Trading Up: Labor Standards, Development, and CAFTA

July 18, 2005

The debate over linking trade and workers’ rights is often a dialogue of the deaf, with advocates on either side paying little attention to the scope for positive synergies between labor standards, development, and globalization. Instead, each side views the other as promoting positions that, intentionally or not, will impoverish poor people in poor countries. Opponents of global labor standards fear that these would undermine developing countries’ comparative advantage in low-wage goods or be abused for protectionist purposes, there by denying people jobs. Advocates of standards argue that failure to include these in trade agreements increases inequality and leads to a race to the bottom for workers worldwide.

Both sides have some things right but others wrong. Globalization enthusiasts are right that increased trade can contribute to growth and that the jobs it creates are generally better than those in agriculture or the informal sector. But they downplay the increased income inequality that sometimes accompanies globalization, the disproportionate influence that multinational corporations have had on trade negotiations, and the possibilities for improving conditions for workers in developing countries without jeopardizing economic growth. Workers’ rights advocates are right that global labor standards can spread the benefits of globalization more broadly, discourage the worst abuses of workers, and increase public support for trade agreements. But they undervalue the need for increased market access for developing-country exports to enable poor people to move to more productive jobs.

This brief examines the potential positive synergies between globalization, development, and labor standards. It argues that certain core labor standards can be applied globally without undermining comparative advantage, and that doing so would be good for development. The issues are also examined in terms of the recently concluded Central American Free Trade Agreement (CAFTA), whose fate in the U.S. Congress is currently uncertain because of a combination of protectionist interests on both sides of the aisle and Democratic concerns that the labor provisions are not strong enough.

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