Unformatted text preview: International Labor Law Final
ILR IC 634 Professor Compa What Problems might arise now or in the foreseeable future in light of development in international labor law? General Power Corporation's decision to pursue the current opportunity for development, installation and operation of energy infrastructure in Devinco to support companies in the EPZ should be made with full consideration of the implications of international labor law and how they may bear upon the company. I will begin with an overview of the situation as I understand it. This will be followed by a listing of key factors which may bear upon GPC's decision to pursue a bid and recommendations for winning and limiting potential liabilities if the decision is made to go forward. Overview: As a developer and operator of energy infrastructure, GPC's served market is dominated by regions of the world with the highest rates of economic development. Global sourcing of manufactured goods by developed nations from lowercost jurisdictions is the economic model of the foreseeable future, making these the ones with the highest rates of infrastructure growth. The lowest cost jurisdictions are generally those with the lowest total cost for manufacturers. These include costs associated with delivery of raw materials and component parts, power, labor, transportation and regulation. Principal among these is the cost of labor, which if low enough, will be sufficient to deter manufacturing in the consuming country, another more developed nation or a competing lowcost jurisdiction. The low cost of labor in developing nations arises from the transition of labor from a verylow cost agricultural base into the manufacturing sector, combined with low added costs associated with worker safety and labor standards thought to be reasonable in the more developed world. Competition among developing nations for foreign investment in manufacturing facilities is fierce, as producers from the US, EU, Japan, Korea and the Asian Tigers have demonstrated a continuing willingness to migrate production to the lowest cost jurisdictions as may be required to meet severe costbased competition in their home markets. Therefore domestic and foreign operators and governments in developing nations resist adoption of labor practices which will undermine their low labor cost, unless and until the social and economic benefits become evident as a natural part of the nation's eventual transition to a more developed nation. Indeed, some believe that foreign investment and globalization cause a downward spiral of labor standards, as developing nations compete against one another to achieve the lowest cost positions, while others believe that trade and investment growth in developing nations have positive effects on labor standards, wages, and employment, evident in the Asian Tigers. This only becomes an issue for GPC because no matter what opinions governments, NGOs, economists, trade organizations or the consuming public may hold regarding the net impacts of foreign direct investment (FDI) and globalization on developing nations, almost all of them support the notion of core labor standards. This support is evidenced and defined in adopted international labor law. So while GPC must pursue growth and shareholder returns by serving the bulk of its served market in the developing world, it must also avoid violation of law and/or violation of standards of conduct which may sully the corporate image. The international labor Organization (ILO) is a subgroup of the UN that solely focuses on international labor issues. The ILO developed from the Treaty of Versailles after World War I in 1919. The structure of the ILO is unique amongst other world organizations in that the representatives of the workers and the employers have an equal voice with those of member governments in creating its rules and policies. The organization currently has representatives from 152 independent nations and is open to all countries that are members of the United Nations; nonUN nations are able join if they apply to the ILC and abide by the ILO constitution. The principle functions of the ILO are the development and implementation of nonbinding (binding if a country ratifies them) labor standard conventions, agreement of the ILO curriculum and budget, and general discussion of major social and labor issues. The ILO's Declaration on Fundamental Principle Rights at Work, Conventions 87 and 98, make up their widely accepted Core Labor Standards declaration. Convention 87 requires freedom of association and the protection of the right to organize and 98 concerns the application of the right to organize and to bargain collectively. The core labor standards also require the elimination of all forms of forced or compulsory labor, child labor, and discrimination in respect of employment and occupation. Organizations like the World Bank, OECD, WTO, the UN, human rights groups, multinational corporations, international trade unions, and other NGO's embrace the ILO's core labor standards as the basis of their social and labor policies. The World Trade Organization (WTO), developed from the General Agreement on Tariffs and Trade (GATT), is an international organization that oversees and opens the rules of trade amongst nations. The organization negotiates, implements, and polices trade agreements to make sure producers, exporters, and importers can successfully work together. Once a trade regulation is ratified by the legislatures of all the WTO members it becomes an enforceable law. All of the member nations receive the benefits from these laws that open barriers and stimulate trade. The Most Favored Nation (MFN) clause is an agreement that WTO members grant all the trade advantages to all members; one nation cannot be treated worse/better than another. MFN suppresses discrimination amongst nations and at the same time promotes universal free trade. On the other hand, the General System of Preferences (GSP) is a system that exempts WTO members from the principles of MFN. The Office of the United States Trade Representative (USTR), which represents the U.S. at the WTO, administers its GSP programs that give preference to developing nations by lowering or eliminating tariffs on exports into the U.S. Also "a labor rights clause added by Congress to the GSP program in 1984 requires beneficiary countries to respect workers' basic rights." If a beneficiary country is caught violating the labor rights clause their GSP benefits can be suspended or eliminated. Free Trade Agreements (FTA's) are contracts between countries to eliminate trade barriers, sanctions, quotas, and preferences to maximize the amount and efficiency of exchanges. Many FTA's include labor clauses obligates all parties to maintain and protect labor standards. For example the U.S. Jordan FTA "binds both parties to enforce their own existing national laws on labor rights" and both countries committed to "strive to ensure' that their laws recognize and provide protection for the ILOdetermined fundamental rights". Key Factors: 1. Even though Devinco is a member of the ILO, it has not ratified the ILO labor standards conventions.
2. Human rights organizations have found that is blatantly violating labor, employment, and health standards in their manufacturing and construction sectors. Principal examples include:
a. Evidence that the Devinco government supports the use of forced/slave labor in construction and in the EPZ factories, even being complicit in the killing workers showing any opposition;
b. Principles of freedom of association and collective bargaining are violated. The Devinco government prohibits nongovernment controlled labor unions, and jails any workers who try to form independent unions;
c. Devinco worker are also exposed to extremely hazardous working conditions; d. The factories and construction projects routinely violate the minimum wage, work hours, and child labor laws of Devinco; and e. Women workers are blatantly discriminated through sexual harassment and forced pregnancy tests. 2. The Devinco government defends itself by saying it's a developing nation that can't afford or maintain ILO standards, and that local labor practices exist to meet the cost targets of international corporations. They argue that the enforcement of these international labor standards impose western values on them and harm their development prospects. Changing their position on these matters may be hard.
3. The almost universal acceptance of ILO standards by labor organizations, government, and corporations in recent years has made it increasingly difficult for the Devinco government and owners of EPZ factories to continue their violations. If enforcement efforts are eventually successful, Devinco will experience significant economic adjustments and costly enforcement burdens. Continuing these lax standards will prolong Devinco's reliance on lessskilled, laborintensive actives and may impinge upon further investment, capital formation and longterm economic growth; challenging the longer term economics of GPC's energy infrastructure project. The two ILO groups that deal with violations of conventions by member governments are the Committee of Experts on the Application of Conventions and Recommendations (CEACR) and the Committee on Freedom of Association (COFA). The ILO is a form of soft law that will subject Devinco to investigation and reporting by these committees. The ILO makes all the violations by members states highly publicized. Once in the public eye the violating nations and the corporations they do business with are criticized and attacked by labor organizations and other concerned parties. They also encourage governments to apply effective trade sanctions to any member state violating labor standards.
4. GPC should expect that the Devinco government will have the option of selecting a contractor willing to work within the framework of existing labor practices in that country, and that certain government officials involved in contractor selection may benefit from selecting such a company. Recommendations:
1. GPC should evaluate the risk/reward profile of pursuing the award of this contract within the context of its current backlog of work and proposals in the pipeline. If it is found that corporate growth and profit objectives can be met under a viable business development scenario (win ratio), then it should give serious consideration to nobidding this opportunity. If this option is selected, then GPC should use its decision not to bid on this work to garner as much goodwill from the public and concerned governmental and NGOs as possible, citing GPC's abhorrence to the unfair labor practices in Devinco. 2. If GPC decides to pursue this contract, it should base its proposal on the idea that the new energy infrastructure is to be provided as a part of a fundamental transformation of the Devinco economy up the developmental ladder to long term prosperity based on the participation of larger producers, the infusion of more capital, the gaining of improved trade relations and a more educated work force. The building blocks of this strategy will be: a. Imposition of defined and fair labor practices by GPC and all its subcontractors in both the construction and operational phases of the project;
b. GPC spearheading of an initiative to assist Devinco in gaining presently unenjoyed trading rights and privileges with major trading partners and sources of DFI. This should include the prospects of a free trade agreement with the US and assistance in meeting the standards which would have to be met. It might also involve soliciting the coordinated involvement of potential large producers who establish facilities in the EZP to enjoy the modernized infrastructure, lowcost energy and competitivelypriced labor in the absence of wholesale violations of international labor standards; c. Work force training initiatives; d. An economic analysis of the potential benefits to the Devinco economy which could be expected to arise from this approach, even though the labor component of the infrastructure construction and operation may be higher; e. GPC's retention of a PR firm to promote its progressive and humane business approach, to sell this approach in the US and in Devinco; and
f. GPC's purchase of insurance to cover the downside risk of being implicated in complicity with any labor standard or human rights violations by the Devinco government or any GPC subcontractors. GPC must recognize that as a large multinational corporation it can and should have a positive influence in the development of labor standards as well as commerce as it chases profits in developing nations. There is a direct link between the shirking of these responsibilities to the creation of Corporate Codes of Conduct. It has an opportunity here. The Devinco government, like many others, has faith in the economic theory that foreign trade is beneficial to all countries, which the division of labor makes the allocation of resources more efficient and this increases the economic welfare of all countries in the long run. Like many other developing nations Devinco wants to utilize its abundance of natural resources and deregulated low capital costs to increase its foreign direct investment and manufacturing exports. Foreign direct investment provides them with external resources, like capital and technology, which they hope will support economic development. GPC should attempt to instill in the Devinco leaders an appreciation of the very real risk that certain brands of trade and investment from the western world will only lead to exploitation and continued poverty. It should cite empirical evidence that shows that developing nations with strong, positive economic, governmental, social, and labor standards polices/programs are the only ones able receive consistent global investment flows and the full range of benefits from globalization. For long term return on your investment it would be beneficial to GPC to work with Devinco to help them develop the policies necessary for long term and successful integration into the global economy. ...
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This essay was uploaded on 12/14/2007 for the course ILRIC 6340 taught by Professor Compal during the Fall '07 term at Cornell.
- Fall '07