Reconceiving Trade Agreements for Social Inclusion

Gregory Shaffer


Abstract

The traditional trade policy approach comprises two-steps. In the first step, countries sign international trade agreements to combat protectionist pressures and thereby mutually enhance national welfare. In the second step, recognizing that trade creates “losers” as well as “winners,” countries can support those harmed through domestic social policy. The two-step approach is now in question because of structural forces that empower capital against labor, on the one hand, and capital against government, on the other. The paper addresses how trade agreements can be designed and conditioned upon social and tax policy commitments. They could include, or be conditioned upon, agreements that cover: (i) tax policy to combat harmful tax competition, tax avoidance, and tax evasion; (ii) domestic social security and job retraining, supported by trade adjustment commitments; (iii) labor protection; (iv) protection against social dumping; and (v) accommodation of industrial policy experimentation for development. It will not be an easy process to better ensure social inclusion, but the current trade system otherwise could unravel. This paper sets forth options for ensuring that the benefits from trade are more broadly spread and that those harmed are better supported so that they may live meaningful, secure, working lives.