The Usage of Core Labour Standards as a Justified Trade Measure
To what extent can domestic regulators use process and production methods measures related to labour standards under WTO law?
N.L. Oostindjer 12th of July 2016
LLM – International Trade & Investment Law Mr. Mathis
Abstract:
This paper researches three main points. The first point is to examine the current state of (the core) labour standards in process and product methods (PPMs), with special attention the (argumentative) differences between social PPMs and environmental PPMs. There are notable differences and the effect is that it is harder to argue in favour of PPMs based on social issues like the core labour standards. This may be an explanation for the difference in (academic) attention given between social PPMs and environmental PPMs. Other contemporary PPM related issues like; cost-externalization, the race to the bottom, Unilateralism and extra-territorialism will be dealt with from a CLS angle. The second point of focus is to examine the current position of (the core) labour standards under international law in relation to WTO law. What should the position of labour standards be and why should it be of importance to the WTO system? Is there an actual need for domestic regulators to take trade measures? The need for domestic regulators to take measures will be established. Developed countries have found ways to deal with labour standards outside of the WTO. The private sector has taken it upon itself to create private standards to meet demands of the consumer and government pressure. This has developed regardless of the finding that it is harder to argue in favour of a justified trade measure on basis of social PPMS. The last and main focus of this paper is to address the question; to what extent can domestic regulators use process and production methods measures related to labour standards under WTO law? What is the room to manoeuvre for domestic regulators when they, and their consumers, value CLS adherent products? The last question is assessed through a case study focused on the textiles industry. This case study is based on contemporary issues in the textiles sector. It will become clear that domestic regulators feel the necessity to take measures against the textiles industry. However the room to manoeuvre is limited within the GATT and the TBT agreements. In a closing statement, it will be argued that the Core Labour Standards are substantive international law and should be taken into account in WTO adjudication. Regardless of the argumentative strength of a (PPM) trade measure based on the core labour standards under WTO law.
1
1 Table of contents... 3
2 Introduction... 4
3 In theory... 7
3.1 PPMs from a CLS angle... 7
3.2 PPM, the PR vs NPR distinction and proximity...10
3.3 The economics behind PPMs... 11
3.4 Externalizing costs versus the aims of a level playing field...13
3.5 The ‘Race to the bottom’ argument...16
3.6 The fears of protectionism... 17
3.7 The need for promotion of core labour standards...18
3.8 Unilateralism & Extraterritoriality...24
4 In practice... 27
4.1 Regulatory freedom... 27
4.2 Labelling... 30
4.3 Increase of Internal Taxes... 35
4.4 Quantitative restrictions... 36
4.5 Licensing... 37
4.6 General Exceptions XX... 39
4.7 Punitive tariffs & A Total Ban... 40
4.8 A case for compensation... 41
4.9 WTO and its relation to International Law...42
6 Bibliography... 47
2 Introduction
The issue of process and products methods (PPM) has been much debated in the literature.1 Especially the environmental angle has received considerable attention. Social issues, such as labour standards, have not received the same level of attention. Even though these issues can be considered as pressing in their own right. When labour standards do receive attention it is generally in a different context outside of the WTO system.2 In articles related to WTO law the issue is not seldom addressed analogous to environmental concerns and in some cases the differences between social issues and environmental issues are noted but not thoroughly explained.3
Although environmental concerns and social issues related to PPMs are in many instances used analogous, much of the argumentation hinges on examples related to environmental concerns. There are fundamental differences between social PPMs and environmental PPMs. These differences make it harder to advocate in favour of incorporating social issues such as labour standards into PPM measures.4 The differences of argumentation will be shown throughout this paper. Most notably in 3.2 and 3.3. The differences in argumentative strength may also be why social issues are less valiantly defended by examples in the literature. Moreover, this may very well explain the discrepancies in the levels of attention given. To add to this distinction,
1 A search of the UvA catalogue, http://lib.uva.nl/primo_library/libweb/action/search.do?vid=UVA , on the criteria of ‘PPM + WTO’ found 30 articles in period 2000 – 2005, 16 of these were explicitly about environmental concerns. 1 was explicitly about social issues. The same search for the period 2006 – 2010 reveals 14 articles of which 7 deal with environmental concerns. 1 deals with social concerns. Lastly, a search of the period 2011 – 2015 turned up 16 articles of which 8 deal with environmental concerns opposed to 3 dealing with social issues. This is by no means a comprehensive quantitative search. However it is exemplary for the attention given.
2 In the Singapore Ministerial Declaration 1996 the importance and the position of labour standards was reaffirmed. It was to be deal with within the International Labour Organisation. The text is available online, [online via www.WTO.org, accessed on 10-04-2016].
3 Jason Potts, The legality of PPMs under Challenges and opportunities for sustainable trade policy, IISD, 2008, p. 7. The article states that ‘Both social and environmental goods raise identical issues
with respect to the internalization of the costs of sustainable practice.’
4 Howse & Regan, The Product/Process Distinction – an illusory basis for disciplining ‘unilaterlism’
the prime PPM examples in WTO case law are about environmental issues. An overview of this argument will be given in 3.1.
Even though the attention for social issues in PPMs under the WTO leaves to be desired, the need for recognition of labour standards under international law remains relevant today. It has been over 3 years since the Rana Plaza disaster, the disaster that reanimated the interests of working conditions in the developing world.5 The devastation has been a prime example for labour (and human) rights activists and consumers of exactly all that is wrong with labour conditions in the developing or poorer countries. Apart from a debate about low-wages the workers were facing other, even more fundamental, problems leading up to the catastrophe. These included uncertainty about their personal safety. Cracks in the Rana Plaza building had workers worried for quite some time before the accident. However the workers weren’t in the position to form an association to address the issue collectively.
The issue of labour standards is not limited to work safety or the ability to associate. Similarly child labour is still a prevalent issue in continuously globalising supply chains today. With an estimated 168 million children in forced labour with 85 million children doing hazardous work.6 It is hardly defendable that labour standards do not, or should not, play a key role in international law. Especially since these issues are the bare minimum in labour standards.
A way to combat aforementioned excesses is to adopt universal standards. These standards exist within the International Labour Organisation (ILO) conventions. The ILO in Geneva is a UN agency that is committed to promoting decent work for all men and women.7 To achieve its goals the ILO has drawn up multiple conventions that can be joined by countries that are willing to adhere to labour standards. Currently the ILO consists of 189 conventions.8 Any member state to the ILO is
5Author unknown, Bangladesh workers protest as building collapse death toll passes 400, The Guardian, 01-04-2013, [online via www.theguardian.com, accessed on 11-04-2016].
6 Author unknown, End child labour in supply chains: It’s everyone’s business, ILO, 12-06-2016, [online via www.ilo.org, accessed on 15-06-2016].
7 The objectives of the ILO can be found [online via, http://www.ilo.org/global/about-the-ilo/lang--en/index.htm, accessed 12-04-2016].
8 The ILO database can be accessed [online via http://www.ilo.org/dyn/normlex/en/, accessed 12-04-2016]
obligated to ‘promote and to realize, in good faith and in accordance with the
Constitution, the principles concerning the fundamental rights which are the subject of those Conventions’.9 These fundamental rights are known as the core labour standards (CLS). These rights are labelled as ‘universal’ and to ‘apply to all people in all states’.10 With a number of 187 member states these rights seem to be shared globally.
The choice for the focus of CLS rather than other labour standards has been a deliberate one. The CLS set a bare minimum standard. A standard that is shared, on paper, almost globally. The argumentative strength of CLS is therefore notably stronger than other labour standards. However, general terms such as social PPMs or labour standards may also be taken into account.
There are 3 main points of focus in this paper; the first point is to examine the current state of (the core) labour standards in PPMs, with special attention to the differences with environmental PPMs. The second point of focus is to examine the current position of (the core) labour standards under international law and under WTO law. What should the position of labour standards be and why should it be of importance to the WTO system. The last and main focus of this paper is to address the question; to what extent can domestic regulators use process and production methods measures related to labour standards under WTO law? What is the room to manoeuvre for domestic regulators when they, and their consumers, value CLS adherent products?
9 ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up adopted by the International Labour Conference at its Eighty-sixth Session, Geneva, 18 June 1998 (Annex revised 15 June 2010) [online via, http://www.ilo.org/declaration/thedeclaration/textdeclaration/lang--en/index.htm, accessed 12-04-2016]
3 In theory
3.1 PPMs from a CLS angle
PPMs, have been a controversial subject under WTO law.11 Thanks to this controversy this subject has received a lot of attention in the field of international economics, international economic law and environmental law. Due to the great amount of attention it is best to briefly highlight the scholarly positions on this topic. This will accompanied by a CLS angle.
Domestic regulators increasingly feel the need to impose restrictions on the sale of goods because of the way these goods are produced.12 The reasons such restrictions are being considered are manifold. In some cases the producers are damaging the environment. In other cases there is little interest for the labour conditions of the workers. In any case the common denominator is the negative effects caused by the producers on the environment, human health, animal health and plant life.13 The main motivation for domestic regulators, in considering taking PPM measures, is to prevent or protect the consumer from buying these goods because of the harm they pose to society, or in a broader sense the harm they pose to the global society. Even though the effects may not directly be felt within the country that considers taking a measure, there can be risks of the negative effects spilling over a nation’s borders.
The reasons behind the PPM controversy can be set out in two components. Firstly, PPM measures make it costlier for foreign producers to operate on the domestic market of the country taking the PPM measure. Secondly, the PPM measure is a sign to the foreign market that its practices and laws are insufficient. Insufficient
11 The WTO secretariat calls it ‘A particularly thorny issue’ in regard to ‘eco-labelling’. Environment issues: Labelling, [online via https://www.wto.org/english/tratop_e/envir_e/labelling_e.htm, accessed 15-04-2016].
12 World Trade Report 2012, WTO, 2012, p. 50.
13 This was worded similarly to the wording of the WTO agreements as a non-exhaustive overview of issues that may concern domestic regulators.
is meant in a broad sense; it could be that there are negative effects, the methods used are out-dated or that the method is outright distasteful to the domestic market. Consistently the idea is that the PPM of the exporting country is not on par with the standards of the country taking the measure regardless of the actual reasons.
The main controversy tied to these components is that taking a PPM measure can be seen as a protectionist and unilateralist approach to international trade law. A practice that is counterintuitive to the system, as one of the goals of international trade law is to regulate trade flows in a multilateral system and to limit the use of unilateralist acts.14
Another controversy is extraterritoriality. It is the notion that a country invades or violates the sovereign rights of another country.15 PPM measures may have the effect of coercing another sovereign country to adopt practices they would have not adhered to otherwise. Whether this is ‘wrong’ and whether this is inevitable in an interdependent world economy is open for discussion.16 Unilateralism and extraterritoriality are discussed in section 3.8. The two notions, unilateralism and extraterritoriality, are in many cases intuitively intertwined however these serve different ends of a spectrum and will be examined in light of CLS.
A more practical controversy is the question whether a PPM measure serves a legitimate aim. As Charnovitz has described it, is it ‘a covert tool of protectionism’ or ‘an appropriate instrument of environmental policy’.17 The debate is split; some would argue that there is no place for PPM measures at all in the WTO system.18 Meaning that such measures are or should be illegal per se. However the question rises, when such measures are found to be tolerable, what measures would be consistent with
14 Brewster, Shadow Unilateralism: Enforcing International Trade Law at the WTO, University of Pennsylvania Journal of International Economic Law, 2009, p. 1134.
15 Howse & Regan, The Product/Process Distinction, an illusory basis for disciplining _unilaterlism_
in trade policy, EJIL, 2000, p. 274
16 This is beyond the scope of this paper. In the bigger picture these subjects deserve more intention. 17 Charnovitz, The law of environmental “PPMs” in the WTO: Debunking the Myth of Illegality. Yale journal of international law. L. 59, 2002, p. 61
18 Schoenbaum, International Trade and Protection of the Environment: The Continuing Search for
WTO law. This question mainly plays a part on a legal substantive level and discussed in section 4.
PPMs as a ‘covert tool of protectionism’ is a very prevalent critique mainly evocated by developing countries. It follows the argument that developed countries have an incentive to impose higher product (related) standards upon lesser-developed countries for the purpose of protecting their own domestic markets.19 Directly opposed to this view are social and environmental advocates. Blaming the WTO for not taking into account their issues whilst being disappointed by the lack of enforcement under international law. Protectionism is further discussed in-depth in section 3.5.
From a labour activist’s point of view one could ask: Why would labour standards, an issue that is so closely related to the PPM of products not play a reasonable part within WTO dispute settlement? It seems that the question of allowing PPM measures within the WTO is to adhere to the different interests and positions and would ultimately turn out to be, yet, another balancing act. By the outsets it is clear that PPM measures could prove a tool to temper the negative effects of certain practices. States would be ‘nudged’, or to use negative wording ‘coerced’, to adopt better standards. Most certainly the proponents would find the aim of the measure, to mitigate appalling low labour standards, to be justified. The goal would be to bring PPMs in compliance with the CLS, in order to improve working conditions. However the fear is that this could open a Pandora’s Box of protectionism. Additionally the number of cases dealing with the question whether a certain aim is ‘legitimate’ would likely go through the roof.
3.2 PPM, the PR versus NPR distinction and proximity
19 Any attempt to bring labour standards into GATT was seen as a protectionist move from the US by developing countries during the Singapore rounds. See the Singapore ministerial declaration 1996, WTO, Integration of economics opportunities and challenges, [online via
https://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec_e.htm#integration_of_economies_op portunities_and_challenges, accessed 20-04-2016]
In the consideration of PPM measures as a tool it has to be noted that there is a classic and much criticised distinction between product related (PR) and non-product related (NPR) PPMs. There have been slightly varying definitions of what the theoretical difference is between PR and NPR. One definition states that the distinction lies in PR being related to the use and functionality of the good itself and that NPR is a designed measure to achieve a social purpose regardless of the needs of the consumer.20
The determining factor of the PR and NPR distinction seems to be the proximity of the PPM in relation to the product. Arguably if it is so closely related as to leave physical traces in the product it is product related.21 This proximity matters, as it would be easier to argue products are not ‘like’ when the physical traces are more evident, thus the product characteristics will likely differ.
This difference also matters to social PPMs, like PPMs that adhere to CLS, because it is hard to conceive labour standards leaving physical traces in a product. Thus, the PPM proximity to the product will be greater and to argue that products are not ‘like’ will be more challenging. This is where environmental PPMs in some cases might differ from social PPMs. Environmental PPMs are, in some cases, more likely to leave a trace. A prime example of this has been the EC – Asbestos case. Where the asbestos fibbers caused a health and environmental issue. Or the EC – hormones case could serve as an example where environmental concerns leave traces in the product.22 As this paper is directed towards social issues PPM measures it is important to identify the type of PPM measures that relate to this subject matter. Within the NPR and PR distinction it is difficult to conceive a PPM related to social issues that will leave a physical trace in the product. If we take the ILO CLS as an example, it is highly difficult if not impossible to imagining a PPM that is product related.
20 Steve Charnovitz, The law of Environmental ‘PPMs’ in the WTO: Debunking the Myth of Illegality, Yale J. Int L 59, 2002, p. 65
21 Van den Bossche, Schrijver & Faber, Unilateral Measures Addressing Non-Trade Concerns, A
study on WTO Consistency, Relevance of other International Agreements, Economic Effectiveness and Impact on Developing Countries of Measures concerning Non-Product-Related Processes and Production Methods. The Hague: the Ministry of Foreign Affairs of The Netherlands, 2007, p. 23
22 Albeit these examples are generally related to human health issues combined with environmental concerns.
The four core standards, freedom of association, elimination of forced labour, the abolition of child labour and the elimination of discrimination in employment are matters that will not leave a directly traceable difference in the product. Beyond the CLS, such issues as a safe work environment, fair wages and humane working hours are also not traceable in the product. In this regard social issues related PPMs could be set apart from environmental PPMs.
3.3 The economics behind PPMs
To understand why PPM measures are of interest it is important to have a short insight of the economics behind PPMs and free trade. One of the economic principles underlying free trade and thus the WTO system is the Ricardian theory of comparative advantage. Everyone who studies WTO law has come across this theory. It is the main justification for engaging in free trade.23 The strength and appeal of this theory lies in its simplicity and its irrefutability. The idea of different nations specializing production in which they have a comparative advantage is still relevant today.24 However the simplicity of this theory has the downside that other relevant and important effects are not specifically taken into account. The theory is neutral to effects that are closely related to the way things are produced, PPMs. There is no specific attention for labour standards and environmental concerns.
On a microeconomic scale, in a free trade economy, the costs of the factors of production must be as low as possible in order for a producer to be competitive. Meaning that producers have an incentive to cut corners with the factors of production. Labour is one of the factors of production that is under pressure.25 It is ultimately a question of distribution of wealth, who gets what? In classical theory,
23 Krugman, Obstfeld & Melitz, International Economics: Theory & Policy (9th edition), Addison-Wesley, 2012, p. 21
24 Stilwell, Political economy - the contest of economic ideas, Oxford University Press, 2012, p. 66 25 This ties in with another Ricardian theory, the cost-of-product theory of value. It deals with the question, what determines the price of a product. The theory states that the price is made of the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production.
workers receive wages, landowners receive rent and capitalists receive profits. Wages are the reward for supplying labour but in reality not a worker’s only concern.
In some sense the conditions of labour may even matter more. Due to competition in the market a producer will be forced to keep his costs down. Since producers have an exterior motive to compete with other producers and an interior motive to maximize profits, the factors of production will always be under pressure to be as low costs as possible. This places a potential strain on labour standards and environmental concerns. As corporations increasingly operate on a global market the effects of competition are aggregated. This will in principle create tension and cause conflicting interests between various objectives of international law such as human rights and environmental law on one hand and international trade law on the other. Since states are the subjects and main creators of international law it is up to them to represent these interests internationally.
It has been argued that a likeness test for based on PPMs26 would be incompatible with the theory of comparative advantage. This is because in many cases the comparative advantage will stem from differences in PPMs. Thus making a distinction on basis of PPM would undermine the economic rationale for international trade.27 However a logical assessment of the comparative advantage would rebut that claim. Since a comparative advantage is a relative advantage vis-à-vis another state (or producer in another state) on basis of opportunity cost. Interfering in the opportunity cost by diminishing it through regulation does not completely eliminate it. This is because the advantage is always relative to another state (or producer in another state). The main effect it will have is that fewer goods will be traded among states. But the positive effects of trade will remain. The theory does not state that the volume of trade has to be maximized or that the production has to be done in the most efficient way possible.
Thus the main point of Ricardian theory remains, trade between states is beneficial. The question rises whether some PPM practices are worth the eventual loses. Additionally, if all producers were to adhere to CLS standards the equal level
26 Opposed to a likeness test related solely to the product.
27 Melischek, The Relevant Market in International Economic Law: A Comparative Antitrust and
playing field would be respected and no state (or producer in a state) would feel cheated. As can be argued, by not adhering to the bare minimum labour standards (or environmental standards) the cost of production are externalized by producers. Externalizing the cost versus the aims level playing field will be dealt with in the following chapter.
3.4 Externalizing costs versus the aims of a level playing field
One of the aims of the WTO system is to create a level playing field for all market participants.28 The creation of a level playing field is at odds with the externalization of costs by producers. By externalizing the cost it is meant that producers don’t carry all of the costs related to their production. Some of the costs of production are shifted to other parties, such as individuals, the state and (the international) society as a whole. In light of the previous chapter, producers don’t always carry the total costs of the factors of production. They have an economic incentive not to do so.
In this context environmental concerns begin to differ from labour concerns with regard to these externalities in two main ways. Firstly, for environmental concerns it is easier to assess what costs producers are shifting upon other parties. Secondly it is easier to establish a causal link between the damage and the damage causing acts.
A clear environmental example of this is the emission of CO2 in the atmosphere. In exhausting CO2 into the air, producers shift the burden upon international society as a whole.29 It is definable what effort it will take to reverse damage done to the environment by asking how much it will cost to reverse damage
28 Preamble of Marrakesh agreement reads ‘the contracting parties desire to contribute to these
objective through this agreement by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to elimination of discriminatory treatment in international commerce.’ Moreover on the site the question of what is the
WTO is answered by explaining the WTO is a forum aimed at reducing obstacles to international trade
and ensuring a level playing field for all. [online via
https://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm, accessed 04-06-2016]
29 A similar exercise can be done with other examples such as; the dumping of toxic materials, the usage of harmful substances during production, the usage of non natural degradable materials, etc.
done to the environment? How many trees need to be planted to remove the excess amount of CO2? By no means is it always an easy task to assess the damage. In some cases it may not be possible to reverse the negative effects, but under such circumstances victims could be adequately compensated. It is theoretically possible to deduct when producers externalize the costs and thus when they have an unfair competitive advantage.
To add to this it is generally easier to show a causal link between the effects and the act. In the example of CO2 emission a simple measurement of the exhaustion by a producer’s exhaust vents would show how much is being emitted.30
With regard to social issues, and specifically CLS, it is less clear what should be considered unfair competition. In the case of child labour it is difficult to assess what costs are shifted upon other parties. How do you value the missed opportunity to have gone to school? How do you assess the missed future increased income a child would’ve had through education? By looking at the child’s underdeveloped talent? What are the costs to society? These costs are much more abstract.
Also the causality between the damage and the act is more opaque. In a moral sense society seems to think child labour is wrong. But economically this is not always a given in many states. The combination of child and labour is interpreted differently by different cultures. The damage is generally abstract and the causation therefor unclear. To assess what damage is done there has to be a normative assessment that serves as a basic point of reference. This normative assessment may be less compelling as an argument than the tangible negative effects of bad environmental practices. Therefor it is harder to argue in favour of labour standard norms.
It is argued that non-compliance with any international recognized labour standards leads to a comparative cost advantage for producers that violate these standards.31 This in fact is an unfair practice. In the search for a basic normative point
30 Notwithstanding that producers will always look for ways to cover their tracks. This exercise can also be done with the examples mentioned in footnote 30.
31 Wolfgang & Feuerhake, Core labour standards in World Trade Law: the necessity for
incorporation of core labour standards in the World Trade Organization, Journal of World Trade,
reference there are non-exhaustive amount of questions that can be asked. Is it unfair competition when a producer cuts costs on protective gear, whilst endangering his personnel, in order to be more competitive? And this is one of the main problems of labour standards - states agree to disagree on its application. However CLS are the only labour standards norms that are shared globally, on paper at least.
Ultimately the unfair practice of externalizing costs goes against the idea of market efficiency. Although the individual producers will enlarge his gains in the short-run, possible damaging effects due to production will ultimate render it inefficient on a larger scale. Internalizing cost by the producers is in economic terms considered more efficient.32 Ultimately part of the costs will be borne by the consumer via the purchasing price of goods.
3.5 The ‘Race to the bottom’ argument
Closely related to the notion of unfair competition is the race to the bottom argument. This argument has the tendency to pop up once there is a discussion about competing states and domestic regulation.33 It is the assumption that when states compete economically under free market circumstances this will put domestic regulation under pressure in order to be competitive. It’s a classic prisoner’s dilemma, domestic regulators are always fearful that other states will outcompete their state.34 Domestic regulators tend to want combat domestic negative effects of the free market by using regulation. However since international free trade has national markets compete
32 Conrad, Process and Product methods in WTO Law, interfacing trade and social goals, Cambridge University Press, 2011, p. 466
33 Ankersmit, Lawrence & Davies, Diverging EU and WTO perspectives on Extraterritorial Process
Regulation, Minnesota Journal of International Law Online, 2012, p. 17.
34 Alben, GATT and the Fair Wage: A Historical Perspective, Columbia Law Review, Vol. 101, No. 6, 2001, p. 1431.
against each other domestic regulators are prone to make their market more competitive. Domestic regulators therefore are reluctant to take new measures and are induced to give more leeway considering excising ones.
This is inline with international free market doctrines that seems to promote in favour of a laissez-faire approach. On a micro economic scale regulations are generally targeted at the production circumstances and therefore have the potential of raising the costs of factors of production. Meaning that labour conditions tend to suffer. For less competitive states that lack a knowledge-based economy within their border this situation is more likely to occur.35
Although lowering labour standards might be the first reflex there are other ways in dealing with this competition. States can invest in education, training and technology or states could scrutinize domestic regulation to cut on compliance costs.36 However developing countries and LDCs don’t always have the opportunity to make these decisions. Developing countries and LDCs fear any restriction on their specific advantage, low cost labour.
3.6 The fears of protectionism
The fears of a protectionist intent by developed countries vis-à-vis developing countries and LDCs are well described by Thomas Niles, former US diplomat. In the Singapore and Doha rounds developing countries have had no interest to discuss labour in the trade context. ‘To them [developing countries], efforts to place labor on
the multilateral agenda are bad-faith attempts at protectionism that directly violate paragraph five of the ILO declaration on Fundamental Principles and Rights at Work, which stresses that labor standards should not be used for projectionist purposes.’37
35 Howse & Trebilcock, The fair trade-free trade debate: Trade, labor and the environment, International Review of Law and Economics, 1996, p. 65
The fear of developing countries is two-faced. Firstly there is the fear that developed countries will enforce higher, maybe unattainable, labour rights into the WTO system that will effectively undercut the competitive strength of developing and LDC countries.38 Since the costs of the factors of production will rise, these are mainly the factors in which developing countries and LDCs have a competitive advantage such as low labour costs and labour related costs. Secondly there is the fear that developed countries will use the labour rights as a legitimate basis to take protectionist measures.
The failure of negotiations thus far is a sign of the deep mistrust between the developed world and the developing world. In an economical sense the ILO conventions on the labour standards have met the concerns of the developing countries and LDCs too not to interfere with the principle of comparative advantage. It is expressly stressed that labour standards should not be used as means to serve protectionist ends.39 Apart from the fears of protectionism there is still a pressing need to for the promotion of labour standards.
3.7 The need for promotion of core labour standards
But what exactly are the effects domestic regulators would be interested to mitigate? If we look at the EU and US we see they value adherence to internationally recognized labour standards in their relations to other states. Firstly they participate to achieve the goals set in ILO conventions.40 41 An example of this is would be the
37 Tom Niles, former US diplomat, cited in Labor: race to the bottom or race to the top? (Symposium:
The United States, The Doha Round and the WTO – Where do we go from here?, Panel Disucussion, p.
818
38 Lee, Globalization and labour standards: a review of issues, 136 Int'l Lab. Rev. 173, 1997, p. 177 39 Article 5 of the ILO Declaration on fundamental principles and Rights at Work, 1998.
40 Regulation 978/2012 sets out principles in the EU’s external commercial policy specially mentioning the core labour standards by the ILO.
41 The EU itself is not a signatory party, its member states are. However the EU actively participates in the debates, see also [Online via http://www.ilo.org/brussels/ilo-and-eu/lang--en/index.htm, accessed 20-06-2016]
inclusion of labour standards in their Generalized System of Preference programmes, by the US and the EU.42 There is an overall increasing interest in promoting sustainability and good governance.43 This trend towards sustainability and good governance is also visible under consumers pressing their governments to more adherence to these values.44
On a product level consumers are dependent on other parties to help them to make informed decisions. Governments are capable of adopting regulation to help consumers to make informed choices. There is by no means consensus what way consumers are best informed and what the right choice is. However governments are in the position to take action and have done so.45
The consumers’ right to be informed about the contents of a product or circumstances under which a product was made should be distinguished from the PPM debate. Under the former the consumer might choose not to buy products that are made by means of forced labour. Under the latter the choice is made for the consumer, products can be deemed unlike because of how they are made. A way to inform consumers has been labelling, a contentious subject under the WTO.46 Labelling, or any obligation to supply information about the supply chain can be a significant barrier to trade.
Governments that seek to strengthen or protect CLS can do so in accordance with international law. Under international law violations of the rights of workers are met with an ambiguous view. There is the idea that some worker rights are inalienable
42 Tariff cuts are granted to countries, which ratify and implement core international conventions relating to human and labour rights, environment and good governance. [Online via,
http://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-of-preferences/, accessed 21-06-2016] Through the Enabling Clause, adopted in the Tokyo Rounds after years of de facto practice, developed countries can engage in preferential trade with developing countries and LDCs by waiving the Most Favourite Nation (MFN) principal,[online via,
https://www.wto.org/english/docs_e/legal_e/enabling_e.pdf, accessed 21-06-2016] 43 Regulation 978/2012 paragraph 11
44 Secretary-General OECD, Promoting Sustainable Consumption: good practices in OECD countries, 2008, p. 7
45 Ibid, pp. 7-8
46 For instance, the EC – hormones case was about the labelling of beef products containing hormones imported from the US. The EC demanded labelling to inform the consumers about how the product was made, by adding growth hormones during the product process.
to the virtue of being human and therefor are human rights. Other rights are seen as economic rights and are seen as less fundamental.47 There is a link with between labour standards and human rights.
The main international recognized labour standards have been codified in eight ILO conventions and are commonly revered to as core labour standards (CLS).48 The CLS consist of freedom of association and right to collective bargaining, the elimination of all forms of forced or compulsory labour, the effective elimination of child labour and the elimination of discrimination in respect of employment and occupation.49 The CLS have the potential to be full-fledged fundamental human rights,50 but the current approach is more to be categorized as a set of principles enforced by soft ‘promotionalism’.51
This is one of the main points of critique of the ILO structure and stands in contrast to the wide acceptance, nearly universal, of the 1998 declaration.52 There on-going debate whether the CLS should be considered customary international law.53 This is of significance for two reasons. Firstly it strengthens the idea that CLS are a legitimate concern of states and strengthens the legitimacy of actions vis-à-vis other states. Secondly, a point related to the first, non-signatory states would also be bound to the CLS were it to be found customary international law.54 Classically, problems
47 Addo, Core Labour Standards and International Trade: Lessons from the regional context, Springer, 2014, p. 125
48 As set out in the ILO Declaration on fundamental principles and rights at work, [Online via
www./ilo.org/declaration/lang--en/index.htm, accessed 21-06-2016] 49 ILO conventions numbers 29, 87, 98, 100, 105, 111, 138, 182.
50 Addo, Core Labour Standards and International Trade: Lessons from the regional context,
Springer, 2014, p. 128.
51 Alston, Core Labour Standards’ and the Transformation of the international Labour Rights regime,
2004, European Journal of International Law, Vol.15, Issue 3, pp. 518-519.
52 Current membership totals 185 countries, members agree to the 1998 Declaration on fundamental principles and rights at work and the follow up convention [online via
http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:1:0, accessed 22-06-2016].
53 Addo, Core Labour Standards and International Trade: Lessons from the regional context,
Springer, 2014, p. 116.
facing CLS would be its establishment as customary international law and the actual enforcement of these rights by a forum.55
As an instrument the ILO and its conventions have been criticized for being too soft.56 Even though the ILO sets an international standard to uphold, there is no enforcement mechanism other than naming and shaming in publications. This means that the main safeguard against violations by governments of the CLS norms is public pressure. Various NGO’s and interest groups contribute to the investigation of the compliance of states with CLS norms. Since the safeguard of human rights has increasingly become a shared international responsibility, states may be increasingly concerned with labour conditions to which the consumers in their territories contribute. A weak international enforcement mechanism forces states to look for other solutions.
The lack of sanctioning power in the ILO stands in contrast to the institutionalized retaliation system and the Dispute Settlement System of the WTO. The question remains how the CLS could be incorporated within the WTO dispute settlement mechanism in order to give it meaningful effect. As a form of customary international law it could be a factor within the adjudication process before the stage in which the exemptions are looked at. Or at least a factor that can be an exception. In such a case it would elevate CLS from a moral norm outside the WTO to an actual argumentative instrument. This would boost the enforceability of CLS. In the described case it would be an argument of defensive nature during a WTO case.
The lack of international enforceability of CLS combined with frequent public outcries has had two discernable effects. Firstly, companies have searched for ways to avoid reputational damages or boost public image by adopting corporate social responsibility programs resulting in private standards.57 Secondly, states have
55 Milanovic, Extraterritorial Application of Human Rights Treaties: Law, Principles, and Policy, Oxford University Press, 2011, p. 3.
56 Howse & Trebilcock, Trade Policy & Labor Standards, Minnesota Journal of Global Trade, issue 2, 2005, p. 270.
57 Newitt, Private Sector Voluntary Initiatives on Labor Standards, background paper for the World
Development Report 2013, 2013, p. 5, [online via www.siteresources.worldbank.org, accessed 25-06-2016].
displayed an increasing interest in adopting higher labour standards in the context of Free Trade Area’s (FTAs).58
Social responsibility programs such as private standards have been a phenomenon since the late 80’s. 59In reaction to multiple public outcries and under pressure of consumer wants and social activism, companies have increasingly adopted private standards in order to improve labour standards in their supply chains. A recent example of a public outcry related to CLS is the report of child labour by Syrian refugees in the textiles industry in Turkey.60 Corporations invest large sums into advertisement and have become increasingly aware of the impacts of negative publicity related to controversies in their supply chain. The Internet and social media may enhance the likelihood of and the effects of bad publicity.
Private standards are responsive to external pressures like government regulation, the scrutiny by NGO’s and public opinion.61 Moreover studies have showed that a mixture of private and public standards may be necessary to enforce labour standards in a supply chain.62 In this light it seems defendable to grant regulators more tools to set labour standards as it may trigger change across the board. A critique that can be formulated against private standards as a substitute to law isthat workers shouldn’t be dependant on the altruism or fear of reputational loss by corporations. In a similar fashion, similar cases shouldn’t be handled differently just because a worker happens to be working in a different supply chain. Especially considering the CLS are a bare minimum standard to adhere to.
58 Agustí-Panareda, Ebert & LeClercq, Background paper Labour Provisions in Free Trade
Agreements: Fostering their Consistency with the ILO Standards System, International Labour Office,
2014. p. 7, [Online via http://www.ilo.org/inst/projects/, accessed 25-06-2016].
59 The Clinton administration was a proponent of private standards in 1994 after having met opposition to the inclusion of labour standards during WTO negotiations in 1991, L. Compa, Enforcing International Labor Rights through Corporate Codes of Conduct, Cornell University, 1995, p. 675. 60Johanisson, Hidden child labour: how Syrian refugees in Turkey are supplying Europe with fast
fashion, The Guardian, 29-01-2016, [online via http://www.theguardian.com/, accessed 26-06-2016]. 61 Richard M. Lock, Across Boundaries: The Global Challenges Facing Workers and Employment
Research 50th Anniversary Special Issue, Volume 51, Issue 3, pages 519–552, 2013, p.543.
The view that labour standards should only be dealt with within the ILO conventions is not well reflected in the bilateral or multilateral trade agreements. In general the popularity of trade agreements outside of the WTO has been on the rise.63 Within these trade agreements the US have in many cases incorporated labour standards.64 General wording used by the US goes along the following lines. “The
Parties reaffirm their obligations as members of the International Labour Organization (ILO) and their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (1998) (ILO Declaration). Each Party shall strive to ensure that such labour principles and the internationally recognised labour principles and rights set forth in Article 18.8 are recognised and protected by its law.”65 For years now the US have had a practice of
including Labour standards in trade-agreements. In similarly fashion the EU has incorporated similar wording in several of their regional trade agreements.66 In some cases the EU has made a reference to the ILO conventions.67 In other cases the EU reserves the right to limit import in cases of public morality.68
The incorporation of labour standards in trade agreements seems to be a practice of developed countries. The inclusion of labour standards by predominantly developed countries can be seen as a response the shortcomings of the WTO. Labour standards are not the sole drive that leads states to seek a solution in RTA’s but it can
63 In the past 10 years a figure 157 trade agreements have been concluded outside of the scope of the WTO, under either GATT Art. XXIV & GATS Art. V or the enabling clause.
64 The U.S. has incorporated a reference to the ILO in all of their Regional Trade agreements with South American countries. [online via http://rtais.wto.org/UI/PublicSearchByMemberResult.aspx? MemberCode=840&lang=1&redirect=1, accessed on 30-06-2016]
65 See for instance the Regional Trade agreement between the US and Chile, [online via
https://ustr.gov/sites/default/files/uploads/agreements/fta/chile/asset_upload_file853_4012.pdf, accessed 30-06-2016]
66 In random order, The EC-Chile Free Trade Agreement, The EC-Mexico Free Trade Agreement, The EC-South Africa Free Trade Agreement, The EC-‘Overseas Countries and Territories’ (OCT/PTOM II) Free Trade Agreement. Euro-Mediterranean Agreements (Algeria, Egypt, Lebanon, Morocco Tunisia and Israel.) European trade agreements with former member candidates. (Czech Republic, Bulgaria, Hungary, Estonia, Latvia, Lithuania, Poland, Romania, Slovenia and Slovakia). Association agreement with Ukraine. EC – Turkey customs union.
67 See the trade agreement between the EC and Chile article 44, [online via,
http://trade.ec.europa.eu/doclib/docs/2004/november/tradoc_111620.pdf, accessed 30-06-2016]. 68 See the agreement on the customs union with between the EC and turkey article 7, [online via
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:1996:035:FULL&from=EN, accessed 30-06-2016].
be seen as a contributing factor. Ultimately this undermines the relevance of the WTO. Alternatively states can be indulged to seek unilateral solutions.
3.8 Unilateralism & Extraterritoriality
Purely unilateralist concerns that are not supported under international law will receive more scrutiny under WTO law. This is dependant of the extraterritorial effects of the measure. If no such effects are present there is no interest for enforcement of WTO law. In US – Shrimp it mattered whether the state had attempted to negotiate a treaty with regard to the chapeau of article XX.69 It is the idea that states should refrain from taking measures singlehandedly. Unilateralism is perceived a threat to the multilateral trading system for its potential to restrict market access.70 It is seen as potentially protectionist. This does pose questions to the status of the CLS in relation to PPM measures under WTO Law. Under what circumstances should it be allowed for PPM measures related to the CLS to be taken? It’s ultimately a balance of interests.
A problem with measures based on PPMs is, next to being controversial in the WTO system, the extraterritorial effects of such measures. Extraterritoriality can be defined as exercising jurisdiction in the jurisdiction of another state. It is the idea of invading upon the sovereign rights of another state. However PPM measures do not create direct extraterritorial effects per se, the extraterritorial effects of PPM measures are indirect. Producers in other states can always choose any production or process method they wish, it is upon importation the actual barrier arises.71 The rationale behind taking PPM measures may not be to change or to force regulation upon another state but to protect domestic consumers from making certain choices.
69 US – Shrimp Appellate Body report, 1998, WT/DS58/AB/R, para. 27
70 Charnovitz, The law of environmental “PPMs” in the WTO: Debunking the Myth of Illegality. Yale journal of international law. L. 59, 2002 p. 108
71 Howse & Regan, The Product/Process Distinction – an illusory basis for disciplining ‘unilaterlism’
An objection to the argument that PPM measures are not extraterritorial per se is that states have no legitimate interest when the effects are solely felt outside of their borders. This argument especially targets PPMs related to social issues since the effects will always be outside of the importing country. This is where environmental issues and social issues differ. Environmental issues have a bigger potential to cause effects outside the area of occurrence. For instance, the dumping of toxins during production ignores country borders. In contrast social issues are generally felt on an individual level. Of course there are effects upon society, for instance education levels drop when children start working at early ages. Be that as it may these effects generally do not have the tendency to spill over to other states.72 And when social issues do cause effects that spill over it is difficult to target a social issue such as low labour standards as the prime catalyst. This makes it harder to legitimize taking PPM measures related to social issues by pointing to the effects.
The argument that states have no legitimate interest in restricting effects of social issues that solely occur outside of their borders by pointing to moral objections, and more specifically to overriding norms of human rights law. In light of the latter argument it was earlier established that the CLS might be recognizable as customary international law. This strengthens the idea of the CLS as being a legitimate concern due the universality of the norms regardless of the claims of extraterritoriality.
The problem of extraterritoriality can easily be turned around. If a state does not want a certain production method to be used out of principle, wouldn’t forcing that country to accept different methods be the same breach of its sovereign rights? Of course, by entering into treaty obligations voluntarily the state restricted its sovereign right, the right to control market access. But the main obligation is to refrain from discriminating on basis of country of origin not to refrain from conditioning market access.73 Howse and Kegan have described this situation perfectly on the situation of shrimp. ‘If ‘sovereignty’ is the issue, one could as well say that to deny the importing
country the right to exclude shrimp caught by a method it abhors [set a market
72 It should be noted that social issues such as low labour standards and minimal protection can cause problems such as civil unrest, migration and war. However the social issues are generally one of many conditions that cause such dramatic effects. The causality between the cause and effects is generally more obscure.
73 Howse & Regan, The Product/Process Distinction – an illusory basis for disciplining ‘unilaterlism’
condition based on PPMs] would be an invasion of its sovereignty. Where does one get the idea that the sovereignty of the producing country authorizes it to say not only how fisherman may fish [something must be produced], but also where the rest of the world they may sell? Where does one get the idea that the sovereignty of the producing country allows it to prevent other countries from choosing not to contribute to turtle mortality [their chosen condition] by consuming turtle-unfriendly shrimp?’74
4 In practice
4.1 Regulatory freedom
The question in this section addresses this paper’s main question; to what extent can domestic regulators take PPM measures related to labour standards under WTO law. The previous section has shaped a theoretical and normative framework. This will be used in order to establish what actual PMM measures related to labour standards trading parties such as the EU and the US would be interested in taking. As we have seen the EU and US press for adherence to labour standards in trade practices. As proponents of labour rights they have a general interest in safeguarding the core labour standards as formulated in the ILO’s declaration on fundamental principles and rights at work. Thus when violation of these fundamental principles and rights occur the general wish would be to bar products on basis of their PPM.
A prime of example of a supply chain in which, notoriously, labour standards are an issue would be the textiles industry. In every part of the supply chain there appear to be breaches of core labour standards. And all of the 4 CLS are under pressure. In the cultivation and harvest of cotton child labour is used on a regular basis.75 As earlier mentioned, Syrian refugee children work in Turkish textile factors. There have been cases of forced labour in the harvest of cotton.76 Unions are either absent or in some cases being suppressed, a breach of the right of association.77
75 See for instance: India Committee of the Netherlands, ‘Child Bondage Continues in Indian Cotton Supply Chain. More than 400,000 children in India involved in hybrid cottonseed cultivation’, September 2007, [online via http://www.indianet.nl/ pdf/childbondagecotton.pdf, accessed 01-07-2016, and Human Rights Watch, ‘Human Rights Watch World Report 2012: Uzbekistan’, [online via, http://www.hrw.org/world-report-2012/world-report- 2012-uzbekistan, accessed on 1-07-2016] and World Vision Australia, ‘Forced and child labour in the cotton industry, 2012, [online via http://campaign.worldvision.com.au/wp-content/uploads/2013/04/ Forced-and-child-labour-in-the-cotton-industry-fact-sheet.pdf, accessed 01-07-2016]
76Suyima Pakhtakor, Uzbekistan: Forced Labor Widespread in Cotton Harvest, 25-01-2013,[online via https://www.hrw.org/, accessed on 01-07-2016]
77 Somo report, fatal fashion, [online via http://somo.nl/publications-en/Publication_3943, accessed 01-07-2016] See also the European Parliament Resolution 2013/2951 to the Bangladeshi government to give more rights to labour unions. Additionally, ILO’s assessment of Bangladesh [online via
General forms of gender discrimination are present in the clothing manufacturing industry.78
Recently the Dutch Minister for Foreign Trade and Development has signed an agreement with private parties in the textiles industry to achieve higher labour standard (including the 4 CLS norms) adherence.79 Tied to this the Minister has adopted a list of producers that meet the requirements set out in the agreement. Annually an assessment will be made whether the producers can remain on this ‘hall of fame’. If more companies do not make this list the Minister has said she will look into the possibilities of raising tariffs or prohibiting the import of clothing made by child labour.80 This example reemphasises there is a (governmental) need for the promotion of labour standards. However the reliance is the good will of private parties.
Since the EU imports 70% of its textiles from controversial areas81 it would not be inconceivable that the EU would like to reduce the negative effects of low labour standards by distinguishing on basis of PPM. In the case of Turkey a study in 2011 showed that private regulation has been failing.82 So let’s propose that the EU sets up a scheme targeted at textiles and clothing demanding adherence to CLS. Moreover let’s also assume that the EU has developed a clever way to be certain of the labour standards involved of the products down the entirety production chain. For the sake of the example it would mean that there is no lack of information of the
78 In Bangladesh women in make about 75% of what men make in the manufacturing industry. Kapsos, ILO Asia – Pacific working papers: The gender wage gap in Bangladesh. [online via
http://ilo.org/wcmsp5/groups/public/@asia/@ro-bangkok/documents/publication/wcms_098063.pdf, accessed 02-07-2016].
79 Righton, Kabinet presenteert lijst met eerlijke kledingmerken, 04-07-2016 [online via
http://www.volkskrant.nl/economie/, accessed on 05-07-2016].
80 See footnote 79, In Dutch: Als na vijf jaar blijkt dat de verbeteringen in de kledingindustrie achterblijven bij de verwachtingen van het kabinet, volgt mogelijk 'wet- en regelgeving', staat in het convenant. Ploumen: 'Denk aan hogere tarieven of een importverbod voor kleding die is gemaakt met kinderarbeid.'
81 Binder, Improving global value chains key for EU trade, European Parliamentary Research Serivce, 2016, p. 11.
82 Bulut & Lane, The Private Regulation of Labour Standards and Rights in the Global Clothing
Industry: An Evaluation of Its Effectiveness in Two Developing Countries, New Political Economy,
actual production circumstances.83 As a concrete case study the EU would want to act upon reports of child labour by Syrian refugees. In this hypothetical situation a widespread public outcry combined with pressure of social advocates has motivated EU regulators to act.
Once the decision is made to act, the question of how to act remains. The regulator has an array of instruments. These instruments differ in effect and in trade restrictiveness. In addition the legality of the instruments under WTO differ. A rule of thumbs is that the more restrictive a measure is, the more likely it is considered illegal. This ties in with the earlier idea of unilateralism. Unilateralism in trade law is considered unfavourable. Measures with a higher degree of unilateralism are generally considered more unfavourable. Thus it is helpful in creating a non-exhaustive overview of the possible types for measures and their restrictiveness. In the diagram below possible measures are selected. The identification of types of measures is based upon the practice of states. The legality of each of the measures will be evaluated below in order to identify which hypothetical action the EU could take against textiles from Turkey. This will help to draw conclusion of the current
position of the PPM measures under WTO law.
Labelling scheme Licensing Quantatative restrictions Punatative tariff Increasing internal taxes
Low trade restrictiveness High trade restrictiveness
On basis of standards On basis of country Limited quantatity Total Ban
Figure 1, source: own creation
4.2 Labelling
83 In reality one of the main issues with any form of enforcement is the lack of information of the labour circumstances. But since this is a different issue at the flanks of the current issue it is outside the scope of the hypothesis.
Labelling is a measure prescribed by a regulator in order to inform consumers of the contents of a product. Labelling is categorized as low trade restrictive because it does not impede trade per se – it creates an extra barrier to market access. The (administrative) burden of this measure is placed on the consumer and the producers rather than the regulator. The consumer has to decide whether or not to buy the product with the information that is given. The producer has the obligation to label their product as prescribed by the regulations.
In this hypothetical case Turkish textiles could be forced to adopt labelling referring to the way it is made, the PPM, rather than its physical contents. Since Turkish textiles would be the main target of this measure. It could be argued before the WTO that it is a breach to GATT article III.4. The foreign product is arguably treated ‘less favourable’ than ‘like’ domestic products. It is arguably de facto discriminatory as it could be made evident to only apply Turkish textiles. ‘No less favourable’ is interpreted as to mean ‘effective equality of opportunities for imported products’.84 The existence of a measure is not enough, there has to be an effect.85 In the hypothetical case the regulator should aim to adopt a wide labelling scheme in order to avoid to be applied in a discriminatory way. This is to avoid a conflict with GATT article III.4’s ‘less favourable treatment’ in comparison to ‘like’ domestic products.
In the hypothetical case it may be that the EU has a thriving domestic textiles market with good adherence to CLS. In that case Turkey may argue that the EU has distorted market competition in favour of a domestic product. In EC – Seals the Appellate Body (AB) states that ‘[GATT article III.4] prohibits WTO Members from modifying the conditions of competition in the marketplace to the detriment of the group of imported products vis-à-vis the group of like domestic products’. This means that Turkey has the opportunity to show these detrimental effects.
For the EU to argue that they made a ‘legitimate regulatory distinction’ by adopting the labelling scheme will be futile. In EC – Seals the AB states that ‘[a panel is not] required to examine whether the detrimental impact of a measure on
84 US – Clove Cigarettes, Appellate Body, 2012, WT/DS406/AB/R, para. 176 confirmed by EC-Seal Products, Appellate Body, 2014,WT/DS400/AB/R & WT/DS401/AB/R, para. 5.101.
competitive opportunities for like imported products stems exclusively from a legitimate regulatory distinction.’86 In other words the purpose behind the measure is of no influence.
The assessment of likeness under GATT article III depends on four criteria. (1) The products’ end uses in a market; (2) the products’ properties, nature and quality; (3) consumers’ tastes and habits; and (4) tariff classifications.87 Even though there is a set of criteria as guidance, the assessment is to be made on a case-by-case basis according to the AB.88 In the hypothetical situation the premise is that there has been a public outcry. Consumers’ taste in the domestic market differentiates between products on basis of CLS. However the domestic regulator will need to prove this. In case the domestic regulator wants to set a standard by raising awareness by labelling products that lack adherence to CLS norms, the domestic regulator will have difficulty bringing forward that proof.89 Even though the aim of their measure might be legitimate.
A problem with likeness in this case is that the PPM is unrelated to the product. Meaning that a disregard for CLS is unlikely to leave a trace in the product. This make it unlikely that any differences in two products can be shown on the basis of point (2) properties, nature and quality. Even though better adherence to labour standards can boost the quality of a product, this is by no means a given. With regards to points (1) products end use and (4) tariff classification it will be difficult to find argumentation that will support the hypothetical case.
A labelling scheme can be a violation of the TBT agreement as the agreement is concerned with procedural requirements for the adoption of technical regulation.90 Annex 1 of the TBT agreement iterates that labelling falls within the scope of the
86 EC - Seal Products, Appellate Body, 2014,WT/DS400/AB/R, WT/DS401/AB/R, para. 5.117. 87 Japan – Taxes on Alcoholic Beverages, Appellate Body, 1996, WT/DS8/AB/R, under (a). 88 EC — Asbestos, Appellate Body, 2001, WT/DS135/AB/R, para. 40.
89Marceau & Trachtman, The Technical Barriers to Trade Agreement, the Sanitary and Phytosanitary
Measures Agreement, and the General Agreement on Tariffs and Trade: A Map of the World Trade Organization Law of Domestic Regulation of Goods , Journal of World Trade, 2002, p. 811.
90 Lopez-Hurtado, Social Labelling and WTO Law, Journal of international economic law, 2002, p. 725
definition of a technical regulation.91 Preamble recital 5 maintains ‘Desiring
however to ensure that technical regulations […] including […] labelling requirements, and procedures for assessment of conformity with technical regulations and standards do not create unnecessary obstacles to international trade’92 which fits
nearly with the WTO focus on discrimination.
The hypothetical case shows some similarity to the US – COOL (Country Of Origin Labelling) case. In US – COOL the US adopted a mandatory labelling scheme marking the Country of Origin of meat products. Before the AB the main point of contention was TBT article 2.1 ‘less favourable treatment to imported products than to like domestic products’. The panel’s findings that the measure fell within the scope of the definition of a technical regulation and that the products were ‘like’ were not contested.93 It would be very difficult to argue in the hypothetical case that textiles would be not ‘like’. The ‘likeness’ test mirrors GATT article III.4 in regard to the 4 criteria.94
With regard to ‘less favourable treatment to imported products than to like domestic products’ there may be some room for policy objectives. The AB declares that ‘technical regulations that have a de facto detrimental impact on imports may
not be inconsistent with Article 2.1 when such impact stems exclusively from a legitimate regulatory distinction.’95 However this policy objective cannot be ‘designed or applied in a manner that constitutes a means of arbitrary or
unjustifiable discrimination’.96 In summary, this means that a label for CLS adherent textiles could be considered not to be discriminatory under article 2.1 even when there is a negative impact on the competiveness of foreign goods. As long as there is a
91 TBT - Article 1 under Annex 1: Terms and their Definitions for the Purpose of this Agreement. 92 TBT – Preamble recital 5
93 US – COOL, Appellate Body, 2012, WT/DS384/AB/R, WT/DS386/AB/R, para. 267 94 US – Clove Cigarettes, Appellate Body, 2012, WT/DS406/AB/R, para. 117
95 US – COOL, Appellate Body, 2012, WT/DS384/AB/R, WT/DS386/AB/R, para 271 96 Ibid, para 271
