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					« SOCIAL STANDARDS AND GLOBALISATION » Turin, 26 – 27 November 2004 Conference organised by CES / ETUC

Speech by Pierre Defraigne Deputy Director-General, DG Trade European Commission

Peter Mandelson, the new EU Trade Commissioner, would have liked to participate himself this morning in your proceedings in his new capacity, as he means to engage in an intensive and ongoing dialogue with the social partners and the civil society for the duration his term. But he has been held up in Brussels by the duties of his first week in office. You all are aware of his political commitment and his close connections with the Labour movement. His first political statements during the parliamentary Hearings and yesterday in Geneva where he met with Somavia clearly indicate that Peter Mandelson will devote his attention and energy to the link between globalisation and social development which is the main theme of this Conference. He’ll do it through his trade portfolio, but also through his personal contribution to the main priority of the Barroso Commission, namely growth and jobs. Of all the challenges posed by market globalisation, the interaction between growth and the inherent process of job creation and destruction on the one hand, and workers’ rights and living standards on the other, is the most difficult to tackle, both in advanced and developing economies. It is a challenge which is there to stay and which will gain in intensity in the years to come. The world economy is witnessing a restructuring of an unprecedented scale thanks to the possibilities offered by new communication and transport technologies and trade liberalization. These allow global firms to rearrange their value-added chains according to local supply conditions, namely the availability of cheap commodities and cheap labour in some countries and sophisticated services and infrastructures in others, as well as market outlets everywhere. Local or foreign medium size suppliers and subcontractors congregate by the MNC’s plants so as to create new clusters of industrialisation in emerging economies whereas ancient industrial areas are being deserted in advanced countries . FDI, technology transfers and the dissemination of management skills are at the core of the expansion and rearrangement of production capacities worldwide. To some extent, they matter more and more as trade liberalization proceeds. So a new pattern of production and distribution is being shaped world-wide, based on comparative advantages – both natural or policy or market driven – whereas competition brings about a new and more efficient division of labour which generates more growth and more jobs. Nobody can challenge those benefits from globalisation. Yet nobody can ignore the visible or hidden social and environmental costs of the process. It is not enough to talk of efficiency and net welfare gains : one has to tackle the key question of fairness in the distribution of welfare gains and sustainability with regard to the environment.

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I will focus this morning on the issue of fairness, although for the world at large and in particular for the poorest countries, environmental sustainability is probably the most disquieting long term issue in relation to globalisation. Behind globalisation two intertwined rationales are at work: on the one hand, profit maximisation by companies everywhere, on the other, primitive capital accumulation by a mix of market forces and domestic policies in developing countries and transition economies. Both tend to keep wages lagging behind productivity gains and this is the real crux of the matter we discuss today. In this regard, the central issue is simple: to what extent do differences among countries in the actual implementation of core labour standards open up the possibility for business - local or foreign - to impose social conditions either below human dignity, which is simply unacceptable, or below economic standards in line with the productivity level achieved by the country, which is unfair. We should specify that unfair labour conditions which result from the non application of Core Labour Standards (CLS). Let’s dispel a commonly held misunderstanding : we are not talking of a level playing field with regard to minimum wages or to other non monetary benefits for the workers. We are here talking of universal and basic rights of workers so as they can get a fair share of the welfare gains secured by their country through trade liberalisation and in particular by increased market access to industrialised countries. If disparities in CLS exist, they must beaddressed, ideally by the workers themselves where democracy provides them with the possibility of promoting labour legislation and of ensuring its effective enforcement. But the international community must contribute to advance CLS in all countries where they are not respected. The simple truth though is that the ILO, which is the source of multilateral law in this area, is a toothless organisation. It can educate, it can inform, it can train, it can enquire and report and to some extent it can even name and shame. But it can’t enforce. It has no coercive capacity. So one has to look for other channels: either persuasion through OECD guidelines or MNC’s corporate social responsibility voluntary codes, or through political dialogue and technical assistance between aid donors and recipients and eventually through trade incentives either within WTO or through bilateral deals. The EU has been relentlessly exploring those three channels, in particular since the Copenhagen Social Summit in 1995. Over this period, often in close cooperation with the ILO, we have been multiplying initiatives aimed at encouraging business firms to commit to CSR, or developing countries to implement CLS through special trade incentives via the GSP. We have also used GSP as a weapon to fight forced labour in Burma, child labour in Pakistan, severe violation of basic workers rights in Belarus. Within WTO, the Seattle failure has closed the door to linking trade to the enforcement of CLS, even denying the ILO an observer-status in WTO proceedings. Nevertheless the EU has been favouring voluntary discussion on issues related to trade and social development, for example in the framework of the Trade Policy Review Mechanism. The EU included a discussion on the mutual supportiveness of its economic and social policies during its last review last October. We were pleased to see that for the first time Brazil has done the same, as a result of theEU precedent. All our recent bilateral trade deals which are concluded or in the making contain provisions geared to advance the cause of social development in our partners’ economies. Yet the truth is

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that those provisions are usually pretty soft in nature because their initial negotiation is often very arduous, hampered by the lingering suspicion that they represent interference or protectionism in disguise. Our most advanced bilateral deal, the 2002 Association Agreement with Chile, includes a comprehensive title on social cooperation which provides for dialogue and technical assistance. Yet such bilateral deals stop short of imposing trade sanctions for CLS infringements; such sanctions are only envisaged in extreme cases when for example basic Human Rights would be bluntly denied by a military dictatorship. One has to acknowledge that the picture is bleak, EU achievements are modest and there is no real prospect for progress unless we resolutely change tack. Let me put forward three tentative directions : Firstly, let’s admit, all of us, EU institutions, Trade Unions, NGO’s, that we don’t try hard enough and/or that we are not very effective in advancing the cause of CLS. In any political and/or trade deal, this is rarely a make or break issue. Either mercantilist views prevail in the end, or we shy away from confronting our partners on labour rights. Let me just illustrate this by an example. Colombia - a middle income country – has, like other Andean Pact countries, been granted the most generous preferential regime short of EBA, in the guise of the special drug regime, which is about to be replaced by the new GSP with the same benefits. Colombia is also the country where, according to UN and ILO reports, trade union activists are the most exposed to harassment, intimidation and, tragically, loss of life because of their commitment to defend workers rights. Yet we have never succeeded in linking trade benefits to CLS enforcement in Colombia. Each time we tried, the matter was buried before it was even on the table of the Council, as a result of a combination of mercantile interests, mainly from one or two large MS, and of largely irrelevant considerations with regard to drugs geopolitics. The truth is that we don’t try hard enough. Trade Unions are not prompt enough, nor vocal enough. A Commissioner needs a CLS constituency to offset the influence of national or special interests. Trade Unions and NGO’s could and should bring other issues than Burma or Belarus into focus. Latin America and the Arab world should and could do better and our political and economic leverage could be more effective in these regions where the problem is particularly acute, if we were supported by more activism from Trade Unions, NGOs and then by the European Parliament. Secondly, EU Trade policy is mainly aimed at creating market opportunities and thereby at generating growth and jobs. However, trade liberalisation should take place within a context of clear rules, for while trade liberalisation nurtures economics growth, it is the policies and rules that convey societal values which can turn growth in development. Therefore CLS should be part of the multilateral rules framing trade liberalization. We should not cave in on this, but insist in WTO circles that CLS remain a core concern of EU

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consistent with its own ethical values : EU cares for the rights of all workers, not only its own. While the CLS issue is on ice in Geneva, EU could use its full weight in the two other pillars of the global system of economic governance, namely finance and norms-setting, more specifically Bretton Woods IFI’s and, with regard to social norms, the ILO. BW IFI’s impose strict conditionality when approving loans. Their leverage is at a maximum in indebted countries and in time of financial crises. Why would Europe not supplement macroeconomic conditionality with multilateral norms with regard to workers’ rights and environmental protection? What prevents us from doing so overnight ? We don’t need to change the Treaties, we don’t need to ask permission from third parties. EU Member States represent one third of the voting rights in Washington based IFI’s. We just have to agree on guidelines at EU level and then speak with one voice on the board of the IMF and the WB. As we are collectively the largest aid donor in the world by far, our views could not be ignored. Switching from the trade pillar to the financial pillar in order to enforce the rules of the normative pillar, would seem to me a very sensible and legitimate policy from a lender standpoint. EU should indeed put all the political clout secured by its economic weight behind a coherence agenda across global governance institutions so as ensure that sustainable development is pursued in a consistent way through the trade, finance and normative pillars of global governance. Lastly, in order to play a more effective role in promoting social development worldwide, EU must deliver at home. EU has to revive growth and job creation while improving its ability to keep people out of poverty and ensure equality of opportunity. For we should never take the European social model for granted. In a globalising world, maintaining our higher social standards will be a daily struggle, for threats are many and come from within as well as outside. Maintaining does not mean conserving, but rather adjusting the modalities to changing conditions. There is today in Europe a dangerous feeling of uncertainty about the merits of our model. This insidious doubt is the most serious challenge posed to social progress in Europe. The second is our own reluctance to engage in reforms genuinely geared to reconcile competitiveness and solidarity. Let me wind up here by telling you, dear Trade Union fellows, that Social Europe and the cause of the CLS in the world at large rest first and foremost upon your shoulders. I disagree with those who call Trade Unions “distributional cartels”, or scorn their corporatist culture, or see them as the defenders of cosy insiders, at the expense of outsiders left in the cold of unemployment. I see the labour movement as a precious reservoir of ideas and of ideals to improve the lot of workers, the unemployed, the weak and the poor. It’s high time that Trade Unions regained trust in the legitimacy of their action and resolutely took the lead in Europe’s and the world’s social agenda.

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