International Trade
Social concerns

With the conclusion of the Uruguay Round negotiations in 1994 and the creation of the World Trade Organisation (WTO) in January 1995, attention has already turned to issues not well covered in that Round and likely to be on the WTO's immediate agenda. Trade and environment issues are formally there already, and some contracting parties would like to see trade and labour standards added. In Discussion Paper No. 1158, Research Fellow Kym Anderson argues that 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.

The author 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. He concludes that 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. At the same time, though, 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 overuse of trade measures to pursue environmental or labour market objectives. Since a complete decoupling of social issues from trade policy seems unlikely in the near future, it is important for developing countries to consider what principles ought to govern the design of trade policies and trade-related environmental and labour policies to ensure equitable and sustainable development.

The Entwining of Trade Policy with Environmental and Labour Standards
Kym Anderson

Discussion Paper No. 1158, March 1995 (IT)