Global Competition and Environmental Regulation: Is the ‘Race to the Bottom’ Inevitable?

Abstract

The relationship between international competitiveness and environmental standards is contentious and fraught with many uncertainties (GATT 1992). For some firms and industries, national environmental standards are considered a threat to their international competitiveness. For others, nation-based environmental standards are a threat to liberalised, global free trade. A common working hypothesis is that firms located in countries with high environmental standards are economically disadvantaged compared with firms located in countries with low environmental standards. Investment is thought to flee nations with high standards, since low standards or non-enforced standards represent, in effect, a subsidy to firms that produce and export from these locations.1 Moreover, high standards may be a barrier to free trade if they deny imported products a local market by virtue of the peculiarities of domestic environmental regulations. One way or another, or so it is supposed, rational economic policy makers are drawn to the lowest common denominator; local environmental standards are at risk in a world of international economic competition (Office of Technology Assessment 1992).