1) National and International Dimension:
In relation to above discussion, the nations in global South argue that by imposing labour standards on developing countries will lead to the problem of comparative advantage amongst the southern countries. The diversity of labour standards between nations will create differences in factor endowments and level of income. Therefore, MNCs are inclined to invest in countries with a relative abundance of low skilled labour; as these countries will become specialized in the manufacturing and exports by improving their production methods, and lowering wages to remain competitive (wood, 1999; Mintz, 2009:44). Although the consequences of rapid growth of TNCs in the host countries has created competition amongst the southern countries which has affected local firms, one may ask what would have happened had there been no TNCs? Due to the limited space here this question will not be discussed but it is worthy of reflection.
On the other hand, Wood (2004: 1) argues that this aspect of globalization has had an impact on workers in the South, as well as the North and has encouraged a race to the bottom. As discussed earlier, For example, developed countries are concerned that trade with low-wage countries are responsible for increasing wage inequality and loss of employment opportunities in the global North. Singh and Zammit disregard this claim and argue that trade with developing countries is not the main cause for declining wages in the North. It is the labour- saving technical change which has affected the real wages of unskilled labours. Paradoxically, here the political discourse shifts to a race to the top. Bhagwati says, that importers are worried about international competition from producers in developing countries “who have lower standards, demand raising standards in these countries” (2004: 131). This approach which is politically motivated to moderate competition from rival suppliers abroad is described as “export protectionism”. The strategy is applied to raise the suppliers’ production cost and reduce the importers competitiveness.
The 1998 Declaration clearly states that “We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question” (WTO, 1996). However, there is distinction between core labour standards and other labour standards, which also factor in ‘social clauses’ and are often assumed as inherent labour standards such as minimum wages, limitation of work hours, and occupational health and safety. But which in fact apply to other labour standards. The role of labour standards other than the core ones cannot be underestimated as they play an equally significant role in analysing the influence of MNCs on standard setting. Thus, “labour standards can be understood both as social regulations designed to address fairness, health and safety” issues, as well as economic measures designed to regulate wages and control movements in the market (Mehmet 1999: 90).
Another issue with labour debate over international labour standards is limited, that these standards can only improve conditions for those who are employed in the formal sector. Even the “effective labour standards [will not be able to] address alone, the issue of providing safety net for those in the informal sector” (Luce, 2005: 2). This will be discussed further.
It has been argued that labour standards interfere with free trade, which will hinder the economic growth. While NGOs argue that labour standards will be applied unevenly and marginalise vulnerable countries. Finally, some scholars note that even though labour standards are an important indicator for economic development, enforcing standards is a wrong approach (Singh and Zammit, 2004: 102). Bhagwati (1994) propose that labour standards can be achieved in favourable way through non-coercive means and with support of ILO.
The liberalisation of free trade has offered both challenges and opportunities to countries based in South. Elliott and Freeman (2003: 11) note that many developing countries are committed to improve core and other labour standards and have laws to maintain ‘decent labour conditions’. However, weak economic structures, lack of resources and inability to enforce labour codes hamper the improvement of standards in developing countries (Singh and Zammit, 2004: 3). It is proposed, that as labour standards help balance the interests of workers and capital within countries and within the global economic system, workers should take upon themselves to enforce these standards through collective unions.
2) Economic Structure of Developing Country:
There is complex relationship between the labour standards and economic development. The structures of the many developing economies are not only dualistic in nature, but have dearth of financial resources. These economies have abundance of labour resource who has to make their ends meet at any cost. According to World Bank 1995 report, 61 per cent of labour force works in agriculture while rest of the 22 per cent worked in rural non-farm urban informal employment. Some Economist suggest, that significant changes needs to be made in the economic structure of these countries in order to enforce labour standards in such a large portion of informal sector workforce.
Fast economic growth can bring changes in the structural change, which may lead to job loss in the industrial sector. For example: East Asian countries today are considered as miracle countries. Easy Asia experienced fast economic growth; this resulted in absorption of surplus labour leading to shortage of labour supply. East Asia also experienced very high rates of growth of real wages as compared to international standards, but this rapid structural change led to displacement of informal sector. This quick expansion of formal economy and shrinking of informal economy improved the labour standards in terms of employment and wages of the East Asian countries (Singh and Zammit, 2003).