Trading Up: Consumer and Environmental Regulation in a Global Economy.

When I teach international economics, students invariably ask me how to distinguish a protectionist barrier to trade from a legitimate health rule. This book provides a rich collection of cases to show how international trade agreements and their dispute settlement procedures have answered this question.

The book centers around the question of how increased economic integration affects consumer safety and environmental quality. From a theoretical viewpoint alone this is not obvious, since there are two political effects that pull in opposite directions. The California effect describes the case when high standards in one country cause its trading partners to raise their standards, too. The Delaware effect is when increased international integration forces countries to compete for jobs by reducing their consumer and environmental regulations.

A classic case is the regulation of food products in the European Union. Beginning in the 1960s, the EU had nearly eliminated tariffs among its members, and it began a process of setting common product standards for foodstuffs in an effort to eliminate technical barriers to trade. Establishing a common European product standard for even an apparently simple item such as bread turned out to be unworkable.

A 1979 decision by the European Court, commonly known as Cassis de Dijon, greatly altered this harmonization process. Prior to the decision, Germany had a ban on imports of the French liqueur, Cassis de Dijon. When this ban was challenged by a German firm interested in importing the liqueur, Germany argued that its alcohol content was too low, which was harmful to consumers because this might lead them to develop a habit of consuming too large a quantity. The German ban was struck down, and in the process the Court established two key principles. First, Germany was obligated to prove both that its regulation protected the public and that the regulation was the least-trade-restrictive means of doing so. This principle became known as the proportionality standard. Second, while Germany was free to regulate production of goods within Germany, it could not prevent the entry of goods that had been lawfully produced elsewhere in the Community. This principle of mutual recognition made it unnecessary to pursue uniform European product standards for most products, which ended the wrangling over the legal definition of foodstuffs such as bread. On the other hand, mutual recognition immediately threatened to reduce health and safety standards throughout the Community to those of the least-vigilant member. This threat intensified efforts to harmonize standards where necessary for preserving health and safety.

Vogel concludes that overall the EU has been successful at balancing the need for health, safety, and a clean environment with the benefits of free trade. Two factors have contributed to this success. First, the EU is more than just a trade treaty. It is legally empowered to regulate health, safety, and the environment of its members as well as their trade relations. Second, a rich and powerful member, Germany, has been able to influence the other members toward "greener" regulations, illustrating the California effect.

The second major trade agreement considered is the World Trade Organization (WTO), which has superseded the General Agreement on Tariffs and Trade (GATT). The WTO is a trade treaty, and it has no authority to impose health, safety, or environmental regulations. As a consequence, it may only strike down national standards that are inconsistent with WTO trade obligations. Regulations that treat domestic and foreign products differently are expressly ruled out. Vogel concludes that there is something of a California effect at work in the WTO, although it is necessarily weaker than that of the EU.

In another case, the author considers the role of US environmental groups in drafting NAFTA. They had been concerned that increased Mexican exports would greatly exacerbate the Mexican pollution problem. Their involvement ensured that all countries will be compelled to enforce their own environmental standards. NAFTA was carefully written to make it difficult to disguise protectionist trade barriers as environmental regulations while preserving a country's ability to have high environmental standards.

In the final chapter of the book the author concludes that, at least during the past few decades, increasing economic integration has resulted in higher regulatory standards - the California effect has seemed to dominate the Delaware effect. The richer, greener countries have been powerful enough to lead the others to raise their standards. Since the costs of complying with stricter environmental regulation have been relatively small, countries haven't been tempted to use regulatory undercutting as a way of achieving comparative advantage. This coincidence has, on the whole, enabled trade to expand without sacrificing health, safety, or environmental standards.

This book is well-written, interesting and informative, and particularly good at describing how trade and regulatory disputes have been resolved. Teachers of international, environmental, or consumer economics should note that this book is written in an easily-accessible style, and is suitable for students.

Shannon K. Mitchell University of New South Wales and Virginia Commonwealth University