21 February 2012

Hidden Subsidies

A common issue in international trade is the deleterious effects of discriminatory health and safety standards. The idea is that one government can specify a standard that cannot be met by those outside the borders. The classic example is that of northeast butchers seeking to prevent the import of beef from western states made possible by the advent of refrigeration. Massachusetts, New York, and Pennsylvania, for example, required that meat sold within their borders be inspected by local authorities. The Commerce Clause of the US Constitution prevents such policies when they obstruct interstate trade. Another example is that of Thailand, which forbid the sale of American cigarettes on the grounds of health and safety, when domestically produced cigarettes, which were no safer, were permitted. 

This has Ricardian implications, it seems. The potential elements of comparative advantage are myriad, but one argument is that these elements include labor force preferences.  Specifically, that different working-condition standards provide opportunities for some nations to gain comparative advantage over other nations. 

It could be argued that a nation, by allowing poor working conditions, is providing an implicit subsidy, especially to labor-intensive industries.

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