Trade, Labor & the Environment: Preview of the IMF/World Bank Meetings

Transcript

R. Nessen: Good morning. Welcome to the Brookings Institution. My name is Ron Nessen. I'm in charge of the outreach activities here, and I want to welcome you to this press briefing, which is jointly sponsored by Brookings and by Resources for the Future.

The topic is labor standards and environmental standards, and what part they should play, if any, in trade negotiations. Obviously, this briefing is taking place in the context of the meeting of the World Bank and the International Monetary Fund here in Washington, and the protests that surround that meeting.

The briefing will feature Bob Litan and Gary Burtless of Brookings, and Paul Portney and Wallace Oates of Resources for the Future. And they will be more properly introduced in just a moment by our moderator Zanny Minton-Beddoes, the Washington economics correspondent for The Economist.

Before being assigned to Washington, Ms. Minton-Beddoes was the economist emergency markets correspondent in London. She joined The Economist in 1994, after two years as an economist for the International Monetary Fund. So she knows about today's issues from both sides.

Ms. Minton-Beddoes has written extensively on international financial issues, and many of you, I know, have seen her and heard her on the PBS program This Week in Business, as well as the Lehrer News Hour, CNN, CNBC and National Public Radio.

Before I turn you over to Zanny, I want to remind you, first of all, that Bob Litan will be conducting a live Internet chat on this topic tomorrow from 2:00 to 3:00 on the Brookings web site. You can take part in that live tomorrow, or you can submit questions or comments in advance. The Brookings web site is www.brookings.edu, and you'll easily be able to find where to go on the site for the chat.

Also, the transcript of this event, and many other documents relating to trade issues can also be found on the web site, www.brookings.edu. I sound like a presidential candidate giving his web site.

And now I'm going to turn you over to Zanny for what I think will be a very interesting briefing.

Z. Minton-Beddoes: Thank you very much.

To say that the issues of our briefing this morning, trade, labor standards and environmental standards is a topical issue is, I think, an understatement. Four months ago, the streets of Seattle saw the biggest demonstrations that America had seen since the 1960s; protests targeted against the WTO, in large part because of issues of labor and the environment. Organized labor was protesting against the effect of trade on U.S. jobs and on poor labor standards in the Third World. Environmentalists claimed that the WTO ignored the effect of trade on the environment, and were determined that environmental standards should be part of trade agreements.

Tomorrow, there's another mass rally and mass lobbying effort on Capitol Hill, again by organized labor, against the permanent normal trading standards legislation for China. The weekend, as we've just heard, more protesters are trying to shut down the spring meetings of the International Monetary Fund and World Bank, in large part because of the detrimental impact they claim these institutions have on the environment, and on workers in the Third World. Clearly, emotions run very high on these issues. But they are also extremely difficult to disentangle intellectually. What exactly is the effect of trade on workers and on the environment? Does freer trade improve living standards or does it begin a race to the bottom? Are labor standards, in fact, the best way of improving the lot of workers in poor countries, or are they just a mirage for protectionism? What's the role of voluntary standards? What's the role of labeling? How do you deal with cross-border environmental issues such as global warming? On all of these issues, the intellectual debate is very complicated, and to help us disentangle them, these questions and many others, we have, I think, an outstanding panel this morning of experts, both from Brookings and from Resources for the Future.

I'm just going to take a second to introduce all four panelists, so that then when they speak we don't have to go through more introductions.

On my right here is Wally Oates, one of the top environmental economists in this country. He is professor of economics at the University of Maryland, and a visiting scholar at Resources for the Future. He is an expert at the use of economic incentives to promote environmental goals. His research has focused on the design and implementation of taxes on pollution and systems of marketable emissions permits. He's worked with the EPA, the OECD, the U.S. General Accounting Office, and the State of Maryland on the design of regulatory programs for environmental control.

On his right is Paul Portney, president of Resources for the Future. He, too, is a long-standing expert on environmental policy. He has been chairman of the environmental economist advisory committee of the EPA Science Advisory Board. He is also co-author or editor of numerous books, including an excellent one called Footing the Bill for Superfund Cleanup: Who Pays and How?

On the other side is Gary Burtless, senior fellow in the economics studies program here at Brookings. He is undoubtedly one of Washington's top experts on labor markets, income distribution and issues of the impacts of trade on wages. He, too, has co-authored and edited numerous books. The most important one for this discussion this morning is a book that he co-authored with Bob Litan, on his right, called Globaphobia: Confronting Fears about Open Trade. The book I think is now about two years old, but I recommend it strongly as perhaps the best primer on many of these issues.

Bob Litan, on the far right, is director of economic studies here at Brookings. He covers an enormous range of issues from regulatory studies to emerging markets. He has seen policy from the inside as well as the outside. In 1995, he was associate director of the Office of Management and Budget. And he, too, has written and co-authored numerous books and articles, in particular the book I mentioned before Globaphobia.

I think you'll agree we have an outstanding panel here, and I will simply ask the panelists to first give a three to five minute presentation of their views, all four of them, then we will try and start some discussion between the panelists. And, very soon I want to open it to questions, because I'm sure we will have a very lively discussion once you all get involved.

Thanks.

W. Oates: There clearly arise some troubling issues in the short-run, very troubling conflicts, between our environmental goals and international trade. And these are certainly legitimate concerns, they're things that we need to address, and I will return to them in a moment. But it is also critically important to see the relationship between trade and environment over the longer haul. And here, I think, the evidence suggests clearly that rising standards of living, promoted in part by freer international trade are clearly favorable to the environment. People care about the environment, and as their incomes rise we would expect them to devote more and more resources to the protection of the environment. And this is, indeed, what we do find.

There's a body of empirical work, for example, that looks at environmental quality across different countries. And here we do find evidence that environmental quality is systematically higher in richer countries. There is, for example, a very strong correlation between access to safe drinking water and levels of income. The data on air pollution is a little more complicated. But here, again, we find that after sort of initial phases of industrialization in which urban air quality may actually decline, after some point, looking across countries, levels of urban air quality are higher in countries with higher level of income.

And all this, as I say, should really come as little surprise. People care about the environment and, as their incomes rise, want to devote a larger share of their resources to protection of the environment.

Poverty, itself, is really a terrible enemy of the environment. In countries where people don't get enough to eat, and where infants die from preventable diseases, it's hardly surprising to find that environmental programs involving clean air are not at the top of the list of social priorities. In fact, we do well to remind ourselves that, even in this country, we really didn't come to the point where we could effectively address our environmental problem with measures until we had reached a substantial standard of living that provided the means to tackle these issues.

So, at any rate, trade, as I see it, in the longer haul is clearly favorable to growth. We certainly don't do any favors to the environment by cutting off trading opportunities between the developed and developing world. Not only are we cutting off the sort of means, again, for rising standards of living, but these are the means that, over the longer-term, are going to provide the resources to address environmental problems. Moreover, international trade has occasioned a flow of more modern, cleaner, and more environmentally friendly technologies.

Okay. Now, this said, there certain are, as I mentioned earlier, particular cases in the short-run where our trade objectives, and our environmental goals conflict. And these must be addressed. We can't simply wave our hands and simply say, well, over the long haul, with rising incomes, environmental problems will take care of themselves.

Now, this is a tricky issue to address because a lot of these matters that arise in the short-run are often very particular in character and require particularized measures to address them. But let me offer a couple of thoughts on this. While these things are, as I say, very specific in character, it is generally the case that restrictions on trade are not a very effective way to address the problems. As I've already mentioned, over the long haul, such measures tend to be self-defeating. But even in the short-run, restrictions on trade in most cases are unlikely to do very much about the problem. Unilateral setting of tariffs, for example, or bans on imports often have little effect on the behavior of polluting industries abroad.

So it's very important, I think, that when we confront these measures we look carefully over the range of available options, from one case to another. In certain instances, for example, the best response may very well be some kind of technical assistance, supported, perhaps, with financial aid to introduce cleaner and more environmentally friendly methods of production abroad.

In other cases, there may be some promise in such things as eco-labeling, or product differentiation, which will bring sort of pressures from consumer groups to bear on the way in which products are produced. And more generally, and Paul I know will speak to this, there may be a real case here, and I think this needs to be taken seriously, for some kind of an international forum, apart from trade measures, to address these kind of environmental issues.

The real solutions to these problems are going to involve direct solutions, which mean domestic programs aimed at protection of the environment. Trade measures are typically third, fourth, or fifth best measures.

So the message that I want to leave you with then is that trade restrictions, I don't think, generally represent a very good policy strategy on behalf of the international environment, certainly not from a long-run perspective, and probably not from a short-run perspective. To pose the question in some sense as a choice between trade and the environment, I think, is a very misleading and dangerous way to pose the issue. It simply represents, I believe, a misunderstanding. Over the longer haul, rising standards of living occasioned by growth in international trade, and on the other hand environmental improvements, are going to go hand-in-hand. But, of course, this is not the whole package. The whole package is going to need to contain explicit measures to address environmental improvement. Thank you.

Z. Minton-Beddoes: Thanks very much.

P. Portney: Well, I thank you very much. I'll start in exactly the place that Wally Oates left off, by saying that both trade and particularly foreign direct investment in developing countries in the long-term are very good for the environment. And in the case of foreign direct investment in developing countries, I would argue it's good in the short-run as well, particularly when U.S. or other multi-national firms invest in developing countries, we begin immediately to see an increase in the standards of living there. In addition, the record, think, is quite clear that when U.S. or OECD firms based in the U.S. or OECD countries invest in developing countries, they build plants that are akin to the plants that they would build in their home countries. This begins to put pressure on indigenous firms to lift their environmental standards up to the levels both for occupational safety and health and environment protection in the developing world. So both in the short-term and in the long-term, I think international trade and foreign direct investment, as Wally has pointed out, are friends of the environment.

Now, as he has also pointed out, problems arise from time to time. We see deplorable environmental conditions in some developing countries, and occasionally in developed countries. People who are here in Washington this week to protest are doing so partly for theatrical reasons, but partly because they have legitimate concerns about environmental and labor problems. And I think we have to take these concerns very, very seriously.

There are things that can be done here, and I'm going to briefly go through five things that I think can be done to help deal with the problem of environmental protection in a world in which we want to encourage rather than discourage international trade.

First of all, I think we need much more use of labeling. If you think about the concerns being raised here, both on the labor and the environmental side, the problem is, to listen to some of these people talk, is that it is the market uber alles. If that's the case, and if they were concerned about the power of the market, then one obvious thing we can do is harness that market power in the service of the environment.

This works particularly well in the case of environmental issues because, by using labeling of products, it helps us deal with two different kinds of problems that arise in this trade versus the environment debate, which I think is an artificial debate. It deals with products with legitimate national concerns about products, for instance the use of genetically modified organisms, which some countries object to. In my view, despite the fact that the scientific evidence that has accreted to this point seems to suggest that they don't pose health risks, nevertheless, countries and peoples differ in their tolerance for risk. By labeling products as to whether or not they contain genetically modified organisms, we allow consumers to make a decision as to whether or not they want to purchase these products. In other words, we don't need government intervention to say we will trade or we won't trade with these countries, we will simple label products.

The same thing can happen with respect to the conditions under which products are produced. And here, again, labeling helps us deal with things like the drowning of dolphins in catching tuna. I think most of us have seen tuna cans that say "dolphin safe" that's a way to alert consumers to the conditions under which things are produced, and to allow them to vote with their pocketbooks in deciding which environmental conditions they want to see continued, and which ones they don't want to see continued.

So if the concern of the protesters is that the market is too powerful, rather than interfere with international trade that can enrich everyone and, in that way, protect the environment, let's make more creative use of labeling so that people can vote with their pocketbooks with respect to environmental conditions.

Another way to deal with these issues apart from stopping trade in its tracks, is more use of multinational environmental agreements. There are currently six having to do with marine dumping, International Trade and Endangered Species, the Montreal Protocol which limits chlorofluorocarbon production because of concern about the stratospheric ozone layer, a Basil convention on international trade and hazardous wastes, and framework conventions on both climate change and biodiversity that were put in place in 1992. Again, rather than trying to stop trade in its tracks and disrupting the World Trade Organization, which is trying to liberalize trade, where there are legitimate concerns about environmental issues, we need to negotiate multilateral environmental agreements, and we need to work with the World Trade Organization, so that when those multinational environmental agreements do have provisions that allow for penalization, trade restrictions on signatories that are not enforcing the terms of the agreement, that the WTO will recognize the legitimacy of these things and will not shoot down multilateral, environmental agreements because of trade concerns.

Another step we can take to improve this concern about environmental issues in the context of trade is to encourage countries, and work with them to eliminate harmful subsidies. In Europe, there are subsidies to agriculture, which are arguably environmentally harmful. In Europe, it's no surprise to anyone here that they think we subsidize energy use in the United States to a profligate extent. We can engage in discussions about the elimination of subsidies in energy, agriculture, forestry, fishing or other areas because that's part of what we're trying to do in trade anyway, which is break down non-tariff and tariff barriers to trade.

Another thing that we can, and I believe we ought to do is to provide more direct assistance to developing countries so that to the greatest extent possibly they can leap frog the dirty technological periods that we went through in the United States, and in other developed countries now, skip some of the dirty technologies, and move directly to cleaner technologies, even if they're not the absolute state of the art. Of course, in order to do this, the United States and other countries have to be willing to extend international aid and, discouragingly to me at least, the tendency in the United States seems to be to be increasingly penurious with respect to foreign assistance to developing countries.

Finally, and Professor Oates alluded to this, another way we can deal with this is to at least consider other fora in which we can discuss concerns about international environmental practices outside of the WTO and trade forum. For instance, it would be conceivable to create or strengthen an environmental branch in the world court to deal with tuna, dolphin, shrimp, sea turtle, and other kind of international environmental disputes. Conceivably, the United Nations Environment Program could also play a role in this. And finally, some have proposed that we consider thinking about the creation of a world environment organization in which is negotiated and litigated disputes between countries on environmental issues. The purpose here is very clear. The World Trade Organization has been created to facilitate and enhance world trade. It's probably not the right place to try to hash out disputes over differing environmental standards from country to country.

Before I stop, I would like to make one final point. We tend to take this for granted in the United States, but I want to give you a sense of the disparities in income and quality of life that we're talking about. In the United States today, roughly speaking, income per capita is about $31,000. It's not significantly less than that in the other OECD countries. In Niger, Sierra Leone, Burkina Faso and Ethiopia, per capita living standards are on the order of $400 to $600. Life expectancy in the United States and in the developing world is about 77 years. In Rwanda, life expectancy at birth is 28 years. In Sierra Leone, it's 35 years.

So when we talk about impeding world trade because we have concerns about environmental practices in either developing or developed countries, we need to understand the dire poverty in which people are living. If we believe, as I do, that international trade will pull up the standards of living in those countries, and one day hopefully enable them to take the same care of the environment that we now take in the developed world, then that's the way we ought to proceed. We shouldn't be in the position of cutting off someone else's nose to spite our or their faces. And I think that's what we do when we try to impede trade in defense of the environment. Thanks very much.

Z. Minton-Beddoes: Thank you.

G. Burtless: Let me make just three basic points that deal with the issue of including labor standards in treaties or in agreements that are undertaken for the purpose of providing credit to countries, or for the purpose of liberalizing trade between countries. Some people think that the United States and the International Monetary Fund, the World Bank, the World Trading Organization ought not enter into agreements with other countries unless those countries -- the protections that some people have in mind include prohibition on the use of child labor in production, minimum health and safety requirements for the workplace, and the right of free association, especially free association in labor organizations like trade unions.

I think some minimum protections are acceptable as conditions for loans, or for participation in international credit agreements. But let me mention two cautions about the way these protections might be set.

First of all, although many advocates of tough standards really do have the interests of Third World workers in mind, others are primarily interested in defending the interests of much better off workers, namely those who are in rich countries. Insisting that your trade partner have just as strong worker protections as you do can easily turn into a standard trade protection rather than the high-minded worker protection that I think a lot of advocates of protections have in mind. We have to be worried that what starts out as protection for workers in Bangladesh and China ends up being protection for workers and shareholders in Seattle and Atlanta.

Second, I'm a little concerned about the kind of protections that seem appropriate to people who are in very rich countries. Protections designed in the drawing rooms of Paris or London, or the rec rooms of suburban Washington might not be ones that are terribly appropriate to people living in the kinds of countries that you just heard described, where half or more of the population lives on $2 a day or less.

Let's take an extreme example, the protection of children against the hazards of workplace. It's obviously appropriate in rich countries, like the United States and the European Union to severely restrict the use of children in the workplace. Children should be attending school and preparing for their future roles as citizens and as workers. They should not be contributing to the sustenance of their families. It is not appropriate to impose the same kind of restrictions or identical restrictions where children are a crucial family resource, and where schooling for the youngsters may not be available anyway.

I'm old enough to remember when youngsters in their early teens were crucial inputs in running farms here in the United States, and probably other family run businesses as well. I'm old enough to remember that because I was a teen myself who worked in a family farm, and in a family-owned business. If this country used child labor to help run its farms in living memory, then it shouldn't be surprising that in much of the rest of the world, which is dramatically poorer than the United States was in my childhood, that children are still regarded as an important resource to help support their families.

What is appropriate protection for children in rich countries is not always appropriate protection in countries that are much, much poorer.

Finally, it should not need repeating that a good way to improve the living standard of poor workers in poor countries is to make sure that what those workers can produce can be sold in the rich countries, where the biggest and richest market exist. Most of the countries that have done an excellent job of rising out of deep poverty since the end of World War II have done so by creating or expanding the industries that sell what their citizens produce to the rest of the world. And since most of the world market, even today, is the market in rich countries, it's the market in rich countries that has got to be open, and kept open, to products produced in poor countries. In my view, liberalization of rich country's markets, to keep them open to poor country's products, is the biggest favor we can do, if we want to make poor workers in poor countries much better off.

R. Litan: First, an editorial overview comment, and then three concrete suggestions on a slightly different subject. What you've heard up here so far today is in essence a message that a lot of the protestors out on the street, and those of us up here on the panel actually share a common objective. I mean, who could be against the improvement of living standards, and who could be against the alleviation of poverty in the third world. What you're hearing today, and by the way, this would be a representative viewpoint I think you would get from most of economic professionals, and I'm underscoring I think most is probably understating things. That we have a difference in means. And we think that by applying well accepted, well established principles of economic research that have been well documented over many years, in many journals, much research, that we stand a far better chance of improving the fate of these people by doing what you just heard than by shutting off trade.

But I want to switch the topic, though, to address the workers here at home, because it is true that a lot of the people out there on the street, while they profess to be worried about people abroad, are also worried about themselves and here at home. I was at the White House conference last week on the new economy, and I apologize because I can't remember the individual who quoted the following statement, but I know it to be true. The statement was something to the effect that worker surveys show that there is as much worker anxiety today about losing their job, in a world where an economy of 4 percent unemployment, as there was during the 1991 recession where unemployment was basically double. That's shocking.

The question is, why are people here so nervous, during a period that is probably unparalleled compared to the last 30 years? Is it trade? Well, trade as measured by imports only accounts for 15 percent of the GDP. You can't explain this anxiety solely due to trade. You can explain it for another reason, in that the service sector, which is combined with the government sector, is approximately 80 percent of the economy. And that's largely insulated from trade. So people in service jobs shouldn't fear trade. Why are people so nervous? Well, I think the reason has something to do with the fact that we were all debating last week at the president's conference the new economy.

The new economy is another way of saying that there has been a rapid increase in productivity growth in the United States. This is something worth celebrating. The fact that in the long run productivity growth enhances living standards and allows wages to go up, that's a good thing. But, it also means that you can make the same amount of goods, and in fact more goods, with fewer people. So there is frequent downsizing and lots more job turn now than there may have been at other times. And I think that is the reason that people are nervous, understandably so.

Now, a lot of this job turn is voluntary, a lot of people who are well trained, of course, are moving to Silicon Valley, or moving here to Washington, or to Austin or other places to take high tech jobs, even leaving here at Brookings, by the way. We're having a hard time holding on to our young RAs, everyone wants to join a dot com, or the high tech world. There's lots of job turn, but at the same time, people without these skills feel nervous. And the harsh political reality is that this president, the next president, or any future president is not going to get any negotiating authority from Congress, in my view, unless we do something to address this anxiety. And here are three ideas.

I've written about them before with Gary, some of the ideas I've written about with Bob Lawrence and Martin Bailey, who now serve on the President's Council of Economic Advisors. These are not new ideas, but I don't hear our presidential candidates talking about any one of them. When I say candidates, I mean both of them.

Number one, if you ask workers what are they most worried about when they lose their job, it's losing their health insurance. Now, we have COBRA, which entitles you to buy health insurance for 18 months after you lose your job, but after you've lost your job you may not have the money to buy the insurance. So I think we need to find some way to subsidize workers below some income threshold, make it means tested, to subsidize the purchase of health insurance under COBRA. What good is the right without the money, point one. And this you can do without universal health care coverage.

Number two, Gary and I have written for many years about a program called wage insurance. The idea is that if you lose your job, and you go to another job, and you've taken some hit and, by the way, the data show the older you are the bigger hit you take when you lose your job, displaced workers surveys show that, and this is pretty obvious, because older workers have a lot of firm specific capital, that can't easily be translated to another firm. Why can't we have a system that compensates workers for some portion of this wage loss?

Now, before he dropped out of the presidential race, Senator Bradley proposed a version of wage insurance that would only be targeted to trade displaced workers, actually workers that would be displaced by future trade agreements. This is something that Gary and I proposed in Global Phobia, as a way to start the program, primarily because it's relatively cheap. But, I'll be honest with you, there is no moral and economic case for singling out trade. If I had the money, and I think the government should have the money, I would extent wage insurance, and make it general, so that regardless of the source of your job loss you will be entitled to some portion of this insurance.

The kicker is that you don't get the insurance until you get the new job. And the period in which you are entitled to the insurance dates from the time you are unemployed and lasts for, say, two years. So the longer you go and stay unemployed and do not accept a new job, the time is ticking away for you to recover wage insurance. This would give you very strong incentives to go back to work, even if it means taking a pay cut, because the government would make up some of the difference. And, in effect, this would be a training subsidy for you, because you're more likely to get trained on a new job than you are on some government training program.

Third point, the last point, we can have preemptive or preventive adjustment assistance in the form of lifetime learning accounts. Now, the government several years ago, at the urging of the administration, proposed a tuition tax credit. It said if you went to school, community college, half time, you could get up to, what, $1000 or $1500 a year as a credit. The problem is this program is only limited to people that are half time in school. Now, if you're in the workforce what good does this do you? In the Wall Street Journal a couple of days ago there was a story that said, the government is losing a lot less on those tax credits than they projected. No wonder.

The reason is, of course, that people are not able to drop out of the labor force and go half time to school, they need to feed their families. But, what they can do is go one course a night to school. And a lot of people are doing that. The people under $40,000 or $50,000 in income are wealth constrained, they do not have the money to pay for school. And so what I would urge is basically an extension of the college loan program, have a lifetime program so that people could draw on a loan program through the course of their working lives, so they can get retrained, and be part of this new economy, and enjoy the fruits of the expansion, and in that way ward off the kind of displacement that everyone feels.

I will just conclude that I think that unless some serious attention is paid to addressing the worker anxiety issue, and basically shoring up the safety net so that workers feel less threatened, I don't think we're going to get any Congress to give any president expanded trade authority.

Z. Minton-Beddoes: The difficulty with engendering discussions between you four is that you all seem to agree with each other. So I've decided that I'm going to play devil's advocate and start off by, I think, summarizing the first three positions.

Bob, you made some very interesting and slightly different points.

And you, Gary, basically said, and you two talking about the environment, and you said, trade versus the environment, trade versus labor: it's a false dichotomy. There is no trade-off here. Really trade benefits the environment in the long term, trade benefits workers in the long term. Therefore we shouldn't get trade, the liberalization of trade, which is essentially what trade agreements are about, involved in this whole complexity of environmental stuff, and labor standards. And you mentioned, perhaps we should have some sort of international environmental organization. And although you didn't mention this, there is the international labor organization, which is a similar kind of set up for workers' rights.

Now, that's a very plausible argument. The counter argument is that trade negotiations nowadays are certainly no longer just about paring down tariffs, and tearing down barriers, that they're much more complicated than that. They involve regulations at their very core. And just to give you one example, the WTO now has authority over intellectual property rights. Intellectual property rights, there is an international standard, countries have to adhere under WTO to minimum intellectual property rights, and other countries can retaliate against them if they don't live up to that. Now, it seems to me the argument for intellectual property rights is at its core not that dissimilar to the argument for labor standards of environmental standards. You're not tearing down barriers, you're demanding a minimum common standard in other countries.

Now, my question to you is why is the environment different, why is labor different, and if we have international standards on intellectual property rights within the WTO why shouldn't we have them for labor, and why shouldn't we have them for the environment.

P. Portney: Let me step forward on the environment for just a second here, the point you make is a good one, and in some sense I'm not opposed to minimum environmental standards, for instance. The question is, where do you set the minimum, and I guess the way I want to illustrate this point is to say that 31 years ago this coming summer in the United States, the Cuyahoga River spontaneously combusted and in several major American cities people had to turn their car lights on at noon, and the city turned the street lights on because air pollution had gotten so serious that it was like nightfall. In that short period of time, relatively short period of time, I know that 30 years went very quickly from my standpoint, we have made a tremendous amount of progress in the United States. If we said today that the standards we have today were appropriate for the United States at that time, that would have been wrong. We made a decision at that time as to how much protection we can afford.

And so the concern I have, and I think this is the concern that people in developing countries have, is that when they hear people, particularly in the developed world, begin to talk about minimum environmental standards, that the minimum that's right for people in Germany, or the U.K., or the United States, or France, or other relatively wealthy countries, will be a minimum that looks low compared to those countries, but actually is asking much more of the developing countries than those countries asked of themselves, or would have asked of themselves at the standard of living at which the developing country is at now. So I don't think the problem is thinking about a minimum standard, I think it's at what level should we set this minimum standard, and the developing world is clearly afraid that this will be one way to protect, as Gary Burtless said, workers in the United States and in the developed world, rather than protecting people in the countries whose interests we claim to have at heart.

Z. Minton-Beddoes: Would you agree, Wally?

W. Oates: I certainly would. I really have nothing to add.

Z. Minton-Beddoes: How about on labor standards, Gary?

G. Burtless: Well, I think the argument for intellectual property rights is the argument that inventors deserve some share of the fruits that flow out of what their minds have come up with. And in the Constitution of the United States there's even provision for this, it's based on this incentive idea that you want to let inventors capture some of the benefits that flow from their inventions. If there were not protection of that, they might not get anything. And so the idea is there would be under production, there would be too little production of these kinds of creations that have general value to the entire society.

That is enshrined in international law, when we try to enforce protections of the intellectual property of someone, for example, in the Netherlands. A Dutch inventor comes up with a great invention, and we in the United States protect that person's claim to part of the benefits of the invention. If the United States did not adhere to that standard, then this poor guy in the Netherlands could perhaps collect benefits only on the sale of his invention in the Netherlands. And this poor guy would not have a very big incentive to be creative.

So I don't think that the intellectual argument for intellectual protection and those for labor standards are at all parallel. One is basically an idea of giving to inventors and creators a share of the benefits in what they produce. If you don't agree with that incentive theory, then don't defend intellectual property rights.

R. Litan: Okay. I'm going to give you a traditional economist's on the one hand, on the other hand, okay. On the one hand, intellectual property rights protection, or the lack of it, actually, is like a trade barrier. So that if China doesn't protect our patents and our copyrights, in effect, we won't sell in China. So it acts like a trade barrier. That makes is different from a labor standard of an environmental standard that has only domestic significance, and is the choice of a country itself, it doesn't act as a trade barrier. So there is that intellectual point. I make that in debates with labor union people, because it's the favorite example that the labor unions raise. And it goes over like a lead balloon.

I actually think it's intellectually right, but politically it turns out that the labor movement has gotten tremendous fuel out of this analogy. They'll say, if you can do intellectual property, then why not labor and environment. So that politically it may have been a mistake in 1995 to have included intellectual property in the Uruguay round. I am open to that view, it could have been a mistake. Now, how did it get there? This is a larger point. Why did intellectual property become a big deal? That's because the dynamics of trade negotiations are unfortunately mercantilist in nature. Exporters from every country go to their trade off, and they have a wish list. And they say, this is what's keeping us out of foreign markets, and we want you to get rid of this stuff, and that's the way we proceed. We do not proceed from the consumer angle of, well, imports are good for us, because they lower our prices and make things cheaper for consumers.

And to the president's credit he finally a few months ago spoke up in defense of imports and said, they're good. They're cheap, they help keep inflation in check, et cetera. If we had more of that kind of presidential leadership, if we'd had more of it in the last seven years, and hopefully if we have more of it in the future, then it's conceivable you could change the mercantilist dynamic, and we wouldn't get into the kind of mess that we got, because it's not clear that of all the things we should be pressing that intellectual property rights would have been the biggest thing we should have pressed in 1995. There are lots of tariffs out there in the world, especially in LDCs, that have not been eliminated that we want to get rid of. And they maintain a lot of barriers to us that have nothing to do with intellectual property, in services, in other sectors, that we legitimately can complain about. So, in retrospect, my views is that, on the other hand is, as a matter of political economics, this may not have done the cause of free trade any good by putting this on the agenda.

Z. Minton-Beddoes: Let me continue my devil's advocate position. I agree with what you say, that intellectual property rights could be seen as a trade barrier, but the fact that the lobbies for removing them were so big in the mid-1990s one could argue is because corporate interests define trade negotiations. Corporate interests have historically been much stronger in defining the direction of trade negotiations than environmental lobbies, than indeed the labor unions until quite recently. And so one could argue that this is simply a resetting of the playing field, and now you are seeing other interests stepping up to the table saying, wait a second, corporate interests are not the only things that matter around here. How do you react to that?

G. Burtless: Well, I react to that, your description is 100 percent right, and the missing element to this is the small business community that has not weighed in on the side of trade. Trade is now perceived as a Fortune 500 game, or has been. And now the labor unions say, we want to join, and the environmental groups say, we want to do the same thing. And the average consumer, and the average small business, many of whom sell to the major Fortune 500s, many of them who sell in the foreign markets have not been players. And we have not seen strong presidential leadership to basically educate the American public that the mass of consumers are the ones that benefit from this, and there are other people besides Boeing, and Xerox, and Microsoft, and other companies that benefit from free trade.

And I think that the more we continue in the same vein, and rely on corporate America, the business roundtable, to lead the free trade movement, it will play right into the hands of the people in the street, who basically say -- and I read Lori Wallach's interview, if many of you haven't read it, Laurie Wallach gave an interview in Foreign Policy this issue. And it's got a lot of sensible things actually in it, in the first 15 or 20 pages, from my vantage point, until the very end, where she basically says what a lot of the protesters in the street are saying, it's all one big corporate conspiracy to bring down the fate of the world. She, in fact, says that, that the IMF, the World Bank and all these other groups or organizations are the tools of the corporate establishment, and so forth, and that kind of view is fed by the phenomenon you describe, that traditionally trade has been led by just a few major corporations, and we have not sold trade as a to the average person out here. And mindful, it does.

And by the way, it benefits low income people especially. Low income people have to buy food and buy clothes, they're the ones that are hurt by agricultural and food protection in the United States. So we're hurting the poorest workers in the United States by maintaining them. So we've got to switch the debate, but it's going to require leadership from somebody up there on 1600 Pennsylvania Avenue.

Z. Minton-Beddoes: You both, those of you and those of you who are discussing labor, said what you need is a different kind of institution to deal with these. You don't want to tangle it up with trade, and you need to reframe the debate, you said, Bob, you need perhaps different leadership, but you don't want to tangle that with trade, it's a problem of misconception.

And, Bob, you gave some concrete examples when you made your remarks earlier, of exactly what you would do to change the debate. I wonder if the other three of you could give me a sense of what is it, concretely, you would do instead? You don't want to have environmental standards sullying the WTO, how do you want to progress, given the very powerful feelings that there are amongst people concerned about the environment, how do you harness that constructively?

W. Oates: I do think it's important to draw one distinction here, and that is that as Paul made reference to setting differing standards for countries at differing levels of development, which makes perfect economic sense. At the same time, one has to recognize that there are different kinds of environmental problems. There are environmental problems which are largely confined to the country's concerns. So if India wants to set its own sort of standards for air quality and all, so be it, we should not be in a position to dictate what these kinds of standards should be. And as Paul suggests, this makes us all sort of uneasy when we start talking about minimum global standards for environmental quality.

On the other hand, there are cases where things spill over borders. And this is where things get messy and hard. There is general interest, for example, in the preservation of endangered species, and the cutting down of rainforest exacerbates, we believe, the problem of global climate change. And when we get into these issues that involve global interests, where what's going on in one country really does matter to other countries, then indeed we're in a setting, I think, where we do need some kind of an international forum where these things can be worked out. They're complicated and hard, but it's not clear right now that we have a place for addressing these issues.

Z. Minton-Beddoes: Something like endangered species, which has already become part of the WTO discussion the shrimp-turtle control for example. One of the reasons it is attached to trade is because trade sanctions and trade barriers are a very effective means at getting countries to change their behavior. If you had some sort of international environmental organization, how would you ensure, or how would you set it up such that there were any incentives for a country to actually change their behavior because said international organization told it to? If you don't have the carrot and stick approach that you have with trade, how do you -- what do you put in its place?

W. Oates: I don't have a ready answer for that. I mean, I think this is something that does sort of have to be thought through and worked out. And we do have to think about what sorts of sanctions we would make available to an organization of that kind.

G. Burtless: If I could jump in on that, I want to come back to a point I made right at the very start, which is if the concern is that the market is so powerful, then let's make sure that we use labeling as a sort of first recourse, so that people in countries who are upset about environmental practices or labor practices in other countries have an opportunity not to purchase those goods. If the market is this powerful, then an unmistakable signal will be sent to people in developing countries or wherever it is that objectionable practices are in place.

The response to the very penetrating question that you ask is, I think, first of all, if you have these environmental problems that spill across borders then that's really the opportunity for these multilateral environmental agreements. The question you would presumably ask is, well, fine. If someone signs on and then reneges on their part of it, and ultimately that's why I don't think you can take trade restrictions completely off the table. If the person reneging on multinational environmental agreement is a developing country, then there is development assistance, through the World Bank, through the IMF, that might be part of the bargaining tool that you would use, and ultimately, of course, I think if everyone is in agreement that a county is doing something that everyone has sworn off and continues to be wrong, then I think you have to hold out the possibility that trade becomes part of this.

My concern, and I'm sure my fellow panelists' concerns is, that in a way the first thing we do now is we don't like what goes on there, let's impose a sanction against them. I mean, this happens in the United States for political reasons all the time. The victims are often energy companies who can't explore for oil, because we won't buy oil, or we won't let people explore for oil in these countries. So the United States sanctions a country, everybody else rushes in and takes the business, so that it's both economically counter productive, and politically ineffective. And so I'd like to see trade moved down the list of remedies that we begin to look to when we have a recalcitrant on international environmental agreements.

Z. Minton-Beddoes: I want to pick up on one part of that comment, which is the use of labeling, the use of private voluntary standards. Do you think, Gary, that that would be an effective means of raising labor standards?

G. Burtless: In some areas it is, because for example in the production of coffee, this is a environmental standard not a labor standard, in the production of coffee it's quite easy to identify the source of the coffee beans, and with an agreement on what constitutes organic coffee, or what constitutes rain forest friendly coffee, such a sticker could be applied to the packages that people buy. But in the area of products that we want to have labor protection for, certainly sweat shop protections, labels of shoes saying that these shoes were created outside of sweat shops, in factories that honor certain ILO standards, that is a very practical way to go. It's not so practical when the component that is produced in some countries is just a small part of a big product. For example, the people that are entering in your credit card information when the merchant sends stuff in may be in Jamaica, they may be in Ireland, they may be anywhere in the world where people can key punch in these data, and how then do you label the product, I don't know. So it's not always practical. But in areas where it is practical I think that labeling is an effective way for consumers who have strong preferences about things like this to exercise influence.

Z. Minton-Beddoes: Bob, I want to go back to the comment you made earlier, about how there needed to be a greater emphasis, I assume you meant by the administration, on selling the advantages of free trade, or selling the advantages of imports, and put that together with your earlier comment about the kinds of assistance programs you would like to see, and can you give us some sense of where else you would like to see the emphasis put? Clearly in this present political environment, pursuing the trade agenda is going to be incredibly difficult, should the emphasis be on finding ways to assist the more insecure worker at home, or is it the bully pulpit, or is there even more than one needs to do?

R. Litan: Well, these are not mutually exclusive, they have to be done at the same time. If I were president, I'm not running, but this is what I would do, I would certainly not on day one ask for fast track, whoever wins. I'd send up a package and work for a year or two to get a worker protection package in place. In the meantime I would continue negotiating with the rest of the world on our agenda, which is we want lower tariffs, we want less barriers to services, we want fewer agricultural subsidies abroad, and so forth, and we continue talking. In the meantime, hopefully we get the worker protection package passed, we make some progress on these talks.

And by the way this is the next point, Seattle failed in part not because of those protestors, but because the United States went to Seattle, which is give me, give me, give me, and we're not giving you anything. We didn't make one proposal about one thing we were willing to talk about as a concession, it was all one sided. No wonder a lot of the countries balked in the so-called "green room", especially the LDCs, they weren't going to talk to us, because we weren't even willing to talk about things like antidumping policy, which any economist knows is absurd. I'm not saying we're going to get rid of antidumping I've written some proposals about how we might modify antidumping policy to make it more rational, but we wouldn't even mention it. We wouldn't mention textiles, we wouldn't mention agriculture, we wouldn't mention anything, because we were spooked about creating fears that we were going to cause dislocation. So I recognize the sensitivity of this, but in these talks that are proceeding, during this phase in which we're trying to get a worker protection package in, you have to at least be able to talk about some of the things we would trade away.

And the final thing would include in this package of trading things away is more reliance on labeling. I mean, we've got this huge dispute with the European Union over bananas, GMOs, foreign sales corporations, the whole shebang. The next president ought to go to the Europeans and try to wrap all of this in one package, and to see if we could come up with some compromise that would include labeling as a solution to GMOs.

Unidentified: This is frankenfood.

R. Litan: Frankenfood, well, whatever. GMO. I would settle for GMO. And if it were up to me, I'd tip bananas overboard. We don't even make bananas. And foreign sales corporations, we call a truce with the Europeans and say, you do it, we do it, let's just call it off and let's not argue about this any more.

Z. Minton-Beddoes: What would you do about the status of trade and labor standards in the WTO negotiations?

R. Litan: What I would do is I would pursue the agenda that Gary and Paul have talked about, which is find and strengthen and create other fora for these other organizations, and legitimize them, but do not bog them down in WTO, except to the extent that they require trade enforcement as a last resort. And by the way, this is what the critics point out, they say look, Article 20 of the WTO, the GATT allows trade sanctions right now for prison labor, all right, there is a precedent for trade sanctions for bad things. I would make sure that same principle applies to broad multilateral environmental agreements, and with respect to the labor issue, what I would do is I would put a lot more umph, and budgetary resources into the ILO, and help them publicize countries that basically have bad practices, and let consumers vote with their feet.

[TAPE CHANGE]

Z. Minton-Beddoes: -- the China vote, and how do you see that playing out over the next few weeks? I'll give you guys some time to think about it.

Gary, why don't you start.

G. Burtless: Look, there a legitimate reasons that some people do not want to have closer relations with China. I think that those legitimate reasons are wrong. I view the situation much the same way that the president does. That the extension, entering into this agreement with China does represent a step forward for poor people in China, as well as a step forward for the United States and its relations with China. But, at the moment I'm not incredibly impressed by the chance that this is going to make it through Congress.

Unidentified: I guess I share Gary's views on the likelihood of this, but I would like to see more trade liberalization with China. Obviously, from an environmental standpoint, you all realize that it's an incredibly important country, particularly with respect to emissions of carbon dioxide which are of concern because of potential greenhouse warming. And so what we can do to increase the economic prospects in China is very important. As they have begun to become more wealthy over the last decade or so coal sales in China, coal usage in China has declined the last several years. I think that's partly because living standards are going up, and they realize that they don't want to breathe the incredibly foul air in Beijing and other cities. And I take that as early preliminary evidence of the view that increased living standards will begin to act favorably on environmental quality. And so I'd like to see liberalized trade for that reason.

Unidentified: Same here.

Z. Minton-Beddoes: Bob?

R. Litan: Two points, on politics, I give the vote a 50/50 probability at this point. I wouldn't have said that a month ago, but I think chances are increasing. I think whether it gets to 51 percent, and we're talking about a 1 percent margin, is largely in China's hands. If China saber rattles against Taiwan this thing is over. And I hope to goodness they don't. But, if they don't, and we do not pass this bill to normalize trade relations with China, I think historians will look back and say this is one of the great missed opportunities the United States had, that the world had, it will be a devastating reversal. And I don't want to sound doom saying about what the consequences can be, but the consequences could be very bad. And I'll leave it at that.

Z. Minton-Beddoes: Thank you, questions from the floor? There are microphones being passed around. If you could just wait for the microphone to get to you, and then identify yourself.

Question: Hi. I'm Anne Wolverton of ICF Consulting. I wanted the panel to address two criticisms that are often voiced of free trade that are relevant to both the environment and labor. The first one is that, one, free trade in the short run exacerbates distribution of income in poor countries, which in turn could exacerbate environmental problems. Two, free trade allows multinationals, often with profits that are greater than some poor country's entire GDP, access to world markets and increases bargaining power, arguably at the expense of poor countries and their populations.

Z. Minton-Beddoes: Thanks very much. Maybe we'll start with Gary on that.

G. Burtless: The income distribution I think is a mixed picture. In some countries the trade liberalization and improvements in the standard of living have been followed almost immediately by improvements in the situation of the people who are worse off. That was famously the situation in much of East Asia, where the benefits of the improvements in living standards immediately flowed to such essential institutions as primary schools, which were made widely available to the entire population.

But, in other countries, particularly following structural adjustment agreements, struck with the International Monetary Fund or the World Bank, often there is a growth in the inequality of income, that springs from the fact that one of the goals of these structural adjustment agreements is to weaken formerly very strong, entrenched monopolies or state run companies. And the people who had a very protected situation, as a result of protectionism among other things, lose out, and they lose out quite rapidly, and their losses are widely publicized and widely recorded in rich countries, as well as in the poor countries themselves.

So I just think that there is not any single generalization about what happens to the income distribution in countries when liberalization occurs. I think most economists share my view that in the long run the higher incomes that flow out of freer trade for these countries ultimately result in an improved income distribution, particularly if we take the question, what is the well being of the worst off families in these countries. The most laissez-affair of all of the developing countries in the 1950s, '60s, and '70s was Hong Kong, famously so. It would be very difficult to find poor people in any country in the developing world who have seen such a spectacular improvement in their living standards in living memory than the people in Hong Kong. So in the long run I think this openness to the rest of the world and to free trade has been very good for people at the bottom.

Unidentified: I'll make two points. One is, regardless of what happens to the income inequality issue, the overall level of wages goes up, and the evidence is pretty strong that openness leads to a higher level of wages. The second point about multinational corporations, I think a lot of people claim that a multinational corporation goes into a country and somehow takes advantage of the workers in that country, through foreign direct investment in particular. And the evidence there is, and there have been studies that have been put out by our competitors down the street, the Institute For International Economics, that show that multinational corporations pay higher wages than other companies, in the countries in which they invest. Now, it's true they don't pay the wages here in the United States. That could be because the productivity of the workers in Indonesia, or Thailand, or whatever, is lower than it is in the United States, but multinational corporations do pay higher wages where they invest. So it's hard to say that they exploit the worker from that vantage point.

Z. Minton-Beddoes: Maybe one of you could address the relationship between income and the environment.

Unidentified: I simply wanted to underline, I think Gary's point is right on target here, that growth in the income inequality issue, these are hard to generalize about, but it is true that these are not nice, neat, linear processes of improvement and growth over time. There are dislocations, but again, I think the general plea of the profession -- again, I think it is important to maintain a long-run perspective on this. I mean, the sort of hope over the long-term is in terms of growth and rising standards of living, that will offer the resources to address environmental problems as well as labor problems. This sort of gets lost so often in what are sort of problems of the moment, which need to be addressed.

Z. Minton-Beddoes: I guess one of the reasons it does is because the long-run is very often the very long-run. I mean, use the example of the United States, the United States can now afford to care about the environment. If you look at somewhere like the emerging countries of Asia, phenomenal income growth over the last 30 years, and a phenomenal deterioration of their environment. The mega cities of East Asia are some of the dirtiest, most polluted, most awful places to live in the world. And so it's hard to see in those countries at least that greater wealth has come along with greater concern about the environment. Now, maybe at some point that will change, but your definition of the long-run is actually a very long definition.

Unidentified: But I'm actually confident that in Bangkok and the kind of cities that you're referring to you will see a faster improvement in environmental conditions than we had in the United States, because incomes are growing, if anything, faster there than they did in the United States during the 30 years when we made dramatic progress. One point on distributional issues and environmental protection. One area where it is of concern to me has to do with international shipments of hazardous waste. I mean, they're now at the Boswell Convention to deal with this.

The economic perspective, I think, typically is if a country is willing to accept those risks in exchange to become the dumping ground, they ought to do that. In fact, I live in a state, Virginia, that takes a lot of garbage from New York, the State of New York. The concern in the developing world, of course, is that the money that goes with those shipments will go to sometimes corrupt leaders, and that the risks, the waste that comes in exchange for that money, is going to be dumped somewhere without notifying the poor people who will be exposed to that risk. And so the people who are enjoying the economic gain from trade in this case, trade in hazardous waste, are not the same people who will bear the risks. So in a case like that I'm particularly concerned. In a case of a new industrial facility in a developing country, people around the plant are the people who will bear increased environmental risks, on the other hand, they're likely to be the people who will get the jobs. And on net, they're probably better off.

Question: I'm Reid Detchon with the Turner Foundation. Paul Portney appropriately stresses the importance of using direct assistance to developing countries to support environmentally advanced technologies. Why should we not require as a condition of U.S. support of the World Bank and the IMF that any project supported with our funds should meet U.S. environmental standards?

P. Portney: Again, my answer to that is the projects that the World Bank undertakes are in the poorest countries, the countries where the standards of living are 1/100th of the standard of living in the United States. And so I would argue that while in some cases we would want to pull up standards there, and that it would be in their economic benefit in certain cases, it would be inappropriate to require Sierra Leone to have the same air quality standards, or water quality standards, or drinking water standards that we have in the United States. We would be asking them to do something that we didn't ask of ourselves in the very recent past.

Question: Can I clarify? Not asking the countries to change their standards, but ask the projects to be built to a quality that would meet our standards.

P. Portney: Well, I understand the clarification and I guess my general response is the same. The issue is that if they're built to our standards, then they would get less of what they would get if they were built to their standards, whether it's a water purification system or something else. And my view, at least, and I hardly hold myself up to be an expert on this, is that it would be better for them to have more water purification, even if it is to a lower standard that we have here in the United States, to broaden the benefits of that more widely, rather than to from what their perspective would be, to gold plate this, and require it to meet developing country standards. My concern about this is that if it's more expensive to build then there's going to be less of it, and I would be more interested in seeing more people have the benefit of the project. But, that's one person's view.

Question: I'm Mr. Oblas Filige [sp?]. I'm an Italian journalist. I would like to recall all of us the existence of the Kyoto protocol, which is probably the most relevant international agreement on the subject we are discussing today. The Kyoto protocol limits strongly the emissions of carbon dioxide. It has been signed by the U.S., but we all know that it has no real affect in the U.S., because it requires ratification by the Senate, and actually this doesn't seem very possible. What do you think about this particular issue, and what do you think about the international environment policy of the Senate?

Unidentified: Well, there are 100 people in the Senate, so there's no international environmental policy of the Senate. With respect to the Kyoto protocol, I feel that the United States and other developing countries have a responsibility to begin to reduce their atmospheric emissions of CO2 and other greenhouse gases, before we ask the developing nations of the world to do the same. And I think it -- I marvel at the effrontery of those who say that we shouldn't do anything until India and China, and other developing countries begin to take comparable measures to those that we would take at the same time. If the roles were reversed we'd tell them to take a hike. And so I don't think they should start when we start.

I'd like to see the United States begin gradually to reduce greenhouse gas emissions, but I think the Kyoto protocol is not the right framework under which to do that. And so I think the United States should do something. I think that Kyoto asks too much too soon. I'd rather see a more gradual reduction in greenhouse gas emissions over a longer period of time that would give us an opportunity to take advantage of energy conserving technologies which we will be learning about and perfecting over the years to come.

G. Burtless: I would like to make a comment on this. In our book on Globaphobia, Bob and I singled out environmental issues like global warming as one where there is a compelling case for using trade and trade sanctions and trade negotiations in order to exert leverage over other countries. And the reason is simple, the issue is one in which there is an externality from pollution that goes well beyond the national borders of any single country. There is an international issue that affects the well-being of everyone on the planet. And we have a weaker case for environmental protection if we're talking about the water quality of a Mexico City. That is a welfare issue, first and foremost, to the people of that region, who are quite far removed from the United States. For us to negotiate over what the environmental standards should be for the protection of water in Mexico City is not such a compelling case as a case of negotiating with Mexico over a shared environmental problem that affects citizens in both of the countries.

So we think that this area, global warming, is one that is deserving of a great deal of thought, and pressure in international negotiations.

Z. Minton-Beddoes: Let me press you on that. The issue of global warming surely is that, one, at the moment the bulk of the new emissions are coming from rapidly growing developing countries. The build-up that has brought us to this problematic moment was primarily in the developed world, and largely in the U.S. So on what basis can you say it is now right? Because there is an externality from what Mexico does to the U.S., it is legitimate to have trade sanctions for that, when the reason that we've gotten to this position is because of what the U.S. has been doing?

G. Burtless: Absolutely. And I would say there is a degree of hypocrisy amongst people in the United States thinking that the standards we adopt and would wish to impose on poorer countries are somehow more deserving of respect when, as we just heard from this Italian journalist, the likelihood that the United States would accept as binding an agreement to reduce emissions that was entered into in an international conference in Kyoto is very remote. I mean, the notion that here is a shared global environmental problem, which the United States is very unlikely to honor, strikes me as putting this in an extremely weak moral position when saying to Brazil, you must preserve your rainforests, even though perhaps a lot of the environmental benefits of preserving the rainforest are going to be benefits that will be enjoyed by people who live in Brazil rather than people who live here in the United States.

Here we have a problem that affects both Brazil and the United States, and we neglect or decline to do our pro rata share to help the environmental problem. And yet we expect other countries to comply. It is hypocrisy of the greatest order, I think.

Z. Minton-Beddoes: Another question?

Question: I'm Merrill Goozner with the Chicago Tribune. I want to ask a question about labeling which has been proposed at several points as a solution, and exerting the power of the marketplace. But I want to start with Bob Litan's observation that, you know, fears of dislocation are really behind trade anxieties. And, you know, as you lower tariffs around the world, what happens in the United States, it seems to me, is that it's always the lowest income workers, or people in the low end of the income scale who are the ones who are disproportionately affected. And that leads to a lot of the politics of this.

When tariffs come up on multifiber agreements in five years, we're going to see probably hundreds of thousands of Americans lose their jobs, because they are in direction competition with workers in developing countries who sell textiles into the United States. And, of course, that laid off worker can go down to the Wal-Mart and he can see a shirt made in Thailand, or made in China, and pay a low price for that. And he can be very thankful for that, but it's not very good to him if he doesn't have a job, of course.

Which then raises the point about, when that worker goes into the marketplace and sees dolphin-free tuna on the shelf, and it's labeled as such, but he also sees tuna as maybe slightly less expensive, but maybe -- because, after all, dolphin-free tuna is an externality that has been incorporated into the price of that good, whereas tuna that is not caught in an environmentally acceptable way reflects a lower price, and those low income workers will obviously, because of the power of the marketplace, be more attracted to that good.

So my question sort of becomes on this labeling solution, is that something to make high income consumers in the developed world feel better about their shopping habits, or is it really a solution to the environmental problem?

Z. Minton-Beddoes: Go ahead.

R. Litan: The short answer to your question is, I think it eases the conscience of the people who are buying their stuff, but, look, I mean, some people believe this. Why shouldn't they be entitled to act on it. If there are enough of them that do it, then they will bring about the change. And if there aren't, then we have people who feel better.

All right. Now, back to your textile worker. Textile workers is one of the great stories I've suggested to several people that they study. The textile industry actually has been characterized by a lot of innovation in the United States over the last 15-20 years. We need a lot fewer workers to make the same amount of stuff because of all these machines. You can forget protection. Textile workers are losing their jobs probably every year because of mechanization and machines, regardless. We're doing them a disservice by reminding them and telling them, this is going to be their job for the rest of their lives, it isn't, because on their own textile manufacturers are putting them out of work. And so, we need a national policy to basically tell everyone, whether they're a textile worker, or an auto worker, or a steel worker, or a worker here at Brookings, or anybody, that nobody's job is safe, and you're in charge of your own life. And the government's role is to help you learn to adapt.

And President Clinton made this a big deal in his 1992 campaign, saying change is your friend, and there was that famous speech that he gave in New Hampshire that was memorialized in the movie Primary Colors, as probably several of you remember. We never did much of it, though. We hardly enacted, I would argue, the agenda, the change is your friend agenda. And it's about time that we do. But to tell steel workers and auto workers and everybody else that trade protection is going to keep their jobs is really fraud, because it won't, because a lot of them are going to be put out of work by productivity change anyhow.

Z. Minton-Beddoes: Paul, is labeling a way to make wealthy consumers feel better?

P. Portney: Well, partially yes. Although I'm concerned about the drift of the conversation here. I do have a concern about cheap, shoddy analysis coming in from think tanks in developing countries, and I think we do need some protection there to insist on a minimum level of quality, but only in this instance. I think in other cases the more free trade the better. Isn't that a familiar refrain. Have we ever met a businessman or woman who didn't say, I'm for the free market, however there are certain characteristics in my business that do require a certain amount of government protection, et cetera.

In answer to the question, sure, I think to some extent labeling does make rich people in the developed world feel better about the things that they do. But also keep in mind, it's a relatively low cost strategy. And so it ought to be, I'm not offering it up as the only solution to the problems that we've talked about today, but because it is relatively inexpensive, and I think relatively straightforward to implement, not perfectly, but relatively straightforward to implement, I think we're crazy not to begin to try to put the power of this awesome market, to hear the critics of trade talk, in the service of environmental protection or worker safety, or whatever.

I mean, there are certainly cases where labeling has energized a consumer movement, and where people who have produced products with less safe or less environmentally benign have picked up their production standards on account of that. And I think because it's relatively inexpensive, we'd be remiss not in beginning with that and seeing how far we get, and then perhaps augmenting it with the other kind of measures that we've talked about if the response isn't what we'd hoped for.

Unidentified: You know, I worked on the case of Nike. That's one of your best examples. So it can work.

Z. Minton-Beddoes: Do you think it happens spontaneously, or is there a role for government to talk to this kind of labeling, to keep the ball rolling? Some corporations are doing it already because from their shareholders they realize it, and from their customers.

P. Portney: And I do think that there's some role for government, in the same way that the Federal Trade Commission tries to monitor advertising practices of cereal makers who claim that this is good for your health. I think you can have someone -- I might set myself up as being a dolphin-free tuna fisherman when, in fact, I'm doing very little. I mean, I think there needs to be someone in home consumers have confidence saying, this is a legitimate claim, and this isn't a legitimate claim, and here's how we try to distinguish between the two.

Z. Minton-Beddoes: Any more questions?

Question: I'm Matt Miller with the New Republic. This is for Bob. On labor standards, I realize you want the labor stuff to be in another forum. But I get confused about some of the specifics. Is it possible you could tick off what the sort of -- the handful of the things that the labor movement concretely would want in the trade thing and why, in your view, it's wrong for it to be there.

R. Litan: Gary can supplement. As I understand, it's the big four: child labor, right to unionize, no forced labor, which is already in the WTO no prison labor, and no discrimination. I think those are the big four. And if someone here from the labor movement can correct me, I think those are the core labor standards that people are talking about that are recognized by the ILO now, and from what I understand many countries have already signed and said they agree with it.

Now, in my world, I would have the ILO publicize the degree to which countries are complying with these standards. Let them have a ranking, they can do whatever they want. So, I would give money to the ILO to sort of rate people. And if the AFL-CIO and other consumer groups want to put these ratings on their web sites and get information out, more power to them. And that's the way people would get informed about what kind of country these countries are.

Now, why not put them in trade? Well, what the labor unions want is, they want, as I understand it, they want countries to commit to these standards, and want them enforced. And if somebody like a WTO says that they're not being enforced, then there are trade sanctions imposed against those countries. I think that is a fair characterization of their views. If that is true, I would submit most of the world is going to suffer from trade sanctions. And this is the truth of the world in the Third World. For those of you who haven't been, and for those of you who have, you'll know this. Most of the Third World is informal in the sense that the governments do not have complete control of their population. So you can have all the rules you want. There's no money in these countries to enforce these laws. And so people operate without title; they cheat on their taxes; they do all kind of things in the informal sector.

There was a woman from India at the president's conference last week who was very articulate, incredible. She said that 93 percent of her country is informal. That's 93 percent of one billion, okay, and that's one country. I mean, I'll bet you it's an enormous number in China. I'll bet you most of the world is informal. So, as a practical matter, if you erect this standard, I am just telling you, you'll find most of the world is out of compliance. So we are now confronted with the fact that we're going to have trade sanctions on most of the world.

We tried that in the 1930s. I don't have to remind people what the result was. And, this is not the way to deal with these problems. It will drive -- if we apply those sanctions, not only will it cost us more, we will drive even more people to become informal in the rest of the world, and make them even poorer.

So that's in a nutshell why I'm against putting trade sanctions for these standards in the WTO. I don't mind publicizing them, but I do, as a matter of government policy, object to basically returning to a 1935 policy.

Question: To the labor people, what would they argue back, they must have some, they must know that argument from your side, what would they argue back?

R. Litan: Fundamental principles of fairness, look these are minimum standards, who could be against these. These are mom and apple pie standards. In fact, if you were to ask -- and they would point to public opinion polls. Depending on how the question is worded, if you word the question, should the United States only trade with countries that adhere to these standards, and I tick them off, just what I said, you will find the overwhelming majority of the American people will say yes. And they'll say, look, the American people support us.

And I think fundamentally people do not understand the consequences of what actual implementation of that agenda would accomplish. That's my view.

Z. Minton-Beddoes: Gary?

G. Burtless: In my youth, a lot of people adhering to these standards would not have drunk the milk that was being delivered to their house by their daily milkman because the milk was being produced by the help of young family workers on these farms. I have in front of me the statement of the AFL-CIO on what it believes the WTO should do. And, in a word, they propose precisely what Bob suggests. They want some group to say, are these standards being adhered to in the country and, if not, the goods produced by these countries would be subject to such trade restrictions as tariffs or import bans that would eliminate the profit gained by violating workers rights. Such a multilateral trading system enforced by the WTO would remove the financial incentive for companies, or governments to violate workers rights.

But, of course, it would also be very difficult to enforce some of these standards in the informal sector of these countries, and so it seems that, as Bob said, many countries, the poorest countries around the world, would be subject to these sanctions because there's a lack of enforcement.

Z. Minton-Beddoes: Any more questions? It looks like there's no more questions.

In which case, I would like to ask each panelist to spend maybe one minute summarizing the one important point you'd like the audience to take with you today. And maybe I'll start on this side.

W. Oates: I guess my central point, again, is the simple realization that over the long haul trade contributing to rising standards of living is favorable to the environment. And that even in the short-term, we should be looking very hard at available options other than trade restrictions which normally aren't going to be the most effective devices for addressing what are the short-run dislocations or conflicts that we see between trade and environment measures.

Z. Minton-Beddoes: Paul.

P. Portney: I will just follow up and say that specifically the use of labeling, eliminating environmentally harmful subsidies, the use of multinational environmental agreements, and the use of direct assistance to developing countries so that they might leap frog the dirty technologies that we in the developed world used as we enriched ourselves are specific measures that can be used and that should be used to protect the environment in a world in which trade is expanding.

Z. Minton-Beddoes: Thank you. Gary?

G. Burtless: Many people think that economists are not humane and do not have a heart. I passionately reject that interpretation. I think that since Adam Smith they have been more concerned with the general welfare and its improvement than have been people who stand up to defend people who are hurt by change. Yes, people are hurt by change; they're hurt by technical advance; and they're hurt by liberalization of trade that makes more competition possible. But that technological advance, and that competition in product and services markets that liberalized trade makes possible, has been the main engine for improving living standards in the rich countries for 150 years. And I think the reason we have the labor standards we do in the United States is because we're rich and we can afford to have them, and because they're in the interests of a rich society to have.

The way to make poor countries afford these kinds of labor standards is to help make them rich as fast as possible, and I think that liberal trade environment is an important engine to achieve that goal.

Z. Minton-Beddoes: Bob.

R. Litan: Finally, I would like our next president to make very clear in his next term: (a), that trade benefits all of us; (b), that we have an agenda and we're going to work on an agenda to shelter people who have been hurt by trade and other causes; and, (c), invite the labor people and the environment people in and say, look, we're not going to clutter up the WTO with your issues, but we are going to take your issues seriously, and we're going to pursue them through the ILO, and we're going to pursue them through these other international bodies, and we want to work with you and please do it so productively.

Z. Minton-Beddoes: Thank you all very much.

[APPLAUSE AND END OF EVENT]