Vol. XII, Bulletin No. 9                                                     September 2007

Mass Imports of Dangerous Toys into U.S.
Expose Basic Flaw in World's Trade System

It was the worst industrial fire in history -- in 1993 it killed at least 188 and injured 469, most of them young women, working in the Kader toy factory in Thailand.  Kader did not make toys for the Mattel Corporation, but a concerned Mattel executive told the Far Eastern Economic Review: "If this isn't a wake-up call, there never will be one."

In the years that followed, Mattel, the largest toy and doll maker in the world, pioneered standards to protect workers in both Mattel-owned factories and its large network of contractor factories. These efforts, however, did not prevent the scandal this summer that forced Mattel to make massive recalls of contaminated and otherwise defective toys and dolls made in China.

S. Prakash Sethi, professor of business at Baruch College, author and father of Mattel's Global Manufacturing Principles, told the New York Times: "If Mattel, with all of its emphasis on quality and testing, found such a widespread problem, what do you think is happening in the rest of the toy industry, in the apparel industry, and even in the low-end electronics industry?  Everybody is going to be found with lots of dirty laundry."

List of Tainted Imports from China Grows and Grows

The made-in-China dirty laundry is piling up higher and higher: not only more and more lead-tainted dolls and toys with other brand names, but defective products of many kinds -- batteries for Nokia cell phones, tires, sea food, pet food, tooth paste, baby bibs, crayons, and more. Every day in August seemed to bring a new report of another Chinese import that had to be withdrawn from sale.

The need for massive recalls is all the more troubling for Mattel because it had received a wake-up call of its own a few years after the Kader fire. In 1996 a "Dateline NBC" program focused on an Indonesian factory that employed girls as young as 13 making clothes for Mattel's Barbie dolls at $2 a day

"Mattel creates products for children...not jobs," said Jill E. Barad, then its chief executive officer. In 1998, she announced the multinational's decision to develop a corporate code of conduct against child labor and other sweatshop conditions, which became known as its Global Manufacturing Principles. (See "A New Corporate Code Against Toyland Sweatshops.")
In his 2003 book, "Setting Global Standards: Guidelines for Creating Codes of Conduct in Multinational Corporations," Professor Sethi of Baruch College held up Mattel's code, which he wrote and still monitors, as a model for emulation.  But even a model code can have flaws. 

For example, the original code contained a clear Mattel commitment to "stringent safety and quality standards."   The current set of  Global Manufacturing Principles requires that factories have "programs in place to address health and safety issues that exist in the workplace." Mattel's policy on product safety is covered in a separate document; it is not audited by Sethi's International Center for Corporate Accountability.

Relying on Mechanisms Geared for Non-Globalized Era

The toyland nightmare is the latest evidence that corporate codes of conduct are a woefully inadequate tool for dealing with the complex realities of globalization.  Under globalization, Mattel and other multinationals have mechanisms to protect narrow business interests. They are protected by laws, domestic and international, enabling them to make and send their products anywhere. Indeed, the inter-governmental trade system treats multinational corporations as though they were the global economy's only stakeholder, apart from government itself.  The system flatly ignores other stakeholders, especially consumers and workers.

Mattel is now scrambling to patch up the holes in its product safety procedures. The governments of China and the United States, too, are attempting to fill gaps in their product safety systems.  But those efforts fail to take into account that we are living in a globalized economy.  Rules and enforcement by individual companies and individual governments no longer suffice.

Thanks to the global rules on trade and investment, cross-border business now flourishes under what the Heritage Foundation has correctly called "the closest thing to a uniform commercial code for world trade."  It should be obvious by now that the world trade needs another kind of uniform code, one that covers two other stakeholders in the global economy -- consumers and workers.

A Balancing Code for Other Global Stakeholders.

What are the chances of adopting a global code for workers and consumers that matches the inter-governmental code for business?

The special interests defending the global rights of business alone are powerful.  But the summer 2007 scandals have created a new dynamic that  intensifies the human element of the drama.

In the 1990s Americans learned that many of their children's clothes and playthings were made by underage children working long hours in Asian sweatshops. The public reaction was strong, but not strong enough to make a significant difference in the operations of global commerce. This time the scandals hit home more directly:  Now parents and grandparents are acutely aware that the playthings they buy for their children could poison them.  And that the canned food they buy for their pets could poison them.  

The public reaction so far has been strong. The question is whether it will be strong and enduring enough to persuade policymakers to fix the toxic gaps in the world trade system. 

Olympian Pressure on Human Rights

In the countdown to the August 2000 Summer Olympics in China, the Beijing government is finding its human rights practices under increasing scrutiny. The verdict so far, according to Kate Allen, the UK Amnesty International director: "To put it mildly, China would win no medals for human rights today."

A new Amnesty International Report, issued on August 7, a year before the opening of the Games in Beijing, highlights a disturbing pattern of pervasive internet censorship, an ongoing crackdown on journalists, and continued use of detention without trial as part of Beijing's "clean up" preparations for the Games.

Other campaigns using Olympic leverage to press for human rights progress in China are:
Global Labor Force Has Quadrupled

Two years ago, Richard B. Freeman, professor of economics at Harvard, came up with this startling fact about the global labor force:  that it has doubled in size since 1980. This huge change, as he explained in a talk at the Institute for International Economics (see "A Risky Doubling of the Globe's Labor Force"), has occurred because countries with huge working populations -- China, India, and the former Soviet Union --  are no longer outside the global economy.

Now comes the International Monetary Fund with a fact that seems even more startling:  that the global labor force quadrupled between 1980 and 2005.  The IMF's figure, too, is based on the geopolitical changes that have opened up the borders of China, India, and Eastern bloc countries to the world.  The differing estimates result from different yardsticks used. 

Freeman's measure compares raw global labor force figures for 1980 with those a quarter century later. The IMF, in its "Economic Outlook" report for 2007, measures the effective global labor supply -- it compares the size of the countries' labor forces that actually competed in the global labor market in 1980 with the size in 2005 (through a "simple approach" by weighing national labor forces by the countries' export-to-GDP ratios).

This globalization of labor, combined with technological progress, has caused a decline in labor's share of national income in most advanced countries, including the United States, according to the IMF.

The policy brief summarized in the next article draws on data in the IMF Economic Outlook report.

Coping on Global and Home Fronts

The stagnating incomes and other problems facing most American workers have their roots in domestic policies that eroded the good living standards for a broad middle class well before the high waves of globalization hit our shores.  So don't put all the blame on globalization. 

That's a pointed message of the new policy brief, "U.S. Living Standards in an Era of Globalization," published by the Carnegie Endowment for International Peace (CEIP). But Sandra Polaski, the report's author; who heads CEIP's trade, equity, and development project, doesn't let globalization off the hook:

"Globalization revealed and exacerbated, rather than created, the basic problems with the U.S. system. However, the collapse of the [post-World War II] domestic social bargain left U.S. workers and households more vulnerable to the pressures from a globalized labor market than their counterparts in countries with stronger social safety nets, better employment insurance and retraining schemes, universal health insurance, and portable pensions."

Polaski, a CEIP senior associate, formulates a set of domestic and international policy options geared to the world as it is, not as it was decades ago.  Her  recommended domestic policy reforms include not only a modern social safety net fit for a globalized market but also labor law reforms that rebalance the interests of workers with those of employers and investors.

Emphasizes Broad-Based Economic Growth, and More

Unlike economists who are increasingly worried about globalization, or at least about the backlash against it, but confine their advocacy to domestic reforms, Polaski also advocates taking a new approach to international trade policy.  She argues for trade reforms designed to promote "broad-based, sustainable growth and job creation throughout the global economy."  By, for example:
It isn't possible to recreate the Golden Age that prevailed in the United States for a quarter century after World War II, Polaski warns. "However, it is possible to create a new policy framework that supports and encourages job creation, good living standards, and political cohesion -- at home and abroad -- under globalization."

To reach those goals, Polaski concludes, requires a clear analysis of the current global environment and the factors putting stress on U.S. living standards. Her eight-page brief is the outline of that analysis.  Above all, she adds, we need "the political will to restore balance and equity to U.S. domestic and international policy."  Too bad she is not a questioner at the upcoming Presidential debates. 

New Spotlight on Foreign Investment

Large networks of cross-border agreements -- bilateral, regional, and multilateral -- now protect the rights of foreign investors, to the point of inhibiting the ability of developing countries to protect the rights of their own citizens.  So far these investment agreements have escaped the intensive human rights scrutiny given to trade agreements.

That is now changing.  On August 7, the International Finance Corporation, the World Bank's private lending arm, announced that it is working with a United Nations unit to study the connection between the protection of investor rights and the human rights obligations of host states.

"Some contracts between investors and host governments," the IFC press release said, "include clauses that either freeze the laws that apply to the investor or allocate compensation for the cost incurred by the investor to comply with those laws.  The study will look at the potential impact of these clauses on the host states' ability to adopt and implement new human rights laws, in areas such as labor, protection of the environment, and the provision of essential public services such as water."

The IFC partner in the study is UN Secretary General's Special Representative John Ruggie, who has a mandate to submit a comprehensive report on business and human rights to the UN Human Rights Council next year. 

Seeking Balance Between Investor's Rights and Host Country's Duties

"This project [with the IFC]," Ruggie explained, "is about finding the right balance between the investor's legitimate interest to protect an investment and the host state's duties to protect human rights.  If elements of investment agreements have unintended negative consequences on a host state's ability to protect human rights, this is a problem for everyone, and will affect the sustainability of the business relationship as well as human rights."

Basically, the most important flaw in investment agreements, including those of the United States, is that they grant investors many rights without any corresponding duties or accountability. "It is never a good thing to have rights without obligations," says Howard Mann of the International Institute for Sustainable Development, a Canadian think tank that monitors investment agreements.

I've quoted Mann before in these pages (see "Why Investment Protection Agreements Need Reform" and in other publications (in Dissent, for example).  His caution is worth repeating far and wide, in hopes that it might influence the people who make and enforce globalization policies.

Labor Rights as Bones Thrown to Congress

After the first Ministerial meeting of the World Trade Organization (WTO), held in Singapore in early December 1996, Business Week published a column by Robert Kuttner titled "How Clinton's Trade Policy Hamstrings America."  In an article ("Was Singapore Another U.S. Charade?"), I quoted one of Kuttner's criticisms:

"At Singapore, acting U.S. Trade Representative Charlene Barshefsky made a tough-sounding speech on the importance of adding basic labor standards, such as the right to organize unions and a ban on child labor, to the WTO regime.  But word was leaked immediately that this was not a serious U.S. negotiating priority.  Barshefsky might as well have said: Treat this as merely a bone we need to throw to the AFL-CIO."

Fast forward almost 10 years.  In May the Bush administration and some key Democratic leaders in Congress reached a "bipartisan" deal to make critical changes, including improved labor and environmental standards, in pending free trade agreements with Panama and Peru (see "Will Democrats Get Snookered on 'Trade'?").  Last month, Canada's International Institute for Sustainable Development, in report titled "Brave New Deal?", called the compromise "a marked improvement over the old model" -- but unlikely to have much real impact.

Why not?  For one thing, enforcement of labor and environmental provisions in existing trade agreements has been almost non-existent, and that habit probably won't change.

"Indeed," the report adds, "some developing country negotiators have reported being calmed by assurances that these [enforcement] penalties would, in the normal course of events, not be resorted to -- that they were only in the agreement to appease the U.S. Congress."

Mobilizing the Unmobilized on Health Care

On Labor Day, September 3, the AFL-CIO launched a nationwide campaign aimed at putting "the full force of its 10,000,000 members and nearly 3,000,000 union retirees behind winning secure, high-quality health care for all by 2009."

Although the aim is mobilize the organization's own members to be become activists supporting health care reforms, the campaign has set up a health care website that can reach a much wider audience.  The new site highlights the problems of 47,000,000 Americans without health insurance, and includes a petition that the AFL-CIO will send to the U.S. Senators and Congress people of the signer's home state..

It would be wise for the AFL-CIO also to set up a separate website devoted to its policies and activities in support of humanized globalization.  At present, even the AFL-CIO's own members are generally ignorant of its extensive work on issues like fair trade and investment, which are buried in the federation's general Website, if they are mentioned at all..

Human Rights for Workers
: Bulletin No. XII-9     September 2007           

Robert A. Senser, editor
Copyright 2007
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