Effects of a Humanitarian WTO Social Clause on Welfare and North-South Trade Flows

Abstract

The integration of core labour standards into the WTO has been demanded mostly on either humanitarian or fair trade grounds. While both reasons can be justified theoretically, the case for integration remains unclear. Whereas the humanitarian integration of core labour standards is a question of means, the fair trade reasoning is a question of empirical relevance. This paper contributes to both questions by estimating the effects of a social clause in a standard computable general equilibrium model of world trade (GTAP). Our finding is that developed countries have little incentive for protectionist misuse of a social clause, since humanitarian trade sanctions hardly reduce their import pressure. Furthermore, even a drastic reduction of child labour in developing countries only has a marginal effect on north-south trade flows. Therefore, calls for a better enforcement of labour standards in the south to correct vertical distribution effects of world trade in the north are not supported by our findings. However, in light of possible trade liberalization-enhancing effects and only a limited danger of protectionist misuse, a multilateral humanitarian social clause could be an effective instrument for furthering the century-long global quest for better worker rights.