Credits: The Economic Times

Introduction

Trade and globalization have notably expanded market opportunities and created new jobs, but their benefits have been unevenly distributed, exacerbating longstanding labour challenges. However, labour law falls outside the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) multilateral framework because developing nations opposed labour clauses, viewing them as “protectionism in its new garb” (Hepple 2005). To address the negative externalities of free trade, preferential and regional trade agreements (PTAs and RTAs) have increasingly included labour provision, with 113 out of 354 PTAs as of 2022. The normative rationale for trade - labour nexus follows a level playing field logic, driven by the rise of low-cost manufacturing in newly industrializing countries, which has led to job losses in developed economies and fears of a “race to the bottom”. At the same time, post-war human rights frameworks recognize basic labour rights as universal norms essential to human dignity, reflected in United Nations (UN) instruments and International Labour Organization (ILO) fundamental labour standards. For instance, labour clauses in PTAs include reference to the Universal Declaration of Human Rights (1948),  the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) (1979), Freedom of Association and Protection of the Right to Organise Convention (No. 87, 1948) and the Forced Labour Convention (No. 29, 1930), Overall, the concentration of  labour provision in North - South trade agreements suggests the promotion of labour standards through trade policy has been driven primarily by   high-income countries, reflecting both economic competitiveness concerns and broader normative commitments to protects core labour  standards.

Typology of Labour Provisions in Free Trade Agreements

According to the ILO’s Labour Provisions in Trade Agreements Hub, specifically the dataset on Coverage of Labour Provisions by Income Classification (1995–2021), the inclusion of labour provisions varies significantly across income groupings. In North–North agreements, only 13 out of 37 RTAs include labour provisions. In North–South agreements, 73 out of 186 RTAs contain such provisions, representing 39.2% of the total. In South–South agreements, 16 out of 128 RTAs include labour provisions. Labour provisions vary from obligations to enforce domestic labour laws to requirements that national regulations align with ILO fundamental labour standards. The ILO classifies trade-labour provisions into three main categories: i. regulatory clauses concerning obligations related to core labour standards, ii. monitoring and cooperation clauses that promote compliance through cooperative activities (managerial approach), iii. dispute settlement mechanism (DSM) including any mechanism to ensure compliance, activated when non-compliance arises and informal resolution fails (sanction-based approach).

DSM are particularly important because the ILO conventions lack legally binding enforcement mechanism for non-compliance. Therefore, DSM provisions in PTAs can help close this gap (a form of “regime borrowing”). DSM covers aspects relating to which chapter of the trade agreement addresses labour disputes, the role of third-party panels, and consequences of non-compliance, which include monetary compensation and suspension of benefits. Thus, DSM provisions can also determine whether the regulatory and cooperative clauses are legally binding. Only 77% of RTAs contain provisions regarding DSM, and 80% of these are in North-South Agreements, suggesting that enforcement clause is more common when a high-income country is involved.

Labour Provisions: Compliance and Enforcement Effects

The effectiveness of labour provisions in PTAs remains debated. Evidence suggests that global labour rights compliance decreased between 2015 and 2023, even as global trade continued to grow (United Nations, 2025). Scholars argue that assessing the impact of trade-labour provisions on the improving working conditions requires consideration of both types and depth of clauses, rather than the number of RTAs signed. Labour practices are influenced more by the strictest agreements signed, those requiring concrete commitments and including strong monitoring and enforcement mechanisms,  than by the accumulation of shallower agreements, which contain broad, non-binding labour commitments with limited detail and weak enforcement tools. Stricter agreements often involve advanced economies, which can leverage market access and high regulatory capacity to induce compliance.  Furthermore, countries tend to adopt standards set by strictest partners even when other trading partners do not require them. The “non-divisibility of standards” makes it inefficient for countries to adopt different regulations for different trading partner, because firms cannot practically separate production processes and compliance systems to match each individual country’s requirement. As explained by Bradford, exporters have an incentive to adopt a global standard when production is non-divisible across markets. This logic explains why labour provisions imposed by large economies are more influential, and why countries cannot realistically adjust labour policies on case-by-case basis for each trade partner.

When measuring labour conditions, it is important to distinguish between de jure rights (legal provisions) and de facto rights (actual enforcement). Research finds that stricter labour regulations are negatively correlated with the enforcement intensity, meaning that relying solely on de jure measures might be misleading. On the other side, agreements with enforceable provisions can lead to effective improvement of labour conditions, and their effect can be stronger when the provisions are more comprehensive. Assessing outcomes should consider both formal legal standards and actual practice. As clarified by Miravet and Martinet-Zarzoso, these considerations have practical implications for the drafting of RTAs: labour provisions should be both enforceable and comprehensive, covering multiple labour-related areas.

This trajectory is confirmed by the evolving normative agenda of large economies, which increasingly adopt labour provisions more comprehensive and detailed in content, accompanied by more assertive methods of enforcement. In this context, the European Union (EU) has reviewed its “value-based-trade” agenda. Recognizing the limited effectiveness of earlier trade and sustainability provisions, the EU has introduced stronger enforcement mechanism, including sanctions as a remedy for failure to enforce labour standard. For instance, the EU-New Zealand FTA is the first existing agreement that envisages the possibility of using trade sanctions as a last resort, for material breaches of the ILO core labour standards. Following the same logic, the (USMCA) complements this trend with a more targeted enforcement mechanism. The Rapid Response Mechanism (RRM) is an enforcement system that allows the US, Canada, and Mexico to take action against individual factories that violate workers’ rights. Any interested party (such as a union, civil society group, or government) can submit a petition with evidence of labour rights violations at a specific workplace, after which the accusing government requests a review from the host country, and if no agreement is reached, an independent panel is established to assess compliance. The RRM operates in a manner more similar to a fact-finding mission in international human rights law than to a state-to-state dispute settlement mechanism, as seen in other areas of international economic law.

Conclusion

The evolution of RTAs has made labour provisions more detailed and increasingly enforceable, often supported by trade sanctions. However, their predominance in North–South agreements highlight a persistent asymmetry of power and raises concerns about the possible instrumental use by high-income countries, making it essential to ensure the effective involvement of relevant stakeholders and to consider the specific circumstances of developing countries in the At the same time, this development reflects a broader convergence between trade law and international human rights and labour standards, with agreements operationalising core ILO principles. New enforcement mechanisms further shift the focus from traditional state-to-state dispute settlement toward compliance and workplace-level accountability. Overall, the effectiveness of labour provisions depends not only on enforcement design but also on their legitimacy and ability to genuinely advance human and labour rights.

Bio

Madalina Stoican is a legal expert specialised in EU and international law, with a focus on international trade and environmental law. She has experience in sustainability advisory and holds an LL.M. in the international regulation of ecological and digital transition.