DP1158 The Entwining of Trade Policy with Environmental and Labour Standards

Author(s): Kym Anderson
Publication Date: March 1995
Keyword(s): Environmental Standards, GATT, Labour Standards, Trade Policy
JEL(s): F1, J3, K33, O19, Q2, Q3
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1158

While environmental and labour issues are not new to the GATT, nor to other trade policy fora, they are likely to have a more prominent role in trade policy discussions in the years ahead for the newly formed World Trade Organization (WTO). Many developing countries perceive the entwining of these social issues with trade policy as a threat to both their sovereignty and their economies, while significant groups in advanced economies consider it unfair, ecologically unsound, even immoral, to trade with countries adopting much lower standards than their own. This paper examines why these issues are becoming more prominent, whether the WTO is an appropriate forum to discuss them, and how they affect developing and other economies. It concludes that: (a) the direct effect on developing economies is likely to be small and for some may even be positive through improved terms of trade and/or compensatory transfer payments; but (b) there is an important indirect negative effect on them and other economies, namely the potential erosion of the rules-based multilateral trading system that would result from an over-use of trade measures to pursue environmental or labour market objectives.