Can the EU better support job creation in developing countries?

On 24 January 2017, the International Trade Union Confederation, the European Trade Union Confederation and ActionAid organised a half-day event bringing together officials from the European Commission and member states, civil society organisations and trade unions, academics and European think tanks to discuss whether and how the EU trade policy could better support job creation in developing countries. The main take-aways from that meeting have been summarised below.

Millions of people have been lifted out of poverty over the last 30 years. But is it because of trade liberalisation or is it resulting from the extension of access to social protection and decent work? Views diverge on this, but what appeared unambiguously in the discussions is that EU trade policy could create more and better jobs in developing countries. The EU is uniquely placed to deliver on such an agenda because it has a wide array of policy instruments that it can and should use in a coherent way.

There has been a change in context. This is not just because the SDGs SDGs The Sustainable Development Goals were one of the outcomes of the Rio+20 Conference. The members States launched a new set of future international development goals, which will build upon the Millennium Development Goals and converge with the post-2015 development agenda. have been adopted and the EU is working on a new development policy (the “Consensus for Development”) But it is because while over ten years ago in Seattle and Hong Kong, people protested against the negative impacts of free- trade agreements and corporate profits being put before public interest, today people express anger with their vote – as seems to be indicated in Trump’s election and the Brexit vote. The context has changed because social and economic injustice and skyrocketing inequality cannot be ignored anymore. They have become a top priority. The context has also changed because people want more regulation to enforce labour standards, increase access to medicines, guarantee the quality of agro-food products, and protect their privacy in the face of the digital industry. Trade policy alone is not sufficient to solve all those challenges, but it works as the scaffolding for global regulation. It puts rules between countries that trade.

Poor countries are trapped in the lower part of the global value chain, which goes together with low wages and exploitation in the workplace. Workers in global value chains generally have precarious contracts, with low or no social protection, and weak or non-existent room to unionise and collectively defend their rights. An ITUC report shows that 94 per cent of global value chains’ workforce is informal. When labour standards and conditions improve in a country, investors often move production elsewhere where wages are lower. Investors often blackmail governments with the threat that they will move factories in order to get unions busted. It’s been described as the “race to the bottom”.

Diversification and higher-value added production are central to generate more qualified and decent jobs. However, it does not happen automatically: assisting local companies on how to add more value to products and training the workforce are important but grossly insufficient. Governments must design a robust industrialisation strategy for this to happen.

Structural transformation depends on domestic capital, not inclusion in global value chains. Indeed, for years now, UNCTAD UNCTAD The United Nations Conference on Trade and Development is the main body of the United Nations General Assembly dealing with trade, investment, and development issues. It formulates policies related to all aspects of development including trade, aid, transport, finance and technology. It’s also a forum where the developing countries can discuss the problems related to their economic development. ’s research has been demonstrating that the global value chains do not offer a reliable pathway to development and structural transformation. For instance, domestic investors are a major driver of sustainable economic development in a way that foreign investors and their volatile model of investment are not. Micro-enterprises and SMEs in developing countries must be supported. Manufacturing is still important, UNCTAD’s Trade and Development Report for 2016 says, but how can a country build its own industry?

International trade and investment rules prevent the protection of infant industries in developing countries and the use of local content requirements (obligations for foreign investors to procure locally and employ local labour). Trade and investment agreements prohibit public subsidies to support local industries and impede technology transfer through excessive protection of intellectual property rights. Investors have been using investment agreements to impede states from regulating, roll back regulation and to claim money if the state refused to do so. . Investment “protection”, is not matched with binding and enforceable obligations to respect human and labour rights and the environment. Even when the room for manoeuvre exists to adopt sound industrial policies, it is not sufficiently used.

Economic diversification is central for development. Manufacturing is at the core of diversification. Manufacturing not only boosts exports, but also, more importantly, builds domestic markets. Developing countries need to set up institutional and policy frameworks that help firms reinvest their profits while also supporting them to upgrade and innovate, using reciprocal control mechanisms (mechanisms – conditions attached to state support (subsidies and incentives) which ensure that firms that receive such support ‘reciprocate’ through appropriate investment behaviour and performance) as carrots and sticks. Equally key is the timely and efficient communication between ministries in developing countries.

Bangladesh is a case in point: The economy is dominated by small and cottage industries, yet they have not been included in government policies targeting a higher contribution of the industrial sector to the country’s GDP (a top target in the country’s new Five-Year Plan). At least a dozen government ministries and agencies have oversight of the industrial sector and firms, the majority of which are underfunded and not adequately mandated to fulfil their regulatory role. If Bangladesh is to diversify its economy so it can provide more and better jobs through manufacturing, the government will need to implement significant changes in its industrial policy planning and implementation.

The EU trade policy is supposedly gender-neutral but in fact, it has adverse impacts on women. Trade liberalisation may offer employment opportunities to women, but often these are only short-term contracts with little to no employee benefits, wages below the living wage standard and exploitative conditions. Jobs are also often created in the informal sector where women do piece- work at home, subcontracted to supply to formal factories – further away from access to social protection.

Export processing zones have particularly negative impacts on women because, being situated on the outskirts of cities, women often need long hours of travel to go and come back from work, and they cannot look after their children anymore during the day. Without affordable childcare services, women often delegate this task to relatives (likely to also be women), whose chances to access paid work or education consequently become limited. Also, trade agreements have often resulted in the privatisation of public services, with particularly negative effects on rural women and on the redistribution of unpaid care work. Trade agreements need to make sure that the formal jobs they promise to create put women’s economic and social rights, including redistribution of their unpaid care burden, at the front and centre as early as the negotiating stages.

In developing countries, 90 per cent of women perform informal work. Today, the boundary between formal and informal economy is blurred, with women in developing countries often combining formal and informal income generating activities. Work is increasingly defined as entrepreneurship rather than employment. In the developed countries we also see “Uberisation” of many services sectors, and by the legalisation of informal work in the form of zero-hour contracts. The shift towards the creation of opportunities for women’s entrepreneurship involves risks: How can those women entrepreneurs demand respect for their rights? How could such a fragmented work force become unionised or otherwise more organized?

The EU’s current model of environmental and labour conditionality is ineffective in reducing exploitation in partner countries and in protecting European workers. The EU should incorporate and make proactive use of actionable provisions in trade agreements so that women and men enjoy their right to decent work and a dignified life.

A number of suggestions came out of the discussions about Aid for Trade. It is not development aid that should support trade, but trade that should support sustainable development. In particular, it was said that it should:

  • Do much more to support the circular economy as the best option to reduce greenhouse gas emissions. Exporting should not be an end in itself, and promotion of sustainable local consumption and production should get much more attention.
  • Support the implementation of local, national and regional industrialisation policies, elaborated with the participation of local micro-, small- and medium-size enterprises, trade unions and CSOs.
  • Pay much more attention to micro-entreprises, which constitute the overwhelming majority of the private sector in developing countries – as in Europe, and to cooperatives, and support local, national and regional markets rather than focusing on global value chains.
  • Support not just the private sector but, reflecting the four dimensions of the SDGs SDGs The Sustainable Development Goals were one of the outcomes of the Rio+20 Conference. The members States launched a new set of future international development goals, which will build upon the Millennium Development Goals and converge with the post-2015 development agenda. (economic, social, environmental and governance dimensions), the EU should promote consumers organisations and workers’ organisations. Without strong workers’ organisations, there will be no further progress on fairer wealth distribution, wages or health and safety at work.
  • Support social dialogue as a means for a just transition towards a green economy.

Following this meeting, the ITUC and ActionAid have elaborated joint suggestions for the Aid for Trade review entitled Prioritising inclusiveness and sustainability. The paper is available for download here