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The Simple Economics of Labor Standards and the GATT

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

How should the issue of domestic labor standards be handled in the GATT/ WTO? This question is part of a broader debate over the appropriate scope of international economic institutions such as the GATT, where member-countries are considering proposals for a new round of n3 negotiations that would move beyond GATT's focus on trade barriers and cover domestic' issues such as labor and environmental standards and regulatory reform which have traditionally been treated with benign neglect' within GATT. Such proposals encroach on traditional limits of national sovereignty, and they raise fundamental challenges to the existing structure of international economics relations among sovereign states. In this paper we consider several approaches to the treatment of domestic labor standards within a trade agreement. We use simple economic arguments to show that, while the benign neglect of labor standards within a trade agreement will result in inefficient choices for both trade barriers and labor standards, direct negotiations over labor standards are not required to reach efficient outcomes. Specifically, we describe two tafiff negotiating structures that deliver efficient outcomes while preserving varying degrees of national sovereignty over policy choices. A first approach combines tariff negotiations with subsequent Kemp-Wan adjustments, under which each government is free to alter unilaterally its policy mix so long as trade volumes are not affected. A second approach adds to the first, under which afte tariff negotiations each governement can alter unilaterally its tariff, but its trading partner is then free to issue a tariff response to stabilize export prices. We show that both approaches deliver govts. to the efficiency frontier but that the second approach provides govts. with greater sovereignty over policy choices and bears a strong resemblance to the negotiating procedures in G

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6604.

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Date of creation: Jun 1998
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Publication status: published as Social Dimensions of the U.S. Trade Policies, Deardorff, Alan V. and Robert M. Stern, eds.: University of Michigan Press, 1999.
Handle: RePEc:nbr:nberwo:6604

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References

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  1. repec:fth:michin:394 is not listed on IDEAS
  2. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers, Wisconsin Madison - Social Systems 9602, Wisconsin Madison - Social Systems.
  3. Kyle Bagwell & Robert W. Staiger, 1997. "Reciprocity, Non-discrimination and Preferential Agreements in the Multilateral Trading System," NBER Working Papers 5932, National Bureau of Economic Research, Inc.
  4. Brown, D.K. & Dearorff, A.V. & Stern, R.M., 1993. "International Labor Standards and Trade: A Theoretical Analysis," Working Papers, Research Seminar in International Economics, University of Michigan 333, Research Seminar in International Economics, University of Michigan.
  5. Brown, K.D. & Deardorff, A.V. & Stern, R.M., 1997. "Trade and Labor Standards," Working Papers, Research Seminar in International Economics, University of Michigan 394, Research Seminar in International Economics, University of Michigan.
  6. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
  2. Baldwin, Richard, 2000. "Regulatory Protectionism, Developing Nations and a Two-Tier World Trade System," CEPR Discussion Papers 2574, C.E.P.R. Discussion Papers.
  3. Mayke Kok & Richard Nahuis & A. de Vaal, 2002. "On labour standards and free trade," CPB Discussion Paper 11, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Jiandong Ju & Kala Krishna, 1998. "Firm Behavior and Market Access in a Free Trade Area with Rules of Origin," NBER Working Papers 6857, National Bureau of Economic Research, Inc.
  5. Nirvikar Singh, 2004. "The Impact of International Labor Standards: A Survey of Economic Theory," International Trade, EconWPA 0412007, EconWPA.
  6. Chau, Nancy H. & Kanbur, Ravi, 2001. "The Adoption of International Labor Standards Conventions: Who, What, and Why?," Working Papers 127654, Cornell University, Department of Applied Economics and Management.
  7. Rémi Bazillier, 2004. "Core labour standards and economic growth," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla04088, Université Panthéon-Sorbonne (Paris 1).
  8. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2001. "U.S. Trade and Other Policy Options and Programs to Deter Foreign Exploitation of Child Labor," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 233-262 National Bureau of Economic Research, Inc.
  9. Andreoni, James & Miller, John H., 2008. "Analyzing Choice with Revealed Preference: Is Altruism Rational?," Handbook of Experimental Economics Results, Elsevier, Elsevier.
  10. Drusilla K. Brown, 2001. "Labor Standards: Where Do They Belong on the International Trade Agenda?," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 89-112, Summer.
  11. Jerger, Jurgen, 2002. "Globalization, wage setting, and the welfare state," Journal of Policy Modeling, Elsevier, Elsevier, vol. 24(1), pages 1-18, March.
  12. Rama, Martin, 2003. "Globalization and workers in developing countries," Policy Research Working Paper Series 2958, The World Bank.

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