Domestic Policies, National Sovereignty and International Economic Institutions

Abstract

To what extent must nations cede control over their economic and social policies if global efficiency is to be achieved in an interdependent world? This question is at the center of the debate over the appropriate scope of international economic institutions such as the GATT (and now its successor, the WTO), where member-countries are considering proposals that would broaden GATT's orientation beyond conventional trade policy measures to include negotiations over labor and environmental standards. Such proposals appear to encroach on traditional limits of national sovereignty, and they raise fundamental questions about the structure of international economic relations among sovereign states. An important question therefore concerns the minimal range of policies over which international negotiations must proceed if global efficiency is to be achieved. As currently structured, GATT's central focus is on the removal of trade barriers to market access, and its approach to labor and environmental standards is best characterized as somewhere between "neglect" and "benign neglect." 1 There are really two dimensions of GATT's approach to these issues, and they correspond to (i) the freedom each country has to determine its own domestic standards (i.e., the range of domestic standards that are GATT-legal), and (ii) the freedom each country has to respond with trade measures to the (GATT-legal) standards chosen by its trading partners. To understand the implications of GATT rules along these two dimensions, it is helpful to distinguish further between domestic standards that relate to production (e.g., a country's child labor laws or its regulations regarding the disposal of industrial waste) and domestic standards that relate to consumption (e.g., a country's recycling laws or its regulations controlling the sale and distribution of the products of prison labor). In general, countries have broad freedom under GATT's rules to determine their own standards, though this freedom is somewhat greater with regard to production standards than it is with regard to consumption standards. On the other hand, as far as responding to the (GATT-legal) standards choices of their trading partners, countries face fairly significant limitations under GATT rules. 2 Hence, in the high-profile 1991 GATT tuna-dolphin dispute between the United States and Mexico, it was not the right of the United States to set its own environmental (production) standards with respect to the protection and conservation of dolphins that was challenged. What was challenged as GATT-illegal was the decision by the United States to impose a trade embargo against Mexican tuna imports in response to the environmental standards of Mexico. Note also that erecting trade restrictions per se in response to the labor or environmental standards of a trading partner is not GATT-illegal: if the tariff in question is not bound in a GATT schedule, then a country is of course free to raise the tariff for this (or any other) reason. And even where the tariff in question is covered ...

Understanding Agreements on TRIPS and Subsidies in Tandem

“…Since the current WTO rules are well equipped to handle the problems associated with choices over labor and environmental standards focusing on market access, those rules can achieve globally efficient outcomes with relatively modest changes. Our result is very similar to that of Bagwell and Staiger (2001). Even though R&D activities might serve as an additional channel of global inefficiency (the public good nature of R&D activities) because incentives to invest in R&D can be easily damaged without perfect protection of IPRs, a single trade policy instrument would be enough to amend the inefficiency.…”

“…This result provides new implications on the conclusions of Bagwell and Staiger (2001). Considering a new WTO proposal to include talks on labor and environmental standards in future negotiations, they conclude that there is no need to expand the scope WTO negotiations, if such domestic standards are viewed as forms of secondary trade barriers.…”

Disguised Protectionism, Global Trade Rules and Alien Invasive Species

“…A similar result appears inBagwell and Staiger (2001) Prop 1-the terms of trade seeking "does not distort the policy mix"-and inLee (2007).…”

“…As various nations do so, the price impacts tend to counteract one another, leaving only a welfare-reducing fall in global trade. The tariffsetting game is thus a Prisoner's Dilemma, to which the World Trade Organization (WTO) is a negotiated response (Bagwell and Staiger 2001). Although a government's commitments under the WTO are to other nations, the protection of consumers from special interests within their own nations is often touted as an ancillary benefit-for example, as number nine of the "10 benefits of the WTO trading system" listed on the WTO website.…”

The Increasing Importance of Bilateral Agreements in the Foreign Trade Policy

“…tariff commitments, can achieve internationally efficient policies (Bagwell and Staiger, 1999). However, Antrà s and Staiger (2012) find that this result does not hold in the presence of offshoring and, more generally, when international prices are determined through bargaining.…”