Free Trade and Social Dumping: Lessons from the Regulation of U.S. Interstate Commerce
Author(s): Bruce Elmslie and William Milberg
Source: Challenge, Vol. 39, No. 3 (MAY-JUNE 1996), pp. 46-52
Published by: M.E. Sharpe, Inc.
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Free
Trade
and
Social
Dampin
from
the
Lessons
of
Regulation
Commerce
IS.Interstate
and
William
Elmslie
Brace
Milberg
As free-tradeagreements
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 historyof interstate
trade to provide a guide that
mighthelp us maintain
standards around the world.
of
BRUCE ELMSLIE is AssociateProfessor
of New Hampshire.
Economics,University
WILLIAM MILBERG is Assistant
Professor
of Economics,New School forSocial ResearchandResearchAssociateat theJerome
of Bard College.
Levy EconomicsInstitute
The authorsthankMalcom Sawyer,Karyn
Krause-Elmslie,
WendyHarper,and Teresa
on an earlier
Grahamforhelpfulcomments
draft.
46
Challenge/May^June1996
recentpoliticalbattlesin nesswouldbe reducedbypursuing
the United States over the a trade alliance with Europe bemeritsof NAFTA and the cause of its highwages and more
WorldTrade Organization(WTO), similarsocial institutions.
establishedin the GATT Uruguay
In theabsence of some internaRoundAgreement,
centeredaround tionallyagreedupon set of standthe question of "national sover- ards,thedetermination
ofminimum
While
of
these
social
standards
is
eignty."
proponents
placed in the
tradeliberalizationagreementsar- hands of "the market."This mar- thatU.S. sover- ketization of social standardsis
gued- correctly
eigntycould notbe lost since only generally viewed favorably by
theCongresshas thepowertomake economists,
whotendtoprefer
marU.S. laws, theirargumentmissed ketoutcomesto thoseregulatedby
thepoint.The fearoftheopponents "short-sighted"and "self-interofNAFTA andtheWTO was notof ested" nationalgovernments
("lesome abstractprinciplelearnedin viathans,"in thecurrent
lexiconof
civicsclass,butoftherealthreatof economists).But to theextentthat
downwardpressureon wages and multinational
firmsarewillingand
labor,health,safety,and environ- able to locate productionwhere
mentalstandardsthatresultsfrom conditionsare most favorable,the
trade liberalizationin a world of "marketsolution" does not solve
mobilecapital.This theproblemof sovereignty
internationally
loss, it
fearwas expressedrecently
transfers
the
of
byGary simply
power sovsenior
economist
of
the
to
Hufbauer,
ereignty multinational
corporaInstitute
forInternational
Econom- tions. Free international
competiics. In an April7, 1995, WallStreet tionputspressureon nationsto bid
Journalarticle,he was quoted as downtheirsocial standardstoward
saying,"In thewakeofMexico,you the level of the lowest-standard
can feel thepulse of people being country.While freetradetendsto
nervous about furtherintegration harmonizestandardsforlabor and
with poorer countries."Hufbauer capitalacrosscountries,
in thecurwenton to arguethatthisnervous- renteconomicand institutional
cli© 1996 by¿fA.E.Sharpe, Ine,
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tradeliberalization
mate,international
gives thisharmonizationprocessa downwardbias. It was thefear
of downward pressure on social, environmental,
thatloomedso large
andlaborstandards
health,safety,
in therecentdebatesoverNAFTA and theWTO.
ofNAFTA andtheUruguayRound
Whiletheeffect
intheUnitedStateshas
on social standards
Agreement
notyetbeenfelt,an exampleofthedownward
pressure
trade
thatresultsfrominternational
onsocialstandards
liberalizationcan be foundin Canada's experience
Free internationalcompetition puts
pressure on nations to bid down their
social standards toward the level of the
lowest-standard country.
Since
withtheU.S.-CanadianFreeTradeAgreement.
wentintoeffect,
1989,whentheagreement
Canadahas
a
decrease
substantial
of
foreigncapital
experienced
and a shrinkageof its corporatetax base. This has
to thepressureon theCanadiangoverncontributed
mentto reduceitshighstandardsforhealthcareprovision and welfarebenefits.The level of unemploymentinsurancebenefitsas a percentage
oftheaverage
fell
from
37
to
27
percent
weeklywage
percentbetween1989 and 1994. Whileone mightwanttominiof thiscase on thegroundsthat
mize theimportance
withhighersocial standards
Canada is a smallcountry
thanthelargecountry
(theUnitedStates)withwhom
itformedthefreetradearea,itis worthnotingthatthis
a microcosmofthecurrent
represents
globalsituation
in whicha relatively
smallshareoftheworld'spopulation exists in industrializedcountriesand enjoys
relatively
highsocial standards.
Inamorerecentexamplerelating
tothenew
directly
WTO disputeresolution
Venezuela
and
Brazil
system,
receiveda favorablerulingin a complaintagainstthe
UnitedStatesfor"unfairly"restricting
gasolineimThe
centered
around
the
Environcomplaint
ports.
mentalProtectionAgency's rules,developedas part
of the 1990 Clean Air Act, whichrequire"reformulated"gasolineto be sold in ninelargemetropolitan
resolutionfor
areas, and include an "antidumping"
conventional
gasoline.Gasolinesoldinthemajormetareas
mustmeethigherstandardsthanthat
ropolitan
which is sold in the rest of the United States. All
gasoline,importedor domesticallyproduced,must
meetthesehigherstandards.The complaintalleged
discrimination
becausemostimported
gasolinesold in
thesemarkets
mustmeet"statutory"
standardsthatare
If theVenehigherthanthoseof some U.S. refiners.1
zuelar-Brazil
victoryis notreversedon appeal (and as
of thetimeof thiswritingtheClintonadministration
had not even filedforan appeal), thenthe average
levelsofsulfur,
olefins,benzene,etc.,inbothreformulated and conventionalgasoline sold in the United
Statesare expectedto rise. The GATT panel in fact
ruledagainsttheUnitedStatesin mid-January.
OBSTACLES TO UPWARD
HARMONIZATION
Efforts
todelinktradeliberalization
andthedownward
harmonization
of social standardsface threesubstantial obstacles.First,the GATT institutionalizes
the
downwardbias. The problemis thattheexplicitgoal
of theGATT (and thusof theWTO thatadministers
and onlytradeliberalization.
it) is tradeliberalization
The main objective of the GATT, as stated in its
and
preamble,is "thesubstantialreductionof tariffs
otherbarriers
to tradeand theelimination
of discrimiin international
commerce."The prinatorytreatment
on
maryprinciplesof the GATT are nondiscriminati
and reciprocity,
outlinedin theMost FavoredNation
Clause ofArticleI andtheNationalTreatment
Clause
ofArticleIII. The onlymentionofworkerrightsorfair
labor standardsin the currentGATT is in Article
XX(e), whichpermitsnationsto take actionagainst
"productsof prison labor." Althoughthe Uruguay
Round Agreementcontainsprovisionson technical
standards
andon standards
of"sanitary
andphytosaniin
measures"
tary
trade,thereis no menagricultural
tion of labor or environmental
standards.And the
recentrulingagainsttheUnitedStatesin its dispute
withMexico over its tuna fishingmethodshas depressedhopesofthoseexpectingto use theGATT for
an upwardharmonizationof international
environmentalprotectionstandards.Strictlyspeaking,the
GATT is mandatedto pursuethegoal of multilateral
tradeliberalizationirrespective
of questionsof local
or
transfer.
standards,
foreigninvestment, sovereignty
In a balance betweenthe interestsof freetradeand
nationalsovereignty,
theGATT favorsfreetrade.And
regulationsimposingstandardson foreignproducers
mustbe viewedas "discriminatory"
and,primafacie,
undertheGATT.
unacceptabletradebarriers
The second obstacleto an upwardharmonization
strategyis the oppositionexpressedby the goveraMay^June1996/ChaUenge
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47
menteof many countriesthathave low standards.
have arguedthatto
governments
Developing-country
raise social standardswould removethese nations'
essentialsourceof comparativeadvantage(i.e., their
In
environment).
production
low-wage,lax-regulatoiy
manyways thisview is in linewiththeprinciplesof
the GATT. Social standardsconstitutea barrierto
tradeforthesecountries,
they
preciselyatthemoment,
are
countries
when
making
signifideveloping
argue,
cant gains in international
competitionin manufacturedgoods.
The thirdobstacleis thepro-free-market
ideology
ofmanyéconomiste.Economistegenerallyignorethe
loss or forcedstandardsreducissue of sovereignty
tions in calculatingthe coste and benefitsof trade
In theory,
suchcalculationsencompass
liberalization.
all factors,includingthose externalto the private
market.The problemis mosteconomistsconsiderthat
"representativebodies" such as the Congress or
serve
electedofficialssuchas thepresident
inevitably
of small,powerfulgroups.The relative
theintereste
ease oforganizinga smallgroupwitha specialvested
interest
resuitein a lobbyingofelectedofficialsthatis
ofthesegroups.The extenbiasedtowardtheinterests
sive protectiongrantedto sugar producersin the
UnitedStatesis oftencitedas a primeexampleofhow
thegeneralwelfareofthepopulaceis undervaluedin
favorof theincreasedwelfareof small groups.As a
resultofthisperceivedinevitablebias intheactionsof
such "democratic"politicalinstitutions,
a transfer
of
from
the
is
viewed
away
authority
government
by
thana cost.To the
manyéconomisteas a benefitrather
leads to themarketization
extentthatsuch a transfer
thereis, in theory,
an
ofsuchdecisionsand authority,
The
is
market
viewed
as
efficiency
gain.
correcting
in thepoliticalprocess.
inherent
thosedistortions
Whiletheobstaclestoreform
areformidable,
there
for
does existan institutional
trade
liberaliprecedent
zationwithoutan overall reductionin social standards. This is the case of interstate
commercein the
comUnited States.The liberalizationof interstate
merceis generallyrecognizedas a success precisely
becauseso manyaspectsofproduction
andcommerce
havebeenremovedfromcompetition,
subjectinstead
to a nationalstandard.Thatis, thestatutory
or regulatoryguaranteeof minimumsocial standardsin a
numberof areas has made theliberalizationof interstate commerceand the concomitantreductionin
states' sovereignty
politicallyfeasible.The creation
and procedures
of reasonablylegitimateinstitutions
ofsovereignty
fromthestates
forhandlingthetransfer
48
tothefederalgovernment
was notaccomplishedoverbuthasinvolvedyearsofdebateandlegal
night
bystatute
battlesbetweenstateand federalauthorities
over the
of
the
"Commerce
Clause"
of
theU.S.
interpretation
Constitution.
The debatecontinues
as
today, evidenced
a fedbytherecentSupremeCourtrulingsinvalidating
erallaw thatprohibited
thepossessionof gunsneara
ofdownward
school,theperiodicflurry
biddingofbusinesstaxesbystatesseekingtoattract
privateinvestment,
and therecentwelfarebenefitreductions
aimedat enthe
outward
movement
of
Butthe
couraging
recipiente.
of interstate
commerceregulation
and national
history
standardsmay providesome lessons forthe current
concernwiththeglobalization
ofcompetition.
REGULATING INTERSTATE
COMMERCE
Article1, Section8, oftheU.S. Constitution
provides
that:"The Congressshallhave thepower... to regulateCommercewithforeignNations,and amongthe
several States." This section of the Constitution,
The problem is most economists
consider that "representative bodies"
such as the Congress or elected officials
such as the president inevitablyserve
the interestsof small, powerful groups.
knownas the"CommerceClause," does notspecify
the exact relationbetweenstate and Congressional
powersas itpertainstospecificregulations,
taxes,etc.,
whichmay have an impacton interstate
commerce.
The questionoftheextentofstates'rightsis constantly
beingaddressedin thecourts.
The originalintent
oftheframers
oftheConstitution
whenformulating
theCommerceClause was to eliminatewhatwas thoughtto be damaging"beggar-thyneighbor"
policiesbetweenthestates.Statesusedtheir
to
tradeso as to
powers erectbarriersto interstate
the
establishments
within
theirborprotect
operating
ders.In fact,Virginiaoriginallycalled fora meeting
thateventually
becametheConstitutional
Congressto
an
end
to
these
destructive
put
practices.Thus, the
originalintentof the framerswas to restrictstate
sovereignty
by secedingthepowerto regulateinterstatetradeto thefederalgovernment.
1996
May-June
Challenge/
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But the extentof thisloss of sovereignty
was not
in
in
out
detail
the
Constitution.
the
Therefore,
spelled
left
to
the
courts
matterhas been
to determinethe
balance betweenstates' rightsin regulatingpublic
commerce
healthand safetystandardsand intrastate
to
and thefederalgovernment's
power overridethese
commerce.The first
standardsand regulateinterstate
under
the
CommerceClause
states'
test
of
rights
major
came in Gibbonsv. Ogden 6 Wheat 1, 6 L.Ed. 23
(1824). In thiscase, theSupremeCourttooka broad
view of congressionalpower,giving Congressthe
interaction
toregulateall commercial
among
authority
thestates.This rulingwas so broadas to includeall
intrastatecommercethathad any impacton other
states.Thus,in thefirsttestoftheextentoftheloss of
theSupremeCourt
tofederalcontrol,
statesovereignty
to
the
federal
total
almost
authority
government.
gave
Much of therestof thehistoryof SupremeCourt
rulingsinvolvingtheCommerceClause canbe viewed
as an attemptto finda balance betweenstate and
federal authorityover commercial affairs.Even
thoughthemodernCourthas actedon theprincipleof
creatinga balance betweenstates'rightsand a strict
oftheCommerceClause,theburdenof
interpretation
has genproofoverthenecessityof stateregulations
In
fallen
on
the
states.
the
modern
Court
has
this,
erally
oftenclosely followedJusticeJackson'sarticulation
in//.P. Hood & Son v.DuMond336 U.S. 525,69 S.Ct
657, 93 L.ED. 865 (1948). In thatopinionJackson
thatstatesovereignty
is
clearlylaid outtheargument
to be givenless weightin theequationofbalance:
The CommerceClause is one of themostprolific
sourcesofnationalpowerandan equallyprolific
source
of conflict
withlegislationof thestate This Court
hasadvancedthesolidarity
andprosperity
ofthisNation
the
it
has
to
these
silences
ofthe
by meaning
given
great
Constitution.
[The]principlethatoureconomicunitis
theNation,whichalonehasthegamutofpowersnecessaryto controlof theeconomy,... has as itscorollary
thatthe statesare not separableeconomicunits
betweenthe powerof the Stateto
[The] distinction
shelter
itspeoplefrommenacestotheirhealthorsafety
andfromfraud,
evenwhenthosedangersemanatefrom
interstate
commerce,and its lack of powerto retard,
burdenorconstrict
theflowofsuchcommerce
fortheir
economicadvantage,is one deeplyrootedin bothour
andourlaw.
history
One exampleof theCourt'suse of Jackson'sdoctrinethatclearlysupportsa stronginterpretation
of
federalauthority
undertheCommerceClause is Justice Stewart'sopinionin Pike v. Bruce Church,Inc.
397 U.S. 137 (1970). Writingfora unanimousCourt,
Stewartsaid, "Wherethestatuteregulatesevenhanda legitimate
local publicinterest,
and
edlytoeffectuate
itseffectson interstate
commerceare onlyincidental,
it will be upheldunless theburdenimposedon such
commerceis clearlyexcessivein relationto theputative local benefits.If a legitimatelocal purpose is
found,thequestionbecomesone of degree."2
A clearpatternemergesfromthisbriefhistoryof
rulingsinvolvingthe CommerceClause of the U.S.
Constitution.The Court interpretsthe Commerce
Clause as grantingCongressubiquitouscontrolover
interstatecommerceunless states can demonstrate
both a compellinginterestand only incidentaland
effectson commerce.This broad
nondiscriminatory
has been establishedbased on theassumption
pattern
thatguaranteeing
the freestpossible tradein goods,
and
investment
that
services,
amongstatesnecessitates
statesrelinquishalmostall of theirsovereignty
to the
federalgovernment.
This patternhas held in cases
taxation,and wages to
rangingfromtransportation,
regulationsof mining,pricing,and hazardouswaste
disposal. The basic principleis thata loss of each
state's abilityto pursueindependentpolicies is the
priceoffreetrade.
Butwhatis meantbytheterm"loss ofsovereignty"
fora statewithinthecontextof a democraticfederal
system?The originalintentof thewritersoftheConstitution
was to shiftauthority
fromthe statesto the
federalgovernment.
as
residents
ofa state,give
Voters,
forincreasedfederalcontrol.
up statecontrolin return
Itis understood
thatcontrolis stillheldbya democratic
institution.
Controlover itemsthatcould be said to
define,in part,U.S. "nationhood,"such as minimum
healthand safetystandards,social safetynets,work
rules,etc.,is maintainedthroughCongressionalaction.In orderto maintainstabilityin minimalsocial
it is necessarythatthedominantsourceof
standards,
be
at
thefederallevel.Wherethisis notthecase,
power
forinvestment
betweenthestatescauses
competition
a tendencyforsocial standards(i.e., nationhood)to
erode.Statesthatoptto erectmorestringent
requirementsthanneighboring
statesare hamperedby the
mobilityof labor,capital,and commodities.
One exampleofthiswill suffice.The case involves
theclassicissueofchildlabor.Until1906,stateswere
theemployment
of
givencontroloverlaws regulating
children.This practiceresultedin extensivedifferencesin childlaborlaws amongthestates.Stateswith
May-June1996/Challenge 49
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di- anda failed
found
their
effect
topassa childlaboramendment
morestringent
laws,however,
attempt
If
one
state
had
to
the
from
other
states.
luted
Constitution,
Congress
bycompetition
passedtheFairLabor
children Standards
Actin1938.Thisactfinally
childlaborlawsthanitsneighbors,
stricter
direct
provided
lower-standard
states.
that
the
set
minimum
for
in
wereoften
provisions
"imported"
by
ages employment
in
from
costs
that
arose
both
labor
andnonmanufacturing
differentials
industries
Moreover,
manufacturing
instatelawsmadeitattractive
forfirms
to andsetminimum
standards
fortheemployment
differences
of
in
states.
to
for
interstate
and
movefrom
youths producing
low-regulation
high-regulation
goods
foreign
Inaneraofa moreliberal
standards trade.
forcesactedto harmonize
theconstituCourt,
Competitive
thistrend tionality
oftheFairLaborStandards
Actwasunanidownward.
waystoreverse
sought
Congress
in
and
after
labor
out
of
United
States
child
v.
competition,
mously
upheld
Darby312 U.S. 100
bytaking
studies
commissioned
and
several
whenever
of
debate
wasdetermined
(1941).Thus,
competition
years
billin 1906,whichused tobesocially
theCongress
hasactedtoset
destructive,
passedtheKeating-Owen
Commerce
Clause
to
minimum
under
the
standards
that
take
overtrade
proprecedence
granted
powers
in
In
trade
considerations.
the
United
interstate
the
hibit
has
States, Congress
(andinternational) many
goods
moved
tolimit
what
withchildlabor.
itdeems
tobesocially
destructive
produced
Thetendency
fordownward
harmonizacompetition.
tionoftreatment
ofchildlaborwasreversed
byCourt
and
action.
lessdramatic,
exAnother,
Congressional
Whenever competition was determined
ofthetendency
fordownward
harmonization
ample
to be socially destructive,the Congress
duetointerstate
is thatofcorporate
tax
competition
has acted to set minimumstandards that
rates.
Several
recent
studies
haveshown
that
state
tax
take precedence over trade
rates
areharmonized
downward
byincreased
compeconsiderations.
tition
withneighboring
states.
billquickly
ledto LESSONS FOR GATT REFORM
Thepassage
oftheKeating-Owen
itscon- TheJackson
that
hadoverstepped
Congress
legalchallenges
doctrine
establishes
thebiasofthe
clearly
In
Ham- Supreme
such
trade.
stitutional
authority
byprohibiting
infavor
Court
offree
which
hasexisted
trade,
247U.S. 251(1918),an antilaborthroughout
merv. Dagenhart
thehistory
ofrulings
theCominvolving
the merceClause.In caseswherestateshaveenacted
from
Court
restricting
Congress
prohibited
Supreme
labor.
The legislation
ofgoods
interstate
produced
bychild
transport
in almost
interstate
commerce
impacting
in
was
the
was
that
the
evil
the
of
employruling
logic
suchlawshavebeenstruck
down.Moreanyform,
trade.
notininterstate
ofchildren,
ment
evenwhen
over,as seeninthechildlaborexample,
inHammer
v.Dagenhart,
itsdefeat
After
Congress theCongress
to
use
its
to
attempted
powers eliminate
to
limit
the
use
and
strategies sought
changed
ortaxinterstate
quickly
commerce
involving
goodsmanufacAspart tured
itstaxing
ofchildlaborbyutilizing
authority.
withchildlabor,
theCourtrepeatedly
ruledin
levieda 10 favor
Actof 1919,Congress
oftheRevenue
offree
trade.
Thisfree
biasisanalogous
trade
to
and
tax
on
manufacturing, thepreamble
oftheGATT.Eachinstitution
milling,
profits
hasfree
percent
thatemployed
childlaborin trade
establishments
asitsprimary
concern.
theWTOisnow
mining
(Infact,
standards.
of federal
violation
referred
toas theSupreme
Court
oftrade.)
Again,in Baileyv. often
DeCo. 259U.S. 20 (1922),theCourt spitethisbiasandthealmost
DrexelFurniture
liberalization
complete
on ofinterstate
thiswasanunconstitutional
that
ruled
intheUnited
socialstandards
infringement
commerce,
inregulating
childlabor.
states9
Stateshavegenerally
beenraisedovertime.To be
rights
ofchildlabordidnot sure,
Theissueoffederal
states
continue
tocompete,
toattract
with
regulation
firms,
of
marked
deterioration
because
the
theuse ofcorporate
andrealestatetaxbreaks,
for
largely
disappear,
thefederal
lawswere example.
ofstatechildlaborlawsafter
toactto
(ThishasledtocallsforCongress
fed- endthestatebidding
Thesupport
ofminimal
overturned
warsattempting
toattract
busibytheCourt.
own nessawayfrom
their
allowedstates
tostrengthen
eralstandards
in
other
But
social
states.)
general,
wasremoved, standards
aswell,butoncethissupport
havebeenmaintained
standards
at
through
provisions
several thefederal
wereagainrelaxed
level.Whilethesovereignty
standards
ofstates
has
state
Thus,after
ina reduction
thishasnotresulted
in
wereheldunconstitutional
more
actsthat
bytheCourt, beensacrificed,
50
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May-June
Challenge/
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of social standards
level forceddownwardharmonization
ofa minimum
Itis theguarantee
socialstandards.
in
will
as
it
has
the
case
of interstate
comof standardson a varietyof social issues thathas
require,
cleared the way politicallyforstatesto narrowthe merce,considerablepolitical struggleand comproscope of theirsovereignpower.And, of course,the mise. But the downwardbias cannotbe avoided by
orunilateralproclamahas been an bilateralfreetradeagreements
legitimacyof the federalgovernment
factorin states'gradualaccep- tions.The problemwiththebilateralapproachto the
essentialcontributing
of standardsis thatit leads to circumestablishment
narrowed
this
of
tance
authority.
The absence of thesefeaturesin theregulationof vention,simplycreatingan incentiveforsocial dumpTo theextentthatNAFTA
countries.
tradehas resultedin thelinkingoftrade inginthird-world
international
and
enforceable
labor standards,for
strict
World
of
standards.
reduction
the
and
liberalization
imposes
this
traderegulationis caughtin a Catch-22:The fearof example,
encouragesproductionin and export
tothereform fromthosecountriesthatare not bound by the side
loss hasbeenan impediment
sovereignty
The bilateralapproachis analogousto a
an
alternative
of
the
creation
or
GATT
the
of
body agreements.
- forexample,New York and New
two
of
states
case
a set of
and enforcing
responsibleforimplementing
standards.Yet withoutsuch a body
Jersey makingan agreementto disallow real estate
international
witha democratized
apparatus the tax abatementas enticementsfor corporateinvestdecision-making
the ment.The resultis thatcorporationswill have inwillcontinuetooffset
ofsocial standards
reduction
assuming
Onlya demo- creasedincentivesto move to Connecticut,
positiveeffectsof tradeliberalization.
andcontinues
is notpartoftheagreement
mechanism Connecticut
craticand legitimatedispute-resolution
and a guaranteeof social standardswill break the to offerthetaxabatement.
The pointis notthatthereis a need fora "world
viciouscycleofdownwardharmonization.
simplythatif tradeliberalizationis to
On boththesecounts,NAFTA and theWTO fall government,"
if
and
continue
environthe
strugglesfor
perpetualand destructive
on laborand
short.The side agreements
oftrade
then
the
effects
to
be
are
avoided,
mentcontainedin NAFTA werein factbroughton by sovereignty
inMexico, liberalizationon social standardsmustbe regulated
an explicitconcernabout"social dumping"
tomovetothe and negotiated.Whatis requiredis a democraticand
moveorthreaten
wherebycorporations
agency.
regulatory
and in- legitimate
regionwiththelowest-costnorms,standards,
the
United
and
stitutional
pressuring
practices thereby
in orderto compete.The
Statesto reduceitsstandards
REFOCUSING THE DEBATE
do notgo so faras to establishminiside agreements
tradeeconomistshave misstatedtheismumstandardsforlabor relationsor environmental International
itwithsomemonolithic
theyaremuchmoremodest,allowingonly sue offreetradebycontrasting
protection;
is deemedto haveviolated evil called "protectionism."
The same slippagerarely
forcomplaintif a country
Few
its own standardsor regulations.Given thestatusof occursin thedebateoverinterstate
competition.
environminimum
would argue today thatfederalchild labor laws or
laborunionrights,
wage laws,and
mentalprotectionin Mexico, and the cumbersome occupationalsafetyregulationsconstitute
protectiondoes
a
made
thatthese
such
could
be
In
an
ism.
mechanism,
fact, argument
stipulation
dispute-settlement
downinterstate
commerce
standards
muchpromiseforprotection
notpresent
against
promotemoreefficient
wardharmonization.
focusingcompeby levelingthefieldof competition,
side agreements titioninareaswhereitis mostsociallybeneficial(e.g.,
While thelaborand environment
ofNAFTA can be criticizedfortheirlack ofteeth,the in promotingtechnologicalinnovationor improved
does notevenaddresstheissue productquality),raisinglivingstandards,and even
newGATT agreement
This is in reducinguncertainty.
Butthislevelofnuanceis absent
of standardson laborand theenvironment.
over"freetradeversusprotecfocus
of
debate
of
the
the
endless
from
narrowness
keepingwiththetraditional
context.The historyof
the GATT on tradeliberalizationalone. Moreover, tionism"in the international
commerceregulationshows thatthis is a
interstate
mechanismof theWTO
whilethedispute-resolution
or trustin federal
morebitethanthatofitspredecessor false dichotomy.Representation
has considerably
has generatedtheestablishednationalstandin theGATT, and an enhancedappealprocess,it still authority
commerce
ifit is to gain ards,whichhavenotonlyspurredinterstate
needsa heavydose of democratization
of
standards.
harmonization
but
have
requiredupward
legitimacy.
of
WTO
to
include
the
charter
A
of
the
fromthe
The taskof delinkingtradeliberalization
broadening
May-June1996/Challenge 51
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All use subject to JSTOR Terms and Conditions
concernsoverstandardswill help to securea similar
trade.
outcomefromincreasedinternational
that
defines
thesovereignty
Thecontinuing
struggle
case shouldnotactas
transfer
processin theinterstate
efforts
butshouldinstead
to international
a deterrent
of
institutional
the
legitimacy,
highlight importance
due process,and guaranteeofminimumsocial standmultilateral
ards,whichshouldbe thefocusof future
Whatis neededis an international
tradenegotiations.
thatnotonlyguaranteesfreetrade,butthat
institution
also deals withits consequences.The debatein the
shouldfocusnotjust
nextroundofGATT negotiations
but on the minimum
tradeliberalization,
on further
To orderreprints,call 1-800-352-2210;
outside the United States,call 717-632-3535
foran international
requirements
regulatory
bodyprothe
harmonization
of
standards
as freer
moting upward
tradeis pursued.
NOTES
1. The Venezuela case is extremelycomplicated,but the case
restsmainlyon the issue of how gasoline can be stipulatedas
meetingthestandards.Domesticand foreignproducersthathave
adequate 1990 datamayuse their1990 levels ofvariousparticulatesto determine
theirbaseline.The rulesdiffer
fordomesticand
foreignproducersonly if reliable 1990 data is not available.
Domesticproducersmayuse data on gasolineproducedas close
to 1990 as possible. Foreignproducersmustmeeta "statutory"
in
baseline,whichis based on thenationalaverageofparticulates
gasolinein 1990. Details and theEPA's reasoningforthereferentialrequirements
aregivenintheFederal Register,vol. 59, no.
32.
2. Increasingly,
themodernCourthas turnedto the questionof
the"discriminatory
effect"ofa law on interstate
commercewhen
of the"burden"imposedon commerce.
makinga determination
See OregonWasteSystems,
Inc. v.DepartmentofEnvironmental
QualityoftheStateof Oregon(1994).
FOR FURTHER READING
MELVIN L. BURSTEIN and ARTHUR J.ROLNICK, "CongressShouldEnd theEconomicWar Amongthe
9, 1 (March1995).
States,"Region,FederalReserveBankofMinneapolis,
in an UnevenWorld:An
GEORGE DEMARTINO and STEPHEN CULLENBERG, "EconomicIntegration
International
ReviewofAppliedEconomics9, 1 (1995).
Internationalist
Perspective,"
and Nationhood,"
Journalof International
H. PETER GRAY, "Free Trade,EconomicIntegration
Economic
5, 1 (1990).
Integration
52
Challenge/May^June1996
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All use subject to JSTOR Terms and Conditions