Labor Provisions in Trade Agreements: Recasting the Protectionist Debate

Abstract

Labor provisions are integral to regional trade agreements (RTAs). Critics argue that they are a protectionist measure by reducing trade flows. Efforts to test that argument by employing various economic gravity models to trade agreements with labor provisions have failed to apply clear legal criteria and updated estimation methods. Drawing from the law of transnational contracts, we apply clear legal criteria to labor clauses and estimate a Poisson regression by pseudo maximum likelihood with high-dimensional fixed effects and controls for other “deep” agreement provisions associated with trade. We estimate the relationship between labor provisions and bilateral trade by classifying labor clauses found in all World Trade Organization-notified RTAs from the 1990s through February 2016. Contrary to previous efforts, our concise typology, updated estimation methods, and controls for additional trade-agreement variables find no robust evidence that labor provisions impact, much less reduce, trade flows.

Keywords: regional trade agreements; labor provisions; labor clauses; WTO; PPML; gravity model

JEL Classification: F13, F66, J8, F1, C5, F14, F66