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01-05-2019

Social standards in trade agreements and free trade preferences: An empirical investigation

Authors: Ida Bastiaens, Evgeny Postnikov

Published in: The Review of International Organizations | Issue 4/2020

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Abstract

Free trade generates macroeconomic gains but also creates winners and losers. Historically, to reconcile this tension, governments compensated globalization losers with social spending in exchange for support for free trade, known as the embedded liberalism compromise. In the neoliberal era, what other policies can governments pursue to strengthen support for globalization? We assess the effect of social standards in preferential trade agreements (PTAs) on individual preferences for free trade. We analyze data from an original survey experiment and find that respondents in advanced industrialized countries have greater support for free trade when PTAs include social standards. Differences do exist in how these social standards are perceived: while we do find evidence of an embedded liberalism compromise recast, fair trade norms have the most salience. An external validity check using the PEW global attitudes survey confirms the hypothesis. Our analysis has serious implications for the legitimacy of the global trading system suffering from neo-mercantilist creep.

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See, for example, Abrams and Sattar (2017); Fox (2016); Naidu-Ghelani (2015).

The race to the bottom logic dictates that countries loosen taxes, regulations, and social protections to be competitive under conditions of mobile capital. This race to the bottom is taken for granted by the public, organized businesses, and governments, despite mixed evidence of it actually happening (Drezner 2000; Mosley 2005; Rudra 2008).

Social standards are rarely included in South-South PTAs and remain non-enforceable when they are. Conversely, the fear of social dislocation is lower in North-North agreements which are centered on regulatory coordination and easing intra-industry trade. While North-North agreements also include social standards, they rarely generate as much contestation among constituents (e.g. the US-Australia FTA). The recent example of the Transatlantic Trade and Investment Partnership (TTIP) (increasingly unlikely to materialize) is a unique case. TTIP controversies over labor and environmental issues largely reflect public concerns over the degree of potential regulatory convergence as both the EU and the US already include (and implement) strict social standards in their respective PTAs and in their local policy arenas.

See Milewicz et al. (2016) for various reasons behind the inclusion of non-trade issues in PTAs.

Legal mechanisms of dispute resolution are similar across EU and US PTAs, although the enforcement method differs. In EU agreements, for example, expert panel rulings (rendered in cases of non-compliance) are implemented through inter-state dialogue and meetings.

PTAs with social standards increase foreign direct investment in green and high-skilled labor industries while decreasing it in polluting and low-skilled labor ones (Lechner 2018).

Evidence points to the factoral model as suited best to explain individual attitudes towards trade both in the US and globally (Scheve and Slaughter 2001; Jäckel and Smolka 2013). Mansfield and Mutz (2009) argue for sociotropic macroeconomic factors.

We use OECD membership to distinguish the Global North and South.

Some scholars argue that the previous embedded liberalism compact has been eroded with the advancement of neoliberalism (e.g. Abdelal and Ruggie 2009; Glatzer and Rueschemeyer 2005).

1500 US organizations signed a letter opposing the TPP because it did not provide sufficient protection for labor and the environment (Citizens Trade Campaign 2016).

The 2007 US Bipartisan Trade Deal mandates the inclusion of enforceable labor and environmental provisions in all US PTAs and is the direct result of lobbying by American labor and environmentalists (Postnikov 2019).

Low-skilled workers working in the service sector also have an incentive to level the playing field. Rosenblum et al. (2000) highlight that the service sector is a significant component of overall US emissions, waste, and energy consumption (in part because it is such a large part of the US economy). Transportation, electricity, and sanitation pollutants are central to the service industry.

As previously discussed, North-South PTAs induce change in the Southern partner, the Northern state already meets (and typically exceeds) the social standard requirements.

More educated individuals have greater support for trade (Hiscox and Hainmueller 2006) and high-skilled individuals feel less economically insecure than low-skilled ones (Walter 2017).

MTurk is an online platform that recruits and compensates individuals for performing tasks.

We excluded defunct agreements. See Milewicz et al. (2016) for another dataset on PTAs.

Trade agreement texts are available on: bilaterals.org; trade.ec.europe.eu; ustr.gov.

All supplementary material (Appendices A-E) is available at the Review of International Organizations’ webpage.

MTurk is widely used in political science (Berinsky et al. 2012), yet we remain cautious as it does not have representative samples of national populations.

We consider members of the OECD to be developed countries. Despite an overall diversity of countries listed, respondents from the United States dominate the survey sample. Results are robust to excluding the United States as well as estimating our models on respondents from the United States only (see Appendix A.1 and A.2).

This framing is conservative due to the inherent skepticism about social standards.

We use the most recent data available (year of 2010) for industrial employment for the United States to reduce missing observations.

Mexico and Turkey are OECD members, but not high-income countries. Bahrain, Croatia, Cyprus, Kuwait, Lithuania, Saudi Arabia, Singapore, Trinidad and Tobago, and the United Arab Emirates are high-income countries, but not OECD members.

PTAs with labor provisions are 0.8 correlated with PTAs with environmental provisions.

We attribute this result in the developed world to limited variation in access to water.

Results are robust to controlling for national sentiment: “Are you satisfied or dissatisfied with the way things are going in our country today.”

Operationalizing the winners and losers using income (whereby the losers are below the average income in the sample) is also robust in showing support for the positive relationship between social standards and free trade among both winners and losers (results available upon request).

In addition, low income people have been shown to have stronger perceptions of long-term environmental risks as they are potentially more threatened by climate change which means even greater material insecurity (Lo 2014).

The definition of fair trade by the World Trade Organization and various fair trade organizations also emphasizes the working conditions of farmers, poverty, and ethical business practices.

Developing countries oppose linking trade with labor and environmental standards at the multilateral level (Kolben 2006). Yet, developing countries do increasingly sign PTAs with developed states containing such clauses. This is because bilaterally developed countries have larger bargaining power and developing countries need to compete for access to their lucrative markets (Chan and Ross 2003).

Our findings are robust to a sample of respondents from India only or a sample excluding respondents from India, controlling for union membership, political ideology, and government spending and excluding individuals with prior awareness of social standards.

The PEW developing country sample and the descriptive statistics on each country’s North-South PTAs are listed in Appendix E.10.

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Title: Social standards in trade agreements and free trade preferences: An empirical investigation
Authors: Ida Bastiaens
Evgeny Postnikov
Publication date: 01-05-2019
Publisher: Springer US
Published in: The Review of International Organizations / Issue 4/2020
Print ISSN: 1559-7431
Electronic ISSN: 1559-744X
DOI: https://doi.org/10.1007/s11558-019-09356-y

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