Possible Trade Restrictions For Improving Environmental Conditions - Research Proposal Example

Should the USA Impose Trade Restrictions on Other Countries in an Attempt to Force Them to Improve Environmental Conditions and Change their Labor Laws? By Student Name Current Economic Problems Date Table of Contents Introduction 3 The Race to the Bottom Argument 3 Voluntary Regulation for Economic Growth and Development 5 Conclusion 8 Bibliography 11 Introduction There are two prevailing views on the debate over whether or not the U.S. should use trade restrictions to force compliance with environmental and labor standards. The first view is based on the effect of trade sanctions on “race to the bottom theory” and the second view is based on of the effect of not imposing trade sanction on the standard of living (Griswold, 2001, p. 1). The race to the bottom theory assumes that in the absence of trade sanctions, developing and least developed countries would compete for the acquisition of trade benefits by offering poorer working conditions, lower wages and increased opportunities for environmental exploitation to multinational corporations (Ritzer, 2010). The standard of living argument is built around the concept that should trade restrictions be imposed, developing and least developing countries would be deprived of the opportunities for participating in global trade and would therefore lack the means to improve standards of living and therefore lack the wherewithal and incentives to improve working conditions and protect the environment (Griswold, 2001). This paper analyses both sides of the argument and concludes that trade sanctions are entirely unnecessary for forcing compliance with labor and environmental standards. Positive results are more likely in instances where developing and least developed countries are in a position to compete in the global markets and therefore have the incentive through cooperation to improve environmental and labor standards. The Race to the Bottom Argument The race to the bottom theory argues that in the absence of restrictions setting “standards” of behavior in international trade creates “wide disparities in standards” and exerts “downward pressure on standards” (Porter, 1999, p. 133). The need for trade sanctions is therefore obviated by the perception that competition in the global market will lead to a relaxation of environmental and labor standards with the result that there is a race to the bottom (Konisky, 2008). In particular, it is argued that where trade restrictions are imposed, competition is more balanced as states are required to implement and enforce international standards of labor wages and working conditions and thus will not become a source of “unfair economic advantages” (Salem & Rozental, 2012, p. 3). It is also argued that where labor standards are higher, firms have an incentive to improve employee development toward production and thus human capital development is improved (Salem & Rozental, 2012). Tonelson (2009) argues that the race to the bottom effect demands tighter regulation of labor standards because it has a dire effect on the standard of living and compromises economic growth and development in all countries regardless of economic status. According to Tonelson, multinational corporations in developed states are competing with one another for low wage providers in developing and least developed countries and there is a concern that low wages in developing and least developed countries are distorting the labor markets in developed countries (Tonelson, 2009). Tonelson (2009) goes on to argue, that competition is distorted when labor laws are not consistently adhering to tougher standards calculated to benefit the worker. Multinational corporations would rather establish factories and headquarters in countries where wages are lower, workplace health and safety laws are lower and unions are weak or non-existent (Tonelson, 2009). Similar arguments are presented with respect to the propriety of using trade sanctions to force countries to implement and enforce environmental protection standards. It is typically argued that if states are left to loosely regulate the environment, some industries would gravitate toward those countries with a view to cutting production costs since they will not have the burden of producing goods in environmentally friendly ways (Carbaugh, 2011). The natural result would be a “race to the bottom” for competitive advantages among “pollution havens” (Carbaugh, 2011, p. 199). It is also argued that countries in which environmental protection laws and policies are weak and where multinational corporations are operating, will not improve their environmental laws and policies for fear of losing out on those corporations. It is also argued that these countries also fear that improving environmental protection laws and policies may negatively impact the competitive ability of domestic firms (Gallagher, 2008). Thus advocates for trade sanctions against countries with weak environmental laws and policies use the race to the bottom theory in arguing that loose environmental laws and policies not only encourage countries refuse to implement environment protection laws and policies, but will refuse to improve existing standards that are weak. However, Gallagher (2008) argues that the problem with these assumptions and arguments is that there is no empirical evidence to support these predictions. Voluntary Regulation for Economic Growth and Development Singh and Zammit (2004) argue that international “labour standards” are “best achieved in a non-coercive and supportive international environment” (p. 85). In particular Golub (1997) argues that economic development is important for improving labor standards in developing and least developed countries. These countries are determined to improve economic growth and development and will instinctively and naturally improve labor standards through the increased opportunities for participation in the international economy and market. Voluntary compliance with international standards is the best way forward as trade restrictions will only reduce opportunities for economic growth and development. Thus poor labor standards will only persist as developing and least developed countries are denied opportunities for economic participation in the global markets (Golub, 1997). Economists argue that when countries increase their participation in the international market, there are primarily three outcomes that go against the imposition of trade sanctions in support of environmental protection. Firstly, it is argued that participation in the international market improves economic growth and development which in turn leads to the acquisition of “technique” for “cleaner production processes as wealth increases” and “trade expands to better technologies and environmental best practices” (Esty, 2001, p.115). Secondly, there are “composition effects” which “involve a shift in preferences” for “cleaner practices” (Esty, 2001, p. 115). Thirdly, there are “scale effects” occur in that environmental damages will occur as “economic activity” increase, but the technique and composition impacts will balance out the scale effects (Esty, 2001, p. 115). Moreover, there is evidence that voluntary environmental regulation improves environmental standards where there are no trade restrictions. For example, Prakash and Potoski (2006) the ISO 14001, “a voluntary environmental regulation” is the “most widely adopted instrument globally (p. 350). Through the ISO 14001, businesses are encouraged to go above and beyond national environmental standards and regulations for environmental protection. Prakash and Potoski (2006) conducted a study of 108 countries who have adopted ISO 14001 over the last 7 years. The study found that there was a substantial link between adoption of ISO 14001 and increased international trade. Thus Prakas and Potoski (2006) concluded that: Trade linkages encourage ISO 14001 adoption if countries’ major export markets have adopted this voluntary regulation (p.350). The argument that voluntary as opposed to coerced adoption of international standards of environmental protection is preferable is supported by empirical evidence. When countries voluntarily improve their environmental protection standards and regulations in response to trade initiatives, this is known as “trading up” and a “race to the top” (Vogel, 2012, p. 280). Trading up and a race to the top, takes place when a state depends on exporting products to a larger, environmentally conscious market. In such a case, exporters are more inclined to advocate for and adopt environmental standards that correspond with the environmental laws and standards of their target market (Vogel, 2012). It therefore follows that the U.S. rather than impose trade restrictions should encourage trade with countries with lower environmental standards and lead the way be example. This natural process of “policy convergence” is known as the “California effect” in which “California’s large green market” promoted “the strengthening of both federal and European environmental standards” particularly with respect emissions from automobiles (Vogel, 2012, p. 280). Therefore the U.S. has its own experience with the positive influence of voluntary compliance with higher standards of environmental protection policies and regulations. The US also experienced the California effect during the 1960s and 1990. During the 1960 and 1990, the EU responded to an improvement and increase in the U.S. environmental regulations. Likewise, the U.S. and a number of other states responded to the EU’s increased environmental regulations and policies since 1990. The responses to the U.S. and the EU were the tightening of national environmental policies and laws (Vogel, 2012). As Vogel (2012) notes, when large markets improve their environmental laws and regulations, countries wishing to enter the international trade market will either follow suite or will remain “stuck at the bottom” (p. 281). Conclusion Both sides of the argument have articulated convincing reasons in support of/against trade sanctions for forcing other countries to regulate the environment and labor standards. While the U.S. is concerned with the potential for the race to the bottom to become a reality and is concerned that lax labour and environmental standards abroad can distort the labor and production markets at home and on an international level, forcing trade sanctions will likely not achieve the desired results. The use of trade restrictions can be coercive and countries subjected to these trade restrictions will either involuntarily adopt labor and environmental standards. The problem with this approach is that countries involuntarily adopting labor and environmental standards will not be committed to enforcing them. Developing and least developed countries do not have the resources and the technical skills necessary for implementing and enforcing labor and environmental protection laws and policies. The necessary resources will only be accomplished through economic growth and development which in turn is only accomplished via participation in the international trade regime. Therefore forcing developing and least developed countries to implement labor and environmental standards is counterproductive to what the U.S. seeks to achieve, assuming the U.S. wants to ensure the implementation of a universal standard of labor and environmental protection. Trade restrictions undermine the potential for developing and least developed countries to participate in global trade and thus undermines the potential for economic growth and development. This in turn, increases the risk of labor and environmental exploitation. Where economic growth and development is stagnant, wages are lower, working conditions are poor and exploitation of the environment is increased. According to Barbier (2005), a continuum occurs in which the talent and resources for sustainable development is undermined, particularly when the labor force is exploited. The U.S. has experienced the correlation between environmental protection and economic growth and development. For example, data released from the U.S. Department of Energy reveals that between 1987 and 2000, SO2 Emissions from electricity generation has steadily decreased in the U.S. At the same time, the U.S. electricity generation and its gross domestic product has increased (See Appendix). Therefore the U.S. is fully aware of the fact that sustainable development can have a positive impact on economic growth and development. At the same time, the U.S. is aware that the sophisticated talent and capital necessary for sustainable development can only come from positive trade incentives. In other words, countries with weak labor and environmental standards will only have the know-how and the resources to implement sustainable development if they are in a position to participate in global trade and thereby have the opportunities for talent and technology transfers and for economic growth and development. Trade restrictions will only reduce the opportunities for developing and least developed countries to participate in global trade and thereby decrease the opportunities for economic growth and development and the opportunities for sustainable development via environmental and labor protection standards acceptable to the U.S. Appendix SO2 Emissions, Gross Domestic Product and Electricity Generation from 1987-2000 in the U.S. Taken from: Intellectual Takeout. SO2 Emissions vs. GDP and Net Electricity Production. (n.d.). http://www.intellectualtakeout.org/library/chart-graph/so2-emissions-vs-gdp-and-net-electricity-production (Retrieved March 27th, 2013). Bibliography Barbier, E. B. Natural Resources and Economic Development. Cambridge, UK: Cambridge University Press, 2005. Carbaugh, R. J. International Economics. Mason, OH: South-Western Cengage Learning, 2011. Esty, D. C. “Bridging the Trade-Environment Divide.” Journal of Economic Perspectives, Vol. 15(3) (Summer 2001): 113-130. Gallagher, K. P. Handbook on Trade and the Environment. Cheltenham, UK: Edward Elgar Publishing, Limited, 2008. Golub, S. S. “International Labor Standards and International Trade,” International Monetary Fund, WP/97/37 (April 1997): 1-37. Griswold, D. T. “Trade, Labor, and the Environment: How Blue and Green Sanctions Threaten Higher Standards”. CATO Institute, Center for Trade Policy Studies, No. 15, August 2, 2001: 1-15. Intellectual Takeout. SO2 Emissions vs. GDP and Net Electricity Production. (n.d.). http://www.intellectualtakeout.org/library/chart-graph/so2-emissions-vs-gdp-and-net-electricity-production (Retrieved March 27th, 2013). Konisky, D. M. “Regulator Attitudes and the Environmental Race to the Bottom Argument.” Journal of Public Adm. Res. Theory, Vol. 18(2) (2008): 321-344. Porter, G. “Trade Competition and Pollution Standards: ‘Race to the Bottom’ or ‘Stuck at the Bottom’”. The Journal of Environment Development, Vol. 8(2), (June 1999): 133-151. Prakash, A. and Potoski, M. “Racing to the Bottom? Trade, Environmental Governance, and ISO 14001.” American Journal of Political Science, Vol. 50(2) (April 2006): 350-364. Ritzer, G. Globalization: A Basic Text. West Sussex, UK: John Wiley & Sons, Ltd., 2010. Salem, S. and Rozental, “Labor Standards and Trade: A Review of Recent Empirical Evidence,” Journal of International Commerce and Economics, (August 2012): 1-36. Singh, A. and Zammit, A. “Labour Standards and the ‘Race to the Bottom’: Rethinking Globalization and Workers’ Rights from Developmental and Solidaristic Perspectives,” Oxford Review of Economic Policy, Vol. 2(1) (2004): 85-104. Tonelson, A. The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living. Boulder, Colorado: Westview Press, 2002. Vogel, D. The Politics of Precaution: Regulating Health, Safety, and Environmental Risks in Europe and the United States. Princeton, NJ: Princeton University Press, 2012. Read More