Trade Competition and Pollution Standards: “Race to the Bottom” or “Stuck at the Bottom”

Abstract

A major argument for upward harmonization of national industrial pollution standards is that unregulated trade competition among countries with wide disparities in standards will exert downward pressure on standards, particularly in the countries with the most stringent standards (the “race to bottom” thesis). But empirical evidence indicates that it is in the rapidly industrializing countries themselves, rather than in the countries with higher standards, that competitiveness concerns exert downward pressure on standards, creating a “stuck at the bottom” problem. The greater sensitivity of rapidly industrializing countries to competitiveness pressures can be explained by the unresponsiveness of their political institutions. This article calls for a radically different approach to the problem of standards and trade competition, proposing an agreement on common minimum standards to be negotiated solely among the rapidly industrializing countries themselves.