A labour clause (sometimes referred to as a "social clause") in the WTO regime would make WTO members responsible for respecting certain minimum labour standards. In its strongest form, it would allow trade barriers or retaliatory measures to imposed upon non-complying members.
It is argued by labour clause advocates that a formal link between trade and labour is required in order to secure compliance with relevant ILO standards. It is noted that although the most important ILO standards have existed for decades, the level of formal ratification of those standards is low, and compliance is poor even among certain states that have ratified. It is generally accepted that the existence of forced labour, exploitative child labour, discriminatory employment practices, and the persecution of trade unions continues despite ILO efforts.
Proposals to include labour issues within the world trading regime date back as far as the failed Havana Charter of 1948 which would have established an International Trade Organisation with competence to address "Fair Labour Standards". More recent proposals have been advanced by advocates such as the US Government and the International Confederation of Free Trade Unions.
The incorporation of the core labour standards into Article XX of GATT 1947, would allow states to impose trade barriers on members found to be non-compliant with the labour standards.
The incorporation of a labour clause in the WTO regime would expose many low wage countries to the negative economic impacts of trade barriers. It is likely that these effects would be more pronounced for least developed countries than middle income countries. Although positive social impacts might be experienced among the employed, it is likely that such positive effects would be offset by the indirect negative impacts of trade barriers. In cases of extreme use of trade barriers, a level of economic hardship could result that would encourage more intense use of natural resources and the attendant loss of biological diversity that may result.
The existing proposals for a labour clause are linked to the core ILO treaty standards, and in particular to the standards deemed by the International Labour Conference to apply to all ILO members as set out in the Declaration on Fundamental Principles and Rights at Work (1998): (a) freedom of association and the effective recognition of the right to collective bargaining; (b) the elimination of all forms of forced or compulsory labour; (c) the effective abolition of child labour; (d) the elimination of discrimination in respect of employment and occupation.
The Communication from the European Commission to the Council and the European Parliament on The EU Approach to the Millennium Round (1999) envisages a strengthening of the WTO's role in addressing social concerns, including labour, but does not envisage a full-fledged social clause that would allow member states to impose trade barriers based on another member's non-compliance with core labour standards. Instead, it anticipates the following developments: (1) Enhanced co-operation between the WTO and ILO Secretariats; (2) Support ILO Observer status in WTO; (3) Convene a joint WTO-ILO high-level meeting on trade, globalisation, and labour issues; (4) Use of positive incentives, such as Generalised System of Preferences (GSP) incentives, to promote adherence to core ILO Conventions; (5) Maintain a continuous dialogue with trading partners and within the EU on trade and labour issues. It is anticipated that these measures would enhance the effectiveness of the existing ILO system, and reward improved labour practices with trade concessions.
The social impact of a labour clause regime would be positive in the EU but negative elsewhere.