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June 20, 2000 No.

10

WTO Report Card III
Globalization and Developing Countries
by Aaron Lukas

Executive Summary

The “anti-globalization coalition” that anti-trade line, developing countries suffer
paraded through the streets of Seattle in from a “race to the bottom” in abusive labor
November and stormed police barricades in practices, environmental quality, and
Washington, D.C., in April contends that wages. Sweatshops and child labor, not
international trade and investment are “lose- economic opportunity, are the supposed
lose” propositions. On the one hand, consequences of free trade. In reality, how-
organized labor argues that low-wage ever, the empirical experience with foreign
workers in developing countries will gain trade and investment in the developing
employment at the expense of American world has been overwhelmingly positive.
workers. On the other hand, self- From rising wages to improved working
appointed advocates of the developing conditions, the competition and coopera-
world claim that trade with and invest- tion that accompany liberalization are
ment from Western countries lead only proving to be powerful forces for good.
to exploitation and continued poverty Moreover, the claim that developing coun-
abroad. Given that negative view of global- tries were somehow bullied or tricked into
ization, it is not surprising that anti-trade opening their markets is simply false; the
activists are calling to “shrink or sink” the pace of economic liberalization has acceler-
World Trade Organization. ated because poor countries have realized
The two previous Cato “WTO Report that liberalization is in their best interest.
Cards” demonstrated that open markets In the half century since the found-
have been a boon for the thriving U.S. ing of the General Agreement on Tariffs
economy and that the rules governing and Trade, the world economy has
world trade do not infringe on U.S. sover- grown 6-fold, in part because trade has
eignty. This third paper examines the other expanded 16-fold. Globalization has
side of the equation: the effect of trade and improved and will continue to measur-
investment liberalization on the world’s ably improve the lives of millions of
poorer nations. According to the prevailing people around the world.

Aaron Lukas is a trade policy analyst at the Center for Trade Policy Studies at the Cato
Institute.
Empirical research Trade, Growth, and 2.3 percent per year while those with closed
supports the link Development economies grew by 0.7 percent.3 Other studies,
such as a 1998 analysis by the Organization for
between the Millions of workers are losing out in a Economic Cooperation and Development
freedom to conduct global economy that disrupts traditional concluded that nations with relatively open
economies and weakens the ability of trade regimes grow roughly twice as fast as do
international their governments to assist them. those with relatively closed regimes.4
transactions and Obviously, developing countries that grew at
economic growth. —Jay Mazur, president, the open-economy average have been converg-
Union of Needletrades, ing with the industrial economies while their
Industrial and Textile Employees1 closed-economy counterparts have tended to
fall further behind.
The essential prerequisite of a “globalized” One of the broadest measures of economic
economy is openness to foreign trade and openness is found in the Economic Freedom of
investment. This means that a country’s citizens the World: 2000 Annual Report, by James
must be free to buy and sell goods or services in Gwartney, chief economist of the Joint
the international marketplace, unburdened by Economic Committee, and Robert Lawson of
excessive tariffs or other trade barriers. It also Capital University.5 Economic Freedom ranks
means that foreign businesses and investors countries, in addition to other areas, on their
must be allowed to purchase and own property relative openness to international exchange.
in the local economy and that their investments The report ranks countries on a scale from 0 to
must enjoy standard legal protections. 10 on the basis of such factors as mean tariff
Developing countries embrace globaliza- rate, taxes on international trade as a percent-
tion for a variety of reasons. The removal of age of exports plus imports, nontariff barriers,
trade barriers immediately expands the range and total size of trade sector. As Figure 1
of choices for consumers and places downward shows, there is a clear correlation between per
pressure on prices, thus raising the real value of capita gross domestic product and openness to
workers’ earnings. Foreign investment provides international trade and investment as mea-
more jobs, new production technologies, infra- sured by Gwartney and Lawson.
structure improvements, and a source of capital Critics of cross-country comparisons cor-
for local entrepreneurs. Domestic businesses rectly point out that isolating the effects of trade
gain access to both cheaper inputs and vastly liberalization from those of other variables is
larger markets for their products. But for most methodologically daunting, since reductions in
people, the many and varied benefits of a liber- trade barriers are frequently made in conjunc-
al trade and investment regime can be boiled tion with a host of other reforms. Two points,
down to one very attractive proposition: glob- however, are crystal clear. First, there is an unde-
alization spurs economic growth, and growth niable relationship between growth rates and
raises living standards. economic freedom, including the freedom to
Empirical research supports the link conduct international transactions. Second, con-
between the freedom to conduct international trary to the claims of the anti-trade forces, there
transactions and economic growth. A well- is no evidence whatsoever that countries that
known paper by Jeffrey Sachs and Andrew have shut themselves off from global markets
Warner of Harvard University, for example, have prospered over the long term.
found that developing countries with open Perhaps the strongest evidence of the bene-
economies grew by an average of 4.5 percent fits of economic liberalization is that develop-
per year in the 1970s and 1980s while those ing countries over the past couple of decades
with closed economies grew by only 0.7 per- have been opening their markets voluntarily,
cent.2 The same pattern held for developed independent of any quid pro quo negotiations.
countries: those with open economies grew by Countries as diverse as Argentina, the

2
Figure 1
30,000
Freedom of International Exchange Index and GDP, 1995
25,000
GDP per Capita

20,000

15,000

10,000

5,000

0
0 1 2 3 4 5 6 7 8 9 10
Freedom of International Exchange Index Score

Sources: James Gwartney and Robert Lawson, Economic Freedom of the World: 2000 Annual Report (Vancouver, B.C.:
Fraser Institute, 2000); and the World Almanac 1998 (New York: World Almanac, 1998).

Note: Although Gwartney and Lawson provide an index of international exchange openness for 1997, the data beyond
1995 are incomplete.

Philippines, Chile, and Thailand have taken among developing countries. Perhaps more clear-
aggressive unilateral steps toward integration ly than anywhere else in the world, East Asia has
into the global economy. Even the most tradi- demonstrated the rapid improvement in human
tionally closed economies are finally abandon- welfare that is possible when developing nations
ing the failed autarkic model of protectionism adopt an outward-oriented development strategy.
in favor of freer trade. Over just the past few Real per capita incomes in the region have grown
years, India has reduced its average industrial at an average annual rate of 4 to 6 percent since
tariffs from 71 to 32 percent, Brazil from 41 to the 1960s.8 That compares extremely favorably
27 percent, and Venezuela from 50 to 31 per- with development experience elsewhere: from
cent.6 The World Trade Organization’s own 1960 to 1990, the top eight Asian economies Even the most
history illustrates the “bottom-up” popularity grew approximately three times faster than did
of trade liberalization. Established in 1948, the the economies of Latin America and South Asia
traditionally closed
General Agreement on Tariffs and Trade—the and five times faster than those of sub-Saharan economies are
precursor to the WTO—had only 23 contract- Africa.9 Moreover, as Table 1 shows, the recent finally abandoning
ing parties, most of which were industrialized Asian financial crisis appears to have presented
nations. Today, more than three-quarters of the only a temporary obstacle to those burgeoning the failed autarkic
WTO’s 136 members are developing nations economies. Even if the crisis had stopped all eco- model of
and 20 more are eagerly waiting to join.7 nomic progress for five years, the Asian
economies would have performed well above the
protectionism in
world average for the past three decades. favor of freer trade.
The Asian “Miracle”: Such robust economic growth has translated
Exports and Investment into dramatically improved standards of living
that are readily observable to anyone visiting the
The experience of East Asia is one reason for region. South Korea in the 1960s, for example,
the current trend toward economic openness was comparable to many West African countries

3
Table 1
Changes in Real GDP in East Asia (in percentage)

1996 1997 1998 1999E

South Korea 6.8 5.0 –5.8 10.2
Malaysia 8.6 7.5 –7.5 4.9
Thailand 5.5 –1.3 –10.0 4.0
Indonesia 8.0 4.5 –13.7 0.5
Hong Kong 4.5 5.3 –5.1 1.9
Singapore 7.5 9.0 0.3 5.5
Taiwan 5.7 6.8 4.8 5.4
China 9.6 8.8 7.8 7.1

Source: World Bank and independent forecasts, cited in Eduardo Lachica, “World Bank Predicts Improvement in
Asia,” Asian Wall Street Journal, February 8, 2000, p. 3.

Note: E = Estimate.

in terms of economic development. Today its industries to serve domestic markets. East
citizens enjoy incomes on a par with those in Asian countries followed a very different path.
European countries. Tiny Singapore, which has Although the exact policy mix differed from
few natural resources, has transformed itself into country to country, the common denominator
a trade and technology powerhouse. In China, was an emphasis on growth through compet-
per capita GDP has nearly quadrupled in just 20 ing in world markets. Specializing in industries
years. As a result, an estimated 160 million peo- in which lower labor costs gave them a com-
ple in China have emerged from absolute pover- petitive advantage, East Asian economies
ty, defined as per capita income below $1 per opened to foreign capital, technology, and the
day.11 Since 1970, per capita food intake in inputs necessary to produce competitive
Indonesia has risen from fewer than 2,100 to exports for sale to foreign customers. That
more than 2,800 calories per day.11 In 1972, strategy enabled the Asian economies to grow
nearly 68 million Indonesians were living in much faster than if their prospects had been
what their government deemed poverty; by limited to domestic demand.
The success of 1982, that number had fallen to 30 million—a The export-led growth strategy was a stun-
decline of 56 percent.12 Up and down the Pacific ning success. As a group, the eight highest-per-
the East Asian Rim, active engagement in world markets and forming Asian economies increased their share
economic “miracle” an openness to foreign investment have wrought of world exports from 8 percent in 1965 to 13
rests on two basic breathtaking improvements in the lives of hun- percent in 1980 and to 18 percent in 1990.13
dreds of millions of people. Initially, that export-led growth was compati-
factors: export- The East Asian economic “miracle” is not ble with the significant protectionism in those
friendly policies and difficult to comprehend. Its success rests on economies but led eventually to greater
two basic factors: export-friendly policies and demand for imports—both producer goods for
access to foreign access to foreign markets. By contrast, many expanding businesses and consumer goods for
markets. developing countries in other regions pursued emerging middle classes—and tariffs were cut
policies of “import substitution,” which in response. The pattern of greater openness of
entailed sealing off their economies from the the East Asian economies is reflected in their
outside world with import restrictions, main- ratios of trade to GDP—the value of exports
taining overvalued exchange rates, shunning plus imports divided by GDP (Table 2).
foreign investment capital, and fostering The recent financial crisis in Asia has not

4
Table 2
Ratio of Trade to GDP in East Asian Economies, 1970–88

Economy 1970 1980 1985 1988

Hong Kong 1.50 1.52 1.78 2.82
Indonesia 0.25 0.46 0.38 0.42
South Korea 0.32 0.63 0.66 0.66
Malaysia 0.89 1.00 0.85 1.09
Singapore 2.12 3.70 2.77 3.47
Taiwan 0.53 0.95 0.82 0.90
Thailand 0.28 0.49 0.44 0.35

Source: World Bank, The East Asian Miracle: Economic Growth and Public Policy (Oxford: Oxford University Press,
1993).

prompted a retreat from economic liberaliza- competition has thus allowed many African gov-
tion. On the contrary, Asian governments have ernments to postpone implementing necessary
realized that to keep prosperity going they market reforms, thereby trapping their citizens in a
must continue to open their economies to never-ending cycle of poverty.
world trade and investment. In a story typical The lesson is clear: export-led growth has a
of the region, the government of Thailand suc- proven record of success, while its alternative—
cessfully resisted protectionist pressures despite protectionism and foreign aid—has failed
a severe recession—real GDP dropped nearly where it has been tried. The question is, will
12 percent between 1997 and 1998—that the rest of the developing world be allowed to
resulted from the crisis. “One of the most strik- repeat the Asian miracle? If other developing
ing aspects of the [Thai] government’s policy countries are to re-create the Asian experience,
response to the crisis,” notes a WTO report, “is they must have relatively free access to U.S. and
its liberalization of several aspects of its trade Western markets. If Americans want to help
and foreign investment regime in order to the impoverished masses of the developing
speed up structural adjustment.” 14 world, we must open our markets to its exports
The East Asian experience contrasts sharply and allow U.S. investors to invest overseas. Export-led
with that of sub-Saharan Africa, which has largely It is no coincidence that economic growth
pursued a development strategy based on protec- has been accompanied by beneficial political growth has a
tionism and foreign aid. Most of Africa’s so-called changes in many developing countries, includ- proven record of
infant industries have never developed, the region’s ing those in East Asia. Both South Korea and success, while
share of world trade remains distressingly low, and Taiwan, for example, began to implement
GDP per capita actually shrank by 0.6 percent democratic reforms in the late 1980s, after a its alternative—
between 1991 and 1998.15 In addition to main- rapidly growing middle class became involved protectionism
taining closed economies, many African countries in widespread civil protests. The depth of such
have used foreign aid to underwrite unsound poli- reforms was demonstrated in the recent presi-
and foreign aid—
cies and general economic mismanagement, dential election in Taiwan, which proved that has failed where it
including the creation of bloated, inefficient public even long-entrenched ruling parties are now has been tried.
sectors; the restriction of prices and production; subject to the will of the people.
perverse monetary, fiscal, and credit policies; and It is extremely likely that the growth of
the shunning of foreign investment. The combina- capitalism generally and the opening of devel-
tion of foreign aid and isolation from international oping economies to international trade and

5
The East Asian investment in particular have contributed to and a functioning legal system, and privatization
experience is a what Samuel Huntington has called a “third of state-owned enterprises in response to inter-
wave of democratization.” At the very least, national competition have benefited pro-
powerful testament economic globalization has existed alongside democracy movements around the world.17
to the rapid democratization. In 1973, of a total of 122 There will never be a magic formula for
countries with more than 1 million people, a development or democratization. But the East
progress that can mere 20 nations were democratic, while 92 Asian experience is a powerful testament to the
be achieved when were nondemocratic. By 1990, however, of rapid progress that can be achieved when
developing 129 countries, 58 were democratic, while 71 developing countries embrace the basic tenets
were nondemocratic. Those are startling fig- of globalization. The stakes are high. With the
countries embrace ures: for the first time in the 20th century— exception of countries that have embraced
the basic tenets during a period of unprecedented economic export-oriented development, the gap between
of globalization. liberalization and globalization—the number the developed and the developing world has
of authoritarian or nondemocratic states actu- been either stable or growing throughout most
ally decreased. of modern history. The export-oriented coun-
The relationship between economic liberal- tries are succeeding because they have created
ization and democratization can be further outward-oriented economies that provide
illustrated by comparing cross-country data faster growth through exports and access to
measuring economic openness and political foreign technology, capital, and productivity-
and civil liberties. Using the Economic Freedom enhancing imports. Those who wish to
of the World index of openness to international improve the lives—both politically and eco-
exchange and the Freedom House ratings of nomically—of the citizens of developing coun-
“free,” “partly free,” and “not free,” Daniel tries should be thinking of ways to facilitate
Griswold, associate director of the Cato globalization, not attempting to stop it.
Institute’s Center for Trade Policy Studies, has
demonstrated a strong correlation between the
two kinds of freedom.16 Nations that are classi- Jobs, Wages, and Labor
fied by Freedom House as being free score an Standards
average of 7.9 on the scale of economic open-
ness. Those that are partly free averaged a less Behind this [clothing] label is a shame-
open 6.7, and those that are not free scored the ful story of political prisoners and
lowest, 5.4. Reversing the data reveals that of forced labor camps; of wages as low as
the countries in the top third of the Gwartney- thirteen cents an hour; of a country that
Lawson scale of economic openness, 84 per- routinely violates trade rules; flooding
cent earned a political-civil ranking of free. Of our markets; draining American jobs.
those in the middle third, 57 percent were free,
but in the bottom third, only 22 percent were —AFL-CIO television advertisement
free. In other words, citizens who enjoy the
freedom to engage in international commerce It is an article of faith among “globaphobes”
are about four times more likely to be free from that the low-skilled jobs in the export indus-
political and civil oppression than are those tries of the developing world amount to
who do not enjoy such freedom. exploitation of local workers. Globaphobes
None of these data is meant to imply that evoke images of third-world “sweatshops” and
there is a rigidly deterministic relationship labor-intensive factories with hellish working
between economic liberalization and democrat- conditions and slave wages to justify U.S. trade
ic reforms. Nevertheless, it seems obvious that barriers against developing-country imports.
the growth of autonomous interest groups and Shutting down those factories, by any means
sources of wealth within a country, foreign necessary, is now a top priority of anti–free
investments conditioned on solid property rights traders. In one recent high-profile example,

6
Table 3
Ratio of Average Wages and Salaries Paid to Non-U.S. Citizens by Affiliates of U.S.
Multinationals to per Capita GDP, 1994 (by income level of host country group)

Total High Middle Low

Average wages and salaries ($1,000) 25.6 32.4 9.5 3.4
Per capita GDP ($1,000) 11.5 20.9 3.2 0.4
Ratio of wages and salaries to per capita GDP 2.2 1.6 3.0 8.5

Source: Edward M. Graham, “Trade and Investment at the WTO: Just Do It!” in Launching New Global Trade Talks:
An Action Agenda, Special Report no. 12, Institute for International Economics, September 1998, p. 158.

students at the University of Pennsylvania, the that, although developing-country employees
University of Michigan, and Indiana of U.S. affiliates are indeed paid less than their
University staged sit-in protests against the developed-country counterparts are paid, they
licensing of school logos to companies produc- are paid significantly more than the average
Wherever new
ing clothing in developing countries.18 Despite wage for the country where they live. In low- export industries
the good intentions of those students, such income countries, for example, workers fortu- have taken hold,
trade-reducing actions do nothing to help nate enough to gain employment with a U.S.-
improve conditions in poor countries. based company earn more than eight times the there has been a
It is certainly true that workers in the export average per capita salary. For middle-income measurable
sector of developing countries earn far less than countries, such workers earn about three times
their Western counterparts earn and often the average local yearly wages.
improvement in
work in much harsher conditions. The proper Anecdotal evidence supports Graham’s sta- local incomes and
comparison, however, is not between U.S. tistical analysis. For example, a recent survey of working
wages and developing-country wages but 48 U.S.-based companies in China, conducted
between export-sector wages in developing by the U.S. Chamber of Commerce in Beijing, conditions.
countries and other locally available opportuni- found that respondents pay an average hourly
ties. After all, it is not as though low wages and wage of $5.25, excluding benefits, or about
poor working conditions were a creation of $10,900 per year.21 Similarly, workers at a
multinational companies—that combination Shanghai factory owned jointly by General
has been the rule throughout history. It is la- Motors and the Shanghai Automotive
mentable that nearly 3 billion people currently Industry Corporation earn about $4.59 per
live on less than two dollars a day,19 but the crit- hour, including benefits but not counting gen-
ical question to ask is, why are the other 3 bil- erous performance bonuses that can almost
lion people doing better? Globalization is an double take-home pay.22 While such wages are
important part of that answer. far below the average for a unionized
Wherever new export industries have taken autoworker in the United States, they are about
hold, there has been a measurable improve- three times higher than wages for comparable
ment in local incomes and working conditions. work at a non-U.S. factory in Shanghai and
In 1998 Edward M. Graham of the Institute nearly eight times higher than the United Auto
for International Economics estimated the Workers’ estimate: “A ‘good paying’ factory job
wages and salaries (not including fringe bene- with a company like General Motors pays
fits, which generally average about 25 percent about 59 cents an hour” in China.23
of wages and salaries) paid to local employees Other research, such as that by Jeffrey A.
of U.S. affiliate companies.20 His results— Frankel and David Romer of the University of
which are summarized in Table 3—suggest California at Berkeley, has shown that trade, as

7
distinct from foreign investment, also has a pos- “Available information suggests that the
itive impact on developing-country wages. In a world’s largest multinational enterprises
1999 paper those authors concluded that trade (MNEs), and in particular US-based MNEs in
exerts “a qualitatively large and robust . . . posi- the [textiles, clothing, footwear,] and related
tive effect on income.” After analyzing data commerce sectors (e.g., manufacturers, retailers
from 150 countries, they estimated that an including department stores, mass merchan-
increase in the ratio of trade to GDP by one per- disers, specialty stores and mail order clothing
centage point can be expected to raise income companies), have led the trend toward usage of
per person by between 0.5 and 2 percent.24 codes as a means of responsible sourcing.”27
Both trade and investment affect the long- Consider the Nike Corporation, which for
term production trend in developing years has been the company that globaphobes
economies, which also reinforces the gains to have loved to hate. After taking voluntary steps
workers. Specifically, poor countries tend to to improve its procurement process, Nike hired
move away from labor-intensive production as former U.S. ambassador to the United Nations
they scale the ladder of economic development. Andrew Young to conduct an independent
The share of textiles and apparel in South investigation of the company’s labor practices.28
Korea’s exports, for example, grew from 8 per- Focused consumer pressure, not blunt govern-
cent in 1960 to 40 percent in 1980 but then ment sanctions, was responsible for Nike’s
shrank to 19 percent by 1993.25 Today South internal reforms.
Korea is known more for its exports of auto- Zhou Latai, one of China’s foremost labor
mobiles and electronics than its clothing, and attorneys who represents injured workers in the
average wages have increased dramatically. The southern city of Shenzhen, puts it this way:
benefits of creating a dynamic, export-oriented “American consumers are a main catalyst for
manufacturing sector are even more apparent better worker rights in China. They are the
when wages are compared with those in ones who pressure Nike and Reebok to
Western countries. In 1960 the average manu- improve working conditions at Hong Kong–
facturing job in a developing country paid just and Taiwan-run factories here. If Nike and
over 10 percent of manufacturing wages Reebok go—and they could very well if [nor-
received by workers in the United States. By mal trade relations] is rejected—this pressure
1992 wages in those countries had risen to evaporates. This is obvious.”29
nearly 30 percent of U.S. manufacturing Again, it is important to remember that low
wages.26 In other words, as manufactured wages, poverty, and difficult working condi-
exports of developing countries have grown, so tions are not new to the developing world; they
The spread of free have wages in those countries—even in rela- have always been the norm. No doubt there
tion to U.S. wages, which also have risen. will always be horror stories about unscrupu-
trade, free markets, Foreign-owned businesses not only pay lous employers, just as such stories persist in
and private their workers more, they also provide a positive this country. Globalization is not a panacea,
investment across example of quality of life in the workplace. In but curtailing trade and foreign investment will
fact, in the few high-profile cases in which only ensure that workers are forced into the
international Western companies were tied to labor abuses, nonexport sector. For most people, that means
borders is proving those abuses were overwhelmingly committed eking a miserable living from small plots of
by indigenous firms that were selling on con- land, or sometimes worse. More than any gov-
to be the most tract. As awareness of worker mistreatment has ernment program or aid package, the spread of
effective anti- grown, foreign-owned firms—and, in particu- free trade, free markets, and investment across
poverty measure the lar, American-owned firms—have actively international borders by private companies and
taken measures to ensure that workers are investors is proving to be the most effective
world has ever seen. treated humanely. Companies have established anti-poverty measure the world has ever seen.
codes of conduct for their suppliers. As the The Seattle and Washington, D.C., protest-
International Labor Organization reports, ers called for better working conditions in the

8
developing world while denouncing the policy ignited 1 percent of the people that are The WTO’s failure
that would most help bring such improvements organized around the WTO. in Seattle was due
about: free trade. Instead of closing our markets,
we should be opening them further. No amount —Dan Seligman, director, Sierra not to fear of free
of aid money or insistence on living-wage stan- Club’s Responsible Trade Program35 trade on the part of
dards could match the benefits for poor workers
that tariff-free access to Western markets could Critics of globalization argue that multina-
developing countries
offer. That access would create jobs, reduce tional companies tend to invest in nations that but rather to the
unemployment, put upward pressure on wages, maintain low standards of environmental pro- reluctance of
and even create a hospitable climate for labor- tection. As international investment in develop-
organizing efforts. Those are precisely the goals ing countries becomes more widespread, com- developed countries
being sought by the anti-trade movement. petition for capital supposedly forces recipient to fully embrace it.
Ironically, the WTO’s failure in Seattle was due countries into a destructive spiral by continual-
not to fear of free trade on the part of developing ly weakening their environmental laws and reg-
countries but rather to the reluctance of developed ulations. The developed countries, the critics
countries to fully embrace it. As Sri Lankan com- warn, are not immune to competitive pressures
merce minister Kingsley Wickramaraine noted, a and are also forced to weaken their currently
large number of developing countries “are yet to high environmental standards. This supposed
find any meaningful market access opportunities race to the bottom will, it is argued, lead to mas-
for products of export interest to them.”30 sive global environmental degradation.
Unfortunately, Wickramaraine is correct: the This theory rests on the assumption that
United States and other industrialized countries lower environmental standards give developing
continue to block imports from developing coun- countries a significant advantage in attracting
tries, especially through abnormally high tariffs on investment capital. Both logic and empirical
textiles and clothing, an unfair antidumping experience suggest that the opposite is true.
regime, and quotas on various agricultural prod- First, environmental standards are only one of
ucts.31 Such discriminatory protectionism persists many factors that businesses take into account
despite promises made during the Uruguay when choosing the best location to set up shop.
Round of trade talks. In the WTO Agreement on Such considerations as guaranteed property
Textiles and Clothing, for instance, the United rights protection, a functioning legal system, a
States pledged to phase out all textile and apparel well-educated workforce, and sufficient infra-
quotas over a 10-year period, but as of 1999 only structure figure much more prominently in the
1 percent of U.S. quotas had been eliminated.32 calculations of most entrepreneurs and business
On average, developing countries face tariffs on managers than do environmental regulations.
their manufactured exports that are nearly four Given those facts, it is not surprising that there
times the tariffs facing exports of developed coun- is scant evidence that governments actually
tries.33 Because of that inequitable pattern of pro- lower environmental standards in order to
tectionism, Thomas W. Hertel and Will Martin attract investment.36 Second, there are consider-
of the World Bank have concluded that develop- able cost savings associated with standardized
ing countries would capture around 75 percent of production techniques. Thus, companies tend to
the world economic benefits from further trade operate at the highest environmental world stan-
liberalization in the manufacturing sector.34 dard rather than adopt multiple production
technologies for use in different areas.37 Third,
much of the foreign direct investment (FDI)
Trade and the Environment directed to developing countries is used to priva-
tize inefficient state-owned manufacturers,
The greenies have tried to organize which tend to become less polluting as they are
campaigns around the World Bank for restructured. Finally, trade and investment help
15 or 20 years now and have never speed the spread of pollution control technology

9
and enable developing countries to purchase 1994 North American Free Trade Agreement and
cleaner energy inputs on world markets. by helping create the WTO. Meanwhile, two-way
The most important result of trade and trade and foreign investment continue to climb as
investment, however, is economic growth, which percentages of GDP. That growth of internation-
in turn leads to a better environment. That is al trade and investment has been accompanied by
true because, as incomes rise, the demand for ever more stringent environmental standards.
improved environmental quality also rises. According to the President’s Council on
Numerous studies have confirmed that, in prac- Environmental Quality, mean ambient concentra-
tice, trade and investment activities usually have tions of sulfur dioxide and carbon monoxide in the
a positive impact on the environment.38 atmosphere of the United States have both
This is not to imply that a cleaner environ- dropped by nearly 40 percent since 1988.41 During
ment is the immediate result of economic devel- that same period, 1988–97, the number of annual
opment. Empirical studies have revealed the exis- “bad air days” in major U.S. cities fell by two-
tence of an inverted U–shaped relationship, often thirds.42 The direct discharge of toxic water pollu-
called an “Environmental Kuznets Curve,” after tants is down dramatically as well.43 Since the early
the late American economist Simon Kuznets, 1970s, during a time of growing globalization of
between environmental degradation and income the U.S. economy, real spending by government
There are serious per capita. The Kuznets Curve describes a process and business on the environment and natural
problems of whereby environmental quality in a developing resource protection has doubled.44
environmental nation initially deteriorates as the economy begins Just as it is clear that there are serious prob-
to industrialize but improves after its citizens lems of environmental degradation in develop-
degradation in reach a certain standard of living. Research by ing countries, it is equally clear that cutting off
developing Alan Krueger and Gene Grossman of Princeton their access to our markets is no solution.
University, for instance, indicates that the turning Depriving poor countries of trading opportu-
countries, but point occurs at about $5,000 annual income per nities will simply diminish their growth rates,
cutting off their capita: “We find no evidence that environmental thus delaying their departure from the ranks of
access to our quality deteriorates steadily with economic countries with low GDPs, in which environ-
growth. Rather, for most indicators, economic mental problems are the most serious. Free
markets is no growth brings an initial phase of deterioration fol- trade, however, can help make industrial pro-
solution. lowed by a subsequent phase of improvement.” duction less polluting even in those countries
By $8,000 per capita income, the authors found by rationalizing the use of resources both with-
that almost all the pollutant categories had begun in and among developing economies. For
to improve.39 instance, free trade often promotes the transi-
The case for the pro-environment effects of tion from heavy-resource-processing sectors to
trade and development is further supported by light manufacturing ones, reducing wasteful
the experience of the Western world, and of the global overcapacity in higher-polluting sec-
United States in particular. Standards for air and tors.45 In other words, by encouraging nations
water quality in OECD countries are much to concentrate on production in their areas of
higher now than they were even just 30 years greatest comparative advantage, globalization
ago—an improvement that has taken place just enhances total world economic efficiency and
as FDI and the share of those economies devot- minimizes inevitable environmental costs.
ed to trade have grown higher than ever.40
There is no evidence that increasing trade with
developing countries is placing downward pres- Globalization Close to Home:
sure on U.S. environmental standards. The United The Case of Mexico
States is one of the world’s most open economies,
and its environment is one of the cleanest. Over Although East Asia has been the most cel-
the past decade, the United States has continued ebrated example of rapid export-driven devel-
to pursue a liberal trade agenda by signing the opment, the trend is also visible elsewhere, in

10
countries as varied as Egypt, Estonia, and paying jobs—it’s no jobs at all.”49 Mexico’s
Chile. Of special relevance to the United States president, Ernesto Zedillo, has reached a simi-
is its southern neighbor, Mexico, which was lar conclusion: “Native people employed in the
granted relatively free access to the U.S. and new apparel plants located in many of the
Canadian markets under NAFTA. For most of Yucatan’s Maya towns, migrants from the
the 20th century, Mexico had closed itself off south of Mexico working at huge maquiladora
from international trade and capital flows by industries in the northern cities of Tijuana and
setting up currency controls and trade barriers. Juarez, young engineers with good jobs at
Only with the Latin American debt crisis of high-tech factories in Monterrey and
the 1980s did Mexico slowly begin to open its Guadalajara, and many others have assured me
economy to global trade and investment. The that their new occupations—unthinkable in a
payoffs to Mexico’s economy and workers are closed economy—are much better than their
today undeniable. prior ones, if any.”50
In 1980 the percentage of Mexico’s exports to Mexico’s overall stability has been enhanced
the United States classified as “manufactured” was by its commitments to economic openness.
a paltry 0.7 percent. By 1990 that figure had Opponents of free trade wrongly blame
climbed to 3.7 percent, and by 1995 it had shot NAFTA for Mexico’s disastrous peso crisis of
up to 19.3 percent, reflecting Mexico’s ongoing 1994–95, which was actually caused by a com-
transformation from a stagnant oil-based econo- bination of loose monetary policy and an
my to a more diverse manufacturing-based econ- inflexible and overvalued exchange rate. In fact,
omy.46 Between 1993 and 1999 Mexico climbed Mexico has suffered a severe financial crisis in
from 26th place to 8th place among the world’s every election cycle since 1976—long before
largest exporters, and in recent years Mexico’s anyone had ever heard of NAFTA.51 However,
exports have fueled growth rates of 4 percent.47 Mexico’s relatively rapid recovery from the
That startling transformation has been led by the most recent crisis contrasts starkly with the
growth of manufacturing maquiladoras48 and the protracted slump that followed its 1982 debt
development of import-export business. Those crisis.52 More important, whereas the slump of
new businesses are not the result of an industrial 1982 prompted the Mexican government to
policy designed to “force” industrialization—a nationalize its banks and raise trade barriers,
strategy Mexico unsuccessfully pursued for the present government successfully resisted
decades—but rather a natural consequence of backsliding. Just as free-trade supporters on
Mexico’s comparative advantages under freer both sides of the border had predicted,
trade. Clearly, the combination of reduced trade NAFTA helped to buttress Mexico’s broader
barriers and a stable legal framework for foreign economic and political reforms. The involvement of
investment under NAFTA helped make that The involvement of U.S. businesses has posi-
shift to more manufactured exports possible. tively influenced both labor conditions and envi-
U.S. businesses has
The resulting positive changes in Mexico’s ronmental quality in Mexico. First, through com- positively influenced
economy have been astounding. “NAFTA,” petition: domestic firms are increasingly forced to both labor
says Jesus Reyes-Heroles, Mexico’s ambassador compete with foreign-owned businesses and joint
to the United States, “is the most important ventures by offering better working conditions conditions and
thing to happen to Mexico in the past 100 and higher pay. Second, by example: U.S. produc- environmental
years. . . . Those who oppose it should come to tion methods and technology are demonstrating
Mexico.” Since NAFTA’s implementation, one to Mexican businesses that it is possible to be
quality in Mexico.
of every four jobs generated in Mexico has both “green” and profitable. Far from “racing to
been in a company that receives FDI. In total, the bottom,” the Mexican government has actu-
over 20 percent of the Mexican workforce are ally strengthened its environmental regulations and
currently employed by companies that receive enforcement procedures since NAFTA has been
FDI. “In a poor country like ours,” he observes, in place. Indeed, the Zedillo administration has
“the alternative to low paying jobs isn’t high instituted an aggressive plan to clean up Mexico’s

11
environment—which has suffered from decades points of PRI’s Francisco Labastida.57 Support
of neglect by government and bloated state- for Fox is particularly strong among Mexico’s
owned businesses—by adopting a “polluter pays” emerging middle class, a significant percent of
strategy in concert with a system of voluntary whom work in sectors directly tied to interna-
environmental audits.53 tional trade and foreign investment. Regardless
The most obvious beneficiaries of trade, how- of who ultimately prevails in the July 2 vote, the
ever, have been average Mexican workers, who image of inevitable one-party rule in Mexico has
were shielded from the most severe fallout of already been shattered.
their government’s unsound monetary policies. Many Mexicans will undoubtedly continue to
Because of the sharp devaluation of the peso, in live in conditions of grinding poverty for the fore-
March 1997 real manufacturing wages were still seeable future. Nevertheless, for perhaps the first
23 percent below their precrisis level. The situa- time in Mexico’s history, parents can be confident
tion was better, however, for manufacturing jobs that their children will have greater opportunity
supported by exports. Firms with between 40 than they had. That is what globalization really
and 80 percent of their total sales going to means to our neighbors south of the border.
exports during the 1994–96 period paid wages
that were, at the low end, 11 percent higher than
The most obvious wages of non-export-oriented firms; for compa- Saving the Poor from
beneficiaries of trade nies with export sales above 80 percent, wages Development
have been average were between 58 and 67 percent higher.54
Workers in the oft-maligned maquiladora sector A [broken] storefront window becomes
Mexican workers, fared relatively well, experiencing only a 12 per- a vent to let some fresh air into the
who were shielded cent real wage reduction between 1994 and oppressive atmosphere of a retail outlet.
1996. Overall, the maquila wage has risen from
from the most severe rough parity with nonexport workers in 1993 to —Internet communiqué from the N30
fallout of their 16 percent above nonexport workers in 1996.55 Black Bloc, an “anarchist” group
government’s The successful liberalization of trade and active in Seattle58
investment in Mexico under NAFTA has not
unsound monetary resulted in a backlash against globalization. On The anti-trade agenda that coalesced on the
policies. the contrary, it has resulted in an even greater streets of Seattle and Washington, D.C., is—
commitment to open Mexico’s markets to other intentionally or not—aimed squarely at keeping
regions of the globe. A large step in that direc- poor countries poor. Consider one of the less
tion is the recent free-trade agreement negotiat- extreme demands of the protesters: that the
ed between Mexico and the European Union, WTO impose labor and environmental stan-
under which about 95 percent of tariffs on prod- dards and enforce them.
ucts traded will be completely phased out.56
Mexico is also pursuing bilateral trade agree- Labor Standards
ments with Japan, Brazil, and other countries. There is only one reason for negotiating a
This strategy implies that Mexican voters are WTO agreement for labor standards: to impose
generally satisfied with the results of trade and trade sanctions on poor countries that fail to live
investment liberalization in their country. up to it. There is already a duly constituted
Democracy in Mexico has thrived as its body, the International Labor Organization,
economy has been opened. In fact, the current whose mission is to raise labor standards around
presidential elections mark the first serious the world. Why then do labor activists want to
threat to the long-ruling Institutional bypass the ILO and start over again with the
Revolutionary Party (PRI), which has held WTO? The answer is clear: the WTO, unlike
power since the 1920s. A recent opinion poll the ILO, authorizes the imposition of trade
showed that Vicente Fox of the opposition sanctions against countries that violate its
National Action Party had pulled within three agreements. The campaign to include labor

12
standards on the WTO agenda is thus a new the village in order to save it.61 That strategy
excuse for protectionism. has not improved with age.
The justification offered for WTO rules in The mere act of mixing labor and trade
this area is that the lack of proper labor stan- concerns inevitably hinders good-faith efforts
dards constitutes a form of unfair competition to deal with the real problems of poverty and
that distorts trade and investment flows to labor abuses. The tendency will be to focus not
favor countries with abusive practices. But on where those problems are most severe but
there is no evidence that a lack of core labor on situations in which the competitive chal-
standards plays a significant role in attracting lenges to politically powerful domestic produc-
foreign investment or in enhancing export per- ers are the strongest. That is why it is important
formance. In fact, the OECD has found strong to keep institutional objectives separate. As
evidence that the opposite, a “positive associa- Jagdish Bhagwati of Columbia University
tion over time between sustained trade reforms noted: “You cannot kill two birds with one
and improvements in core standards,” is true.59 stone. . . . If you seek to do that, you will likely
Raising trade barriers against poor countries miss both birds.”62
will not improve the plight of workers in those The heart-rending problem of child labor,
countries. Instead, trade barriers will slow down which is often cited as a reason to bring the issue
growth in developing countries and keep people of labor standards into the WTO, is a case in
The campaign to
mired in poverty. In most developing countries, point. In 1993, of an estimated 80 million chil- include labor
resource-strapped governments are simply dren under the age of 15 who were working standards on the
unable to afford or enforce above-market wages around the world, about 95 percent were living
and better working conditions, so no improve- in developing countries.63 According to the WTO agenda is a
ment will result from reducing trade. In cases in OECD, most child labor does not involve new excuse for
which oppression truly exists, the offending gov- exports. Child labor is found most commonly in
ernments are unlikely to respond to the severing rural areas, usually on family farms, and is
protectionism.
of international economic ties by cleaning up unpaid.64 In urban areas, children tend to work
their acts. Indeed, isolating a country economi- in the informal sector, in family businesses and
cally often has the perverse effect of weakening small shops. In general, children are compelled
internal political opposition and further concen- to work because of lack of economic opportuni-
trating power in the hands of the ruling regime. ty, not because of malice or a lack of adequate
As the prominent Chinese dissident Bao Tong regulation. After all, parents in developing coun-
has stated: “I appreciate the efforts of friends and tries want the best for their children, just as do
colleagues to help our human rights situation, parents in the United States. For poor families,
but it doesn’t make sense to use trade as a lever. child labor is often simply a matter of survival,
It just doesn’t work.”60 not exploitation. Besides, not all child labor is
From the U.S. perspective, imposing trade inherently bad. Even in the developed world,
barriers in the name of humanitarian concerns work by children is widely accepted (and even
is as morally questionable as it is economically applauded) as long as the burden is not unrea-
unsound. Even if the goal is the admirable one sonable and does not interfere with schooling.
of higher wages for everyone in the long run, According to the ILO, the bulk of child
the means being used to achieve that goal are labor takes place in the nontradable agricultur-
making some people in poor countries worse al sectors of developing economies. Nearly 70
off in the short run—by destroying their liveli- percent of working children toil as unpaid fam-
hoods. Impoverishing average citizens has ily workers.65 Thus, attempts to root out child
never been an effective way to change the poli- labor by applying trade sanctions are doomed
cies of autocratic leaders, and it is even less to fail and will have a negligible impact on
effective in encouraging economic growth. most child workers. Sanctions will, however,
This wrongheaded approach has been com- drive those children who currently work in
pared to the Vietnam War strategy of burning export-related industries into the nontradable

13
sector—a result that is quite surely not to the their ability to achieve higher environmental
children’s benefit. Moreover, child labor is most quality. Furthermore, environmentalists in the
common in those places—such as most United States insist that this country should be
African countries—that have been the least free to set whatever level of environmental pro-
touched by trade and globalization. Like most tection it desires—a right that must also be
other problems faced by developing countries, granted to developing countries. In fact, the
child labor can be best addressed by develop- principle of regulatory self-determination is
ment—by embracing the global economy. enshrined in the WTO itself. As Deputy U.S.
Conditioning access to Western markets on Trade Representative Susan G. Esserman has
the elimination of child labor would be far pointed out, it recognizes “the right of
more likely to harm than help poor children. Members to take science-based measures to
There is no convincing case for including achieve those levels of health, safety and envi-
labor standards in the international trading sys- ronmental protection that they deem appropri-
tem. The result would be to undermine the ate—even when such levels of protection are
low-wage comparative advantage of develop- higher than those provided by international
ing countries without raising those wages, to standards.”66 But self-determination should not
corrupt the trade-liberalizing mission of the be a one-way street: There are legitimate dif-
WTO, and to harm the very people, including ferences in culture and environmental quality
children, that such standards are supposedly preferences that should be tolerated even when
intended to help. they result in lower standards. Thus, the indis-
criminate use of trade restrictions to discourage
Environmental Standards purely domestic practices that Western envi-
With respect to trade rules on environmen- ronmentalists happen to consider offensive—
tal issues, the situation is somewhat more com- such as the EU’s ban on fur from animals
plicated. Under limited circumstances, there caught in leg traps—should be avoided.
may be tensions between trade policy goals and Because globalization promotes economic
environmental goals—namely, in cases of growth, which in turn promotes rising environ-
import restrictions on products that threaten mental standards, better environmental protec-
the importing country’s environment or the tion will occur in those countries that embrace
health and safety of its citizens. WTO rules, globalization. Attempting to link enforcement
though, already recognize the authority of of developed-country environmental norms
national governments to restrict trade under with trade sanctions will result only in reduced
such circumstances. But those who call for trade, slower growth, and a prolonged status
There are additional WTO environmental standards quo. When legitimate cross-border environ-
want to restrict such national environmental mental issues need to be addressed, the WTO is
legitimate autonomy. They want the top-down imposi- not the proper forum in which to address them.
differences in tion of one-size-fits-all regulations to be
culture and enforced by trade sanctions. A New Colonialism?
The intrusion of the WTO into environ- Anti-trade activists often voice concern for
environmental mental policymaking would be a terrible mis- the political rights of the citizens of developing
quality preferences take. As discussed above, free trade assists the countries. Never mind that most members of
cause of rising environmental standards. the WTO are already functioning democra-
that should be Isolation from the world economy breeds only cies—the presumption seems to be that a
tolerated even stagnation and environmental degradation—as democratic electorate will naturally demand
when they result in the miserable environmental record of the Western-style labor and environmental regula-
Soviet-style economies attests. Imposing trade tions, so when such regulations are not present,
lower standards. sanctions on poor countries that do not live up democracy must be a charade. The notion that
to international regulations would only retard there are silent, politically disenfranchised
those countries’ development and thus slow masses evidently makes championing their

14
cause—often over the objections of duly elect- officer sagely remarked to a group of teenage Economic freedom
ed representatives—more palatable to relative- protesters as they faced each other over the bar- and political
ly affluent Western protesters. ricades, “I understand that you all claim to want
Democratic reform, where it is needed, is a to help the poor oppressed people of the world, freedom are
worthy goal. The most realistic path to achiev- but what I don’t understand is why none—and I intimately
ing reform is through economic liberalization. mean none—of those people are here.”69
Economic freedom and political freedom are
intertwined: the
intimately intertwined: the former cannot be former cannot be
established without creating intense pressures A Pro-Trade, Pro-Freedom established without
for the latter. And trade is first and foremost a Agenda
matter of freedom. When a government tells creating intense
its citizens that they may not buy from or sell There are many problems facing developing pressures for the
to foreigners, it has significantly curtailed their countries, but an excess of international trade latter.
liberty. Moreover, it is arrogant to argue that and investment is not among those problems.
citizens of developing countries need to be pro- Contrary to popular perception, U.S. business-
tected from commercial dealings with other es are not rapidly relocating production facili-
countries—that they will always be swindled, ties to developing countries. For developing
exploited, or outfoxed by savvy foreigners. countries foreign investment is a blessing that
The anti-globalization demonstrations seem is in woefully short supply. From 1985 to 1995,
to have strengthened the resolve of developing net outflows of FDI from industrial to devel-
countries to resist attempts by their self-appoint- oping countries were only about 2 percent of
ed defenders to force a labor or an environmental total capital formation in developed countries.70
agenda on the WTO. As one Gabonese diplomat Indeed, a recent UN Conference on Trade and
who was blocked from attending the Seattle Development report described the “increasing
meetings noted with disgust, “[The protesters] marginalization” of the world’s 48 poorest
understand nothing, and are as remote from our countries, which are in danger of falling further
problems as you’d expect from middle-class behind more developed competitors in an
whites in Washington state.”67 Or as Mexico’s increasingly globalized economy. According to
president, Ernesto Zedillo, recently observed: that report, the world’s least-developed coun-
tries accounted for 13 percent of the world’s
A peculiar alliance has recently come population in 1997 but represented only a 0.4
into life. Forces from the extreme left, percent share of the world’s exports and a 0.6
the extreme right, environmentalist percent share of imports.71
groups, trade unions of developed Despite the positive impact that internation-
countries and some self-appointed al trade and investment have had in developing
representatives of civil society, are countries, poverty, worker mistreatment, and
gathering around a common endeavor: human rights abuses remain in some places. The
to save the people of developing coun- natural response of Americans is to call for
tries from—development.68 action that will improve those miserable condi-
tions abroad. Useful policy tools do in fact exist,
The spectacle of rich Americans marching and new ones are continually being proposed.
unbidden in the name of downtrodden foreign- Two rules, however, should guide U.S. policy-
ers reached absurd heights during the April makers when evaluating any policy designed to
protests in Washington, D.C. Lacking a signifi- improve conditions in developing countries.
cant presence of protectionist-minded union First, it must be remembered that, despite
members, the demonstrations were populated often-noble intentions, the U.S. government is
almost exclusively by students, many of whom limited in its capacity to effect change abroad.
wore costumes and used various forms of street Poor countries cannot be compelled to develop
theater to make their points. As a D.C. police through threats or sanctions—they must make

15
that journey voluntarily. The age of imperialism ment to free trade, the following is a brief list of
is over, and attempts to revive it in other guises useful trade-friendly options that policymakers
are doomed to failure. Second, the following might consider if they believe they should
question must be asked of any proposed mea- address some particular abusive practice.
sure: Will it place limits on the freedom to First, the United States should continue to
engage in voluntary cross-border exchange? If work within the framework of the ILO when
the answer to that question is yes, the policy will dealing with governments and corporations
imperil wealth creation and should be rejected. that engage in abusive practices. That can be
Above all, the United States must remain a accomplished by spotlighting such practices in
committed member of the WTO and a cham- official reports and investigations. The ILO is a
pion of a liberal world trading system. That better forum than the WTO for resolving dis-
means not only rejecting the current legislation putes over labor standards, both because the
in Congress that would end U.S. membership in ILO has more experience with those issues and
the WTO but also keeping existing commit- because it is far less likely to provide cover for
ments to reduce trade barriers—an area in which covert protectionism.
Washington has often dragged its feet. In addi- Second, direct foreign aid payments can be
tion, U.S. negotiators should work to launch a suspended when foreign governments engage in
The United States new round of multilateral trade negotiations that abusive practices. Suspending direct aid is a
must remain a would address such areas as services, agriculture, viable way to signal strong disapproval of the
committed member and electronic commerce. The WTO’s dispute actions of foreign governments without violat-
settlement mechanism, although on the whole a ing the rights of Americans or disrupting bene-
of the WTO and a tremendous success, is also in need of reform ficial private commercial exchange. In addition,
champion of a with respect to the enforcement of WTO rul- U.S. directors at international financial institu-
ings. Specifically, countries that refuse to imple- tions, such as the International Monetary Fund
liberal world trading ment adverse rulings should be required to offer and the World Bank, can be instructed, when
system. offsetting liberalization rather than be subject to circumstances warrant, to vote against loans to
trade-restricting sanctions.72 objectionable governments.
The United States should also take aggressive Third, by blocking credits and loan guarantees
steps to unilaterally reduce its remaining trade from the Export-Import Bank and the Overseas
barriers and end practices that unfairly discrimi- Private Investment Corp., Congress can ban cor-
nate against foreign producers and thereby porate welfare for companies that mistreat their
encourage other nations to do the same. In par- workers or that do business with abusive govern-
ticular, poor-country exports—for example, tex- ments. That will adversely affect some U.S. busi-
tiles and clothing—often face such barriers as nesses, but subsidizing private investment abroad
absurdly high (12 to 30 percent) tariffs that has never been a good idea. The provision of loan
should be scrapped. Tariffs on environmental guarantees and subsidized insurance to the private
goods and services—factory smokestack scrub- sector has reduced pressure on foreign govern-
bers and the like—should also be eliminated ments to create an investment environment that
immediately, since trade in such products encour- would attract foreign capital on its own. To attract
ages environmental stewardship worldwide. investment, developing countries must establish
Another important step Washington should take, secure property rights, a fair and uncorrupted judi-
however, would be to repeal or reform the unfair ciary, and transparent democratic accountability
U.S. antidumping law, the aggressive use of which rather than rely on Washington-backed schemes
has seriously compromised our ability to encour- that allow those reforms to be avoided.
age freer markets abroad.73 Fourth, private initiatives can play an impor-
Of course, there are appropriate occasions to tant role in ending abusive practices and allevi-
take actions against specific instances of human ating the burdens of poverty abroad. As the
rights abuses abroad, such as cases of involuntary AFL-CIO has noted, “Polls show that people
prison labor. Keeping in mind a core commit- are willing to pay more if they can be assured

16
that their clothes were not made in sweat- tarians must be clear-eyed about the real Denying access to
shops.”74 If that is the case, then corporations options for the impoverished billions that still U.S. markets and
and investors will respond to consumer demand make up the majority of humankind. Poverty
and public pressure, as many already have. and want cannot be legislated away and cannot investment capital
Companies can label their products to show that be cured by bureaucratic aid distribution; the makes it
they were made in compliance with appropriate evils of abject poverty and deprivation can be
labor and environmental standards. Outside conquered only by the creation of wealth.
unnecessarily
auditors can ensure the integrity of such label- Denying access to U.S. markets and investment difficult for the
ing. And consumers can vote with their wallets capital makes it unnecessarily difficult for the world’s poorest
in favor of such products if they so choose. In world’s poorest people to build better lives.
addition, there are many worthwhile charitable people to build
activities to which people can contribute their better lives.
money and time—such as building schools and Notes
hiring teachers for poor villages so that children
have an alternative to working in the fields. 1. Jay Mazur, “Labor’s New Internationalism,”
Foreign Affairs (January–February 2000): 79.
Finally, various “symbolic” sanctions—such as
restrictions on U.S. visas for officials of abusive 2. Jeffrey Sachs and Andrew M. Warner,
governments, or bans on countries’ participation “Economic Reform and the Process of Global
in international sporting events—can serve a use- Integration,” Brookings Papers on Economic
Activity no. 1, 1995.
ful purpose. Such narrowly targeted sanctions can
be a powerful force for change, without inflicting 3. Ibid.
the senseless collateral damage of economic sanc- 4. Organization for Economic Cooperation and
tions. In 1993 the Financial Times noted that Development, Open Markets Matter (Paris: OECD,
sporting sanctions against South Africa “were the 1998), p. 40.
most effective of all [sanctions]—not least
5. James Gwartney and Robert Lawson, Economic
because these measures had a clear and unam- Freedom of the World: 2000 Annual Report
biguous impact, unlike economic sanctions whose (Vancouver, B.C.: Fraser Institute, 2000).
effects are difficult to differentiate from normal
6. Gumisai Mutume, “Development: The Jury Is
market forces.”75 Still Out, but for How Long?” Inter Press Service,
It bears repeating that any blanket remedy February 15, 2000.
that disrupts trade and investment is counter-
7. Organization for Economic Cooperation and
productive and should be rejected. Import Development, Policy Coherence Matters (Paris:
bans hurt poor people by making them more OECD, 1999), p. 45.
miserable in the short run in order to put
pressure on leaders to make positive changes 8. Y. C. Richard Wong, “Lessons from the Asian
Financial Crisis,” Cato Journal 18, no. 3 (Winter
in the long run. Unfortunately, such pressure 1999): 391.
is rarely effective in a world where U.S. com-
panies no longer dominate global trade. The 9. World Bank, The East Asian Miracle: Economic
Growth and Public Policy (Oxford: Oxford
decades-old embargo against Cuba, for exam- University Press, 1993), p. 2. The eight
ple, has harmed the Cuban people and caused economies are Hong Kong, Indonesia, South
lost opportunities for U.S. businesses; yet the Korea, Japan, Malaysia, Singapore, Taiwan, and
embargo has done nothing to bring about Thailand.
democratization in that country. Given that 10. Ibid., p. 59.
sanctions have a poor record of achieving for-
eign policy goals, we should not expect sanc- 11. Paul Krugman, “In Praise of Cheap Labor,”
tions to be any more successful in achieving Slate, March 27, 1999.
social objectives. 12. World Bank, East Asian Miracle, p. 33.
The humanitarian impulse is a commend-
13. Ibid., p. 37.
able aspect of American culture. But humani-

17
14. World Trade Organization, “Thailand’s Finance and Development, December 1997, p. 20.
Reforms Point to Strong Recovery, but Efforts
Should Continue,” Trade Policy Review Body press 29. John Pomfret, “Dissidents Back China’s WTO
release, December 10, 1999, http://www.wto.org Entry,” Washington Post, May 11, 2000.
/wto/reviews/tprb122.htm.
30. David Thurber, “Globalization Dangers Still to
15. World Bank, Africa Country Key Indicators Be Resolved,” Associated Press, February 14, 2000.
Report, March 6, 2000, http://wbln0018.
worldbank.org/afr/aftbrief.nsf. 31. See Brink Lindsey et al., “Seattle and Beyond: A
WTO Agenda for the New Millennium,” Cato
16. Daniel T. Griswold, “The Blessings and Institute Trade Policy Analysis no. 8, November 4, 1999,
Challenges of Globalization,” Paper presented at http://www.freetrade.org/pubs/pas/tpa-008es.html.
the Eighth International Congress of Professors
World Peace Academy, Seoul, South Korea, 32. See J. Michael Finger and Ludger Schuknecht,
February 10, 2000, pp. 12–13. “Market Access Advances and Retreats: The
Uruguay Round and Beyond,” Paper presented at the
17. These ideas are explored further in Mark A. Annual World Bank Conference on Development
Groombridge, “Free Markets and Free Societies: Is Economics, April 1999, p. 22, http://www.
There a Link?” Paper presented at the Eighth worldbank.org/research/abcde/pdfs/finger.pdf.
International Congress of Professors World Peace
Academy, p. 13. 33. Thomas W. Hertel and Will Martin, “Would
Developing Countries Gain from Inclusion of
18. Jay R. Mandle, “Sweatshop Protesters Miss the Manufactures in the WTO Negotiations?” Paper
Primary Target,” Journal of Commerce, February 24, presented at the WTO/World Bank Conference on
2000. Developing Countries in a Millennium Round
Secretariat, September 20–21, 1999, p. 3.
19. World Bank, Global Economic Prospects and the
Developing Countries 2000 (Washington: World 34. Ibid., p. 12.
Bank, 2000), p. 29.
35. David Postman et al., “Why WTO United So
20. Edward M. Graham, “Trade and Investment at Many Foes—Sense of Unease and Injustice Took Trade
the WTO: Just Do It!” in Launching New Global from Elites to Streets,” Seattle Times, December 6, 1999.
Trade Talks: An Action Agenda, Special Report no.
12, Institute for International Economics, 36. See Arik Levinson, “Environmental Regulations
September 1998, p. 151. and Industry Location: International and Domestic
Evidence,” in Fair Trade and Harmonization:
21. Survey available at http://www.amcham-china. Prerequisite for Free Trade? ed. Jagdish Bhagwati and
org.cn. Robert Hudec (Cambridge, Mass.: MIT Press, 1996).

22. Clay Chandler and Frank Swoboda, “In 37. See Scott Barrett, “Strategic Environmental Policy
Chinese Wages, a U.S. Bump,” Washington Post, and International Competitiveness,” in Environmental
May 23, 2000. Policies and Industrial Competitiveness (OECD: Paris,
1993).
23. Quoted in ibid.
38. See, for example, Organization for Economic
24. Jeffrey A. Frankel and David Romer, “Does Cooperation and Development, The Benefits of Trade
Trade Cause Growth?” American Economic Review and Investment Liberalization (Paris: OECD, 1998).
89, no. 3 (June 1999): 379–99.
39. Gene M. Grossman and Alan B. Krueger,
25. World Bank, East Asian Miracle. “Economic Growth and the Environment,”
National Bureau of Economic Research Working
26. Gary Burtless et al., Globaphobia: Confronting Paper no. W4634, February 1994.
Fears about Open Trade (Washington: Brookings
Institution, 1998), p. 68. 40. Ibid., p. 99.

27. International Labor Organization, “Working Party 41. The President’s Council on Environmental Quality,
Report on the Social Dimensions of the Liberalization of Environmental Quality: 1997 Report (Washington:
International Trade,” GB.273/WP/SDL/1 (Rev. 1), Government Printing Office, 1998), pp. 86–89.
273d sess., Geneva, November 1998, http://www.ilo.org
/public/english/standards/relm/gb/docs/gb273/sdl1. 42. Ibid., p. 267.
htm.
43. Ibid., p. 105.
28. Stephen S. Golub, “Are International Labor
Standards Needed to Prevent Social Dumping?” 44. Ibid., p. 224.

18
45. Tom Jones, “Economic Globalisation and the 61. Brink Lindsey, “Kick Me, I’m for Free Trade,”
Environment: An Overview of the Linkages,” in Reason, March 2000.
Globalisation and the Environment: Perspectives from
OECD and Dynamic Member Economies (OECD: Paris, 62. Jagdish Bhagwati, “Free Trade: Why AFL-
1998), p. 20. CIO, the Sierra Club and Congressman Gephardt
Should Like It,” Remarks at a panel discussion on
46. Golub, “Are International Labor Standards Needed the occasion of the award of the Seidman
to Prevent Social Dumping?” p. 18. Distinguished Award in Political Economy,
September 18, 1998.
47. Joel Millman, “The World’s New Tiger on the
Export Scene Isn’t Asian; It’s Mexico,” Wall Street 63. K. Ashagrie, “Statistics on Child Labour: A
Journal, May 9, 2000. Brief Report,” in Bulletin of Labour Statistics
(Geneva: International Labor Organization, 1993).
48. A “maquiladora” is a Mexican factory (often
along the border with the United States) to which 64. Organization for Economic Cooperation and
foreign materials and parts are shipped and from Development, Trade, Employment, and Labour
which the finished product is returned to the origi- Standards, p. 45.
nal market.
65. See Kebebew Ashagrie, Statistics on Working
49. Remarks at a Cato Institute luncheon, October 7, Children and Hazardous Labour in Brief (Geneva:
1999. ILO, 1998), http://www.ilo.org/public/english/
comp/child/stat/stats.html.
50. Ernesto Zedillo, “Can We Take Open Markets for
Granted?” Remarks at the plenary session, World 66. Susan G. Esserman, “American Goals in the
Economic Forum, Davos, January 28, 2000, Trading System,” Testimony before the Subcommittee
http://world.presidencia.gob.mx/PAGES/library/sp_28 on Trade of the House Ways and Means Committee,
jan00.html. August 5, 1999, http://waysandmeans.house.gov/trade/
106con/8-5-99/8-5esse.htm.
51. W. Lee Hoskins and James W. Coons, “Mexico:
Policy Failure, Moral Hazard, and Market Solutions,” 67. Quoted in Eugenie L. Evans, “Delegates
Cato Institute Policy Analysis no. 243, October 10, 1995. Disgusted by Seattle Protesters Rather Than
Inspired,” Financial Times, January 7, 2000.
52. Office of the U.S. Trade Representative, Study
on the Operation and Effect of the North American 68. Zedillo.
Free Trade Agreement (Washington: Government
Printing Office, July 1997), pp. 25–28, http:// 69. The author heard this exchange during the
www.ustr.gov/reports/index.html. Washington, D.C., protests against the IMF, the
World Bank, and the WTO (and other evils) on
53. United States–Mexico Chamber of Commerce, April 16, 2000.
Environmental Issues in Mexico under NAFTA, May
1998, http://www.usmcoc.org/environment. html. 70. Stephen S. Golub, Labour Costs and International
Trade (Washington: American Enterprise Institute,
54. Office of the U.S. Trade Representative, p. 28. 1999), p. 15.
55. Ibid., p. 28. 71. “World’s Poorest Nations Left Trailing by
Globalization,” Financial Times Asia Intelligence
56. John Nagel and Joe Kirwin, “Mexico, EU Agree Wire, February 14, 2000. See also UN
to Final Terms of Pact,” International Trade Reporter Conference on Trade and Development, The
16, no. 47 (December 1, 1999): 1942. Least Developed Countries 1998 Report Overview,
http://www.unctad.org/en/docs/ldc98ove.pdf.
57. “Mexico Enjoys a Real Election Campaign,” The
Economist, April 29, 2000. 72. See Lindsey et al.
58. Kim Murphy, “Anarchists Deployed New Tactics 73. See Brink Lindsey, “The U.S. Antidumping Law:
in Violent Seattle Demonstrations,” Los Angeles Times, Rhetoric versus Reality,” Cato Institute Trade Policy
December 16, 1999. Analysis no. 7, August 16, 1999.
59. Organization for Economic Cooperation and 74. Mazur, p. 91.
Development, Trade, Employment, and Labour
Standards: A Study of Core Workers’ Rights and 75. Philip Gawith and Patti Waldmeir, “Market Forces
International Trade (Paris: OECD, 1996), pp. 12–13. Were the Power behind Sanctions,” Financial Times,
September 25, 1993.
60. Quoted in Pomfret.

19
Board of Advisers CENTER FOR TRADE POLICY STUDIES
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“WTO Report Card II: An Exercise or Surrender of U.S. Sovereignty?” by William H.
George P. Shultz Lash III and Daniel T. Griswold, Trade Briefing Paper no. 9 (May 4, 2000)
Hoover Institution
“China’s Long March to a Market Economy: The Case for Permanent Normal Trade
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Former Chairman and Analysis no. 10 (April 24, 2000)
CEO, Citicorp/Citibank
“WTO Report Card: America’s Economic Stake in Open Trade” by Daniel T. Griswold,
Clayton Yeutter Trade Briefing Paper no. 8 (April 3, 2000)
Former U.S. Trade
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(March 3, 2000)

“Tax Bytes: A Primer on the Taxation of Electronic Commerce” by Aaron Lukas, Trade
Policy Analysis no. 9 (December 17, 1999)

“Seattle and Beyond: A WTO Agenda for the New Millennium” by Brink Lindsey, Daniel
T. Griswold, Mark A. Groombridge, and Aaron Lukas, Trade Policy Analysis no. 8
(November 4, 1999)

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