News Release

August 2, 2001

Labor and environmental sanctions threaten higher standards
Cato report finds no evidence to support the "race to the bottom" thesis

WASHINGTON-At the heart of congressional debates about future trade agreements, including trade promotion authority, are the issues of labor and environmental standards. Progress on trade liberalization has been stymied by the current controversy over whether such standards should be enforced through trade sanctions. In "Trade, Labor and the Environment: How Blue and Green Sanctions Threaten Higher Standards," Daniel T. Griswold, associate director at the Cato Institute's Center for Trade Policy Studies, argues that, "Attempts to enforce labor and environmental standards through trade sanctions are not only unnecessary but also counterproductive."

The argument for enforcing such standards is based on the myth that nations are engaged in a regulatory "race to the bottom." However, Griswold finds no evidence to support this. On the contrary, he notes that low regulatory standards do not attract foreign direct investment (FDI) or increase export competitiveness; Nations with the highest standards attract the highest amount of FDI per capita. He claims that the outcome is, in fact, a "race toward the top." Rising incomes from trade enable poor countries to lift the "green ceiling" so that they can afford to implement higher environmental standards, says Griswold. Similarly, labor standards are highest in countries open to trade, with wages in poor countries highest in export industries and in foreign-owned firms. Griswold adds that, "Trade expansion is compatible with, and in fact promotes, higher social standards."

In addition to refuting the race to the bottom theory, Griswold finds several other problems with imposing such standards through sanctions:

• There is a lack of clear definition of what those standards should be, how compliance should be measured and who should determine whether they have been violated.
• Trade sanctions often miss their intended targets.
• Widespread opposition to sanctions among our trading partners would foreclose opportunities to lower trade barriers through new trade negotiations.

Sanctions deprive poor countries of the international trade and investment opportunities they need to raise overall living standards, argues Griswold. They also damage America's economic interests by sabotaging regional and multilateral trade negotiations, and they would prove to be an onerous and subjective task. Griswold concludes that, "The demand for trade sanctions as a tool to enforce environmental and labor standards confronts Americans with a false choice. In reality, the best policy for promoting economic growth at home and abroad-an economy open to global trade and investment-is also the best policy for promoting higher labor and environmental standards."

"Trade, Labor and the Environment: How Blue and Green Sanctions Threaten Higher Standards"