The fair trade-free trade debate: Trade, labor, and the environment

International Review of Law and Economics

Volumn 16, Issue 1, 1996, Pages 61-79

  Howse, Robert ^a   Trebilcock, Michael J ^a  

^a NONE

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EID: 0030099629     PISSN: 01448188     EISSN: None     Source Type: Journal    
DOI: 10.1016/0144-8188(95)00057-7     Document Type: Article

References (54)

1. 1 See, for example, J. Bhagwati, "The World Trading System at Risk, Aggressive Unilateralism," and "Fair Trade, Reciprocity and Harmonization", in Analytical and Negotiating Issues in the Global Trading System eds. A. Deardorff and R. Stern (Ann Arbor: University of Michigan Press, 1993); R. Hudec, "Mirror, Mirror on the Wall: The Concept of Fairness in the United States Foreign Trade Policy" Proceedings of the Canadian Council on International Law 88 (1990).
2. 1 See, for example, J. Bhagwati, "The World Trading System at Risk, Aggressive Unilateralism," and "Fair Trade, Reciprocity and Harmonization", in Analytical and Negotiating Issues in the Global Trading System eds. A. Deardorff and R. Stern (Ann Arbor: University of Michigan Press, 1993); R. Hudec, "Mirror, Mirror on the Wall: The Concept of Fairness in the United States Foreign Trade Policy" Proceedings of the Canadian Council on International Law 88 (1990).
3. 2 "War of the Worlds," The Economist, October 1, 1994, p. 32.
4. 3 United States - Restrictions on Imports of Tuna, 30 I.L.M. 1594 (1991) (hereinafter, Tuna/Dolphin I); United States - Restrictions an Imports of Tuna, DS29/R, June 1994 (hereinafter, Tuna/Dolphin II). Tuna/Dolphin I is discussed at length in M.J. Trebilcock and R. Howse, The Regulation of International Trade (London and New York, Routledge, 1995) pp. 344-350.
5. 4 Tuna/Dolphin II concerned a secondary embargo of tuna from the European Union World Trade Organization (EU), aimed at pressuring the EU to itself impose a primary embargo on tuna from the Eastern Pacific caught in a dolphin-unfriendly way (i.e., with purse-seine nets).
6. 5 Free traders may often eventually concede some exceptional cases where sanctions ought to be permissible - for instance where both the sanctioning state and the targeted state are signatories to an international environmental agreement that contemplates sanctions.
7. 6 See H.F. Chang, "An Economic Analysis of Trade Measures to Protect the Global Environment", Georgetown Law Journal 83 (1995): 4.
8. 7 O. Young, International Governance: Protecting the Environment in a Stateless Society (Ithaca, NY: Cornell University Press, 1994), p.20.
9. 8 G. Hardin, "The Tragedy of the Commons", in Managing the Commons eds. G. Hardin and J. Baden (San Francisco: W.H. Freeman, 1977).
10. 9 Young, op. cit., p. 21.
11. 10 See, generally, B. Hepple, "Equality: A Global Labour Standard" in International Labour Standards and Economic Interdependence, eds. W. Sengenberger and D. Campbell (Geneva: International Institute for Labour Studies, 1994).
12. 11 ILO Convention No. 138 (Minimum Age Convention) (1973).
13. 12 For an explanation along these lines of some Canadian environmental policies, see Michael E. Porter and The Monitor Company, Canada at the Crossroads: The Reality of a New Competitive Environment (Ottawa: Business Council on National Issues, Supply and Services Canada, 1991), pp. 92-94.
14. 13 See G. Hansson, Social Clauses and International Trade: An Economic Analysis of Labour Standards in Trade Policy (New York: St. Martin's Press, 1983), pp. 168-171.
15. 14 Some economists have a generally skeptical view of the possibility that minimum standards, for instance in the case of occupational health and safety, can adequately correct for market failure. However, once this skepticism is put to the test through economic modeling, the results are ambiguous. Under some assumptions, minimum standards may be effective in correcting for market failure; under others (e.g., considerable heterogeneity in workers' risk preferences) minimum standards may actually result in greater market distortion. See D.K. Brown, A.V. Deardorff, and R.M. Stern, "International Labour Standards and Trade: A Theoretical Analysis", Fairness-Harmonization Project, University of Michigan, July 1994.
16. 15 See, generally, C. Sunstein, After the Rights Revolution: Reconceiving the Regulatory State (Cambridge, MA: Harvard University Press, 1990).
17. 16 It is this perspective, reflected in the "polluter pays" principle, that has informed most of the work of the OECD on international environmental standards (although the OECD does not endorse trade sanctions per se as a means of achieving internalization of environmental costs). See OECD, Guiding Principles Concerning International Economic Aspects of Environmental Policies (26 May 1972) 11 I.L.M. 1172 (1972); OECD, Council Recommendation on the Implementation of the Polluter Pays Principle (14 Nov. 14 1974) 14 I.L.M. 234 (1975). See also, G. Feketekuty, "The Link Between Trade and Environmental Policy" Minnesota Journal of Global Trade 2 (1993): 171-178.
18. 16 It is this perspective, reflected in the "polluter pays" principle, that has informed most of the work of the OECD on international environmental standards (although the OECD does not endorse trade sanctions per se as a means of achieving internalization of environmental costs). See OECD, Guiding Principles Concerning International Economic Aspects of Environmental Policies (26 May 1972) 11 I.L.M. 1172 (1972); OECD, Council Recommendation on the Implementation of the Polluter Pays Principle (14 Nov. 14 1974) 14 I.L.M. 234 (1975). See also, G. Feketekuty, "The Link Between Trade and Environmental Policy" Minnesota Journal of Global Trade 2 (1993): 171-178.
19. 16 It is this perspective, reflected in the "polluter pays" principle, that has informed most of the work of the OECD on international environmental standards (although the OECD does not endorse trade sanctions per se as a means of achieving internalization of environmental costs). See OECD, Guiding Principles Concerning International Economic Aspects of Environmental Policies (26 May 1972) 11 I.L.M. 1172 (1972); OECD, Council Recommendation on the Implementation of the Polluter Pays Principle (14 Nov. 14 1974) 14 I.L.M. 234 (1975). See also, G. Feketekuty, "The Link Between Trade and Environmental Policy" Minnesota Journal of Global Trade 2 (1993): 171-178.
20. 17 See Albert Hirschman, Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge, MA: Harvard University Press, 1970).
21. 18 In the case of Poland, for instance, the beginnings of liberal revolution are to found in the gradual recognition of an independent trade union movement, which was able to mobilize broader social forces against the Soviet-bloc regime. See A. Pravaj, "The Workers," in Poland: Genesis of a Revolution, ed. A. Brumberg (New York: Vintage, 1983), pp. 68-91.
22. 19 I. Kant, "Perpetual Peace," in Kant's Political Writings, ed. Hans Reiss, trans. H.B. Nisbet (London: Cambridge University Press, 1970).
23. 20 See Michael W. Doyle, "Kant, Liberal Legacies and Foreign Affairs" Philosophy and Public Affairs 12 (1983): 205; and "Liberalism and World Politics" American Political Science Review 80 (1986): 1151.
24. 20 See Michael W. Doyle, "Kant, Liberal Legacies and Foreign Affairs" Philosophy and Public Affairs 12 (1983): 205; and "Liberalism and World Politics" American Political Science Review 80 (1986): 1151.
25. 21 In recent work, Bhagwati has suggested that labor rights-related trade measures might be understood as most justifiable where the labor standards in question can be most clearly assimilated to classical human rights - for instance, prohibition of forced labor, or suppression of collective bargaining, sanctioning of violence to intimidate workers from making demands for a better workplace, etc. From a global welfare perspective, it is these kinds of labor rights that we suggest may lead to welfare gains from the resultant liberalization that occurs where a regime can no longer resist popular demands for a better life through coercive measures (or sanctioning private sector use of coercion).
26. 22 In the case of Mexico, for example, it is often suggested that gross violations of basic international labor rights norms are concentrated in the maquiladora region, whereas basic labor rights are respected throughout much of the country, particularly in unionized workplaces. See P. Morici, "Implications of a Social Charter for the North American Free Trade Agreement, in Ties Beyond Trade: Labour and Environmental Issues under the NAFTA eds. J. Lemco and W.B.P. Robson (Toronto and Washington D.C.: C.D. Howe Institute and National Planning Association, 1993), pp. 137-138. Morici notes that, even within the maquiladoras, "many employers . . . provide workers with a wide range of benefits and a safe working environment, and they adhere closely to strict environmental standards." (p. 138). See also USITC, "Review of Trade and Investment Measures by Mexico," USITC Report No. 2326 (October 1990).
27. 22 In the case of Mexico, for example, it is often suggested that gross violations of basic international labor rights norms are concentrated in the maquiladora region, whereas basic labor rights are respected throughout much of the country, particularly in unionized workplaces. See P. Morici, "Implications of a Social Charter for the North American Free Trade Agreement, in Ties Beyond Trade: Labour and Environmental Issues under the NAFTA eds. J. Lemco and W.B.P. Robson (Toronto and Washington D.C.: C.D. Howe Institute and National Planning Association, 1993), pp. 137-138. Morici notes that, even within the maquiladoras, "many employers . . . provide workers with a wide range of benefits and a safe working environment, and they adhere closely to strict environmental standards." (p. 138). See also USITC, "Review of Trade and Investment Measures by Mexico," USITC Report No. 2326 (October 1990).
28. 23 In practice, however, such targeting will not always be easy. For instance, it is rumored that China falsifies the factories of origin for exported products that are manufactured with forced labor, so that these cannot be traced to the labor camps.
29. 24 Trebilcock, Chandler, and Howse, op. cit. p. 45. See also R.E. Baldwin, "The Ineffectiveness of Trade Policy in Promoting Social Goals," The World Economy 8: 109.
30. 24 Trebilcock, Chandler, and Howse, op. cit. p. 45. See also R.E. Baldwin, "The Ineffectiveness of Trade Policy in Promoting Social Goals," The World Economy 8: 109.
31. 25 G.C. Hufbauer, Schott, and Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2d ed. (Washington D.C.: Institute for International Economics, 1990). See also M. Miyagawa, Do Economic Sanctions Work? (New York: St. Martin's Press, 1992), and D. Baldwin, Economic Statecraft (Ithaca, NY: Cornell, University Press, 1985).
32. 25 G.C. Hufbauer, Schott, and Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2d ed. (Washington D.C.: Institute for International Economics, 1990). See also M. Miyagawa, Do Economic Sanctions Work? (New York: St. Martin's Press, 1992), and D. Baldwin, Economic Statecraft (Ithaca, NY: Cornell, University Press, 1985).
33. 25 G.C. Hufbauer, Schott, and Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2d ed. (Washington D.C.: Institute for International Economics, 1990). See also M. Miyagawa, Do Economic Sanctions Work? (New York: St. Martin's Press, 1992), and D. Baldwin, Economic Statecraft (Ithaca, NY: Cornell, University Press, 1985).
34. 26 Ibid. p. 93.
35. 27 This is consistent with more recent work by Nossal, which found that sanctions by "middle powers" such as Canada and Australia have been largely ineffective. See K.R. Nossal, Rain Dancing: Sanctions in Canadian and Australian Foreign Policy (Toronto: University of Toronto Press, 1994).
36. 28 In some cases such sanctions might, however, be aimed at goals that imply very significant regime change, for instance, in the case of China, sanctions aimed at inducing respect for the right of labor to organize and bargain freely.
37. 29 S. Charnovitz, "Encouraging Environmental Cooperation Through Trade Measures Through The Pelly Amendment and the GATT", Journal of Environment and Development 3 (1994): 3, 2202-2203.
38. 30 GATT Secretariat, Trade and the Environment, GATT Doc. 1529 (Feb. 3, 1992).
39. 31 Chang, op. cit., pp. 2154-2156.
40. 32 K.A. Rodman, "Public and Private Sanctions against South Africa," Political Science Quarterly 109 (1994): 313,334.
41. 33 There may also be a further alternative, akin to labeling, through which individual consumers by their investment choices can attempt to discipline socially irresponsible corporate behavior. The phenomenon of socially responsible investing (SRI) refers to the "making of investment choices according to both financial and ethical criteria." For instance, individuals can choose to put their investments in firms that act in a manner consistent with their ethical values or they may choose to refrain from investing in those firms believed to be behaving in a socially unacceptable fashion. The two primary claims advanced by SRI adherents, which distinguish it from other strategies of investment, are: (i) that social screening does not entail a financial sacrifice (i.e., that advancing one's social agenda can be as profitable as investment for purely financial gain) and (ii) that SRI can alter corporate behavior insofar as it seeks to channel funds away from firms acting in a socially unacceptable way. While this phenomenon has become quite popular, there is good reason to be skeptical about its ability to deliver on its claims. Specifically, Knoll has suggested that, at best, only one of the claims can be true because each implies the negation of the other. As he explains, "[i]f markets are efficient, the first might be true but the second is false. If markets are inefficient, the second might be true but the first is false." With respect to the second claim, Knoll found that "regardless of the efficiency or inefficiency of the market, the impact of an investor's decision not to invest in a company will have little or no impact on the firm's ability to raise capital and therefore on its activities." For a more thorough discussion, see Michael S. Knoll, "Socially Responsible Investment and Modern Financial Markets" (March 18, 1994, unpublished manuscript).
42. 34 On environmental labeling, see R. Howse, "Reform, Retrenchment or Revolution? The Shift to Incentives and the Future of the Regulatory State", Alberta Law Review 31 (1993): 486-487; D. Cohen, "Procedural Fairness and Incentive Programs: Reflections on the Environmental Choice Program", Alberta Law Review 31 (1993): 554-574.
43. 34 On environmental labeling, see R. Howse, "Reform, Retrenchment or Revolution? The Shift to Incentives and the Future of the Regulatory State", Alberta Law Review 31 (1993): 486-487; D. Cohen, "Procedural Fairness and Incentive Programs: Reflections on the Environmental Choice Program", Alberta Law Review 31 (1993): 554-574.
44. 35 J. Bhagwati and T.N. Srinivasan suggest that environmental values, if sound, "will spread because of their intrinsic appeal." "Trade and the Environment: Does Environmental Diversity Detract From the Case for Free Trade?," unpublished manuscript, July 1994. The fact that moral principles such as those prohibiting murder and theft are inherently sound does not, however, obviate the need to sanction non-compliance with them.
45. 36 Trade and Transitions, op. cit., pp. 211-215. This view of the legal order of liberal trade has been greatly influenced by the liberal internationalist perspective of Robert Axelrod and Robert Keohane. According to Axelrod and Keohane, "The principles and rules of international regimes make governments concerned about precedents, increasing the likelihood that they will attempt to punish defectors. In this way international regimes help to link the future with the present. This is as true of arms control agreements, in which willingness to make future agreements depends on others' compliance with previous arrangements, as it is in the GATT, which embodies norms and rules against which the behavior of members can be judged. By sanctioning retaliation for those who violate rules, regimes create expectations that a given violation will be treated not as an isolated case but as one in a series of interrelated actions." R. Axelrod and R.O. Keohane, "Achieving Cooperation Under Anarchy: Strategies and Institutions", in Neorealism and Neoliberalism ed. D.A. Baldwin (New York: Columbia University Press, 1993), p. 94.
46. 36 Trade and Transitions, op. cit., pp. 211-215. This view of the legal order of liberal trade has been greatly influenced by the liberal internationalist perspective of Robert Axelrod and Robert Keohane. According to Axelrod and Keohane, "The principles and rules of international regimes make governments concerned about precedents, increasing the likelihood that they will attempt to punish defectors. In this way international regimes help to link the future with the present. This is as true of arms control agreements, in which willingness to make future agreements depends on others' compliance with previous arrangements, as it is in the GATT, which embodies norms and rules against which the behavior of members can be judged. By sanctioning retaliation for those who violate rules, regimes create expectations that a given violation will be treated not as an isolated case but as one in a series of interrelated actions." R. Axelrod and R.O. Keohane, "Achieving Cooperation Under Anarchy: Strategies and Institutions", in Neorealism and Neoliberalism ed. D.A. Baldwin (New York: Columbia University Press, 1993), p. 94.
47. 37 Thailand: Restrictions on Importation of and Internal Taxes of Cigarettes (Report of the Panel) BISD, 37th. Supp. (1989-1990) 200. In this case, the Panel ruled that an import ban could only be found "necessary" within the meaning of Article XX (b), where alternative measures, less restrictive of trade, were not available to achieve the objectives in question.
48. 38 In the case of labor rights, amending the actual text of Article XX would seem to be necessary, because (apart from products manufactured with prison labor) Article XX does not contain any explicit labor rights justifications for trade restrictions.
49. 39 See R. Stewart, "Environmental Regulation and International Competitiveness" Yale Law Journal 102 (1993): 2039.
50. 40 See W. Sengenberger, "Protection-Participation-Promotion: The Systemic Nature and Effects of Labour Standards," in W. Sengenberger and D. Campbell, eds., supra note 10.
51. 41 "Fair Trade is Free Trade's Destiny," forthcoming in Bhagwatti & Hudec (eds.), Harmonization and Fair Trade: Prerequisites for Fair Trade? (MIT, 1996).
52. 42 "Competing Conceptions of Regulatory Competition in Debates on Trade Liberalization and Labour Standards," forthcoming in Bratton, McCahery, & Picciotto (eds.), International Regulatory Competition and Co-ordination - Perspectives on Economic Regulation in Europe and the United States (Oxford University Press, 1996).
53. 43 Laura Tyson, Who's Bashing Whom?, (Washington, D.C.: Institute for International Economics, 1992).
54. 44 C. Rhodes, Reciprocity, U.S. Trade Policy and the GATT Regime (Ithaca, NY: Cornell University Press, 1993).