DP13903 The "New" Economics of Trade Agreements: From Trade Liberalization to Regulatory Convergence?

Author(s): Gene M. Grossman, Phillip McCalman, Robert W. Staiger
Publication Date: August 2019
Keyword(s): firm delocation, harmonization, international trade agreements, regulation
JEL(s): F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13903

What incentives do governments have to negotiate "new trade agreements," i.e., agreements that constrain not only governments' choices of tariffs, but also their domestic regulatory policies? We focus on horizontal product standards, i.e., those that impose requirements along a horizontal dimension of product differentiation. We introduce differences in ideal products across countries and consider cases in which product choices do not and do confer externalities on other national consumers. In addition to characterizing the features of the optimal new trade agreement in each environment, we ask whether detailed negotiations about regulatory rules are needed for global efficiency or whether an "old trade agreement" augmented by some "policed decentralization" of regulatory procedures can achieve the same outcomes.