Labor and Environmental Standards: Labor and Environmental Standards ‘Free trade is not compatible with reasonable labor standards and environment protection.’ In reality, international trade affects labor and environmental regulations only indirectly. And the effects have been, by all accounts, positive. Typically, as income grows, demand for tighter standards increases; since trade normally increases income, …


Environmental Performance and Income: Environmental Performance and Income


2 Standard Critics on the Implications of the WTO Policies: 2 Standard Critics on the Implications of the WTO Policies “Regulatory-Chill” “Race-to-the-Bottom”


Slide4: Suppose that a government has agreed to hold its tariffs low as a result of a WTO negotiation.


The “Race-to-the-Bottom” Problem: The “Race-to-the-Bottom” Problem The government faces pressure from import-competing interests to offer additional protection from imports. If its WTO commitments prevent the government from responding with a tariff increase, then it might instead choose to relax a labor or an environmental standard. Race to the bottom


The “Regulatory-Chill” Problem: The “Regulatory-Chill” Problem The government faces pressure from labor (environment) interests to introduce new and more stringent standards. Those standards would enhance workplace safety while raising the costs of production of import-competing firms  Import-competing firms lobby for enhanced protection. If WTO commitments prevent the government from raising its tariffs to offset the effects of the tighter standards on its firms, then the government might hesitate to introduce them. Regulatory chill


Are the “Race-to-the-Bottom” and the “Regulatory-Chill” Problems Inevitable?: Are the “Race-to-the-Bottom” and the “Regulatory-Chill” Problems Inevitable? If property rights over negotiated market access levels were sufficiently complete, none of these problems would arise. Not really:


How can these property rights be completed?: How can these property rights be completed? A Simple Rule: Once a government has agreed to lower its tariffs in a WTO negotiation: It should not be permitted to take subsequent unilateral policy actions that undercut its implied market access commitments; but It should be otherwise allowed to configure its unilateral policies in anyway it desires. Existing GATT/WTO principles are not that far away from approximating this simple rule.


The “Race-to-the-Bottom” Case: The “Race-to-the-Bottom” Case The government should not be permitted to offer protection to its import-competing industry by weakening its standards. Instead, if it desires to provide additional protection from imports, it should be required to renegotiate with its trading partners to select higher tariff levels. In principle, “non-violation” nullification-or-impairment complaints can guide governments toward such renegotiations—thereby preventing a race to the bottom.


The “Regulatory-Chill” Case: The “Regulatory-Chill” Case The government should be allowed to raise its tariff as it tightens its standards. However, its tariff increase can do no more than offset the competitive effect of the tighter standards. In principle, renegotiations could involve a commitment to higher standards as “compensation” for tariffs bound at higher levels—and thereby prevent a regulatory chill.


National Treatment: National Treatment After entering in a country, imported and locally-produced goods (as well as services, trademarks, copyrights and patents) must be treated equally.


Anti-Dumping Provisions: Anti-Dumping Provisions Dumping: A company exports a product at a price lower than the price it normally charges on its own home market. The WTO “allows governments to act against dumping where there is genuine injury to the competing domestic industry.” Government has to: show that dumping has taken place; calculate the extent of dumping; and show that the dumping is causing injury. Recently, have gained increased popularity.


Exceptions to MFN: Exceptions to MFN Developing nations GSP (Generalized System of Preferences) Preferential trade agreements (PTAs) Free Trade Areas Customs Unions