August 2, 2001 No. 15

Progress on trade liberalization hasbeen stymied by the current controversyover whether labor and environmentalstandards should be enforced throughtrade sanctions. Advocates of sanctionsinsist that future trade agreements,including trade promotion authority,contain such standards enforced by thethreat of sanctions, but the use of sanc-tions would be counterproductive andwould virtually rule out future regionaland multilateral trade agreements.

The argument for “enforceable” laborand environmental standards is based onthe myth that nations are engaged in aregulatory “race to the bottom,” but theevidence fails to support that thesis.Nations with low standards do not gaina larger share of foreign direct invest-ment or export markets. In fact, the largemajority of the world’s trade and foreigninvestment flows between advanced,high-standard economies.

In reality, openness to trade andinvestment promotes development andhigher incomes, which enable less-

developed countries to raise their laborand environmental standards. Thatexplains why nations that are open to theglobal economy enjoy the highestincomes and also maintain the highestlabor and environmental standards.

Sanctions deprive poor countries ofthe international trade and investmentopportunities they need to raise overallliving standards. Sanctions tend to strikeat the very export industries in less-developed countries that typically paythe highest wages and maintain thehighest standards, forcing productionand employment into less-globalizedsectors where wages and standards arealmost always lower. Sanctions alsodamage America’s economic interests bysabotaging regional and multilateraltrade negotiations.

If the U.S. government wants toencourage higher labor and environmen-tal standards abroad, its most importantpolicy should be to encourage free tradeand investment flows so that low-stan-dard countries can develop more rapidly.

Trade, Labor, and the EnvironmentHow Blue and Green Sanctions

Threaten Higher Standardsby Daniel T. Griswold

Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the CatoInstitute.

Executive Summary

Introduction

Americans want the benefits of a more effi-cient and open economy—lower prices, morecompetition, better-paying jobs, and moreprofitable investments. Americans also want topromote higher environmental standards andbetter working conditions at home and abroad.Are those two values in conflict? Such is thepremise of people who insist that future tradeagreements require countries to meet certainenvironmental and labor standards.

The question of labor and environmentalstandards will be at the heart of any congres-sional debate about future trade agreements,including trade promotion authority (alsoknown as fast-track authority), which allowspresidents to submit trade agreements toCongress for up or down votes without amend-ment. Trade promotion authority has beenallowed to lapse since 1994, largely because ofdisagreements over how to address labor andenvironmental issues. Republican leaders inCongress have rejected the use of sanctions infuture agreements, and key Democrats havewarned that major trade agreements will notpass if they do not contain labor (“blue,” as inblue collar) and environmental (“green”) stan-dards enforceable through trade sanctions.

In June Republicans introduced “clean” tradepromotion authority legislation that appears torule out provisions not directly related to trade.The Bush administration has embraced higherglobal standards as a goal of U.S. trade policy,proposing a “tool box” of measures that could beused to promote them, but trade sanctions werenot in the box. In contrast, Sen. Max Baucus(D-Mont.), the new chairman of the FinanceCommittee, has declared, “Without meaning-fully addressing labor and environment—preferably in the agreement—I cannot imaginea new free trade agreement winning congres-sional approval.”1 David Bonior, Democraticwhip in the House, has dismissed any languagethat does not include trade restrictions as ameans of enforcement, arguing, “What good isa ‘tool box’ if it doesn’t contain a hammer toenforce labor and environmental protectionswith tough trade sanctions?”2

The stakes are high in the debate on whetherand how to address social standards within tradeagreements. If trade promotion authority stalls inCongress because of a lack of labor and environ-mental language, Americans could be denied thebenefits of trade agreements that would expandthe opportunity to trade. But if the U.S. govern-ment insists on inserting those conditions intointernational trade agreements, other nations,especially less-developed countries, are adamantthat they will not sign them. Either way, interna-tional negotiations to lower trade barriers wouldbe paralyzed. The threat of sanctions againstcountries because of their labor and environmen-tal standards would chill, and probably kill, a newround of negotiations in the World TradeOrganization, whose membership is now pre-dominantly made up of less-developed coun-tries. Regional negotiations for a free-trade areaof the Americas and most bilateral negotiationswould also be put on hold by trading partnerswho would rightly resent such a heavy-handedand potentially protectionist attempt to influencetheir domestic social policies.

By insisting on blue and green standardsenforceable through trade sanctions, advocatesof “linkage” are taking U.S. trade policy down anew and dangerous road. Although referencesto labor and environmental standards havebeen part of U.S. trade legislation since the1970s, no major trade agreement has everauthorized the use of trade sanctions to punishnations that fail to meet those standards, how-ever defined. Of the 130 free-trade agreementsand 1,800 bilateral investment treaties thathave been negotiated around the world to date,only 3—the North American Free TradeAgreement, the Canada-Chile FTA, and theproposed U.S.-Jordan FTA—address environ-mental and labor issues in a comprehensiveway. 3 No trade agreement already enacted, bythe United States or any other country, relieson punitive sanctions as a tool for enforcinglabor and environmental standards. Graftinglabor and environmental sanctions onto newtrade legislation will create new barriers toboth existing trade and future trade expansion.

Before makers of trade policy decidewhether to go down that road, they should

2

By insisting on laborand environmental

standardsenforceable through

trade sanctions,advocates of

“linkage” are takingU.S. trade policydown a new anddangerous road.

3

examine the real impact of international tradeand investment on labor and environmentalstandards, the practical difficulties of definingand “enforcing” those standards in other coun-tries, and the inherent dangers—to ourselves,our trading partners, and the global tradingsystem—of wielding the hammer of sanctionsas a tool of enforcement.

The Mythical “Race tothe Bottom”

Much of the case for linking labor and envi-ronmental standards to trade is built on theassumption that, without enforceable stan-dards, economically advanced nations withhigh social standards will find themselves at acompetitive disadvantage vis-à-vis less-devel-oped nations with low standards. Low stan-dards supposedly give producers in poor coun-tries a significant cost advantage, allowingthem to take market share from rich-countryproducers burdened with the cost of higherstandards. Footloose producers in the richcountries will then be forced to transfer pro-ductive capital to low-standard countries toremain competitive, prompting rich-countrygovernments to lower their standards to keepjobs and production at home, resulting in a reg-ulatory “race to the bottom.” Those concernswere reflected in a “Dear Colleague” letter,signed in June by 97 Democratic House mem-bers, warning that future trade agreementsmust “prohibit the unfair advantage gainedthrough violation of fundamental labor andenvironmental protections.”4

The assumption that low standards conferan “unfair advantage” finds little support eitherin theory or in practice. Labor and environ-mental regulations do not appear to be signifi-cant factors in determining the competitivenessand profitability of multinational companies inthe world today. The costs of complying withenvironmental regulations, for example, typi-cally account for less than 1 percent (they rangeup to 2 percent for more pollution-intensiveindustries) of production costs for industries inWestern countries.5 Far more important in

determining where companies locate are suchfactors as political stability; the education andproductivity of the local workforce; the state ofthe country’s communications and transporta-tion infrastructure; the rule of law; proximity tomarkets; and the ability to import, export, andrepatriate profits freely.

Low Standards and “Competitiveness”Low standards do not confer a competitive

advantage on poor countries, nor do highstandards impose a disadvantage on richcountries. Maintaining low standards maybenefit particular industries in a poor countryat the expense of other sectors of its economy,and imposing more restrictive environmentalstandards may change the composition of arich country’s domestic industry but not nec-essarily its overall output. For example, anti-pollution regulations may cause pollution-intensive industries to shrink relative to clean-er industries. But, as trade economists JagdishBhagwati and T. N. Srinivasan have pointedout, that would be just as true in a closedeconomy as in one open to global competi-tion.6 In fact, if reducing domestic pollution isthe goal of such regulations, then openness totrade and investment can help accelerate thetransition to cleaner production.

Similarly, imposing more restrictive laborregulations may alter the mix of compensationthat employees receive without necessarilyreducing overall employment or output. In acompetitive market, employers will tend to payworkers according to their productivity. If agovernment attempts to suppress the overallcompensation level to gain a competitiveadvantage, employers will tend to bid againsteach other to attract workers, raising the gener-al wage level until it matches productivity.Systematically suppressing “labor rights” maybenefit certain industries and sectors, but itdoes not appear to gain any overall advantagefor a nation’s economy.

Consider collective bargaining and discrim-ination. In practice, unionization can haveambiguous effects on economic efficiency. Ifcollective bargaining drives up wages beyondthe productivity of workers, it can cause the

The assumptionthat low standardsconfer an “unfairadvantage” findslittle supporteither in theory orin practice.

affected industries to lose market share in acompetitive market. But if collective bargain-ing offsets the power of a dominant employerto keep wages below levels of productivity,unions can enhance economic efficiency.Systematic discrimination in the labor marketunambiguously reduces efficiency by discour-aging certain groups of workers from fully par-ticipating in economic activity. That reducesnational output, including exports if the work-ers being discriminated against are concentrat-ed in export production (for example, womenin the textile and clothing industries). As aWorld Bank study concluded, “The effect ofdiscrimination is clearly not to create competi-tive advantage in exports, rather it has theopposite effect.”7

Differences in labor standards do not driveglobal trade and investment flows. In a 1996study of trade and labor standards, theOrganization for Economic Cooperation andDevelopment compared export performancewith enforcement of labor rights, in particularfreedom of association. The study concluded,“There is no evidence that low-standardscountries enjoy a better global export perfor-mance than high-standards countries.”8 Thestudy went on to explain:

Core labor standards do not play a sig-nificant role in shaping trade perfor-mance. The view which argues thatlow-standards countries will enjoygains in export market shares to thedetriment of high-standards countriesappears to lack solid empirical sup-port. Countries can succeed in repress-ing real wages and working conditionsonly for a limited period of time.Thereafter, market forces will be suchthat wages will catch up, thus wipingout previous competitiveness gains.9

Investing in High Standards If the race-to-the-bottom theory were true,

we would expect to see at least one of twodevelopments: either capital would be flowingmassively from rich, high-standard countries to

poor, low-standard countries or rich countrieswould be lowering their standards to keep pro-ductive capital and jobs from fleeing. In fact,neither is happening.10

The low labor and environmental standardsendemic to less-developed countries do notseem to confer any observable advantage inattracting foreign direct investment (FDI). Theoverwhelming majority of FDI comes fromand flows to developed countries with similar-ly high labor and environmental standards.According to the UN Conference on Tradeand Development, of the $1.1 trillion in globalFDI flows in 2000, more than 80 percent wentto developed countries. Only 17 percent ofFDI was directed to developing countries,down from about 40 percent in the mid-1990s.11 As the OECD concluded, “AggregateFDI data suggest that core labor standards arenot primary factors in the majority of invest-ment decisions of OECD companies.”12

Nor do low environmental standards appearto confer any advantage in attracting invest-ment. In fact, nations with low environmentalstandards tend to attract far less FDI than dothose with high standards. Figure 1 shows thatnations with the highest environmental stan-dards, as measured by the World EconomicForum’s “2001 Environmental SustainabilityIndex,”13 also attracted the most FDI per capi-ta.14 If the race to the bottom were actuallyhappening, countries with low standards wouldtend to attract more FDI than those with high-er standards. But Figure 1 demonstrates thatjust the opposite is happening: higher environ-mental standards are invariably associated withhigher flows of FDI. (See Appendix for com-plete cross-country data.)

American direct investment abroad showsthe same bias in favor of high standards. In thethree-year period 1997–99, American manu-facturing companies directly invested twice asmuch in the high-wage, high-standardeconomies of the European Union as in all ofLatin America, Africa, the Middle East, India,and China combined. During that period,more U.S. manufacturing FDI flowed intoGermany and the Netherlands, where the levelof social regulation generally exceeds that in

4

Nations with lowenvironmental

standards tend toattract far less FDIthan do those with

high standards.

the United States, than into Mexico and main-land China combined.15

Low wages are no more of a magnet for for-eign investment than are low standards.According to a recent study on global manu-facturing investment by the consulting firmDeloitte and Touche, other high-wage coun-tries attracted 87 percent of total U.S. manu-facturing FDI outflows in 1999, up from 75percent in 1998 and 69 percent in 1997. Thestudy explained, “Since only a relatively smallpercentage of a firm’s costs are in wages, factorssuch as local market size, skill and educationlevels of the host country workforce, and polit-ical and economic stability become much moreimportant for U.S. firms when making invest-ment decisions.”16

If low standards and low wages were thedominant factors driving investment flows, asthe race-to-the-bottom thesis assumes, thenwe would expect poor countries to be capturingmost FDI from developed countries. That is

clearly not happening. The only other explana-tion consistent with a race to the bottom wouldbe that rich countries are busy lowering theirown wages and standards to compete for capi-tal, but that argument finds equally little sup-port in the real world.

The Real Race toward the Top

Around the world a fundamental dynamicappears to be at work: nations that are open totrade tend to grow faster and achieve higherincomes than do less-open nations, and thosewith higher incomes tend to maintain higherlabor and environmental standards. Throughthis powerful channel, globalization encouragesa race, not to the bottom, but toward the top.

The link between openness to trade andinvestment and economic growth has beenwell documented. Numerous cross-countrystudies have found that nations relatively open

5

$0

$1

$10

$100

$1,000

$10,000

30 40 5 0 60 7 0 80 9 0

United StatesMexico

China

Figure 1Environmental Standards and Foreign Direct Investment

Environtmental Standard Index

Sources: World Economic Forum, “2001 Environmental Sustainability Index,” Geneva, January 2001; and World Bank, WorldDevelopment Report 2000/2001 (Washington: World Bank, 2001).

to the global economy grow faster than thosethat are relatively closed.17 Furthermore, poornations that are open tend to close the incomegap with developed nations, while those thatare closed tend to fall further behind. The con-nection between trade and growth was con-firmed by economists James Gwartney andRobert Lawson in their recent study, EconomicFreedom of the World: Annual Report 2001. Ofthe 90 countries surveyed, they found thatthose in the top quintile of trade openness dur-ing the years 1980-98 averaged $22,306 in percapita gross domestic product compared to$2,916 for those in the bottom quintile. Themost open countries averaged 2.4 percentannual growth during the period compared to0.5 percent average growth among the leastopen countries (Figure 2).18

The reasons for the link are rooted in econom-ic reality. Openness to trade helps to shift resourcesto sectors that enjoy a comparative cost advantageover other domestic sectors. It stimulates competi-

tion in the domestic economy, lowering prices forconsumers and import-using industries, breakingthe power of protected domestic monopolies, andspurring innovation and efficiency among domes-tic producers. It provides new markets forexporters, allowing economies of scale and openingup new opportunities for domestic production.Foreign trade and investment bless less-developedcountries with capital, productive machinery, andnew technology.

Higher incomes, in turn, spur higher stan-dards. As incomes rise above subsistence level,people can afford to spend more on pollutioncontrol. They can more easily afford to send chil-dren to school rather than to work to supplementhousehold income. A rising standard of livingalso creates a more educated and politically awarepopulation that expects higher standards, increas-ing political pressure on the government to insti-tute reforms. That process appears to be workingto raise both labor and environmental standardsin countries open to globalization.

6

Figure 2Openness to Trade, Income, and Growth

Source: James Gwartney and Robert Lawson, Economic Freedom of the World: Annual Report 2001 (Vancouver, B.C.: FraserInstitute, 2001), p. 78.

Note: PPP = purchasing power parity.

Trade and Labor StandardsOpenness to trade and investment leads to

faster growth, which leads to higher wages andlabor standards, including so-called core workerrights. That is why the world’s most developedeconomies, which account for most of theworld’s trade and attract most of its FDI, alsopay the highest wages and maintain the highestlabor standards covering freedom of association,discrimination, forced labor, and child labor.

For less-developed countries as well,engagement in the global economy lifts realwages and labor standards. Jobs in exportindustries and foreign-owned affiliates gener-ally pay significantly higher wages than do jobsin non-trade-related industries. Foreign-owned affiliates in less-developed countriestypically pay wages and salaries that are abouteight times higher than per capita GDP inthose countries.19 According to a study by theU.S. International Trade Commission, wages,salaries, and labor standards are higher inexport-oriented sectors than in those that pro-duce nontraded goods.20

When Western multinational firms invest inless-developed countries, they typically bringhigher standards, not lower standards. For rea-sons of internal efficiency as well as public per-ceptions, multinational companies impose moreor less uniform standards on their affiliates,whether operating in less-developed oradvanced economies. Multinational companiestend to require their overseas production plantsto meet higher standards than do domesticallyowned and operated companies, thus raisingaverage standards in the host country.

For all those reasons, globalization, develop-ment, and labor standards tend to rise together.The 1996 OECD study on trade and labor stan-dards found both “a weak positive associationbetween the degree of enforcement of [freedom-of-association] rights and the level of economicdevelopment” and “a trend towards better com-pliance in low-standards countries.”21 Thatprogress, in turn, can be linked to globalizationand increased openness: “The strongest finding isthat there is a positive association over timebetween successfully sustained trade reforms andimprovement in core [labor] standards.”22

That improvement includes the most emo-tional of labor standards—child labor. Childlabor of the worst kind is a fact of life in theworld’s poorest countries. According to theInternational Labor Organization, an estimat-ed 250 million children between the ages of 5and 14 work in less-developed countries, near-ly half of them full-time and to the exclusion ofschool.23 Children who are deprived of an ele-mentary education are likely to be condemnedto perpetual poverty. Society as a whole isdeprived of the benefits of the human capitaland potential of an educated population. Yetfor many Third World families living on theedge of subsistence, the alternative to childlabor is starvation.

As is the case for labor standards in general,trade and globalization are not part of the prob-lem of child labor but are in fact a necessary partof its alleviation. The overwhelming majority ofchild laborers toiling in poor countries work insectors far removed from the global economy.More than 80 percent work without pay, usual-ly for their parents or other family members andtypically in subsistence farming.24 Most otherchild laborers work for small-scale domesticenterprises, typically nontraded services such asshoe shining, newspaper delivery, and domesticservice.25 A report by the U.S. Department ofLabor found: “Only a very small percentage ofall child workers, probably less than five percent,are employed in export industries in manufac-turing and mining. And they are not commonlyfound in large enterprises; but rather in smalland medium-sized firms and in neighborhoodand home settings.”26

Openness to trade and the growth it bringshave a positive impact on the welfare of children.As household incomes rise, especially wages paidto adult females, fewer families face the econom-ic necessity of sending their children to work.Studies confirm that labor force participationrates by children aged 10 to 14 decline signifi-cantly with rising GNP per capita. 27 Child laborrates also fall as a nation’s population shifts fromrural agricultural areas, where child labor rates arerelatively high, to urban centers. The most objec-tionable forms of child labor are most commonlyfound in rural areas of poor countries, areas that

7

“The strongestfinding is that thereis a positiveassociation over timebetween successfullysustained tradereforms andimprovement in core[labor] standards.”

—OECD

are the farthest removed from the reach of globaltrade and investment. As trade expands andincomes rise, more parents can afford to sendtheir children to school rather than to work.

Working conditions in less-developed coun-tries can strike Western observers as unaccept-able if not appalling. But two points need to beconsidered: First, wages and working conditionsare likely to be even worse in non-trade-orient-ed sectors, such as services and subsistence agri-culture, that have been largely untouched byglobalization. Second, poor working conditionsin those countries are not a new phenomenonbut have always been a chronic fact of life.Abysmal working conditions persist today notbecause of globalization, a relatively new phe-nomenon, but because of previous decades ofprotectionism, inflation, economic mismanage-ment, hostility to foreign investment, and lack oflegally defined property rights. Globalization isnot the cause of bad working conditions but thebest hope for improving them.

One of countless examples of the beneficialeffect of international trade on working condi-tions can be seen in the Charter clothing factoryin San Salvador, El Salvador. A recent New YorkTimes story described conditions in the locallyowned operation, which produces clothing oncontract for a major American retailer: “Inside,rows of sewing machines face blackboards onwhich supervisors have written the daily quotasfor shirts and trousers, roughly 2,000 a day foreach line of 36 machines. The pace is relentless,but by local standards it is a pleasant place to work.There are lockers, tiled bathrooms, a medical clin-ic and an outdoor cafeteria. Large fans and highceilings keep temperatures down.”28 Such condi-tions might strike many Americans as those of anintolerable “sweatshop,” but to local workers theyrepresent real progress.

Trade and Environmental StandardsExpanding trade is not merely compatible

with high standards of environmental qualitybut can lead directly to their improvement. As acountry sees its standard of living rise througheconomic liberalization and trade expansion, itsindustry can more readily afford to control emis-sions. Its citizens have more to spend, above

what they need for subsistence, on the “luxurygood” of improved environmental quality. Andas economic growth creates an expanding, bet-ter-educated middle class, the political demandrises for pollution abatement. That explains whythe most stringent environmental laws in theworld today are found in developed countriesthat are relatively open to trade.

Development by itself can have a mixedimpact on the environment. All else being equal,an economy that produces more of exactly thesame goods and services in exactly the same waywill produce more pollution. But developmentchanges not only the size of an economy but alsoits composition and its level of technology. Moresophisticated technology can mean cleaner pro-duction processes and more affordable andeffective pollution abatement. And as nationsprogress to higher stages of development, theytend to move away from more resource-inten-sive activities such as mining, agriculture, andheavy industry and into light manufacturing,information technology, and services. A study bythe OECD on globalization and the environ-ment found: “There is some evidence that, oncea country begins to industrialize, trade liberal-ization helps to make the structure of its econo-my less pollution-intensive than in those coun-tries whose economies remain relatively closed.In particular, freer trade seems to promote thetransition from heavy resource-processing sec-tors to light manufacturing ones (at least at mid-dle income levels).”29

That helps explain the so-called environmen-tal Kuznets curve, according to which environ-mental quality in a developing nation initiallydeteriorates as the economy begins to industrial-ize but then improves as the economy reaches ahigher level of development. Research by GeneGrossman and Alan Krueger indicates that theturning point occurs at about $5,000 per capitaGDP: “We find no evidence that environmentalquality deteriorates steadily with economicgrowth. Rather, for most indicators, economicgrowth brings an initial phase of deterioration fol-lowed by a subsequent phase of improvement.”30

Not all categories of pollutants fit that pattern, butas a general rule environmental quality appears toimprove as incomes rise.

8

The most stringentenvironmental laws

in the world todayare found in

developed countriesthat are relatively

open to trade.

The long-run positive impact of develop-ment on the environment is confirmed by across-country comparison of environmentalstandards and per capita GDP. Figure 3 illus-trates how environmental standards and quality,again as measured by the World EconomicForum’s “2001 Environmental SustainabilityIndex,”31 generally rise along with per capitaGDP32 in the 83 countries measured. Higherper capita income appears to be a necessaryalthough not sufficient condition for improvedenvironmental quality. In other words, whilesome countries have managed to achieve highper capita incomes without high environmentalstandards, no country has achieved high stan-dards without high incomes.

In fact, a closer look at the cross-country datareveals a kind of “green ceiling” that must beraised for nations to achieve higher environmen-tal standards. According to the data, no nationhas achieved an environmental sustainabilityindex rating of 50 or more without a per capita

GDP of at least $2,142; no nation has achieveda rating of 60 or more without a per capita GDPof at least $6,436; and no nation has achieved arating of 70 or more without a per capita GDPof at least $20,659. If the goal of U.S. policy is toencourage higher environmental standardsabroad, we must help less-developed countriesachieve higher incomes—and trade liberaliza-tion, at home and abroad, must be an integralpart of any pro-development policy.

Mexico is frequently cited as an example ofhow increasing trade can cause environmentaldegradation. But Mexico’s reputation for laxstandards predates its trade reforms and entryinto NAFTA. Although the expansion ofMexican industry has made pollution controlmore challenging, economic growth and newtechnology have provided the means for raisingstandards. Meanwhile, a more competitive,multiparty political system has spurred thegovernment to be more responsive to domesticdemands for environmental protection.

9

3 0

4 0

5 0

6 0

7 0

8 0

9 0

$100 $1,000 $10,000 $100,000

The "Green Ceiling"

Figure 3Wealth and Environmental Standards

Sources: World Economic Forum, “2001 Environmental Sustainability Index,” Geneva, January 2001; and United NationsDevelopment Program, Human Development Report 2000 (New York: United Nations, 2000).

Per Capita GDP (purchasing power parity, log scale)

One result is that Mexico City’s notorious-ly dirty air has been getting noticeably cleaner.Levels of lead, carbon dioxide, and sulfur diox-ide are down significantly, and the city was freeof smog alerts during all of 2000. Efforts toclear the air seemed to turn a corner in 1995with the introduction of cleaner gasoline andmore widespread installation of catalytic con-verters. Industries that ring Mexico City haveeither cut their pollution emissions or dis-persed to other regions of the country. Todaythe air in Mexico City is cleaner than the air inLos Angeles was 30 years ago.33

The United States itself is a classic exampleof the benign effect of open trade and growthon the environment. It simultaneously has oneof the world’s most open economies and one ofthe world’s cleanest environments. In the pastdecade, the United States has continued toopen its economy further, signing NAFTA andthe Uruguay Round Agreement, which low-ered tariffs worldwide and created the WorldTrade Organization. Meanwhile, America’stwo-way trade and foreign investment contin-ue to climb in relation to U.S. GDP. The grow-ing globalization of the U.S. economy has beenaccompanied by ever-rising environmentalstandards. According to the Council onEnvironmental Quality, mean ambient con-centrations of sulfur dioxide and carbonmonoxide in the atmosphere of the UnitedStates both dropped by nearly 40 percentbetween 1988 and 1997.34 During the sameperiod, the annual number of “bad air days” inmajor U.S. cities dropped by two-thirds.35 Thedirect discharge of toxic water pollutants wentdown dramatically as well.36 Since the early1970s, real spending by government and busi-ness on the environment and natural resourceprotection has doubled.37

The environmental progress evident in theUnited States, Mexico, and elsewhere was not theresult of threatened trade sanctions or other externalpressure but a consequence of domestic pollutioncontrol efforts made possible by economic growthand new technology, which in turn are spurred byincreasing flows of trade and foreign investment.

Of course, open trade and economic growthalone do not lead inevitably to higher environ-

mental and labor standards. Absent clearlydefined property rights, government regulation isusually necessary to protect common air andwater resources from pollution that can endangerpublic health. Government action may also benecessary to eliminate forced labor, the exploita-tion of children, and market distortions caused byanti-competitive practices, whether on the part ofindustry or labor unions. But the evidence is clearthat economically sound regulations are perfectlycompatible with an open economy.

There is no inherent conflict between highlabor and environmental standards in thedomestic economy and success in the globaleconomy. In fact, the evidence points stronglyto a positive correlation between high stan-dards, high national incomes, and economicopenness. Nations that have opened them-selves to the global economy tend to growfaster, achieve higher per capita incomes, andmaintain higher labor and environmental stan-dards. The belief that higher standards can bepromoted only through tough language intrade agreements is built on a myth.

Whose Standards andWhat Standards?

Another major problem with enforcinglabor and environmental standards throughtrade agreements is the lack of clear definitionof what those standards should be, how com-pliance should be measured, and who shoulddetermine whether they have been violated.

On labor standards, a consensus of sorts existsthat countries should live up to a short list of “corelabor rights.” The 175 member states of theInternational Labor Organization38 agreed in their1998 “ILO Declaration on Fundamental Principlesand Rights at Work” to promote a set of “funda-mental” labor rights. The four generally acceptedcore labor rights are

• a ban on forced or compulsory labor (ILOConventions nos. 29 and 105),

• freedom of association (ILO Conventionno. 87) and the right to organize and bar-gain collectively (ILO Convention no. 98),

10

The growingglobalization of the

U.S. economy hasbeen accompanied

by ever-risingenvironmental

standards.

• nondiscrimination (ILO Convention no.111) and equal remuneration (ILOConvention no. 100) in employment, and

• a minimum age for employment of chil-dren (ILO Convention no. 138) and a banon the worst forms of child labor (ILOConvention no. 182).

While those core conventions are praised inprinciple, they are not universally embraced inpractice. Only 45 of the ILO’s 175 member coun-tries have ratified all eight core conventions.Another 79 countries, almost half of the ILO’smembership, have left two or more of the con-ventions unratified. The U.S. government, whichhas pushed aggressively for the recognition of coreworker rights in international trade talks, has rat-ified only two of the core ILO conventions (nos.105 and 182). Only nine other ILO membercountries, including Laos, Myanmar, and thePeople’s Republic of China, have ratified as fewconventions as the United States.39 Among thecountries negotiating with the United Statestoward a free-trade area of the Americas, 25 haveratified at least five of the core conventions.

Of course, ratification of an ILO conven-tion does not necessarily mean the ratifyingcountry has actually implemented the conven-tion through its national laws, just as failure toratify does not necessarily mean a failure toimplement. But the reluctance of the UnitedStates and many other countries to ratify anumber of core ILO conventions does castdoubt on those conventions as a universal stan-dard to be “enforced” by global trade rules.

ILO Conventions Are ProblematicAlthough core labor standards enjoy almost

universal support as broad policy objectives,how they apply specifically to individual coun-tries is open to interpretation and debate. Theleast problematic of the core conventions arethe prohibitions against forced or compulsorylabor (Conventions nos. 29 and 105). U.S.trade law already prohibits the importation ofgoods made by forced or slave labor, and suchprohibitions are consistent with rules theUnited States has agreed upon in the WTO.Article XX(e) of the General Agreement on

Tariffs and the Trade, the charter underlyingthe WTO, states that “nothing in thisAgreement shall be construed to prevent theadoption or enforcement by any contractingparty of measures . . . relating to the products ofprison labour.”40 In effect, the United Statesalready possesses the legal power to imposesanctions directly against imports made byforced or compulsory labor. No new languagewould be needed in future trade agreements toretain that power.

Several of the other core conventions posemajor problems of enforcement. Conventionsnos. 87 and 98, if implemented, could enhanceor restrict the power of unions in the UnitedStates in ways that conflict with existing U.S.law. They could require unions to admit allapplicants, even those with past connections tothe Communist Party or Ku Klux Klan, or per-mit rival unions where U.S. law currently allowsexclusive bargaining rights.

Convention no. 100 requires ratifying coun-tries to “ensure the application to all workers ofthe principle of equal remuneration for menand women workers for work of equal value.”That could easily be interpreted as requiring a“comparable worth” regime under which thegovernment dictates pay scales for female-dominated occupations deemed to be of “equalvalue” to better-paying, male-dominated occu-pations. The United States could be forced tochoose between massive intervention in thelabor market and sanctions from other coun-tries for our failure to ensure equal pay for workof “equal value.”

Convention no. 111 requires ratifying coun-tries to prohibit “any distinction, exclusion orpreference made on the basis of race, color, sex,religion, political opinion, national extraction orsocial origin, which has the effect of nullifying orimpairing equality of opportunity or treatmentin employment or occupation.” That prohibitionappears compatible with existing U.S. lawsagainst employment discrimination, but it couldbecome a blank check for imposing sanctionsagainst a broad swath of less-developed or cul-turally dissimilar countries whose employmentpractices do not meet Western standards ofnondiscrimination. A number of countries in

11

The U.S.government, whichhas pushedaggressively for therecognition of coreworker rights ininternational tradetalks, has ratifiedonly two of thecore ILOconventions.

Latin America, Africa, the Middle East, andAsia, including Japan, could be challenged for defacto or de jure discrimination against women inthe workplace.

Convention no. 138 obligates ratifyingmembers to “ensure the effective abolition ofchild labor and to raise progressively the mini-mum age for admission to employment orwork to a level consistent with the fullest phys-ical and mental development of young per-sons.” The minimum age “shall not be less thanthe age of completion of compulsory schoolingand, in any case, shall not be less than 15 years.”Although the ban specifically excludes childlabor on family farms that produce for localconsumption, it could be interpreted as pro-hibiting child labor necessary for the economicsurvival of families on the edge of subsistence.As a consequence, the minimum age of 15would be a much more difficult standard forpoor countries to meet than for rich countries.

Convention no. 182 commits ratifyingcountries to eliminate “the worst forms ofchild labor,” which the convention defines asprostitution, drug trafficking, and other illicitactivities; all forms of slavery, including debtbondage; and work that, by its nature, “is like-ly to harm the health, safety or morals of chil-dren.” If any ILO convention should enjoyuniversal support, it is this one, but even thisconvention raises problems of interpretationand international enforcement.

Elusive Environmental StandardsEnvironmental standards are even more

open to interpretation. No single universallyacknowledged code comparable to the ILO’score conventions exists for environmental stan-dards. Instead, global environmental standardshave evolved through a patchwork of multilater-al environmental agreements (MEAs) eachaimed at a specific problem. In all, about 200MEAs have been negotiated; the major agree-ments regulate ozone-damaging fluorocarbons,transboundary shipments of hazardous waste,and international trade of endangered species.

Existing MEAs deal with environmentalissues of a global nature, in which pollution orthe impacts of pollution cross national bound-

aries. MEAs have not sought to regulate pollu-tion of a strictly local nature, such as municipalair or rural water quality. When advocates oflinkage speak of “enforcing environmental stan-dards,” it is unclear whether they mean existingMEAs, which already contain their own moni-toring and enforcement procedures, or nationalor local environmental quality standards.

If the target were pollution that transcendsinternational boundaries, the best approachwould be to negotiate MEAs that deal directlywith the particular type of pollution that needsto be curbed. But if the target is purely domesticenvironmental standards, then the question aris-es of why the United States, or any internation-al body, should be enforcing standards that, bytheir nature, would be applicable only within theboundaries of other sovereign nations. Nationaland subnational governments are in the bestposition to determine the tradeoffs appropriatefor their economies’ level of development. Itwould be inefficient and a violation of sover-eignty for the United States to determine andenforce other countries’ domestic environmentalstandards through trade agreements.

A backdoor approach to enforceable envi-ronmental standards would be to create withinglobal trading rules new loopholes that wouldallow a broad range of trade barriers and sanc-tions. WTO rules could be rewritten to allowtrade restrictions based not on any inherentcharacteristic of the product itself, as the rulesnow permit, but on the “production andprocessing methods” used to produce it. Otherproposed carve-outs would allow sanctions tobe applied through MEAs, even if they con-flicted with WTO rules, and allow products tobe banned on the basis of the “precautionaryprinciple,” even when no valid scientific evi-dence exists to warrant such an action. Each ofthose exceptions, if added to existing globaltrade rules, would invite protectionist misuseand undermine development.

A Ban on Regulatory FlexibilityAbsent any agreed-upon objective stan-

dards, another approach is to require all partic-ipants in a trade agreement to fully enforcetheir existing domestic labor and environmen-

12

National andsubnational

governments are in the best position

to determine the environmental

tradeoffs appropriatefor their

economies’ level of development.

tal laws and to not weaken those laws in a bidto attract foreign investment or spur exports.That is the approach incorporated in the sideagreements to NAFTA, which the UnitedStates signed with Canada and Mexico in1993, and in the main text of the free-tradeagreement (FTA) with Jordan, signed inOctober 2000 and now pending in Congress.Specifically, Article 5, section 3(a) of the U.S.-Jordan FTA states, “A Party shall not fail toeffectively enforce its environmental laws,through sustained or recurring course of actionor inaction, in a manner affecting tradebetween the Parties, after the date of entry intoforce of this Agreement.” Article 6, section 4(a)imposes the same requirement regardingdomestic labor laws.41

The U.S.-Jordan FTA defines environmentallaws as those written to protect human, animal,and plant life through pollution abatement, con-trol of environmentally hazardous or toxic mate-rials, and conservation of wild flora and fauna,including endangered species. It defines laborlaws as those written to protect the core list of“internationally recognized labor rights,” includ-ing the right of association, the right to organizeand bargain collectively, prohibition of forced orcompulsory labor, a minimum age for employ-ment of children, and “acceptable conditions ofwork with respect to minimum wages, hours ofwork, and occupational safety and health.”42

Merely insisting that other countriesenforce labor and environmental laws alreadyon the books creates its own set of problems.Such a requirement reinforces the myth thattrade expansion encourages a race to the bot-tom—that without outside pressure, countrieswill be tempted to lower labor and environ-mental standards to gain some illusionary“competitive advantage.” The preponderance ofevidence shows that no such pressure exists. Infact, expanding trade and rising productivitycreate conditions for higher standards.

Moreover, insisting that countries enforcetheir labor and environmental laws could pre-vent necessary and rational adjustments to theway those laws are written and implemented.Laws in place when a trade agreement issigned could be overly restrictive and econom-

ically damaging if strictly enforced. For exam-ple, it is widely understood that labor laws inIndia are too inflexible, preventing neededlabor market adjustments and forcing millionsof workers into the informal sector. If a less-developed country with similarly burdensomerules were to seek to make its labor laws moreflexible and economically rational, it could beaccused of violating international trade rulesby trying to lower its standards “in a manneraffecting trade.” The result could be a perverseincentive for countries to keep their labor andenvironmental laws locked at an inefficientand economically damaging level, or at a lowerlevel where enforcement is easier and lessprone to challenge.

Overloading the WTOA final hurdle would be deciding who would

determine compliance. Many advocates ofenforceable standards want them to become partof WTO rules so they can be enforced by tradesanctions, but the WTO is poorly suited to arbi-trate disputes over domestic social standards.

The WTO’s dispute settlement mechanismis already overburdened with hundreds ofongoing cases directly related to trade and mar-ket access. The experts appointed to WTOpanels understand international trade law andthe organization’s guiding principles. Addinglabor and environmental standards to the list ofenforceable requirements would thrust thosepanels into new and unrelated areas of disputesettlement. WTO panels would need toimmerse themselves in the minutiae of pollu-tion control and domestic labor regulation.Like a grand international Equal OpportunityEmployment Commission, the WTO wouldbe called upon to judge whether discriminationexists in Japanese automobile plants or Chinesetextile factories. The WTO would be convert-ed into the World Standards Organization.

If labor and environmental enforcementwere foisted on the WTO, its dispute settle-ment system could easily be overwhelmed tothe point of breakdown by the sheer numberand complexity of nontrade cases broughtbefore it. A system that has so far worked wellto arbitrate trade-related disputes would be

13

If labor andenvironmentalenforcement werefoisted on theWTO, its disputesettlement systemcould easily beoverwhelmed tothe point ofbreakdown by thesheer number andcomplexity ofnontrade casesbrought before it.

incapable of arbitrating disputes of the numberand nature that “enforceable” social standardswould produce.43

The Trouble with Sanctions

Even if one accepts, against the weight ofevidence, that the race to the bottom is real, andthat enforceable labor and environmental stan-dards can be determined and arbitrated, thatstill leaves the question of whether trade sanc-tions would be the right way to enforce thosestandards. Judging from experience and theimportance of trade to development, sanctionswould be ineffectual and counterproductive.

As a general rule, unilateral trade sanctionshave been a poor enforcement tool for U.S. for-eign policy goals in general. Trade sanctionsoften miss their intended targets, inflictingeconomic pain on workers and industries in thetarget country but not on government officialsresponsible for the policies that prompted thesanctions. Countries that are most likely to facesanctions—those that are undemocratic andeconomically underdeveloped—are also theleast likely to be swayed by sanctions becausetheir economies are less integrated with theglobal economy and their rulers more insulatedfrom the economic pain of citizens.

In practice, U.S. sanctions have failed to bringdemocracy and human rights to such targets asCuba, Iraq, North Korea, Libya, and Myanmar.In fact, sanctions have failed to achieve their goalsin the large majority of cases in which they havebeen applied by the United States since WorldWar I.44 There is no reason to believe they will beany more effective in prompting poor countries toprotect labor rights and the environment andmuch reason to believe they will inflict economicdamage at home and abroad.

Targeting Poor WorkersIf used to enforce labor and environmental

standards, trade sanctions would have the per-verse effect of undermining trade expansion,one of the most powerful forces in the worldtoday for raising standards. By discouragingtrade and foreign investment, sanctions would

retard economic growth, making it more diffi-cult for poor countries to raise environmental,labor, and overall living standards.

On a microeconomic level, sanctions wouldtend to punish the very export-oriented indus-tries that pay the highest wages and maintainthe highest standards in the targeted country.The best employers in the targeted countrywould be indiscriminately punished for the sinsof the worst employers. The effect of sanctionswould be to shrink the more globally integrat-ed sectors that are pulling standards upward,forcing workers into informal, domestic sectorswhere wages, working conditions, and labor-rights protections are much lower.

Sanctions would harm the most vulnerablemembers of society in the targeted country. Byinhibiting growth, sanctions would depress fam-ily incomes, making it more difficult for parentsto afford to send their children to school andthus increasing the number of children in theworkforce. Sanctions targeted specifically atindustries that employ children could forcethem into occupations that are more dangerousand pay even less. The most likely alternative fora 13 year old working in a garment factory maynot be school but prostitution or heavy manuallabor. In 1993 an exposé of child labor inBangladesh caused garment factories there todismiss tens of thousands of child laborers underthe age of 14. About 10,000 of them eventuallyenrolled in special schools set up by UNICEF,but an even larger number, according to a recentstory in the New York Times, “simply found moredangerous and less lucrative work—breakingrocks, rolling cigarettes, pulling rickshaws.”45

Elected leaders in less-developed countrieshave voiced their understandable objection to sanc-tions as a tool for promoting higher social stan-dards. In a speech at the Summit of the Americasin Quebec City, Canada, in April, PresidentFernando Henrique Cardoso of Brazil spoke formost other less-developed countries when hedeclared: “It would be an obvious mistake—a veryserious mistake, indeed—to set given standards ofsocial development as a prior condition for freetrade. This would be tantamount to making devel-opment a prior condition for development. . . . [It]would be putting the cart before the horse.”46

14

By discouragingtrade and foreign

investment,sanctions wouldretard economic

growth, making itmore difficult for

poor countries to raise

environmental,labor, and overallliving standards.

Poisoning Trade TalksInsistence by the U.S. government that

labor and environmental standards be enforce-able through sanctions would be unacceptableto the large majority of less-developed coun-tries, virtually foreclosing the prospect of anymajor multilateral or regional agreements tolower trade barriers.

Sanctions would be a poison pill for a newround of WTO trade negotiations. More thanthree-quarters of the WTO’s members areless-developed countries that would be thelikely targets of any sanctions aimed at enforc-ing social standards. Their governments arewary of the economic damage sanctions wouldinflict on their economies and rightly suspi-cious that the motivation behind them wouldnot be the new concern for higher standardsbut the old desire for protectionism. During a1996 ministerial meeting in Singapore, WTOmembers (the United States included) unani-mously endorsed the ILO as the “competentbody” to deal with labor standards and threwcold water on sanctions as a tool of enforce-ment. The ministerial joint statement declared:

We renew our commitment to theobservance of internationally recog-nized core labor standards. TheInternational Labor Organization(ILO) is the competent body to set anddeal with these standards, and weaffirm our support for its work in pro-moting them. We believe that econom-ic growth and development fostered byincreased trade and further trade liber-alization contribute to the promotionof these standards. We reject the use oflabor standards for protectionist pur-poses, and agree that the comparativeadvantage of countries, particularlylow-wage developing countries, mustin no way be put into question.47

Widespread opposition to sanctions in theWTO has not softened since then. At theWTO ministerial meeting in Seattle inDecember 1999, representatives from poorcountries reacted with dismay when President

Clinton, in a media interview during the meet-ing, endorsed sanctions as a tool of enforce-ment. The president’s ill-timed statement hasbeen blamed as one of the reasons the meetingfailed to launch a new WTO round of negoti-ations. In a speech in Berlin in April, WTOdirector Gen. Mike Moore confirmed theopposition to sanctions: “From what I haveseen, WTO members will never agree to usetrade sanctions to enforce labor standards. It isa line in the sand that developing countries willnot cross.”48

Widespread opposition to sanctions amongour trading partners would foreclose opportu-nities to lower trade barriers abroad throughnew trade negotiations. The United Stateswould not be able to negotiate seriously tolower barriers worldwide on agricultural goods,services, and manufactured products. Foreigntariffs and nontariff barriers would remainagainst a number of major U.S. exports. Globalbarriers against agricultural imports, for exam-ple, average 40 percent, and barriers againstU.S. service exports remain especially high inless-developed countries. Reducing those bar-riers will be difficult if not impossible if globalor regional trade negotiations are stymied byAmerican intransigence on sanctions.

Other DangersAnother danger posed by sanctions is that

they would be vulnerable to capture by domes-tic interests seeking protection. Industries andtheir labor unions that want to hobble theircompetition in less-developed countries couldpursue sanctions behind the cloak of high-minded rhetoric about protecting the environ-ment and workers’ rights. Sanctions wouldprovide a tempting tool to use against thosecountries and foreign industries that are themost competitive against import-competingindustries in the United States. The AFL-CIOhas only fueled suspicions of a protectionistagenda by flatly rejecting any enforcementmechanism other than sanctions, despite theirproven ineffectiveness.49 If compliance, not thestifling of trade, were the objective, then otherenforcement tools would be more attractive.For people ideologically opposed to trade liber-

15

Widespreadopposition tosanctions amongour tradingpartners wouldforecloseopportunities tolower trade barriersabroad throughnew tradenegotiations.

alization, sanctions offer an irresistible twofer:they raise barriers to existing trade and under-mine efforts to lower barriers to future tradethrough negotiations.

Finally, enforcing social standards throughsanctions could invite a backlash against U.S.exporters. Other nations with tighter labor andenvironmental regulations could plausibly chal-lenge the United States for seeking to gain acompetitive advantage through its more liberalstandards. Other countries could cite the rela-tively low level of union representation inAmerica’s private workforce as circumstantialevidence of a lack of a “right to collective bar-gaining.” America’s enforcement of the deathpenalty, even for juvenile and mentally retardedoffenders, could invite sanctions based on“human rights” standards. Any attempt toreform our domestic environmental and laborlaws, no matter how economically rational thechanges might be, could invite sanctionsagainst U.S. exporters.

Sanctions have drawn bipartisan criticism with-in the United States. A paper published by the pro-trade Democratic Leadership Council concluded:

Attempts to enforce higher labor stan-dards overseas through trade sanctionshave failed in the past and are unlikelyto work in the future. Trade sanctionsare a very blunt instrument to addressthe complex range of factors con-tributing to poor labor standards—such as poverty, corruption and politi-cal and regulatory weakness. They arealso likely to be counterproductive byretarding the growth and developmentthat poor countries so desperatelyneed.50

Federal Reserve Board chairman AlanGreenspan, in response to a question duringtestimony before the Senate FinanceCommittee in April, warned that sanctionswould be economically destructive and self-defeating: “If we’re trying to impose those[higher] standards on economies with lowstandards of living and, in effect, impose[them] by restricting our markets—that is,

reducing their capacity to export—we’re goingto lower their incomes even more and make iteven more difficult to enhance labor standardsand the environment.”51

By any reasonable measure, sanctions haveproven to be an ineffective and counterproduc-tive tool for imposing standards on foreigngovernments. They seldom achieve their statedobjective. They often hurt the very people, usu-ally poor workers, whom advocates of sanctionsclaim they are trying to help and leaveuntouched the political class responsible for theoffending policies. They frustrate the growthand development that are necessary to achievehigher standards. They threaten to derail mul-tilateral and regional trade negotiations, com-plicating efforts to open markets for U.S.exports. They invite protectionist capture athome and retaliation from abroad. In sum,sanctions are a bad way to enforce difficult todefine social standards, all in the name of pre-venting an illusionary “race to the bottom.”

Alternatives to Sanctions

The alternative to sanctions is not to “donothing” about labor and environmental stan-dards but to reinforce the positive upward pres-sure already being exerted by expanding tradeand development. U.S. citizens and their gov-ernment can promote higher social standardsabroad without sacrificing the beneficial effectsof open trade and investment.

One alternative would be to enhance themonitoring ability of the ILO. It could begranted the authority and resources to investi-gate alleged labor-rights abuses in membercountries. It could compile and release annualreports on labor conditions within membercountries, exposing systematic violations topublic scrutiny. A negative ILO report couldexpose the offending member to internationalcriticism and potential loss of business.

Another alternative would be voluntary action incivil society. Thanks to the “CNN effect,” a globalaudience is often quickly made aware of gross viola-tions of human and labor rights. Negative publicitycan prompt consumer boycotts and make multina-

16

Enforcing socialstandards through

sanctions couldinvite a backlash

against U.S.exporters.

tional companies wary of producing in the offendingcountry. Less-developed countries and the multina-tional firms that invest in them both have a marketincentive to avoid actions that would tag them as badglobal citizens.

A related alternative would be voluntary labelingof goods to allow consumers to act on their prefer-ences. Through labeling, importers to the U.S. mar-ket could signal that their goods were made withoutchild labor, or by unionized workers, or by environ-mentally friendly methods. (An example already onthe shelves is “Fair Trade” coffee offered byStarbucks.) Such labeling gives consumers a chanceto put their money where their stated preferencesare. If consumers paid higher prices for theapproved goods, it would amount to a voluntarytransfer of resources from rich to poor countries byattaching a real monetary value to the preference forhigher standards.

Advanced nations could also encourage high-er standards by providing direct technical andfinancial assistance to less-developed countries tohelp them raise their social standards. Assistancecould take the form of providing new pollutioncontrol technologies and expertise to domesticindustries. Nonprofit organizations could help tounderwrite the cost of primary education, makingschool a more viable alternative to work for chil-dren from poor families. Such assistance woulddeal directly with the problem in a constructiveway, rather than seek to punish the country gen-erally through destructive sanctions.

Finally, if the U.S. government is determined tofuse labor and environmental standards into futuretrade agreements, alternatives exist that would beless economically destructive than sanctions. Oneidea that has already been adopted on a limited scaleis to levy fines on governments that violate theircommitments to social standards. The NorthAmerican Agreement on Labor Cooperation, oneof the NAFTA side agreements, authorizes finesagainst a government that displays a “persistent pat-tern” of failure to enforce its domestic labor laws.The fines are capped at .007 percent of two-waytrade, which means about $20 million for disputesbetween the United States and Mexico and $30million for those between the United States andCanada. The free-trade agreement betweenCanada and Chile caps fines at $10 million.52

The advantage of fines over sanctions is thatthey do not disrupt beneficial trade relationsand thus do not hinder development that leadsto higher standards. Fines more directly punishthe offending party, the government, ratherthan specific export sectors that are typically aninfluence for higher standards. Fines wouldremove any incentive to pursue complaints as acover for protectionism.

The major drawback of fines is that they wouldreinforce the mistaken belief that, without outsidepressure, governments will succumb to a regulatoryrace to the bottom. Fines also raise sticky questionsof who would pay—the country’s general taxpayersor specific industries—and how the proceeds of thefines would be used. And if already poor countriesare forced to cough up millions of dollars in hardcurrency to pay those fines, they will presumablyhave fewer resources to spend on infrastructureimprovement, legal reform, regulatory enforcement,and other needed measures.

An improvement on fines would be to requirethe violating country to offer “compensation” in theform of greater market access. Instead of closingtrade, this approach would expand trade by reduc-ing trade barriers. It would create a win-win resulteconomically, with both importing and exportingcountries gaining from greater specialization. Thepunishment would be the political pain imposed onthe violating government because of increased com-petition for its import-competing domestic indus-tries. Like fines, compensation would remove thedanger of protectionist capture.53

Whatever the alternative to sanctions, the guid-ing principle should be, “First, do no harm.” At thevery least, any effort to encourage higher standardsabroad should be designed so as not to underminethe expanding trade and rising incomes that makehigher standards possible.

Conclusion

The effort to enforce global labor and envi-ronmental standards through trade sanctions isbuilt on a fundamental misunderstanding ofthe real impact of trade and development. Theweight of evidence indicates that nations areengaged not in a regulatory “race to the bot-

17

Any effort toencourage higherstandards abroadshould be designedso as not toundermine theexpanding tradeand rising incomesthat make higherstandards possible.

tom” but in a race toward the top. Openness totrade and investment encourages faster growth,which leads to rising incomes and higher laborand environmental standards. As a result, thosenations with the highest social standards in theworld today are also among the most open tothe global economy.

Attempts to “enforce” labor and environ-mental standards through trade sanctions arenot only unnecessary but also counterproduc-tive. Sanctions deprive poor countries of theinternational trade and investment opportuni-ties they need to raise overall living standards.Sanctions tend to strike at the very exportindustries in less-developed countries that typ-ically pay the highest wages and follow thehighest standards, forcing production andemployment into less-globalized sectors wherewages and standards are almost always lower.The end result of sanctions is the very oppositeof what their advocates claim to seek.

Sanctions also damage America’s economicinterests by sabotaging regional and multilateraltrade negotiations. Less-developed countries cor-rectly understand that trade sanctions cripple theirability to develop through engagement in the glob-al economy and invite protectionism against theirmost competitive exporters under the cloak of“protecting” the environment and labor rights. Iftrade negotiations are stymied because of animpasse over trade and social standards, U.S. man-ufacturing, agricultural, and service exporters willcontinue to face high foreign trade barriers.

In addition to being unnecessary and coun-terproductive, enforcing standards throughsanctions would prove to be an onerous andsubjective task. Even “core labor rights” as

defined by the International LaborOrganization would be ambiguous in theapplication and may conflict with existing U.S.labor law. Environmental standards are evenless clearly defined and need to be flexiblyapplied depending on a country’s level ofdevelopment. Saddling the WTO withresponsibility for settling disputes over socialstandards would threaten to overburden andoverwhelm an organization whose fundamen-tal task is promoting market access.

If the U.S. government wants to encouragehigher labor and environmental standardsabroad, its most important policy should be toencourage free trade and investment flows sothat less-developed nations can develop morerapidly. As a complementary policy, it couldseek a more robust ILO that could systemati-cally monitor and report on enforcement oflabor rights in member countries. Meanwhile,civil society organizations are free to raise pub-lic awareness through campaigns and boycotts,and importers can cater to consumer prefer-ences for higher standards through labelingand other promotions. If the U.S. governmentinsists on some enforcement mechanism with-in trade agreements, monetary fines or trade-expanding “compensation” would be far lessdestructive than sanctions.

The demand for trade sanctions as a tool forenforcing environmental and labor standardsconfronts Americans with a false choice. Inreality, the best policy for promoting economicgrowth at home and abroad—an economyopen to global trade and investment—is alsothe best policy for promoting higher labor andenvironmental standards.

18

The best policy for promoting

economic growth athome and abroad—

an economy opento global trade and

investment—is alsothe best policy forpromoting higher

labor andenvironmental

standards.

19

20

21

Notes1. Max Baucus, “What’s All the Commotion overTrade Promotion? Taking Stock of Domestic andInternational Views on America’s Stake in GlobalTrade,” Speech before the New America Foundation,Washington, March 19, 2001, http://www.newamerica.net/frames/framenews_2k.html.

2. Quoted in “New Democrats Set to Unveil TradePrinciples Apart from Caucus,” Inside U.S. Trade19, no. 20 (May 18, 2001): 21.

3. “The Case for U.S. Trade Leadership: The UnitedStates Is Falling Behind,” Business Roundtable,February 9, 2001, p. 16, http://www.brtable.org/document.cfm/498.

4. “Democrats Demand Labor and Environment inTrade Agreements,” Inside U.S. Trade 19, no. 26(June 29, 2001): 14.

5. Hakan Nordstrom and Scott Vaughan, “SpecialStudies: Trade and Environment,” World TradeOrganization, Geneva, 1999, p. 4.

6. Jagdish Bhagwati and T. N. Srinivasan, “Trade andthe Environment: Does Environmental DiversityDetract from the Case for Free Trade?” in Fair Tradeand Harmonization: Prerequisites for Free Trade? ed.Jagdish Bhagwati and Robert Hudec (Cambridge,Mass.: MIT Press, 1997), vol. 1, p. 169.

7. Keith E. Maskus, “Should Core Labor StandardsBe Imposed through International Trade Policy?”World Bank Policy Research Working Paper no.1817, August 1997, p. 26.

8. Organization for Economic Cooperation andDevelopment, “Trade, Employment, and LabourStandards: A Study of Core Workers’ Rights andInternational Trade,” 1996, p. 12.

9. Ibid., p. 105.

10. For a further critique of the “race to the bottom,”see Daniel W. Drezner, “Bottom Feeders,” ForeignPolicy (November–December 2000): 64–70.

11. United Nations Conference on Trade andDevelopment, “World FDI Flows Exceed U.S. $1.1Trillion in 2000,” Press release, December 7, 2000,http://www.unctad.org/en/press/pr2875en.htm.

12. Organization for Economic Cooperation andDevelopment, “Trade, Employment, and LaborStandards,” p. 123.

13. World Economic Forum, “2001 EnvironmentalSustainability Index,” Geneva, January 2001,http://www.ciesin.org/indicators/ESI/downloads.

html-report. The index considers a wide range ofenvironmental factors, including actual pollutionlevels, conservation practices, and environmentalregulation.

14. Foreign direct investment per capita was calculatedfrom FDI and population data from the World Bank,World Development Report 2000/2001 (Washington:World Bank, 2001). The population data are from pp.274–75, the FDI data from pp. 314–15.

15. U.S. Department of Commerce, Survey ofCurrent Business, September 2000, pp. 71–73.

16. Deloitte and Touche, “Global InvestmentTrends of U.S. Manufacturers: Building the GlobalNetwork,” 2001, p. 7.

17. See Jeffrey Sachs and Andrew Warner, “EconomicReform and the Process of Global Integration,”Brookings Papers on Economic Activity 1 (1995): 1–95;Sebastian Edwards, “Openness, Productivity andGrowth: What Do We Really Know?” National Bureauof Economic Research Working Paper no. 5978, 1997;and Jeffrey A. Frankel and David Romer, “Does TradeCause Growth?” American Economic Review, June 1999,pp. 379–99.

18. James Gwartney and Robert Lawson, EconomicFreedom of the World: Annual Report 2001(Vancouver, B.C.: Fraser Institute, 2001), p. 76.

19. Edward M. Graham, “Trade and Investment atthe WTO: Just Do It!” in Launching New GlobalTrade Talks: An Action Agenda, ed. Jeffrey J. Schott(Washington: Institute for InternationalEconomics, 1998), p. 158.

20. Mita Aggarwal, “International Trade, LaborStandards, and Labor Market Conditions: AnEvaluation of the Linkages,” U.S. International TradeCommission Working Paper 95-06-C, June 1995.

21. Organization for Economic Cooperation andDevelopment, “Trade, Employment, and LaborStandards,” p. 11.

22. Ibid., p. 13.

23. Kebebew Ashagrie, “Statistics on WorkingChildren and Hazardous Child Labour in Brief,”International Labour Organization, Geneva, 1997,revised April 1998, http://www.ilo.org/public/english/standards/ipec/simpoc/stats/child/stats.htm.

24. Ibid.

25. “Breaking the Labor-Trade Deadlock,” CarnegieEndowment for International Peace, Inter-AmericanDialogue, Working Paper 17, February 2001, p. 17.

26. U.S. Department of Labor, The Use of Child Laborin U.S. Manufactured and Mined Imports, vol. 1 of By

22

the Sweat and Toil of Children (Washington: U.S.Department of Labor, 1994), p. 2.

27. Maskus, p. 14.

28. Leslie Kaufman and David Gonzalez, “LaborStandards Clash with Global Reality,” New YorkTimes, April 24, 2001, p. A1. Emphasis added.

29. Organization for Economic Cooperation andDevelopment, “Globalization and the Environment:Perspectives from OECD and Dynamic Non-mem-ber Economies,” Paris, 1998, p. 20.

30. Gene M. Grossman and Alan B. Krueger,“Economic Growth and the Environment,”National Bureau of Economic Research WorkingPaper no. W4634, February 1994.

31. World Economic Forum

32. For per capita GDP, see United NationsDevelopment Program, Human Development Report2000 (New York: United Nations, 2000), Table 1.

33. Tim Weiner, “Terrific News in Mexico City: AirIs Sometimes Breathable,” New York Times, January5, 2001, p. A1.

34. Council on Environmental Quality, EnvironmentalQuality: 1997 Report (Washington: Council onEnvironmental Quality, 1997), pp. 86–89.

35. Ibid., p. 267.

36. Ibid., p. 105.

37. Ibid., p. 224.

38. The ILO, which was founded in 1919, grew out ofthe Treaty of Versailles in the aftermath of World WarI. It has 175 members and is governed by a tripartitecouncil of 28 government representatives and 14 rep-resentatives each from labor unions and business orga-nizations. It is based in Geneva, Switzerland.

39. International Labor Organization, “Ratificationof the Fundamental ILO Conventions,” http://webfusion.ilo.org/public/db/standards/normes/appl/appl-ratif8conv.cfm?Lang=EN.

40. World Trade Organization, General Agreement onTariffs and Trade: Text of the General Agreement (Geneva:GATT, 1986), pp. 37–38, http://www.wto.org/english/docs_e/legal_e/ gatt47.wpf.

41. Office of U.S. Trade Representative, “Agreementbetween the United States of America and theHashemite Kingdom of Jordan on the Establishment ofa Free Trade Area,” October 24, 2000, pp. 9–10. The fulltext is available at http://www.ustr.gov/regions/eu-med/middleeast/textagr.pdf.

42. Ibid., p. 10.

43. It is true that the WTO has already been chargedwith enforcing intellectual property rights, a matteronly tangentially connected with its fundamental mis-sion of market access. In theory, the Agreement onTrade-related Aspects of Intellectual Property, orTRIPs, is enforceable through sanctions. But manyless-developed countries and many trade economistscomplain that TRIPs is a deviation from the WTO’scentral mission of promoting win-win trade liberaliza-tion and, in hindsight, should not have been madeactionable through the WTO’s dispute settlementmechanism. They argue that TRIPs transforms theWTO into an international royalty collection agency,imposing real costs on less-developed countries.Adding labor and environmental standards to theWTO’s oversight would draw it further away from itscentral mission and add to the asymmetrical burdensplaced on poor countries. See Jagdish Bhagwati,“Patent Protection Does Not Belong with WTO,”Letter to the editor, Financial Times, February 20,2001; and J. Michael Finger, “The WTO’s SpecialBurden on Less Developed Countries,” Cato Journal19, no. 3 (Winter 2000): 425–37.

44. Gary Clyde Hufbauer, Jeffrey J. Schott, andKimberly Ann Elliott, Economic SanctionsReconsidered: History and Current Policy, 2d ed.(Washington: Institute for InternationalEconomics, 1990), especially chap. 5, “Conclusionsand Recommendations.”

45. Barry Bearak, “Lives Held Cheap in BangladeshSweatshops,” New York Times, April 15, 2001, p. A1.

46. Quoted in Paul Blustein, “Protests a Success ofSorts; Labor, Environment on Leaders’ Agenda,”Washington Post, April 22, 2001, p. A11.

47. World Trade Organization, “SingaporeMinisterial Declaration,” December 13, 1996,http://www.wto.org/wto/archives/wtodec.htm.

48. Quoted in Daniel Pruzin, “WTO’s Moore CitesEconomic Benefits If New Round Were to TakePlace,” BNA International Trade Reporter 18, no. 17(April 26, 2001): 652.

49. See “Labor Opposes Monetary Fines to EnforceU.S. Jordan Deal,” Inside U.S. Trade 19, no. 16(April 20, 2001): 1.

50. Jenny Bates and Greg Principato, “A Third Wayon Trade and Globalization,” Progressive PolicyInstitute Policy Report, July 2000.

51. Alan Greenspan, Testimony before the SenateFinance Committee, Hearings on “Trade and theEconomy,” April 4, 2001. Greenspan’s answer isworth quoting in full:

Senator, let me lay it out the way Ithink it occurs to an economist, and, obvi-

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ously, there are considerable disagree-ments on this issue.

I don’t think anybody questions thatlabor standards and enhanced environ-ment are important goals, which clearlydeserve our attention. But I think it’s alsoimportant to remember that labor stan-dards and environmental quality [are]directly related to the degree of prosperityin a particular economy. The ability to cre-ate significantly enhanced [environmen-tal] and civil labor standards is very con-siderably spurred by having very highstandards of living; in other words, sur-pluses in the economy of resources whichenable, not only labor standards, but envi-ronmental standards to be of the highestlevel.

The problem, unfortunately, is that asincomes fall—that is, standards of living fall—it becomes less and less affordable, in the sensethat real resources are required to maintainhigh labor standards and the environment.

And if trade openings are a factor in ris-ing standards of living, it’s pretty evident thatwhat we are dealing with is that countries oreconomies with low per capita incomes arestruggling to feed, clothe and house their pop-ulation. And for those economies, theresources required to improve the environ-ment and enhance labor standards must comefrom resources devoted to feeding, clothingand housing the population. It’s only a movetoward higher standards of living that enablevarious different economies to afford what[are] essentially luxury goods.

We go back and look at our history in the19th century. Labor standards were abysmal.People worked unbelievably long hours undervery adverse conditions. And as we often talkabout the satanic mills in the 19th century,what they were were environmental monsters.

We learned to change that as oureconomy increased. But if we’re trying toimpose those standards on economies withlow standards of living and, in effect,impose it by restricting our markets—thatis, reducing their capacity to export—we’regoing to lower their incomes even moreand make it even more difficult to enhancelabor standards and the environment.

So while I’m very strongly in favor ofendeavoring to enhance through interna-tional negotiation these standards, alongwith all of the related issues of humanrights and rights generally, I think thatemploying trade sanctions as a means ofdoing that is most counterproductive,because I think it does precisely the oppo-site of what we are trying to do.

52. For a more detailed analysis of how fines mightwork as an enforcement mechanism, see KimberlyAnn Elliott, “Fin(d)ing Our Way on Trade andLabor Standards?” Institute for InternationalEconomics, International Economics Policy Briefno. PB01-5, April 2001.

53. For a more detailed discussion of compensation as atool of WTO dispute enforcement, see Brink Lindsey etal., “Seattle and Beyond: A WTO Agenda for the NewMillennium,” Cato Institute Trade Policy Analysis no. 9,November 3, 1999, pp. 8–13.

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Trade Briefing Papers from the Cato Institute

“Missing the Target: The Failure of the Helms-Burton Act” by Mark A. Groombridge, (no. 12, June 5, 2001)

“The Case for Open Capital Markets” by Robert Krol (no. 11, March 15, 2001)

“WTO Report Card III: Globalization and Developing Countries” by Aaron Lukas (no. 10, June 20, 2000)

“WTO Report Card II: An Exercise or Surrender of U.S. Sovereignty?” by William H. Lash III and Daniel T. Griswold(no. 9, May 4, 2000)

“WTO Report Card: America’s Economic Stake in Open Trade” by Daniel T. Griswold (no. 8, April 3, 2000)

“The H-1B Straitjacket: Why Congress Should Repeal the Cap on Foreign-Born Highly Skilled Workers” by SuzetteBrooks Masters and Ted Ruthizer (no. 7, March 3, 2000)

“Trade, Jobs, and Manufacturing: Why (Almost All) U.S. Workers Should Welcome Imports” by Daniel T. Griswold (no. 6,September 30, 1999)

“Trade and the Transformation of China: The Case for Normal Trade Relations” by Daniel T. Griswold, Ned Graham,Robert Kapp, and Nicholas Lardy (no. 5, July 19, 1999)

“The Steel ‘Crisis’ and the Costs of Protectionism” by Brink Lindsey, Daniel T. Griswold, and Aaron Lukas (no. 4, April16, 1999)

“State and Local Sanctions Fail Constitutional Test” by David R. Schmahmann and James S. Finch (no. 3, August 6, 1998)

“Free Trade and Human Rights: The Moral Case for Engagement” by Robert A. Sirico (no. 2, July 17, 1998)

“The Blessings of Free Trade” by James K. Glassman (no. 1, May 1, 1998)

From the Cato Institute Briefing Papers Series

“The Myth of Superiority of American Encryption Products” by Henry B. Wolfe (no. 42, November 12, 1998)

“The Fast Track to Freer Trade” by Daniel T. Griswold (no. 34, October 30, 1997)

“Anti-Dumping Laws Trash Supercomputer Competition” by Christopher M. Dumler (no. 32, October 14, 1997)

25

Trade Policy Analysis Papers from the Cato Institute

“Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S. Exports” by Brink Lindsey andDan Ikenson (no. 14, July 30, 2001)

“Free Trade, Free Markets: Rating the 106th Congress” by Daniel T. Griswold (no. 13, March 26, 2001)

“America’s Record Trade Deficit: A Symbol of Economic Strength” by Daniel T. Griswold (no. 12, February 9, 2001)

“Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Insudstry” by Brink Linsey,Mark A. Groombridge, and Prakash Loungani (no. 11, July 6, 2000)

“China’s Long March to a Market Economy: The Case for Permanent Normal Trade Relations with the People’s Republic ofChina” by Mark A. Groombridge (no. 10, April 24, 2000)

“Tax Bytes: A Primer on the Taxation of Electronic Commerce” by Aaron Lukas (no. 9, December 17, 1999)

“Seattle and Beyond: A WTO Agenda for the New Millennium” by Brink Lindsey, Daniel T. Griswold, Mark A.Groombridge, and Aaron Lukas (no. 8, November 4, 1999)

“The U.S. Antidumping Law: Rhetoric versus Reality” by Brink Lindsey (no. 7, August 16, 1999)

“Free Trade, Free Markets: Rating the 105th Congress” by Daniel T. Griswold (no. 6, February 3, 1999)

“Opening U.S. Skies to Global Airline Competition” by Kenneth J. Button (no. 5, November 24, 1998)

“A New Track for U.S. Trade Policy” by Brink Lindsey (no. 4, September 11, 1998)

“Revisiting the ‘Revisionists’: The Rise and Fall of the Japanese Economic Model” by Brink Lindsey and Aaron Lukas (no. 3,July 31, 1998)

“America’s Maligned and Misunderstood Trade Deficit” by Daniel T. Griswold (no. 2, April 20, 1998)

“U.S. Sanctions against Burma: A Failure on All Fronts” by Leon T. Hadar (no. 1, March 26, 1998)

From the Cato Institute Foreign Policy Briefing Papers Series

“Washington’s Iron Curtain against East European Exports” by James Bovard (no. 15, January 7, 1992)

“Dump Our Anti-dumping Law” by Michael S. Knoll (no. 11, July 25, 1991)

“A Mexican View of North American Free Trade” by Roberto Salinas-Leon (no. 9, May 21, 1991)

“Banking on Poverty: An Insider’s Look at the World Bank” by Michael H. K. Irwin (no. 3, September 20, 1990)

26

From the Cato Institute Policy Analysis Series

“New Asylum Laws: Undermining an American Ideal” by Michele R. Pistone (no. 299, March 24, 1998)

“Market Opening or Corporate Welfare? ‘Results-Oriented’ Trade Policy toward Japan” by Scott Latham (no. 252, April 15, 1996)

“The Myth of Fair Trade” by James Bovard (no. 164, November 1, 1991)

“Why Trade Retailiation Closes Markets and Impoverishes People” by Jim Powell (no. 143, November 30, 1990)

“The Perils of Managed Trade” by Susan W. Liebeler and Michael S. Knoll (no. 138, August 29, 1990)

“Economic Sanctions: Foreign Policy Levers or Signals?” by Joseph G. Gavin III (no. 124, November 7, 1989)

“The Reagan Record on Trade: Rhetoric vs. Reality” by Sheldon Richman (no. 107, May 30, 1988)

“Our Trade Laws Are a National Disgrace” by James Bovard (no. 91, September 18, 1987)

“What’s Wrong with Trade Sanctions” by Bruce Bartlett (no. 64, December 23, 1985)

Other Trade Publications from the Cato Institute

James Gwartney and Robert Lawson, Economic Freedom of the World: 2001 Annual Report (Washington: Cato Institute, 2001)

China’s Future: Constructive Partner or Emerging Threat? ed. Ted Galen Carpenter and James A. Dorn (Washington: CatoInstitute, 2000)

Peter Bauer, From Subsistence to Exchange and Other Essays (Washington: Cato Institute, 2000)

James Gwartney and Robert Lawson, Economic Freedom of the World: 2000 Annual Report (Washington: Cato Institute, 2000)

Global Fortune: The Stumble and Rise of World Capitalism, ed. Ian Vásquez (Washington: Cato Institute, 2000)

Economic Casualties: How U.S. Foreign Policy Undermines Trade, Growth, and Liberty, ed. Solveig Singleton and Daniel T.Griswold (Washington: Cato Institute, 1999)

China in the New Millennium: Market Reforms and Social Development, ed. James A. Dorn (Washington: Cato Institute, 1998)

The Revolution in Development Economics, ed. James A. Dorn, Steve H. Hanke, and Alan A. Walters (Washington: CatoInstitute, 1998)

Freedom to Trade: Refuting the New Protectionism, ed. Edward L. Hudgins (Washington: Cato Institute, 1997)

27

Nothing in Trade Policy Analysis should be construed as necessarily reflecting the views of theCenter for Trade Policy Studies or the Cato Institute or as an attempt to aid or hinder the pas-sage of any bill before Congress. Contact the Cato Institute for reprint permission. Additionalcopies of Trade Policy Analysis studies are $6 each ($3 for five or more). To order, contact theCato Institute, 1000 Massachusetts Avenue, N.W., Washington, D.C. 20001. (202) 842-0200, fax (202) 842-3490, www.cato.org.

The mission of the Cato Institute’s Center for Trade Policy Studies is to increase publicunderstanding of the benefits of free trade and the costs of protectionism. The center

publishes briefing papers, policy analyses, and books and hosts frequent policy forums andconferences on the full range of trade policy issues.

Scholars at the Cato trade policy center recognize that open markets mean wider choicesand lower prices for businesses and consumers, as well as more vigorous competition thatencourages greater productivity and innovation. Those benefits are available to any countrythat adopts free trade policies; they are not contingent upon “fair trade” or a “level playingfield” in other countries. Moreover, the case for free trade goes beyond economic efficiency.The freedom to trade is a basic human liberty, and its exercise across political borders unitespeople in peaceful cooperation and mutual prosperity.

The center is part of the Cato Institute, an independent policy research organization inWashington, D.C. The Cato Institute pursues a broad-based research program rooted in thetraditional American principles of individual liberty and limited government.

For more information on the Center for Trade Policy Studies,visit www.freetrade.org.

Other Trade Studies from the Cato Institute

“Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S.Exports” by Brink Lindsey and Dan Ikenson, Trade Policy Analysis no. 14 (July 30, 2001)

“Missing the Target: The Failure of the Helms-Burton Act” by Mark A. Groombridge,Trade Briefing Paper no. 12 (June 5, 2001)

“Free Trade, Free Markets: Rating the 106th Congress” by Daniel T. Griswold, Trade PolicyAnalysis no. 13 (March 26, 2001)

“The Case for Open Capital Markets” by Robert Krol, Trade Briefing Paper no. 11 (March15, 2001)

“America’s Record Trade Deficit: A Symbol of Economic Strength” by Daniel T. Griswold,Trade Policy Analysis no. 12 (February 9, 2001)

“Nailing the Homeowner: The Economic Impact of Trade Protection of the SoftwoodLumber Industry” by Brink Lindsey, Mark A. Groombridge, and Prakash Loungani, TradePolicy Analysis no. 11 (July 6, 2000)

“WTO Report Card III: Globalization and Developing Countries” by Aaron Lukas, TradeBriefing Paper no. 10 (June 20, 2000)

CENTER FOR TRADE POLICY STUDIESBoard of Advisers

James K. GlassmanAmerican EnterpriseInstitute

Douglas A. IrwinDartmouth College

Lawrence KudlowKudlow & Company

William H. Lash IIIGeorge Mason UniversitySchool of Law

José PiñeraInternational Center forPension Reform

Razeen SallyLondon School ofEconomics

George P. ShultzHoover Institution

Walter B. WristonFormer Chairman andCEO, Citicorp/Citibank

Clayton YeutterFormer U.S. TradeRepresentative