Free Trade and Regulation: Making Both Better

Freer trade and effective government regulation have been seen by many critics as antithetical. In “Better Regulation for Freer Trade,” a Policy Innovation Memorandum released today by the Renewing America initiative, Thomas J. Bollyky argues that this is a false choice.  Opponents of new trade rules warn that giving governments, or worse corporations, the power to challenge national regulations that interfere with the movement of goods could trigger a “race to the bottom” in which nations would be forced to degrade environmental, health, and safety laws to abide by trade rules. Bollyky argues that instead, progress on trade and effective regulation of products are "mutually dependent."

The issue is again coming to the top of the international trade agenda. The United States and the European Union are considering the launch of bilateral free trade negotiations, and the issue of what to do over divergent – or unnecessarily duplicative -- consumer and environmental protection standards will be perhaps the toughest issue in the negotiations. The long-standing trans-Atlantic dispute over the safety of genetically-modified organisms in food crops is only one of a long list of issues.

Similarly, in the Trans-Pacific Partnership talks linking the United States to many Asian economies, improved regulatory coherence is a major U.S. goal. Those negotiations resume with a 13th round in San Diego in early July. Bollyky urges the United States to use the TPP and other regional negotiations to drive the adoption of international standards, with reporting requirements that would hold countries accountable even as enforcement of standards and regulations remains entirely within national authority. He notes that trade agreements that have adopted these models have produced a nearly 8 percent rise in trade flows among members.

Like commerce, Bollyky writes, regulatory problems have increasingly jumped national boundaries, and international cooperation is needed not just to facilitate trade and development, but to protect health and safety as products criss-cross borders. The recalls five years ago involving imports of Chinese toys, toothpaste, and tires show how quickly poorly inspected products can become major public health concerns.

Bollyky, the senior fellow for global health, economics, and development at the Council on Foreign Relations, calls on the White House to build on a recent executive order with a policy that would strengthen international cooperation -- including the adoption of international standards and appropriate mutual recognition of testing and inspection regimes – in the areas of food and drug safety. Doing so, he argues, would boost trade flows and better protect public health.

The issue will remain a difficult one. Both advanced and developing countries have mutual interests in increasing trade and enhancing effective consumer and health regulations. Reconciling the two requires complex negotiations involving multiple government policymakers and regulators, all of whom are facing pressures from competing outside interests. But there are no good alternatives to such an approach. In an increasingly global economy, progress on trade and regulation must move hand in hand.