Trade and social sustainability

Trade liberalisation can promote economic growth and reduce poverty while at the same time affecting social structures through changes in the labour market, prices of consumer goods, economic opportunities, and private sector sustainability initiatives. This article examines how trade policy can be analysed and designed to improve social sustainability.

Social sustainability is one of the three pillars of sustainable development. It includes the protection and promotion of a broad spectrum of values and interests that affect people’s living conditions such as human and labour rights, gender equality, health, and consumer and security issues.

Trade liberalisation promotes economic growth and economic welfare but involves structural changes and adjustment costs. These structural changes can affect different groups of society in different ways and could also alter social conditions in the liberalising economy.

Analysing social sustainability helps to identify how changes associated with trade liberalisation can be addressed through trade policy and complementary domestic policies. Public sector policymakers and private companies have a role to play in achieving social sustainability.

How does trade affect social sustainability?

The link between trade and social sustainability is complex as there are several aspects of social sustainability, and trade liberalisation’s consequences vary by country. Analyses from the National Board of Trade have focused on topics most closely related to trade: working conditions, human rights, and gender equality.

Working conditions

One channel of social change is through the labour market. For example, structural change due to trade can have an impact on how many people work, which people work and in which sectors, on income distribution, and which working conditions apply. The effects of trade liberalisation depend on country specific factors. For example, differences in trade union influence, labour market and welfare policies affect how the labour market adapts to increased international trade and what the effects will be on different groups. Analysis can focus on groups in society such as men and women, workers in different sectors, in different age groups or groups such as indigenous peoples.

Changes in the labour market and sectoral composition of an economy often lead to movement of people for work, increased urbanisation, and changes in regional employment patterns. These factors can have major effects on the social structures and cohesion of different regions.

Human rights

There is a complex relationship between trade liberalisation and protection of human rights. On one hand, the economic resources generated as a result of trade can promote human rights. On the other hand, new trade opportunities also mean that weak protection for human rights may be seen as a competitive advantage for businesses. Protecting human rights can be particularly challenging when trade takes place in geographically fragmented and long value chains. Read more: Trade and social sustainability: An overview and analysis

Gender equality

Equality between men and women is a fundamental human right. Trade and trade liberalisation can provide both women and men with economic opportunities, but these opportunities are not equally distributed. This means that even if trade rules have a gender-neutral design, international trade and trade reforms affect women and men differently.

The National Board of Trade has examined gender gaps in employment and the labour market, entrepreneurship, and consumption. Several barriers hinder equal opportunity to participate in or benefit from international trade and trade reforms. The two main barriers to women’s participation in trade-related employment are gender bias regarding the kinds of jobs that are suitable for women and the gender gap in unpaid care work. The main barriers to women becoming trading entrepreneurs are limited access to capital, restricted access to information and networks, and sectoral differences where women lead firms in service sectors that are less likely to be internationally traded.

There are also differences between men and women in their role as consumers. On average, women spend a larger proportion of their income on household expenses, such as food, clothing and footwear – goods that are often subject to high tariffs.

The World Trade Organisation has an informal working group on trade and gender which aims to intensify efforts to increase women's participation in global trade. Read more: Trade and Gender Equality: The role of trade policy

Where does trade policy fit in?

Unlike the agenda to liberalise trade, there is no common global template for which social interests must be protected. By undertaking a thorough sustainability impact assessment before introducing trade reforms, policy makers can consider potential impacts and design supporting policies for the groups, sectors or regions affected. Trade reforms can also be introduced gradually so that a country has time to adapt to structural changes. There may also be a need to combine trade liberalisation with aid and technical support that facilitates individual countries' ability to take advantage of trade opportunities.

Addressing social sustainability in trade reforms is a question of balancing different interests. Although there are international agreements to protect social issues, such as the protection of human rights, they can come into conflict with international trade rules and are often more difficult to enforce. Conflicting objectives can arise for instance if national measures to protect the right to health breach trade-related obligations.

An important trend is that the negotiation of free trade agreements is increasingly including social issues, such as working conditions. These are often regulated in sustainability chapters in the agreements.

EU due diligence proposals and laws also cover the social sustainability of goods to be placed on the EU market. Large companies will have a duty to end, prevent, mitigate, and account for negative human rights and environmental impacts in their operations and value chains. This should be a positive development for social sustainability. However, there will be suppliers that struggle to comply with the extensive due diligence obligations or find it too burdensome to engage with EU companies meaning there is a risk that the proposal will be less effective in practice. Read more: Potential Impacts of EU Due Diligence Obligations on Companies’ Suppliers in Developing Countries

Responsible Business Conduct

Private sector actors have gained an increasing influence in the management of the social effects of global trade because companies are working more actively with sustainability issues. Responsible business conduct is an important tool to manage social sustainability challenges and can create resilience in global supply chains, thereby creating long term value. Read more: Trade Policy and Policy for Responsible Business Conduct: Contributing to a sustainable economic recovery