Chapter 8
International Trade and Labor
and Environmental Standards
◼ Outline
Introduction: Income and Standards
Setting Standards: Harmonization, Mutual Recognition, or Separate?
Case Study: Income, Environment, and Society
Labor Standards
Defining Labor Standards
Case Study: Child Labor
Labor Standards and Trade
Evidence of Low Standards as a Predatory Practice
Case Study: The International Labor Organization
Trade and the Environment
Transboundary and Non-Transboundary Effects
Case Study: Trade Barriers and Endangered Species
Alternative to Trade Measures
Labels for Exports
◼ What Students Should Know after Reading Chapter 8
As formal barriers to international trade have been removed, new obstacles have appeared. National laws
and regulations, which are adopted strictly for domestic reasons, unintentionally limit commerce and
economic integration between nations. Conflicts emerge over different national standards. These can be
technical product standards, health and safety standards, or labor and environmental standards.
Firms that already produce to a given standard have a competitive advantage when that standard is more
widely adopted. This fact makes countries desire a wider application of their own standards. Standards
differ by income level, so wide variation in world income means wide variation in standards and the
potential for conflict. People in high-income markets question the standards of low-income countries
44 Gerber • International Economics, Sixth Edition
producing the products they import. Firms in high-income countries have an incentive to argue for the
adoption of the standards already in place in their home markets.
Harmonization of standards is one option. Mutual recognition of standards is another. Separate standards
are likely to lead to trade barriers as countries refuse to recognize the practices of trading partners.
Technical standards may be easier to harmonize than labor, environment, health, or safety standards.
Students have certainly heard the argument that nations are engaged in a race to the bottom. Increasing
Trade barriers are unlikely to be an effective tool for changing standards. This is partly due to the
problems described in Chapters 6 and 7, but also due to fact that very few countries have enough market
power to change foreign firm behavior. If firms move outside the formal economy to avoid standards,
practices could actually worsen as a result of trade barriers. The borderline between concern for foreign
workers and the environment and protection of domestic firms is also quite hazy. Fears of retaliation and
trade wars emerge as countries begin to treat each other differently and unilaterally over standards, which
is not allowed generally under WTO rules. Sanctions in general are less effective when there is not
universal support for the sanction and its enforcement.
Environmental problems located entirely within a specific country (non-transboundary) have the usual
external cost analysis. It is in the firm’s best interests to shift environmental costs onto the nation, but it
Chapter 8 International Trade and Labor and Environmental Standards 45
◼ Assignment Ideas
1. There is a misconception by the general public, students included, that economists and organizations
such as the WTO do not care about the environment. This misconception arises in part because
economists disagree with people who use environmental issues, covertly or otherwise, as trade barriers.
To dispel this incorrect notion, the instructor might ask students to visit the WTO “Environment
Gateway” where they can find a short summary of the trade and environment debate, along with links
to various cases, including the U.S.-shrimp dispute. In addition, there are sections covering the key
2. There are many international agreements on the environment. These are not part of the WTO, and
some have been highly effective in addressing specific environmental problems. The Montreal
Protocol, for example, has been effective at reducing CFC emissions, and the long-run trends are
currently looking more hopeful for the ozone layer. Students could be assigned a specific agreement
or a specific proposed agreement and report on the content and
◼ Answers to End-of–Chapter Questions
1. What are the three ways for countries to handle different standards abroad? Do standards have to be
the same for countries to be integrated?
Answer: The three ways for countries to handle different standards are harmonization, mutual
recognition, and separate standards. Countries do not have to have the same standards
2. What are the advantages and disadvantages for countries that adopt the same standards?
Answer: Advantages: One possible advantage is the gain in economic efficiency from sharing the
same standard. Shared standards permit manufacturers to produce a single standard rather
than multiple standards, and this may allow firms to capture economies of scale. Also,
common standards have the potential to increase and expand the commercial ties between
two or more countries.
Disadvantages:
a. Requiring the same standards may cause a loss of efficiency if the adoption of a
3. When high-definition television (HDTV) was first considered a possibility in the United States, the
U.S. government held a competition to select the technical standards that would be used nationwide.
Why would the government see an advantage to setting one standard for HDTV, and what are
the pros and cons for the private businesses that were interested in producing HDTV for the U.S.
market?
Answer: There are efficiency gains when two or more countries adopt the same standards. For
example, since shared standards permit manufacturers to capture economies of scale,
4. Why do standards vary across countries? Illustrate your answer with examples in the area of labor
standards.
Answer: Standards in general, and labor standards in particular, vary greatly. They range from
basic standard rights such as the right to be free from forced labor and the right to
5. What are labor standards, and why are arguments about labor standards confined primarily to
arguments between high-income countries on the one hand, and low- and middle-income countries
on the other?
Answer: As mentioned in the text, defining labor standards is difficult given the wide variation in
incomes and living standards around the world. Even though there is a fair amount of
6. Discuss the reasons why using trade barriers to enforce labor or environmental standards may be less
efficient than other measures.
Answer: First, as was shown in Chapter 7, imposing trade barriers is very costly. They create
deadweight losses at home in consumption and production. Second, only large countries,
7. What are the arguments in favor of using trade barriers to enforce labor and environmental standards?
Assess each argument.
8. One common critique of the WTO is that it overturns national environmental protections, and forces
countries to lower their standards. For example, when the United States tried to protect endangered
sea turtles, the WTO prevented it. Assess this claim.
Answer: The United States sought to protect endangered sea turtles that were harmed by shrimp
trawlers that do not use turtle excluder devices (TEDs) on their nets. In 1987, the
United States issued guidelines requiring shrimp trawlers to use TEDs on their nets. It
9. What are the alternatives to trade measures for raising labor and environmental standards? What are
the strengths and weaknesses of each one?
Answers: These are: (1) Labels for exports: this is a certification process producing a label that is
attached to the good when it is produced and has been partially successful in telling
consumers that the good is produced in humane and environmentally friendly ways. Even