Labor's Savvy Charge on China Trade


Say this for the AFL-CIO: It knows how to put George Bush on the spot. As the Presidential campaign centered on jobs and foreign competition heats up, the labor federation fired what could be a potent election-year broadside: It asked the Bush Administration on Mar. 16 to decide whether worker repression lets China price its exports below their true market value, thus unfairly taking U.S. jobs.

The petition ensures that Bush must choose by late spring if it should anger China by launching a formal probe -- or alienate factory workers in such key battleground states as Pennsylvania and Ohio. This could be a tough decision, since the White House is hardly likely to agree to a labor case against China when it and most of Corporate America have argued for years that such issues should be handled by the International Labor Organization, not in trade pacts.

The Administration's initial response promised nothing, but it sounded as tough as possible: "We are committed to aggressively enforcing our trade laws to make sure American companies can compete on a level playing field," says U.S. Trade Representative spokesperson Richard Mills, who also says it's too early to comment on the merits of labor's filing.

LOGICAL LINK. Despite the politics, the AFL-CIO's 100-page brief marks a milestone of sorts in the debate over trade and labor rights. For years, labor and its allies have demanded that labor standards be included in trade pacts. But their complaints often have been dismissed as self-interested protectionism. Now, for the first time, labor's so-called fair traders have articulated a coherent intellectual position that makes a logical link between trade and labor rights.

Even some ardent free traders think the AFL-CIO's petition must be taken seriously. "You can't just dismiss it as protectionist. In a market economy, wages are set by the free interaction between workers and management, which doesn't exist in China," says William A. Reinsch, the President of the National Foreign Trade Council, which represents 300 large U.S. multinationals such as Boeing (BA).

Labor's argument is so elementary that it's astonishing no one has ever spelled it out in such detail before. The brief contends that China's well-documented labor repression allows its factory owners to pay less than they would if the government enforced its own labor laws. These savings in turn lower the price of China's exports to the U.S., giving it an unfair trade advantage -- much as a direct government subsidy to a factory owner would do.

QUANTIFYING THE DAMAGE. So, the AFL-CIO isn't complaining that China's wages are low, but that its labor abuses push them even lower than they would be if the country had something closer to a free market. "We're not challenging China's comparative advantage [in cheap labor] but only the added increment of cost advantage it gains by violations of core worker rights," says Mark Barenberg, a Columbia University law professor who drafted the AFL-CIO filing.

His brief even tries to put a dollar value on the labor repression and the price subsidy it entails. Using four methods, it finds that China's failure to pay its own minimum wage or to allow independent unions lowers wages by 47% to 86%. This in turn reduces the price of China's exports by 11% to 44%.

While these numbers are only a guesstimate, the methods Barenberg employs are similar to those companies use to calculate the damage in more traditional dumping complaints. More important, though, is the notion that China's unwillingness to live up to its own labor standards itself constitutes an unfair trade practice. Sure, it's a politically loaded charge, but it may be difficult to ignore, especially in an election year. By Aaron Bernstein in Washington, D.C.


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