International Economics, 6e (Gerber)
Chapter 8 International Trade and Labor and Environmental Standards
8.1 Introduction: Income and Standards
1) All of the following are responsible for the removal of the formal trade barriers EXCEPT
A) the sustained efforts of the trading partners themselves.
B) the General Agreement on Tariffs and Trade (GATT).
C) the World Trade Organization (WTO).
D) regional trade agreements such as NAFTA.
E) the World Bank and the IMF.
2) Monopoly powers given to domestic utility companies to create economies-of-scale might
unintentionally
A) be an obstacle to increased international trade.
B) be useful for the creation of a comparative advantage for the domestic country.
C) not be used for rent-seeking behaviors.
D) be a positive externality for the world as a whole.
E) None of the above.
3) Which of the following is NOT an obstacle to increased international economic integration?
A) Monopoly powers given to domestic companies of individual nations
B) High tariff rates imposed by industrialized nations
C) Health and safety standard requirements
D) Labor and environmental standard requirements
E) Income disparities among and within trading partners
4) What are two main obstacles to increased international integration?
8.2 Setting Standards: Harmonization, Mutual Recognition or Separate?
1) Harmonization of standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance or keeping of a trading partner’s standards as valid and sufficient by another
trading partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
E) All of the above.
2) Mutual recognition of standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance or keeping of a trading partner’s standards as valid and sufficient by another
trading partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
3) Separate standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance or keeping of a trading partner’s standards as valid and sufficient by another
trading partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
4) Most regional trade and WTO agreements practice
A) the harmonization standards only.
B) separate standards only.
C) mutual recognition standards only.
D) a combination of harmonization, mutual recognition, and separate standards.
E) only the standards set out by the WTO.
5) When the evolution of new technologies is unknown, or it is unclear which country has the
“best” rules for standards, the adoption of ________ is the superior option.
A) a harmonization of standards
B) separate standards
C) mutual recognition standards
D) larger country standards
E) All of the above.
6) All of the following are reasons countries may be unable to use discriminatory trade practices
to enforce labor standards EXCEPT
A) in order to be effective a coalition of countries must join together to impose them.
B) countries can never impose trade barriers on other sovereign nations.
C) the WTO requires nations to treat other nations the same.
D) a single country may be unsuccessful in convincing members of its trading block to
participate in imposing the sanctions.
E) retaliation or a full blown trade war might result.
7) Domestic firms operating abroad may find it economically beneficial to adopt environment-
friendly standards because
A) foreign nations may be upset if firms do not use the environment-friendly technology.
B) the least-cost strategy usually involves the adoption of one set of environment-friendly
technology rather than multiple standards.
C) they may be forced to replace the old technology whenever the foreign country experiences
positive economic development.
D) their environment-unfriendly technology may be replaced by foreign-based technology.
E) Only C and D are correct.
8) Requiring a firm with international operations to follow the standards of its home country
instead of those of the foreign country has all of the following advantages EXCEPT
A) it takes care of the fear of a race-to-the-bottom by making it impossible for a home-based
company to exploit low standards.
B) it shifts the costs of improved standards to firms and consumers in high-income countries.
C) it removes the threat of domestic firms relocating abroad for low standards and ensures that
any relocation that takes place is due to foreign comparative advantage.
D) it avoids the problems of high-income countries dictating what standards are to be used. In
this situation, firms that cross national boundaries must conform to whichever standards are
higher.
E) it is a comprehensive measure, since it addresses the problem of production in foreign firms
as well as firms from high-standards countries that relocate abroad.
9) Which of the following is TRUE?
A) Generally, the lower the country’s average income, the less administrative, scientific, and
technical capacity it has to design and enforce standards.
B) National priorities do not change as income changes—countries of all income levels seem to
share the same priorities and values.
C) Differences in income are always an obstacle to the harmonization of standards.
D) The adoption of a common set of rules usually narrows the market and raises prices.
10) Which of the following is FALSE?
A) Most of the world’s population lives in countries classified as low- or lower-middle income.
B) All labor and environmental conditions improve with income growth.
C) Percentage wise, more children work in low-income countries than in higher income
countries.
D) With such large income differences internationally, it is not surprising that there are very
large differences in most social, economic, and environmental indicators.
11) Low-income countries are largely responsible for excess carbon dioxide emissions globally.
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12) Suppose two nations are seeking to expand their commercial relations. What options do they
have in terms of addressing conflicts in standards? Describe each and what conditions might
favor different approaches to setting standards.
13) Describe the connections between rising income and environmental and social indicators.
Which indicators improve and which worsen as national income rises?
14) What environmental problem gets worse as income rises according to your text?
8.3 Labor Standards
1) The race-to-the-bottom concept described in the text refers to
A) the situation in which countries with high standards are forced to lower their standards or face
the loss of jobs and industry.
B) the situation in which human rights are not respected by trading countries.
C) adopting the standards of a few selected middle-income and high-income countries.
D) the use of low per-capita income as a means of comparing the well-being of individuals.
E) None of the above.
2) The use of trade barriers to enforce standards abroad raises all of the following concerns
EXCEPT
A) the potential deadweight losses in consumption and production at home.
B) the lack of agreement over specific content of standards.
C) the potential for the use of trade barriers to erupt into a bigger trade war.
D) the difficulty of knowing whether some of the concerns are over standards or veiled
protectionism.
E) only small countries may be able to use trade barriers effectively.
3) Developing countries are usually unwilling to negotiate over labor standards because
A) the WTO always tends to rule in favor of industrialized nations.
B) they fear that industrialized nations are trying to undermine their comparative advantage—
production of agriculture and textiles/apparel—and close the markets of high-income countries
in these areas.
C) they fear that they may be unable to compete without some protection of their industries.
D) they don’t have a comparative advantage in any good at all.
E) organized labor would not allow them to negotiate with other countries.
4) Discriminatory trade practices are allowed among sister WTO member countries, especially
when it comes to
A) the use of child labor in agricultural and textile/apparel products.
B) national security and special benefits given to other members of a free trade area.
C) the protection of agriculture and textile/apparel from open trade.
D) Both A and B are correct.
E) Both B and C are correct.
5) Low labor standards are usually associated with
A) nondemocratic governments.
B) high-income countries.
C) high-wage countries.
D) low foreign investment.
6) Which of the following is TRUE?
A) Child labor is most common in urban areas.
B) Child labor is most common in the textile industry.
C) Child labor is most common in production aimed at export markets.
D) If child labor were stopped, families would have greater economic success.
E) Agriculture is the main industry using child labor.
7) When countries try to ban child labor,
A) most children start to attend school.
B) family poverty decreases.
C) child labor often goes underground, with children working in the informal economy, family
enterprises and remote areas.
D) GDP increases.
8) Using trade barriers to address labor standards does all of the following EXCEPT it
A) leads to deadweight losses.
B) redistributes income.
C) works more effectively for countries that are small relative to the total market.
D) potentially makes conditions worse as production moves to the informal sector.
9) The International Labor Organization has been around since 1919, and has a consistent record
of being willing to take action against countries that violate core labor standards.
10) There is clear evidence of a race-to-the-bottom internationally, regarding working conditions
and the environment.
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11) Empirical studies show that countries with low standards are very successful at attracting
foreign investment.
12) While Africa has the largest numbers of working children, Asia has the highest proportion of
working children, with an estimated one in four employed.
13) Child labor is a common family survival strategy, especially for farmers in rural areas where
it is hard to enforce rules or to reach the poor with any supporting infrastructure or social
services.
14) One reason why the plants of multinational corporations abroad may have better standards
than domestic contractors in low-income countries is because multinational corporations tend to
reduce costs by using one standard in terms of capital equipment and technology for all markets.
15) Which region has the most children (total number) working?
16) Which region has the highest proportion of its children working?
17) In what industrial sector are children most likely to be working?
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8.4 Trade and the Environment
1) Some proponents of trade sanctions argue for changes in policy because they fear low
standards will be used to capture markets and foreign investment. While theoretically possible,
there is little or no support for the view that countries use low labor standards this way, because
A) countries with low labor standards generally have trouble attracting foreign investment.
B) low standards can reduce costs, but they cannot change a country’s comparative advantage.
C) it is impossible to lower labor standards.
D) Both A and B are correct.
E) A, B, and C are all correct.
2) One claim that trade barrier proponents use to enforce environmental standards is that
A) environmental standards do not reduce industrial competitiveness and do not induce race-to–
the-bottom, where countries are forced to rescind their standards in order to maintain
employment.
B) high standards in industrialized nations motivates some firms to “export pollution” to
developing countries by relocating their dirty industries.
C) enforcing environmental standards is essential, as there are no differences between labor
standards and environmental standards.
D) all environmental impacts are non-transboundary.
E) None of the above.
3) The claim that lower environmental standards in foreign countries reduce industrial
competitiveness for high standard countries is on firm theoretical ground because
A) higher environmental standards requirements raise the cost of production to a firm or industry
abiding by the rules.
B) there will be a race-to-the-bottom competition on environmental standards.
C) the interests of firms that are subject to the high standards coincide with the nation’s interests,
one-for-one.
D) environmental standards in most countries have gotten more lax over time.
4) Countries that compete by offering foreign firms a reduced set of environmental compliance
requirements are known as
A) transboundary members.
B) pollution havens.
C) pollutants.
D) pollution exporters.
E) pollution guards.
5) Transborder environmental impacts can take place when one country’s pollution spills over
into a second country in all of the following situations EXCEPT
A) when an upstream user pollutes a shared watershed.
B) when industrial production in one country creates acid rain in another country.
C) when heavy traffic between two or more countries creates semi-global warming.
D) the production of exported products degrades the local environment.
E) ozone depletion caused by many countries’ pollution spills or emissions.
6) The WTO explicitly stated that in making its sea turtle decision, it was NOT saying that
sovereign nations could not adopt effective measures to protect endangered species. Clearly, it
said, sovereign nations can and should develop effective measures, including trade measures, to
protect endangered species.
7) The WTO encourages nations to take unilateral action on trade issues, including issues
involving environmental protection.
8) Low standards reduce production costs and change a nation’s comparative advantage.
9) Is there one optimal environmental standard for the entire world? If not, how might using
trade barriers to enforce country-specific environmental standards reduce overall well being?
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8.5 Alternatives to Trade Measures
1) The best way to address differences in labor and environmental standards is through trade
barriers.
2) Coffee is an example of a product that has been successfully labeled and marketed based on
its production method or environmental protection.
3) “Certified shade-grown, organic coffee” is an example of requiring home standards in a