Trade and Other Topics

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Trade and Other Topics
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Trade and Labor

• An increase manufactured exports from low and
  middle income countries has been a major change
  in the world economy over the last generation.
• Compared to rich country standards, workers who
  produce these goods are paid low wages and work
  under poor conditions.
• There is significant opposition to free trade
  because of this fact. One example of this
  situation is the export processing zones in, for
  example, the Philippines or China.
• Opponents of the NAFTA have argued that it is now
  easier for employers to replace high wage workers
  in the US with low wage workers in Mexico.

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Trade and Labor

• Trade theory
• A Ricardian model predicts that while wages in
  the exporting country should remain lower than
  those in the US because of low productivity
  there, they will rise relative to their pre-trade
  level.
• A Heckscher-Ohlin model predicts that unskilled
  workers in the US will lose from free trade, but
  the unskilled workers in the exporting country
  will gain.

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Trade and Labor

• Despite the low wages earned by workers in
  Mexico, both theories predict that those workers
  are better off than they would be if trade had
  not taken place.
• Evidence consistent with these predictions would
  show that wages in the export processing zones
  have risen relative to wages in other sectors.
• We could also compare working conditions in EPZs
  with the working conditions in other sectors.

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Trade and Labor Standards

• Labor activists (labor unions, and the ILO) want
  to include labor standards in trade negotiations.
• These labor standards are typically opposed by
  the target governments of low and middle income
  countries. They see the standards use as a
  protectionist policy.
• Standards set by high income countries would be
  expensive for low and middle income producers.
• Another alternative is a system that monitors
  wages and working conditions and makes this
  information available to consumers through
  certification (example fair trade coffee).
• This policy might have a very limited effect
  since it is likely the certified products will be
  sold at a premium.
• The question of child labor (any difference?).

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Trade and the Environment

• Compared to rich country standards, environmental
  standard in low and middle income countries are
  lax.
• The environmental Kuznets curve (EKC)
• Pollution increases in early stages of
  development but decreases in later stages.
• Technique, scale, and composition effects.
• The later decrease in pollution is due to higher
  demand for a clean environment, better abatement
  technology and the ability to mobilize more
  resources toward that end.
• While the EKC idea is popular, it is not
  necessarily true!

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Trade and the Environment

• Even if trade leads to higher income, there might
  be other ways in which trade directly (and
  possibly negatively) affects the environment.
• The pollution haven effect do polluting
  industries change their locations as a result of
  changes in environmental regulations?
• The pollution haven hypothesis do polluting
  industries change their locations as a result of
  changes in trade policies?

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Trade and the Environment

• Two policy questions
• Should international trade law constrain domestic
  environmental policies
• This might be done to prevent a race to the
  bottom in environmental regulation?
• Put differently, should we allow countries to use
  environmental policy to achieve desired trade
  outcomes (like a desire to protect domestic
  industries example hormone-free beef in
  Europe)
• Should trade policy be used as a tool to achieve
  desired environmental outcomes?
• The case of dolphin-free tuna or turtle-free
  shrimps.
• Cases of natural resource extraction (like
  tropical hardwoods).
• Cases of trans-boundary pollutants (like the
  ozone layer or global warming).

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Trade and the Environmental Standards

• Some environmental activists want to include
  environmental standards in trade negotiations
  within the WTO
• However, universal environmental standards are
  generally opposed by governments of low and
  middle income countries.
• International standards could be used as a
  protectionist policy or a basis for lawsuits when
  domestic producers did not meet them.
• Standards set by high income countries would be
  expensive for low and middle income producers.

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GM Crops
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Trade in Multilateral Environmental Agreements

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

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The Environment and TRIPS

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