The international trade law regime overseen by the World Trade Organization (WTO) faces two significant issues from the perspective of policy space: its failure to deal with imports produced under conditions that violate international labor norms and the restrictions it imposes on development strategies that deter legitimate experimentation. This essay proposes two reforms in trade law to address these two issues: (1) a hybrid antidumping/ safeguard regime that would authorize increased tariffs when imported goods are produced under substandard labor conditions and (2) exceptions to the law on subsidies for legitimate industrial policy for development purposes. While there will be opposition to these measures since the Global North has an interest in the first and the Global South in the second, it may be possible to negotiate such a reform package with appropriate safeguards against abuse if political will can be mustered. Otherwise, countries may push the interpretation of existing WTO law to accommodate these policies, placing greater pressure on the WTO's judicial bodies.
Trade negotiations traditionally involve reciprocal bargaining to increase market access. In this way, they ratchet up trade liberalization over time. Yet democratic governments are interested in more than just one-way trade liberalization. They are also concerned about policy space, and thus negotiations can and should involve reciprocal bargains to ensure democratic legitimacy and responsiveness. One can envisage parallel trade negotiations over policy space between developed and developing countries. The negotiations could involve the provision of greater policy space for developed countries to uphold the domestic social contract by protecting labor against social dumping, on the one hand, and greater policy space for developing countries to adopt experimental industrial policies to move up the value-added production chain, on the other hand. In this way, they can address both the trade-labor problem involving the export of goods produced under working conditions that violate international norms and the trade-development problem involving WTO restrictions on industrial policies for development.
The challenge with these proposals is that they can impose significant externalities on outsiders. These externalities, however, can be subject to bargaining, as is the case with any rule. The challenge is to operationalize the concept of negotiating over policy space through new legal provisions while limiting the risks of protectionist abuse. Dani Rodrik has advocated the need for these policies to address distributional and development concerns.