Lecture 23 Environment, Labor Standards, and Trade Econ 340.

Lecture 23 Environment, Labor Standards,

and Trade

Econ 340

Econ 340, Deardorff, Lecture 23: Environment, Labor

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News: Apr 13-19• Fast track trade legislation introduced -- WSJ: 4/17 | Proquest | NYT: 4/17 | Proquest | WP: 4/17 | ST&R: 4/17

– Senators Hatch (R-Utah) and Wyden (D-Ore) introduced fast track legislation that, if passed, will allow Obama to submit trade agreements for up-or-down votes without amendment. The bill is considered crucial to completion of the negotiations on the Trans-Pacific Partnership with eleven other Asia-Pacific countries.

– Many Democrats oppose this legislation, formally called Trade Promotion Authority, on the grounds that previous trade agreements -- especially NAFTA -- have undermined labor standards and worker rights. Obama insists that the TPP, as it is being negotiated, will do the opposite.

– Wyden fought for and got a provision allowing the Senate to cancel fast-track authority if certain conditions on the negotiations are not met. These include greater transparency and protections for workers, the environment, and human rights. Not included is anything about currency manipulation, which will be left to other legislation.

• IMF lowers its forecast for global economic growth -- WSJ: 4/15 | Proquest | NYT: 4/15 | Proquest | FT: 4/13 | CTools – Global economic growth will improve this year, but less than had been expected, as emerging markets are growing more slowly,

according to a report from the International Monetary Fund. China's growth has slowed; Brazil is contracting; and Russia is in steep decline. An exception is India, where growth is 7.5%, up from 6.3% last year.

– Global GDP is expected to expand by 3.5% in 2015, just 0.1% faster than last year. This is not enough to undo the legacies of high unemployment and high debt that resulted from the 2008 financial crisis.

– IMF officials, meeting in Washington, are encouraging easy-money policies in Europe and Japan. • EU files formal anti-trust charges against Google -- WSJ: 4/16 | Proquest | NYT: 4/16 | Proquest | FT: 4/16 | CTools

– The EU competition commissioner, Margrethe Vestager, filed formal charges against Google, alleging that it steers searches for specific products toward it own in-house shopping sites. There is also a separate charge against Google's Android mobile platform.

– The US FTC investigated Google two years ago and did not choose to file charges after Google agreed to voluntary changes. EU law, unlike US law, protects competitors as well as consumers.

– Google dominates web search in Europe, with 90% there compared to only 65% in the US. The case recalls the EU case against Microsoft, which led to changes in the firm's behavior and a €2.2 billion fine.

http://www.wsj.com/articles/fast-track-pacific-trade-bill-spurs-democratic-discord-1429196461

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673701912/31C5997537C49C7PQ/1?accountid=14667

http://www.nytimes.com/2015/04/17/business/obama-trade-legislation-fast-track-authority-trans-pacific-partnership.html?ref=todayspaper&_r=0

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673701612/3CAA42B108A24CB4PQ/1?accountid=14667

http://www.washingtonpost.com/blogs/post-politics/wp/2015/04/16/bipartisan-bill-would-give-obama-key-powers-on-trade/?wpisrc=nl_headlines&wpmm=1

http://www.strtrade.com/news-publications-trade-promotion-authority-GSP-AGOA-041715.html

http://www.wsj.com/articles/imf-slowing-emerging-market-growth-is-sapping-global-economic-prospects-1429016407

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673049443/1BAE72D517584AFCPQ/1?accountid=14667

http://www.nytimes.com/2015/04/15/business/economy/imf-warns-of-uneven-economic-growth.html?ref=todayspaper

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673010781/3CC677441A4C463FPQ/8?accountid=14667

http://www.ft.com/intl/cms/s/0/f3e5e94e-df69-11e4-a6c4-00144feab7de.html%23axzz3XBsdNSze

https://ctools.umich.edu/access/content/group/795b9fe9-eb22-4031-9f0d-02ac2814fbbe/News/20150413%20-%20Global%20recovery%20at%20risk%20of%20stalling%20-%20FT.com.pdf

http://www.wsj.com/articles/eu-files-formal-charges-against-google-1429092584

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673339938/B795DAB09BE4A0FPQ/1?accountid=14667

http://www.nytimes.com/2015/04/16/business/international/european-union-google-antitrust-case.html?ref=todayspaper&_r=0

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1673302820/2703BCA0AA92481EPQ/1?accountid=14667

http://www.ft.com/intl/cms/s/0/97a4dc62-e360-11e4-9a82-00144feab7de.html%23axzz3XTVmqpqY

https://ctools.umich.edu/access/content/group/795b9fe9-eb22-4031-9f0d-02ac2814fbbe/News/20150413%20-%20Brussels%20finally%20takes%20on%20Google%20in%20an%20open%20fight%20-%20FT.com.pdf


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News: Apr 13-19• Fast track trade legislation introduced

– Senators Hatch (R-Utah) and Wyden (D-Ore) introduced fast track legislation that, if passed, will allow Obama to submit trade agreements for up-or-down votes without amendment. The bill is considered crucial to completion of the negotiations on the Trans-Pacific Partnership with eleven other Asia-Pacific countries.

– Many Democrats oppose this legislation, formally called Trade Promotion Authority, on the grounds that previous trade agreements -- especially NAFTA -- have undermined labor standards and worker rights. Obama insists that the TPP, as it is being negotiated, will do the opposite.

– Wyden fought for and got a provision allowing the Senate to cancel fast-track authority if certain conditions on the negotiations are not met. These include greater transparency and protections for workers, the environment, and human rights. Not included is anything about currency manipulation, which will be left to other legislation.


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News: Apr 13-19

• IMF lowers its forecast for global economic growth – Global economic growth will improve this year, but less than had

been expected, as emerging markets are growing more slowly, according to a report from the International Monetary Fund. China's growth has slowed; Brazil is contracting; and Russia is in steep decline. An exception is India, where growth is 7.5%, up from 6.3% last year.

– Global GDP is expected to expand by 3.5% in 2015, just 0.1% faster than last year. This is not enough to undo the legacies of high unemployment and high debt that resulted from the 2008 financial crisis.

– IMF officials, meeting in Washington, are encouraging easy-money policies in Europe and Japan.


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News: Apr 13-19• EU files formal anti-trust charges against Google

– The EU competition commissioner, Margrethe Vestager, filed formal charges against Google, alleging that it steers searches for specific products toward it own in-house shopping sites. There is also a separate charge against Google's Android mobile platform.

– The US FTC investigated Google two years ago and did not choose to file charges after Google agreed to voluntary changes. EU law, unlike US law, protects competitors as well as consumers.

– Google dominates web search in Europe, with 90% there compared to only 65% in the US. The case recalls the EU case against Microsoft, which led to changes in the firm's behavior and a €2.2 billion fine.


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Outline: Environment, Labor Standards, and Trade

• The Issues• Environment

– Examples– Policies– International Problems– Role of the WTO

• Labor Standards– Fundamental ILO Conventions– United States Role– Issues


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The Issues• Environment

– Does trade hurt the environment?– Does international competition weaken environmental laws?

• Labor Standards– Does trade hurt workers?– Does international competition weaken labor standards?

• Role of the WTO in both– Do WTO rules

• Limit countries’ abilities to raise standards?• Or lead them to reduce standards (“race to the bottom”)?

– Should trade policy be used to improve standards?– Should trade policy be used if countries’ standards or policies

differ?


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Environment

• The problem: Externalities– Externality is: Cost or benefit of an activity

that is not borne by the actor.– Examples: Pollution, global warming,

destruction of species• The issues:

– How should externalities be dealt with?– Is doing this made harder or easier by trade

and trade policy, or by the WTO?


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Environment: Examples

• Pollution along the Mexican border– Caused by production, for export to U.S.– Stimulated by

• Maquiladoras (Firms given special tariff treatment on processing for U.S. firms)

• NAFTA

• U.S. laws struck down by GATT / WTO– Tuna-dolphin case– Shrimp-turtle case

Fishing for these…… hurts these

US laws banned imports

Struck Down by GATT/WTO!


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Environment: Policies

• How to deal with a negative externality– Regulate: Prohibit or limit activity– Tax: Make activity more costly

• By setting tax equal to cost to others, we “internalize” the externality.

– Hybrid: Tradable licenses• Number of licenses set by regulation• Market determines who uses licenses • = “cap and trade”


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Environment: Policies

• What is the “Optimal” level of a negative externality?– It is not zero!– It is found by equating

• marginal benefit (of reducing externality) to • marginal cost (of reducing externality)


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Environment: Policies• What is the “Optimal” level of a negative

externality?$

Zero pollution

Optimal pollution

Marginal benefit …

Marginal cost …

… of reducing pollution


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Environment: More Examples

• Air pollution• Water pollution• Acid rain• CO2 emission (global warming)

• Destruction of rain forest• Destruction of species

– Endangered (sea turtles)– Favored (dolphin)

• Overuse of natural resources (over-fishing)


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Environment: International Problems

• Cross-border Externalities– Contrast with local externalities

• Local government has ability and incentive to act– Cross-border: No incentive to incur a local

cost in order to limit harm to foreigners.– Need international agreement– Example:

• CFCs (Chloroflorocarbons) that caused the hole in the ozone.

• Dealt with by Montreal Protocol (1987)


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• Effects on Competitiveness– Pollution tax raises costs of

• Exporters• Import-competitors

– If foreign firms are not taxed, this is viewed as unfair– Countries with weak regulations become “pollution

havens” • But Jones says there is little evidence that this happens – it’s

not worth it– “Race to the bottom”: Countries compete by lowering

their environmental standards– Solution (?): International agreement for all to tax

equally• Called “harmonization”


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• Differences in Optimal Policy– Optimal policy may depend on a country’s

income– Poor countries can’t afford strict regulations– The environment is “income elastic” or a

“superior good” – that is, countries demand more of it as their incomes rise.

– Thus taxes on local pollution should not be the same


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• Example: Internal memo by Larry Summers when at World Bank:

[He goes on to give several reasons.]

“ ‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to LDCs?”


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Environment: Role of the WTO

• Does WTO permit limits on imports for environmental reasons?– Yes, if the imports themselves would do

damage inside importing country.– No, for damage done abroad.– Any policy must not discriminate.– May not limit imports based on process by

which they were produced.


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Policy Options

• Use WTO (These options are not in fact permitted, and they are not good ideas)– Treat environmental violations as trade

violations• Some environmentalists would like this, because

the WTO has “teeth”

– Define environmentally harmful production of exported goods as unfair, and permit AD & CVD


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Policy Options

• Carbon Tariff– If some but not all countries

• use carbon tax or cap-and-trade to raise price of carbon• to fight global climate change

– Then many would advocate a carbon tariff on exports of goods from non-participating countries

– Problem: • Benefits (to world) of reducing carbon may be the same• But the costs (to the country) are not


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Policy Options

• Carbon Tariff: Arguments for and against– Krugman is for

• Failure to use them will cause consumer substitution toward cheaper products made in countries that do not tax or restrict carbon emissions

• Should be legal under WTO, as “border tax adjustments” used when countries taxation systems differ

– China (per Reuters) is against• Calls carbon tariffs “protectionist”• Predicts use of carbon tariffs would cause trade war• Says not legal under WTO


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Labor Standards

• What are they?– Formal list of “conventions” (189) and

“recommendations” (203) regarding treatment and conditions of labor, established by

The ILO = International Labour Organization

These include 8

“Fundamental ILO Conventions” – Numbers in parentheses below: numbers of countries

that have ratified the conventions (as of 4/16/2015) out of 185 members


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Labor Standards: Fundamental ILO Conventions

1. Freedom of Associationa. Right to Organize (153)

b. Right to Collective Bargaining (164)

2. Abolition of Forced Labora. Forced Labor (177)

b. Abolition of Forced Labor (174*)


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3. Equalitya. Discrimination (172)

b. Equal Remuneration (171)

4. Elimination of Child Labora. Minimum Age (167)

b. Worst Forms of Child Labor (179*)


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*Fundamental Conventions ratified by U.S.: only

– Abolition of Forced Labor– Worst Forms of Child Labor


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• United States– Has not ratified many of the conventions– But… in spite of that, US enforces many

labor standards through its trade laws


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Labor Standards: Found in U.S. Trade Law

• Freedom of Association• Right to Organize and Bargain Collectively• Forced Labor• Minimum Age for Employment• Acceptable Conditions of Work

(not “Fundamental” in ILO)– Minimum wage– Hours of work– Safety and Health– Enforcement


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Labor Standards: Issues

Should labor standards be promoted?• Of course?• Yes, but only if it will help the people

involved• What if the true purpose is to help

workers in rich countries?


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Effect of labor standards:

D

S

L = labor

w = wage


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Effect of labor standards: Minimum wage

D

S

L

w

Raises wage

But lowers employment

And creates unemployment


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Labor Standards: IssuesEffect of labor standards:

Legislating Better conditions

D

S

L

w

Lowers wage

And lowers employment

D′

Raises costs of employers, thus lowers the benefit of hiring labor. Thus shifts demand curve down


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Should trade policies be used for labor standards?

• NO, say– Trade economists– Trade lawyers– Developing countries (even some of their

labor unions)– MNEs – Most Republicans


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• YES, say– Most Democrats – US unions– Many NGOs

(NGO=non-governmental organization)


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• PRO (assuming standards themselves are good):

– Trade is the only tool we have (ILO is “toothless”)

– WTO already does this in TRIPs– It is wrong to benefit from abuse of labor


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Should trade policies be used for labor standards?• CON:

– Slippery slope to enforcing harmful labor standards– Trade restrictions make countries poorer, hurting

their workers– Trade restrictions cost everybody– Incentive for protectionist claims of low labor

standards


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Are trade policies used to enforce labor standards?

• No, not in the WTO in the way some would like (by limiting imports from weak-standard places)

• But US is including them in FTAs.


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What to do when labor standards are violated• Example: Fires in garment factories in

Bangladesh and Pakistan (see Narlikar)• Stop buying the brands who manufactured

there?– No. That just destroys the jobs of poor-country

garment workers.

• Hold local governments responsible?– Yes. They need pressure to enforce labor

standards.


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• UM response to Bangladesh fire (from University

Record, 4/12/14):– President Mary Sue Coleman announced Tuesday that U-M

will adopt the recommendation of the President's Advisory Committee on Labor Standards and Human Rights that all U-M licensees either sign and abide by a worker safety initiative called the Accord on Fire and Building Safety in Bangladesh or demonstrate that they have an equivalent safety plan.

– Accord on Fire and Building Safety in Bangladesh• calls for public reporting, independent fire and building safety

inspectors at factories, and a commitment to workers in improving factory safety practices.


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Next Time

• Exam: Thu, Apr 30, 8:00-10:00 AM

Lecture 23 Environment, Labor Standards, and Trade Econ 340.

Documents

Transcript of Lecture 23 Environment, Labor Standards, and Trade Econ 340.