Working Paper: NBER ID: w15541
Authors: Robert W. Staiger; Alan O. Sykes
Abstract: Existing formal models of the relationship between trade policy and regulatory policy suggest the potential for a regulatory race to the bottom. WTO rules and disputes, however, center on complaints about excessively stringent regulations. This paper bridges the gap between the existing formal literature and the actual pattern of rules and disputes. Employing the terms-of-trade framework for the modeling of trade agreements, we show how "large" nations may have an incentive to impose discriminatory product standards against imported goods once border instruments are constrained, and how inefficiently stringent standards may emerge under certain circumstances even if regulatory discrimination is prohibited. We then assess the WTO legal framework in light of our results, arguing that it does a reasonably thorough job of policing regulatory discrimination, but that it does relatively little to address excessive nondiscriminatory regulations.
Keywords: International Trade; Domestic Regulation; WTO; Trade Policy
JEL Codes: F13; K33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| large nations (F52) | discriminatory product standards (L15) |
| relaxing domestic regulatory standards (L51) | foreign exporters lowering prices (F14) |
| foreign exporters lowering prices (F14) | shifting regulatory costs abroad (H23) |
| trade policies constrained (F13) | using regulatory standards to manipulate terms of trade (F13) |
| WTO legal framework (F13) | policing regulatory discrimination (J78) |
| WTO legal framework (F13) | addressing excessive non-discriminatory regulations (K23) |
| trade agreements must include rules (F13) | prevent discriminatory and excessively high non-discriminatory regulations (L51) |