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From North-South to South-South
The True Face of Global Competition
Robert J.S. Ross and Anita Chan
Volume 81 Number 5
From North-South to South-South
The True Face of Global Competition
Robert J.S. Ross and Anita Chan
As protesters battled the police in the streets of Seattle in 1999, calling on the World Trade Organization to include environmental and labor issues in its trade negotiations, government representatives in conference rooms were carrying on a battle of another sort. Many developing nations, particularly the Asian countries, were strongly resisting a U.S.-led proposal by developed countries to link trade to environmental and labor standards through a new social clause in wto agreements. The clause, its opponents argued, was a protectionist ploy that rich nations would use to shelter their own workers jobs from the competition in developing countries. This stance reected a commonly held perception that the main competition in the production of goods is between the North and the South. But in truth, this competitionparticularly in labor-intensive commoditiesis not so much North versus South but South versus South. The absence of a mechanism establishing international labor standards is propelling the economies of the South in a race to the bottom in wages and labor conditions. The social clause, in brief, refers to the proposed insertion of ve core labor standards into trade agreements: freedom of association, freedom to organize and to bargain collectively, and freedom from forced labor, child labor, and job discrimination. Many poorer countries either lack the laws to protect these rights, which are enshrined in the conventions of the International Labor Organization (ilo), or they simply do not bother to enforce those laws in their export industries.
TRADE UNIONS DIVIDED
Governments do not necessarily reect the interests of their countrys workers, but labor unions are supposed to. So how do unions line up on the social-clause
Robert J.S. Ross is Professor of Sociology and Director of the International Studies Stream at Clark University. He is the author of the forthcoming Hearts Starve: The New Sweatshops in Global Context. Anita Chan is Senior Research Fellow at the China and Korea Centre at Australian National University, editor of The China Journal, and author of Chinas Workers Under Assault.
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question? Although the issue at Seattle had united the government leaders of the South in opposition, the international trade-union movement holds diverse views. The International Confederation of Free Trade Unions, composed of 221 aliated unions that represent 150 million workers in 148 countries, supports the social clause. But African backing for the clause has not always been uniform: trade unions in some countries, such as South Africa, are in favor, whereas those in others, such as Zimbabwe and Zambia, are opposed. In Latin America, unions are more amenable to linking trade and labor rights, thanks in part to their strong relationships with their North American counterparts. Struggling unions in Guatemala, Honduras, El Salvador, and Nicaragua have strategically used the U.S. threat of trade sanctions (specically, in response to violations of labor rights) to secure their own rights to organize. For example, Guatemalan workers formed an unrecognized union at a factory owned by the U.S. clothing giant PhillipsVan Heusen in the early 1990s. In a long and bitter campaign, their North American allies including unite, the U.S. apparel-workers unionled a lawsuit in the United States at their behest, alleging that Guatemala was ineligible for trade concessions because it denied workers the right to organize. This pressure nally led the rm and the Guatemalan government to recognize the union. Other Latin American confederations of unionsfor example, those in Argentina and Chilesupport a social clause, too. The trade unions of several middle-income countries in Asia also approve. The Korean Confederation of Trade Unions believes the social clause can be a signicant and eective instrument to protect and achieve social rights and the basic trade union rights. Likewise, the Malaysian Trade Union Congress supports a linkage between labor standards and trade and exports out of fear that its members rights could be undermined by competition from the large number of Asian migrant workers working without labor protection in Malaysias export zones. But Indias trade unions and Chinas quasi-governmental trade union federation take a dierent approach. The governments and trade unions of the two most populous countries in the world are determinedly against a social clause. And because of their dominant weight in the worlds cheap-labor market, their positions have enormous repercussions on the wages of unskilled laborers throughout the underdeveloped world. This dominance may also explain the perception that the South is staunchly opposed to the social clause even though the truth is more variegated.
NECK AND NECK
In rejecting a regulated international labor regime, countries of the South lower their own labor standards to remain competitive and provide a good investment climate. This imperative gives businesses an excellent opportunity to exploit their work forces to the fullest; examples include the South Korean, Taiwanese, and Hong Kong rms that subcontract from brandname corporations to do labor-intensive manufacturing in poor countries. The apparel industry aptly illustrates this type of globalized production. The work is highly labor intensive, and the industry continues to use a vast amount of unskilled labor supplied by the South, despite technological upgrading. This sector is
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turing, which has relocated almost entirely to the mainland.) But Mexico enjoys two substantial advantages over China: close geography (hence a faster lling of orders) and the absence of quota restrictions, thanks to nafta. As a result, Asian investorsparticularly South Koreans and Taiwanesebecame increasingly active there in the 1990s, even moving apparel production out of Asia into Mexico. The dramatic growth of apparel exports from Mexico and China to North America has created a surge of new jobs. In both countries, the export-oriented factories employ migrant workers from poor, rural areas. In China, the growth rst began in the mid-1980s in Guangdong province (which neighbors Hong Kong) and picked up speed in the early 1990s. The entire Pearl River Delta in Guangdong, which 20 years ago was largely agricultural, is now a manufacturing powerhouse that churns out labor-intensive goods for the world market. Today, some 12 million migrant workers from poor parts of Chinas countryside sta these factories production lines. A similar phenomenon emerged in Mexico in the 1990s. Along the U.S.-Mexican border, new investment created boomtowns where maquiladoras (assembly plants) have mushroomed. By 2000, these factories employed about one million workersan increase of 150 perA TALE OF TWO COUNTRIES cent since 1990and production was spreading to other parts of the country. In recent years, China and Mexico have Contrary to general wisdom, however, become the lions of the U.S. clothing market, obtaining an equal market share more jobs have not meant higher wages or rising labor standards for migrant since the 1993 signing of the North American Free Trade Agreement (nafta). workers, whether in Mexico or in China. By 2000, Mexico and China each supplied On the contrary, wages have fallen as a result of intensied competition to attract around 15 percent of all apparel imports to the United States. (The Chinese total factories that sell to the Norths markets. includes Hong Kongs apparel manufac- This drop is reected in both the low legal also among the most footloose: production facilities can be moved easily from city to city or country to country. Apparel manufacturing employs a large number of workers in the South, mostly young women; in turn, this high volume of jobs aects the overall wage levels and labor standards of these countries. Over the past four decades, the U.S. apparel industry has been overwhelmed by this global low-wage competition. Apparel imports rose from about 2 percent of U.S. domestic consumption in the early 1960s to more than 60 percent in the 1990s. In the largest categories of clothing importsmens and womens topsthe $26 billion of imports furnishes more than 70 percent of the market by value and about 90 percent by quantity. Since 1980, imports have cut U.S. apparelindustry employment by half, a loss of more than 600,000 jobs. Many of the workers who remain in the U.S. garment industry, toiling as sweatshop workers or as underpaid home workers, suer declining wages that today are often below the legal minimum. Even so, the NorthSouth competition basically is over in this industry. The enormous dierence in North-South wage levels ensures that those jobs lost will not return to the United States.
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From North-South to South-South
minimum wages set by the two countries and the real purchasing power of workers. In China, the setting of a minimum wage is extremely decentralized. Any city, or even a city district, can set its own minimum wage based on a formula provided by Beijing. This formula takes into account such factors as the local cost of living, the prevailing wage, and the rate of ination, and it is adjusted each year. In 2001, for example, the city of Shenzhen (just north of Hong Kong) had two standards. Inner Shenzhen, the citys commercialized sector, had the highest minimum wage in China at the equivalent of $72 per month, but the outer industrialized sectors minimum wage was only $55 per month. Elsewhere in China, legal minimum wages have been set even lower. Although these local governments comply on paper with Beijings decrees on minimum wages, they attempt to attract investors by allowing them to pay workers below those rates. The legal minimum wage is set by the month and does not take into account that many migrant workers labor illegally for longer hours. (For example, our survey of Chinas footwear industry shows that the average number of hours worked each day is 11, and laborers often have no days o.) Furthermore, ocial statistics do not take into consideration the staggering amount of unpaid back wages. Some 40 percent of the 20,000 workers complaints lodged with the Shenzhen authorities over nine months in 2001 were related to owed wages. Such abuse has become normal in southern China. Ocial minimum wages also obscure other critical facts. They do not show the violence and physical abuses that have become pervasive in the factories in China owned by Taiwanese, Korean, and Hong Kong intermediaries; nor do they take into account the acute and chronic occupational health and safety hazards. These factories record a startlingly high incidence of severed limbs and ngers; Shenzhen alone certied more than 10,000 such accidents in 1999 among a migrant population of 4 million. In short, despite Chinas dramatic export growth, the benets have not trickled down to the assembly-line workers who make the exported goods. Indeed, their situation has gotten even worse since the Asian nancial crisis of 199798; the downturn intensied competition with Southeast Asian labor, which had become much cheaper in the wake of local currency devaluations. (Provincial surveys in China show that a downturn in migrant workers pay started at that time.) Chinas main challenge in apparel and other sectors, however, comes from Mexico. There, workers conditions in the maquiladoras are also grim. But unlike in China, wage levels in Mexico are more regulated. Only three minimumwage levels exist for the entire country, including one for the U.S.-Mexico border region (equivalent to $93 to $108 per month). These minimum wages, although low, are almost double those of Shenzhen, which are the highest in China. But Mexicos legal minimum wages fell by almost half during the 1990s, due in part to the pesos collapse in 1996. In addition, competition with countries such as China created a downward pressure on average real wages in Mexico. In the manufacturing sector, wages dropped in real purchasing power terms by 20 percent over the same period. And in the booming apparel sector, ilo data show that their wages shed
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growth of an autonomous Mexican trade-union movementa result of years of painstaking political and social change, supported by a solidarity movement in the United States and Canada. Employers who resist relocating to China or to other low-wage countries will be tempted to lower standards in Mexico by resisting the edgling union movement. Mexican President Vicente Fox has proposed the Puebla to Panama Plan, which would build an investment corridor for more maquiladoras from southern Mexico through Central Americaat INTENSIFYING COMPETITION wages even lower than those at the U.S.Mexican border. In China, meanwhile, In 2005, trade barriers on apparel are the government is encouraging foreign due to end under the 1975 Multi-Fiber investors to go north and inland in purAgreement (and its 1994 successor). suit of lower costs than can be found in Assuming that its wages remain low, China will then be poised to make more southern China. The examples of China and Mexico inroads into rich-country apparel marshow just how much the international kets, osetting Mexicos advantage of competition among nations of the South proximity to the U.S. market. In other inuences their workers well-being. And industries, the wtos lowering of trade this race to the bottom aects people barriers will also tip the scales away elsewhere in the developing world who from Mexico and toward China. Fearing hold jobs in those sectors. Without reguthis, Mexico sought to delay Chinas lations to protect labor, akin to rules that entry into the wto; in fact, it was the last protect investors, poor-country workers wto member to sign last year the neceswill not share in the benets of a growth sary bilateral agreement with China that in world trade...