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CHAPTER 6:
LABOUR MARKET ADJUSTMENT AND STANDARDS
The question to us is not whether or not we should trade, but how to
do it so that it leads to a prosperous and democratic region in which all
citizens share in the benefits of economic growth and development. That's
the key to the whole thing. [Dick Martin, 26:1610]
Trade liberalization undeniably generates economic benefits; however,
these benefits are not distributed equally. Some interests gain while others
lose. Nowhere is this more obvious than in the impact of trade on the labour
market. This Chapter discusses the impact of trade liberalization on workers,
especially in terms of structural unemployment. It also addresses concerns
voiced by several witnesses pertaining to trade liberalization and its
potential for diluting the quality of labour standards enjoyed in this
country.
Labour Market Adjustment
The economic benefits of trade are becoming increasingly familiar to
Canadians. National income is enhanced when countries specialize in the
production of the tradable goods and services that they find relatively
least costly to produce, while importing the goods and services that are
relatively more expensive to produce. Such specialization also permits
the firms of these countries to exploit economies of scale, something that
is particularly important to a country like Canada, where the domestic
market is small. Trade liberalization also attracts new investment and
this, too, creates jobs. The Canadian economy has become increasingly dependent
on international trade, which now accounts for almost two-fifths of gross
domestic product (GDP), and, in 1998, Canada was the most trade-oriented
of the G7 countries. As noted elsewhere in this Report, approximately one-third
of all jobs in Canada depend on exports. In addition, it is estimated that
11,000 jobs are either sustained or created for every $1 billion in new
exports.1
The Departments of Industry Canada and Foreign Affairs and International
Trade estimate that, over a five-year period, an increase of $1 billion
in new investment in Canada from abroad creates up to 45,000 jobs and increases
GDP by some $4.5 billion. It is also thought that foreign direct investment
is the impetus for one job in ten and approximately 50% of Canada's total
exports.2
While trade is undeniably vital to this country's economy and its labour
market, a Free Trade Area of the Americas (FTAA) would in all likelihood
have a small impact on employment in Canada; the volume of two-way trade
between Canada and non-NAFTA countries of the Western Hemisphere was less
than 2% of total Canadian two-way trade in 1997.3
The situation is much like that prior to Canada's improved access to the
Mexican market under the North American Free Trade Agreement (NAFTA). Trade
liberalization with Mexico was expected to increase Canadian GDP only marginally;4
hence, the impact on employment was also expected to be quite small.
Though expected to have a relatively neutral impact on the level of
employment in Canada, trade liberalization in the Western Hemisphere would
very likely lead to a sectoral redistribution of jobs. In this context,
jobs are expected to increase in expanding export sectors, while some jobs
in the import-competing sectors of the economy will likely disappear. As
indicated in Chapter 4, one attempt to estimate the impact of extending
the NAFTA to include Argentina, Brazil, Chile and Colombia claimed that
Canada could expect to witness a small increase in total output in 10 of
the 23 tradable sectors examined, with the greatest growth predicted for
electrical machinery, non-ferrous metals and miscellaneous manufacturing.
An almost equal number of sectors were predicted to see decreases in output,
with the most significant being in textiles and paper products. While employment
effects were not directly estimated in this study, we can expect to witness
a small redistribution of jobs as resources shift from the contracting
to the expanding sectors. Consider the following perspective on the effects
of the NAFTA on Canada's manufacturing sector:
I want to point out that during the late 1980s, leading up to the free
trade agreement with the United States and then with NAFTA, there were
a lot of critics of the agreement who said that Canadian manufacturing,
the forefront in terms of competition here, would be out of business, that
many sectors of manufacturing would be wiped out. The reality is that manufacturing
production is $150 billion higher today than it was in 1989. There are
100,000 more people employed in manufacturing than in 1989. The unemployment
rate in manufacturing is 5%, as opposed to 8% or 7.5% for the economy as
a whole. The sectors that we thought were going to be wiped out, like furniture
and wine, are actually the fastest-growing sectors in percentage terms
in Canadian industry. I'm not saying that didn't happen without a lot of
hard choices and a lot of restructuring - that's perfectly true - but it
has been restructuring to go into higher-value products, and that's what
is giving manufacturing the boost today. [Jayson Myers, 28:1705]
An FTAA could also serve to keep export-related jobs in Canada by minimizing
trade-related incentives to relocate elsewhere in the Western Hemisphere.
As one witness said:
We are manufacturers of activewear, predominantly T-shirts, sweatshirts,
and golf shirts, and we are the fastest growing company in North America.
The reason we've been very successful is because of access to the Caribbean
and Central America by participating in the American bilateral agreement,
known as the Caribbean Basin Initiative, that is their law 807 ... The
bad news is that to participate in that bilateral agreement ... we've really
had to move manufacturing facilities from Canada to the United States in
order to be onside with their legislation. [Greg Chamandy, 31:1625]
As the demand for labour shifts towards export-oriented production,
trade liberalization can also be expected to affect workers' earnings.
In this regard, increased demand for labour and potential increases in
productivity could result in higher wages in growing export sectors of
the economy, but lower wages in declining import-competing sectors. Consequently,
as trade liberalization permits developing countries to make greater use
of their low-skilled workforces, the demand for similarly skilled workers
in developed countries may experience job losses, lower wages or both.
Some attribute the growing gap between the wages of low- and high-skilled
workers in many developed countries to increased trade with less developed
countries and the prospect of an FTAA has raised this concern. Empirical
evidence, however, seems to support the view that growing wage differentials
between low- and high-skilled workers in many developed countries are predominantly
the result of factors other than trade. A number of studies suggest that
80% to 90% of the changes in wages and income distribution observed of
late in Organization for Economic Co-operation and Development (OECD) countries
is attributed to factors other than trade with developing countries (i.e.
the high skills bias inherent in technological change).5
[W]e are pursuing not just the question of the trade in goods and services;
we are pursuing them with specific economic outcomes that relate to issues
of employment and increased income. So it is against those outcomes ...
that we also have to assess our economic policies. [Gauri Screenivasan,
27:1655]
The Committee maintains that the benefits of trade liberalization under
an FTAA must be shared. When workers are displaced as resources move from
contracting to expanding sectors of the economy, governments have the responsibility
to help them secure new jobs. This assistance is thought to be particularly
necessary for older displaced workers, whose skills may be redundant and
who, in the absence of help, face long periods of joblessness.
Labour Standards
Concern was also expressed during our hearings about the impact of an
FTAA on Canadian labour standards. Some witnesses believe that an FTAA
would provide an opportunity for governments in the Western Hemisphere
to commit themselves to a stronger protection of fundamental human rights,
some of which are manifest in basic labour standards. This view is based
in part on the concern that, in the absence of a requirement to adopt minimum
labour standards, high-standard countries like Canada will lower their
labour standards in order to remain competitive. Implicit in this view
is the assumption that firms not bound by minimum labour standards enjoy
a competitive advantage over firms that are so bound. Moreover, it is believed
that the growing competitive pressures associated with trade liberalization
will serve to undermine workers' rights in countries with high labour standards.
This view underpins the "race to the bottom" scenario.
I want to point out that when we are talking about standards, we're
not saying that the wages and benefits in a Latin American country should
be what they are in Canada or the United States. We're talking about standards
such as the right to organize and the right to collective bargaining ...
That's the kind of minimum standard we want to see recognized in this trade
agreement. It's not that they should have our standards of wages, pensions,
and all that, but they should have the right politically and through collective
bargaining to negotiate what is reasonable for them. [Hon. Warren Allmand,
28:1725]
Contrary to this view, others maintain that trade liberalization provides
an opportunity for countries and their workers to enhance their economic
well-being; the wealth-creating effects of trade liberalization will result
in better working conditions and higher labour standards. The Committee
was told that the alleged "race to the bottom" is a myth unsupported
by any evidence. A recent OECD study found a positive two-way relationship
between trade liberalization and improvements in association and bargaining
rights and not a single case where association rights had deteriorated
after trade reforms.6
The Committee was also reminded that many countries with low labour
standards view the demands for these to be raised as disguised protectionism
and as tantamount to undermining their real competitive advantage, namely
low-wage labour.
Table 6.1
Fundamental ILO Labour Standards Ratified by Potential FTAA Countries
(r) denotes ratification, (*) denotes ratification process has been initiated,
(s) denotes that the Convention is being studied, (d) denotes that divergences
exist between the Convention and national legislation.
Source: International Labour Office. The information presented
in this table is current as of 23 June 1999.
At present there is no formal link between international trade and the
protection of workers' rights. The World Trade Organization (WTO) was never
intended to make this link; except in the case of prison labour, WTO rules
are devoid of any binding obligations to comply with internationally recognized
labour standards. In fact, the December 1996 WTO Ministerial Conference
identified the International Labour Office (ILO) as the competent international
body responsible for protecting fundamental workers' rights in a multilateral
trading environment. All WTO members are members of the ILO, and many of
them have ratified one or more ILO conventions dealing with the fundamental
rights of workers. Even so, there is a tremendous reluctance to permit
countries to use trade sanctions as a means of enforcing fundamental labour
standards. As stated in the WTO's Singapore Ministerial Declaration in
December 1996, "[w]e 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."
The ILO's governing body has identified seven conventions embodying
fundamental labour standards that should be extended to workers, irrespective
of a state's level of economic development. These include the Freedom of
Association and Protection of the Right to Organize Convention, 1948 (No.
87); the Right to Organize and Collective Bargaining Convention, 1949 (No.
98); the Forced Labour Convention, 1930 (No. 29); the Abolition of Forced
Labour Convention, 1957 (No. 105); the Discrimination (Employment and Occupation)
Convention, 1958 (No. 111); the Equal Remuneration Convention, 1951 (No.
100); and the Minimum Age Convention, 1973 (No. 138). These conventions
- commonly referred to as core labour standards - are regarded as the fundamental
basis of all other rights in the workplace. They were reaffirmed by the
86th International Labour Conference, at which the ILO Declaration on Fundamental
Principles and Rights at Work was adopted. This declaration obliges all
member states to respect the fundamental principles associated with the
aforementioned core labour standards, whether or not they have ratified
the relevant conventions. As shown in Table 6.1, many potential FTAA signatories
have ratified, or are in the process of ratifying, at least some of these
conventions. Eleven of these countries have ratified all seven conventions.
Canada has ratified four, and the United States has ratified one and is
in the process of ratifying another.
Despite the lack of evidence that trade liberalization may lessen the
core rights of workers, the Committee believes that it is important to
strengthen the link between core labour standards and trade. Labour standards
must be protected and improved. In keeping with the position taken in its
Report on the WTO, the Committee is reluctant to endorse a hemispheric
trade agreement to permit trade sanctions against signatories deemed to
be in violation of one or more of the ILO's core conventions. No organization
is capable of arbitrating alleged violations and, as noted in the aforementioned
report, there are several drawbacks to relying on the ILO to defend the
fundamental rights of workers in a multilateral trading environment such
as that contemplated under an FTAA. One is the lack of a basis for protecting
workers' fundamental rights in the absence of ratification, a situation
that is commonplace since only a minority of potential FTAA signatories
have ratified all seven conventions relating to core labour standards.
It is also thought that some of the core ILO conventions lack the necessary
legal precision and predictability to allow their enforcement to be linked
to trade rules. Moreover, the ILO's enforcement mechanism is clearly wanting.7
Though the Committee does not support the use of trade sanctions as
a means of ensuring that FTAA members comply with ILO core labour conventions,
it does believe that the ILO's role in protecting the fundamental rights
of workers in the Americas, and even elsewhere in the world, must be enhanced
under an FTAA. This position is consistent with the one taken in the Committee's
Report on the WTO.
As previously noted, some witnesses supported the creation of a link
between an FTAA and core labour standards. The Committee also heard a dichotomy
of views on the preferred approach for their linkage. Some opposed using
a NAFTA-like side agreement and wanted to incorporate labour standards
in an FTAA. Others endorsed the idea of a separate agreement outside of
an FTAA. The Committee believes that an ancillary agreement, such as the
North American Agreement on Labour Co-operation (NAALC), might best address
the concerns of those who fear that Canadian labour standards would diminish
with freer trade in the Americas. Such an agreement would avoid the likely
possibility of protracted negotiations by eliminating an additional layer
of complexity. More importantly, the possibility of using labour standards
to facilitate protectionism would be reduced, a position also endorsed
by the WTO. By seeking an agreement on core labour standards outside of
an FTAA, each country's sovereignty in the area of labour law would also
be assured. In the Committee's view, the primary focus of an FTAA side
agreement on labour standards should be standards related to the fundamental
rights of workers as identified by the ILO's Governing Body, although the
promotion of non-core labour standards should also be encouraged. An FTAA
supplementary accord on core labour standards should protect these rights
to the extent that they are protected under national legislation. The institutions,
enforcement provisions and dispute resolution features put in place to
achieve this goal should encourage signatories to respect and build upon
their core labour standards.8
The Committee also believes that the ILO should be an active participant
under these agreements and that the model selected must be affordable for
all FTAA signatories.
The Committee therefore recommends:
10. That the Government of Canada work to build up the presence of
the International Labour Organization in the hemispheric initiative and
continue to promote labour standards throughout the Americas.
1 http://www.dfait-maeci.gc.ca/english/trade/wto/intl-trade.htm
2 Department
of Foreign Affairs and International Trade, Opening Doors to the World:
Canada's International Market Access Priorities, 1999, July 1999, Chapter
3, p. 1.
3 International
Monetary Fund, Direction of Trade Statistics Yearbook, 1998.
4 NAFTA's
long-run impact on the size of the Canadian economy was estimated to be
less than 0.1% (see Department of Finance, The North American Free Trade
Agreement: An Economic Assessment from a Canadian Perspective, November
1992, p. 33-5).
5 World
Trade Organization, Annual Report, 1998, p. 48-9.
6 OECD,
Trade, Employment and Labour Standards, Paris, 1996, p. 112.
7 The
ILO encourages compliance through its international supervision activities.
Every five years members are obliged to supply reports on the effect given
to ratified conventions. The Committee of Experts reviews these reports.
If a government is deemed to be delinquent it is informed of the necessary
steps that should be taken to ensure full compliance. In addition, any
member state, or national or international workers' or employers' organization
may make a representation that a member state has failed to comply with
a ratified convention. These representations are reviewed by the Governing
Body, which may decide to appoint an independent Commission of Inquiry.
The Commission reports its findings and the Committee of Experts follows
up on the implementation of any recommendations. While these procedures
may persuade some member states to comply, in reality the ILO is void of
any real enforcement powers.
8 One
reason why some witnesses opposed linking trade and labour standards through
a supplementary agreement like the NAALC was the perceived ineffectual
enforcement mechanism associated with this agreement. This perception has
merit, since enforcement penalties are limited to non-enforced labour laws
dealing with health and safety, child labour and minimum wages. The majority
of submissions to date pertain to alleged violations of the right to freely
associate and organize a union. Enforcement provisions pertaining to violations
related to this key labour standard, in conjunction with the right to bargain
collectively and the right to strike, are limited to ministerial consultations,
with no further action required.