Designing Trade with Labour Adjustment in Mind
In her intervention to the Geneva Dialogue on Trade and Labour, held during Geneva Trade Week 2026 as part of the WTO Public Forum, Charlotte Sieber-Gasser, PD Dr. iur., Senior Researcher in International Law, Geneva Graduate Institute draws on four years of research to examine a central question: how can trade agreements better anticipate and manage labour adjustment?
Her research examines why some labour adjustment is inherent to trade liberalisation, why trade governance and labour-market policy continue to operate largely in silos, and how package treaties, capacity building and tailored labour policies could manage adjustment more directly.
Read on as Charlotte Sieber-Gasser sets out seven findings on what it takes to bring labour adjustment more directly into the design of trade agreements.
This article forms part of TASC Platform’s Geneva Dialogue on Trade and Labour blog series, drawing out perspectives, insights and research shared during the 2026 Dialogue at the WTO Public Forum.
the sinergia project
The project explores if and how trade agreements could become politically realistic and socially effective vehicles to address negative spill-overs of trade liberalization. International trade agreements typically benefit the national welfare of the nations that sign them. However, they also generate economic displacements as well as negative social and environmental spill-overs. The traditional approach to address these negative spill-overs has been to rely on domestic flanking policies, which are de-linked from the trade agreement itself.
This approach, however, has not always worked well. Too often trade has been liberalized internationally, but domestic lawmakers have failed to enact the needed measures to address economic disruptions and spill-over effects on the environment and society. This has sapped the support for trade. Popular resentment of ‘globalisation’ has driven anti-trade sentiments to heights not seen since the 1930s in key geographies. A trend that has been intensified further with the COVID-19 Pandemic. This is having serious consequences for the multilateral trading system
Inspired by early examples of “package treaties”, we explored if and how trade agreements could become politically realistic and socially effective vehicles to address these spill-overs more directly.
The project built three databases:
1. Impact AssessmentsDatabase of ex ante and ex post impact assessments of trade agreements worldwide
2. Package TreatiesDatabase of binding flanking obligations in selected trade agreements.
3. Domestic FlankingDatabase of domestic flanking legislation in selected countries.During the Dialogue, Charlotte shared seven findings from four years of research:
The data shows that environmental concerns are much deeper integrated in trade policy than labour concerns.
Labour adjustment is, to some extent, necessary. The focus should therefore be on reducing the adjustment period and limiting individual harm.
Trade governance and labour market policy function largely in silos, with labour policy subsidiary to trade policy.
Trade liberalisation is generally good for labour, if it is well designed. Negative effects on working conditions, gender and unemployment often have structural causes, but can be exacerbated through FTAs.
Labour concerns can no longer be ignored in trade governance. Second-generation flanking measures addressing the moral externalities of trade challenge the rules-based system and force us beyond the traditional silo/subsidiary approach.
Labour adjustment management is crucial for the success of the FTAs. The longer the adjustment period, the smaller the economic gains, meaning that developed countries also have an interest in keeping adjustment periods short and relatively painless.
Package treaties offer potential for managing labour adjustment more directly. This can include tailoring liberalisation through targeted sectoral access to avoid negative effects and strengthen positive ones, capacity building particularly around general adjustment measures, and domestic flanking policies with tailored labour policies, including specific programmes and labour standards for agriculutre, services and the platform economy.
Explore the wider research
Charlotte’s intervention distilled a much wider body of research. For readers looking to explore these questions further, explore additional wider, in-depths insights and research on trade-related labour adjustment, flanking policies and the design of trade agreements.
Labor market adjustment:
To some extent desired, trade and competition provide gains because they force producers and companies to be more efficient.
“Losers” from trade need to invest elsewhere or find another job. Facilitating this transition and providing safety nets for people in need, is a way in which trade, and the overall gains that come with it, can be made more digestible.”
To the extent that fair competition and genuine comparative advantage therefore inevitably create both winners and losers, certain negative effects of trade liberalization are necessary for the generation of trade benefits to occur in the first place. They are defined as real income (or welfare) losses suffered by individuals or firms in the absence of market distortions. Necessary negative effects need to be addressed or minimized rather than pre-empted.
Source: Joost Pauwelyn & Charlotte Sieber-Gasser, Addressing Negative Effects of Trade Liberalization: Unilateral and Mutually Agreed Flanking Policies, World Trade Review
Overcoming the silo/subsidiarity approach:
In order to provide alternatives to the traditional approach to trade policy, new analyses and solutions to addressing negative spill-overs of trade liberalization are needed.
This is particularly true also because key geographies will need to deal with additional negative spill-overs of trade liberalization soon: service-intensive economies are likely to face new and substantial challenges since automation of jobs has entered a new era (i.e. the fourth industrial revolution) propelled by both machines and artificial intelligence, therewith also reaching services industries. As most of the relevant literature concentrates on the displacement of jobs due to imported goods, displacements due to services imports, automation in services or changes in intellectual property rights have been neglected.
Current trade adjustment policies and programs, are therefore not tailored to the particularities of job-displacements in the services sector or following changes in intellectual property rights (e.g. patents covering artificial intelligence of the type that is responsible for the automation of work).
Source: Joost Pauwelyn & Charlotte Sieber-Gasser, Addressing Negative Effects of Trade Liberalization: Unilateral and Mutually Agreed Flanking Policies, World Trade ReviewCapacity building:
Labour market adjustment following an increase in trade needs to be embraced as a necessary requirement for the trade agreement to benefit all its partners in the first place.
Strengthening capacity building through trade agreements could contribute to reducing the negative effects of trade liberalization for labour and enable developing countries to address labour adjustment more effectively.
Existing trade capacity-building measures seem to respond to challenges that arise during different stages of trade liberalization, but it is unclear to what extent «trade capacity building» provisions ease pressures in labour adjustment.
Based on the understanding that labour adjustment-related issues, post-trade liberalization, need to be addressed domestically through «general adjustment measures (GAMs)», such measures tend to be de-linked from trade agreements and are implemented largely on a strictly national basis.
This paper examines the nature of «trade capacity-building» and of «GAMs», the effectiveness of both in labour adjustment in a developing country context and makes recommendations on how trade agreements could better address labour adjustment by combining both «trade capacity-building» provisions as well as elements of «GAMs».
Source: Rohan & Charlotte Sieber-Gasser, Capacity-Building through Trade Relations: Packaging to Address Structural Labour Adjustment in Developing Economies, Legal Issue of Economic IntegrationInclusiveness and GDP:
Does specialising in more inclusive products lead to higher or lower economic growth?
After classifying goods into inclusive and less-inclusive goods along three economic dimensions (gender, income and formality), we calculate the degree of inclusiveness of countries’ export bundles.
Using panel data across developing and developed countries, we then find that a 1% increase in a country’s export inclusiveness, controlling for the value of total exports and a measure of the country’s overall inclusiveness, leads to a 0.17 percent increase in GDP per capita.
This result is important for at least three reasons. First, as countries adopt industrial and trade policies that promote more inclusive production (UNCTAD 2022, 2025; United Nations 2024), it is important to know the economic cost associated with specialisation towards more inclusive goods.
Second, it highlights that a more inclusive economy cannot only be achieved by adopting economywide legal norms. The results in this paper suggest that the composition effect associated with shifting resources towards more inclusive sectors can also result in a more inclusive economy.
Finally, whether shifting resources to more inclusive sectors leads to higher or lower income per capita growth is an open question and depends on whether productivity growth is higher or lower in more inclusive sectors. The results in this paper suggest that specialising in more inclusive sectors leads to increases in income per capita.
Source: Emmanuel Milet & Marcelo Olarreaga, Inclusive Exports and Economic Growth, preprintAlso: https://cepr.org/publications/dp21765Moral externalities:
There are more than material externalities to a transaction. There are also moral ones.
Slavery and forced labor, for example, do not create a material social cost for those who consume products produced with them.
The consumer rather benefits materially from the products’ lower prices. To conceptualize this cost as an externality, one must expand the concept to include moral ones.
“we are structurally interconnected in the sense that as consumers we ‘contribute…to the structural processes that produce injustice.”
Where a society believes that slavery or forced labor is immoral, its importation and consumption of products produced elsewhere with such laborers renders it complicit in supporting such a system. Complicity with such practices through the purchase of products at low prices has moral costs. In the terminology of this article, it involves a moral externality.
Source: Gregory Shaffer, Addressing the Negative Externalities of Trade: Flanking Policies and the Role of Package Treaties, World Trade ReviewSecond-generation flanking policies:
Efforts to enforce labor standards overseas also share this justification. Poor labor practices overseas are not a public good (or bad) in the same sense that climate change or biodiversity protection are.
They do not, for instance, have physical effects in the enacting country. But the labor movement has long had a global component, with labor leaders embracing an increase in global labor standards as a moral imperative, in addition to a way to ensure that production does not shift to countries with low labor standards
Poor labor practices in foreign countries, in other words, have long been viewed as a reasonable object of international concern. Also, like environmental concerns, if trade barriers on products made with such practices are not imposed, countries cannot ensure that their consumption does not fund practices that are illegal or viewed as immoral domestically.
A commitment to ending forced labor or providing opportunities for unionization, for instance, requires both domestic laws implementing those commitments at home and trade laws, such as the Uyghur Forced Labor Prevention Act, the EU's new Forced Labor Regulation, or the USMCA Rapid Response Mechanism, that can trigger trade barriers to prevent domestic consumption from supporting those practices abroad.
Instead, second-generation flanking policies rest on a theory that consuming a good or service provides a sufficient basis for imposing taxes or regulations that are conditioned on extraterritorial production practices. I refer to this shift in norms as a shift from production jurisdiction to consumption jurisdiction.
WTO members that have adopted second-generation flanking policies that implicitly rest on consumption jurisdiction have not, as yet, articulated clearly how their claims of authority should influence the interpretation of established trade law doctrines.
Source: Timothy Meyer, Second-Generation Flanking Policies: Addressing Extraterritorial and Non-Economic Costs of Trade Liberalization, World Trade ReviewEmbeddedness in domestic policies:
The USMCA Implementation Act, for example, creates an Independent Mexico Labor Expert Board that is tasked with reviewing labor issues in Mexico and the actions of the Mexican government as required by the USMCA.
The USMCA Implementation Act also required the executive branch to set up two new oversight committees – one on the enforcement of environmental obligations and the other on trade in automotive goods. Other pieces of infrastructure grow out of executive action
What is noteworthy, however, is that very few of these are part of the agreement itself. Most are add-ons developed by US government actors or the parties to the FTA.
Under the USMCA, the United States and Mexico have agreed to several provisions regarding labor rights. What is perhaps obvious is that it is up to the executive branch in both the United States and Mexico to carry out the monitoring and to activate the enforcement tools within the agreement where one government finds that the other is acting inconsistently with those flanking provisions.
While the commitments obligate certain behaviors, it is only the opposing government's officials that can act on an evaluation as to a derogation. Even where a derogation is identified, the government may choose not to act. They may choose to slow-walk or handicap the system, and different administrations have done so strategically.
Executive branch officials select who, what, where, when, and how to operationalize these commitments at least vis-à-vis one another. They require resources to do so, and different administrations may choose different priorities where human capital and other resources are limited.
This is where the degree of embeddedness and enabling features of a package treaty are most meaningful. Building an institutional frame around the flanking policies conditions its success. Creating incentive structures for the executive branch to operationalize package treaties in particular ways and for those to stand the test of time ought to be on the mind of policymakers.
In this respect, a package treaty may only be as good as a foreign-facing commercial bureaucracy wants it to be, or allows it to be.
Source: Kathleen Claussen, Operationalizing Package Treaties: A US Case Study, World Trade ReviewFlanking measures:
In sum, flanking is not a new practice but is gaining importance in the context of rising public scrutiny and criticism of trade liberalization. Although the trade policy literature has investigated the purposes and determinants of side agreements (e.g. Aggarwal; Aspinwall) and, more extensively, trade adjustment policies (e.g. Chandler et al.; Cernat & Mustilli), it lacks a more holistic understanding of the policy toolbox that governments have used to address the negative spillovers of trade liberalization and how this toolbox has enriched over time.
For example, the ratification of the USMCA by the US Congress was made conditional on Mexico enacting domestic legislation regarding worker representation in collective bargaining (USMCA, Annex 23-A; Rodriguez).
On 1 May 2019, Mexican President Andrés Manuel López Obrador enacted a labor reform bill that gives workers the legal right to bargain collectively through independent labor unions (Fernández Campbell). Although the US motivations for requiring flanking measures could be the protection of both US and Mexican workers during the implementation of the USMCA, the political motives of Mexico are apparent here.
The labor reform bill was adopted ‘after several years of domestic debate and constitutional reforms in 2017’ (Congressional Research Service). Therefore, it seems safe to assume that the Mexican government’s objective was not to mitigate the negative effects of the USMCA on workers’ rights but rather to get the deal ratified by a crucial trade partner.
Source: Noémie Laurens, Christian Winkler & Cédric Dupont, Sweetening the liberalization pill: flanking measures to free trade agreements, Review of International Political EconomyChild labour and GVCs:
This study aims to assess the impact of child labour on strengthening different forms of participation by developing countries in GVCs.
Using sector-level data for 26 developing countries, we find that gross exports and a larger share of foreign value-added embedded in domestic exports (backward linkages) do not have a statistically significant impact on child labour after controlling for potential confounding factors
However, a stronger participation in downstream GVCs as providers of inputs to exporters in other countries (forward linkages) is associated with declines in child labour in the exporting sector, particularly in sectors with a high incidence of child labour or when forward linkages involve a high-income trading partner.
Because our analysis is at the sector level, we can also explore whether increases in GVC participation in one sector are associated with changes in child labour in other sectors.
This is important because of the potential for child labour displacement across sectors. If the decline in child labour is accompanied by displacement towards sectors less exposed to GVCs, then child labour may remain unchanged at the aggregate level.
In our empirical exercise, we found little evidence of child labour displacement across sectors. Increases in GVC participation (backward and forward linkages) are not associated with increases in child labour in other sectors.
Source: Cristian Ugarte, Marcelo Olarreaga & Gady Saiovici, Child labour and global value chains, The World EconomyLabour market effects of FTAs:
In the EU and the US, ex post impact assessments show very small overall employment effects. For example, the employment impact of the EU–Chile FTA is described as “very limited”, and NAFTA’s net effect is estimated at around +0.1%,99 indicating negligible economy-wide change.
Aggregate impacts of FTAs on labour-market inequalities differ substantially between the EU and the US. In the EU, observed effects are small and limited to narrow sectors – such as slight gains for women-led exports under the EU–Andean FTA – without indications of broader regional or gendered disruptions.
By contrast, the US show clear distributional impacts under NAFTA: married women with low education experienced sharply reduced wage growth (–18% to –33%),104 and tariff-exposed regions in the South and Midwest saw reinforced manufacturing employment declines, higher unemployment and non-participation among workers aged 35–65, and out-migration of less-skilled workers.
These significant gender- and region-specific adjustment pressures in the US are clearly associated with NAFTA and have not to this extent been observed in association with other US FTAs.
Ex post evaluations for global South partners identify sector-specific adjustment effects, though their nature differs across countries.
In Chile, the EU–Chile FTA contributed to higher employment in export-oriented agriculture (fruits, wine) and fisheries, while some industrial sectors such as machinery con-tracted, even though these FTA-originated reallocations explain only a small share of Chile’s overall structural change.
In the Southern Mediterranean countries, CGE simulations likewise show sectoral output shifts, with textiles, clothing, and leather expanding and chemicals, rubber, and plastics shrinking, indicating FTA-related adjustment at the sector level rather than large aggregate labour-market changes.
Souce: Charlotte Sieber-Gasser, Noémie Laurens, Rohan, Oliver Braunschweig, Cédric Dupont, Seraina Vonarburg & Nomcebisi Ndlovu, Benefits and Effects of Free Trade Agreements, Analysis on behalf of the parliamentary group of the Swiss Social Democratic Party (SP)Working Conditions Effects of FTAs:
Ex post impact assessments for the EU, the US, and South Korea consistently find no detectable effects of FTAs on working conditions. Job quality in high-income economies – wages, hours, occupational safety and health (OSH) outcomes, enforcement, and contractual protections – remains determined by domestic labour legislation and regulatory capacity, not by FTA provisions.
Because no FTA-originated improvements or deteriorations are observed in these economies, and FTA labour provisions (where they exist) did not have any discernible workplace effect, the analysis of working-condition impacts necessarily focuses on global South trading partners. Across global South FTAs, working-condition outcomes emerge via two distinct channels:
Direct, provision-based effects of labour and TSD chapters, which can strengthen enforcement capacity (e.g. inspections, child-labour control, due-diligence cooperation).
Indirect effects via sector expansion, where FTAs increase output and employment in sectors that already exhibit poor working conditions (informality, OSH gaps, low wages, weak contractual protection).
Across all FTAs analysed in this section, changes in working conditions arise primarily indirectly through the expansion or contraction of specific sectors. Those sectors – particularly export agriculture, fisheries, aquaculture, and agro-processing already exhibit: high informality, seasonal and temporary employment, weak OSH practices, pesticide and chemical exposure, limited social protection, subcontracting and unstable income patterns. These features are consistently described as structural, not FTA-originated.
The FTAs do not create these issues; they increase the number of workers exposed to them by expanding these industries.
Source: Charlotte Sieber-Gasser, Noémie Laurens, Rohan, Oliver Braunschweig, Cédric Dupont, Seraina Vonarburg & Nomcebisi Ndlovu, Benefits and Effects of Free Trade Agreements, Analysis on behalf of the parliamentary group of the Swiss Social Democratic Party (SP)Spillover effects on labor markets:
Overall, the distributional effects of PTAs are highly context-specific, shaped by countries’ levels of development, labor market institutions, and the degree of informality. Nevertheless, several common patterns emerge from the literature.
First, adjustment costs tend to be geographically concentrated in regions and industries most exposed to import competition.
Second, local labor market institutions play a critical role in shaping adjustment outcomes.
Third, if adjustment costs are not effectively addressed, they may persist over time and undermine the broader gains from trade.
These findings underscore the importance of complementary labor market policies to support workers affected by trade liberalization.
Source: Noémie Laurens & Charlotte Sieber-Gasser, Trade in the Service of Society? Introducing the Trade Packaging Database (TraPa), in peer reviewSpillover effects on gender equality:
The spillover effects of trade liberalization on gender differ in nature from those on labor and the environment. Trade has long been considered to be “gender-neutral,” since its unequal effects on men and women are not directly generated by trade liberalization itself, but rather reflect the underlying gendered structures of the global workforce (Cohen 2021).
Given, however, that trade liberalization has a substantial impact on women (both positive and negative), it is generally agreed that its spillover effects on gender equality need to be considered alongside environmental and social impacts (Bahri 2021).
In sum, structural factors mean that trade liberalization risks worsening gender inequality and working conditions of women, while excluding female-dominated sectors from the benefits of trade. Case studies show that targeted mitigating measures can offset these negative effects, while specific consideration of gendered trade impacts can substantially improve gender equality.
Source: Noémie Laurens & Charlotte Sieber-Gasser, Trade in the Service of Society? Introducing the Trade Packaging Database (TraPa), in peer reviewTrade liberalisation and informality:
Trade liberalization inevitably generates disruptions in local labour markets through increased import competition, leading to the displacement of workers in exposed industries and regions.
The distributional consequences are likely to be more acute in developing countries, where a substantial proportion of vulnerable workers are employed informally. Although empirical studies have extensively documented such adjustment costs across both developed and developing economies, legal scholarship has largely focused on policy response strategies confined to developed-country contexts.
Findings indicate that existing OECD-style policy architectures and TAA-type instruments are infeasible in informal settings. Furthermore, the limitations of these policies constrain governments’ policy space in addressing domestic opposition to trade liberalization, pushing them toward protectionist stances.
Advanced economies could provide support to developing nations in managing adjustment challenges, potentially in exchange for negotiated market access. The investment and job creation targets embedded in the EFTA-India TEPA illustrate how trading partners can achieve mutual benefits through trade agreements. The USMCA provides another example, whereby one trading partner (the US) may extend unilateral assistance to improve labour standards in its partner country (Mexico). Existing bilateral and multilateral aid facilities could also be channelled through analogous legal arrangements within North–South trading relations.
Because informality is a central margin of labour market adjustment in many developing economies, trade agreements that liberalise sensitive, labour-intensive sectors, or require such access, without addressing informal-sector constraints, can cause large welfare losses for vulnerable workers and weaken political support for trade liberalisation.
For developed economies, recognising these constraints and supporting flanking measures that build capacity and enhance gains from trade, is essential to ensure that market access concessions produce shared, predictable, and sustainable benefits, rather than worsening worker vulnerabilities. In this context, second-generation flanking measures and package treaties are important instruments for policymakers seeking to apply innovative tools in trade agreement design.
Source: Rohan, Trade-related Labour Adjustment in Informal Economies: Decoding Challenges and Policy Response Strategies, PhD thesis
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