The social clause

What is a social clause?

In the context of globalization, a social clause essentially refers to a provision in a trade agreement aimed at conditioning access to a market to the respect of certain labour standards. The social clause provides for the establishment of institutional mechanisms to promote cooperation between parties and to ensure compliance with their commitments. These provisions also include a dispute resolution mechanism that could result in monetary or trade sanctions.

Social clauses are based on a set of rights, often inspired by the International Labour Organization (ILO) fundamental conventions, covering subjects that are considered as fundamental principles and rights at work: freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of worst forms of child labour; and the elimination of discrimination in respect of employment and occupation.

 

Models of social clauses

According to the ILO, social clauses linked to free trade agreements fall into two main categories: the promotional approach and the conditional approach. The conditional approach is consistent with the North American model (United States and Canada) in which non-compliance with the clause entails stronger consequences, particularly, the possibility of resorting to sanctions in order to ensure effective implementation of obligations vis-à-vis the rights of workers. The promotional approach adopted by the European Union is, by contrast, a model based on cooperation to enforce workers’ rights rather than on sanctioning mechanisms.

All social clauses include:

  1. a list of rights to be respected (often linked to a set of international instruments and conventions);
  2. a commitment to ensure the enforcement of its own labour laws with appropriate administrative measures;
  3. a mechanism for cooperation between the signatory parties;
  4. a conciliation mechanism in the event of a dispute; and
  5. a commitment to promote transparency and public participation.

 

Ways to implement a Social Clause

  • Adopting parallel agreements to a free trade agreement, for example the North American Agreement on Labour Cooperation (NAALC) associated with the North American Free Trade Agreement (NAFTA).
  • Including labour chapters directly into the trade agreement. All US Free Trade Agreements since 1999.
  • A combination of both: negotiating a parallel agreement while including a labour chapter directly in the trade agreement. Canada adopted parallel agreements until 2008, a combination of both for all trade agreements signed between 2008 and 2014, and finally, a chapter on labour in more recent trade agreements, with South Korea and the European Union.

Arguments in favour

  • By promoting better application of core labour standards, social clauses encourage the development of human capital, without which no economic growth is possible.
  • The social clause reconciles national interests in trade and labour.
  • The social clause helps resolve labour disputes through cooperation.
  • A social clause would strengthen national sovereignty over private economic actors and enhance their capacity to achieve national economic and social objectives.

Arguments against

  • Social clauses in trade agreements undermine the comparative advantage, consequently the development of developing countries.
  • It is disguised protectionism from developed countries that could be used arbitrarily.
  • The social clause is an instrument of legal imperialism since there is no international consensus on fundamental workers’ rights.
  • The inclusion of a social clause constitutes a threat to national sovereignty.

They said:

« The very recognition of a social dimension in the global international trade system is at issue here: is it necessary at the economic, legal and institutional level to create a binding link between the fundamental rights of workers and trade liberalization? On what basis? By what mechanism? Due to the potential for perverse effects of a social clause that would lead to an increase in poverty in the event of economic sanctions, the debate is complex. » (free translation)

Marie-Ange Moreau and Gilles Trudeau. « The Social Clause in the North American Free Trade Agreement », International Review of Economic Law, n°3, 1995

 

« The Government of Canada is committed to addressing the labour dimensions of economic integration and trade. It does so by promoting good governance, the rule of law, respect for national and international standards, and a more equitable distribution of the benefits of globalization, as well as by participating in domestic and international efforts to improve respect for labour rights and improved health and safety in the workplace. »

Government of Canada. « Labour Program – Labour and International Trade », Employment and Social Development Canada, October 2016

 

« Protectionism will probably increase in industrialized countries unless the World Trade Organization agrees this week to link working conditions and trade. »

Michael Richardson and International Herald Tribune. « ‘Social Clause’ Looms as contentious issue at Singapore Meeting: WTO Is Set To Grapple With Rights Of Workers  », New-York Times, 9 December 1996

 

« No one can deny the importance of core labour standards that have been internationally agreed upon. […] However, there is no relevancy to force linkages of this issue with trade, unless there is an ulterior motive to bring in the issue as disguised protectionism. »

Amnuay Viravan, Deputy Prime Minister and Minister of Finance, Thailand. WTO Ministerial Conference, 9 December 1996

 

« The view that standards are disguised protectionism is erroneous. The distinction between core and cash, made by virtually every advocate of standards, is fundamental. Adherence to core standards will not substantially affect the comparative advantage of developing countries nor have more than a minimal effect on trade. »

Richard B. Freeman. « International labour standards and world trade: friends or foes? », in The world trading system: challenges ahead, Institute for International Economics, 1996

 

« Labour standards, either national or international, cannot be justified on efficiency grounds. Indeed, to harmonise regulatory frameworks on labour and other matters, via multilateral agreements would be to argue against the rationale of trade itself, since national differences are seen to be a necessary requirement for international trade. »

Hoe Lim. « The Social Clause: Issues and challenges », International Institute for Labour Studies (IILS) – ILO, document-guide consulted on 19 June 2017

 

« Member governments from the developing world believe attempts to introduce this issue into the WTO represent a thinly veiled form of protectionism which is designed to undermine the comparative advantage of lower-wage developing countries. Officials from these countries say that workplace conditions will improve through economic growth and development, which would be hindered should rich countries apply trade sanctions to their exports for reasons relating to labour standards. »

WTO’s Ministerial Conference. « A difficult issue for many WTO member government », Briefing note Trade and Labour Standards, Doha, 2001

 

« We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (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. »

 World Trade Organization. « Singapore Ministerial Declaration », adopted on 13 December 1996

 

« Developing countries may have to pay the costs of a decline in competitiveness. Operationalizing the linkage between social norms and trade measures may […] put additional pressure on developing countries and result in many of their products becoming more costly and uncompetitive or face sanctions, or both. […] Competitiveness erosion and higher costs […] may lead to job losses, business closures, including farming, and reductions in relocation of the workforce to lower paying jobs. » (free translation)

Martin Khor. « The Proposed New Issues in the WTO and the Interests of Developing Countries », Third World Network, 2001

 

« As an Indian NGO notes: The danger of a bilateral level is that industrialized countries could take discriminatory measures – even reprisals – against a developing country, despite or against the real objective. » (free translation)

Michel Egger and Catherine Schümperli Younossian. « Survey on the social clause with NGOs and trade unions in the South », Swiss Directory for Development Policy, n°15, 1996