New Trade Policy for America: Do Labor and Environmental Provisions in Trade Agreements Serve Social Interests or Special Interests, A


A NEW TRADE POLICY FOR AMERICA: DO LABOR
AND ENVIRONMENTAL PROVISIONS IN TRADE

AGREEMENTS SERVE SOCIAL INTERESTS OR
SPECIAL INTERESTS?

Andrea R. Schmidt*

I. INTRODUCTION

In April of 2007, the Bush Administration signed a free-trade agreement
with Peru (U.S.-Peru FTA) that contained environmental and labor provisions
unprecedented in previous U.S. trade agreements.' The agreement also
included a new annex on forest sector governance meant to address illegal
logging in Peru.2 The environmental chapter of the U.S. - Peru FTA requires
the parties to fulfill their obligations under Multilateral Environmental
Agreements (MEAs) that have been ratified by both parties.3 Under the labor
provisions of the U.S.- Peru FTA, both parties agreed to adopt and maintain
certain labor rights as detailed in the 1998 International Labor Organization
(ILO) Declaration on Fundamental Principles and Rights at Work.4 Notably,
the labor and environmental provisions in the U.S. - Peru FTA have been
elevated to core obligations that are now subject to the same dispute settlement
procedures as other core obligations in the agreement. 5

Labor and environmental provisions in international trade agreements
have long been the subject of disagreement between Democrats and
Republicans in the United States.6 Their inclusion in the U.S.- Peru FTA

* J.D. Candidate, 2009 - Indiana University School of Law - Indianapolis; BA

Sociology 2003, Portland State University.
1. See OFFICE OF THE U.S. TRADE REPRESENTATIVE, TRADE FACTS, FREE TRADE WITH

PERU: SUMMARY OF THE UNITED STATES - PERU TRADE PROMOTION AGREEMENT 2-3 (2007)
[hereinafter PERU TPA SUMMARY], available at http'/www.ustr.gov/assets/DocumentLibrary/
FactSheets/2007/asset-uploadfile672_13066.pdf.

2. Id. at 8; International Centre for Trade and Sustainable Development (ICTSD), US -
Peru Bilateral to Address Illegal Logging, Boost MEA Implementation, 7 BRIDGES TRADE
BIOREs, No. 13, July 6, 2007 [hereinafter US - Peru Bilateral to Address Illegal Logging],
available at http://ictsd.net/downloads/biores/biores7-13.pdf.

3. PERU TPA SUMMARY, supra note 1. The MEAs covered include the Convention on
International Trade in Endangered Species of Wild Fauna and Flora (CITES), the Montreal
Protocol on Substances that Deplete the Ozone Layer, the International Convention for the
Prevention of Pollution from Ships, the Rarnsar Convention on Wetlands, the Convention on the
Conservation of Antarctic Marine Living Resources, the International Convention for the
Regulation of Whaling and the Convention for the Establishment of an Inter-American Tropical
Tuna Commission. US - Peru Bilateral to Address Illegal Logging, supra note 2.

4. PERU TPA SUMMARY, supra note 1, at 8.
5. US - Peru Bilateral to Address Illegal Logging, supra note 2; PERU TPA SUMMARY,

supra note 1, at 9.
6. See I. M. DESTLER, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, AMERICAN



IND. INT'L & Comp. L. REv.

reflects a shift in the Bush Administration's trade policy, made in an effort to
assuage the Democrats who took control of Congress in January of 2007.7

Although, at first glance, these provisions might merely seem to reflect an
increasing concern for labor and environmental rights, specific protectionist
groups also stand to benefit from their inclusion in trade agreements and may
advocate their inclusion for reasons completely unrelated to environmental
preservation or human rights. First, domestic industries seeking to protect
themselves from competition with cheap imports which, they fear, could be
"subsidized" by less-restrictive labor and environmental laws, may advocate
inclusion of labor and environmental standards to impair the competitiveness of
imported goods.8 Second, international firms or industries hoping to achieve a
competitive advantage over more efficient producers from other countries on
the international market may advocate labor and environmental standards
because they will raise the price of production for their international
competitors.9 Third, proponents of a trade agreement that is unpopular due to
its potential to harm to the environment or human rights may actually advocate
inclusion of nominal labor and environmental standards in order to pacify the
agreement's detractors. Finally, politicians may advocate inclusion of labor and
environmental standards as campaigning strategies because of their appeal to
the patriotism and sympathies of the American public.'0 At the other end of the
spectrum, free-trade proponents fear that stricter labor and environmental
provisions are a tool for anti-globalization protectionism that will ultimately
hurt the world economy.11

This Note will argue that labor and environmental standards in trade
agreements are vulnerable to manipulation and exploitation by various
protectionist groups that stand to benefit from their inclusion in trade
agreements. Relying on economic theory, it will assert that when the primary
purpose of these provisions is to benefit specific protectionist special interests,
the inclusion of such provisions in trade agreements has a high probability of
causing significant harm to overall social welfare in the United States.

This Note will proceed in four parts. Part HI outlines historical and
current trends in domestic and international trade systems and policy. Part lI.A
provides an overview of Trade Promotion Authority, the U.S. trade mechanism

TRADE POLITICS IN 2007: BUILDING BIPARTISAN COMPROMISE 1 (Policy Brief No. PB07-5,
2007), available at http://www.iie.com/publications/pb/pbO7-5.pdf; see also Robert McMahon,
The 110th Congress: Dems and Trade, COUNCIL ON FOREIGN RELATIONS, Jan. 4, 2007,
available at http://www.cfr.org/publication/12339/110th_congress.html.

7. DESTLER, supra note 6, at 1.
8. Interview by Lee Hudson Teslik with Jagdish N. Bhagwati, Senior Fellow for

International Economics, Bhagwati: U.S. Must Rethink Doha Demands (Feb. 9, 2007), in
COUNCIL ON FOREIGN RELATIONS, available at http://www.cfr.org/publication/12592/.

9. See JAGDISH BIIAGWATI, IN DEFENSE OF GLOBALIZATION 280 (Oxford University Press
2007) (arguing that intense international trade competition provides an incentive for domestic
industries to seek out protectionist measures in order to increase the costs of production for
competitors).

10. See infra Part IV.B and accompanying notes.
11. See DESTLER, supra note 6, at 1.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 169

through which Congress delegates trade negotiating authority to the Executive
Branch. Part II.B describes the formulation of the "New Trade Policy for
America," the bipartisan trade policy compromise adopted in May 2007 - the
first trade policy to formally include labor and environmental standards. Part
II.C examines the relatively recent shift from multilateralism to bilateralism and
regionalism as dominant international trade models, and points out the potential
loss of efficiency and the inevitable loss of transparency in bilateral and
regional trading systems. Part Ill then considers changing attitudes about
globalization and trade liberalization, noting that U.S. public opinion and U.S.
politicians increasingly appear to be adopting protectionist views, but that
prominent economists continue to advocate trade liberalization accompanied by
institutional adjustments to compensate the "losers" in trade liberalization. Part
IV highlights the problem of "capture," in which legislative measures can be
manipulated and exploited by special interests at the expense of the rest of
society. Part IV concludes by arguing that labor and environmental provisions
are particularly vulnerable to capture because they represent politically and
socially desirable goals. Part V argues that three conditions - the rise of
bilateralism, the trend towards protectionism in U.S. public and political
opinion, and the status of labor and environmental protection as desirable social
goals - converge to create an environment that is ripe for exploitation and
manipulation by protectionist special interests, at a high cost to U.S. society
overall. As a result, Part V concludes that labor and environmental provisions
are not an appropriate component of U.S. trade policy at this time and that labor
and environmental issues should be addressed in alternative forums.

II. BACKGROUND: TRENDS IN DOMESTIC AND INTERNATIONAL TRADE

A. An Overview of Trade Promotion Authority

The Constitution dictates that "Congress shall have Power... to regulate
Commerce with foreign Nations ....1 2 In contrast, the President, although
having exclusive authority to negotiate treaties and international agreements
and broad power over the nation's foreign affairs under Article II, is assigned
no specific responsibility for trade by the Constitution. 13 Congress authorizes
the President to enter into agreements that regulate international commerce
through a legislative grant of Congressional authority called Trade Promotion
Authority (TPA). Congress does not completely surrender its power over
international trade, but instead maintains a check on the executive power

12. U.S. CONST. art. I, § 8, cl. 3.
13. U.S. CONST. art. 2, § 2, cl. 2; J.F. HORNBECK & WuniLm H. COOPER, TRADE

PROMOTION AUTHORITY (TPA): ISSUES, OPTIONS, AND PROSPECTS FOR RENEwAL 2 (updated Jan.
7, 2008) (2006).



IND. INT'L & COMP. L. REv.

through a variety of mechanisms, 14 including, for example, providing for TPA
expiration after a specified period.' 5 As a result, once the President acquires
TPA from Congress, he or she has significant authority over trade. The initial
obstacle of procuring TPA, however, must first be overcome.

TPA is an important trade tool for several reasons. First, as a practical
matter, it is not feasible for Congress, whose members are motivated by the

16diverse interests of their constituents, to negotiate complex trade agreements.'
TPA streamlines the process by transferring most of the trade-negotiating
initiative to the President, giving him the authority to conclude trade
agreements that will then be presented to Congress for a vote without the
possibility of amendment. 17 Second, TPA gives U.S. trade partners assurance
that final agreements negotiated by the President will not be bogged down by
unlimited congressional debates and amendments.' 8 TPA also performs a third,
less apparent function: it lessens protectionist pressures on Congress.' 9

Congress first expressly delegated trade-negotiating authority to the
President in the Reciprocal Trade Agreements Act of 1934 (RTAA).20 For the
first 150 years of the United States' history, Congress exercised its power to
regulate foreign trade by setting tariffs on all imported goods. 2' During the
1930's, producers seeking protection from the effects of the Great Depression
motivated Congress to pass the "Smoot-Hawley" Tariff Act of 1930, which set

22prohibitively high tariffs on imports. The Act was passed in spite of a petition
signed by 1,028 noted economists warning that its implementation would result

23in a world-wide depression. As predicted, major U.S. trading partners
imposed retaliatory tariffs. The tariffs resulted in severely restricted trade and
ultimately deepened and prolonged the effects of the Depression.24 In an effort

14. Id. at 15. Congress maintains some authority over trade by requiring that certain trade
objectives be included in trade agreements, by requiring periodic TPA reauthorization, and by
utilizing various procedural rules and mechanisms. Id.

15. Id. at 14-15.
16. Clete D. Johnson, A Barren Harvest for the Developing World? Presidential "Trade

Promotion Authority" and the Unfulfilled Promise of Agriculture Negotiations in the Doha
Round, 32 GA. J. INT'L & COMP. L. 437, 446-47 (2004).

17. Id. at 446.
18. HORNBECK & COOPER, supra note 13, at 5.
19. Id at 3. The initial delegation of authority in RTAA to reduce tariffs and implement

the tariffs by proclamation without additional legislation was motivated in part by Congress'
desire to lessen protectionist pressure on itself. Id.

20. Id.
21. Id. at 2.
22. Id. at 3.
23. 1,028 Economists Ask Hoover to Veto Pending Tariff Bill, N.Y. TIMES, May 5, 1930, at 1,

available at http'/www.clubforgrowth.org/media/iploads/smooth%20hawley%20ny%20
times%2005%2005%2030.pdf; see also Audio Interview by Lee Hudson Teslik with Amity Shlaes,
Council on Foreign Relations Senior Fellow for Economic History, Shlaes: Putting Protectionism in
Historical Context, Nov. 14, 2007, available at http'./www.cfr.org/publication/14803/shlaes.html
[hereinafter Interview with Amity Shlaes].

24. HORNBECK & COOPER, supra note 13, at 3.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 171

to ameliorate the damaging effects of the tariffs, Congress enacted the RTAA,
which allowed the President to negotiate tariff-reducing agreements with
foreign nations and "implement the new tariffs by proclamation without
additional legislation. 25  Congress renewed presidential reciprocal trade
authority under the RTAA model eleven times.26

The establishment of the General Agreement on Tariffs and Trade
(GATT) in 1947 shifted the major forum for trade negotiations from bilateral to
multilateral negotiations and expanded international trade liberalization
measures beyond the reduction of tariffs.27 To accommodate this shift and
allow the President to advance trade liberalization, the Trade Act of 1974 gave
the President authority to reduce non-tariff barriers (NTBs) but stipulated that
agreements involving NTBs could only enter force if Congress passed the
implementing legislation.28 In order to preserve the original goals of efficiency
and the diversion of protectionist pressure, however, Congress agreed that if the
President met certain procedural criteria, it would suspend its ordinary
legislative procedures and give trade agreements expedited treatment. 29 This
incarnation of presidential trade authority, which became known as "fast track,"
required that congressional approval of a trade agreement be subject to time-
limited debate without the possibility for amendment.3 ° Thus, fast track gave
the President additional trade negotiating authority provided that certain
requirements of the authorizing statute were satisfied. Fast track was renewed
in 1979 and 1988. 3' After its expiration in 1994, the Clinton Administration
was unable to achieve renewal authority from Congress.32 The hiatus has been
attributed in part to disagreement between the Clinton Administration and the
Republican congressional leadership "on how labor and environmental issues
should be addressed in trade agreements. 33

The core provisions of TPA have remained virtually unchanged since
their inception. Each renewal of TPA defines Congress' trade policy priorities
and mandates that those priorities be reflected in trade agreements negotiated

25. Id. Prior to the RTAA, the President's primary role in setting trade policy was
exercised under Article II of the Constitution, which states that the President "shall have power,
by and with the advice and consent of the Senate, to make treaties, provided two thirds of the
Senators present concur .. " U.S. CONST. art. I, § 2, cl. 2. The President entered into treaties
requiring the lowering of domestic tariffs, but only with the support of two-thirds of the Senate.
HORNBECK & COOPER, supra, note 13, at 3.

26. HORNBECK & COOPER, supra, note 13, at 4. Congress later expanded its role in the
process in the Trade Expansion Act of 1962, by requiring the President to submit a copy of each
concluded agreement for congressional review and a presidential statement explaining why the
agreement was concluded. Id.

27. Id.
28. Id. at 5 (citing Trade Act of 1974, 19 U.S.C. §§ 2101-2497 (1975)).
29. Id.
30. Id.
31. Id. at 6.
32. Id. at 7.
33. Id.



IND. INT'L & COMP. L. REv.

by the President. 34  TPA also contains important limiting procedural
mechanisms, 35 but congressionally mandated TPA objectives are the primary
way that Congress influences the substance of trade agreements. In fact, history
suggests that the single most important predictor of whether a trade agreement
will survive is the extent to which it mirrors Congress' TPA objectives. 36

Because of their demonstrated significance, the debate as to what should be
included in TPA objectives is of vital importance.

B. The Formulation of "A New Trade Policy for America"

When Democrats took over Congress in January of 2007, the outlook for
continued trade expansion appeared grim.37 President Bush's TPA was set to
expire in July of 2007, and it appeared unlikely that he would be able to acquire
a renewal from Congress due to the unpopularity of the Bush Administration's
trade policy. 38 Trade had become an increasingly partisan issue in the previous
decades, with major trade votes coming down almost entirely along party
lines.39 In 2001, President Bush secured TPA authorization by a single vote in
the House, with only 21 of 210 Democrats voting in favor of the grant.40 One
estimate suggested that sixteen "trade-friendly" House Republicans were
replaced with sixteen "trade-skeptical" Democrats in 2007,41 easily
undermining the slim pro-trade majority. No pro-trade seats were added in
either house.42 Trade agenda was touted as one of the central issues motivating
the Democratic shift in Congress.43

34. Id. at 8.
35. All trade agreement authorizations have historically contained "sunset provisions"

providing for the expiration of the availability of expedited procedures after a specified time
period. Id. at 15. TPA legislation also requires the President to request an extension of TPA
authority after a certain period of time. Id. Either House of Congress can adopt a "disapproval
resolution" to deny extension. Id. Further, if the President fails to follow the consultation and
reporting obligations included in the TPA authorization, Congress can find that the agreement is
not eligible for expedited consideration by adopting a joint "procedural disapproval" resolution.
Id. Finally, either House can withdraw or change its own procedural rules for expedited
legislation by a vote. Id.

36. Id. at 10. "Because the structure of trade agreements mirrors TPA objectives, and
highly disputed agreements based on those objectives brought before Congress under TPA have
so far survived, often narrowly, all challenges from opponents, the vote on TPA/fast track
renewal is among the most critical trade votes Congress takes." Id.

37. See DESTLER, supra note 6, at 1.
38. Id.
39. Id.
40. Id. The Central American Free Trade Agreement - Dominican Republic (CAFTA-

DR), was approved by a scant two votes in July 2006, with only fifteen of 202 Democrats voting
in favor. Id.

41. Id.
42. Id.
43. Id. House Democrat Betty Sutton, writing to the House Committee on Ways and

Means Chairman Charles Rangel on behalf of thirty nine new House Democrats, noted that,
"[v]ital to our electoral successes was our ability to take a vocal stand against the

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 173

With TPA expiration looming, the Bush Administration prepared to face
the daunting task of achieving TPA renewal without the advantage of a
Republican Congress, and also faced the challenge of obtaining congressional
approval of trade agreements negotiated under existing 2002 TPA
authorization. 44 In pursuit of a sufficiently timely compromise, House Ways
and Means Committee ranking member Jim McCrery and United States Trade
Representative (USTR) Susan Schwab plunged into intensive negotiations
meant to resolve, in a matter of months, disagreements over labor and
environmental standards that had proved divisive for Republicans and
Democrats since the Clinton Administration.4 5

The product of those negotiations, labeled "A New Trade Policy for
America," announced the amendment of pending U.S. Free Trade Agreements
(FTAs) to incorporate key Democratic priorities. 46 The Trade Policy contained
minimum core labor standards and environmental provisions that would be
subject to the same dispute settlement procedures as trade commitments, in
addition to several other provisions.4 7 Although the Trade Policy technically
altered only pending FTAs, the bipartisan compromise on divisive labor and
environmental issues cleared a major obstacle from the Bush Administration's
path to TPA renewal. 48 The compromise also suggests that Democrats will
likely insist on inclusion of similar labor and environmental provisions among
Congress' negotiating objectives in future TPA renewal legislation.4 9 In
addition, members of Congress have denounced the consultation process as
superficial and unresponsive to congressional input and complained that the
procedures for deterring the use of TPA, once granted, are ineffective.50 Thus,
proposals for tightening procedural controls on TPA are also anticipated. 5'

The probable inclusion of labor and environmental provisions among

Administration's misguided trade agenda, and offer our voters real, meaningful alternatives to
the job-killing agreements, such as CAFTA, that the majority of our opponents supported." Id.

44. Even with TPA authority, the narrow passage of CAFTA-DR before the democratic
shift in Congress strongly suggested that trade agreements would not survive congressional
approval without significant alterations. See id. (CAFTA-DR passes by only two votes).

45. Id; HORNBECK & COOPER, supra note 13, at 6.
46. HOUSE WAYS AND MEANS COMMITEE STAFF, NEW TRADE POLICY FOR AMERICA

http://waysandmeans.house.gov/media/pdf/NewTradePolicy.pdf [hereinafter TRADE POLICY]
(last visited Dec. 1 ,2008).

47. DESTLER, supra note 6, at 10. The Policy also contains provisions addressing
intellectual property rights in relation to trading partners' health needs, a "port security"
exception to U.S. obligations under the services chapter, a provision stating that foreign
investors would not be granted greater rights within the United States than U.S. investors, and
presented a "strategic worker assistance and training initiative." Id.

48. Id. at 11.
49. Id. at 12. However, there are indications that Democrats may not require inclusion of

labor and environmental negotiating objectives for the conclusion of the current WTO Doha
Round. Id.

50. Id.
51. Id. (stating: "Ways and Means Democrats are also likely to press for new mechanisms

for consultation with Congress during negotiations, new procedures enhancing legislators'
leverage in these negotiations, and perhaps involvement of members of Congress in the original
choice of FTA negotiation partners").



IND. INT'L & COMp. L. REv.

congressionally required negotiating objectives, in conjunction with enhanced
procedural mechanisms for congressional control over trade negotiations, reveal
an overall trend towards Congress tightening its grip on trade policy. Because
of the potential ramifications of proposed changes to TPA renewal legislation,
the likelihood that the changes will achieve their proposed goals should be
carefully considered and weighed against the costs of decreased trade.

C. Bilateral Trade Agreements

1. The Rise of Regional and Bilateral Free Trade Agreements

The thirteen years since the creation of the World Trade Organization
(WTO) in 1995 have been characterized by a shift away from the multilateral
trading system that was implemented with the signing of the GATT in 194752

towards trade expansion through bilateral and regional trade agreements. 53 This
shift from multilateral to bilateral and regional trade agreements is important for
several reasons. First, it represents a significant change in dominant trade
policies that may be representative of changing attitudes about globalization
and should be examined closely to ensure that overall and long term welfare
can be achieved. Second, TPA was formulated primarily during a time period
characterized by multilateral trade agreements, and will likely function
differently in a trade environment dominated by bilateral and regional FTAs.
Third, the proliferation of regional and bilateral FTAs may unintentionally
allow the undetected advancement of protectionist interests simply due to the
number of agreements reached and the complexity of their administration.
Finally, the specific provisions of the Trade Policy are likely more readily
manipulated by special interest groups for protectionist and other purposes in
the context of multiple FTAs. This may exacerbate already unequal
distribution of trade benefits for less powerful groups.

Although the Trade Policy may be incorporated into TPA objectives at
some point, it was originally drafted to apply specifically to pending bilateral
and regional FTAs. 54 FTAs are created when two or more countries grant
preferential treatment in trade55 to other member countries by eliminating tariffs

52. HORNBECK & COOPER, supra note 13, at 4.
53. Frederick M. Abbott, A New Dominant Trade Species Emerges: Is Bilateralism a

Threat? 10 J. INT'L EcON. L. 571, 571 (2007).
54. See TRADE POUCY, supra note 47.
55. Preferential trade arrangements (PTAs) encompass other arrangements in addition to

FTAs, including customs unions, common markets, and economic unions. WLUAM H. COOPER,

FREE TRADE AGREEMENTS: IMPACT ON U.S. TRADE AND IMPLICATIONS FOR U.S. TRADE POLIcY 2
(Congressional Research Service 2006). FTAs require the least economic integration between
member countries. Id. Customs unions, in addition to conducting free trade among member
countries, maintain common trade policies outside the region. ld. In common markets, member
countries also eliminate barriers to labor and capital flows within the market. Id. Economic
unions integrate even further by establishing a common currency. Id.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 175

and other non-tariff barriers to trade on goods within the FTA but maintain
their respective trade policies outside the F1A region.5 6 Although bilateral
FTFAs are a longstanding part of international trade history,57 they have only
recently emerged as a dominant vehicle for trade.5 8 Before World War H,
bilateral trading arrangements were common throughout the world, especially
in the context of imperial trading systems.59 In the aftermath of World War H,
however, the West adopted multilateralism as the preferred post-war
institutional model for international trade. 6° This policy preference for
multilateralism was officially established by the signing of the GATT in 1947,
and it continues under the governance of the WTO. 6 1 The growth in WTO
membership, which today boasts a membership of 150 countries, attests to the
historic prevalence of multilateralism, especially when considered in contrast to
the original GATT signatories, which numbered only twenty-three states.62

In recent years, however, the proliferation of bilateral and regional FTAs
63has threatened to displace, or at least impede, the multilateral trading system.

For example, in 2001, the United States was a member of only two
bilateral/regional FlAs,64 but by the end of 2007, the United States had
concluded a total of eleven such FTAs involving sixteen countries.65 Further
bilateral and regional negotiations are pending or anticipated. 66 The explosion
of interest in bilateral/regional FTAs is not confined to the United States. The
WTO reports that, as of 2004, more than 300 bilateral/regional FTAs had been
notified to the WTO, out of which 176 were notified after January of 1995.67

56. Id.
57. Id. at 1; Abbott, supra note 54, at 572.
58. COOPER, supra note 56 at 5.
59. Abbott, supra note 54, at 572.
60. Id.
61. WORLD TRADE ORGANIZATION, UNDERSTANDING THE WTO 10-11 (2007),

http://www.wto.org/english/thewtoe/whatise/tif_e/understanding-e.pdf (last visited Dec. 1,
2008) [hereinafter UNDERSTANDING THE WTO]. The WTO was created during the Uruguay
Round of GATT negotiations that lasted from 1986 until 1994. Id. at 10.

62. Id. at title page. This number is current as of January 2007. Id.
63. Sungjoon Cho, Doha's Development, 25 BERKELEY J. INT'LL. 165, 193 (2007).
64. The United States created its first FTA with Israel in 1985 and concluded its second

with Canada in 1989, which was expanded to encompass Mexico under the North American
Free Trade Agreement (NAFTA) in 1993. COOPER, supra note 56, at 4.

65. At the time of this writing, the United States had completed and implemented bilateral
FTAs with Israel, Jordan, Chile, Singapore, Australia, Morocco, and Bahrain. OFFICE OF THE
UNITED STATES TRADE REPRESENTATIVE, BILATERAL TRADE AGREEMENTS,

http://www.ustr.gov/Trade-Agreements/Bilateral/SectionIndex.html (last visited Dec. 1, 2008).
FTAs with Oman and Peru have been approved but await implementation, while FTAs with
Colombia, Panama, and the Republic of Korea await Congressional Approval. Id. Regional
FTAs in force include the NAFTA (with Canada and Mexico) and the Central American-
Dominican Republic Free Trade Agreement (CAFTA-DR) (with El Salvador, Nicaragua,
Honduras, Guatemala, and the Dominican Republic). Id.

66. Id.
67. REPORT BY THE CONSULTATIVE BOARD, THE FUTURE OF THE WTO: ADDRESSING

INSTITUTIONAL CHALLENGES IN THE NEW MILLENNIUM 21 (2004), available at



IND. INT'L & COMP. L. REV.

2. Explaining the Shift From Multilateralism to Bilateralism

The shift away from multilateralism in favor of bilateral and regional
FTAs can be explained by a mix of political and economic factors.6' Fredrick
Abbott, a professor of international law at Florida State University College of
Law, suggests that less support for multilateralism now exists among original
GATT signatories 69 because their geopolitical interests are no longer most
effectively advanced by multilateral trade. 70 After World War II, the GATT
nations were united by the common goal of guarding against perceived threats
from the ideological and economic enemies of communism and socialism. 71

This created a powerful incentive for cooperation among signatory nations to
form a Western bloc that could use its consolidated power to prevail both
economically and politically over communist and socialist regimes.72 The
"most-favored-nation" (MFN) principle of multilateral trade was key to
achieving cooperation because it eliminated contentions among signatory
nations over differential trade preferences between them. 73

In addition to the benefits of creating a united political and economic bloc
to counter the communist threat, the most influential GATT signatories likely
stood to make significant economic gains from the original multilateral trade
structure and the MFN principle. The majority of original signatories were
developed countries whose trade agendas were likely to be similar, meaning
that signatory nations were unlikely to face highly objectionable demands from
other signatories. Further, because the negotiations depended on economic
negotiating leverage, those signatories whose trade agendas did not coincide
with the agendas of the economic superpowers generally lacked the necessary
leverage to prevail. For example, agricultural products were not included in
multilateral trade agreements until 1994, largely because the United States and
other developed nations, including those that now comprise the European
Union (EU), were unwilling to give up substantial protections for their

http://www.wto.org/english/thewto-e/lOannive/future-wto-e.pdf [hereinafter THE FUTURE OF

THE WTO]. Of the 300 FTAs notified to the WTO, 150 were operational in 2004. Id.
68. Abbott, supra note 54 at 573.
69. The original GATT signatories included Australia, Belgium, Brazil, Burma, Canada,

Ceylon, Chile, China, Cuba, the Czechoslovak Republic, France, India, Lebanon, Luxembourg,
Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the
United Kingdom, and the United States.

70. Abbott, supra note 54, at 573-74.
71. Id. at573.
72. Id.
73. Id. at 572. Note that most of the original GATr signatories were either fust world

countries, colonizers, former colonizers, or recently decolonized countries with large economies
which might have been likely to wield considerable power on the economic/political front.
Most of these signatories may have seen particular economic gains to be made from this union,
in addition to a united political front for defeating communism. Even those member countries
whose interests may not have been consistent with the desires of the superpowers were not likely
a threat here because they did not have the negotiating leverage to ensure that their demands
were met.

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20091 LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 177

agricultural sectors.74 This omission was perpetuated despite the fact that many
developing-country-signatories' economies were heavily dependent on
agriculture and would have benefited considerably from liberalization in that
sector.75 Economic superpowers like the United States and present day EU
countries had so much leverage in multilateral trade negotiations 76 that they
were able to maintain significant agricultural trade barriers throughout the
GATT rounds and even avoided making significant concessions in Uruguay
Round's Agreement on Agriculture (URAA) in 1994. 77

The ability of the economic superpowers to dictate terms in multilateral
trade negotiations that overwhelmingly favor developed countries, however, has
steadily eroded since the signing of the GATT in 1948 as developing countries
have continued to join as member countries. 78 Nearly two-thirds of the WTO's
current membership - approximately 100 out of 151 total member countries -
are developing nations.79 Of those, thirty-two are defined as "least-developed
countries. ' ' 0 The priorities of the WTO reflect the shifts in its membership. At
the November 2001 commencement of the most recent round of WTO talks in
Doha, Qatar (the Doha Round), representatives from 142 WTO member nations
proclaimed their commitment to serving the interests of developing countries:

We seek to place their needs and interests at the heart of the

74. See Carmen G. Gonzalez, Institutionalizing Inequality: The WTO Agreement on
Agriculture, Food Security, and Developing countries, 27 COLUM. J. ENVTL. L. 433, 439-40
(2002).

75. Agriculture accounts for 26% of GDP in developing countries and for more than 50%
of GDP in the least-developed countries but for only 3% of GDP among developed countries.
THOMAS C. BEIERLE, RESOURCES FOR THE FUTURE, FROM URUGUAY TO DOHA: AGRICULTURAL

TRADE NEGOTIATIONS AT THE WORLD TRADE ORGANIZATION 4 (2002), available at
http://www.rff.org/rff/Documents/RFF-DP-02-13.pdf. In 2007, less than 1% of the U.S.
population claimed farming as an occupation. ENvIRONMENTAL PROTECTION AGENCY,
DEMOGRAPHICS, http://www.epa.gov.oecaagct/aglOl/demographics.html (last visited Dec. 20,
2007). Many developing countries also stood to benefit significantly from agricultural
liberalization because they were required to reduce trade barriers as conditions on loans
obtained from international institutions during the Third World Debt Crisis of the 1980's.
BEIERLE, supra note 76, at 4. This state of market openness meant that developing countries'
domestic markets were flooded with cheap imported food from subsidized agriculture markets
but enjoyed little increased market access for their agricultural products in the developed world.
See Gonzalez, supra note 75, at 447-49.

76. See Gonzalez, supra note 75, at 449.
77. See generally Gonzalez, supra note 75 (arguing that Uruguay Round rules governing

agricultural trade allow the United States and the European Union to continue subsidizing their
agricultural sectors while requiring developing countries to open their markets to subsidized
products from developed countries).

78. Karen Halverson-Cross, King Cotton, Developing Countries and the "Peace Clause":
The WTO's US Cotton Subsidies Decision, 9 J. INT'L ECON. L. 149, 190 (2006).

79. WTO.org, Understanding the WTO: Developing Countries, Overview,
http://www.wto.orglenglish/thewto_e/whatis_e/tif_e/devl_e.htm (last visited Dec. 1, 2008).

80. WTO.org, Understanding the WTO: The Organization, Least-Developed Countries,
http://www.wto.org/english/theWTO-e/whatise/tif_eorg7_e.htm (last visited Dec. 1, 2008).



IND. INT'L & COMP. L. REv.

Work Programme adopted in this Declaration.... [W]e shall
continue to make positive efforts designed to ensure that
developing countries, and especially the least-developed
among them, secure a share in the growth of world trade
commensurate with the needs of their economic
development.

81

Developing countries' leverage has not increased solely because of their
increase in numbers, however. They have also achieved unprecedented
solidarity throughout the course of the Doha Round, indicating their willingness
to compromise amongst themselves in order to pursue common goals that
would be unattainable for individual developing nations.82 Indeed, in
September 2003, the Doha Round was brought to a grinding halt when a
coalition of over twenty developing nations walked out of the September 2003
Ministerial Meeting in Cancun, Mexico because they were unsatisfied with a
compromise reached between the United States and the European Union on
agriculture. 3 The strong showing made by developing countries during the
Doha Round demonstrates the potential for changes in the balance of power in
the multilateral trade arena. Faced with the potential inability to dictate the
terms of multilateral trade agreements, and in the absence of a threat to
democracy and capitalism that calls for a unified front, economic superpowers
like the United States have little motivation to pursue multilateralism on a large
scale.8

Another factor in the shift away from multilateralism may be a decline in
the multinational business community's faith in the multilateral system's ability
to promote its preferred economic agenda.85 On one hand, businesses may be
skeptical about the likelihood that complex negotiations among 151 member
countries can reach satisfactory and timely conclusions on tough and vigorously
contested issues.86 On the other hand, businesses may prefer regional or

81. World Trade Organization, Ministerial Declaration of 14 November 2001,
WTIMIN(01)/DEC/1, 41 I.L.M. 746 (2002), available at http://www.wto.org/English/
thewto e/minist_elmin0l_e/mindecle.htm [hereinafter Doha Declaration].

82. Cho, supra note 64, at 180 ("In terms of negotiation dynamics, the developing
countries' position was surprisingly united and solidified. The G-20 and the G-90 formed the
'G-110' and issued a joint statement identifying their common objectives .....

83. Johnson, supra note 17, at 444-45.
84. Abbott, supra note 54, at 573-74.
85. Id. at 574.
86. See, e.g. Warren H. Maruyama & Timothy M. Reif, Symposium, Introductory

Remarks, The WTO at 10 and the Road to Honk Kong, 24 ARIZ. J. INT'L & COMP. L. 1,2 (2007)
(asserting that the U.S. business community has not mobilized fully in support of the Doha
Round because of uncertainty about whether an ambitious outcome to the negotiations can be
realized). For example, the Multilateral Agreement on Investment (MAI), an important issue for
the multinational business community, remains unresolved on the multilateral level, but the
United States and the European Union have succeeded to securing higher levels of intellectual
property protection in bilateral and regional FTAs. See Abbott, supra note 54, at 574-75.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 179

bilateral agreements because they are better able to advance their specific
interests in the context of more narrow treaties.

Finally, in the absence of multilateral agreements, countries seek out
bilateral/regional FTAs as an alternative for achieving higher growth. 7

3. The Economic Merits of Bilateral and Regional FTAs as Trade
Creating Mechanisms

(a) The Most Favored Nation Principle

The increasingly likely prospect that FTAs will become a prominent
international trade mechanism has stirred considerable debate over the merits of
bilateralism and regionalism as opposed to multilateralism in the international
trade arena. 8 One source of contention revolves around the MFN principle that
serves as the cornerstone of the multilateral trading system.8 9 The MFN
principle requires WTO member countries to adhere to a policy of non-
discrimination towards all other WTO member countries by awarding the same
preferential trade terms to all WTO members as those awarded to the nation
receiving the most advantageous terms.90 According to economic theory, the
uniform application of trade preferences among member nations improves the
economic welfare of all members by ensuring that a given product is produced
by the most efficient producer among member nations. The allocation of
resources to their most efficient use allows each member country to maximize
production, thereby producing more goods for sale and increasing its overall
economic welfare. The MFN principle also allows smaller countries to benefit
from advantages enjoyed among larger countries that they typically would not
be powerful enough to negotiate. The MFN principle has the further advantage
of administrative simplicity and transparency, because member countries have
only one set of tariffs for all other countries. Finally, the MFN principle
restrains protectionist interests because attempts to implement protectionist
measures - raising tariffs, for example - would affect all of a given country's
trading partners, including powerful allies, and would result in increased
political pressure not to implement them. 9'

87. COOPER, supra note 56, at 3; Abbott, supra note 54, at 575.
88. See COOPER, supra note 56, at 12-15.
89. Scott Vesel, Clearing a Path Through a Tangled Jurisprudence: Most-Favored-

Nation Clauses and Dispute Settlement Provisions in Bilateral Investment Treaties, 32 YALEJ.
INT'LL. 125, 134 (2007).

90. COOPER, supra note 56, at 11. The MFN provisions of the GATT and the WTO
specify that "any advantage, favor, privilege or immunity granted by any contracting party to
any product originating in or destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the territories of all other
contracting parties." Id. (quoting General Agreement on Tariffs and Trade, Oct. 30, 1947, 61
Stat. A-ll, 55 U.N.T.S. 194, art. I [hereinafter GATT]).

91. W. J. Davey & J. Pauwelyn, MFN-Unconditionality: A LegalAnalysis of the Concept



IND. INT'L & COMP. L. REV.

Regional and bilateral FTAs among WTO member countries violate the
MFN principle by definition because they extend preferential trade treatment to
products originating with certain members.92 The original GATT signatories
recognized, however, that bilateral FTAs can still be economically beneficial
for all members if implemented according to certain conditions that promote
overall gains from trade. 93 As a result, bilateral FTAs are generally exempted
from the WTO's MFN requirements. 94 Nevertheless, the proliferation of
bilateral FTAs has prompted a call from some WTO member countries for
clearer rules regarding regional and bilateral FTAs. The failure to reach a
conclusion in the Doha Round of WTO negotiations, however, leaves these
rules ambiguous.95

(b) Trade Creation and Trade Diversion

Although the WTO rules do not prohibit or seriously constrain the
formation of FTAs, important questions as to their economic and social
desirability as a model for international trade remain. Most FTAs involve
reciprocal preferential treatment that, at a minimum, eliminates tariff and some
non-tariff barriers over a specified period of time.96 FTAs typically also contain
rules of origin that define what constitutes a product manufactured within the
FTA - no small challenge given that most products are constructed of
components from many different countries - and procedures for dispute
resolution and implementation of border controls.9 7 Recent FTAs also often
contain rules pertaining to economic activities beyond strict trade in goods,
including foreign investment, intellectual property rights protection, trade in
services, and the labor and environmental provisions at issue in this Note.98

The debate about the economic viability of FTAs is based on the
economic concepts of "trade creation" and "trade diversion." 99 Trade creation
occurs when a domestically produced good is replaced by a more efficiently
created imported good. 100 The replacement should improve economic welfare
within the importing country because it can shift its resources to more efficient
uses, which ultimately allows more productivity for the same amount of effort
expended. 10' In contrast, trade diversion occurs when a product that was

in View of its Evolution in the GATT/WTO Jurisprudence with Particular Reference to the Issue
of "Like Product", in REGULATORY BARRIERS AND THE PRINCIPLE OF NON-DISCRIMINATION IN

WORLD TRADE LAW: PAST, PRESENT, AND FUTURE (Petros Mavroidis & Thomas Cottier
eds.,2000).

92. COOPER, supra note 56, at 11.
93. Id.
94. See UNDERSTANDING THE WTO, supra note 61, at 11.
95. COOPER, supra note 56, at 12.
96. Id. at 2-3.
97. Id. at 3.
98. Id.
99. Id. at 8.

100. Id.
101. Id.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 181

previously imported from an efficient non-FTA member country is replaced by
a less-efficiently-produced good from an FrA member country.l°2 Here, the
replacement is said to reduce economic welfare because resources are being

diverted from an efficient producer to a less-efficient producer. 10 3 Thus, even if
two countries enter into an agreement under which they achieve freer trade
amongst themselves, the FTA could make member countries and the rest of the
world worse off if the FTA diverts more trade than it creates. °4

Whether an FTA results in net trade creation or net trade diversion is
typically determined by the structure of the FTA. 0 5 Economists estimate that
trade creation is relatively more likely to exceed trade diversion in the FTA
context under the following conditions:

1) where large tariffs or other trade barriers existed among
FTA members prior to entering the FTA;

2) where low tariffs and trade barriers exist between members
and nonmembers;

3) where a greater number of countries participate in the FTA;

4) where FTA member economies are more competitive or
less complementary; and

5) where FTA member countries had a close economic
relationship prior to FTA formation."

Not surprisingly, these conditions indicate that FTAs can create trade
which will increase member and global welfare most effectively when they are
structured to facilitate freer trade rather than protectionism goals. In contrast,
an FTA that purports to create freer trade, but, for example, actually reduces
barriers only nominally or maintains prohibitively high tariffs against
nonmember countries, is considerably less likely to create benefits for member
or nonmember countries.

The foregoing discussion is particularly relevant to the Trade Policy labor
and environmental provisions because the sensitive trade creation/trade
diversion balance could be altered by their inclusion in FTAs. This danger is
further exacerbated by the potential for FTAs which create freer trade among
member countries but, because of their trade diverting effects, have an overall
detrimental impact on global trade, global welfare, and even the welfare of one
or more FTA members.

102. Id.
103. Id.
104. Id.
105. Id.
106. Id. at 10.



IND. INT'L & COMP. L. REV.

(c) Dominant Economic Perspectives on the Value of Regional and
Bilateral FTAs

Economists and trade experts generally follow one of three dominant
perspectives on the economic merits of FTAs. The first perspective asserts that
FTAs undermine the multilateral trading system and act as a "stumbling block"
to trade liberalization. 10 7 One proponent of this view, Columbia economist
Jagdish Bhagwati, argues that FTAs are trade diverting because they are
discriminatory by definition. 10 8 In addition, high tariffs that currently exist on
goods imported into many developing countries increase the likelihood of trade
diversion.' °9 Bhagwati further points out that companies are more likely to
prefer bilateral or regional FTAs over multilateral liberalization because they
can achieve preferential treatment over non-member country competitors for
their products.10 This point is particularly important because companies may
create political pressure in favor of bilateral rather than multilateral agreements
even if the overall welfare of the nation will not be enhanced by the agreement.
Economist Anne Krueger argues that FTA rules of origin impair efficiency

because they encourage member countries to purchase as many inputs as
possible from member countries, resulting in detrimental trade diversion from
many efficient producers."' According to Krueger, stricter rules of origin in a
given FTA make trade diversion more likely." 12

The second prevalent economic perspective asserts that FTAs can act as a
"building block" toward multilateral trade liberalization." 3 Proponents of this
view often argue that, although multilateral agreements may be more beneficial
for trade liberalization, some free trade is better than none.' 14 Proponents also
point out that FTAs often facilitate more economic integration in areas not
covered by the GATT/WTO, including reductions on barriers in services trade,
foreign investment, and other economic activities.1 5 Further, FTAs may more
effectively address difficult trade barriers on which member countries have
failed to reach consensus in the WTO.1 6 Economist Fred Bergsten argues that
the United States must enter FTAs in order to remain competitive as other
countries form their own FTAs.I"7 Bergsten advocates the creation of FTAs
based on models that would eventually engage most WTO members, thus

107. Id. at 12.
108. Id.
109. Id.
110. Id.
111. Id. at 13.
112. Id.
113. Id. at 12.
114. Id. at 13.
115. Id.
116. Id. at 13-14.
117. Id. at 14.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 183

creating a stepping stone towards multilateral liberalization. 18

A third perspective on the desirability of FTAs opposes trade
liberalization in general because of perceptions about the impact on workers in
import-sensitive sectors, the environment, or because trade liberalization is
thought to undermine U.S. sovereignty." 9 Proponents of this view often
include representatives of import-sensitive industries, such as labor unions and
representatives of environmental or other social action groups. 120

1]I. SHIFING OPINIONS ON TRADE LIBERALIZATION: THE AMERICAN
PUBLIC, POLmcIANS AND ECONOMISTS

In January of 2008, a Business Week Magazine headline proclaimed
"Economists Rethink Free Trade."' 121 The article begins by asserting that
"ordinary Americans have long been suspicious of free trade, seeing it as a
destroyer of good-paying jobs."'122 However, the article asserts, U.S. Presidents
have long pursued a free-trade agenda because the "academic Establishment...
[has] always told them that free trade was the best route to ever higher living
standards.' 23 As the first few lines suggest, the article asserts that economists
have traditionally formed the backbone of support for free trade, even when
ordinary Americans and politicians have been skeptical of its merits. 24 The
article then points out that prominent economists are now "noting that their
ideas can't explain the disturbing stagnation in income that much of the middle
class is experiencing" and that "there are broader questions [about free trade]
being raised that would not have been asked 10 or 15 years ago."'' 25 Although
the article does not explicitly state that economists have renounced continued
trade liberalization, it not-so-subtly suggests that even economists, the strongest
bastion of support for free trade, have finally conceded to what ordinary
Americans have known all along: free trade hurts average Americans. The
article neatly encapsulates the shifts, whether real or perceived, in opinions
about free trade among three groups whose opinions may have a profound
impact on the future role of free trade in U.S. trade policy.

A. The American Public on Trade Liberalization

The American public has become increasingly skeptical about the
benefits of international trade in recent years. Among the reasons for shifting

118. Id.
119. Id. at 12.
120. Id. at 14-15.
121. Jane Sasseen, Economists Rethink Free Trade, BUS.WK., Jan. 31,2008, available at

http://www.businessweek.com/magazine/content/08_06/b4070032762393.htm.
122. Id.
123. Id.
124. See generally, id.
125. Id.



IND. INT'L & COMP. L. REv.

attitudes about trade is a growing skepticism concerning the ability of
globalization to raise domestic standards of living. A poll conducted by the
German Marshall Fund in December 2006 revealed that sixty percent of
Americans believe that freer trade costs more jobs than it creates.1 26 Yale
political science professor Kenneth F. Scheve and economist Matthew J.
Slaughter assert that the American public is becoming more protectionist as a
result of stagnant or falling incomes.127 According to Scheve and Slaughter,
opinions on trade are closely linked to each individual's labor market
performance, and because the majority of America's labor force is less-skilled,
American public opinion about trade and globalization depends on how the
labor market affects less-skilled workers. 128 Although traditional measures of
the strength of the U.S. labor market, such as employment growth and
unemployment rates, indicate that the U.S. labor market is strong, 129 Scheve
and Slaughter point out that real income growth has been extremely skewed in
recent years, with only a small number of the highest earners seeing increases
while the incomes of the vast majority of workers have stagnated, or even
fallen. 130 Despite these dismal statistics, it is estimated that the United States
has added between $500 billion and $1 trillion to its annual income as a result
of trade liberalization, and that further gains of up to $500 billion could result
from a comprehensive multilateral agreement on free trade of goods and
services in the Doha round.1 31 Falling real incomes among the majority of
American workers in spite of significant gains from trade demonstrates that the
lion's share of the gains from trade have been enjoyed by a small minority of
Americans. 132 However, this realization does not necessarily lead to the
conclusion that halting trade liberalization will benefit the majority of
Americans.

Prevailing public opinion disfavoring trade has the dual impact of
providing incentives for politicians to advocate protectionist policies - their
constituents want them - while simultaneously making policymakers more
receptive to the lobbying interests of special interest groups whose specific

126. McMahon, supra note 6.
127. Kenneth F. Scheve & Matthew J. Slaughter, A New Deal for Globalization, FOREIGN

AFF., Jul./Aug. 2007, available at http://www.foreignaffairs.org/2007/4.html (follow "A New
Deal for Globalization" hyperlink).

128. Id.
129. Unemployment in October 2007 was 4.7%, which is generally considered full

employment by economists. U.S. Dept. of Labor, Bureau of Statistics, TED: The Editor's
Desk, Unemployment in October 2007, http://www.bls.gov/opub/ted/2007/nov/wkl/artO2.htm
(last visited Dec. 1, 2008).

130. Scheve & Slaughter, supra note 128. From 2000 to 2005, less than four percent of all
workers were in educational groups that experienced increases in mean real money earnings. Id.
Further, in 2005, the top 1% of earners accounted for a whopping 21.8% share of national
income, a level not reached since 1928. Id.

131. Id.
132. Id.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 185

goals can be best achieved through protectionist measures. 133 The danger,

according to Scheve and Slaughter, is that "[w]hen most workers do not see

themselves as benefiting from the related forces of globalization and
technology, the resulting protectionist drift may end up eliminating the gains
from globalization for everybody."'

134

B. American Politicians on Trade Liberalization

The decline in trade liberalization's popularity with the American people
has been mirrored, and perhaps even expanded and capitalized upon, in the
political arena. Some policymakers link growing income inequality, loss of
manufacturing jobs, and stagnation in real median household incomes to
globalization,' 35 while others blame globalization outright for the loss of
American jobs and declining incomes. Many have also embraced labor and
environmental provisions as a way to minimize the negative effects of trade
liberalization.

The campaigns of presidential hopefuls leading up to the 2008
presidential election provide some insight into how politicians deal with and -
sometimes - perpetuate skepticism about trade. Many Democrats feel that, at
the least, globalization should not be pursued further without simultaneously
acting to reduce income inequality. 136 More extreme positions seem to suggest
that globalization never should have been undertaken in the first place. For

example, in a 2007 campaign speech, democratic presidential candidate John
Edwards stated:

The negative effects from globalization are ripping through the

economy.... Globalization has helped stunt the growth in
wages for American workers. Workers in America must now

compete every day with workers overseas earning miserably
low wages with no benefits .... Globalization is a major
reason why income inequality is at its worst since before the

Great Depression. 1
37

After placing the blame for the economic situations of many American

workers on globalization, Edwards went on to tout labor and environmental

133. Id.
134. Id.
135. DESTLER supra, note 6, at 2. See also HORNBECK & COOPER, supra, note 13, at 15

(noting that Congress is increasingly focused on addressing perceived negative effects of trade
policy and globalization, including job displacement, falling wages, the growing income gap in
the United States (and developing countries), and the U.S. trade deficit).

136. DESTLERSUpra, note 6, at 2.
137. John Edwards, 2008 Democratic Presidential Candidate, Campaign Speech: Smarter

Trade that Puts Workers First, (Aug. 6, 2007) [hereinafter Edwards on Trade], available at
http://www.cfr.org/publication/13995/john-edwards_speech-on-trade.policy.html.



IND. INT'L & COMP. L. REv.

standards as part of the solution, advocating a trade plan with "strong
protections for labor and the environment" that would "benefit workers, notjust
big multinational corporations" and "lift up workers around the world."' 138

Further, he advocated the use of environmental provisions as "tools to ensure
that poor environmental practices do not create unfair competitive
advantages."' 139 Edwards also explicitly linked the absence of labor or
environmental protections in the core text of the North American Free Trade
Agreement (NAFTA) with growing income inequality in the United States,
Mexico, and Canada. 140

Other presidential candidates also weighed in on the trade liberalization
issue. President Barack Obama voiced his commitment to "ensure that trade
agreements include strong labor and environmental protections and that all
Americans share the rewards of globalization.'' 141  2008 Democratic
presidential candidate Hillary Clinton similarly stated that she is committed to
"[t]rade that has labor and environmental standards, that's not a race to the
bottom but tries to lift up not only American workers but workers around the
world."

, 142

2008 Republican presidential candidate Mike Huckabee's support for
trade has been described as "limited, but positive," with Huckabee expressing
concern that free trade can lead to unfair loss of American jobs. 143 2008
Republican presidential candidate Ron Paul, although he insists that he
supports free trade, has voted against various bilateral trade agreements and
supported legislation that would have withdrawn U.S. approval for the WTO
because he believes many international trade agreements undermine U.S.
sovereignty. 144 Paul also asserts that Congress' delegation of trade authority to
the President under TPA is unconstitutional. 45 In contrast, 2008 Republican
presidential candidates Mitt Romney and John McCain have been strong free
trade advocates. 146

The trend among politicians that seems to be moving simultaneously
away from further trade liberalization and toward the inclusion of labor and
environmental standards in free trade agreements is not surprising. Indeed,

138. Id.
139. Id.
140. Id.
141. BarackObamacom, Obama'08, Economy, httpJ/www.barackobama.com/issues/economy/

#internationaltrade (last visited Feb. 6, 2007).
142. Onthelssues.org, Hillary Clinton on Free Trade, http://www.ontheissues.org/Intemational/

HillaryClintonFreeTrade.htm (last visited Oct. 24, 2008).
143. Council on Foreign Relations, The Candidates on Trade, July 30, 2008,

http://www.cfr.org/publication/14762/# 128 (last visited Dec. 1, 2008) [hereinafter The Candidates on
Trade].

144. Id
145. Ron Paul: CAFTA: More Bureaucracy, Less Free Trade, http://www.

democraticunderground.com/discuss/duboard.php?az=viewall&address= 14x 16424 (last visited
Dec. 1, 2008).

146. See The Candidates on Trade, supra note 144.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 187

labor and environmental standards are potentially a political goldmine at a time
when the looming possibility of a recession conjures protectionist sentiments
among the American people while growing concerns for environmental
preservation and human rights stir their socially-responsible sensibilities.
Economist Jagdish Bhagwati characterizes the push for inclusion of labor and
environmental standards in trade treaties this way:

Such standards may be demanded out of empathy for others or
they may be required because of fear and self-interest. The
latter motive is clearly at play. It is hoped by those terrified by
competition from poor countries that raising standards and
therefore costs abroad will moderate the competitive ability of
the foreign companies. It is what economists call "export
protectionism."

But, instead of admitting that this is their game, they want to
mask their demands behind the language of altruism: oh, we
are doing it for your workers.... [Y]ou need not feel guilty if
you can deceive yourself into thinking you are flogging the
foreigner in his own interest.'47

What most politicians fail to address, however, is whether slowing trade
liberalization and imposing trade-inhibiting mechanisms will actually stabilize
falling incomes. Even if the gains from trade have been skewed towards a
small minority of Americans, even if the average American has not shared in
those gains, and even assuming that the average American is actually worse off
than he or she would have been if globalization had never taken place, will
attempting to take a step backwards in time actually improve the quality of life
for average Americans or halt the decline in real incomes? Understandably, the
gut-level response to this question, especially when accompanied by any
indication that globalization could be responsible for the current state of affairs,
is that the answer lies in a retreat from further liberalization. The question
merits more than a gut-level response, however, lest uninformed actions, taken
out of fear, result in further declines in income and standards of living for most
Americans.

The current tendency towards protectionism among U.S. businesses and
consumers during economic uncertainty bears a striking resemblance to the
reactions of U.S. producers during the height of the Great Depression, whose
efforts to protect themselves from foreign competition resulted in the enactment
of the Smoot-Hawley Tariff Act of 1930.14" The prohibitive tariffs set by the

147. Jagdish N. Bhagwati, America's Bipartisan Battle Against Free Trade, FIN. TIMES,
Apr. 8, 2007, reprinted in COUNCIL ON FOREIGN RELATIONS (2007), available at
http://www.cfr.org/publication/13009/americas-bipartisan-battleagainst-freetrade.htnml.

148. HORNBECK& COOPER, supra note 13, at 3.



IND. INT'L & COMP. L. REV.

Smoot-Hawley Act severely restricted trade and greatly exacerbated the effects
of the Great Depression. 149 One economic historian warns that the American
public may be more inclined to adopt protectionist measures today than in the
past because it is "too young" to remember the deleterious effects of
protectionist measures like those pursued in the Smoot-Hawley Act.' 50 The
resulting "historyless-ness" that characterizes the current public debate about
the ongoing value of uninhibited trade leaves the American public more
receptive to the idea of isolationism in times of economic hardship.' 5 ' The
American people and their elected representatives alike must examine the
implications of trade-inhibiting mechanisms closely before electing to pursue
protectionist measures that could shut off potential gains from trade and worsen
a deteriorating economic situation.

C. Prominent Economists on Trade Liberalization

Is there any truth to the assertion, as the Business Week headline,
"Economists Rethink Free Trade," implies, that economists are, in fact,
wavering in their support of further trade liberalization? Interestingly, the
article itself fails to cite a single economist upon whose "doubts" the article is
based who advocates that trade liberalization should be slowed or stopped.152

Instead, most economists favor mechanisms that would serve to more evenly
distribute the gains from trade or ameliorate the detrimental effects trade
liberalization may have on certain segments of society. For example, Alan S.
Blinder, a former vice-chairman of the Federal Reserve and member of the
Council of Economic Advisers in the Clinton Administration, advocates an
expansion of unemployment insurance and an overhaul of a program meant to
retrain manufacturing workers whose jobs disappear. 153 Similarly, Matthew J.
Slaughter 54 argues that an income redistribution mechanism is necessary to
spread the gains from free trade. 55

Renowned economist and Massachusetts Institute of Technology
professor Paul A. Samuelson's recent assertion that "sometimes free trade
globalization can convert a technical change abroad into a benefit for both
regions; but sometimes a productivity gain in one country can benefit that
country alone, while permanently hurting the other country by reducing the

149. Id. See also Interview with Amity Shlaes, supra note 23 (explaining that in spite of
prominent economists' predictions that a worldwide depression would ensue if the Smoot-
Hawley Act was enacted, the Act was uncontroversial politically and signed into law by
President Hoover).

150. Interview with Amity Shlaes, supra note 24.
151. Id.
152. See generally, Sasseen, supra note 122.
153. See Sasseen, supra note 122.
154. See Part IL.A, supra for a summary of Scheve and Slaughter's theory on declining

incomes and globalization.
155. Sasseen, supra note 122; see also Scheve & Slaughter, supra note 128.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 189

gains from trade that are possible between the two countries"'' 56 has been
interpreted by some as a renunciation of free trade principles.157 Samuelson,
however, follows his recognition of potential negative effects of free trade with
these observations:

It does not follow from my corrections and emendations that
nations should or should not introduce selective
protectionisms. Even where a genuine harm is dealt out by the
roulette wheel of evolving comparative advantage in a world
of free trade, what a democracy tries to do in self defense may
often amount to gratuitously shooting itself in the foot....

If the past and the future bring both Type A inventions that
hurt your country and Type B inventions that help - and when
both add to world real net national product welfare - then free
trade may turn out pragmatically to be still best for each region
in comparison with lobbyist induced tariffs and quotas which
involve both perversion of democracy and nonsubtle
deadweight distortion losses. 15 8

Whether Samuelson should be interpreted as advocating protectionist
measures in certain circumstances is a matter of some debate. 159 The message
that most clearly comes through in his comments, however, is one of caution.
Even if protective measures might be appropriate in some contexts, if used
inappropriately, they could have a crippling effect comparable to that of
shooting oneself in the foot. It is worthwhile to stop and consider the gravity of
this analogy. Without two good feet, all sectors of the economy could suffer,
not just those directly affected by a particular agreement. Notably, Samuelson
specifically cites "lobbyist induced" protectionist measures in his illustration of
a situation in which free trade is preferable in spite of harms suffered as a result
of its pursuit, suggesting that these are not a valid justification for
protectionism.

The purpose of this discussion is not to argue empirically in favor of
continued trade liberalization, but simply to point out that in spite of

156. Paul A Samuelson, Where Ricardo and Mill Rebut and Confirm Arguments of
Mainstream Economists Supporting Globalization, 18 J. EcON. PERSPECrIVES 135, 142 (2004),
available at http://www.wilsoncenter.org/events/docs/SamuelsonJEP042.pdf.

157. BHAGWATI, supra note 9, at 276 (indicating that new fears of globalization are based
in part on arguments made by Samuelson).

158. Samuelson, supra note 157, at 142.
159. See, e.g., Sasseen, supra note 122 ("Hillary Clinton agreed with economist Paul A.

Samuelson's argument that traditional notions of comparative advantage may no longer
apply."); see also BHAGWATI, supra note 9, at 276-77 (noting that while Samuelson's assertion
that external changes, such as the growth of China and India, could be harmful to the United
States because they diminish gains from trade, Samuelson "certainly does not advocate
protectionism").



IND. INT'L & COMP. L. REV.

whisperings to the contrary, most economists continue to advocate trade
liberalization and discourage protectionism. More importantly, although
economists differ on whether a protectionist shift is actually taking place or
whether certain measures are, in fact, protectionist, they appear to remain
solidified on one point: protectionist measures that are driven by powerful
special interests have the potential to cause great harm.

IV. LABOR AND ENVIRONMENTAL STANDARDS AND THE

PROBLEM OF "CAPTURE"

Economists have long recognized a danger that trade protection would be
"captured" by "special interests who would misuse it to pursue their own
interests instead of letting it be used for the national interest."' 6 When
protective measures are "captured" by special interests, society often pays a
substantial cost for benefits that accrue only to the special interest.16

1

One cost protectionism places on society is that the consumers in the
country imposing it are forced to forgo cheap imports, so the average American
pays higher prices but experiences none of the benefits created by the
protectionist measure. 62 As an example, economic historian Amity Shlaes
describes how consumers in a poor part of Maine pay higher prices for simple
items like hairbrushes at Wal-Mart because of Congress' decision not to
approve an FTA with Panama.163 Wal-Mart ability to offer low prices on
hairbrushes is dependant in part on trade agreements that allow the United
States to ship through the Panama Canal. 64 If Wal-Mart's shipping costs
increase, poor Americans suffer because they can no longer afford some basic
goods. 65 Shlaes points out that consumers, the "losers" in protectionist trade
deals, are typically diffuse, and not represented by any particular candidate or
representative. 66 In contrast, specific groups that benefit from protectionist
trade deals, such as the textile, furniture, and steel industries, are often
organized and readily identifiable. 67 This creates a distortion in perceptions
about the value of protectionist measures, because the costs of trade for specific
groups are highly visible, but highly diffused gains - in the form of lower prices
- are frequently less visible.' 68

Another cost of protectionism involves the lobbying costs incurred by

160. Jagdish Bhagwati, Protectionism, THE CONCISE ENCYCLOPEDIA OF ECONOMICS,
http://www.econlib.org/library/Enc/Protectionism.html (last visited Dec. 1, 2008).

161. Id.
162. Id.
163. Interview with Amity Shlaes, supra note 24.
164. Id.
165. Id.
166. Id.
167. Id.
168. Id.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 191

groups seeking protection. 169 These costs, sometimes described as "directly
unproductive profit-seeking activities . . .are unproductive because they
produce profit or income for those who lobby without creating valuable output
for the rest of society., 170 To explain, the value of the market system for
society in general is based, in part, on the premise that when firms compete,
they have an incentive to maximize efficiency of production because the firm
that is able to produce more output for less cost will ultimately prevail on the
market. When firms maximize efficiency, society as a whole benefits from
lower prices and the availability of resources that previously would have been
used in the inefficient production of a particular good. If firms have no
incentive to maximize efficiency, gains realized by the firm may not be
accompanied by the concurrent gains for society.

Regulations governing market activities, such as trade, sometimes create
incentives for firms to generate profits in ways that do not promote efficiency
and, consequently, do not advance overall benefits for society. For example, a
firm may have a choice between spending its resources on economizing
production to maximize its profits or spending its resources on lobbying
Congress for laws that protect it from competition. If it is more cost-effective
for the firm to lobby Congress for protectionist laws than to maximize
efficiency, the firm will do so, and society will not benefit. Thus, the firm's
"profit-seeking" activity is "directly unproductive" for society has a whole. 171

In order for the market to function for the overall benefit of society, regulations
of market activities should avoid distorting firms' incentives to maximize
efficiency. In the trade context, this means that legislators should actively strive
to preserve incentives for domestic firms to compete internationally by
maximizing efficiency, rather than by lobbying for protectionism, which may
benefit the firm but does not benefit or, at worst, hurts society.

Most industrialized nations now implement what are commonly known as
"fair trade" laws. 172 In theory, fair trade laws are meant to complement free
trade by ensuring that market incentives and the resulting efficient allocation of
activity among the world's nations are not undermined by unfair trade practices
by trading nations. 173 However, these laws have historically been particularly
vulnerable to capture and use as protectionist instruments against foreign
competition when protectionist pressures rise. 174 To illustrate, two "fair trade"
mechanisms, the countervailing duty (CVD) and antidumping duty (AD), were
intended to ensure that foreign nations do not subsidize their exports or dump

169. Bhagwati, supra note 161.
170. Id.
171. For a comprehensive discussion of directly unproductive profit-seeking activities, see

generally Jagdish N. Bhagwati, Directly Unproductive, Profit-Seeking (DUP) Activities, 90 J.
POL. ECON., no. 5, Oct., 1982, at 988.

172. Bhagwati, supra note 161.
173. Id.
174. Id.



IND. INT'L & COMP. L. REv.

their exports in a predatory fashion.17 5 If subsidization or dumping is found to
occur, a CVD or an AD can be levied.' 76 In the 1980s, however, CVD and AD
actions were often started against particularly successful foreign firms to harass
them into voluntarily restricting their exports, even if the firm was not actually
subsidized or engaged in dumping. 177 Because of their historical susceptibility
to manipulation as protectionist instruments, economists have sought to
redesign fair trade mechanisms in a way that insulates them from being
captured by special interests. 17  In the absence of a workable alternative,
however, domestic producers have increasingly labeled a variety of foreign
policies and institutions as "unfair trade."' 179

Labor and environmental standards are among the most recent additions
to the catalogue of "fair trade" laws. i80 Like other fair trade laws, because labor
and environmental standards can enhance a firm's competitiveness on the
international market, they create an incentive for firms to spend resources on
lobbying for their inclusion instead of on increasing efficiency. Similarly, like
other fair trade laws, labor and environmental standards are politically popular
because they purport merely to advance the politically desirable goal of
pursuing free trade in a fair manner.181 Labor and environmental standards are
particularly vulnerable, however, because they garner support from several key
groups that might have otherwise mobilized to oppose the passage of laws that
solely benefit particular special interest groups, including labor groups,
environmental groups, and human rights groups.

Many labor and environmental groups have offered a "qualified"
endorsement of the Trade Policy based on the rationale that the implementation
of some labor and environmental provisions is a step in the right direction,1 82

even if ultimately the provisions do little to advance their interests. 83 These
qualified endorsements of the Trade Policy and resulting FTA provisions
illustrate and exacerbate the vulnerability of labor and environmental standards
to special interests in several ways. First, the inclusion of even relatively

175. Id.
176. Id.
177. Id. In one instance, the United States imposed a CVD on rice from Thailand by

establishing that the Thai government was providing a one percent subsidy for rice exports, even
though the government also taxed all exports at a rate of five percent, thereby neutralizing any
potential detrimental effects from the subsidy on international trade. Id. The United States also
accused Poland's golf cart industry of dumping golf carts on the international market (dumping
is generally thought of as selling goods at a lower price on the international market than in its
own market) even though it sold no golf carts in Poland. Id.

178. Id.
179. Id.
180. See Bhaghwati, supra note 148.
181. Id.
182. Statement by Center for International Environmental Law, Defenders of Earth justice,

Environmental Investigation Agency, Friends of the Earth, Nature Defense Counsel, Sierra Club
(Jun. 26, 2007), available at http://www.ciel.org/Tae/PeruStatement_27Jun07.html
[hereinafter Environmental Group Statement].

183. Id.

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 193

ineffective standards may pacify labor and environmental groups that would
have otherwise strongly opposed the agreements. For example, in a joint
statement, the Center for International Environmental Law, Defenders of
Wildlife, Earthjustice, the Environmental Investigation Agency, Friends of the
Earth, the Natural Resources Defense Council, and the Sierra Club proclaimed
that "[t]he environmental provisions included in the final text of the Peru Free
Trade Agreement mark a significant step forward, and we commend the
Democratic leadership for this achievement .... 184 The statement then goes
on to say, however, that:

this deal should not be seen as a final template for trade deals
generally or for trade negotiation authority. Much work still
remains to be done on the investment and other provisions of
our trade rules to ensure that they strengthen, rather than
undermine, environmental protections at home and abroad. 185

The statement endorses the Trade Policy but expresses reservations about
its ability to achieve environmental goals without further measures.
Nevertheless, environmental groups are significantly less likely to oppose an
agreement containing environmental protection provisions simply because it
represents an advancement of their interests, however small. Thus, by their
presence alone, ineffective environmental provisions may serve to undermine
environmental protection by neutralizing any opposition from environmental
groups.

The Trade Policy provisions may also be vulnerable to manipulation
because they are potentially divisive, as illustrated by organized labor's
response to the Trade Policy. 186 Labor unions have taken an ambivalent stance
on the Trade Policy and the FTAs that have been amended pursuant to it,187
with some strongly opposing it on the ground that it is inadequate to protect
their interests and others offering limited approval or declining to comment. 188

Like environmental groups, even those labor groups that criticize the Trade

184. Id.
185. Id.
186. It is worthwhile to acknowledge here that labor groups are often among the special

interest groups that support protectionism in order to prevent the loss of American jobs that is
perceived to accompany globalization and free trade. The significance of the argument that the
Trade Policy standards are vulnerable to manipulation is not only that they may be co-opted for
protectionist purposes, but that they may be easily co-opted for any purpose other than that for
which they were patently intended. The irony here is that the Trade Policy's labor standards,
which one might logically expect to be motivated by some level of protectionism, may actually
be co-opted and manipulated in order to avoid opposition from protectionist labor groups that
might otherwise pose an obstacle to the passage of a particular FrA.

187. Ian Swanson, Labor Groups Differ on Peru Free Trade Deal, THE HILL, Sept. 19,
2007, http://thehill.com/business--lobby/abor-groups-differ-on-peru-free-trade-deal-2007-09-
19.html (last visited Dec. 1, 2008).

188. Id.



IND. INT'L & COMP. L. REv.

Policy as insufficient have declared their support for Trade Policy labor
standards to the extent that they represent a step forward, thus weakening
opposition to particular agreements containing Trade Policy objectives to a
certain extent.189 The response from labor groups is distinct from that of
environmental groups, however, in that the major labor coalitions are divided in
their support of the Trade Policy. 190 The American Federation of Labor and
Congress of Industrial Organizations (AFL-CIO), a federation of fifty-four
unions, although it denies express support for the U.S.-Peru FTA and the Trade
Policy, has not vocally opposed the deal due to a lack of consensus among its
labor union members. 191 In contrast, Change To Win, a coalition of seven labor

192groups that split from the AFL-CIO in 2005, criticizes the terms of the U.S.-
Peru FTA and the Trade Policy as insufficient to achieve labor goals. 193 Thus,
although many labor unions may strongly oppose the Trade Policy, their
effectiveness is undermined because labor is unable to present a unified front
on the issue. The division among labor groups may not be a direct result of the
standards themselves, but their inclusion does provide an additional opportunity
for other special interest groups to co-opt those standards and use them for their
own gain.

194

The vulnerability of labor and environmental provisions to capture is also
exacerbated by these "qualified" endorsements from labor and environmental
groups because they provide the Trade Policy and resulting FTA provisions
with a veneer of credibility as measures taken in the interest of safeguarding
labor and environmental preservation. Anyone wishing to justify inclusion of
such measures needs merely point to these endorsements to dispel suspicions
that the provisions were actually intended to benefit some other interest.

The proposed 2007 Farm Bill,' 95 which Congress is expected to pass in

189. Id.
190. Id.
191. Id.
192. Id.; ChangeToWin.org, Change to Win, American Dream for America's Workers,

About Us, http://www.changetowin.org/about-us.html (last visited Dec. 1, 2008).
193. See Swanson, supra note 188 (noting that Change To Win, a coalition of labor unions,

opposes the Trade Policy as insufficient because key changes, including changes to investment
rules, are not addressed). The president of the International Brotherhood of Teamsters, one of
Change to Win's seven member unions, remarked, "[i]t is outrageous that Congress and the
Bush administration have approved yet another job-killing trade agreement at a time when
American families are seeing their jobs shipped overseas, their food and toys tainted, their
wages decline and their houses foreclosed upon .... " Press Release, Teamsters, Hoffa
Condemns Senate Passage of Peru Free Trade Agreement (Dec. 4, 2007), available at
http://www.citizenstrade.org/pdf/teamstershoffacondemssenvote 12042007.pdf.

194. The split among labor coalitions has important implications for the implementation of
FTAs generally because it lessens the pressure on the Democrats from organized labor, which
tends historically to be skeptical of expanded trade and makes up a significant proportion of the
democratic voting base, to oppose trade agreements. See generally, Swanson, supra note 188
(describing the implications of a labor union split on trade issues for democratic politicians).

195. "Farm Bill" is "the popular, generic term given to current federal omnibus agricultural
legislation, usually enacted every four to seven years." Chuck Culver, The National Agriculture

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 195

2008,196 provides a striking example of the potential for capture and
exploitation of protectionist fears by special interest groups. Interestingly, the
Farm Bill, like the Democratic agenda supporting increased legislative control
over trade negotiations, gains support from its platform pledging to safeguard
the jobs of the American people. 197 The Farm Bill governs federal farm and
food policy, 98 including commodity programs that provide income support to
growers of selected farm commodities. 199 In theory, these agricultural subsidies
are supposed to provide a safety net for U.S. farmers and help keep food prices
down. 200 However, the ongoing efficacy of agricultural subsidies in achieving
either of these goals has been repeatedly questioned and criticized in the
context of a globalizing economy.2°'

Agricultural subsidies have their roots in President Franklin Roosevelt's
202New Deal, enacted in response to the Depression. The Agricultural

Adjustment Act of 1933 was the first legislation providing support in ways
similar to current farm bills.2 °3 From the time of the enactment of the
Agriculture Adjustment Act until 1996, farm policy generally aimed to stabilize
agricultural commodity prices through production restrictions and price-linked

204loan and payment programs. In 1994, however, the Uruguay Round
negotiations of the GATT created the WTO, which created global trade rules
restricting agricultural subsidies.20 5 At that point, the United States began to
scale back subsidies in order to comply with WTO rules.

Statistics reveal that agriculture today makes up only two percent of the

Law Center, University of Arkansas School of Law, GLOSSARY OF AGRICULTURALPRODUCTION,
PROGRAMS, AND POLICY (4th ed.), http://www.nationalaglawcenter.org/# (follow "Glossary"
hyperlink, then select "F" hyperlink and scroll down to "Farm Bill") (last visited Dec. 1, 2008).

196. Robert McMahon, Troubling Harvest for Trade, COUNCIL ON FOREIGN RELATIONS,
Nov. 9, 2007, available at http://www.cfr.org/publication/14732/
troubling-harvest for trade.html.

197. See, e.g., Edwards on Trade, supra note 138 ("It hasn't always been this way.
Workers for generations were at the heart of our country. Hard-working men and women have
made America the strongest, most prosperous nation in the history of the world. But today,
Washington has turned its back on our workers and their futures.").

198. RENEE JOHNSON, CONG. RES. SERV., WHAT IS THE "FARM BILL"? 1 (2008), available at
www.nationalaglawcenter.org/assets/crs/RS22131 .pdf.

199. Income support is provided to growers of wheat, feed grains, cotton, rice, oilseeds,
peanuts, sugar, and dairy. Id. at 2. Commodity support is provided through various payments,
as well as government purchases, marketing quotas, and import barriers. Id.

200. McMahon, supra, note 197.
201. Id.
202. Anne B. W. Effiand, U.S. Farm Policy: The First 200 Years, AGRICULTURAL

OUTLOOK, Mar. 2000, at 21, available at http://www.ers.usda.gov/publications/
agoutlook/mar2000/ao269g.pdf.

203. Erin Morrow, Agri-Environmentalism: A Farm Billfor 2007, 38 TEx. TECH. L. REV.
345, 350 (2006). The Act's key aspects included income support to farmers and attempts to
increase farm prices by controlling production. Id.

204. Matthew C. Porterfield, U.S. Farm Subsidies and the Expiration of the WTO's Peace
Clause, 27 U. PA. J. INT'L ECON. L. 999, 1002 (2006).

205. Id.



IND. INT'L & COMP. L. REv.

U.S. national economy.2°6 Since 1986, U.S. direct and indirect farm subsidies
have cost the American people more than $370 billion (almost enough to pay
for all the farm land in the country).2 °7 Of the two percent of the national
economy that engage in farming, two-thirds of all farmers receive no subsidies
under the program, and among the one-third that do receive subsidies, the
majority of the subsidies are concentrated in a small number of recipients. 0 8

During the program years of 2003-2005, the United States spent $34.8 billion
on commodity programs. 2

0
9 Nationally, 66% of the subsidies for those years

went to only 10% of all beneficiaries. 2  These statistics demonstrate the
practical inability of the agricultural subsidy programs, in their current form, to
protect the job of the average American farmer. To the contrary, it has been
argued that U.S. agricultural support programs actually inhibit even those
farmers who do receive subsidies because they provide no incentives for
farmers to modernize and adjust to the rapidly changing global market.21' In
the long run, even massive government subsidies will not be able to out-
perform vastly superior production methods that are likely to develop as a result
of true competition.

Instead of providing job security for America's farmers, the evidence
suggests that the existing 2002 Farm Bill and the 2007 Farm Bill slated to
replace it serve the interests of protectionist special-interest groups.21 2 In the
context of popular attitudes about trade, these special interests are less likely to
encounter opposition from other members of Congress who know their
constituents will likely perceive a vote for agricultural subsidies as a vote for
the American worker.

V. PURSUIT OF A MINDFUL TRADE POLICY AMIDST UNCERTAINTY

The international trade system currently appears to be in a period of
transition regarding both the desirability of further trade liberalization in

206. Robert Stumberg, A Perfect Storm: Trade Pressure on the Farm Bill, NAT'LASS'N OF
DEV. ORG., (June 5, 2006), available at http://www.nado.org/legaffair/issupdate/stumberg.pdf.

207. BRIAN J. FINEGAN, THE FEDERAL SUBSIDY BEAST: THE RISE OFA SUPREME POWER IN A

ONCE GREAT DEMOCRACY 118 (2000).
208. Id.
209. Environmental Working Group, Farm Bill 2007 Policy Analysis Database,

http://farm.ewg.org/sites/farmbill2007/progdetailI614.phpfips=00000&progcode=farmprog&
page=conc (last visited Dec. 1, 2008).

210. Id.
211. See generally Interview by Robert McMahon with Ron Kind, U.S. House

Representative, Kind: Let U.S. Farmers Compete in the Marketplace (Nov. 7, 2007), in
COUNCIL ON FOREIGN RELATIONS, available at http://www.cfr.org/publication/
by-type/interview.html (follow "complete list" hyperlink, then select "By Issue," select "Trade"
in "Filter by" field, scroll down to Interview with Ron Kind").

212. Id. ([Y]ou've got the inherent status quo on these committees. When [seventy]
percent of the agriculture subsidies are going to just thirty congressional districts, and they're
well represented on the committee, it's just unrealistic to expect those committees to be agents
of change and reform and new ideas.").

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 197

general and the designation of a dominant model of international trade for the
future. There is a trend toward protectionism in public opinion and within both
dominant political parties. In this context of uncertainty, non-trade objectives
that are particularly vulnerable to capture by protectionist interests - including
the labor and environmental provisions detailed in the Trade Policy - should be
excluded from all U.S. international trade agreements, whether multilateral or
bilateral. That is, these objectives should not be incorporated into U.S. trade
policy objectives for preferential trade arrangements (PTAs), nor should they be
adapted and incorporated into future congressional grants of TPA.

A. Labor and Environmental Standards Should be Excluded from TPA
Trade Objectives

TPA, as it presently exists, was formulated in the context of a multilateral
trading system.213 The multilateral trading system was rooted in the pursuit of
trade liberalization that would create overall gains from trade through non-
discrimination under the MFN principle.2 14 At this stage, it is difficult to
determine whether the same goals of broad trade liberalization and overall net
gains from trade liberalization will remain important under a predominantly
bilateral trading system. As a result, it is difficult to predict whether TPA will
continue to function as an effective mechanism for achieving Congress' trade
goals. These uncertainties counsel against additional non-trade standards that
could be manipulated by special-interest groups. Until more conclusive
indicators about the functioning of bilateralism as a trade model are available,
the future implications of including non-trade objectives in trade agreements
cannot be properly assessed and should be excluded.

At the same time, Congress should avoid protectionist procedural
measures, such as tightening controls on TPA and in specific FTAs. Most
readily apparent is the danger of a loss in the expediency of the trade agreement
approval process. More importantly, constraining executive power may
undermine the President's negotiating leverage with foreign trading partners,
thereby decreasing their willingness to negotiate with the United States.
Finally, increased congressional control throughout the trade negotiation
process may have the ultimate effect of increasing pressure on Congress from
constituents and special interest groups to push for particular provisions in
individual trade agreements, potentially further burdening the process and
inhibiting the opportunity for trade.

B. Labor and Environmental Standards Should be Excluded From Bilateral
and Regional FTAs

Current trends suggest that even if bilateralism does not completely stamp

213. See supra Part H.A and accompanying notes for a summary of the evolution of TPA.
214. See supra Part ll.C.3.(a) for a description of the non-discrimination principle.



IND. INT'L & COMP. L. REV.

out multilateral trading efforts, bilateral and regional trading systems are most
likely here to stay.215 Unfortunately, it is precisely in the bilateral context that
the inclusion of non-trade objectives is most concerning. The bilateral trading
system has been aptly termed a "spaghetti bowl" of trade agreements.216 The
name creates a visual of a multitude of agreements, constantly crisscrossing
each other as they connect different trading partners on endlessly variable trade
terms.217 Before long, it becomes impossible to identify which agreements
connect to which partners and on what terms. As outlined above in Part H.C, a
plethora of variable trading terms undermine the non-discrimination principle

218and significantly impair the gains that characterize true trade liberalization.
But the spaghetti bowl trade framework that bilateral FTAs create makes the
inclusion of environmental and labor standards particularly problematic for two
reasons. As discussed previously, labor and environmental standards can be
easily manipulated by protectionist or other special interest groups to achieve
individual goals, which may not serve the greater good of the nation. 219 The
spaghetti bowl framework compounds this vulnerability by diffusing the
effectiveness of less powerful groups whose interests are affected by trade
agreements. U.S. trade policy is largely driven by powerful business
interests. 220 Business interests, however, may not be representative of the
interests of the nation in general, because businesses are generally profit-

221driven. In multilateral trade negotiations, other groups with a stake in trade
are better equipped to effectively provide a "check" on the ability of powerful
business interests to dictate the terms of trade agreements. For example,
various interest groups (including small businesses and labor, human rights,
and environmental groups) are able to concentrate their resources and efforts in
the broad multilateral arena for more effective achievement of their goals. In
the FTA trade environment, however, these stakeholder groups' limited
resources and energies are stretched thin as they attempt to keep track of every
agreement that is signed and analyze how each individual agreement will affect

215. See THE FUTURE OF THE WTO, supra note 67, at 21 (reporting that 300 PTAs had been
notified to the WTO as of October of 2004, 176 of which were notified after January of 1995).

216. Id. at 19.
217. See Bhagwati, supra note 147.
218. See THE FUTURE OF THE WTO, supra note 67, at 19 ("[W]hat has been termed the

"spaghetti bowl" of customs unions, common markets, regional and bilateral free trade areas,
preferences and an endless assortment of miscellaneous trade deals has almost reached the point
where MFN treatment is exceptional treatment."). See also supra Part H.C.

219. See supra Part IV (explaining that labor and environmental standards are particularly
vulnerable to capture by special interest groups because they neutralize various groups that
might otherwise counterbalance special interests).

220. Abbott, supra note 53, at 574 ('The difference between the multinational business
community and most other stakeholders is that the former can elect to transfer its negotiating
agenda to more favorable terms because it generally has the power to direct the focus of trade
negotiators.").

221. See id. ("Multinational business enterprises are typically pursuing mercantile agendas
designed to enhance their returns on investment.").

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2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 199

their interests.
Many economically powerful businesses and industries, on the other

hand, are primarily interested in only the few specific trade agreements that
affect them directly. This allows them to concentrate their already considerable
efforts and economic resources on specific trade agendas in particular
agreements rather than on broad trade forums.

A second major concern about labor and environmental standards in the
spaghetti bowl framework is that the number of PTAs makes the identification
of problematic provisions nearly impossible. Although a debate remains as to

222whether bilateral and regional FTAs are trade-creating or trade-diverting,
economists generally agree that FTAs are most likely to generate trade benefits
when they are structured in a way that ultimately fosters freer trade.223 In the
FTA context, the necessary conditions combine to create a delicate balance.224

From an economic perspective, the motivation behind a provision that has the
potential to alter this delicate balance may indicate whether the provision is
likely to foster or inhibit gains from trade. Put differently, the inclusion of an
environmental provision that is ultimately motivated by an industry's desire to
protect itself from competition is protectionist by definition, and therefore is
highly unlikely to facilitate freer trade and yield overall trade benefits. A
provision that is truly motivated by concern for the environment, on the other
hand, may impair trade benefits, or it may not, depending on its structure. In
short, motivation matters.

As Congresspersons are presented with more and more trade agreements,
the task of analyzing the pros and cons of each individual provision in light of
the best interests of their constituents, special interests, and the nation, both in
the long and short term, may become overwhelming. As a result,
Congresspersons may be more inclined to make decisions based on which
special interest group makes the most noise, rather than on other considerations,
such as the long-term welfare of the nation. Further, as previously pointed out,
because of the relatively narrow nature of bilateral FTAs, Congresspersons are
more likely to experience significant pressure from fewer groups on particular
issues in a given agreement, so Congresspersons are less likely to develop a
comprehensive perspective from competing interest groups. Rather,
Congresspersons will be making more decisions based on more limited and
more biased information.

A third concern about labor and environmental provisions in the bilateral
context relates to the loss of sovereignty among developing countries.225

"When the United States or European Union tenders a draft PTA to a
developing country, it expects the basic template of its proposal to be followed,
and in some areas ... .the possibility for effective counterproposal are almost

222. See supra Part I.C.3(b) and accompanying notes.
223. See supra Part II.C.3(b) and accompanying notes.
224. See COOPER, supra note 55, at 10.
225. See Abbott, supra note 54, at 578.



IND. INT'L & COMP. L. REV.

non-existent. '' 226  Indeed, the Trade Policy's labor and environmental
provisions have been specifically cited as an illustration of unequal bargaining
power in the bilateral trade context.227 Instead of retaining discretion to allocate
limited resources as they see fit to facilitate growth and development,
developing countries are likely to have environmental and labor laws dictated to
them by the terms of an international trade agreement. Case in point: one
expert notes that the U.S.-Peru FTA's forest sector governance provisions,
meant to reduce illegal logging, would require changes in Peruvian legislation,
including the penal code, but that Peru currently lacks the necessary capacity to
enforce the measures.228

C. Conclusion

In 2004, WTO Director Peter Sutherland, addressing the increasing
tendency in bilateral agreements to demand significant labor and environmental
protection, wrote, "[w]e would argue that if [labor and environmental
standards] cannot be justified at the front door of the WTO they probably
should not be encouraged to enter through the side door., 229 Sutherland's
statement not only reflects the view that these standards are detrimental to the
fundamental non-discriminatory goals of multilateralism, it conjures an image
of underhandedness in achieving their inclusion, as if the sly side-door entrant
has something to conceal. Although Sutherland offers no further explanation of
his meaning, the illustration is useful for demonstrating the multiple levels of
concealment that facilitate inappropriate labor and environmental standards.
The ailing domestic industry, whose attempts to lobby for protection have failed
before the WTO, can target those bilateral agreements that are most detrimental
to its interests. Such agreements are unlikely to attract much attention from the
WTO because they are not formally subject to all WTO rules and because of
the sheer number of bilateral agreements in existence. Even if such agreements
do not attract attention, by framing their protectionist goals in the socially
responsible clothing of labor and environmental standards, the industry's
protectionist measures will generally survive scrutiny, even if they benefit only
that industry, provide no effective labor or environmental protection, and cause
net harm to society overall.

226. Id.
227. Id. at 579.
228. US - Peru Bilateral to Address Illegal Logging, supra note 2. Indeed, the problem of

illegal logging in Peru has been attributed in large part to the existence of massive poverty,
which provides incentives for many families engage in illegal logging in order to survive. News
Release, International Tropical Timber Organization, Illegal Logging in Peru blamed on
Bureaucracy, Poverty (July 7, 2003), available at http://www.itto.or.jp/
live/PageDisplayHandler?pageId=217&id=218. In light of these facts, one might question
whether requiring the Peruvian government to spend its resources on policing the activities of its
poorest people is morally acceptable and, given the desperation of the people, whether such
measures are even likely to succeed.

229. THE FutuRE OF THE WTO, supra note 67, at 23.

[Vol. 19:1



2009] LABOR & ENVIRONMENTAL PROVISIONS: SOCIAL OR SPECIAL INTERESTS? 201

The social goals that labor and environmental standards purport to
promote must be decoupled from the convoluting maze of bilateral and regional
trade agreements that increasingly characterize the international trade arena.
Human rights issues and environmental protection are unquestionably issues of
great importance that should be a given high priority by the leaders of nations
around the world. These important goals should be pursued directly, however,
in a context in which the motivations behind their pursuit are not muddied by
the hidden agendas of powerful special interests readily cloaked in a highly un-
transparent system of international trade.

In a time when social and political trends suggest a tendency toward
protectionism, U.S. lawmakers must be exceptionally vigilant in ensuring that
laws cannot be manipulated in ways that could ultimately cause considerable
harm to social welfare. We live in a global world, and there are no signs that
global integration is slowing, in spite of growing skepticism about the merits of
globalization. To be sure, as the global citizenry adjust to living in a global
market, institutional adjustments in the interest of social welfare will be
necessary. These adjustments, however, must be characterized by innovation
and progressive thinking rather than by a fearful retreat towards self-protection.
As the global trading system transitions, it is particularly important to examine

the fundamental tools that a nation uses to achieve its international trade goals,
and to ensure that those basic tools are insulated from harmful exploitation and
manipulation. To that end, all proposed components of future trade policy,
especially as they relate to bilateral and regional trade, must be considered
critically and honestly. Under such scrutiny, labor and environmental
provisions do not pass muster as a sound component of U.S. trade policy.
Rather, their vulnerability to manipulation and exploitation threatens to amount
to the United States "gratuitously shooting itself in the foot" as protectionist
special interests capture and co-opt them for their benefit at the expense of
greater society.