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Can Trade Agreements Be a Friend to Labor?

Summary:
To date, labor clauses in trade agreements have remained a fig leaf, neither raising labor standards abroad nor protecting them at home. Real change would require a significantly different approach, including how trade agreements uphold and enforce workers’ rights. CAMBRIDGE – Labor advocates have long complained that international trade agreements are driven by corporate agendas and pay little attention to the interests of working people. The preamble of the World Trade Organization Agreement mentions the objective of “full employment,” but otherwise labor standards remain outside the scope of the multilateral trade regime. The only exception is a clause, left over from the 1947 General Agreement on Tariffs and Trade (the precursor to the

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To date, labor clauses in trade agreements have remained a fig leaf, neither raising labor standards abroad nor protecting them at home. Real change would require a significantly different approach, including how trade agreements uphold and enforce workers’ rights.

CAMBRIDGE – Labor advocates have long complained that international trade agreements are driven by corporate agendas and pay little attention to the interests of working people. The preamble of the World Trade Organization Agreement mentions the objective of “full employment,” but otherwise labor standards remain outside the scope of the multilateral trade regime. The only exception is a clause, left over from the 1947 General Agreement on Tariffs and Trade (the precursor to the WTO), which permits governments to restrict imports that are produced with prison labor.

Regional trade agreements, by contrast, have long taken labor standards aboard. The linkage in these agreements between preferential market access and adherence to core labor rights has become increasingly explicit. In the original North American Free Trade Agreement, signed in 1992, labor standards were shunted to a side agreement. Since then, US trade agreements have typically included a labor chapter.

According to its proponents, the Trans-Pacific Partnership would have required Vietnam, Malaysia, and Brunei to improve their labor practices significantly – and Vietnam to recognize independent trade unions. And US President Donald Trump’s administration claims that its revamped agreement with Mexico contains the strongest labor provisions of any trade agreement.

Developing countries have generally resisted inclusion of labor standards in trade agreements for fear that advanced countries will abuse such provisions for protectionist purposes. This fear can be justified when the requirements go beyond core labor rights and make specific wage and other material demands. For example, the new US-Mexico agreement requires that 40-45% of a car be made by workers earning at least $16 per hour.

Auto companies can certainly afford to pay higher wages, and this provision on its own may not undermine employment prospects in Mexico. But it is not an altogether salutary precedent either, insofar as it sets an unrealistic wage floor – many multiples higher than the average for the Mexican manufacturing sector as a whole.

On the other hand, developing countries have little reason to reject labor standards that address bargaining asymmetries in the workplace and fundamental human rights. Core labor standards such as freedom of association, collective bargaining rights, and prohibition of compulsory labor are not costly to economic development; in fact, they are essential to it.

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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