LABOUR AND ENVIRONMENTAL STANDARDS: the “Lemons Problem” in International Trade Policy

Environmental and labour standards have become an important international trade issue. This article examines and ranks alternative trade policy responses available to an importing country with concerns over such standards. While a full import embargo may sometimes be preferable to allowing unrestricted access to unlabeled non-conforming imports, a partial embargo that allows imports which demonstrably conform to the standard is always a better policy; and labeling solutions, which separate conforming and non-conforming imports, are typically better still. Consequently, full import embargoes based on non-conformity with labour or environmental standards are poor policy choices and should generally remain prohibited by WTO rules.