Social Clauses in Free Trade Agreements: An Efficient Tool to Improve Labour Standards?

ABSTRACT This paper aimed at measuring the effect of labour provisions in free trade agreements on level of labour standards. After the failure of WTO negotiations, we observed a rapid development of preferential trade agreements, including different types of labour clauses. We exploit such changes to assess their effect on ratifications of ILO conventions and reported violations of ILO labour standards. We use a difference‐in‐difference approach taking into account the potential endogeneity of social clauses. Overall, we find that these social clauses have heterogenous effects on both de facto and de jure labour standards. We do not find significant effects on labour provisions on labour standards. But this result is driven by labour provisions that are not legally enforceable. We do find a positive effect of labour provisions with higher level of legalism on the ratification of ILO conventions but no significant effects on ILO violations. Interestingly, we find that this effect is stronger in agreements between Southern countries. Also, where the agreement includes institutionalised cooperation mechanism (INST), we find that labour provisions are associated with a lower level of labour standards violations, but also with the number of conventions. This effect is driven by North–South agreements. These results show that the inclusion of labour provisions in trade agreements is not sufficient by itself. Such provisions should incorporate comprehensive institutional framework in addition to legally binding feature to be efficient.