HIMACHAL PRADESH NATIONAL LAW UNIVERSITY,

SHIMLA

Course Title: Labour Laws

(B.A.LL.B.) Semester 9- 2020

Submitted to: Submitted by:

Dr. Ruchi Gupta Manveen Sachdeva
10201617 51
GLOBALISATION AND INTERNATIONAL
LABOUR STANDARDS
INTRODUCTION

Globalisation has decisively transformed the nature and organisation in which work is
performed nowadays, and it has also influenced its legal framework. Multinational
enterprises (MNCs) have become immensely powerful, able to relocate their business
wherever and whenever they want to globally, seeking the most profitable way for raising
revenues. Especially developing countries are competing with each other in order to attract
them. In this environment, what is about international labour standards (ILS)? Traditionally,
ILS used to be set by the International Labour Organisation (ILO). Nowadays, the ILO still
exists, but its standard-setting function suffers enormous shortcomings in enforcing
standards. Moreover, the ILO is facing the threat of being undermined by private measures. It
will be argued that a shift from public to private regulation has occurred which has created an
interdependency among several actors that is crucial for the current ILS regulation. Hence,
the prospective success and effectiveness of ILS will essentially be reliant on the well-
functioning of this interdependency. Section two explains globalisation briefly and presents
the challenges posed to labour standards. Section three analyses the meaning and function of
ILS before turning to the ILO and its effectiveness in standard-setting in section four. Section
five describes the significant paradigm shift in the history of the ILO. This is followed by a
brief overview of the role of international economic law in section six. Finally, section seven
examines the growing importance of private actors in the current labour regulation
framework before concluding with some final remarks1.

THE PROGRESSIVE INTERNATIONALISATION OF THE

ECONOMY
In the past, most of the trade was “classic”, meaning all or most goods were produced within
a country and afterwards exported to, or imported from, other countries. This economic
model has, however, changed as a result of the progressive internationalisation of the
economy. This process is known as “globalisation.” It can be described as “often very
different cultural, economic and social process.”2 “Economic globalisation” describes “the
integration of economic activities across borders through markets.”3 Giddens and Hutton

1
Mike Bogensee, Globalization and Social Progress: The Role and Impact of International Labour Standards,
THE GRIN (Apr, 20, 2021, 21:59), https://www.grin.com/document/181048#:~:text=2.,to%20labour
%20standards%20by%20globalisation&text=Globalisation%2C%20therefore%2C%20%E2%80%9Ccreates
%20competition,labour%20rights%20are%20extremely%20jeopardised
2
Hirst (1999) at xiii.
3
Wolf (2004) at 14.
describe globalisation as “the interaction of extraordinary technological innovation combined
with world-wide reach driven by a global capitalism that gives today’s change its particular
complexion. It has now a speed, inevitability and force that it has not had
before.” Deregulated and liberalised capital markets grant the possibility of unimpeded cash
flows with the consequence that revenues can be realised in the most profitable way. More
precisely, cash will be used where the revenue expectation is highest.  Furthermore, several
multilateral treaties have removed barriers to the flow of goods, services and capital and
thereby facilitated globalisation. Moreover, the amount of MNCs and their affiliates has
grown rapidly, and they can be regarded as the “main engines of economic globalisation.” At
the same time, the classical structure of companies, model on which various national labour
legislation are orientated, is disappearing, sparking enormous problems of regulation. It can
be said that “globalisation has transferred power from the nation State to the transnational
corporation” and has “pushed the boundaries of policy-making into the sphere of the global,
rather than the national economy.”4

The decentralisation of production and new forms of investment has, consequently,

profoundly transformed the world of work.  New information technology allows almost cost
free exchange of information and processing, hence, accelerating the process of
globalisation. Keohane and Nye state that “the information revolution is at the heart of
economic and social globalisation. It has made possible the transnational organization of
work and the expansion of markets, thereby facilitating a new international division of
labour.” Furthermore, “the division of labour is limited by the extent of market” and, of
course, “the market now spans the globe.” Stiglitz defines this phenomenon as “the closer
integration of the countries and people of the world which has been brought about by the
enormous reduction of costs of transportation and communication, and the breaking down of
artificial barriers to flow of goods, services, capital, knowledge, and people across borders.” It
can be noted that the “global outsourcing” is currently shaping the modern economy, and that
joint ventures, strategic alliances, licensing-agreements, franchising, subcontracting, and
outsourcing have become more important than ever before. These developments have,

4
Figures about Trade, FDI and Capital Flow in -16.
however, caused several challenges to labour standards, as it will be shown in the next
section.5

 CHALLENGES POSED TO LABOUR STANDARDS BY

GLOBALISATION
Even if the process of globalisation can be regarded as desirable from the economic angle, the
impact on labour structures can be regarded as detrimental. While the economy has become
globalised, labour institutions and labour market regulation have remained largely national
with labour standards legislated and controlled by national authorities. This applies even for
the standard-setting instruments of the ILO, which generally need to be implemented by
national authorities, because an international labour law in the strict sense, i.e. one that is
entrusted with the authority of enforcing the standards throughout the world, does not exist.
The world-wide network of production, capital and markets leads less developed countries
with infrastructural disadvantages into temptation of social dumping by reducing their labour
standards, which are already at a low quality level, in order to be competitive in the global
competition.  This could trigger a “race to the bottom”, a downward spiral which could be
prevented by action ensuring the observation of standards among all competing countries.6

Globalisation, therefore, “creates competition between States.” Furthermore, low standards in

developing countries cause not only problems therein, they also cause problems in developed
countries where social and labour rights are extremely jeopardised. For example, unions are
regularly threatened by relocation of the business during the course of bargaining, or by the
threat of merger with foreign corporations. The President of Germany’s largest employers’
organisation has, for example, commented: “In the old days, employers asked themselves
“how bad is the wage agreement for me?”. Today they say “I don’t care about the agreement
any more, because I have four or five excellent exit routes. I may simply relocate 10,000 jobs
in the Czech Republic. Or I may outsource.” Furthermore, union membership, collective
representation and bargaining have declined gradually and significantly, and unions have
realized that “they are ill-equipped to deal with globalisation.” These developments have an
immensely adverse impact, keeping in mind that unions are the “key stakeholder when it
comes to improving labour conditions.” These above-mentioned developments have put the
several national labour legislations under immense pressure in order to compete with
5
According to UNCTAD (2009) there are some 82,000 TNCs worldwide, with 810,000 foreign affiliates.
6
See Friedman (2002) at 64, “globalisation enables each of us, wherever we live, to reach around the world
farther, faster, deeper, and cheaper than ever before”, and “the process is almost driven by technology”
different countries. The pressure arises due to the fact that the more comprehensive and
effective, and thereby possibly hindering for MNCs, the national legislation is, the more
likely it is that the MNCs will wish to relocate.  The main hazard for labour standards in this
context is the potential global reach of MNCs compared with labour laws, which remains by
and large national. The “race to the bottom” seems, therefore, to be inexorable. Hence, the
statements of Vernon and Stone that “multinational enterprises was a threat to national
policy” and that “the global economy is undermining the capacity of nation-states to regulate
their own domestic economies” has become reality. The following section will examine the
function of ILS, as well as the question if there are global or regional actors that can respond
to and cope with the phenomenon of international economic decision making of MNCs.7

THE MEANING AND FUNCTION OF INTERNATIONAL LABOUR

STANDARDS

To understand the function of ILS it is important to comprehend its exact meaning.

According to Sengenberger the term “labour standard” has two different meanings. One
meaning describes the actual terms and conditions of employment, thus, it refers to the “what
is” situation.  The other meaning is normative or prescriptive and refers to the “what should
be” the terms and conditions of employment, specifying the basic worker rights and basic
social rights.  These standards are set both at international and national level, and therefore,
they are known as ILS and national labour standards respectively. ILS are stipulated in
conventions and recommendations of the ILO and form together the “international labour
code.” These ILO instruments are supplemented by other sources of international agreements.
The following remarks, however, will be limited to ILO instruments.8

Having explained the meaning of term ILS, their necessity and function can be explained
briefly. The question about the necessity has been one of the most contested questions over
the last 100 years. This dissent is the result of different perceptions of the world trade

7
For an overview about the different consequences such as child labour, forced labour, etc. see Weiss (2007) at
1094 and Ehmke (2009) at 20-31.

8
Sengenberger (2005) at 13, “On the whole is no evidence of such a “race to the bottom””, Hepple (1997) at
356. Empirical research about the impact of the globalized economy on labour standards in Mosley (2007),
Banks (2003) and Harrison (2003).
conception.  One the one hand, there are the free trade advocates. They favour the removal of
all barriers on trade and investment accompanied by the deregulation of labour markets. In
their opinion, effectively enforced ILS undermine the comparative advantage of countries as
much as domestic labour laws are an impairment of comparative advantage as natural
endowments, resources and preferences. One the other hand, protectionists argue for
protection of national markets and domestic labour legislations against external regulation.
Most governments and policy-maker, however, represent neither of these extremes. They try
to achieve a balance between these two extremes, and they are left with “a hybrid labour law,
torn between its old protective function and the new aspiration towards flexibility.”

The functions of ILS are to remedy and soften the structural shortfalls that arise due to the
peculiarities of the labour relationship and the labour market such as the basic asymmetry of
power between employers and workers and the high risks of marginalization and exclusion.
In this respect, the key functions are participation, protection and promotion, which can be
summarised as follows:

- “preventing destructive competition, by protecting particular groups of workers and setting

minimum terms for pay and working conditions;
- and, concurrently, promoting constructive competition by guaranteeing collective rights,
such as participation in decision-making, improving the productivity and motivation of
workers, raising aggregate demand by increasing earnings, and promoting employment
creation, active labour market policy and socially desirable forms of adjustments.”

Despite the long existing argument about the necessity and function of ILS, the ILO has been
in place since 1919 and has created an enormous bulk of conventions and recommendations.
Its effectiveness will be examined in the following section.9

THE ILO AND EFFECTIVENESS OF INTERNATIONAL LABOUR

STANDARD

The ILO is a specialized agency of the UN with 183  member states. It has a tripartite
structure with government, employer, and worker representatives. This structure provides a
unique forum for the social partners where they can debate and elaborate standards and
policies. So far, the ILO has released 189 conventions and 201 recommendations  that cover

9
Ewing (2008) at 35. More about the weakness of unions in the UK in Ewing (2007a).
nearly all aspects of labour and social right aspects. The necessity of such comprehensive
body of regulation, however, can be seriously questioned, even if the ILO contemplates that
“normative action is an indispensable tool to make decent work a reality.”  Concentrating on
some core standards seems to be preferable, as it will be seen below.

Conventions can create legally-binding obligations on member states, but only after their
ratification, which is voluntary. Only the core labour standards (CLS), identified in the ILO
Declaration on Fundamental Principles and Rights at Work 1998 (ILO Declaration 1998), are
legally-binding without ratification from the very fact of membership to the ILO.  By
contrast, recommendations do not create legal obligations. These ILS are assisted by a
supervisory system that helps to ensure the implementation of ratified conventions. This
supervisory system consists of two distinct supervisory mechanisms. First, the regular system
which uses periodic reports submitted by the member states and secondly, special procedures.
Special procedures are the representations and the complaints procedure of general
application, together with the special procedure for freedom of association.  Regardless of
their effectiveness, these supervisory procedures require in general prior ratification as a
precondition. At this point, however, the key problem arises. Many member states are not
really committed to ratifying conventions.  This applies especially to developing countries,
which are afraid of competitive disadvantages and “disguised protectionism.”  Overall, three-
fifth of the member states have ratified less than one-quarter of the ILO conventions, and
more than one-fifth have ratified fewer than 20 conventions. Another declaration, however, is
more sobering. Ratification does by no means stand for implementation, and there still is an
enormous deficit of implementation. This is based on various reasons.

First, in particular, developing countries are lacking basic administrative structures required
for implementation.  Moreover, governments are often not interested in implementing
because they see their competitive advantages imperilled which might exist due to low labour
costs and poor labour rights.

Secondly, the supervisory mechanisms of the ILO are not very efficient because of the lack of
real sanctions  and the dependence on the goodwill of the member states. At best, the
procedure will end with a declaration of infringement or a request to act in conformity with
the obligation. Thus, the procedures are based on “mobilisation of shame.”  It is hoped that
the convention breaching country will act accordingly in the future because of the peer
pressure. That this procedure has been unsuccessful is obvious.
Thirdly, more than 70 special export processing zones  have been created in developing
countries, which are off limits for many ILS and in which labour controls are relaxed in order
to attract investors.

Lastly, all regulatory attempts of the ILO focus only on the organised and formal sector, i.e.
this realm that is concerned with employment relationships in the national sense. The
informal economy, i.e. the economic activities that are not recognised, recorded, protected or
regulated by public authorities, is not reached by ILO regulation. In this sector, however, the
vast majority of workers work in developing countries.

Moreover, MNCs are not accountable under the ILO system because its instruments are only
addressed to countries not companies.  Alignment could, however, be tremendously profitable
in improving ILS.

To conclude, it has been demonstrated that the standard-setting of the ILO is ineffective. In
order to mitigate this problem, the ILO has undergone a paradigm shift as it will be presented
below.