on labour development does not necessary mean that there is no negative effect in the other direction. Is that the case? What has already been said about the negative effect on trade of China’s low labour costs, associated with low levels of worker protection, could be an argument to be made in favour of the thesis that a country’s labour development could possibly have a negative effect on the trade and economic growth of third countries. In fact, if we were to expand on Ghose’s example used in the previous section by adding a second country in the South specializing in textile production –thus giving us one Northern country specializing in machinery production and two Southern countries specializing in textiles, one of them with much lower costs than the other –the possible outcome is not what economic theory assumes in the example with only two countries and two goods. The Southern country with the higher costs would have to “deregulate” its labour standards to bring them down to the level of the country with much lower costs, so as not to become less competitive. This is what many textile industrialists in Bolivia, Mexico, Peru and Uruguay, among others, are demanding. In this case, if labour regulation were to be relaxed, then we would find that the trade of a country with lax labour standards could produce a worsening of labour conditions in competing countries.

If we were to narrow down the consideration of the link between labour standards and trade to a single country, we would find that there are at least three different analytical positions. The labour market would also be affected in the degree to which --according to each viewpoint-- labour standards impact on economic performance.

The first of these positions is that the application of labour standards creates inflexibilities in labour market operation, pushing up wages and labour costs “excessively” and, consequently, producing rising unemployment. Without these inflexibilities, the only unemployment would be voluntary. Excessively high wages also make enterprises less competitive, thereby impairing economic development and, with it, the economy’s potential for creating employment.

63 This item is based in part on Vega Ruiz, M.L. and Martínez, D., Los principios y derechos fundamentales en el trabajo. Su valor, su viabilidad, su incidencia y su importancia como elementos de progreso económico y de justicia social (Geneva, ILO, 2002).

64 A good analysis of the most important studies on the link between labour standards and trade can be found in “International Trade and Core Labour Standards – A Survey of the Recent Literature”, OECD Labour Market and Social Policy – Occasional Papers Nº 43 (Paris, 2000).


The second position affirms that neither salaries nor employment level are negatively affected by the application of labour standards --precisely the contrary-- and that such application contributes to the growth of social peace, helping to reduce the country risk and boost investment, thereby spurring economic growth and the generating of employment.

The third, intermediate, position defends the application of labour standards and the observance of fundamental rights at work, but considers that in given countries this could raise labour costs to a level impossible to reach by micro and small enterprises, thereby adding to labour market segmentation and the growth of informal operation. Defenders of this position consider the need for two types of labour regulation, a “more expensive” type for formal enterprises and their workers and a “less expansive” type for those enterprises operating informally.

These three positions reflect three different ways of reasoning and of answering a single question: Does the application of labour standards in general and of fundamental rights at work in particular have a positive or negative impact on economic growth in the short and long terms?

Although these different positions are generally defended or upheld using more or less technical arguments and more or less empirical evidence is given, the fact is that theorists who defend each position are easily able to “demolish” the theoretical arguments of their adversaries and that the empirical evidence offered is generally very partial (for every indication observed in a country, evidence to the contrary can usually be found in other countries) and in many cases is neither very evident, nor very empirical, but the result of data especially “constructed” to defend a particular viewpoint.

The initial conclusion to be drawn is that no studies or investigations have been able to offer a conclusive answer to the question that has been posed.

In point of fact, after investigating the matter, Kucera65 concludes that it is not possible to show that the application and observance of fundamental rights at work spurs and contributes to economic growth ... or the contrary, either.

At the same time, the Organization for Economic Cooperation and Development (OECD) undertook a study of trade and international labour standards that was published in 1996. Among its findings was that no trade advantage is to be gained by failing to observe freedom of association, thereby reaffirming, from the economic viewpoint, the position with regard to fundamental human rights that the ILO has been defending for a long time now. This initial finding is confirmed in the same study conducted for the year 2000.

65 Kucera, D., The Effects of Worker Rights on Labour Cost and Foreign Investment: Evaluating The “Conventional Wisdom”, Discussion paper No. 130/2001 (Geneva, IILS, ILO, 2001).


A study recently published by the World Bank66 concludes that neither freedom of association, nor collective bargaining –particularly that known as coordinated collective bargaining-- appears to be an obstacle to increased investment and economic growth.

The conclusion to be drawn from all of the studies reviewed is that it is impossible to determine the net cost of standards on fundamental rights, for this depends upon the particular economic, political and institutional context. We should not forget that there are political and institutional costs to be considered also.

Recognizing, then, that no conclusive answers can be given to the question that has been asked, perhaps we should present the matter in a different light. To do this, we must first acknowledge (and here existing empirical evidence is more than sufficient) that there are wide differences in economic, political and social development among countries and considerable technological and economic heterogeneity even within the same country. It must also be recognized that economic, political and social development go hand-in-hand –in other words, there are no countries with advanced social development and little economic and political development and vice versa; countries that have a highly developed economy are the same ones that show a high level of political and social development and countries with little economic development have larger political and social deficits.

Such being the situation --and the evidence here is compelling--, the question should be posed in a different way. Instead of asking about the economic impact of standards on fundamental rights at work, the question should be: Why do countries where fundamental rights are observed more fully also have higher productivity levels and are more competitive than others and, conversely, why do countries where core labour standards are violated almost systematically have lower productivity levels and are less competitive?

To keep people from adducing that the very way the question is posed establishes an unproven cause-and-effect relationship a priori (more - less – observance of fundamental rights higher - lower – level of economic development), it should be turned around. In other words, why are the countries with the highest levels of productivity and the greatest competitiveness the same countries in which fundamental rights are observed most fully and why is it that countries with low levels of economic development fail to respect those rights or to observe them only partially?

This same question (in any of its forms) could be asked about specific countries (the less developed): Why in those countries does the rural sector, in which labour is less regulated or is not regulated at all, have the lowest productivity and income levels and why do given sectors of the urban economy (large-scale mining also) in which labour regulation is more stringent show the highest levels of productivity and income?

An initial answer that can be given to these questions (backed by sufficient empirical evidence) is that the level of economic development (productivity, competitiveness, etc.) depends upon the long-term performance of investment, both domestic and foreign. The most developed countries are those in which investment has been heaviest over the past one hundred years (or thirty years in the case of Southeast Asia and certain Latin American countries with a medium level of development like Chile). The less developed countries, for their part, are those in which investment has been more niggardly. Most of the African countries and the Central American countries in Latin America offer conclusive proof of this affirmation.

66 Aidt, T. and Tzannatos, Z., Unions and collective bargaining – Economic effects in a global environment (Washington, World Bank, 2003).


If this is how things stand –and the statistics published by the International Monetary Fund and the World Bank appear to support this -- the question that arises is: Do fundamental rights at work affect investment flows to (in) countries, and how?

In asking this question, we could get the same answers that were given to the original question: yes, fundamental rights at work do affect them, and negatively, because they distort the operation of the labour market and, by raising salaries, discourage investment; yes, fundamental rights at work do affect them, and positively, because social peace is one of the comparative advantages that are key to investment decisions; no, those rights do not affect it because investors are guided by criteria other than labour issues: taxes, legal stability, market, and so forth.

At this point we should ask ourselves what criteria investors actually base their decision on.

The findings of different surveys made on the subject are that, in Latin America at least, fundamental rights at work and labour regulations in general are not important elements in deciding whether or not to invest.67 The only socio-labour factor that would appear to be relevant in this decision, in any case, is the workers’ skills level. In other words, the surveys show that neither regulations on fundamental rights at work, nor social protection costs, nor wage policy “attract or frighten away” investors.

What does “attract or frighten them away”? The elements of “attraction” are, first, whether there is an effective domestic or foreign demand for the goods or services to be produced. Second, whether there is macroeconomic stability, particularly in regard to monetary (interest rates) and exchange matters. Third, whether there is legal stability, including an autonomous, fair and expeditious legal power. Fourth, whether the labour supply is adequate and sufficiently skilled. Fifth, and no less important than the others, whether a certain culture of dialogue, concerted agreement and dispute settlement exist within the framework of a stable democracy.

The elements that “frighten away” investment, for their part, are not only the non-existence of the elements that attract investment described above, but also the existence of a climate of social upheaval and political instability that jeopardizes appropriate market operation, legal stability, the safety of corporate executives, etc.

If respect for fundamental rights at work is not a major criterion for investment, then wherein lies its importance? It is undoubtedly extremely important, but its importance is not only economic, at least in the short term, but also human –in other words, social and political. Even so, we should not rule out its economic impact in the long run. I consider this impact positive, as demonstrated by the economic evolution of the Western European countries, United States, Canada, Australia and, in the case of Latin America, Chile (except under the military regime), Costa Rica and Uruguay. There is no evidence to the contrary: countries where the observance of fundamental rights at work obstructed long-term economic development, condemning them to underdevelopment. Even countries like those of Southeast Asia, where labour regulation is very weak, saw how, once macroeconomic balance had been re-established following the 1997 crisis, investment returned, despite the existence at that time of more stringent labour regulation. This would tend to prove that labour regulation is given very little importance in short-term investment decisions.

67 With the exception of special labour legislation that some countries apply for the express purpose of attracting a particular type of investment, such as the “maquila” industry favoured in Central America and the Caribbean, or the Special Export Zones created by Colombia and other countries.


There is evidence, then, that failure to observe fundamental rights at work is not an element that helps attract investments. In other words, the investor is not on the lookout for countries where fundamental rights at work are violated in order to make it the target of intended investments. If we were to take the index constructed by professors at the University of Antwerp (Wermenbol, Cuyvers and Van den Bilcke, 1998) to gauge the lack of respect (or respect) for fundamental rights at work, we would find that the lowest indices exist in North Korea, Kazakhstan, Serbia, Uzbekistan, Vietnam, Sudan, Cambodia, Mali, Pakistan, Uganda, Bangladesh, Equatorial Guinea, Myanmar, Morocco and China. An examination of the foreign investment figures published by the International Monetary Fund (IMF, 2001) reveals, however, that these same countries have the lowest levels of foreign investment, with the exception of China, where the existence of a large market closed to foreign investment until fairly recently undoubtedly constitutes an irresistible attraction.

From a positive viewpoint, respect for fundamental rights does appear to have long-term economic significance. The cited studies conducted by the University of Antwerp and the IMF reveal that the highest and most sustained investment rates are to be found in countries where fundamental rights are more respected: Netherlands, Norway, Sweden, Finland, Germany, Poland, Spain, Yugoslavia, Argentina, France, etc.

Two studies on Latin America68 reached the same conclusion, offering strong evidence that formal employment is more widespread than informal employment in countries where “civil rights” are well-developed, unlike the case of countries where there is less respect for those rights. Furthermore, there appears to be a link between weak trade unions and democratic institutions, on the one hand, and unequal income distribution, on the other.

What reason can be given for the positive impact on long-term economic growth of observing fundamental rights at work? Studies (although these go beyond labour issues per se) suggest that the economic growth of Chile, Costa Rica and Uruguay in Latin America can be traced to the social and political stability brought on in part by that respect for those rights –stability that, as already stated, is an essential condition for a sustained increase in investment.

It is for this reason that, as ILO Director General Juan Somavía has repeatedly pointed out (Reducing the decent work deficit, 2001), it is urgently necessary to build social objectives, particularly those concerned with labour, into economic policy per se. A debate is raging today over whether governments should first prioritise market-driven economic growth and only afterwards seek to address the social consequences of this course of action, or whether, on the contrary, effective economic systems should be built into a social framework of rights, participation, dialogue and protection. Many allege that compromise solutions can be found mid-way between employment quality and quantity and between social spending and investment and that protectionist regulation eats away at enterprise flexibility and productivity. As already stated, in the degree to which respect for fundamental rights leads in the long term to sustained productivity increases, it constitutes a highly appropriate strategy for ensuring a larger measure of enterprise competitiveness and economic policy success.

68 Galli, R. and Kucera, D., Informal Employment in Latin America: Movements over Business Cycles and The Effects of Worker Rights, Discussion Paper (Geneva, ILO, 2003); Robinson, J., Where Does Inequality Come From? Ideas and Implications for Latin America (Paris, OECD, Development Centre, 2001).


6.3 Effective social and economic policy coordination

The strategy that should be followed to attain economic growth with an appropriate distribution of its benefits is to ensure appropriate and effective socio-economic policy coordination among the countries involved so that employment can be improved and increased on the basis of social justice, which is possible only if a series of minimum rights exist. These should be universal rights and therein lies the value of the ILO instruments (the Declaration and fundamental International Standards) and of the rights provided for in the integration agreements. These rights avoid falling into destructive competitiveness, are created solidarity and can be adjusted to each country’s individual needs within an equitable context. In order to be universal, labour relations or collective bargaining do not need to be equally decentralized in all countries; rather, the right to negotiate must be guaranteed unrestrictedly and exercised in keeping with the needs of the social actors involved.

There is an obviously close link between processes of integration and the labour development of the civil society that upholds those processes, inasmuch as any foreseeable trade or economic standardization does or could seriously impact on occupational levels, relations between social actors and, in short, the rights attributed to workers by the State’s social logic. It is therefore impossible to talk about economic integration without, at some point in the discussion, mentioning the attendant labour aspects and the direct actors in the country’s economic life. Integration is undoubtedly able to alter the internal structure of the labour market and the traditional composition and interrelationship mechanisms of the social actors for the better or worse by modifying the balance of collective relations, especially in the short term. Discussions of the subject are haunted by social dumping, as an attempt to base international competitiveness on low labour costs.

Does a new international context exist for social matters? The answer to this question is obviously yes. All we need do is observe the various forums where the international trade order has been discussed (the GATT Uruguay Round, the World Summit for Social Development in Copenhagen, etc.) and consider how important social issues have become nationally (unemployment in the industrialized world or the poverty and precarious existence of labour in non-industrialized countries) to realize that issues such as social clauses or minimum labour standards are key topics on the international agenda.

The approach from this outlook today is to determine how regional integration can help countries accomplish their social policy objectives. In other words, without losing sight of the fact that integration seeks to enhance the development of society as a whole by transforming the production structure and enhancing the people’s standard of living and quality of life, how can it be given a social dimension so that the specific objectives in this area can be attained?


7. Points of consensus reached, pending issues and the bet on a social dimension for integration in the Americas

At least eleven major consensuses on integration, free trade and the world of work have been reached in the region, judging by the development of processes of integration, the signing of free trade agreements and the various summits of Presidents and Heads of State of the American and Caribbean countries that have been held. Even so, there are some pending issues or “grey areas” that need to be clarified in coming years.

7.1 Points of consensus reached

First: there is a consensus that integration is an appropriate vehicle for bringing about the countries’ development, notwithstanding the fact that the progress made is neither sufficient, nor is it uniform among the existing movements. This consensus does not extend to the case of free trade, which is considered to be synonymous with globalization, however. While everyone apparently agrees that integration is not possible without free trade, there are many who feel that free trade alone, without the other accompanying elements of integration movements, guarantees neither economic growth, nor an equitable social distribution of the benefits of that growth.

Second, everyone basically agrees on the fundamental principles and rights at work spelled out in the corresponding ILO 1998 Declaration on Fundamental Principles and Rights at Work and its Follow-up that States are committed to respect within the framework of integration and free trade agreements. These are labour standards that establish freedom of association, effective recognition of the right to collective bargaining, elimination of all forms of forced or compulsory labour, effective abolition of child labour and elimination of discrimination in respect of employment and occupation.

Third, there is a consensus that each country should develop its own legislation in accordance with its sovereign decisions and its own requirements and domestic capabilities. This means that no effort should be made to standardize or harmonize national legislations, but that they must conform to fundamental principles and rights at work (with the express exception in the Americas of the CARICOM countries, which have developed an experience in legislative harmonization applied to their own particular situation). This consensus assumes the existence of another, which is each country’s commitment to observe and enforce its own legislation. This is particularly important today in regard to trade with the People’s Republic of China. While no one demands that China harmonize its labour legislation with that of other countries, the desire is that that country bring its legislation into line with the fundamental principles and rights at work that all WTO member countries are asked to respect.

Fourth, there is no doubt whatsoever that the International Labour Organization is the competent body to deal with internationally recognized labour standards. The World Trade Organization expressly recognized this authority in December 1996 in the Singapore Ministerial Declaration on fundamental standards at work. A consensus that could be reached for the Americas could reiterate the considerations formulated by the Heads of State of the Americas in the Plan of Action annexed to the Declaration of Quebec (2002), to the effect that a process should be established to ensure better collabouration and coordination on the labour dimensions of the Summit of the Americas process among the


Labour Ministries and key international institutions in the Americas that have a critical role to play in improving working conditions.

Fifth, based on international trade theories and considering the contents of the above-cited Singapore Declaration, there is a consensus that economic growth and development spurred by increased trade and greater trade liberalization will help promote the adoption and observance of international standards on fundamental rights at work. The ILO Declaration incorporates this consensus, as well.69

Sixth, there is also a consensus that labour standards should not be used for protectionist purposes and that the comparative advantage of countries with low salaries associated to low productivity levels is not open to question. In this connection, Article 5 of the ILO 1998 Declaration stresses that “labour 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.”

Seventh, there also appears to be a consensus that the benefits of economic growth, even during the boom of the past decade, have not yet been fully expressed in terms of social progress. Rising unemployment and informality, stagnation of the progressive coverage of social protection systems, greater income concentration and failure to reduce poverty (in fact, its growth in recent years) are more than enough evidence that the economic benefits have not resulted in the greater welfare of individuals and their families.

Eighth, it is necessary to promote employment, protection of the unemployed, vocational training and human resource development, occupational health and safety, the strengthening of legislative supervision mechanisms through administrative (labour inspection), jurisdictional (labour justice), and alternative conflict resolution methods, such as mediation and conciliation and, finally, the development of social dialogue. In other words, the constitutive elements of decent work should be promoted in an effort to attain freedom, equity, security and full human dignity.

Ninth, there is a noticeable degree of agreement on striving to make labour decisions for society more transparent. The Secretariat created by the North American Agreement on Labour Cooperation furnishes information to social actors, promotes the holding of periodic meetings and possesses mechanisms for dissemination to social organizations, particularly trade unions and employers’ associations. The same is the case in other sub regions. MERCOSUR, for its part, has bodies with a tripartite participation structure, like Working Subgroup 10 on Labour Relations, Employment and Social Security; the Social Labour Commission; the bipartite Economic and Social Consultative Forum (ESCF); and the Labour Market Observatory. All of these institutions contribute to the exchange of information on up-to-date labour legislation and indicators of interest.

69 Text of the 1996 Singapore Ministerial Declaration in regard to fundamental labour standards: “We renew our commitment to the observance of internationally recognized core labour standards. The 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 liberalization 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.”


Tenth, there is also a consensus on the idea of inter-ministerial cooperation. As a result, the transfer of experiences, information, legislation, public policies and the performance of future thematic activities as part of the activities of working groups also appear to be part of that consensus.

Eleventh, there would appear to be a degree of consensus in many countries, as well, on the idea of institutionalising social dialogue on the basis of experiences like those of MERCOSUR, the Andean Community, or the Central American Community, which could be contrasted with the North American and Caribbean Community country experiences in social dialogue. Social actors consider social dialogue an excellent vehicle for bringing legislation into line with changing market conditions, promoting employment and dealing democratically with conflicts created by differences in interests.

These consensuses are indicative of the significant progress made towards giving processes of integration and certain free trade agreements a labour content (particularly with regard to fundamental rights at work). They also reveal the existence of a widespread and well-founded conviction that the advances made towards economic growth and boosting trade and investment have not been converted into social progress appropriately and equitably. This is the Achilles’ heel of the integration and trade liberalization strategy being implemented today, as we shall see in the following text.

7.2 The most important pending issues

In addition to these consensuses, there are an array of issues under study, which, in the terminology used in Presidential summits, are “matters requiring further deliberation.” These are at least the following:

First: An initial issue refers to the possible form to be taken by a regional American agreement. There are a variety of models to draw on, ranging from processes of integration like that of the European Union, those of MERCOSUR and also of the Andean Community, to different models like the free trade agreements, of which the North American Free Trade Agreement is the first of its kind. Even though many economists consider that integration is a single process and recognize only different phases or stages in its development, I pointed out in Chapter I that in my opinion integration and free trade are clearly differentiated processes, in both nature and objectives.

For that reason, the labour agreements and the standards to be considered in them, as well as the public policies to be implemented will depend largely upon the nature of the Free Trade Area of the Americas and the contents it incorporates.

As pointed out earlier, the construction of the FTAA could move in several possible directions over the next two or three years. One direction could be that currently being proposed in the negotiating committees. Another, the prior development of a South American Free Trade Area, so that the final FTAA negotiations would incorporate the existence of that sort of Southern FTAA as a new and important element. Another could be a negotiation between blocs (MERCOSUR, CAN, etc.), rather than between countries. And last, it could move in two directions at once, maintaining the negotiations between countries while incorporating the established contents of the integration agreements within the respective processes of integration.


Second: Much remains to be discussed about whether a labour dimension should be built into the hemispheric agreement and, if so, what nature a possible regulatory labour instrument should assume? Should it be a parallel agreement, a separate agreement, a declaration of heads of state? Also currently under discussion70 is whether the model to be used for incorporating a labour dimension in the hemispheric agreement should be the model constructed by the recently signed Free Trade Agreements between the United States and Chile and between the United States and Singapore or, instead, that being furthered by MERCOSUR – in other words, a model based on a Social and Labour Declaration and the operation of tripartite institutions to channel the dialogue among social actors.

Another possible alternative is that the labour dimension be limited in the FTAA, as occurred in the WTO decision in Singapore, to the mere reaffirmation of the commitment assumed by countries in the ILO 1998 Declaration on Fundamental Principles and Rights at Work and its Follow-up and to reiteration that the ILO is the only competent international organization on labour matters.

Third: A large variety of supervisory and follow-up mechanisms worth exploring can also be found in the experiences of the more developed countries. The dispute mechanism of the North American Agreement on Labour Cooperation, which is also applied in the Chile-Canada Agreement on Labour Cooperation, is very different from MERCOSUR’s Social and Labour Commission. The organizational structure and procedures should also be discussed together with the essential follow-up mechanism. What institutions should be created for that purpose, what should their composition be and what procedures should be followed to supervise the agreements that are adopted?

Fourth: How can the appropriate application of the labour standards considered in the respective agreements be ensured? As pointed out previously, this is a core issue, for it will mark the way for true development of labour quality in the region. The Free Trade Agreement recently signed by the United States and Chile charts one possible course that could be taken in this field: advisory assistance in applying standards, supervision, and, if necessary, fines which, if left unpaid, could result in the imposition of trade sanctions for a value equivalent to the unpaid fine.

Fifth: How can the region “cope with” China’s low labour costs, frequently tied in with low levels of worker protection, and their negative impact on Latin American and (to a lesser extent) Caribbean trade (and employment)?

Sixth: Although the need for consultation and participation mechanisms for civil society, particularly trade union and employers’ organizations, is generally acknowledged, doubts continue to exist over what mechanism or mechanisms should be applied in the hemisphere: permanent forums, economic-social councils, occasional forums, or bipartite or tripartite bodies?

Seventh: Considering the existence of a variety of subregional instruments, such as the North American Labour Cooperation Agreement signed by Canada, United States and Mexico, the similar agreement signed by Canada and Chile, the Social and Labour Declaration of MERCOSUR, the CARICOM Declaration of Labour and Industrial Relations Principles, and the advances that can be seen in the Community of Andean Nations as reflected in the declarations made by its Ministers, there are other spheres that could involve labour matters. Without enumerating these matters in full or definitively,

70 See Tokman, V.E., op. cit., p. 35.


these could include minimum working conditions, avoiding sex-generated wage discrimination, preventing occupational injuries and diseases, employment accident benefits, protection of migrant workers and in the collective sphere, and the right to strike.

Eighth: How can the benefits of economic integration and of free trade be made to reach the people, particularly the poorest sectors of the population, and, therefore, how can these processes enjoy more support and social legitimacy? This issue is undoubtedly key to the success of the process of integration. Unless these benefits are transferred to the people, and soon, it will be impossible to ensure the political viability and social legitimacy of integration and globalization.

In my opinion, many of these pending issues will have to be resolved before 2005, when FTAA negotiations are slated to conclude (2007, according to the latest predictions). In fact, many of these issues will have an impact on the labour dimension to be given to the FTAA and will determine the labour agenda to be addressed over the next five years.

7.3 The need for a “social” dimension in processes of integration

All processes of economic integration involve social and labour elements, although at times these are not clearly proposed at the moment of their constitution (the European Union and MERCOSUR are cases in point). The presence of unavoidable socio-labour elements and the effects these processes have on the community mean that sooner or later the “social dimension” or “labour issue” will inevitably arise during the course of regional and supraregional talks.

Irrespective of the trade and economic needs and motivations that spur the creation of processes of integration, in order to arrive at the balance of forces needed to guarantee that their benefits reach all members of the participating communities, a series of basic strongly social development-driven factors must first be enumerated.

A successful process of integration today appears to be impossible (and so the analysis of existing processes reveals) unless it rests on the existence of a series of basic political and social pillars, which are essentially: a democratic regime (with the true participation of citizens in the exercise of political power), a true Constitutional State, strict and widespread respect for human rights, including fundamental labour rights, and the proper and transparent operation of institutions, particularly legal institutions.

The very close link that exists between processes of integration and the labour development of the society that underpins them is a fact, for all economic integration and trade liberalization does or could seriously impact on levels of employment, relations among social actors, and, in short, the rights attributed to workers by the State’s approach to social issues. It is impossible to talk about economic integration without, at some point in the discussion, mentioning the labour aspects it entails and the actors who are directly involved in the country’s economic life.

Integration is undoubtedly able to alter, for the better or worse, --particularly in the short term-- the internal structure of the labour market and the traditional composition of the social actors and the mechanisms for their interrelationship, thereby modifying the balance of collective relations. The spectre of social dumping, as an attempt to base international competitiveness on low labour costs, is never absent from discussions of the subject.


Judging by what has been noted in the various forums where the international trade order has been discussed, everything would tend to indicate that there is a new international context favourable to giving economic integration and even free trade agreements a socio-labour dimension. From this outlook, the challenge that has been posed is to determine how regional integration helps countries achieve their social policy objectives.

Having surmounted the dichotomy proposed by certain economic theories that distinguished between growth-oriented policies and equity-oriented policies, the issue now boils down to determining if economic growth should come before distribution or whether the two processes should be simultaneous.

The trend today is to make the two processes concurrent. It should be no surprise, then, if more and more voices are raised to demand that processes of integration and even free trade movements incorporate a labour dimension as a vehicle for making it possible to transfer the benefits of economic growth and trade to all people, particularly the poorest.

The demand for such a dimension, particularly as regards the commitment to promote, observe and defend fundamental rights at work, comes not only from workers’ organizations, but even more strongly from the governments of the United States and Canada. Above and beyond the fear that this United States policy cloaks protectionist aspirations, the fact is that there are objective reasons for its adoption –at least in part. The first is that there is a conviction in public and private United States circles that the country has the moral obligation not to favour any activity, economic or otherwise, that encourages or even promotes the violation of fundamental rights at work. The findings of a survey conducted in the United States by the University of Maryland International Political Attitudes Program in 1999 were that 93% of the people surveyed considered that countries that sign trade agreements with the United States should maintain minimum labour standards on working conditions. Surveys conducted by Business Week revealed 75% support for including labour rights in those agreements.

The second is that this conviction regarding the moral obligation to defend the observance of human rights is a part of the country’s foreign policy. In other words, it is not merely a moral value that society upholds, but an element of the nation’s public policies, including its foreign affairs policy.

To conclude, a new aspect to be considered with relation to the strictly labour dimension of free trade agreements signed by developed countries with developing countries is that developed countries today want those agreements to regulate not only the sale of products, but also the process by which they are made –a process which obviously involves not only labour issues, but also environmental ones.

8 By way of conclusion

The following are among the conclusions that may be drawn from what has been stated.

Integration is a very old process, whose earliest expressions can be found in the seventeenth century, at least. But it was only in the past century, following the Uruguay Round agreements, that processes of integration began to proliferate. This has reached such a point that today very few countries are not involved in a process of integration, in one of its various forms. This same dynamic growth is shared and perhaps even exceeded by trade opening and the establishment of bilateral and multilateral free trade agreements. The explanation for this explosive growth is to be found, in part, in the GATT-decreed lowering of trade barriers –a lowering that contributed to the expansion of trade and economic integration. Other contributing factors, as explained in Part I, were the developed countries’


overwhelming need to place in third countries the surplus production (and capital) generated by the spectacular growth of productivity (in the long term); also the need of the emerging and underdeveloped countries to export part of their output, often from the production sector, to finance investments they sorely require if they are not be left out of the race for failing to reach the levels of competitiveness demanded by economic globalization.

Even so, as pointed at the beginning of this text, it would be a mistake not to differentiate between integration and free trade processes. Current experiences reveal that the former processes go beyond the sphere of trade, and even the economic sphere, to set themselves political and social objectives that are not present, with those same characteristics, in free trade agreements. Free trade agreements are generally restricted to the sphere of trade and investment guarantees (although some agreements do have a labour “component”). The FTAA could become an intermediate course between the two processes in the American region. However, as pointed out throughout the text, the negotiation process underway and the structure of the negotiations give no indication that a Free Trade Area of the Americas will move in that direction.

The debate over whether economic integration and free trade should be linked to the observance of certain labour standards (to avoid labour overexploitation-generated dumping) is also of long standing, having originated in the nineteenth century (although certain evidence of earlier labour conflicts can be found). The creation of the International Labour Organization in 1919 settled the debate to some degree, at least in the political sphere, when the preamble to its Constitution established the following; “the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries.” Subsequently, particularly as of the sixties with the consolidation of the European Economic Community, most integration agreements and even some free trade agreements began to consider establishing a non-binding link between trade and labour standards. In the case of the American region, some of the FTAs studied in previous chapters do create a link between trade and labour standards by providing for economic sanctions to be invoked for a country that ceases to apply its national legislation on fundamental rights at work and other matters in order to obtain trade advantages.

Even though the political debate –the debate at the State level-- may have concluded, the technical (and ideological) debate continues to rage. There are those who consider that economic and free trade agreements must have a labour dimension of some kind (not only for reasons of justice and equity, but also to have a universally accepted criterion in place with which to confront issues like China’s low labour costs). At the same time, there are others for whom the only possible and authentic labour dimension consists of the employment and working conditions created as a result of economic growth –a growth resting on rising investments which, in turn, are possible only if (alleged) distortions in market operation as a result of State intervention, including the enforcement of guarantee-oriented labour legislation, are removed.

The American region has made important progress in ensuring that economic integration and free trade agreements have a labour dimension. This can be attributed largely to the consensus that has been reached on the subject and to which I referred in the last chapter.


It has been noted that above and beyond the integration and free market agreements, but within the context they have created, agreements are burgeoning between multinational enterprises and the trade union organizations operating in those enterprises in order to guarantee that certain fundamental rights of workers are respected, particularly in regard to freedom of association and of collective bargaining. These are agreements that are applied in most cases to the workers of not only the enterprise itself, but also of its subsidiaries, enterprises under subcontract and suppliers, and that are carried out within the framework of supranational guidelines promoted by institutions like the ILO and the OECD itself.

Even so, despite the positive development of labour standards in economic integration and market liberalization agreements, the great task still pending is the full and appropriate application of those standards, the ILO standards and national legislation itself. A factor working against this application is the progressively shrinking sphere of application of labour standards resulting from the aggressive “delambourising” of employment relationships referred to in a previous chapter. The reports of the ILO Committee of Experts on the Application of Conventions and Recommendations reveal just how much remains to be done to bring about this full application. This application, together with other social accomplishments, is a sine qua non for moving towards development with social justice and for giving the process of integration and of economic and information globalization, in general, the governance and social support they substantially lack.

The effects of economic integration and trade liberalization processes on employment, income, social protection and welfare in general (poverty reduction) that can be seen in the American region today vary widely. The general trend noted in the region over the past five years, however, is one of setbacks in many fields (employment and poverty), stagnation in others (social protection) and a slight improvement in another (income among a certain sector of employed workers). Quite obviously, integration is not responsible for this setback and market opening of itself cannot be blamed. It was the very process of opening, combined with the situation that existed in each country at the time of economic opening, that helped transmit external economic crises, as well as crises generated in the countries themselves, to the region’s countries. The most recent examples of the easy internalising of external crises are to be found, first, in the impact on Latin America of the 1997 Southeast Asian crisis and, more recently, the effects of Argentina’s crisis on the Uruguayan financial system.

One aspect of the link between labour standards, investment, growth and development that should not be overlooked, despite the fact that empirical evidence on this point is not conclusive, is that there are sufficient indications to believe that trade development helps enhance the quality of labour in both Northern and Southern countries. It can also be presumed that the observance of labour standards, particularly those that regulate the exercise of fundamental rights at work, acts as an incentive to attract investments, in the degree to which that respect guarantees a social stability that helps consolidate and develop democracy and, in that way, contributes to the existence of the political and legal stability investors require.

Even though advances have been noted in giving integration processes in the American region a labour dimension, important labour issues still need to be defined in the near future. These basically boil down to the following three questions: First, do we want integration or only free trade? Second, will the FTAA have a formally agreed “labour dimension” and, if so, what will it be like? Assuming that a labour dimension will be built into the FTAA, the possible alternatives are, on the one hand, a regional adaptation of the model followed in the Free Trade Agreements between the United States and Chile or Central America and, on the other, the MERCOSUR model or the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up model.


A South American FTAA as a prior step to a hemispheric FTAA does not look very likely at the moment; we will have to wait and see how the various FTAA negotiating strategies evolve. This does not mean that a South American free trade area cannot be created as the FTAA negotiations move ahead. In fact, this could happen if the current negotiations of a free trade area between MERCOSUR and the CAN prosper, inasmuch as Chile, which belongs to neither of the two groups, has free trade agreements signed with both.

In any case, no matter what direction the negotiation process of the FTAA takes, it would appear to all intents and purposes that a socio-labour dimension will be built into the Agreement. The doubt remains, as I have already mentioned throughout this text, over how this dimension will be developed and the scope it will be given.

To conclude, is it possible to add more space for the participation of social actors in the economic, trade, social and labour negotiations conducted inside the various integration agreements, and how can this be done? More transparent negotiation processes, more active participation by social actors in those processes, development of a labour dimension in economic integration and trade liberalization processes and comprehensive application of the socio-labour agreements that are reached are the requirements that must be met if society as a whole is to embrace those processes as their own. Only in that way will these processes be viewed as positive and important for development, welfare, and social justice.



ANNEXES


Working paper N

o. 45 87

Key Agreements between multinational enterprises and trade unions

MNE Year ITUF Contents of the Agreement ILO Convention

and recommendations

(Nos)

Dispute settlement mechanism Supervisory machinery

Enterprise restructuring provisions Sphere of application

1-ACCOR 1995 IUF 87/98/135 If problems arise during the agreement’s start-up or over its interpretation: joint examination, but no special panel has been formed for that purpose

No machinery is provided for

No Applicable to subsidiaries

2-DANONE 2 in 1989 1 in 1992 2 in 1994 1 in 1997 1 in 2001

IUF 87/98/135 Informative and advisory committee: joint panel


1997 Agreement: Trade union must first be consulted about restructuring plans and may submit counterproposals

Not mentioned

3- IKEA 1998 : Agreement on a code of conduct that was negoti-ated and revised in 2001: applicable to suppliers

IFBWW 87/98/135 Supervisory committee: a joint panel that meets twice a year. It examines sup-pliers’ observance of the code of conduct


No The 1998 Agreement made it possible to jointly prepare a code of conduct applicable to suppliers

4- STATOIL 1998 in 2001 ICEM 87/98 Annual joint meeting No machinery is provided for

No Applicable to subsidiaries and enterprises under subcontract

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5-FABER- CASTELL

1999 agreement on a code of conduct

IFBWW 87/98/135 A joint panel meets once a month to supervise the agreement’s application by subsidiaries, enterprises under subcontract and suppliers.


No The code of conduct is applied to subsidiaries, enterprises under subcontract and suppliers

6-FREUD-ENBERG

2000 revised in 2002

ICEM 87/98 Annual joint meeting.

The parties will meet immediately if a dispute breaks out or the agreement is violated.


7-HOCHTIEF 2000 agreement on a social charter

IFBWW Reference to the ILO Conventions

There is no joint panel. Trade unions can report violations of the agreement to the enterprise’s administrative council

No No The code of conduct is applied to enterprises under subcontract and all enterprises associated with HOCHTIEF

8-CARREFOUR

2001 UNI 87/98/135 The trade union supervises the agreement’s application in the different areas of the enterprise.

No No Applicable to suppliers

9-CHIQUITA 2001 IUF 87/98/135 A joint panel that also includes enterprises under subcontract meets twice a year to supervise the agreement’s application.

If a dispute breaks out, the parties can orga-nize a meeting with representatives of the local trade union and management

No Applicable to enterprises under subcontract, commercial partners and other persons under contract to the enterprise

Working paper N

o. 45 89

10-OTE TELECOM

2001 UNI 87/98/135 Joint annual meeting

A joint supervisory panel will be formed if difficulties arise over the agreement’s inter pretation and applica-tion

A special meeting is held if un-foreseen events could affect the workers’ situation.

Applicable to enterprises under subcontract, commercial partners and suppliers

11- SKANSKA

2001 IFBWW 87/98/135 A joint panel supervises the agreement’s application. A visit to certain work-places is organized at least once a year.

If violations of the agreement’s application cannot be resolved at the work-place, they will be studied by a joint panel. If the disagree-ment persists, a joint arbitration panel will be formed

No Applicable to all subsidiaries and enterprises under subcontract

12-TELEFO-NICA

2001 code of conduct negotiated

UNI 87/98/135 A joint meeting is held once a year.

No No Applicable to all subsidiaries

13-MERLONI 2002 IMF 87/98/135 The national joint panel created in each group enterprise will be responsible for supervising the agreement


No Applicable to subsidiaries and suppliers. A sanction will be imposed for any violation of the agreement by suppliers, and may even result in the contract’s annulment.

14-ENDESA 2000 updated in 2002 ICEM 87/98 Annual joint meeting (2000 agreement) plus a three-party meeting every 6 months with the participation of a headquarters representative.



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15-BALLAST NEDAM

2002 IFBWW 87/98 Annual joint meeting No machinery is provided for

No Applicable to subsidiaries and commercial partners

16-FONTERRA 2002 IUF 87/98/135 A supervisory joint panel meets once a year.

A special meeting may be organized at the re-quest of one of the parties if the agreement is seriously or systematically violated

The trade union will inform affected workers about the reasons for the readjustments and the conditions of the reorganization. Trade unions will be consulted about the consequences of eliminating jobs

Applicable to commercial partners

17- VOLKSWAGEN 2002 Agreement negotiated in the form of a «declaration on social rights and labour relations»

IMF 87/98 The world enterprise committee and representatives of management supervise the agreement’s application


No Applicable to suppliers and to commercial partners

18-NORSKE SKOG 2002 ICEM 87/98/135 A joint meeting is held annually to gauge the effectiveness of the agreement’s application and impact. There is also a joint supervisory mechanism at the local level.

Both local management and head-quarters should be informed of any com-plaint or violation of the agreement

No Applicable to enterprises under subcontract and commercial partners

Working paper N

o. 45 91

19-ANGLO-GOLD 2002 ICEM 87/98 Annual joint meeting. A subcommittee will

study any violations that cannot be resolved at the local or national level

No Not mentioned

20-DAIMLER CHRYSLER

2002

IMF 87/98 There are no joint supervisory mechanisms. Trade union leaders in each unit are responsible for the agreement’s application.


No Applicable to suppliers

21-ENI 2002 ICEM 87/98/135 Annual joint meeting Parties will take immediate measures if the agreement is violated and the enter-prise will step in and inform the trade unions about the situation

No Applicable to commercial partners

22- ISS 2003 UNI 87/98/135/100/111 Joint supervision of the agreement’s application.

If a disagreement arises over the agreement’s interpretation, the matter will be studied jointly and the parties will make common recommendations.

No Applicable to suppliers

23- LEONI 2003 IMF Auto/elec-tric

87/98 and recognition of non-

discrimination

The agreement will be supervised following the annual meetings of the Labour Council of the European Union


No Encourages commercial partners to respect the agreement

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DISPUTE SETTLEMENT AGREEMENTS SIGNED 24- DEL MONTE 2000 IUF Recognition of

freedom of association and the right to collective bargaining

-------------------

The agreement offers a framework in which to undertake dispute settlement negotiations

Reinstatement of dismissed workers

---------------

25-INTER-BREW

2002

IUF Guarantee of freedom of association and the right to collective bargaining

A joint panel should meet to establish future conditions of employment and reclassification and strike procedures.

The agreement provided for ending the strike

Reinstatement of dismissed workers. Any discrimination between strikers and non-strikers is invalid.

---------------

AGREEMENTS ESTABLISHED BETWEEN ITUs AND INTERNATIONAL EMPLOYERS’ ORGANIZATIONS 26-INTER-NATIONAL MARITIME EMPLOYERS’ COMMITTEE

2001 Two global agreements have been signed

ITF 87/98 The contents of the agreement are reviewed annually by a joint panel. Any proposed amendments are incorporated into a “special agreement.”

If the agreement is violated, the trade unions will take all necessary steps to ensure that its application is reestablished.

This agreement is officially applicable to all seamen, irrespective of their employment status and their labour contract.

Source: Terry R. Les accords-cadres internationaux : un succès qui se propage. ILO (unpublished)

Workging paper N

o. 45 93

Basic data about the world of work in Latin America and the Caribbean

LATIN AMERICA AND THE CARIBBEAN: OPEN URBAN UNEMPLOYMENT. 1985-2003 a/

(in average annual rates)

Country 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 2003 Third trimester Argentina b/ 6.1 6.1 5.9 7.0 9.3 12.2 16.4 17.3 14.9 12.9 14.3 15.1 17.4 19.7 21.5 15.6 n/ Bolivia b/ 5.7 7.2 5.9 5.5 5.9 3.1 3.6 4.0 4.3 4.1 7.2 7.5 8.5 8.7 … … Brazil (old series) c/ 5.3 4.3 4.8 4.9 5.4 5.1 4.6 5.4 5.7 7.6 7.8 7.1 6.2 7.1 Brazil (new series) c/ 11.3 11.7 12.0 12.4 o/ Chile d/ 17.0 7.4 7.1 6.2 6.4 7.8 6.6 5.4 5.3 6.4 9.8 9.2 9.1 9.0 9.3 8.9 o/ Colombia e/ 13.8 10.5 10.2 10.2 8.6 8.9 8.8 11.2 12.4 15.2 19.4 20.2 16.9 16.2 16.8 16.3 o/ Costa Rica b/ 7.2 5.4 6.0 4.3 4.0 4.3 5.2 6.2 5.7 5.6 6.0 5.2 6.1 6.8 6.8 6.7 p/ Dominican 6.3 6.7 o/ Republic j/ … … 19.6 20.3 19.9 16.0 15.8 16.5 15.9 14.3 13.8 13.9 15.4 17.2 … … Ecuador f/ El Salvador b/ Honduras b/ 11.7 6.9 7.1 5.1 5.6 4.0 6.6 6.6 5.2 5.8 5.2 … 6.3 5.9 … … Mexico g/ 4.4 2.8 2.7 2.8 3.4 3.7 6.2 5.5 3.7 3.2 2.5 2.2 2.4 2.7 2.8 3.2 o/ Nicaragua b/ 3.2 7.6 … 14.4 17.8 17.1 16.9 16.0 14.3 13.2 10.7 9.8 11.3 12.1 … … Panama b/ 15.7 20.0 20.0 18.2 15.6 15.8 16.4 16.9 15.4 15.6 13.6 15.3 17.0 16.4 16.5 15.6 q/ Paraguay h/ 5.1 6.6 5.1 5.3 5.1 4.4 5.3 8.2 7.1 6.6 9.4 10.0 10.8 14.7 … … Peru i/ 10.1 8.3 5.9 9.4 9.9 8.8 7.9 7.9 8.4 8.2 8.3 7.0 9.2 9.4 9.7 9.4 o/ Uruguay b/ 13.1 9.2 8.9 9.0 8.4 9.2 10.8 12.3 11.6 10.2 11.8 13.6 15.3 17.0 16.5 17.4 o/ Venezuela b/ 14.3 11.0 10.1 8.1 6.8 8.9 10.3 11.8 11.4 11.3 14.9 13.9 13.5 15.9 15.7 18.9 o/

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America k/ 9.5 8.1 8.5 8.6 8.8 8.5 9.2 9.8 9.3 9.1 10.1 10.4 10.6 11.3 12.2 11.9 l/ 8.3 5.7 5.6 5.7 6.3 6.6 7.4 7.9 7.5 8.1 8.9 8.5 10.3 10.8 11.2 11.0 The Caribbean m/ Barbados 18.7 15.0 17.3 23.0 24.3 21.9 19.7 15.6 14.5 12.3 10.4 9.2 9.9 10.3 … … r/ Jamaica 25.0 15.3 15.7 15.4 16.3 15.4 16.2 16.0 16.5 15.5 15.7 15.5 15.0 15.1 … … r/ Trinidad and Tobago 15.7 20.0 18.5 19.6 19.8 18.4 17.2 16.2 15.0 14.2 13.1 12.1 10.8 10.4 … … s/ Source: Prepared by the ILO using data taken from the countries’ Household Surveys. a/ Annual averages are used for the period 1985-2002. l/ Weighted average. Calculated on the basis of Brazil’s new average as of 2001.

The universe was modified to take in thirteen metropolitan areas as of 2000.

b/

Open national urban unemployment. m/

Not included in the average, for the methodology used in the Caribbean countries to measure open unemployment is different from that used in other countries of the region.

c/ Six metropolitan regions. New series as of 2001. d/ Country total. n/ First half.

e/ Annual average for seven metropolitan areas from 1985 to 1999. o/ Average of the first three quarters.

f/ Country total up to 1997. As of 1998 only Quito, p/ Corresponds to July. Guayaquil and Cuenca are included. q/ Corresponds to August. g/ 39 urban areas. r/ Second quarter. h/ Asuncion. s/ First quarter. j/ Includes disguised unemployment. k/ Simple average. Calculated on the basis of Brazil’s new series as of 2001.


Latin America: Labour Market Segmentation

Countries/Years Informal Sector Formal Sector

Total

Self employed

Domestic Service Micro- Total

Public Sector

Small, medium and

a/ enterprises b/

large private

enterprises c/ Latin America 1990 Total 42.8 22.2 5.8 14.7 57.2 15.5 41.7 1995 Total 46.1 24.0 7.4 14.8 53.9 13.5 40.4 2000 Total 46.9 24.6 6.7 15.6 53.1 13.3 39.7 2002 Total 46.5 23.9 6.8 15.8 53.5 13.9 39.7 Argentina 1991 Total 52.0 27.5 5.7 18.8 48.0 19.3 28.7 1998 Total 49.3 22.7 6.4 20.3 50.7 12.7 38.0 2002 Total 44.5 20.6 5.2 18.6 55.5 22.8 32.8 Brazil 1990 Total 40.6 20.3 6.9 13.5 59.4 11.0 48.4 1995 Total 46.5 23.8 9.5 13.2 53.5 15.1 38.4 1999 Total 47.1 24.0 9.4 13.7 52.9 14.2 38.8 2001 Total 46.0 22.3 9.5 14.3 54.0 13.7 40.3 Chile 1990 Total 37.9 20.9 5.4 11.7 62.1 7.0 55.1 1996 Total 38.8 18.9 7.1 12.8 61.2 11.8 49.4 2000 Total 38.0 19.7 5.9 12.5 62.0 10.8 51.2 Colombia 1990 Total 45.7 24.1 2.0 19.5 54.3 9.6 44.7 2000 Total 55.6 32.2 5.3 18.1 44.4 7.0 37.3 Costa Rica 1990 Total 41.2 18.9 5.8 16.4 58.8 22.0 36.8 1995 Total 43.3 18.5 5.0 19.7 56.7 17.4 39.3 2000 Total 45.2 19.7 6.0 19.5 54.8 16.4 38.5 2002 Total 44.8 19.2 5.1 20.5 55.2 15.9 39.3 Ecuador 1990 Total 55.6 35.4 5.0 15.3 44.4 18.7 25.7 1995 Total 63.7 33.6 5.2 25.0 36.3 14.2 22.0 2000 Total 51.6 31.0 5.3 15.3 48.4 17.6 30.7 2002 Total 55.0 33.5 5.1 16.5 45.0 12.7 32.3 El Salvador 2002 Total 51.8 32.0 5.3 14.5 48.2 10.3 36.6


Honduras 1990 Total 57.6 37.3 7.1 13.3 42.4 14.9 27.5 1995 Total 57.1 35.5 5.6 16.0 42.9 12.6 30.2 1999 Total 60.7 39.6 5.5 15.6 39.3 10.1 29.2 2002 Total 65.1 37.3 4.2 23.5 34.9 9.2 25.7 Mexico 1990 Total 38.4 19.0 4.6 14.8 61.6 19.4 42.3 1995 Total 43.2 20.9 5.3 17.0 56.8 16.1 40.7 2000 Total 39.2 18.3 3.7 17.2 60.8 14.5 46.4 2002 Total 41.0 19.5 4.3 17.3 59.0 14.0 45.0 Nicaragua 2002 Total 54.4 31.9 0.0 22.5 45.6 12.8 32.8 Panama 1991 Total 36.0 19.8 7.9 8.3 64.0 32.0 32.0 1995 Total 37.1 20.5 7.6 9.0 62.9 25.9 37.0 2000 Total 37.3 22.2 6.8 8.3 62.7 21.8 40.9 2002 Total 42.6 24.4 7.1 11.1 57.4 20.4 37.0 Paraguay 1999 Total 58.1 27.7 9.6 20.7 41.9 12.3 29.6 2002 Total 60.9 30.9 10.6 19.4 39.1 13.2 25.9 Peru d/ 1991 Total 52.7 33.4 4.9 14.5 47.3 11.6 35.7 1995 Total 55.1 33.0 4.8 17.3 44.9 9.3 35.6 2000 Total 59.2 36.4 5.4 17.4 40.8 7.8 33.0 2002 Total 56.2 36.5 5.4 14.3 43.8 9.1 34.7 Uruguay e/ 1990 Total 39.1 18.6 6.8 13.7 60.9 20.1 40.8 1995 Total 43.3 21.9 7.4 13.9 56.7 20.0 36.7 1999 Total 43.1 22.5 7.5 13.1 56.9 17.1 39.8 2001 Total 42.2 21.3 7.5 13.4 57.8 17.2 40.6 Venezuela 1990 Total 38.6 22.3 3.9 12.4 61.4 22.3 39.1 1995 Total 44.5 28.1 2.4 14.0 55.5 19.9 35.7 2000 Total 50.6 34.5 2.3 13.8 49.4 16.1 33.3 2001 Total 52.4 32.2 2.9 17.3 47.6 15.2 32.4 Source: ILO estimates based on data taken from the Household Survey and other official sources (revised series). a/ Includes self employed (except for administrative, professional and technical personnel) and family workers. b/ Employed in establishments with up to 5 workers. c/ Includes enterprises with 6 or more workers. d/ Corresponds to Metropolitan Lima. e/ Corresponds to Montevideo.

Working paper N

o. 45 97

Latin America: Real wages in industry, 1990-2003 a/ (Index 1990 = 100)

Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 2003 Argentina 100 101.4 102.6 101.0 98.9 97.7 98.2 94.5 94.0 94.5 95.8 94.4 76.1 -17.8 -14.1 Barbados 100 92.9 89.9 90.9 88.9 87.9 99.7 102.2 … … … … … … … Bolivia 100 99.1 100.1 101.5 110.5 108.8 109.1 117.7 120.5 127.7 130.3 132.5 139.3 4.3 … Brazil 100 94.0 101.7 112.4 117.3 128.4 132.8 137.4 140.3 135.3 133.2 135.1 131.6 -1.9 -5.9 Chile 100 106.7 111.7 115.7 121.5 128.5 132.9 138.8 142.0 143.7 144.2 144.8 146.6 1.1 0.3 Colombia 100 99.4 100.7 105.4 106.3 107.7 109.1 112.3 112.5 114.3 118.6 119.1 122.2 1.7 -0.5 Costa Rica 100 96.7 97.3 112.1 114.6 112.0 110.2 115.0 119.1 124.3 137.0 137.2 … … … Ecuador 100 104.6 113.5 127.7 139.0 152.9 161.2 157.5 151.2 138.7 132.1 134.7 161.0 15.4 -5.2 Honduras 100 98.0 112.7 143.6 108.9 100.7 93.9 96.5 99.7 119.5 … … … … … Mexico 100 103.9 113.4 116.7 119.9 101.1 92.6 94.4 97.7 100.9 107.9 114.0 117.1 2.3 1.4 Panama … 100.0 109.0 107.3 106.7 101.9 112.8 109.6 116.5 121.5 138.3 139.5 … … … Paraguay 100 95.4 91.6 91.5 93.3 98.5 99.1 98.9 99.2 95.3 98.7 112.9 102.8 -7.1 -1.9 Peru 100 118.2 113.6 111.0 131.4 126.4 123.2 122.9 125.1 122.5 123.2 126.1 126.8 0.5 5.9 Uruguay 100 104.5 106.0 111.7 110.9 104.2 103.0 102.6 103.6 103.5 102.2 100.4 89.0 -10.3 -14.0 Venezuela 100 91.4 87.1 82.2 85.8 80.7 68.1 85.5 90.1 81.5 82.8 84.7 75.9 -9.3 -19.8 Average b/ 100 100.4 103.4 108.7 110.2 109.2 109.7 112.4 115.1 115.9 118.8 121.2 117.1 -1.9 -5.4 c/ 100 97.9 103.5 109.3 112.7 114.0 113.9 117.3 119.5 117.3 118.4 121.3 118.3 -2.6 -4.8 Source: ILO, on the basis of official national data. a/ Annual series are given for the period 1990-2002. b/ Simple average. Honduras and Barbados are not included. c/ Weighted average. Honduras and Barbados are not included. d/ Corresponds to the annualised growth rate for the first three quarters. e/ January-June average.

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Latin America: Urban real minimum wages, 1990-2003 a/ (Index 1990 = 100)

Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 2003 Argentina b/ 100 131.8 112.8 174.4 202.0 195.5 195.2 194.2 192.4 194.7 196.6 198.7 160.0 -16.4 0.3 Bolivia b/ 100 163.4 164.0 178.9 196.9 193.2 185.8 191.0 222.6 232.4 246.5 273.4 291.2 6.9 -0.8 Brazil b/ 100 117.0 102.0 115.3 109.7 121.1 120.5 124.3 128.5 130.4 134.0 148.8 155.3 5.7 1.0 Chile b/ 100 109.0 113.8 119.4 123.9 129.3 134.6 139.4 147.7 160.9 172.5 179.1 184.3 3.1 0.9 Colombia b/ 100 97.9 96.3 98.9 97.2 96.9 95.1 97.1 97.0 101.4 102.1 104.0 105.7 1.7 0.1 Costa Rica c/ 100 96.9 98.6 102.7 105.8 102.1 101.9 105.9 109.9 112.2 111.5 112.2 112.6 1.1 0.5 Ecuador b/ 100 91.2 97.3 111.5 121.2 146.0 154.3 149.0 138.0 130.0 118.0 121.1 119.0 -3.9 -3.9 El Salvador c/ 100 102.1 86.1 105.9 110.0 108.6 103.5 99.0 102.3 104.8 102.6 98.8 97.0 -1.7 0.5 Guatemala c/ ... 100.0 103.9 91.6 90.1 103.6 102.7 94.0 98.7 102.4 107.1 115.6 116.0 -0.6 -0.6 Haiti b/ 100 93.8 78.0 60.1 43.2 81.2 67.3 57.9 51.4 47.3 41.7 43.0 … … … Honduras c/ 100 102.0 122.2 123.2 101.1 97.9 101.8 100.5 101.4 98.8 102.2 104.7 109.8 -0.9 6.6 Mexico b/ 100 94.3 91.2 90.0 89.8 79.3 72.2 71.4 71.8 69.4 69.8 70.1 70.6 0.8 -0.3 Panama c/ 100 98.7 97.1 108.9 107.5 107.3 112.1 110.8 113.7 117.5 118.9 123.0 121.7 -0.9 -0.8 Paraguay b/ 100 95.2 86.8 83.4 85.7 85.4 87.2 91.9 90.7 86.5 90.3 93.5 93.1 0.1 3.4 Peru b/ 100 69.6 72.9 56.7 67.1 68.7 71.0 127.6 145.5 140.7 156.2 158.4 158.1 0.2 -1.9 Dominican Republic b/ 100 116.5 137.5 130.6 139.0 139.7 140.5 142.5 148.5 155.7 155.6 157.1 … … … Uruguay b/ 100 91.5 87.3 74.9 66.9 62.4 60.3 59.0 61.4 61.7 60.6 59.8 53.7 -7.4 -15.0 Venezuela b/ 100 111.4 127.2 92.0 95.5 97.3 83.5 73.9 76.1 76.4 78.8 78.1 75.9 -1.0 -15.9 Average d/ 100 104.6 104.2 106.6 108.5 112.0 110.5 112.7 116.5 118.0 120.3 124.4 123.6 -0.8 -1.6 Source: ILO, on the basis of official national data. e/ Corresponds to the annualised growth rate for the first three quarters. a/ Annual series are given for the period 1990-2002. f/ Wages were unified and dollarised as of April 2000. b/ National minimum wage. c/ Lowest minimum wage in industry. g/ Variation in the January-June average. d/ Simple average.


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No. 3 Globalization and decent work: Options for Panama, Philippe Egger No. 4 Globalización y trabajo decente: Opciones para Panamá, Philippe Egger No. 5 Indicators of social dialogue: Concepts and measurements,

Lane Kenworthy and Bernhard Kittel No. 6 Assessing the impact of the attacks of 11 September 2001 on women’s employment in the United States, Gertrude Schaffner Goldberg and Helen Lachs Ginsburg No. 7 Decent work and the informal economy in Central America,

Juan Diego Trejos Solórzano and Miguel Del Cid No. 8 Poverty initiatives in the ILO: A review of past and present approaches, Pat Holden and Dagmar Walter No. 9 Whither the International Standard Classification of Occupations (ISCO-88)?, Debbie Budlender No. 10 Improving occupational classifications as tools for describing labour markets:

A summary of recent national experiences, Debbie Budlender No. 11 Recent developments in China’s labour economy, Thomas G. Rawski No. 12 The Impact of economic liberalization on employment and wages in India,

Sonia Bhalotra No. 13 The impact of trade liberalization upon inequality in developing countries, Donald J. Robbins No. 14 The impact of liberalization and globalization on income inequality in developing and transitional economies, Giovanni Andrea Cornia No. 15 The impact of technology transfer on employment and income distribution in

developing countries: A survey of theoretical models and empirical studies, Mariacristina Piva


Policy Integration Department Working Papers prepared for the World Commission on the Social Dimension of Globalization No. 16 International finance: Meeting the needs of people in developing countries,

José Guilherme Almeida dos Reis

No. 17 The gender dimensions of globalization of production, Stephanie Barrientos, Naila Kabeer and Naomi Hossain

No. 18 Social exclusion in the context of globalization, Jan Breman

No. 19 Gender and globalization: A macroeconomic perspective, Çağatay Nilüfer and Ertük Korkurt

No. 20 Globalization, social exclusion, and work: with special reference to informal employment and gender, Marilyn Carr and Martha Chen

No. 21 Resources for social development, Antony Clunies Ross

No. 22 Does the new international trade regime leave room for industrialization policies in the middle-income countries?, Alisa DiCaprio and Alice Amsden

No. 23 Social dimension of globalization in Latin America: Lessons from Bolivia and Chile, Alvaro García Hurtado

No. 24 The social dimension of globalization: a review of the literature, Bernhard Gunter and Rolph van der Hoeven

No. 25 The social dimension of global production systems, Susan Hayter

No. 26 Reforming global economic and social governance: a critical review of recent programmatic thinking, Jeremy Heimans

No. 27 Corporate social responsibility: an issues paper, Michael Hopkins

No. 28 Upgrading in global value chains, John Humphrey

No. 29 Implications of globalization and economic restructuring for skills development in Sub-Saharan Africa, Richard K. Johanson

No. 30 The outcome and impact of the main international commissions on development issues, Frédéric Lapeyre

No. 31 Globalization and structural adjustment as a development tool, Frédéric Lapeyre

No. 32 Globalization and perceptions of social inequality, Malte Luebker

No. 33 The changing structure of international trade linked to global production systems: what are the policy implications?, William Milberg

No. 34 Corporate social responsibility: an overview of principles and practice, Jill Murray

No. 35 Inclusive development strategy in an era of globalization, Ignacy Sachs

No. 36 Social consequences of the globalization of the media and communication sector: some strategic considerations, Seán Ó. Siochrú

No. 37 Globalization, history and international migration: a view from Latin America, Andrés Solimano

No. 38 Towards a different kind of globalization, or how the anti-globalists view the world, Gijsbert van Liemt


Policy Integration Department Working Papers No. 39 How do trade union rights affect trade competitiveness? David Kucera and Ritash Sarna No. 40 Statistics on the employment situation of people with disabilities: A compendium

of national methodologies ILO Bureau of Statistics in collaboration with the In Focus Programme on Skills, Knowledge and Employability

No. 41 Employment in the informal economy in the Republic of Moldova ILO Bureau of Statistics in collaboration with the Department for Statistics and

Sociology of the Republic of Moldova No. 42 Decent work in a least developed country: A critical assessment of the Ethiopia

PRSP, Graeme J. Buckley No. 43 Unemployment and Labour Market Institutions: The Failure of the Empirical Case for Deregulation,

Dean Baker, Andrew Glyn, David Howell and John Schmitt No. 44 Women's access to occupations with authority, influence and decision-making

power: Women as legislators, senior officials and managers around the world, Richard Anker.

No. 45 The world of work in the context of economic integration and trade liberalization,

Daniel Martínez

Documents

The world of work in the context of economic integration and trade