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Econ 360.6 International Standards

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Hisham Foad

on 8 June 2015

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Transcript of Econ 360.6 International Standards

The Impact of Globalization on Labor and Environmental Standards
When Different Standards Collide
No universal set of laws for the world
National standards generally developed due to national interests.
International trade may bring two incompatible standards together
As protectionism declines, this effect stands out as a non-tariff barrier to trade
Three Scenarios when Countries with Different Standards Trade
Harmonization of Standards
Separate Standards
Mutual
Recognition of Standards
Countries negotiate and come up with a common set of standards that all will abide by
Ex: Mexico and the US adopt the same minimum wage law
A compromise may be worse for everyone involved
Countries keep their own standards, but recognize those of their trading partners as valid in all countries
Ex: A doctor trained and licensed in Venezuela may practice in Argentina
Only works if national standards are not too far apart
Countries maintain separate standards and do not recognize those of their trading partners
Ex: Canada and India maintain different environmental regulations
May lead to a "race to the bottom"
Labor Standards
Environmental Standards
Very large differences between countries
More pronounced when comparing low and high income countries
Minimum Wages by Country
Australia
France
Ireland
UK
Japan
Canada
USA
S. Korea
Turkey
Poland
Lebanon
$16.45
$12.09
$11.09
$9.83
$9.75
$8.17
$7.25
$4.31
$3.14
$2.83
$2.58
Czech Rep.
Venezuela
Iran
Brazil
Costa Rica
Romania
Thailand
Russia
China
Mexico
India
$2.46
$2.25
$2.10
$2.01
$1.59
$1.28
$1.21
$0.86
$0.80
$0.58
$0.28

Examples of Labor Standards
Laws regarding child labor, freedom of association, non-discrimination in employment, and minimum wages
Dangers of having separate labor standards?
Dangers of harmonizing labor standards?
Ex: Child Labor
Different child labor laws across the world...should there be only one standard? What are the consequences of having multiple standards?
Child Labor
The ILO estimates that 300 million children (ages 5-17) are working worldwide
200 million working full time
175 million aged 5-14. Of those, 150 million working full time.
Most child labor is in Asia, but the highest incidence is in S.S. Africa
28% of children in S.S. Africa are working either part or full time
While child labor is more prevalent in poor countries, it is present in every country in the world.
The majority of child labor is in agriculture (70%), mostly on subsistence farms
Only 6-7% of child labor is employed in export industries.
Child Labor, ages 5-14
Minimum Working Ages
Africa
Algeria
Egypt
Ghana
Tanzania
16
14
12
0
Asia
India
China
Pakistan
Bangladesh
18
16
14
0
Europe
Belgium
France
Germany
Turkey
18
16
15
12
The Americas
Chile
USA
Mexico
Peru
17
15
14
12
How to Reduce Child Labor
An outright ban is unlikely to work
More likely to just push child labor underground where it will be less regulated and may even increase
Trade sanctions will only be effective if they carry with them a significant opportunity cost to not reforming
Multilateral sanctions are better than unilateral sanctions
Better Options
Reduce poverty
Incentivize education
Increase regulation
Partial ban on the most abusive forms
Large differences across countries in terms of environmental standards
Drinking Water Quality Standards
Recommended maximum concentrations (micrograms/liter)
WHO Guideline
USA
Canada
European Union
Japan
China
India
Bangladesh
Malaysia
South Africa
U.A.E.
Arsenic
Cadmium
Lead
Mercury
Selenium
10
10
10
10
10
50
50
50
10
10
10
3
5
5
5
10
5
10
5
3
5
3
n.a.
15
10
10
10
10
100
50
50
10
10
6
2
1
1
0.5
0.05
1
1
1
1
6
40
50
10
10
10
10
10
10
10
20
10
Does one country have a right to enforce its environmental standards on another?
Transboundary Pollution
Non-Transboundary Pollution
One country’s looser standards create a negative externality on others.
Trade sanctions only effective if affected countries are large enough to matter.
Lax environmental standards give firms a competitive advantage
Allow firms in strict environmental standard countries to “export pollution.”
Using Trade Policy to Enforce Standards
We need to consider several factors before using trade sanctions as an enforcement tool.
Effectiveness
Is this really just protectionism in "sheep's clothing?"
What standards do you actually want to enforce?
The potential losses from a trade war
Trade sanctions are most effective when they are imposed multi-laterally
Doing this increases the opportunity cost of not complying with the sanctions
Even with multilateral sanctions, are we sure that this is the best way to get a country to change its practices
Example: Imposing Trade Sanctions to Eliminate Child Labor
Bangladesh currently does not have a minimum working age law. Suppose that the US passed a law prohibiting trade with Bangladesh until they raised the minimum working age to 15.
A unilateral sanction may not be effective if Bangladesh can simply shift its trade to other countries
Even if a multilateral sanction is imposed, will this sanction achieve its goal of reducing child labor?
Reducing trade opportunities in Bangladesh will increase poverty, one of the factors driving child labor.
Even if Bangladesh passes a child labor law, this does not mean that child labor will be eliminated. It may even increase!
Alternatives to Trade Sanctions
Export Labels
Indicate that a good was produced under a certain set of standards, even if the country of production does not have those standards
If consumer care about these standards, they will be willing to pay more for goods bearing these labels, giving producers (domestic and foreign) an incentive to adhere to stricter standards
This is all dependent on these labels being
credible

Requiring home country standards
Whenever a home country firm opens operations in a foreign country, they maintain the home country standards.
Effective at curtailing the race to the bottom, but what about foreign firms?
Increasing international negotiations
Increased use of the ILO and WTO as theaters for negotiating multilateral agreements on standards
Which is the Correct Label?
Are these all equally valid certifications of organic produce?
Turning to the WTO may result in a loss of sovereignty
The 1993 US Clean Air Act
In 1993, the US Clean Air act required gasoline refiners to ensure that their gasoline was no more polluted than it was in 1990
Refiners that did not have data for 1990 were subject to an EPA mandated cleanliness standard
Both domestic and foreign refiners would be subject to this policy
The government of Venezuela protested this law, arguing that it violated the “national treatment” principle of the WTO
Refiners in Venezuela did not keep accurate data of pollutants
They would thus be subject to a higher cleanliness standard than a US refiner who produced dirty gasoline in 1990, but had good recordkeeping
The WTO agreed with Venezuela and the US agreed to phase out this regulation for everyone.
Other Examples of WTO Rulings Limiting Sovereign Decisions on Environmental Policy
Hormone-treated beef in the EU
The WTO sided with the US and Canada’s complaint that a ban on hormone-treated beef violated WTO rules
Dispute board argued that there was insufficient evidence that hormone-treated beef presented a health risk
Pesticide residue on fruit in Japan
The WTO ruled that Japan’s strict safety standards on imported fruit was a violation since they were not based on sufficient scientific evidence
Tuna fishing in the USA
The Marine Mammal Protection Act in the US banned domestic or imported tuna caught using a method that killed large numbers of dolphins
Mexico and later the EU protested, saying that this violated the non-discrimination principle in that it differentiated with
how
something was produced.
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