Trade and Other TopicsTrade and Other Topics

Trade and LaborTrade and Labor

An increase manufactured exports from low and middle An increase manufactured exports from low and middle income countries has been a major change in the world income countries has been a major change in the world economy over the last generation. economy over the last generation.

Compared to rich country standards, workers who Compared to rich country standards, workers who produce these goods are paid low wages and work produce these goods are paid low wages and work under poor conditions.under poor conditions.

There is significant opposition to free trade because of There is significant opposition to free trade because of this fact. One example of this situation is the export this fact. One example of this situation is the export processing zones in, for example, the Philippines or processing zones in, for example, the Philippines or China.China.

Opponents of the NAFTA have argued that it is now Opponents of the NAFTA have argued that it is now easier for employers to replace high wage workers in the easier for employers to replace high wage workers in the US with low wage workers in Mexico.US with low wage workers in Mexico.

Trade and LaborTrade and Labor

Trade theory:Trade theory:

– A A RicardianRicardian model predicts that while wages model predicts that while wages in the exporting country should remain lower in the exporting country should remain lower than those in the US because of low than those in the US because of low productivity there, they will rise relative to their productivity there, they will rise relative to their pre-trade level.pre-trade level.

– A A Heckscher-OhlinHeckscher-Ohlin model predicts that model predicts that unskilled workers in the US will lose from free unskilled workers in the US will lose from free trade, but the unskilled workers in the trade, but the unskilled workers in the exporting country will gain.exporting country will gain.

Trade and LaborTrade and Labor

Despite the low wages earned by workers in Despite the low wages earned by workers in Mexico, both theories predict that those workers Mexico, both theories predict that those workers are better off than they would be if trade had not are better off than they would be if trade had not taken place. taken place.

– Evidence consistent with these predictions would Evidence consistent with these predictions would show that wages in show that wages in the export processing zonesthe export processing zones have have risen relative to wages in other sectors. risen relative to wages in other sectors.

– We could also compare working conditions in We could also compare working conditions in EPZsEPZs with the working conditions in other sectors.with the working conditions in other sectors.

Trade and Labor StandardsTrade and Labor StandardsLabor activists (labor unions, and the ILO) want to Labor activists (labor unions, and the ILO) want to include labor standards in trade negotiations.include labor standards in trade negotiations.

– These labor standards are typically opposed by the These labor standards are typically opposed by the target governments of low and middle income target governments of low and middle income countries. They see the standards’ use as a countries. They see the standards’ use as a protectionist policy.protectionist policy.

– Standards set by high income countries would be Standards set by high income countries would be expensive for low and middle income producers. expensive for low and middle income producers.

– Another alternative is a system that monitors wages Another alternative is a system that monitors wages and working conditions and makes this information and working conditions and makes this information available to consumers through certification (example: available to consumers through certification (example: fair trade coffee).fair trade coffee).

– This policy might have a very limited effect since it is This policy might have a very limited effect since it is likely the certified products will be sold at a premium.likely the certified products will be sold at a premium.

– The question of child labor (any difference?).The question of child labor (any difference?).

Trade and the Environment Trade and the Environment

Compared to rich country standards, Compared to rich country standards, environmental standard in low and middle environmental standard in low and middle income countries are lax.income countries are lax.

The environmental Kuznets curve (EKC):The environmental Kuznets curve (EKC):– Pollution increases in early stages of development but Pollution increases in early stages of development but

decreases in later stages.decreases in later stages.

– Technique, scale, and composition effects.Technique, scale, and composition effects.

– The later decrease in pollution is due to higher The later decrease in pollution is due to higher demand for a clean environment, better abatement demand for a clean environment, better abatement technology and the ability to mobilize more resources technology and the ability to mobilize more resources toward that end.toward that end.

While the EKC idea is popular, it is not While the EKC idea is popular, it is not necessarily true!necessarily true!

Trade and the Environment Trade and the Environment

Even if trade leads to higher income, there might Even if trade leads to higher income, there might be other ways in which trade directly (and be other ways in which trade directly (and possibly negatively) affects the environment.possibly negatively) affects the environment.

– The ‘pollution haven’ effect – do polluting industries The ‘pollution haven’ effect – do polluting industries change their locations as a result of changes in change their locations as a result of changes in environmental regulations?environmental regulations?

– The ‘pollution haven’ hypothesis – do polluting The ‘pollution haven’ hypothesis – do polluting industries change their locations as a result of industries change their locations as a result of changes in trade policies?changes in trade policies?

Trade and the Environment Trade and the Environment Two policy questions:Two policy questions:– Should international trade law constrain domestic Should international trade law constrain domestic

environmental policies environmental policies This might be done to prevent a ‘race to the bottom’ in This might be done to prevent a ‘race to the bottom’ in environmental regulation?environmental regulation?

Put differently, should we allow countries to use Put differently, should we allow countries to use environmental policy to achieve desired trade outcomes (like environmental policy to achieve desired trade outcomes (like a desire to protect domestic industries – example: hormone-a desire to protect domestic industries – example: hormone-free beef in Europe)free beef in Europe)

– Should trade policy be used as a tool to achieve Should trade policy be used as a tool to achieve desired environmental outcomes?desired environmental outcomes?

The case of ‘dolphin-free’ tuna or ‘turtle-free’ shrimps.The case of ‘dolphin-free’ tuna or ‘turtle-free’ shrimps.

Cases of natural resource extraction (like tropical Cases of natural resource extraction (like tropical hardwoods).hardwoods).

Cases of trans-boundary pollutants (like the ozone layer or Cases of trans-boundary pollutants (like the ozone layer or global warming).global warming).

Trade and the Environmental StandardsTrade and the Environmental Standards

Some environmental activists want to Some environmental activists want to include environmental standards in include environmental standards in trade negotiations within the WTO:trade negotiations within the WTO:

– However, universal environmental standards are However, universal environmental standards are generally opposed by governments of low and middle generally opposed by governments of low and middle income countries.income countries.

– International standards could be used as a International standards could be used as a protectionist policy or a basis for lawsuits when protectionist policy or a basis for lawsuits when domestic producers did not meet them.domestic producers did not meet them.

– Standards set by high income countries would be Standards set by high income countries would be expensive for low and middle income producers.expensive for low and middle income producers.

GM CropsGM Crops

Trade in Trade in Multilateral Environmental AgreementsMultilateral Environmental Agreements

Types of trade measures in MEAs:Types of trade measures in MEAs:– Trade bans.Trade bans.– Export/import licensing requirements.Export/import licensing requirements.– Notification requirements.Notification requirements.– Packaging and labeling requirements.Packaging and labeling requirements.

The Environment and TRIPSThe Environment and TRIPS

Patents on environmental findings:Patents on environmental findings:– The case of blue jeans.The case of blue jeans.– Bio-medical uses of plants and wildlife.Bio-medical uses of plants and wildlife.– Using indigenous knowledge.Using indigenous knowledge.