Trabalho apresentado no Seminário sobre
"Labor Standards and International Trade"
Rio de Janeiro, Confederação Nacional da Indústria
Labor Standards and International Trade:
The Case of Child Labor in Brazil
Paper presented at the
Seminar on Labor Standards and International Trade
Confederação Nacional da Indústria
October 05, 2001
The establishment of a social clause within the realm of the World Trade Organization has been demanded by several developed nations. For these nations, the developing countries, Brazil included, enjoy unfair comparative advantages in the labor market by exploiting and underpaying adult and child labor. This is viewed as one of the key causes of unemployment in the developed world today.
This paper is divided into three parts. The first part examines the evolution and the economic and political bases of the demand for a social clause. The second part tests the hypothesis that unemployment in developed countries is caused by imports from developing nations. Finally, the third part presents the labor standards’ situation in Brazil and relates it to international trade.
The paper offers the conclusion that labor exploitation must be eliminated, but places several questions about the efficiency of trade sanctions as the best mechanism to abolish child labor and raise minimum labor standards. Several concrete actions, which deal with the causes of child labor in Brazil, are described at the end of the paper, showing much better results than those which merely attack the consequences in the area of labor standards.
LABOR STANDARDS AND INTERNATIONAL TRADE:
THE CASE OF CHILD LABOR IN BRAZIL
The idea of including labor standards as part of international trade agreements has generated one of the hottest debates in the field of industrial relations.
The pressure for this inclusion seems to arise from the advancement of globalization and competition.
Globalization has brought several asymmetries. Capital became extremely mobile and unregulated, whereas labor remained stagnant and regulated.
In the last 15 years, the inflows of foreign direct investment to developing countries increased substantially. Yet, the proportion of people working outside their own countries did not exceed 2%, including refugees. Migration remains subject to rigid national laws.
Technology has freely and homogeneously spread to most countries. Working conditions remained heterogeneous and restricted by national rules.
The capital-labor asymmetry led many theorists to anticipate serious problems for the proper functioning of economies and the well being of workers, which can be summarized as follows:
When capital is free to move and labor is not, workers enter a disadvantageous situation. Exploitation becomes a common fact. Many argue that, under these circumstances, wages and working conditions are forced to run a "race to the bottom", as a result of violated social codes and labor standards. This (supposedly) would have negative effects upon workers for whom labor protection is assured. "To a worker in an industrialized society, who is displaced by an underage child laborer, it makes little difference whether that child works at home or abroad (Krueger, 1997:287)".
Exploitation of the weaker is said to affect their very lives and the lives of the better off. Wage erosion, unemployment, part time jobs, precariousness of work and other contemporary labor problems of developed nations are assumed to be a result of unfair international competition. From this perspective, unfair trade hurts both the poor and the rich.
It is assumed that child labor deteriorates working conditions at home and abroad, passing substantial advantages onto capital. When, for example, a pair of tennis shoes is produced in China, by children who make US$ 1 a day, and the same pair is sold in the United States for US$ 150, the productivity equation favors profit over labor, concentrating income and wealth in areas with high capital ownership and impoverishing vulnerable workers. In this sense, economic globalization is said to instigate the globalization of inequalities.
The perpetuation of these asymmetries supposedly transforms free trade into unfair trade. Thus, unscrupulous entrepreneurs and middlemen use workers on an illegal basis and maximize exploitation. To guarantee fair trade, the practice of "social dumping" must be fought by all means.
These types of considerations have led some authors to defend the idea that "global business requires global rules", including global working rules, based on the best-practice concept derived from agreed upon international labor standards (Mehmer, Mendes and Sinding, 1999). The practice of good labor standards would lead wage, employment and working conditions worldwide, to a desired middle ground .
In labor literature, the issue is not new. Article 7 of the Havana Charter (1948) explicitly linked international trade to labor standards. In 1966, David Morse, the General-Director of ILO, announced that international conventions aimed not only at establishing minimum labor standards, but also at discouraging exports promoted with the exploitation of workers (social dumping) (Morse, 1966).
More recently, Americans reintroduced the idea of labor standards in multilateral negotiations of the Uruguay Round at the Ministerial Conference of Marrakech, in 1994, and repeated that intent at the Ministerial Conference of the World Trade Organization (WTO), in Singapore, in 1996, and in Seattle, in 1999.
The United States have been supported by France, Germany and the Scandinavian nations in their desire to link trade to labor, at the WTO level.
Most proposals have focused upon the "core labor standards", namely, (1) the prohibition of child and forced labor; (2) the right to organize and bargain collectively; (3) the guarantee of freedom of association; (4) and the prevention of discrimination in employment.
In the last five years, literature on this topic has grown very fast and in different dimensions. In addition to economic arguments, basic labor standards have been identified with "basic human rights". In this context, they should apply universally and irrespectively of a country’s level of development. Poverty should not be a pretext for not respecting human rights and, as a consequence, core labor standards (Dessing, 1999).
For the advocates of this idea, international trade regulations should cover not only the field of investments, competition and intellectual property, but also basic working rules. The proper context to define and implement these rules, it is argued, is the arena of trade agreements. Any effort outside this environment is sure to fail.
The Limits of Labor Standards
In taking the idea of linking labor to trade for granted, there are at least five key questions to be answered before countries will eventually come to an agreement, namely, (1) what is the best form of intervention to achieve a desired social goal, in which capital and labor can enjoy a more humane relation? (2) How can this reform be initiated? (3) How can international rules be imposed on national laws? (4) How can one ignore the importance of cultural and political traditions of nations involved in global trade? (5) Why would some industrial countries seek to impose international labor standards?
Even those who defend the need of internationalizing working rules recognize that labor standards cannot be imposed by one nation on another. "To maximize compliance, there must be full participation in rule-making" (Mehmer, Mendes and Sinding, 1999: 34). This means labor standards must be negotiated multilaterally and established through a consent dialogue.
Would the internationalization of working rules mean abandoning the comparative advantage of nations? The International Labour Organization (ILO) response to this question is simple, although implementation is a very complex matter.
Comparative advantages are to be respected, says ILO, as long as nations respect core labor standards, namely, freedom of association (Convention 87); the right to bargain collectively (Convention 98); the elimination of child labor (Conventions 138 and 182); and the absence of discrimination and forced labor (Conventions 29, 35 and 105).
For most countries, however, the main question is not approving national laws or ratifying the ILO Conventions, but rather, guaranteeing compliance with such laws and conventions. Obedience depends on feasibility. It is easy to prohibit child labor. It is not clear, however, whether this prohibition will maintain the child in school. He or she can be moved from labor to drugs, crime or prostitution. For those countries the simple removal of a child from labor may be a solution. But for countries responsible for that child, the shift from work to drugs, crime or prostitution is a much bigger problem.
Moreover, there is no consensus in the existing literature over whether the assumption that respect for core labor standards automatically improves the lives of workers of both poor and rich countries. In fact, research does not provide solid support for the supposed causation. The OECD studies, for example, revealed that: (1) there is no clear correlation between freedom of association and higher salaries; (2) the impact of freedom of association depends on a series of other measures to be approved and implemented by national states; (3) there is no clear association between weak labor standards and an abnormal attraction of direct foreign investments in developing countries; (4) as a rule, labor standards play a minor role in determining export prices (OECD, 1996). This research was repeated by OECD in year 2000, practically, with the same results (OECD, 2000).
There is no dispute over whether trade unions are important institutions to help workers to achieve collectively what they cannot achieve individually. But the claim that trade unions and collective bargaining, per se, improve productivity and raise wages, is ambiguous. Exaggerated union pressure has a negative effect on productivity in countries with strong barriers against product and market competition. In this case, reforming government regulations to assure market liberalization has a much greater positive effect on productivity than freedom of association and collective bargaining. It is true that once liberalized, the market and the workers can benefit from freedom of association and collective bargaining.
The impact of labor standards on raising wages and improving labor conditions is highly dependent on what happens to the product and market environment. Data reveals that rising inequality in labor markets coincides with the opening of markets to international trade (Pastore, 1997). This correlation, however, does not imply causation. Changes in technology, market regulation and union behavior can also be causes for these market trends. Therefore, approval and implementation of core labor standards and linking them to trade is no guarantee for removing labor inequalities.
To say that laxity of labor standards in developing countries exerts a deleterious impact on labor conditions in developed countries is a powerful argument in the political debate. However, it has been very difficult to prove that working conditions in developing countries are a key factor in determining income inequalities and structural unemployment in developed nations. To begin with, the developing countries participate with no more than 20% of imports of the developed nations: 80% of trade is done among developed countries.
In order to assure that limited core labor standards of poor nations have a significant impact on the labor market of rich nations, a long list of factors must be considered. Research has shown that when one considers the role of new technology, production and distribution systems, financial market changes, the national environment and labor laws, in determining domestic output, employment, salaries, and working conditions of developed countries, the effect of the so-called "social dumping margin" is very small (Maskus, 1997: 45).
In discussing these matters, it is important to see the other side of the coin. In this respect, it is very likely that many rich countries will have to mitigate their own market regulations and moderate their national labor protection to improve their competitive power in the new economy.
The same can be said in regard to the expectations of the populations of these countries. If consumers of developed nations say they derive more satisfaction from buying goods produced by workers who enjoy higher labor standards, then, by the same token, they must be willing to pay more for those goods.
"This solution would generate a compensatory transfer from consumers in developed economies to producers in developing economies in the name of higher labor standards, while not interfering with trade. In contrast, a tariff on developing countries’ goods would induce substitution in favor of goods from developed economies, without necessarily having any impact on core labor standards (Maskus, 1997:47)".
Tariffs can backfire by pushing vulnerable workers, in particular, children and women, into less desirable activities, including underground activities, thereby weakening the economic position of their families. Moreover, labor standards are often not targeted at the poorest, because the very poor are not working, or they are in the informal sector, where labor standards are not followed. As Krueger says, child labor is a tolerated "normal evil" when societies are poor, but not when societies are rich, in which case the absence of children in the labor market is considered to be "good and normal". For this reason, one should expect higher child labor standards in developed societies.
Economic growth has proven to be the most efficient way to reduce child labor and elevate labor standards. The simplistic linking of labor standards to international trade faces an enormous amount of practical and theoretical barriers.
To overcome these barriers seems to depend much more on small scale and concrete pilot projects than on massive actions to be undertaken within the realm of the WTO, or other international organizations. It is unrealistic to expect that WTO decisions in the area of labor will automatically improve the working conditions of poor workers.
The Need for Concrete Actions
The real world has not shown too many instances of sincerity coming from those who define themselves as interested in improving the lives of workers in poor countries. Many people in developed countries, for example, want to be sure that a particular product was not made by children. But very few are inclined to pay more for that, as compensation for strengthening the children’s family income and improving school facilities in poor countries.
Surveys among high income consumers in developed countries indicate declining support for providing aid for the education and well being of children in developing countries (Mohan, 1997: 308), and many studies show that multinational companies resist adopting international labor standards when they operate abroad. Jagdish Bhawati has proposed the application of US labor standards to American companies operating outside the United States. His proposal was bluntly rejected by US companies based in Mexico and South East Asia (Bhagwati, 1995). His argument is very simple: "An American does not cease to be an American just because he operates abroad. French firms have no reason to behave badly when they work overseas" (Bhagwati, 1999).
The analysis of proposals of advocates who link international trade to labor standards has generated some important lessons, which can be summarized as follows.
1. The implementation of common labor standards across the planet is a very complicated matter.
2. Gains in efficiency from core labor standards are indeed possible, but this depends on complex circumstances.
3. The idea that wages and labor conditions in developing countries exert downward pressure on wages and labor conditions of these countries must be proven.
4. The extent to which low labor standards in poor countries are a real matter of concern for consumers of developed countries is also a matter to be demonstrated.
In short, the main issue is not to make a long list of international labor standards, but rather, to assure international enforcement of existing standards - which are quite numerous.
The clamor for applying international standards abroad, at times when developed countries have their own domestic problems, is not unique to the area of labor. Because of the inability of rich governments to enforce their drug laws, for example, much illegal production and trafficking arise in Latin American and Asian countries, thereby harming their societies and economies. Should poor countries therefore demand trade sanctions against rich countries because of the inability of the latter to curb the illegal use of drugs?
From a more cautious position, one could certainly argue that the internationalization of minimum labor rules would never take place through confrontation. A continuing dialogue process and global cooperation are essential in reaching solutions of mutual interest. During the process, it will be necessary to not only affirm, but also sincerely demonstrate, that the introduction of the intended social clauses is not a disguised means of protectionism.
More recently, both the International Monetary Fund and the World Bank have rejected the idea of making the approval of loans to poor countries to their compliance to the core labor standards. These two organizations recognize, however, the importance of promoting the core labor standards through persuasion and moral pressure using the methods of the International Labor Office but never using the compliance as a condition for lending (Fischer, 1999; Holzmann, 1999).
Special attention must be placed on the issue of compliance. A realistic approach in this area is to consider that effective compliance are more likely to occur when countries export more, rather then less. If enforcement is not compulsory, it has to prove its efficiency as a voluntary method.
Credible communication campaigns are needed to prove that the claim for better standards is really a humanitarian one, and not a disguised artifact of protectionism. Bhagwati is one who firmly believes in the use of guilt and shame as instruments for dissiminate and persuade people to adopt good practices. "It´s like the Pope who has no troops or Ghandi who never used sanctions. If you have a good cause, I do believe in the power of morality" (Bhagwati, 1999). In this sense, it is worthwhile to consider the campaigns which aim the voluntary codes of conduct.
In addition, a credible way of showing that one derives satisfaction from improving the conditions of the poor is by helping them, by contributing to raising their educational level and facilitating the mastering of new technologies and productivity.
This sort of attitude is very different from simply imposing tariffs as sanctions and penalties on those who are not aligned with better labor standards. Unrealistic standards will be ignored and the remedy for noncompliance is not to set the standards high, but rather at the level the public considers adequate and feasible. The best way to modify this situation is not by having more trade ties, but rather, by reaching a situation in which violation cannot be excused.
Imposing or Doing Nothing?
The Case of Child Labor in Brazil
The Brazilian Constitution and labor laws prohibit work by people under the age of 16. They assure the right of association, collective bargaining and consider all sorts of employment discrimination illegal (sex, age, race, civil status, and disability).
In this respect, Brazil has a very sophisticated system of legal protection. The main problem of the country, however, is compliance.
Brazil has been criticized for using child labor. Indeed, from a total labor force of about 78 million people, about 4.5 million children (5 to 15 years old) worked for some time during 1998. Approximately 47%, were teenagers between 14-15 years of age; 44% were in the group of 10-13 years; and 9%, between 5-9 years old (Schwartzman, 2001).
Children between 10-13 years of age work, basically, in non paid agriculture activities, helping their parents in rural areas. Older children (14-15 years old) ) work, predominantly, in the service sector, many of them as a household maides and baby siters and in urban areas.
The key question is: how many of the 4,5 million working children are prevented from going to school. Among the working boys and girls of 10-13 years of age, 90,5% go to school; among the 14-15 years old, 76,1% go to school (Schwartzman, 2001). Therefore, working is not an obstacle for the majority of children and teenagers who work in Brazil. By the way, Brazil is well known for having a large population of worker-students. Night secondary schools and colleges are very popular among Brazilians.
In this sense, child work in Brazil deserves some qualifications. First, its proportion is decreasing. During the period of 1992-98, the work of the 5-15 years old, has been reduced in 30%. Second, most of the work is done in the presence of the childrens parents, in agriculture or at home. Third, the great majority of working children are also students.
Most of the advancement in eliminating child labor has been done in the period of 1998-2000. A special tabulation of the 1999 PNAD shows that 88,4% of Brazilian children and teenagers of 10-14 years of age are in school and do not work; 6,3% are student-workers. This means that practically 95% are in school and only 5% work and are not in school. Among these, many of them have completed the primary school (MRE, 2000).
Data from the United States show, for example, that at the age of 13, 51% of the school teenagers do some work during the year. Among the 14 and 15 years old, this proportion raises, respectively, to 57% and 75% (Entwisle et. al., 2000). Actually, the authors point out that, during high school, most of the Americans do some work as office-boys, fast food attendants, grass cutting, golf and tennis helpers, newspapers delivering, etc.
Among the working children in Brazil, research shows that their work is basically a result of household decisions, especially for income related reasons (Pastore, 1997). The inability to defer consumption obliges families to defer investment in human capital. Several studies have demonstrated that child labor is inversely related to family income and school attendance (Maskus, 1997). This means the availability and quality of schools also count.
Therefore, children of vulnerable families would stop working and go to school if the family's consumption capacity is increased and the educational facilities improved. Does reality support this hypothesis? In the case of Brazil, the answer is yes.
Brazil is implementing several programs linking income aid for families to better schools for children. Most of these programs originated at the local level. The Federal Government launched a program in 1996 on the basis of local experiments to disseminate the bolsa-escola experience nationwide (3). Initially, the program aimed at benefiting 60,000 children, focusing in 1997 on the most vulnerable groups, i.e., the people working the charcoal burners (in the state of Mato Grosso do Sul), in sugar-cane plantations (in the states of Pernambuco and Rio de Janeiro) and in sisal plantations (in the state of Bahia). The families were receiving between R$ 25 and R$ 50 (US$ 10 and 20, at April 2001 prices) per child attending school.
The number of vulnerable children to be assisted by federal programs was estimated at 800,000 in 1998. This figure, however, actually totaled only 130,000 children, with total expenditures of R$ 80 million (about U$ 32 million, at April 2001 prices) (Previdencia Social, 1999).
More recently, the Federal Law no. 10.219 (April 11, 2001) has extended the "bolsa-escola" program to all areas of the country. The program provides a monthly stipend of R$ 15,00 per child (US$ 6.00 at April 2001 prices) to poor families, up to a maximum of R$ 45,00 per family (US$ 18.00 at April 2001 prices). The total budget for 2001 is R$ 2 billion (US$ 800 million at April 2001 prices). Between April and September 2001, 2 million families had been enrolled. The goal is to enroll 5,8 million families and 10,7 million students until the end of 2002.
The program is highly decentralized. The local governments ("prefeituras") have a close responsability for the implementation and monitoring of the resources. Previous experiences carried on in different counties ("municipios") of Brazil, during the period of 1993-2000 were used as pilot projects. Brasilia is one of them. The enrollment criteria and results are explained bellow.
Brasilia is Brazil´s capital, with more than 2 million people. The social composition of its population is very mixed. Top government executives live side by side with low level civil servants and an enormous amount of poor informal laborers, including some 80,000-working children under the age of 14 years.
In 1995, the Government of Brasília launched a program aimed at reducing the number of working children and increasing the number of children in school (1). The program provided a voucher in the amount of one minimum wage - R$ 100 - (US$ 40 per month, at April 2001 prices) to families which met the following conditions:
1. Each family had to maintain all children between the age of 7 and 14 in school, with a minimum attendance rate of 90%.
2. Families lost the voucher if one of their children missed two or more days of class per month without reasonable justification, which had to be approved by the school’s principal. Regular school attendance and good grades were crucial criteria for a family to continue receiving income aid.
3. Only those families which had lived for more than five years in Brasilia and had a per capita income of 50% (or less) of the minimum wage, were eligible for the program.
4. All unemployed members of the family had to be enlisted in the Public Employment Service and had to be willing to accept whatever available work or training they were offered.
What were the results of such a program? In 1997, the program was assisting about 45,000 poor children and 23,000 families. School attendance was higher than 90%. For poor children with no income aid for their families, the drop-out rate was 11%, whereas for students receiving income aid, it was only 0.4%. The rate of failure, for these two groups was, respectively, 18% and 8% (Secretaria da Educação, 1998).
There seems to be enough evidence that avoiding child labor is feasible when the real causes are frontally attacked. In the case of Brazil, the causes seem to be related to poverty of families and of schools.
The total amount spent with the program was R$ 32 million (about US$ 13 million, at April 2001 prices), which represented 1% of the budget of the Government of Brasília in 1997. The per capita annual spent was R$ 711 (US$ 289), or R$ 59 (US$ 23) per month (2). It may be worthwhile to mention that the maintenance cost of a criminal child in a São Paulo reformatory in 1997, was more than R$ 1.000 per month (US$ 370).
The federal program provides a much lower stipend. R$ 15,00 (US$ 6.00) per child and R$ 45,00 (US$ 18.00) per family may be considered insufficient. However, the poor families live with a monthly per capita income of R$ 65,00; the bolsa-escola stipend (R$ 15,00) represents 23% and R$ 45,00 represents close to 70% of that income. Therefore, a well target program is a substantial help for most of the poor families in Brazil (Camargo, 2001).
In short, child labor seems to decrease substantially when the cause of the problem is handled directly - rather than its consequences. In Brazil, this type of program is succeeding in raising family income, while at the same time improving school availability for children.
Unquestionably, international labor standards, constitutional minimum age, national laws and an explicit prohibition of child labor, are necessary benchmarks for any society. But the effectiveness of imposing labor standards, through international trade, as a means to improve the conditions of workers in poor countries is very doubtful. Their effectiveness in shifting children from work to school is equally debatable.
As Krueger points out: "Compulsory schooling laws can form an important component of child labor policy, but unless communities have adequate schools and families have financial resources, they will not send their children to school, and noncompliance will be rampant (Krueger, 1997: 299).
If countries lack the capacity (or the will) to enforce labor standards, there is little value in the international community pressing for more stringent rules. This energy would be better spent encouraging nations to enforce the laws they already deem adequate - and there are many.
In the case of Brazil, as summarized in this paper, the shift of children from labor to school presents encouraging results when the causes of the problems are dealt with directly, by improving family income and the quality of schools.
A lot of progress is going on in the country on the basis of voluntary actions. Many multinational corporations and large Brazilian companies have established codes of conduct to prevent the use of child labor in the production chain. Indirectly, this action is forcing small firms in several sectors to adopt the same behavior. Many ONGs are supporting important program to combat child labor. Through fiscalization and punishment based on the national labor law (CLT), Constitution and the Law of Protection of Children and Teenagers, the Ministries of Labor, Justice and Social Security - with the support of UNICEF and ILO - are firmly engaged in the combat to child labor. The results have been promising. Consumers themselves are becoming aware of the importance of eliminating child labor in Brazil.
In short, several steps are taking place in the country to cope with this challenge. The picture is expected to be quite different five years from now. But an eventual application of trade sanctions to Brazilian firms would probably block exports in the short run and, as a consequence, shift boys and girls to the worst forms of labor, including, drug trafficking, crime and prostitution - precisely the opposite that Brazil and ILO had in mind when they signed the Convention 182 (1999) which aims to eliminate the Worst Forms of Child Labor.
Although this may not be a problem for importing nations, it is a devastating drama for exporting countries. Social justice seems to indicate a solution that would really treat children with respect and dignity. Labor standards have to be advanced. But this will not happen if the economy regresses.
(1) This program was based on Decree number 16,270 of January 11, 1995, signed by the Governor of Brasília. In July 24, 1995, the state assembly approved Law number 890, which deals with a similar program refered to as Poupança-Escola ("school thrift voucher") through which children aged 7 to 14, with good grades, receive one minimum wage per year, which is deposited in an individual savings account, that can be used after graduation.
(2) The family allowance was also provided during school vacation months, to make sure the children would not return to work.
(3) This program was initially labeled Bolsa de Desenvolvimento (Development Grant), then Bolsa Criança Cidadã ( Child Citizen Grant) and, since May 1996, Programa de Erradicação do Trabalho Infantil ( Program for the Erradication of Child Labor) aimed at attending all poor children aged 7-14 years.
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