Global Policy Forum

Social Clauses - Here to Stay


By Rahul Rao

Part 3

Alternative linkages
In recent years, various alternative linkages between trade and labour standards have emerged. The most notable of these are company codes of conduct and social labelling.

Codes of conduct
Codes of conduct are generally documents that stipulate minimum labour and/or environmental standards that companies voluntarily agree to abide by. Depending on the code, labour standards may include basic worker rights such as prohibitions on child and forced labour, bans on discrimination based on sex, race, religion or ethnicity, limits on working hours, etc. Companies may require all their business partners and sub-contractors to abide by this code, besides their own production units.(67)

For a code to be effective in maintaining labour standards it should be transparent, closely monitored and enforced. Transparency implies that the company's contractors, sub-contractors and other business partners, workers, NGOS, governments and consumers are aware of the existence and significance of the company's code of conduct. Some companies monitor and enforce compliance with the code themselves (e.g. Levi Strauss & Co.). Others sub-contract the task of monitoring and enforcing their codes to an independent external agency (e.g. The Gap). Generally, independent monitoring of a code lends it greater credibility. Enforcement of the code may take several forms. Violation of the code by a business partner of the company could result in immediate termination of the business relationship, demands for corrective action, cancellation of specific orders, placement of the violating partner on probation, etc. depending on the nature of the violation and the priority accorded to implementation of the code by the company.(68)

Voluntary linkages between trade and labour standards (such as company codes) are said to be a superior method of raising labour standards as compared to social clauses in trade agreements. The prolonged wrangling and negotiation between countries, inevitable in the drafting of a social clause, would be avoided. Also, since these linkages are not controlled by governments, there would be less likelihood of their being misused as protectionist devices.

However, the voluntary nature of these codes is also their greatest drawback. It allows companies to be lax in the implementation of their codes. Most companies have ideal codes of conduct which serve a useful public relations purpose, but lacking consistent executive priority and the necessary resources for mediation, do not serve any other purpose. 75% of all current corporate codes are merely statements of general ethics and principles of good corporate citizenship and address no particular issue or posit any remedial plan. About 25% of companies that have codes include particular behaviours and related actions and responses to them in their statements and commit the company to continuing code enforcement efforts.(69)

Within the apparel industry, Levi Strauss & Co. is considered to have one of the better enforced codes of conduct.(70) This researcher had intended to undertake a case-study of the Levi Strauss code of conduct which would have included a survey of all the company's contractors, to determine how effectively the code was being implemented. When he met representatives of the company with this proposal, he was greeted with extreme suspicion. Information was not forthcoming and permission to visit the contractors' facilities was denied on the grounds that labour standards were a delicate and sensitive matter which could generate a great deal of negative publicity for the company. It was also stated that while the company was satisfied with labour standards as they were and was constantly striving to improve them, 'outsiders' may have conflicting perceptions of minimum labour standards that ought to be ensured.(71) While the researcher is not in a position to comment on the effectiveness of Levi Strauss' monitoring and enforcement procedures, it is evident that its code of conduct lacks transparency. No matter how good labour standards within a company's production facilities are, if the public in general and consumers in particular are not able to verify claims made by the company regarding its code of conduct, such a code will lack credibility.

Social Labelling
Social labelling is yet another example of a voluntary linkage between trade and labour standards. It involves affixing a label to a product, which certifies that the product was produced under acceptable labour conditions (which vary from one scheme to another). Social labelling schemes are usually accompanied by consumer awareness and sensitisation campaigns which encourage consumers to buy labelled products and (sometimes) boycott unlabelled ones. One of the best known examples of a social labelling scheme is the Rugmark programme which has been discussed earlier.

Social labelling programmes must be transparent, strictly monitored and enforced so that consumers know that the claims behind the labels they see on products are not hollow. Monitoring and enforcing a labelling programme entails additional investment and expenditure on the part of the producer who in turn passes on the costs of such a programme to consumers. Only if consumers are convinced that labelled products are truly being produced under acceptable labour conditions will they be willing to purchase higher priced labelled products.(72)

Social labelling programmes are not without their problems. There is a danger that they too may be manipulated by protectionist interests in consumer countries. They tend to be targeted against abuses with the most emotive appeal (e.g. child labour) while letting off equally important abuses (e.g. suppression of trade unions) with less emotive appeal.(73) The success of such programmes depends on consumers to a very large extent. Only if there is a demand for labelled products and a refusal to buy products produced under unacceptable conditions, will there be any improvement in labour standards in the concerned industry.(74) Some individuals may reason that their own small contributions to the socially responsible process of buying labelled products would be insignificant relative to the overall market. Therefore, an individual consumer or even a low volume manufacturer may conclude that purchasing or producing a small amount of goods that satisfy the requirements of the label will have little or no impact on the overall situation. If numerous individuals and producers employ this logic, the cumulative effect will be that a large number of individuals decide that their efforts are not important. The effect of a labelling programme may be limited, therefore, by the decision of individuals to "free-ride" on the conscientious efforts of others.(75)

For all their limitations, market-based schemes such a social labelling do have their benefits. They have attracted a great deal of media coverage, which can be utilised to educate the public. Through the development of public awareness these schemes may in turn strengthen the political constituency for constructive action by governments, including the ratification of international labour standards, the provision of universal education and adequate terms and conditions of employment for adults.(76)

Who needs the WTO?
It is difficult to say whether voluntary linkages between trade and labour standards will prove more effective in improving labour standards than a social clause in a trade agreement. The preceding section has shown that they have benefits as well as limitations.

What is most noteworthy about the new trade - labour standards linkages such as company codes of conduct and social labelling, is that they are being established by non-state actors. Governments have little control over the establishment of these linkages. 'Genuine'(77) consumer movements in support of social labelling can hardly be opposed on the grounds of being protectionist. Similarly, a company cannot be prevented from voluntarily imposing a code of minimum labour standards on itself and requiring its business partners to abide by the same.

It is also important to note the proliferation of these new linkages. As consumer awareness grows, so too does the demand for 'clean' products. For example, the Clean Clothes Campaign (a consumer movement started in the Netherlands) is demanding the adoption of a model code of conduct prescribing minimum labour standards, by all apparel and sportswear companies. The campaign also investigates and publicises violations of labour rights by apparel manufacturers. The emphasis is on keeping consumers informed so that they can patronise companies that maintain minimum labour standards and boycott those that do not.(78) The industry has responded to such consumer demands through initiatives such as the 1996 White House Apparel Industry Partnership. This coalition of apparel companies, consumer groups, religious, labour and human rights organisations was formed to combat sweatshop practices in the manufacture of clothing and footwear around the world. In April 1997, a code of conduct and monitoring principles for the implementation of the code were agreed upon. In November 1998, the Fair Labour Association was created to monitor compliance with the code and represents the first industry-wide system that holds US-based apparel and footwear companies accountable for the labour standards of their contractors and suppliers around the world. Companies participating in the Association(79), which include Liz Claiborne, Nike, Phillips Van Heusen, Adidas, Kathie Lee Gifford, Levi Strauss & Co., LL Bean, Nicole Miller, Patagonia and Reebok, have agreed to open up their factories to inspections by independent external monitors.(80) The link between trade and labour standards was implicitly recognised in May 1999, when Mattel, Levi Strauss and Reebok announced that they had joined 21 human rights, fair trade and socially responsible investment groups in endorsing a set of fair labour principles for corporations doing business in China.(81) By signing these principles, the companies agreed to forbid their facilities and suppliers in China from engaging in discriminatory practices against employees because of their participation in labour, political or religious activities. Earlier in 1998, Adidas went a step further in cancelling all orders for footballs made in China, in response to a report alleging the use of prison labour in its production facilities.(82)

Through their voluntary code of conduct and social labelling initiatives, companies are unilaterally beginning to link trade and labour standards because of a perception that such a linkage already exists in the minds of consumers. Greater consumer awareness means that labour and environmental conditions in distant production sites do influence purchasing decisions, thereby affecting company profits. Having discovered that it makes good business sense to produce (or to claim that they produce) 'clean' products, producers are beginning to use their new unilateral linkages as marketing strategies. Thus, irrespective of whether governments decide to link trade and labour standards, companies will do so in response to an agenda set by consumers. As Poul Nielson, Danish Minister for Development Co-operation, observed: "The consumer is becoming increasingly powerful in international trade."(83) Consumers with the greatest purchasing power, namely those in the West, will have the greatest say in setting the trade agenda. If the Seattle protests are anything to go by, there is considerable support for a linkage between trade and labour standards in Western civil society.

In such a scenario, the debate over the social clause at an inter-governmental level becomes redundant. Trade and labour standards are linked by non-state actors without the formality of a social clause in a trade agreement. Governments of developing countries have to come to terms with such linkages. They have to guard against the abuse of such linkages as protectionist instruments and ensure their usage for the improvement of labour standards. These linkages could be in the form of social clauses, company codes of conduct, social labelling initiatives or combinations thereof. Each kind of linkage carries the potential to improve labour standards, but each also has its limitations and can be counter-productive if it is not combined with strategies to rehabilitate those who are adversely affected. It is time that governments focussed their attention on devising those strategies instead of opposing the linkages per se, for they are here to stay.

(67) Interhemispheric Resource Centre, Blood, Sweat and Shears - Corporate Codes of Conduct (visited March 5, 1998) . back


(69) Child Labour: Hearing Before the US Department of Labour (Bureau of International Labour Affairs) (1996) (statement of Dorianne Beyer, General Counsel for the National Child Labour Committee). back

(70) International Child Labour Study: Hearing Before the US Department of Labour (Bureau of International Labour Affairs) (1996) (statement of Stephen Coats, Executive Director of the US/Guatemala Labour Education Project). back

(71) Interview with K. V. Rajashekar, Financial Controller of Levi-Strauss (India) Pvt. Ltd., in Bangalore (March 5, 1998). back

(72) Interview with Maj. Gen. Satish Sondhi (Retd.), Executive Director of Rugmark Foundation, in New Delhi (Feb. 17, 1998). back

(73) Lee, supra note 13, at 185. back

(74) Janet Hilowitz, Social labelling to combat Child Labour: Some considerations, 136 INT'L. LAB. REV. 215, 229 (1997). back

(75) CONSUMER LABELS AND CHILD LABOUR 5 (US Department of Labour, Bureau of International Labour Affairs 1997). back

(76) Mark Lansky, Child Labour: How the challenge is being met, 136 INT'L. LAB. REV. 233, 254 (1997). back

(77) Interview with Arun Daur, Research Officer, Hind Mazdoor Sabha, in New Delhi (Feb. 13, 1998): There have been instances of consumer 'movements' in developed countries which were actually fronts for powerful industrial groups lobbying for greater protectionism against third world imports. 'Genuine' consumer movements are, therefore, those which are motivated by a concern for labour standards and do not have a hidden agenda. back

(78) The Clean Clothes Campaign (visited March 6, 1998) . back

(79) Organisations affiliated with the Fair Labour Association, as of 12 June 1999 (visited Dec. 1, 1999) . back

(80) Apparel Industry Partnership Reaches Historic Agreement to End Sweatshops (visited Dec. 1, 1999) . Participation in the Association requires a company to submit an application that includes a monitoring plan describing the company's internal and independent external monitoring programme. The application will also include an agreement by the company to: (1) Adopt (and requires its licensees, contractors and suppliers to adopt) a Workplace Code in the manufacture of its apparel and footwear products; (2) Formally convey the code in the applicable language(s) to all factories and their employees and communicate the company's commitment to comply with the Workplace Code to employees, senior officers and managers; (3) Implement a system of monitoring that complies with the monitoring principles. back

(81) Mattel, Levi-Strauss, Reebok Endorse New Code (visited Dec. 1, 1999) . The principles include no use of forced labour, payment of living wages, reasonable work hours, no physical or other abuse, safe and healthy work sites, no use of repressive state apparatus, respect for the freedom of association and collective bargaining, non-discrimination, no targeting of political activists, environmentally responsible production methods and no child labour. back

(82) Adidas Applauded for Quitting China (Press Release of the International Textile, Garment and Leather Workers' Federation, 3 July 1998) (visited Dec. 1, 1999) . back

(83) Leary, supra note 7. back

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.