Free trade and social dumping: lessons from the regulation of U.S. interstate commerce.
by Bruce Elmslie , William Milberg
As free-trade agreements spread around the globe, and encompass more developing countries, the pressure to reduce health, safety, and environmental as well as wage standards will grow more intense. The authors look to America's own history of interstate trade to provide a guide that might help us maintain standards around the world. The recent political battles in the United States over the merits of NAFTA and the World Trade Organization (WTO), established in the GATT Uruguay Round Agreement, centered around the question of "national sovereignty." While proponents of these trade liberalization agreements argued - correctly - that U.S. sovereignty could not be lost since only the Congress has the power to make U.S. laws, their argument missed the point. The fear of the opponents of NAFTA and the WTO was not of some abstract principle learned in civics class, but of the real threat of downward pressure on wages and labor, health, safety, and environmental standards that results from trade liberalization in a world of internationally mobile capital. This fear was expressed recently by Gary Hufbauer, senior economist of the Institute for International Economics. In an April 7, 1995, Wall Street Journal article, he was quoted as saying, "In the wake of Mexico, you can feel the pulse of people being nervous about further integration with poorer countries." Hufbauer went on to argue that this nervousness would be reduced by pursuing a trade alliance with Europe because of its high wages and more similar social institutions. In the absence of some internationally agreed upon set of standards, the determination of minimum social standards is placed in the hands of "the market." This marketization of social standards is generally viewed favorably by economists, who tend to prefer market outcomes to those regulated by "short-sighted" and...
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