Social Policy Dimensions of Economic Integration: Environmental and Labour Standards

Social policies, particularly environmental and labour issues, are not new to trade policy fora including the GATT. However, they are likely to have a more prominent role in trade policy discussions in the years ahead for the new World Trade Organization. Many developing countries perceive the entwining of these social issues with trade policy as a threat to both their sovereignty and their economies, while significant groups in advanced economies consider it unfair, ecologically unsound, even immoral to trade with countries adopting much lower standards than theirs. This paper examines why these issues are becoming more prominent, whether the WTO is an appropriate forum to discuss them, and how they affect developing and other economies. It concludes that (a) the direct effect on developing economies is likely to be small and for some may even be positive through improved terms of trade and/or compensatory transfer payments, but (b) there is an important indirect negative effect on them and other economies, namely, the potential erosion of the rules-based multilateral trading system that would result from an over-use of trade measures to pursue environmental or labour market objectives.