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Preferential trade agreements with labour provisions and labour market outcomes in Asia Pacific

A growing consensus is emerging highlighting that the benefits of international trade are not accruing to everyone within economies with equity. Competition from abroad can often hurt a number of domestic industries, which has prompted many firms to search for cost-savings, potentially resulting in significant downward pressure on wages and labour conditions. A number of governments are attempting to ensure more equitable outcomes from trade liberalization, with labour provisions in trade agreements offered as a solution.

Many trade agreements now contain a wide scope of sustainable development provisions, including labour provisions designed to link labour standards with trade by demanding compliance with certain agreed upon base standards. These tend to include the core International Labour Organization (ILO) labour standards: (a) freedom of association and the effective recognition of the right to collective bargaining; (b) the elimination of all forms of forced and compulsory labour; (c) the effective abolition of child labour; and (d) the elimination of discrimination in respect of employment and occupation (for more information visit the ILO website).

In Posso (2017, 2018), I looked at the relationship between labour provisions in preferential trade agreements and three key labour market outcomes that make up the subject of most labour provision agreements: (i) child labour, (ii) formal employment, and (iii) inequality. The econometric models, which aim to determine whether there is a causal linkage between provisions and the variables of interest, suggest that preferential trade agreements are unlikely to cause improvements in these outcomes.

The problem is that developing economies, where informality, child labour and inequality are arguably worse, exhibit more apprehension about including sustainable development commitments in agreements as well as more stringent enforcement mechanisms. Perhaps one exception is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which incorporates labour market and environmental provisions, as well as governance goals aimed (mostly) at developing countries. However, legal provisions do not always lead to substantive changes.

This is because developing economies face significant capacity constraints in implementing obligations. In particular, data limitations limit the effectiveness of monitoring and evaluating outcomes. Good data will be paramount in future work which needs to focus on the nexus between globalization, international legal agreements and labour market outcomes to understand the consequences of these economic shocks and provide policy initiatives that can adequately prepare segments of the population for, at least, the most common potential negative outcomes.

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