Strengthening Protection of Labor Rights through Preferential Trade Agreements (PTAs) Moonhawk Kim moonhawk@gmail.com Executive Summary Analysts have argued that the United States attempts to strengthen protection of labor rights in other countries through trade agreements have been unsuccessful. By contrast, my analysis demonstrates that labor provisions in trade agreements do lead to improvements abroad, prior to countries entry into negotiations with the U.S. and prior to countries signing of negotiated trade agreements. Accordingly, I recommend continuation of linking labor rights to trade agreements and to widely publicize the priority that the U.S. places on protection of labor rights abroad. 1 Problem Concerns about the level of labor and environmental protection in trade partner states now explicitly enter into domestic debates about trade policies in developed economies (Destler and Balint 1999: Chapter 1). For example, the U.S. signed side agreements with Mexico and Canada on labor and environmental cooperation along with the North American Free Trade Agreement (NAFTA). Subsequently, the 2002 U.S. Trade Act mandated the president to incorporate provisions for labor and environmental protection into every preferential trade agreement (PTA) that he signed under the authority of the legislation. Such fair trade PTAs provide mechanisms for enforcing states failure to comply with the labor provisions. The conventional wisdom is that these provisions are not e ective in the absence of strong enforcement mechanisms (Hafner-Burton 2005). PTAs with the U.S. typically require partner states to protect and enforce their domestic labor laws in place rather than internationally recognized labor rights. Thus, at a first glance, labor provisions in fair trade PTAs do not appear to have noticeable e ects on countries around the world. Do fair trade PTAs trade agreements that contain provisions for protection of labor rights lead to improvements in labor protection in PTA partner states? If so, how do the PTAs bring about such improvements? This memo distills the main argument and the findings from the following article: Kim, Moonhawk. 2012. Ex Ante Due Diligence: Formation of PTAs and Protection of Labor Rights. International Studies Quarterly 56(4):704-719. Refer to the article for fuller discussion of the argument and the research methodology.
I argue that fair trade PTAs systematically lead to improvements in labor protection but that the changes are not likely to happen as a result of ex post enforcement after PTAs enter into force. Instead, PTA partner states are likely to pursue improvements in domestic labor protection prior to signing a PTA and even before negotiating a PTA. Given that developed countries have become more concerned with the level of labor rights abroad for both trade protectionist and normative reasons hopeful PTA partner states improve domestic labor protection based on the belief that doing so will improve their likelihood of negotiating a PTA and having a negotiated PTA ratified by states pursing fair trade strategies. 2 Argument Large, developed economies are increasingly becoming fair trade states, states in which the domestic constituency implicitly or explicitly values these labor rights abroad and seek to link them to trade policies. This preference derives in part from protectionist motivations of labor and in part from normative concerns about human rights (Elliott and Freeman 2003; Hafner-Burton 2009). The fair trade states have relatively scarce endowments of labor, and thus labor in the states is protectionist. Stronger labor protection in PTA partner states can serve this material goal of labor in the fair trade states by raising the labor costs in PTA partner states. Other segments of the constituency in the fair trade states that are not labor may have deep-seated cosmopolitan motivations of improving the economic well-being of people in other countries. Stronger labor protection in PTA partner states can directly serve this moral objective. In seeking to sign a PTA with fair trade states, trade partners of those states compete against one another for the opportunity by strengthening domestic protection of labor rights. Partner states expect that having stronger labor protection will facilitate the ratification of a potential PTA in the fair trade state, and decrease the likelihood that the agreement would be interrupted by disputes over labor issues once it is in e ect. They further anticipate that fair trade states will be more likely to negotiate PTAs with partner states with whom labor protection will not derail the negotiations and ratification. In short, trade partner states will seek to increase their chances of entering into a negotiation for PTA with a fair trade state by improving their labor protection in the years leading up to the anticipated fair trade mandate. Even after entering into a PTA negotiation, uncertainty exists in the likelihood of the fair trade state ratifying the negotiated agreement. The domestic constituency of the fair trade state may deem the level of labor protection in the partner state inadequate. Given this possibility, prospective PTA partner states will seek to increase their chances of having their PTA ratified in the fair trade state by improving their labor protection during the negotiations period. 2
3 Analysis The unit of analysis is the country-year consisting of all partner states that traded with the U.S. between 1982 and 2005. These are states that had some potential to form a PTA with the U.S. by virtue of maintaining a trade relationship with the latter. The availability of labor data primarily limits the coverage of years, but the limitation also corresponds to the substantively interesting period in the history of U.S. PTAs. The first PTA that the U.S. signed was in 1985 with Israel, after which it signed the only other PTA during the 1980s with Canada in 1988. The main dependent variable in the analysis is whether U.S. trade partner states domestically improve the protection of labor rights by strengthening labor laws and enforcement of those laws. To code this, I transform the three-level workers rights variable in the Cingranelli-Richards (CIRI) data on human rights into a dichotomous variable. The CIRI variable codes each country-year as 0 (severely restricted), 1 (somewhat restricted) or 2 (fully protected), depending on the level protection for workers right of association and right to bargain collectively (Cingranelli and Richards 2008: 65-70). The main explanatory variables are indicators that divide the time periods into discrete phases. For the negotiation hypothesis for all trade partners, the time period is divided into one prior to the 2002 Trade Act (years less than 2002 coded zero) and another one for after the legislation goes into e ect (years greater than or equal to 2002 coded one). For the ratification hypothesis for those signing a PTA with the U.S. at some point the time period is divided into three phases: no negotiations, negotiations and post-negotiations. In addition to these main variables, improvements in the domestic protection of labor rights are modeled as a function of three groups of factors economic, political, and a host of methodological controls. Table 1 in the appendix summarizes the results of the statistical models accounting for labor rights protection among all U.S. trade partners arising from the 2002 Trade Act containing the fair trade mandate. Model 1 includes all years in the sample (1982 2005), whereas Model 2 limits the analysis to the period from 1995 on. The pattern of results is very similar across the two models, despite the second model having half as many observations as the first. As expected by the negotiation hypothesis, trade partner states are significantly more likely to improve their domestic labor protection leading up to the fair trade mandate (2002 Trade Act) than they are subsequent to the mandate s implementation. Figure 1 plots the predicted probabilities of improvements in labor protection based on the estimations from Model 2. The plot shows the predicted probabilities for each of the two periods. The error bars show the 95-percent confidence intervals around each predicted probability. I hold all the variables at their mean, except the preceding level of labor protection (lagged CIRI score) is held at zero the lowest category among three. Then I vary the value of the Trade Act indicator variable between zero ( pre-mandate ) and one ( post-mandate ). The panels show a large di erence between the two periods. During the pre-mandate period (1995 2001), the predicted probability of U.S. trade partner states improving their labor protection was.53. During the period under the mandate, the probability drops to 0.068. In the next step of the analysis, I examine whether and when states that eventually sign 3
Fig. 1. Predicted Probabilities of Improving Domestic Labor Protection under Pre- and Post-Fair Trade Mandate Periods 0.8 0.7 0.6 Predicted Probabilities 0.5 0.4 0.3 0.2 0.1 0 Pre-Mandate Post-Mandate a PTA with the U.S. rather than the U.S. trade partners at large improve their domestic labor rights protection over time. The negotiations phase can be coded in two di erent one ways one that excludes the period between signing and entry into force (short) and another that includes this period (long). My argument anticipates that the likelihood will be higher during the negotiations period than during the post-negotiations period. Model 3 uses the short measure of negotiations periods, and Model 4 uses the long measure. Table 2 in the appendix summarizes the results. Fig. 2. Predicted Probabilities of Improving Domestic Labor Protection During and After the PTA Negotiations Periods 0.7 0.6 Predicted Probabilities 0.5 0.4 0.3 0.2 0.1 0 Negotiations Post-Negotiations Figure 2 plots the predicted probabilities of improvements in domestic labor rights protection based on Model 3 for states with weak existing protection. All variables other than 4
the period indicators variables are set to their sample mean. Despite the larger confidence intervals than in the previous models, the results are still significant at the 95-percent level. States that eventually signed a PTA with the U.S. were more likely to improve their labor rights during the negotiations period (.21) than during the period after the negotiations (.060). 4 Policy Recommendations Whereas observers have not identified widespread improvements in labor protection as a result of preferential trade agreements (PTAs) incorporating labor provisions, my analysis shows that the true e ects of these PTAs have been largely out of sight. In particular, I showed that improvements in trade partner states levels of labor protection prior to negotiating/signing a PTA is the more significant mechanism than ex post enforcement of labor provisions once a PTA is in e ect. This finding generates several tangible policy recommendations that the U.S. government should pursue: 1. The U.S. should continue incorporating labor rights provisions into trade agreements it signs. Doing so generates improvements in labor protection abroad. 2. The U.S. should widely publicize its priority for promoting labor rights protection abroad. Doing so will provide incentives to countries with weak protection of labor rights to improve it to make themselves attractive as future trade agreement partners. 3. The U.S. should assist prospective trade agreement partner countries in improving their labor rights protection. Theassistancecantakevariousforms,suchasprovidingguidance for domestic legal reforms, training for law enforcements, and education for employers. 4. The U.S. should evaluate following the strategy of linking trade agreements with other areas of societal regulations, such as environmental protection. A similar dynamic as the one over labor rights can lead countries to pursue improvements in other policy areas. 5
Table 1. Attempts to Form PTAs with the U.S. and Improvement of Labor Rights Model 1 Model 2 Coef/SE Coef/SE Trade Act Period t 1.952*** 2.837*** (.37) (.55) Level of Labor Protection t 1 1.714*** 2.059*** (.14) (.24) Number of ILO Conventions Ratified t.010.002 (.04) (.07) Total GDP t 1.231*.298 (.13) (.20) GDP Per Capita t 1.097.045 (.10) (.15) Growth t 1.003.005 (.01) (.02) Total Trade t 1.050.131 (.16) (.22) Total Bilateral Trade t 1.156*.166 (.09) (.12) Proportion of Exports to the U.S. t 1.462***.382* (.17) (.22) Veto Player t 1.401.334 (.34) (.44) Polity t 1.057***.069*** (.02) (.02) Spatial Lag of Labor Protection t 1.962*** 1.841** (.55) (.78) Year t.003.127** (.02) (.06) Time Since Last Improvement t.236*.565** (.14) (.25) Constant 10.197 248.065* (41.01) (127.27) N 2576 1268 * p<0.1, ** p<0.05, *** p<0.01. Logit estimates on any positive changes in labor rights. Standard errors are adjusted for clustering on states. Estimates on natural cubic splines are not reported. 6
Table 2. Prospective PTAs with the U.S. and Improvement of Labor Rights Model 3 Model 4 Coef/SE Coef/SE Trade Act Period t.177.362 (1.33) (1.48) Level of Labor Protection t 1 2.030*** 1.941*** (.37) (.36) Period without Negotiations t 2.357*** 1.845*** (.58) (.53) Negotiations Period (short) t 1.611*** (.60) Negotiations Period (long) t.728 (.92) Number of ILO Conventions Ratified t 1.121.109 (.08) (.07) Total GDP t 1.331.318 (.46) (.48) GDP Per Capita t 1.100.101 (.40) (.40) Growth t 1.071.072 (.06) (.06) Total Trade t 1.503.500 (.80) (.81) Total Bilateral Trade t 1.755.709 (.53) (.52) Proportion of Exports to the U.S. t 1.471.443 (.49) (.50) Veto Player t 1 1.238 1.339 (1.01) (.98) Polity t 1.037.042 (.08) (.08) Spatial Lag of Labor Protection t 1.895 1.995 (1.78) (1.77) Year t.041.042 (.06) (.06) Time Since Last Improvement t.177.130 (.40) (.39) Constant 82.927 85.407 (109.74) (111.38) N 408 408 * p<0.1, ** p<0.05, *** p<0.01. Logit estimates on any positive changes in labor rights. Standard errors are adjusted for clustering on states. Estimates on natural cubic splines are not reported. 7