Are labour provisions trade friendly as well as labour welfare enhancing? Do they provide an overall benefit to the workers whose rights are protected as well as firms who export? Are they beneficial to both the exporting as well as importing countries? On the other hand, are they protectionist in nature? Do they impede trade as costs would increase as a result of increased labour protection? Is it an indiretc way of challenging the comparative advantage countries have in abundant labour and comparatively less labour enhancing protections or measures?
Labour provisions are increasingly finding their place in trade agreements. Two disputes have found their way to dispute resolution fora.
Céline Carrère & Marcelo Olarreaga & Damian Raess have explored the impact of labour provisions in trade agreements in terms of whether it enhances trde or impedes it. It has extensive econometric models trying to co-relate labour provisions in various FTAs with firm's performance. The interesting finding that the study has come to is that enforcement mechanisms in labour provisions in FTAs have not been use dthat often and have also not led to an increase/decrease in trade. On the other hand, the institutional co-operation mechanisms that exist where joint bodies address issues of labour protection can be far more beneficial to trade since firm level involvenemt is there from both the importinga nd exporting countries. They conclude:
To sum up, the impact of LCs is strong where they are expected to have an impact, and it is mainly driven by institutionalized cooperation provisions in the LCs. Contrary to what is sometimes suggested, low-income countries with weaker labor standards should not fear the introduction of LCs as a protectionist tool in PTAs as they help rather than hinder their market access to high-income countries. Both low and high- income countries should embrace LCs with institutionalized cooperation mechanisms since the greater trade they generate is at the same time associated with improved labor standards in low-income countries (Raess & Sari, 2020b). As such, they meet the concerns of two core constituencies in high-income countries, the fair traders, by improving labor standards abroad, and those who seek protection, by leveling the playing field for workers and businesses at home, and thereby they help to legitimize the policy of free trade.
One often wonders of labour provisions n FTAs will open the pandora's box to disputes in trade. if not actual disputes, is a threat of a dispute enough to ensure compliance? Would that compliance lead to increased costs and impede trade? Or does it lead to enhanced standards and firm's competitiveness in the global market increases?
The other questions is the heterogeniety in labour provisions in various agreements - from hard law enforcement provisions to soft law co-operation and engagement and capacity building. Is this a possible middle path to engage with labour provisions or should it be a red zone? That would ultimately be a domestic choice - a national negotiating priority in the context of specific negotiations.