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International Trade and Domestic Regulation

Citation

Publication Date: 
March 01, 2010
Format: 
Journal Article
Bibliography: Robert W. Staiger and Alan O. Sykes, International Trade and Domestic Regulation, Stanford Law and Economics Olin Working Paper, No. 387 / NBER Working Paper, No. 15541 (November 2009).

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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.