What do we really know about trade and labor?

Labor and Worklife Program hosts workshop in the shadow of NAFTA negotiations

On August 31, Harvard Law School’s Labor and Worklife Program (LWP), in collaboration with the University of Reading, organized a workshop on the “Past and Future of Labor Provisions in the Context of Trade.” Coincidentally, it was the same day President Donald Trump, twenty-six years after the signing of the North American Free Trade Agreement (NAFTA), notified Congress of his intent to sign a revised agreement with Mexico and, potentially, Canada.

The signing of the original NAFTA in 1992 generated an unprecedented public reaction and set off an era of anti-globalization activism. The core of the criticism focused on the potential effects of trade agreements on jobs and labor rights. After growing pressure from labor activists, newly elected President Bill Clinton signed the North American Agreement on Labor Cooperation (NAALC), the first instance in which the U.S. negotiated a side agreement on labor to supplement a trade agreement.

As Sharon Block, executive director of the LWP, highlighted in her opening remarks, there has been a surprising surge of labor provisions in trade agreements since the signing of the NAALC. For instance, the share of reciprocal trade agreements with labor-related commitments has risen from an average of 32 percent in the 1990s to 61 percent in the 2010s (with a peak of 80 percent in 2013). Still, she said, very little is known about what labor provisions in trade agreements actually accomplish.

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The key objectives of the workshop were to discuss new findings in recent research papers on the role and effectiveness of labor provisions and to assemble a high-level panel discussion with some of the most highly regarded experts in the field. The panel, chaired by Kimberly A. Nolan García, associate professor, FLACSO-Mexico, included Dani Rodrik, Ford Foundation Professor at Harvard Kennedy School, Michael Stumo, chief executive officer of the Coalition for a Prosperous America, Celeste Drake, trade and globalization policy specialist at the AFL-CIO, and Sandra Polaski, former deputy undersecretary for International Labor Affairs, U.S. Department of Labor.

On the whole, the presented papers relying on brand new datasets provided evidence both for the positive economic and social impact of labor provisions.

Damian Raess, SNSF Professor at World Trade Institute and lecturer at the University of Reading, presented “Labor Clauses in Trade Agreements: worker protection or protectionism?” co-written with Céline Carrère and Marcelo Olarreaga. Challenging the long-held belief that linking trade and labor would be used as disguised protectionism and would hurt developing countries, they found evidence that such commitments increase exports from developing to developed country markets. According to Raess, this finding provides a business case for developing countries to accept the inclusion of labor commitments in their trade deals.

Regarding the protection of worker rights, empirical results are encouraging and do indicate such provisions to be effective, at least to a certain degree.

Layna Mosley, a Professor at the University of North Carolina at Chapel Hill, presented her paper on “Protecting Workers Abroad and Industries at Home: Rights-Based Conditionality in Trade Preference Programs,” co-written with Emilie M. Hafner-Burton and Robert Galantucci. Their findings suggest that in the case of the U.S.’s unilateral trade preference scheme, the suspension of countries from the program for labor rights violations is indeed used, though primarily to take low cost although visible actions and only at the country level, while at the product level actions are still largely motivated by considerations related to import competition.

In the bilateral trade context, LWP Fellow Dora Sari, whose research focuses on international labor regulation and global labor governance, presented her paper “Do labor provisions in PTAs reduce labor rights violations? The role of institutionalized cooperation”, co-authored with Damian Raess. Their results show that although there is evidence for labor-related commitments to improve labor rights at the national level, such improvement relates exclusively to changes in the legislative framework, but do not yet translate into the implementation and enforcement of those rights in practice. An important contribution is, however, the finding that provisions considered as soft, if backed by strongly institutionalized and inclusive monitoring and implementation mechanism, can be effective in improving labor rights, thereby questioning conventional wisdom that only strongly enforceable provisions with hard economic sanctions can be effective in dealing with repressive state behavior.

The subsequent panel discussion took a broader perspective on ongoing trade negotiations and the role labor provisions could or should play in rebalancing globalization. Panel members agreed that there are a set of labor rights, identified as fundamental by the International Labour Organization, the protection of which should not be questioned or undermined based on a country’s economic development. As Rodrik put it, “these [rights] are not obstacles to but part of economic development, not specifically in terms of increase of GDP per capita but in the sense of Amartya Sen’s term of increasing capabilities.”

As to the idea of linking labor rights protection to trade agreements, the views differed more considerably. Stumo argued such linkage to be misplaced in reaching presumed humanitarian objectives, while Rodrik expressed concerns about the expansion of such clauses to cover, for instance, minimum wage regulation (as in the case of the revised NAFTA). Drake stressed that given the lack of more forceful options, trade unions have no other choice but to utilize labor provisions despite their inadequacies to counter dominant corporate interests. Polaski noted that if used correctly labor provisions can play an important role in incentivizing governments to pursue an inclusive development strategy that would equally create jobs and improve labor rights.

In general, the panelists agreed on the need to re-think existing approaches to labor provisions. Stumo made a case for a high wage driven growth model. Rodrik argued for the reconsideration of labor provisions along the idea of social dumping (much like the principle of safeguards or anti-dumping) and to move from the approach of improving labor rights elsewhere to preventing race to the bottom at home. Drake stressed the need for provisions that can help realigning governments’ interest with that of working people instead just that of business and investors. Similarly, Polaski noted that given the current US approach has mainly increased the power of capital, the improvement of both institution and enforcement provisions of labor clauses was necessary.

On the question of enforcement, both Drake and Polaski argued that the current system has been designed in a way to make the use of it difficult for interested parties, noting that even if it was used it would fail to protect workers’ rights, with the US-Guatemala dispute being a case at point. They both referred to the loophole created by the obligation to prove that labor rights violations were as such affecting trade and investment between the parties, an obligation not required in relation to the violation of any other commitment under a trade agreement. Besides correcting regulatory loopholes, Drake also suggested that “to make [enforcement] effective, we should change the focus of dispute settlement mechanism to something that gets at those who are actually abusing the workers”. While the AFL-CIO offered several such proposals, none so far appear to be accepted under the revised NAFTA.

Ultimately participants noted, experience still indicates that the more effective way of addressing labor through trade is to apply labor conditionality ex-ante, that is prior to the signing of trade agreements, instead of through an ex-post enforcement, an approach that has rarely worked before.

But for now, with little public knowledge of the labor provisions adopted under the revised NAFTA, participants could only hope that the agreed commitments will at least be more than fig leaves.