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The simple economics of labor standards and the Gatt

Author

Listed:
  • Bagwell,K.
  • Staiger,R.W.

    (University of Wisconsin-Madison, Social Systems Research Institute)

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
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bagwell,K. & Staiger,R.W., 1998. "The simple economics of labor standards and the Gatt," Working papers 9, Wisconsin Madison - Social Systems.
  • Handle: RePEc:att:wimass:19989
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    File URL: http://www.ssc.wisc.edu/econ/archive/wp9809.pdf
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    References listed on IDEAS

    as
    1. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, and International Economic Institutions," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 519-562.
    2. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers 9602, Wisconsin Madison - Social Systems.
    3. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    4. Drusilla Brown & Alan Deardorff & Robert Stern, 1998. "Trade and Labor Standards," Open Economies Review, Springer, vol. 9(2), pages 171-194, April.
    5. repec:fth:michin:394 is not listed on IDEAS
    6. Brown, D.K. & Dearorff, A.V. & Stern, R.M., 1993. "International Labor Standards and Trade: A Theoretical Analysis," Working Papers 333, Research Seminar in International Economics, University of Michigan.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rémi Bazillier, 2004. "Core labour standards and economic growth," Cahiers de la Maison des Sciences Economiques bla04088, Université Panthéon-Sorbonne (Paris 1).
    2. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
    3. 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.
    4. Michiel Kok & Richard Nahuis & Albert de Vaal, 2004. "On labour standards and free trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 137-158.
    5. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2009. "U.S. Trade and Other Policy Options and Programs to Deter Foreign Exploitation of Child Labor," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 18, pages 689-743 World Scientific Publishing Co. Pte. Ltd..
    6. Andreoni, James & Miller, John H., 2008. "Analyzing Choice with Revealed Preference: Is Altruism Rational?," Handbook of Experimental Economics Results, Elsevier.
    7. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, and International Economic Institutions," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 519-562.
    8. Martin Rama, 2002. "Globalization and Workers in Developing Countries," Economics Study Area Working Papers 41, East-West Center, Economics Study Area.
    9. Baldwin, Richard, 2000. "Regulatory Protectionism, Developing Nations and a Two-Tier World Trade System," CEPR Discussion Papers 2574, C.E.P.R. Discussion Papers.
    10. Jerger, Jurgen, 2002. "Globalization, wage setting, and the welfare state," Journal of Policy Modeling, Elsevier, vol. 24(1), pages 1-18, March.
    11. 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.
    12. Nirvikar Singh, 2004. "The Impact of International Labor Standards: A Survey of Economic Theory," International Trade 0412007, EconWPA.

    More about this item

    Keywords

    labour standards;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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