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Where the Possible Solution May Come From: A Discussion With Professor Kent Jones (Part 2)

[For Part 1 of our discussion, please click here]

Dr. Jones specializes in trade policy and institutional issues, particularly those focusing on the World Trade Organization. He has served as a consultant to the National Science Foundation and the International Labor Office and as a research associate at the U.S. International Trade Commission, and was senior economist for trade policy at the U.S. Department of State. Dr. Jones is the author of numerous articles and four books, including Politics vs. Economics in World Steel Trade, Export Restraint and the New Protectionism, Who’s Afraid of the WTO? and most recently, The Doha Blues: Institutional Crisis and Reform in the WTO.

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In light of some recent developments Boston Global Forum (BGF) has made, we had an opportunity to sit down with Professor Kent Jones of Babson College again to explore other possible solutions for our topic. Readers of our previous posts may have noticed that BGF was able to identify Better Factories Cambodia as a possible model for other countries to replicate. However, according to Professor Jones, there is a reason why this strategy may not be possible.

BGF: Many experts attributed the success of Better Factories and the International Labor Organization’s involvement in Cambodia to a trade agreement between the U.S and Cambodia in 1999, which basically required improved labor conditions for factory workers in exchange for a higher percentage of quota for garment exports into the U.S. If this is the case, why do you think that the U.S government, or any other Western powers, did not re-implement a similar agreement in order to incentivize local authorities to come up with better working conditions for garment workers in their countries?

Professor Kent Jones: There was indeed a formal special textiles/clothing trade agreement between Cambodia and the US in 1999, which led to improvements in working conditions there.  Unfortunately, the circumstances that allowed this agreement have changed, and it is no longer possible to replicate it for other countries.

At the time, Cambodia, like all other developing countries, was subject to the Multifiber Agreement (MFA), a global system of trade quotas on nearly all categories of clothing sold in the US, Europe and other industrialized countries.  Each exporting country typically had certain quota shares in the US market, which were strictly controlled.

The US-Cambodia agreement was designed to provide an incentive for Cambodia to improve worker rights and working conditions in exchange for significant increases in its quota access to the US market.  As part of the arrangement US AFL-CIO representatives went to Cambodia to organize workers there and monitor progress.  There were controversies during those years as to how much progress was being made, but in the end Cambodia did receive increased market access as a result of the reforms that took place.

There were two important elements of the deal that were crucial in making it work.  One was that the MFA ruled the world textile/clothing market.  This global system of quotas allowed countries like the US to offer special deals to certain countries based on criteria such as progress on worker rights (other deals were based on political criteria).  The second element was that Cambodia was not in the WTO; it joined eventually in 2004.

These circumstances were important because the MFA was being phased out at the time for members of the WTO, based on the new agreements of the Uruguay Round of trade negotiations, completed in 1994.  As long as the MFA was in force, Cambodia could benefit from its special agreement on market access with the US, since all other countries were restricted by MFA quotas.  As the MFA was phased out over the period 1995-2005, all WTO countries were gradually allowed more and more unfettered access to the US and European markets, which was eroding the benefits of any extra quota access granted to Cambodia.

Still, the US-Cambodia deal allowed the US to continue the incentive program until Cambodia joined the WTO (after a long accession process) in 2004.  At that point, Cambodia was entitled to the full benefits of the MFA phase-out that was completed in 2005.  The US no longer had any leverage to control Cambodian market access to the US, based on the MFN treatment Cambodia received upon joining the WTO, and the MFA phase-out that now applied to Cambodia as well.

We now have a quota-free global trading environment in textiles and clothing.  Tariffs are still imposed on these products, but they are regulated by the WTO tariff binding rule, which prohibits countries from raising tariffs unilaterally.  In addition, the MFN rule prohibits WTO members from raising tariffs against any other individual WTO member on a discriminatory basis.  Thus a deal like the earlier US-Cambodia agreement would no longer be possible for any WTO members, including Bangladesh.

The legacy of the agreement was that it gave the ILO, workers’ rights and labor unions a foothold in Cambodia, and these groups continue to have some impact there.  Improvements in working conditions and worker rights in Bangladesh and other countries will have to come from other strategies besides intergovernmental trade deals.

This is why, as I suggested in our discussion a few weeks ago, that company codes of conduct, backed up with consumer group or NGO pressure, would be the most promising path.

Otherwise, a formal plan for improving a country’s work environment would require the government itself to agree to ILO and/or outside group monitoring of labor conditions.  The US and other countries may need to find other means of leverage in order to persuade reluctant governments to implement reforms.

BGF: Thank you for your insights, Professor.