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Unit 29 : Functions of WTO/GATT

last three years. This is one of the points of dissatisfaction for India and we are strongly urging the Notes
importing countries to bring forward the liberalisation process.”
29.5 Social Clause in GATT

A very startling proposal was made in the context of the finalisation of the GATT agreement towards
the end of March 1994. This proposal, commonly referred to as “social clause” was moved by US to
be incorporated in the Marakkesh Declaration. The US representative proposed under the social
clause to levy a countervailing duty on imports from developing countries aimed at offsetting the
low labour costs prevailing there. In plain language, the proposal implied the following : If a shirt in
India cost ` 50, while it cost ` 200 in the US, then this differential was largely a consequence of the
difference in labour costs. To remove this differential advantage, Indian exports to the USA would
have to pay a duty aimed at neutralising the cost advantage. The social clause, it was stated, is
motivated by humanitarian concern, so that the developing countries adopt proper standards of
living for the workers and pay their labour better wages.
Experts in developing countries were shocked by this proposal since it aimed at blunting the only
competitive edge of the Third World countries. Experts described the humanitarian argument no
more than a moth-eaten fig leaf. The only purpose of getting suddenly concerned about the plight of
labour in the Third World was their deep desire to deprive developing countries of their only
competitive advantage. They know that as far as technology is concerned, developing countries are
at a historical disadvantage. Developing countries have now to pay high price for getting technology
from the developed countries. If this clause is introduced, Indian products will become unsaleable in
the USA and the other countries of the European Community. Ironically, it would imply that the
poorer nations will be forced to pay for the fact that they are poor.
Critics are of the view that this move is a continuation of the Harkin Bill which calls upon the US
Department of Labour to annually identify goods made with the use of child labour and the countries
exporting them. If this Bill is passed, US Government will ban the import of these items, severely
affecting India’s export of carpets, gems and jewellery, textiles and garments etc. The social clause is,
therefore, aimed at countries like India so that the advantage to the developing world is destroyed
and their capacity to export manufactured goods is seriously crippled. In the end, these countries
should be allowed to export raw materials like cotton and iron ore and import garments and steel. It
would really revive the days of colonialism. Mr.Pranab Mukherjee, former Minister of Commerce,
stoutly opposing the linkage between social policy concerns, like labour standards, and trade clearly
stated at Marakkesh on April 13, 1994 : “I would like to state categorically that while we are strongly
committed to internationally recognised labour standards, we see no merit whatsoever in the attempt
to force linkages where they do not exist. Trade policy cannot be made the arbiter of all concerns.”
The social clause proposal became the rallying point of G-15 states and the Malaysian Prime Minister
Mahathir Mohammed launched a diatribe against the provision. The unanimous opinion of the G-15
countries was that the social clause proposal would hit their economies adversely and thus aggravate
the problem of balance of payments, rather than help them to bridge the BOP gap. Due to the combined
strength of G-15 countries, the US government had to face a retreat and the issue was deferred.
The Fifth Conference of the Labour Ministers of Non-aligned and other developing countries held in
Delhi from January 19-23,1995 dismissed the “social clause” as “totally unacceptable”. It asserted :
The proposed linkage would negate the benefits of trade liberalisation and aggravate problems of
unemployment and distress. Delhi Declaration came down heavily on the coercive aspect of proposed
linkage and stated : Any form of coercion on the labour standards issue is violative of the constitution
of International Labour Organisation (ILO). The declaration further emphasised that “the application
of unilateral coercive economic measures by the developed countries aimed at the Third World
countries with a view to obtaining economic or political advantage is unacceptable”.
There is another proposal to introduce an environmental protection clause with the intention of forcing
the developing countries to pay for the alleged destruction of environment. Experts are of the view
that a more discriminatory provision than this is hard to imagine since three-fourth of the damage to
world ecological environment has been caused by the developed world over the last two centuries. It

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