Date of this Version

4-2009

Document Type

Journal Article

Publication Details

Berti, K. and Falvey, R. (2009) Does trade weaken product quality standards

Working Paper Series; No. 29, Apr. 2009.

Copyright © Katia Berti and Rod Falvey and The Globalisation and Development Centre, Bond University, 2009.

Abstract

In this paper we investigate the effects of trade on the national minimum quality standards applied by two trading partners. We employ a simple partial equilibrium model in which national regulators set a minimum quality standard for a product whose quality is unobservable to consumers prior to purchase. Both producers and consumers can benefit from a minimum standard, but the former prefer a lower standard to the latter. Because producers are organised and consumers are not, the standards set by national regulators will tend to unduly favour producer interests. As always, trade changes the balance of consumer and producer interests in the two countries relative to autarky. It also creates a category of exporters, who have an interest in the standard set in the foreign market but do not figure in that country’s welfare calculations and may not have lobbying access to its regulatory authority. As a result trade raises the minimum standard in the exporting country and may raise or lower the standard in the importing country, depending on parameter values.