Addressing the Negative Externalities of Trade: Flanking Policies and the Role of Package Treaties

Abstract

This article examines the rationales for addressing sustainability and social inclusion in trade policy and the tradeoffs among imperfect institutional choices in doing so through “flanking policies.” It examines three types of negative spillovers or externalities implicated by trade: material, moral, and social/political. Part I defines terms and sets forth the argument. Part II typologizes the three categories of negative externalities and then highlights the challenges posed for flanking measures given the reciprocal nature of externalities. It respectively addresses environmental harms and labor and social inclusion concerns. Part III assesses different institutional choices for addressing negative externalities, dividing them between domestic measures targeted at protecting domestic concerns and international ones, such as package treaties. Part IV shows how the concept of a flanking measure can be flipped, so that environmental sustainability and social inclusion become the core and trade measures the flanking policies. Part V concludes.

Keywords: international trade law, externalities, material externalities, moral externalities, social/political externalities, institutional choice, comparative institutional analysis, flanking policies, package treaties

JEL Classification: K30, K33