Labor clauses in trade agreements: Hidden protectionism?

Area of Science:

• International Trade Law
• Economics
• Political Science

Background:

• Preferential Trade Agreements (PTAs) increasingly include labor clauses (LCs).
• The impact of LCs on bilateral trade flows remains debated.
• The design and direction of trade (e.g., North-South) may influence LCs' effects.

Purpose of the Study:

• To analyze the impact of LCs in PTAs on bilateral trade flows from 1990-2014.
• To investigate whether the direction of trade and strength of LCs affect trade outcomes.
• To examine the role of specific LC designs, such as cooperation versus enforcement mechanisms.

Main Methods:

• Utilized a novel dataset on the content of labor provisions in PTAs.
• Employed econometric analysis to assess the relationship between LCs and bilateral trade.
• Focused on North-South trade configurations to evaluate specific impacts.

Main Results:

• LCs have no average impact on bilateral trade flows.
• LCs increase exports from low and middle-income countries in North-South PTAs.
• The positive impact is driven by LCs featuring institutionalized cooperation, not strong enforcement.

Conclusions:

• LCs can facilitate trade for developing countries, particularly when focused on cooperation.
• Results challenge the notion that LCs are protectionist tools.
• Developing countries' reluctance to include LCs may stem from misconceptions about their effects.