CORPORATE CODES OF CONDUCT AND PRODUCT LABELING SCHEME: THE LIMITS AND POSSIBILITIES OF PROMOTING INTERNATIONAL LABOR RIGHTS THROUGH PRIVATE INITIATIVES

INTRODUCTION

As a result of increased economic globalization during the last quarter century, many U.S. multinational corporations (MNCs) now manufacture products in developing nations, or purchase commodities from contractors, subcontractors, and suppliers who do, in order to take advantage of lower labor and other regulatory costs. A mounting criticism of this widespread business practice is that attractive North American bargains come at the expense of foreign workers in the form of low wages, long work hours, anti-union hostility, racial and gender discrimination, child labor, and poor workplace health and safety standards. With major U.S. or multilateral legal initiatives unlikely in the near future, U.S. MNCs are being urged to promulgate market-based voluntary measures, or adhere to suggested measures already promulgated, in order to self-regulate their dealings with overseas labor forces.

 

Two main types of voluntary measures currently exist: corporate codes of conduct and product labeling schemes. Corporations that subscribe to a code of conduct make a voluntary written pledge to respect labor rights enumerated in the code. Current and historical examples of such codes offer a spectrum of differing approaches to their application and implementation. Product labeling requires that, in addition to adhering to a code, corporations affix a label to their products certifying that they are made under acceptable working conditions--for example, without the labor of children under the age of sixteen. Most of these private initiatives focus on garment industry sweatshops and child labor, but they can be applied to, and in some cases already exist for, other contexts as well. At present, there is no consensus on the best type of private measure for eradicating exploitative workplace conditions. Upon her return from a February 1998 sweatshop summit in Brussels, U.S. Secretary of Labor Alexis Herman stated that in regard to choices among such initiatives, "We are in a very creative period."(1)

 

This Article surveys the various options available for promoting international labor rights through private initiatives and makes recommendations as to the types of private initiatives most likely to promote those rights. This Article argues that, because these initiatives are market-based devices that treat humane workplace conditions as private goods for which consumers are willing to pay a premium, effective codes and product labeling schemes require: (1) coherence, through national or industrial uniformity of codes and schemes among MNCs; and (2) credibility, through ,external monitoring of code or labeling scheme compliance and public disclosure of violations. This Article further argues that codes and labeling schemes--even those that are coherent and credible--will not be as effective as some commentators have claimed. While coherent and credible private initiatives will undoubtedly have some degree of positive direct effects on international labor rights, these direct effects will be limited to a very small segment of workers in any given developing nation. Direct effects will be further limited by various problems endemic to monitoring compliance. More promising, however, are the possible indirect effects of coherent, credible private initiatives. This Article concludes that, while their use should be encouraged, current private initiatives are second-best solutions to the problem of establishing basic international workers' rights and should not lessen the demand for future public initiatives.

 

II. THE CAUSE AND THEORY OF CODES OF CONDUCT AND LABELING SCHEMES

 

This Part argues that U.S. MNCs submit to codes of conduct and labeling schemes as a result of pressure from consumers, investors, the media, and non-governmental organizations. Private initiatives for promoting international labor rights are adopted primarily because of MNCs' fear of the effects of such pressure on profitability. Only certain companies, however, are subject to this type of pressure. This Part further argues that codes and labeling schemes operate pursuant to an underlying economic theory that assumes workplace conditions are private, rather than public, goods. Under this private goods theory, codes and labeling schemes provide the information that allows society to "buy" a socially desired level of workplace conditions as a result of preferences expressed by individual consumers in their individual market transactions.

 

A. Image: The Impetus for Codes and Labeling

 

(1)A corporation's decision to self-regulate through a code of conduct or labeling scheme is a "combination of altruism and enlightened self-interest,"

(2) though the latter factor appears to predominate. U.S. MNCs make themselves subject to these measures when it appears that doing--or not doing--so will be relevant to a significant number of consumers when they decide whether or not to purchase one or more of an MNC's products. Relevance to consumers arises as a result of pressure for improved overseas workplace standards from government, media, unions, human rights organizations, financial institutions, and other consumers.

(3) Corporations are often responsive to such pressure because they fear negative publicity that will lead to a loss of market share and, ultimately, profits.

(4) A brief example illustrates this point. In 1994, a coalition of consumer and human rights groups began to pressure Seattle-based coffee retailer Starbucks to adopt standards requiring improved wages and conditions for workers on the Guatemalan plantations from which it sources beans.

(5) Tactics included letter-writing, leafletting and picketing outside Starbucks stores, and a brief boycott of the company's products.

(6) A high-profile company known for progressive treatment of its own workers--for example, health care benefits even for part-time employees and stock options for all employees

(7)--Starbucks had little choice but to grudgingly concede.

(8) It adopted a code of conduct that requires its overseas suppliers to pay subsistence level wages, employ child labor only if it does not interfere with mandatory education requirements, and help workers obtain acceptable levels of housing, health facilities and the like.

 

Journal article by Robert J. Liubicic; Law and Policy in International Business, Vol. 30, 1998