A comparative institutional analysis of agreements on product standards

Abstract

The WTO and the EU have chosen two di¤erent agreements on product standards. While the WTO's approach is primarily based on a "National Treatment" (NT) principle, the EU's approach crucially relies on a principle of "Mutual Recognition" (MR). This paper o¤ers a …rst look at the comparative performance of these two principles. We show that standards are imposed for levels of externalities that are too low under NT and too high under MR. This suggests that NT should be preferred to MR when the amount of trade in goods characterized by high levels of externalities is large.

International Agreements on Product Standards Under Consumption Externalities: National Treatment Versus Mutual Recognition

“…Therefore, when acting noncooperatively countries tend to overuse the high standard under NT. This finding is established in Costinot () under identical countries; here I show that it continues to hold between countries with different preferences for consumption externality.…”

“…As above‐mentioned, Costinot () establishes that NT (MR) induces higher global welfare for relatively high (low) consumption externality. I show that in a heterogeneous world the reverse of the pattern as in Costinot () can arise: NT (MR) can dominate for relatively low (high) levels of externality. The intuition is that as externality reduces, countries with different preferences for the externality would lower their standards sequentially, so that the underuse (overuse) of the low standard under NT (MR) occurs twice, once for each country, respectively.…”

Is the WTO Passé?

“…Limão (2005) explores a model of self-enforcing cooperation among governments, with the new feature that production in the import-competing sector generates a negative non-pecuniary externality that travels (at least to some degree) across national borders. Each government selects an import tariff and a domestic production tax, and both policies affect the terms of 84 Other related studies include Battigalli and Maggi (2003), Copeland (1990), and Costinot (2008). 85 For discussion of the extent to which GATT/WTO rules can be used to address non-pecuniary international externalities, see, e.g., Bagwell, Mavroidis, and Staiger (2002) and Trebilcock, Howse, and Eliason (2013, chapters 17 and 18) and the references cited therein.…”

Mutual Recognition versus National Treatment of Standards in a Classical Monopoly or Oligopoly

“…A recent paper of relevance is Costinot (2008), who compares regulatory regimes based upon national treatment and upon mutual recognition, in a two-country, two…rm framework, in the case of a good, the consumption of which creates an externality. Demand by each consumer is assumed to be unitary or zero.…”