Policy tools for better labour outcomes

Trade is a powerful engine of growth and economic development. It has managed to lift close to a billion people out of poverty. In the last four decades, developing countries increased their share of global exports from 16% to 30%, creating millions of jobs in low-income nations, and the global poverty rate fell from 36% to 9%, according to a World Bank briefing. Despite these advancements, however, not all countries, workers and businesses have benefited equally.

Decent work deficits, job polarization, labour exploitation and income inequality have led to increased public scrutiny of trade liberalization and, specifically, trade agreements.

The concurrent digital and energy transformations are altering the global trade and labour market landscapes, affecting the livelihoods of millions of workers employed in trade-focused sectors. These transitions, which have inherent geopolitical implications, involve competition for regional resources, global talent and advanced technologies, potentially leading to trade disputes and sanctions that disrupt established trade patterns and cause geographical and temporal disparities.

The emergence of high-tech or AI-driven industries, for instance, may not generate sufficient employment opportunities in regions where traditional industries are declining. Similarly, the creation of green jobs may not occur simultaneously or at the same rate as the loss of traditional jobs. To mitigate the adverse effects on workers and ensure the sustainable growth of enterprises that create decent jobs, it is essential to address these disparities by examining closely the relationship between trade and labour and how it can promote social justice and a just transition process within and across domestic, regional and global policy settings.

Going back in time, while the 1996 WTO Ministerial Conference in Singapore clearly separated the multilateral trading system and internationally recognized core labour standards, labour-related aspects have not been completely removed from rules on international trade. Over the last two decades, labour standards have gained significant momentum in international trade discourse. There has been a gradual shift from voluntary initiatives to mandatory (often unilateral) rules to deal with labour and human rights issues in supply chains.

Trade tools are increasingly being used to improve labour outcomes in supply chains. And, enhancing interactions between the trade and labour communities is crucial to effectively leverage trade tools for improving labour outcomes in practice.

The EU, the US and Canada have been actively integrating labour standards into trade agreements. Initially, these provisions were mainly seen in agreements involving developed nations, but now there's a rising trend of including them in agreements between developing and emerging economies. Approximately 19% of trade agreements containing labour provisions are between partners in the Global South. While these provisions are seen as the most widely used trade tools for promoting rights, ensuring compliance faces numerous challenges, especially where domestic regulations are weak and penalties for non-compliance are inadequate.

To address this, establishing institutional mechanisms for dialogue among governments, workers' and employers' groups could be a crucial first step. This engagement should begin early and continue throughout the negotiation, implementation and administration phases of the trade agreement.

Gathering insights from these stakeholders on the challenges they encounter in implementing labour provisions is essential for evaluating the effectiveness of these policies in various contexts.

Efforts to develop effective legislation to promote human rights and labour rights across supply chains have also been pursued at regional and national levels. These initiatives aim to prevent violations and to foster positive improvements in job quality. The most recent regional policy development has been the EU’s Corporate Sustainability Due Diligence Directive. Seen as a regulatory framework that guides businesses and other stakeholders in ensuring sustainable and transparent supply chains, the directive requires in scope EU and non-EU-based companies to conduct due diligence on, and take responsibility for, human rights abuses and environmental harm throughout their global value chains.

At the national level, multiple countries have adopted modern slavery acts and due diligence legislation to address human rights and labour rights violations in supply chains. Addressing the challenges of extra-territorial supply chain regulations involves navigating a complex landscape where these efforts at regional and national levels seek to promote human rights and labour standards.

From a business perspective, given the difference in scope and approaches between these legislations, fostering harmonization of due diligence frameworks through the development of common standards is crucial to avoid policy fragmentation and to ensure effective compliance.

Simultaneously, from the viewpoint of workers, this means ensuring human rights due diligence, which requires companies to take concrete measures to identify, prevent and remedy any negative human rights impacts arising from their activities. It will also be necessary to utilize, monitor and improve tools, such as International Framework Agreements negotiated globally between trade unions and multinational corporations. These should establish high standards for trade union rights, as well as health, safety, environmental practices and principles for quality of work throughout a company's global operations. Irrespective of location, these are crucial for safeguarding and supporting rights at work.

The attention given to labour issues in the trade policy landscape is a positive development. A closer collaboration, however, between stakeholders from the trade and labour communities is needed to identify and effectively address key labour challenges across various supply chains in the context of just transition processes, tackling policy fragmentation, fostering cooperation, contributing to aligning trade and labour policies for the promotion of decent work and equitable growth.

An upcoming policy paper by the TASC platform at the Graduate Institute and the Centre for Regions, Trade and Geopolitics (CRTG) at the World Economic Forum brings together multiple stakeholders from the trade and labour policy communities. The paper will outline different policy tools and mechanisms, how well they work in practice and how they can be improved and aligned from an institutional, policy and regulatory perspective. It aims to strengthen the foundations of policy dialogue, synergy and coherence within and between countries and international organizations in this crucial area.