New Bill Links Imports With Labor Rights

In 1980, an American company searching for oil off the coast of southern California imported two drilling platforms from Malaysia rather than buying them in the U.S. The company saved $1.5 million on the price of the platforms because Malaysia is given special consideration under the General System of Preferences (GSP). Adopted by the U.S. in 1976, the GSP is a set of tariffs which reduce or eliminate duties on imports from developing countries to make their products more competitive in world markets.

On the surface, that story may sound like a typical case of an American company losing out to foreign competition. But it has a twist that raised the hackles of the U.S. Iron Workers Union and the AFL-CIO: the manufacturer of the platform was Brown and Root, a Houstonbased multinational corporation, and the platform itself was put together in Japan by a Brown and Root partner, Nippon Kokkan, Japan's second largest steel maker.

To gain the GSP benefit of a 9.5 percent duty reduction, Brown and Root had towed the rig to Malaysia, where painting and minor repairs were done by Malaysian workers, and then towed it three thousand miles across the Pacific Ocean to the Santa Barbara channel.

"We were just outraged," says Bill Lawbaugh, Director of International Trade of the Iron Workers Union, which brought the case to the attention of the U.S. government's trade representative. The GSP, he concludes, "has loopholes big enough to drive trucks through. That costs American jobs."

Though oil platforms have now been excluded from the GSP, the incident illustrates some of the inequities in the GSP program, and why many unions and domestic manufacturers want the system either scrapped or drastically changed.

A bill was introduced into the House of Representatives last month to discourage multinationals like Brown and Root from using the GSP to avoid employing higher paid or unionized American workers, and to foster more broad-based development in the Third World. Sponsored by Congressman Don J. Pease (D-Ohio), and supported by a number of church, human rights, and development groups, the bill is the first piece of trade legislation to address the issue of labor rights as a factor in foreign competition.

"The lack of basic rights for workers in [developing countries] is a very important inducement for the capital flight and overseas production by U.S. industries," says Pease. "My bill would curb the trend of American-based multinational corporations to transfer, or threaten to transfer, domestic production from the U.S. to countries in which there are no labor rights."

The Pease bill would renew the GSPwhich expires in January, 1985-for another six years, but with three important provisions: the first would make GSP eligibility contingent on the beneficiary country ensuring respect for "internationally recognized rights of workers," and would deny eligibility to any product produced under conditions exempted from minimum labor standards in that country, such as in free trade zones. This provision could bar goods from such flagrant labor violators as South Korea, the Philippines, and Chile.

The second provision directs appropriate U.S. agencies to assure that agricultural goods exported under GSP do not reduce land used for growing food for consumption. A third provision provides a framework for graduating developing countries from the GSP program by taking into account their annual per capita GNP.

Under the bill, independent partiessuch as human rights groups-would, for the first time, be allowed to testify before the U.S. Trade Representative about possible labor violations of the GSP guidelines.

Groups who have worked with Pease in formulating the bill believe the new GSP legislation will help both developing countries and workers in the U.S. "This bill is a giant step forward in distributing the benefits of trade in the developing countries," says Steve Coates, legislative analyst for Bread for the World, a churchbased group in Washington that concentrates on development issues in the Third World. "It will ensure that GSP benefits don't result in cash cropping to the detriment of local food consumption, and will hopefully stop the pitting of workers in this country against workers overseas."

"This bill begins the process of recognizing in U.S. law that international labor rights are an important part of human rights," says Pharis Harvey, Executive Director of the North American Coalition for Human Rights in Korea. "It's really a fair trade bill."

The concept of the General System of Preferences was first discussed at the first U.N. Conference on Trade and Development (UNCTAD) in 1964, and grew out of a need to compensate developing countries for the disadvantages inherent in the international trading system. Its purpose was to give developing countries greater access to the U.S., European, and Japanese markets and thereby stimulate employment, economic growth, and industrialization in those countries.

The U.S. GSP program offers duty free treatment to 114 countries and territories, and 2,800 products. OPEC members, socialist countries, and countries that have nationalized or expropriated U.S. property without compensation are not allowed to participate, while a number of products considered "import sensitive" in the U.S., such as shoes, textiles, clothing, and electronic products, are excluded.

In 1982, duty free imports to the U.S. under the GSP program amounted to $8.4 billion, or 3.4 percent of total imports of $244 billion. Products ranged from corned beef and engines from Brazil to sugar from Fiji; lead ores from Honduras to copper from Chile; and jewelry from Israel to tequila from Mexico.

The most common criticism of GSP is that only a handful of countries benefit from the program. In 1981, for example, the top five countries in the program -Taiwan, South Korea, Hong Kong, Brazil, and Mexico-accounted for 60 percent of the goods brought in under GSP.

As the Brown and Root story illustrates, multinational corporations can often benefit from GSP treatment. For certain agribusiness or manufacturing corporations, the availability of duty-free entry into the U.S. means that they can reduce costs by producing goods overseas and importing them to the U.S. According to U.N. studies, roughly threefourths of the $8.4 billion of GSP imports are marketed by multinationals, including large commodity traders (Cargill and Dreyfus), the Japanese general trading companies (Mitsui and Mitsubishi), trading subsidiaries of industrial multinationals (General Electric, General Motors), and trading arms of retailers (Sears and K-Mart).

The Pease bill includes language aimed at reducing the use of GSP by multinationals. It will also gradually reduce imports from newly industrialized countries, such as South Korea or Brazil, and focus benefits on the small developing countries that need them most. Taken together, the provisions of the bill address the issue of whether export-led industrialization strategies in the Third World are conducive to equitable growth and development. "Congress must consider who really benefits from preferential access to the U.S. market and whether broad-based economic development rather than exploitation of cheap labor is being encouraged in [developing countries by the GSP]," says Pease.

The AFL-CIO, joined by many domestic manufacturing companies, has lobbied to scrap the entire GSP program; short of that, they want to specifically exclude Hong Kong, Taiwan, and South Korea, the three countries that took more than 50 percent of GSP trade in 1982. "These countries are truly competent in world trade," says Mark Anderson of the AFL-CIO research department. "Their participation is totally at odds with what the GSP should do." Although Anderson says the labor organization is "supportive of the labor rights provision" in the Pease bill, he feels there has to be "significant changes" in GSP in order for the AFLCIO to support renewal.

Discussion about excluding countries like South Korea and Taiwan from GSP -whether on labor or other grounds has frightened businessmen and governments from those countries. Last month, a delegation of 83 industrialists and government officials from South Korea toured the U.S. on a mission designed to placate Americans worried about Korean imports, and to retain South Korea's position in the GSP. Last year, South Korea sold $1.5 billion worth of goods to the U.S. under the system, and stands to lose $300 million worth of exports without GSP protection.

Unions like the United Auto Workers (UAW) have grown increasingly worried about the threat from Korean industry. During the last month, General Motors announced plans to import small cars from its Korean subsidiary, Daewoo Motors, while Ford has publicly discussed the possibility of importing cars from Hyundai Motors, South Korea's largest auto maker.

"We have grown uncomfortably aware that our country is considered by some in the United States as one of the newly industrialized countries that threaten U.S. industry," the Korean minister of commerce told a Washington, D.C. press conference on March 7. The minister also announced that the mission had authorized the purchase of $2.4 billion worth of U.S. goods on the trip.

Most countries, corporations, and trade groups lobbying for renewal of the GSP system are supporting a Reagan Administration bill introduced in the Senate last August. Sponsored by Senator Danforth (R-Missouri), the Reagan bill would increase the president's sole authority to decide if certain products are causing harm to domestic industry, which countries to "graduate" from GSP, and would allow the U.S. to use GSP benefits as leverage to force developing countries to liberalize their domestic markets.

Supporters of the Reagan bill oppose any language that would restrict the president's power to decide about GSP eligibility. The president must have "the flexibility to take action, depending on the interest of the U.S.," says Henry Parsons, a General Electric executive who is chairman of the GSP committee of the American Association of Exporters and Importers. "If [any GSP] bill contains rigid criteria, then the association is against it." Other groups who have endorsed the Reagan bill include representatives from the Toy Manufacturers of America, sporting goods associations, and the U.S. Chamber of Commerce.

The Pease bill is the only GSP legislation to be introduced in the House so far, and supporters expect a number of amendments to be added as the bill moves through the Ways and Means Committee to the House floor, and eventually on to the Senate. But even if the bill loses some of its teeth-a likely possibility, given the conservative makeup of the Congress-supporters of the Pease initiative see it as a good way to air the issue of labor rights overseas.

"We very much welcome the attention to labor rights," says Lee Price, international economist with the UAW Washington office. Although the UAW has not endorsed the legislation, Price says, "This bill could give the UAW the opportunity to talk about Korean labor conditions, and make foreign governments think twice about repression."