Domestic Policies, National Sovereignty, and International Economic Institutions

To what extent must nations cede control over their economic and social policies if global efficiency is to be achieved in an interdependent world? This question is at the center of the debate over the future role of the WTO (formerly GATT) in the realm of labor and environmental standards. In this paper we establish that the market access focus of current WTO rules is well equipped to handle the problems associated with choices over labor and environmental standards. In principle, with relatively modest changes that grant governments more sovereignty, not less, these rules can deliver globally efficient outcomes.