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Submitted by Wahiduddin Mahmud on

Hassan, congratulations for coming up with an innovative idea – which is somewhat reminiscent of the Tobin Tax (proposed in a different context of global capital transfer, but similar in respect of serving more than one purpose). Your proposal has the merit of ease of implementation from the US side, particularly since it will not be opposed by the protectionist lobbies in the US because the trade barriers will be seen to remain intact. But, as you mention, administering the funds towards raising the labor and factory standards in the exporting countries may be problematic. Fund transfers to the owners of factories will involve problems of monitoring and moral hazard. Supporting the provision of some kind of public goods that contribute to raising the living standards of factory workers is another option, though fraught with the risks of public resource mismanagement. But more problematic is the implicit legitimization of using trade barriers as a means of improving labor standards (even if the tariff revenue is used for the benefit of workers in the exporting country!). As such, the proposal should be recognized as representing a pragmatic “second best”.