Trade and Environmental Policy: A Race to the Bottom?

Ian Sheldon

Journal of Agricultural Economics, 2006, vol. 57, issue 3, 365-392

Abstract: The focus of this paper is the issue of regulatory chill and a race to the bottom in environmental standards and policies. In particular, it explores the possibility that resolution of this problem may lie in a more flexible application of the existing General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO) rules. The structure of the discussion is divided into four parts: (i) the standard analysis of trade and environmental policy is laid out; (ii) the theoretical analysis of and empirical evidence for the existence of pollution havens is reviewed; (iii) the main arguments as to why governments may weaken domestic environmental policy with greater trade liberalisation is outlined; and (iv) some recent analysis of border tax adjustments for environmental taxes is laid out, leading to the basic conclusion of the paper: a method for countering any tendency for regulatory chill and a race to the bottom in environmental policies is already embedded in existing GATT/WTO rules.

Date: 2006
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