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

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Progress on trade liberalization has been stymied by the currentcontroversy over whether labor and environmental standards shouldbe enforced through trade sanctions. Advocates of sanctions insistthat future trade agreements, including trade promotion authority,contain such standards enforced by the threat of sanctions, but theuse of sanctions would be counterproductive and would virtuallyrule out future regional and multilateral trade agreements.

The argument for “enforceable” labor and environmental standardsis based on the myth that nations are engaged in a regulatory “raceto the bottom, but the evidence fails to support that thesis.Nations with low standards do not gain a larger share of foreigndirect investment or export markets. In fact, the large majority ofthe world’s trade and foreign investment flows between advanced,high-standard economies.

In reality, openness to trade and investment promotesdevelopment and higher incomes, which enable less developedcountries to raise their labor and environmental standards. Thatexplains why nations that are open to the global economy enjoy thehighest incomes and also maintain the highest labor andenvironmental standards.

Sanctions deprive poor countries of the international trade andinvestment opportunities they need to raise overall livingstandards. Sanctions tend to strike at the very export industriesin less‐​developed countries that typically pay the highest wagesand maintain the highest standards, forcing production andemployment into less‐​globalized sectors where wages and standardsare almost always lower. Sanctions also damage America’s economicinterests by sabotaging regional and multilateral tradenegotiations.

If the U.S. government wants to encourage higher labor andenvironmental standards abroad, its most important policy should beto encourage free trade and investment flows so that low‐​standardcountries can develop more rapidly.

Daniel Griswold

Daniel T. Griswold is the associate director of the Cato Institute’s Center for Trade Policy Studies.