It is conceivable that both theories could be at work. For example, LCs could worsen comparative advantage in developing countries by increasing labour costs, but consumers could respond positively to the LC signal, thereby increasing demand. As the two push in opposite directions in terms of trade volume, we may not see a difference between South-North trade and other configurations (i.e., situations where the exporter and importer are both low- and middle-income countries, high-income countries, or where the exporter is a high-income country and the importer is a low- or middle-income country). If so, we do not know if the two phenomena or neither of them are at work. In the empirical test, the sign of the coefficient for LCs in the small sample, where the exporter is a low- or middle-income country and the importer is a high-income country, will tell us which phenomenon is most important for understanding the impact of LCs on trade. Hence our first two hypotheses: Labour supporters advocate strengthening law enforcement by expanding the role of the World Trade Organisation or by using bilateral trade agreements. Although the ILO`s work has received a Nobel Peace Prize, many workers` supporters are skeptical about the possibility of protecting workers with its existing enforcement tools, as they impose few sanctions other than bad publicity. In the post-World War II period, state-controlled links between trade and workers` rights emerged in the early 1990s. Footnote 2 The leaders were African countries that founded the African Economic Community in 1991 and the European Community (EC) with its trade agreements signed with Hungary and Poland in 1991 (Raess & Sari, 2018, 2020a).
Footnote 3 The former APT provides for the adoption of measures to protect the child from abuse and exploitation, cooperation on labour rights and the establishment of a Committee on Health, Labour and Social Affairs. The latter APTs, which are identical in terms of labour regulations, include a substantial commitment to working conditions, their enforcement through dispute settlement with the possibility of unilateral retaliation (although non-existent monetary and trade sanctions) and cooperation in the field of occupational health and safety with regard to the level of protection in the EC. The EC negotiated many such agreements with the countries of Central and Eastern Europe in the early and mid-1990s. An PTA is coded as having a CL if it contains at least one provision in the preamble or in the main text aimed at protecting and/or promoting workers` rights and working conditions. Footnote 13 With respect to the specific design features of CLs, we focus on two dimensions of the stringency of work regulations, namely rigorous enforcement and institutionalized cooperation (see Raess and Sari, 2018). These are different instruments for the effective implementation of labour regulations. The first covers the so-called “hard” standards of labour law (Hafner-Burton, 2005; Postnikov and Bastiaens, 2014). In particular, an LC is coded as having strong enforcement mechanisms when an APT (i) has at least one substantive labour provision that is characterized by a quasi-judicial (e.B. third-party decision) or judicial (e.B. permanent tribunal) dispute resolution and (ii) allows for the unilateral imposition of sanctions in at least one of the following three types, `financial compensation` means `trade sanctions` or `other appropriate measures`.
An LC with highly institutionalized (or “deep”) cooperation mechanisms refers to a LCA with the following two characteristics: (i) at least one material execution of the work covered by the cooperation activities (e.B. technical assistance, capacity building); and (ii) a comprehensive institutional framework establishing a specialized body for monitoring and implementing labour rules and allowing for the participation of third parties (social partners, NGOs, ILO, other third parties). In recent research, we try to determine whether the introduction of labor clauses in trade agreements has led to more or less trade (Carrère et al. 2017). Given that all of the above arguments focus on exports from low-income countries and lower labor standards to high-income countries that have stricter labor standards as well as high awareness among some consumers and businesses, we examine whether the direction of trade is important. We also examine whether different forms of labour clauses in trade agreements influence their impact on trade flows. In particular, we distinguish between working clauses with strong enforcement mechanisms and those with more in-depth cooperation mechanisms on labour issues. Fortunately, Damian Raess and Dora Sari recently created a new dataset (LABPTA dataset) that systematically documents labor law provisions in preferential trade agreements.
