Regional Trade Agreements with Labor Clauses: Effects on Labor Standards and Trade

Abstract

An increasing number of regional trade agreements (RTAs) include "labor clauses" that require or urge the signatory countries to commit to maintaining a certain level of labor standards. This paper, starting by classifying more than 200 currently effective RTAs depending on the nature and extent of labor provisions, empirically analyzes the effect of a RTA with labor clauses on domestic labor conditions in the signatory countries as well as the effect on trade growth between the countries, using data for up to 220 countries for the years 1995 through 2012.The study finds that (i) intensive trade with the partner(s) of a labor-clause-inclusive RTA may have a positive impact on labor earnings that concentrate on middle-income countries; but also that (ii) labor clauses may reduce the trade-promoting effect of the RTA for the middle-income countries, especially when the RTA partner is a high-income country. These results offer a policy implication that the inclusion of labor clauses in a trade agreement should involve non-negligible costs for possible benefits that may not be expected for every country.

Do Trade Agreements with Labor Provisions Matter for Emerging and Developing Economies’ Exports?

“…Kamata's model explains total real bilateral trade flows with exporter's and importer's GDP, two lagged trade agreement dummies, and year fixed effects. On the basis of the results of this model, Kamata (2014) argues that trade agreements with labor provisions have smaller effects, if any, on "South-to-North" exports (with respect to a trade agreement without labor provisions).…”

“…; see, e.g. Kamata, 2014;Kamata, 2015;and Martinez-Zarzoso and Kruse, 2019). Most studies show mixed results, with trade agreements with labor provisions influencing only certain labor market and working condition indicators (e.g.…”

Deep Integration in Trade Agreements: Labor Clauses, Tariffs, and Trade Flows

“…In terms of classification, most papers had simply used an indicator variable measuring the presence of labor clauses, regardless of the content of the clauses. Using such an indicator, Kamata (2014) finds no statistically significant effects of RTAs with or without labor clauses. Using the "Labor Provisions in Trade Agreements" (LABPTA) dataset created by , Carrere et al (2017) extend this work by differentiating labor clauses as those with and without enforcement and labor clauses designed to foster deep cooperation.…”

The heterogeneous effects of trade agreements with labour provisions

“…Given the reduced sample used for their analysis, it is unclear whether these findings are generalizable and comparable with the rest of the gravity literature. Kamata (2014) uses OLS estimation techniques to estimate a pseudogravity model in first differences that departs from the rest of the gravity literature (and incurs in several potential sources of biases mentioned in Baldwin & Taglioni, 2007). Kamata's model explains total real bilateral trade flows with exporter's and importer's GDP, two lagged trade agreement dummies and year fixed effects.…”