Race To The Bottom

JOURNAL
Porter / TRADE
OF ENVIRONMENT
COMPETITIONAND DEVELOPMENT
Trade Competition and Pollution

Standards: “Race to the Bottom”
or “Stuck at the Bottom”?
GARETH PORTER
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, particu-
larly 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 industrializ-
ing countries to competitiveness pressures can be explained by the unrespon-
siveness 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.
T he debate about the need for an international policy to address the

wide disparities among national industrial pollution standards, which
was a key issue in the international discourse on trade and environment
in the first half of the 1990s, has receded dramatically since then. That
debate was focused on two concerns about such disparities in the con-
text of global trade competition. One concern was that such disparities
confer unfair trade advantages on products exported by firms in low-
standard countries, because they do not pay the costs of adequate pollu-
tion abatement (Arden-Clarke, 1993). The other concern was that inter-
national competition for trade markets or foreign investment can lead to
competition in offering low environmental costs to industry, causing
countries with relatively more stringent pollution control require-
ments to relax them in order to avoid losing competitiveness (Esty,
1996, pp. 629-638; Stewart, 1993, pp. 2058-2059).
On the basis of these two distinct concerns, environmentalists and
sympathetic government officials have argued for some kind of upward
harmonization of industrial pollution standards. Upward harmoniza-
tion does not necessarily mean that standards are identical but only that
differences are reduced. One proposal is to use “green countervailing
duties” to equalize environmental costs between producers in high-
standard countries and in low-standard countries (Arden-Clarke,
1993, pp. 150-157; Plofchan, 1992, pp. 763, 780). Another is to negotiate
Journal of Environment & Development, Vol. 8, No. 2, June 1999 133-151
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134 JOURNAL OF ENVIRONMENT AND DEVELOPMENT
global agreement on upward harmonization of standards (Esty, 1994,

pp. 177-178).
The idea of upward harmonization has not been well received, how-
ever, by the trade community, which has viewed it as a protectionist
response that would deprive developing countries of their legitimate
advantage in exporting pollution-intensive goods (Porter, 1998). Green
countervailing duties were ruled out as a policy option by the definition
of subsidy adopted in the 1994 Uruguay Round subsidy code (Esty,
1994, p. 164). Both the Organization for Economic Cooperation and
Development (OECD) and the General Agreement on Tariffs and Trade
(GATT) have questioned the desirability and feasibility of harmoniza-
tion of national pollution control standards (GATT, 1991, p. 29; OECD
1995, p. 30).
The policy debate about trade competitiveness and pollution stan-
dards has assumed that the key issue is the impact of low standards in
rapidly industrializing countries on the export markets and environ-
mental standards of the OECD countries. The failure to prove that either
the markets or the standards of the high-standard countries have been
seriously affected has weakened the conventional case for harmoniza-
tion. This article argues, however, that the most serious consequences of
the linkage between trade competitiveness and pollution standards are
in the low-standard countries themselves. That finding is the basis for a
new approach to the question of harmonizing pollution control stan-
dards among competing countries.
The “race to the bottom” thesis that unregulated trade competition
could lead to suboptimal environmental standards has naturally
focused on OECD countries with stringent pollution standards, because
political concern has emanated from within those countries. But this
analysis suggests that the race to the bottom does not apply to those
countries where political institutions are responsive to high levels of
demand for environmental quality. In low-standard countries, on the
other hand, the evidence indicates that competitive pressures do have a
substantial impact, creating what might be called the “stuck at the bot-
tom” effect.
The lack of symmetry between high-standard and low-standard
countries with regard to the impact of trade competition on standards
suggests the need for a more complex model, in which political institu-
tions are a key independent variable. This article argues that rapidly
industrializing countries are far more susceptible than wealthy OECD
countries to the effects of unregulated competition on standards. The
reason is not that poor people are less interested in clean water and air
than wealthy people but that the political institutions in later industrial-
izing countries have not been responsive to public demands for tighter
controls over industrial pollution, in contrast to the situation in wealthy
countries.

Porter / TRADE COMPETITION 135
On the basis of this thesis and the conclusion that rapidly industrializ-
ing countries are the main victims of the competitiveness pressures, the
article presents the case for a South-South agreement on minimum pol-
lution standards. Unlike previous suggestions for North-South negotia-
tions on upward harmonization of standards, such an agreement would
be aimed solely at ensuring that such standards serve the interests of
rapidly industrializing countries, not at creating a “level playing field”
between high-standard and low-standard countries. This radically dif-
ferent approach to the issue of harmonization of pollution standards is
suggested as a way to speed up the process of tightening pollution-
abatement requirements in industrializing countries.
Competitiveness, Pollution Standards,

and the “Race to the Bottom”
Demonstrating conclusively that international disparities in indus-

trial pollution requirements do alter trade patterns by creating a com-
petitive advantage for lower-standard countries has proven to be
extremely difficult with the data and analytical tools available to econo-
mists specializing in international trade. Studies on whether differences
in environmental standards have caused shifts in markets for pollution-
intensive goods, based on aggregate trade data for those categories of
goods, have been inconclusive. Some studies have found statistically
significant impacts of heavier environmental regulation on export mar-
kets (Kalt, 1988; Robison, 1988), but others have found no such evidence
(Goodstein, 1996; Grossman & Krueger, 1991; Sorsa, 1994; Tobey 1990).
Moreover, the results of the two studies that did provide empirical evi-
dence of trade shifts in industries with stringent pollution abatement
requirements have been questioned on grounds of sensitivity to model
specification in one case and to the influence of business cycles in the
other (Goodstein, 1996).
Empirical research has confirmed that industrializing countries have
increasingly specialized in pollution-intensive industries and exports,
although those same industries have been gradually disappearing from
industrialized countries (Birdsall & Wheeler, 1992; Hettige, Lucas, &
Wheeler, 1992; Low & Yeats, 1992; Stevens, 1993, p. 24). The phosphate
fertilizer industry, for example, has shut down many plants in European
countries with high environmental requirements, whereas developing
countries, particularly China and Morocco, which do not have such
stringent requirements, have rapidly expanded their production of
phosphate fertilizers (Heerings, 1993). However, the stringency of pol-
lution control requirements is only one of the factors involved in the
global shift of pollution-intensive production to industrializing coun-
tries, leaving its relative importance open to debate (Beghin, Roland-

Holst, & van der Mensbrugghe, 1994, p. 176; Jaffe, Peterson, Portney, &
Stavins, 1994, pp. 19-20).
Regardless of the empirical evidence of the impact of standards on
trade competitiveness and firm location, however, many officials of
industrial firms as well as government officials clearly believe differences
in environmental costs affect competitiveness and investment decisions
and tend to act accordingly. The importance of such perceptions has
been documented in European politics and policies. Officials of states
that have adopted stricter environmental standards for industry, such as
Germany, have feared that their industries would be disadvantaged if
other countries continued to apply lower requirements (Joseph, 1996,
p. 6). The conviction that significantly more stringent pollution control
requirements impose costs that will harm the competitiveness of the
regulated industry is reflected in many official documents of the Euro-
pean Union (Lomas, 1988, p. 521).
Such perceptions may lead industrialists and trade and industry offi-
cials to argue for lower environmental standards than would be justifi-
able in the absence of competitiveness concerns, introducing what has
been called the “political drag effect” (Esty, 1994, pp. 162-163). It has
been argued that political drag leads to a “race to the bottom” with
regard to industrial pollution standards. According to the race-to-the-
bottom argument, in the absence of cooperation among jurisdictions
with regard to setting common environmental standards, each jurisdic-
tion will set its own requirements for pollution abatement in light of
standards in rival countries. Thus, countries will be inclined to lower
their pollution abatement requirements at least to the level of the stan-
dards in the lowest-standard country, if not lower, to avoid a loss of com-
petitiveness either in trade or in attracting foreign investment (Esty,
1996; pp. 629-638; Stewart, 1993, pp. 2058-2059).
The term race toward the bottom is not intended to suggest that stan-
dards literally fall to the bottom but only that the resulting environ-
mental standards are reduced below the optimal level. Suboptimal stan-
dards have been defined as those that are inefficient for the entire system
of jurisdictions in the sense of causing a distortion in the allocation of
resources (Wilson, 1996). However, a definition based on the welfare of
each state’s population is more relevant. Thus, suboptimal pollution
control standards would be those that result in unacceptable health or
economic costs to the society. The obvious policy implication of the
race-to-the-bottom thesis is that pollution standards should be harmo-
nized across competing states.
The race-to-the-bottom thesis is not confined to the policy area of
environmental standards. It has been applied to a range of regulatory
issues that could affect either locational decisions by firms or their com-
petitiveness in markets, including corporate law in general (Daniels,
1991) and capital adequacy rules for banks (Bradley 1991; Worth, 1992).

The issue that most closely parallels the problem of unregulated compe-
tition among jurisdictions leading to suboptimal environmental stan-
dards is that of competition among local jurisdictions or federal states in
corporate tax systems (Kanbur, Keen, & van Wijnbergen, 1995). The “tax
competition literature,” consisting of a large number of theoretical and
empirical studies published since the mid-1980s, has shown that in a sys-
tem of unregulated competition among jurisdictions for investment
based on attractive tax schemes, there will be a tendency to set taxes at an
inefficiently low level (Brueckner & Saavedra, 1998). Similarly, econo-
mists have used simple economic models to make the case that uncoor-
dinated environmental standard setting in the context of international
competition for markets and investment results in environmental stan-
dards that distort the allocation of resources because they are too low
(Kanbur et al., 1995).
Economic models have also been used to show that competition
among jurisdictions unfettered by cooperation in setting regulatory
standards would lead to optimal policies, whereas any harmonization of
regulations would produce inefficiencies and reduce the overall welfare
of countries that must alter their policies (Revesz, 1992; Wilson, 1996).
But these models are based on a set of assumptions about the perfect
functioning of markets that are so unrealistic that they reduce the con-
clusion of optimality to insignificance. Wilson (1996) asserts, for exam-
ple, that there cannot be a race to the bottom if there are no taxes on
investment and if the economy is distortion free (p. 394). Nevertheless, a
perfectly undistorted economy would imply that the full social costs of
externalities are already being internalized rather than being used to
confer an artificial advantage on one country over others, so that envi-
ronmental standards would be “optimal” by definition. Other econo-
mists argue that the case for international competition without any
cooperation or coordination in environmental standard setting could
produce optimal standards only on the assumptions that governments
always have perfect information about pollution and that they will
always ignore the international repercussions of their actions. Such
assumptions certainly do not apply in the real world of international
trade (Anderson, 1995, p. 438; Pethig, 1996, pp. 176-177).
The main economic model cited by proponents of unregulated com-
petition in environmental standard setting (Oates & Schwab, 1988) pos-
its competition among jurisdictions for foreign capital, with both taxa-
tion levels and environmental standards as potential policy instruments
for that purpose. It shows that in such a system, jurisdictions will seek to
attract capital either by reducing taxes on capital or by relaxing environ-
mental standards, because trade-offs between tax policy and environ-
mental standards are inherent in any interjurisdictional competition.
Thus, if either fiscal constraints on tax policy or government interest in
expansion of budgets were to bring about a positive tax on capital, the

model predicts that it would force a jurisdiction to lower standards to a

suboptimal level to attract capital (Oates & Schwab, 1988, p. 344). A lead-
ing opponent of the race-to-the-bottom theory argues that the reason for
such a relaxation of environmental standards would be the failure of the
jurisdiction to act in an economically rational manner rather than inter-
jurisdictional competition per se (Revesz, 1992, p. 1243). Nevertheless,
the Oates-Schwab model reinforces, rather than minimizes, concerns
about a possible race to the bottom in the real world of trade competition
by states with policies that are less than perfectly rational.
Although the theoretical literature suggests a strong tendency for
unregulated trade competition to produce a race to the bottom in envi-
ronmental standards, no empirical evidence has been found that any
OECD country has settled for suboptimal environmental standards in
response to international competitiveness concerns (Esty, 1994, p. 162;
Revesz, 1992, p. 1210). This disparity between the theory (albeit based on
some empirical evidence from other fields) and empirical reality sug-
gests that the pressure of interjurisdictional competition does not deter-
mine standard setting in OECD countries.
A more empirically based alternative to the race-to-the-bottom model
would assume that the strength of the political drag effect is inversely
related to the degree of effective domestic political support for stringent
requirements. If political support for high standards is strong enough, it
can outweigh the argument for suboptimal standards on competitive-
ness grounds. Thus, pollution standards that have already been adopted
in OECD states have apparently achieved such political legitimacy that
they could not be lowered without a significant political reaction. Hence,
1
the race-to-the-bottom effect has not been felt in high-standard countries.
The “Stuck at the Bottom” Problem
Although there is no evidence that international trade competition

has lowered pollution control standards in high-standard countries or
caused them to be suboptimal, the same cannot be said about rapidly
industrializing countries. Although legal requirements are often set at a
reasonable level, enforcement in these countries generally has been
extremely ineffective (Bernstein, 1993, p. 29; Hettige, Huq, Pargal, &
Wheeler, 1996, p. 1893; Pargal & Wheeler, 1996, p. 1315; Sorsa, 1992,
1. The absence of any race-to-the-bottom effect in the Organization for Economic Coop-
eration and Development (OECD) countries does not mean that competitiveness concerns
cannot affect standard setting. Industries in OECD countries may balk at unilaterally rais-
ing standards for a particular industry on competitiveness grounds, and that position may
prevail in the absence of strong public concerns, reflecting the “political drag effect” of
competitiveness (Esty, 1994, pp. 162-162).

p. 329; Tyler, 1994, p. A3; Urquidi, 1995, pp. 9-10; von Amsberg, 1998,
p. 4). Environmental agencies often lack the clear authority or real power
to monitor industrial pollution or to prosecute violators if found (Atkin-
son, 1996, p. 128; Bachner, 1993, pp. 643-50; Shinn, 1993, p. 251; You,
1995, pp. 164, 179). Fines for violations of emissions standards are often
so low that they provide no incentive for pollution abatement (Chi, 1994,
p. 39; Warford, Munashinghe, & Cruz, 1991, p. 19; World Bank, 1994, p. 132;
1989, p. 4).
Key indicators of the suboptimal character of the factor pollution con-
trol requirements in rapidly industrializing countries are the serious and
growing public health costs of poorly regulated industrial pollution. In
the rapidly industrializing countries of Asia alone, these indicators
include
• high and growing incidence of mercury poisoning in Chinese rivers

(Tyler, 1994, p. A3);
• lung cancer rates in Chinese cities that are 4 to 7 times higher than in the
nation as a whole, because of levels of suspended particulates that are 4 to
9 times higher than the maximum recommended by the World Health
Organization (WHO) (Bruestle, 1993, p. 2280; Hertsgaard, 1997, p. 109);
• levels of mercury in fish caught in Jakarta Bay that are well above the
WHO-recommended level for human consumption (World Bank, 1994,
p. 91);
• an estimated 1,400 deaths annually in Bangkok as a result of levels of sus-
pended particulate matter that are more than 6 times higher than the maxi-
mum recommended by WHO (Bruestle, 1993, p. 2284; “Thai Environment
Report,” 1995, p. B3);
• acute eye and throat irritation and nausea among people living near petro-
chemical complexes in Taiwan (Yang et al., 1997); and
• chronic problems of toxic poisoning from industrial wastes in Taiwan
(Chi, 1994, p. 33).
The economic costs of these suboptimal pollution standards have

been estimated in several industrializing Asian countries. In Indonesia,
the costs of health impacts of air and water pollution alone have been
estimated to amount to roughly 3.5% of Jakarta’s domestic product in
1992. Morbidity and mortality from suspended particulates, lead, sulfur
dioxide, and ozone in Bangkok are estimated to impose economic costs
equivalent to 1.2% to 5% of Thailand’s gross domestic product (GDP)
(O’Connor, 1996, pp. 28-29). Economic losses from pollution in China,
most of which are attributable to industrial activities, have been esti-
mated at 4% of its gross national product (GNP) as of 1992 (Guang, 1997).
Governments of most countries with lax pollution control require-
ments have come under increasing pressure from public opinion, envi-
ronmental organizations, and community protests during the 1980s and
1990s to tighten controls, resulting in some improvements (Gadgil &

Ramachandra, 1995, pp. 79-81; Rosencranz & Yurchak, 1996, pp. 524-
526; Shinn, 1993, pp. 245-246; Tang & Tang, 1997, pp. 283-289). However,
both empirical evidence and political analysis suggest that the govern-
ments of those low-standard countries are reluctant to raise standards as
high as desired by their populations, in part because of the fear of loss of
competitiveness. A United National Conference on Trade and Develop-
ment (UNCTAD) (1995) study has confirmed that many industrial firms
in rapidly industrializing countries believe that their comparative
advantage has been based largely on being able to sell standardized
mass-produced goods at low prices. Therefore, industrialists and sym-
pathetic officials view any increase in costs because of tightened pollu-
tion control standards as affecting negatively the competitiveness of
2
those industries (p. 10).
An example of such perceptions was documented by an UNCTAD/
United Nations Development Program (UNDP) study showing that
environmental policies and regulations in industrialized countries had
raised the production costs of some Chinese industrial enterprises—
particularly large, state-owned factories—to the point that they feared
their competitiveness had been reduced (Ruishu, Xia, Li, Zhang, & Lu,
1993). Small and medium enterprises, which would face proportionally
higher investment and operating costs for pollution abatement, com-
pared with larger enterprises, now account for about 50% of the exports
in several East Asian developing countries, further adding to the con-
cerns of those countries about raising domestic pollution abatement
requirements (UNCTAD, 1995, pp. 11-12).
The political drag effect is relevant throughout the rapidly industrial-
izing countries, because export-oriented enterprises in those countries
are competing for markets and foreign investment primarily against
other low-cost producers in industrializing countries, many of which
have environmental requirements that may be even lower (Kwan, 1994,
p. 134). Thus, the fear that rival low-cost producers will gain market
shares or investments if pollution control requirements are made more
stringent could be a major factor in inhibiting needed progress in tight-
ening standards in these countries.
The competition among low-standard rapidly industrializing coun-
tries for the same markets, including those for pollution-intensive prod-
ucts, will become even more intense with China’s accession into the
World Trade Organization (WTO). Chinese industries have extremely
low pollution abatement requirements, frequently avoiding them
entirely (Hertsgaard, 1997; Tyler, 1994). China’s WTO accession is
expected to result in China’s absorbing markets for exports from
2. Although the United Nations Conference on Trade and Development (UNCTAD)

study is focused on environmental requirements in developed country markets, it states
explicitly that the same concerns apply to standards imposed in developing countries.

developing countries whose comparative advantages are similar to Chi-

na’s (Tait & Li, 1997, pp. 102-103). Whether or not low or nonexistent
environmental requirements are a primary reason for this development,
the threat from China’s full integration into the world trade regime to
other countries with similar exports will certainly intensify the down-
ward pressure on pollution standards in low-standard countries. It is
likely to result in greater political resistance from industry and from
powerful economic, finance, and trade agencies in those countries to any
tightening of pollution abatement requirements or to strict enforcement
of existing requirements.
The political drag effect in the rapidly industrializing countries might
be called the “stuck at the bottom” problem, because it involves require-
ments that are already low or unenforced rather than relatively stringent
standards. As suggested in the alternative model focusing on political
institutions as a crucial variable, the main reason for the stuck-at-the-
bottom phenomenon is the absence of effective political support for
stringent pollution controls. Most economists have assumed that
demand for environmental quality in poor countries is much lower than
in wealthy countries, because it is “income elastic,” that is, rising along
with incomes (Baumol & Oates, 1975, p. 197; Radetzki, 1992, p. 132). This
thesis has generated cross-country studies of an alleged “environmental
Kuznets curve” that demonstrates inverse correlations between pollu-
tion levels and income after a certain income level is achieved (Gross-
man & Krueger, 1995; Selden & Song, 1994). However, such studies do
not really explain the problem of suboptimal pollution control require-
ments in rapidly industrializing countries (Stern, Common, & Barbier,
1996); they merely document its existence. Opinion survey data in Tai-
wan, Korea, and Brazil from the mid-1970s and early 1980s showed
extremely strong support for stringent environmental standards at a
time when per capita income was still quite low (Porter, 1998).
The real problem in the rapidly industrializing countries, therefore, is
not low popular demand but political institutions that have been unre-
sponsive to public demand for tighter regulation of industrial pollution.
Regulatory decisions in industrializing countries are more highly
skewed in favor of business interests than in OECD countries. Even in
rapidly industrializing countries that have shifted away from dictator-
ships toward democratic regimes (South Korea, Thailand, and Taiwan),
businessmen have generally increased their political influence over
regulatory issues rather than seeing it reduced (Chu, 1994, pp. 125-126;
Laothamatas, 1994, pp. 208-211; Moon, 1994, p. 160). In countries such as
Malaysia, Taiwan, Indonesia, and Brazil, industrialists use close ties
with key bureaucrats, elected officials, or ruling parties to ensure that
regulatory policies serve their interests in return for a share of the prof-
its, either in the form of political contributions or making the bureaucrat
a business partner (Bowie, 1994, pp. 182, 189; Budiman, 1988, p. 124;

Chu, 1994, pp. 116-119; Hutchcroft, 1994, p. 230; Weyland, 1996, p. 129).
Intragovernmental political struggles in industrializing countries about
how tightly industrial pollution should be regulated strongly have
favored economic ministries over environmental ministries, primarily
because the former are aligned with a class of industrialists who have
strong domestic political clout (O’Connor, 1994, p. 54). In China and Tai-
wan, industries associated with the state or with the ruling party consti-
tute a large proportion of pollution-intensive industries and are among
the worst polluters (Bachner, 1993, pp. 646-647; Chi, 1994, pp. 39-40). The
poor living in and around major industrial concentrations, who are the
main victims of industrial pollution in these countries, have not gained
sufficient political power to offset the clout of the socioeconomic and
political forces arrayed against their interests (O’Connor, 1992, p. 9).
These sociopolitical conditions in rapidly industrializing countries
have combined to mute the effect of public demand for stringent stan-
dards and to amplify the “political drag effect” of trade competition. In
OECD countries, political support for stringent standards and their
enforcement appears so well institutionalized in political systems that
attempting to weaken them would be politically very hazardous. In
industrializing countries, on the other hand, such institutionalization of
support for stringent pollution abatement standards has not yet been
achieved. In the low-standard countries, where strengthening of pollu-
tion control requirements is needed, the political drag effect can prevent
strengthening of standards simply by reinforcing the existing forces of
resistance to change.
This stuck-at-the-bottom problem has not yet been addressed in the
international debate on the issue of pollution standards and trade. The
OECD Joint Session of trade and environment experts referred to the
political drag effect in its 1995 report, noting that “[some] have
expressed concern that industry allegations of competitive effects,
whether real or perceived, may tend to undermine domestic political
support for introducing, maintaining or strengthening environmental
protection.” But it dismissed the concern on the ground that such per-
ceptions of competitiveness effects would be difficult to distinguish
from simple protectionism (OECD, 1995, pp. 17, 22).
That response to the problem suggested that it is confined to high-
standard countries, where industries are tempted to seek protection
against lower-cost rivals through countervailing duties or other unilat-
eral trade measures. It ignored the far more serious problem of political
drag in those countries where political policy making and enforcement
institutions do not reflect the public demands for tighter controls on
industrial pollution. The full implications of the political drag effect for
pollution control standards, and hence, environmental quality in indus-
trializing countries, have yet to be considered by any relevant multilat-
eral organization. But it is not so much the problem of a race to the

bottom but the stuck-at-the-bottom problem that should concern the

international community.
A South-South Agreement on
Common Minimum Standards?
The option of multilateral agreement on common minimum stan-

dards, which would allow countries to implement standards higher
than the common minimum, has received little attention in the interna-
tional debate on pollution standards and trade. The report of the OECD
(1995) Trade and Environment Policy Committee referred to it only in
passing, concluding that there were “practical implementation prob-
lems in agreeing on minimum environmental requirements for local
problems” (p. 30).
Apart from the environmental assimilative capacity argument ana-
lyzed above, the only theoretical arguments against harmonization are
based on the assumption that it is achieved through imposition of an
identical standard on all countries rather than through establishment of
common minimum standards. It is argued that collective uncertainty
about the correct standard for pollution control requirements could lead
to the standard being set too high, so that harmonization of standards
would risk subjecting all countries to the wrong standard (Bhagwati &
Srinivasan, 1996, p. 170; Klevorick, 1996, p. 464). Harmonization could
lead to less-stringent controls in high-standard countries if it involves
establishing a least common denominator standard. However, both
these arguments apply only to the adoption of a single uniform stan-
dard, not to multilateral agreement on common minimum standards.
With an agreement on common minimum standards, it is not necessary
to show that the agreed standards are the objectively correct standards
for every country but only that the correct standard for each country is
not lower than the minimum standard agreed to.
Even a proposal for global agreement on common minimum pollu-
tion requirements would probably provoke fears on the part of rapidly
industrializing countries of an attempt by OECD countries to impose
their higher standards on countries with lower standards. What has not
been discussed in the past, however, is the possibility of an agreement
among the countries with lower standards, without the involvement of
OECD countries. If the political drag effect of competitiveness on pollu-
tion standards is strongest in industrializing countries, as argued above,
there is a strong case for multilateral agreement on common minimum
pollution control standards among the industrializing countries. Mak-
ing the negotiations an exclusively industrializing country process
would remove the issue from the sterile North-South political context.

And it would be consistent with the affirmation by the United Nations

Commission on Sustainable Development (UNCSD) (1995) of support for
efforts . . . geared to promoting the convergence of environmental stan-

dards and regulations at a high level of environmental protection, while
bearing in mind that regulations and standards that are valid in the most
advanced countries may be inappropriate and have unwarranted eco-
nomic and social costs for the developing countries. (p. 2)
An agreement among countries in which pollution control standards

are “stuck at the bottom” would allow each country to raise its standards
to a level that meets its own public demand for regulation of industrial
pollution without fears of reduced competitiveness in trade or attracting
foreign investment. Thus, the participating industrializing countries
could try to agree on reducing environmental health risks to their popu-
lations to some minimum level, as defined, for example, by statistical
indicators of morbidity and mortality related to industrial pollutants
such as particulates and sulfur dioxide. In the case of some types of pol-
lutants, the countries might agree to use the maximum levels of pollut-
ants in air or drinking water recommended by WHO.3
A key issue in negotiating agreement on common minimum indus-
trial pollution requirements would be whether to define the require-
ments as ambient air and water quality standards or as emissions stan-
dards for each production unit. Ambient standards—maximum
allowable concentrations of pollutants per unit or air or water—would
allow flexibility with regard to the requirements for each production
unit, depending on the specific situation in each country. It would thus
ensure that abatement measures are no more burdensome for a coun-
try’s industry than is necessary.
On the other hand, ambient standards are more difficult to monitor
and enforce than emissions standards. Concentrations of pollutants in
the discharge from factories are easier to measure than those in rivers or
in the atmosphere, and it may be very difficult to tell which factory has
dumped a particular pollutant into a river without inspection of the fac-
tories emissions. So emissions standards are the only method of holding
production units accountable and ensuring that ambient standards are
attained (Haigh, 1987, pp. 21-23).
An agreement on common minimum pollution standards would
therefore have to focus on ambient standards for various pollutants, but
it would also have to prescribe common methodologies for translating
those standards into emissions standards rather than the emissions stan-
dards themselves, based on numbers and characteristics of industrial
units affecting each air-shed or water source. Each country’s translation
3. For a discussion of World Health Organization guidelines for air quality and drink-
ing water quality, see Campbell (1994).

of ambient standards into emissions standards would have to be open

and transparent, so that the use of the common methodology can be veri-
fied by the parties.
The main practical difficulty confronting an effort to negotiate com-
mon minimum pollution control requirements, as noted above, is inade-
quate enforcement of standards rather than low legal requirements. To
provide the assurances needed to accomplish its objective, such an
agreement would have to include mechanisms for ensuring that coun-
tries adequately enforce the standards that they adopt. Such mecha-
nisms would represent a new challenge for international environmental
law, but the tools for greater assurance of effective enforcement are
available.
One such tool is commitment to common standards for transparency
with regard to monitoring and enforcement. Thus, the agreement could
require regular, detailed reporting on monitoring and enforcement of
industrial pollution abatement requirements on the basis of certain com-
mon methodologies for data collection and analysis. Such data could be
made available to all other governments that are parties to the agree-
ment. This would represent a “technical” or “procedural” harmoniza-
tion such as the OECD (1995) ministerial report suggested might be use-
fully explored and assisted through technical and financial assistance
(pp. 29-30).
Another important tool for effective monitoring is commitment to
facilitating public participation in monitoring and enforcement. As inter-
national conferences on environmental compliance and enforcement
have acknowledged, public participation is an important component of
successful compliance and enforcement programs (Casey-Lefkowitz,
Futrell, Austen, & Bass, 1996, p. 222). Citizen groups can contribute to
effective enforcement of standards by being authorized to undertake
their own monitoring of compliance by the government or by participat-
ing in multipartite teams along with government and industry. Such
citizen participation could be triggered by a specific public complaint
about a facility. Finally, citizen groups can be allowed to take legal action
to enforce a particular standard (Casey-Lefkowitz, 1997, pp. 35-39;
Casey-Lefkowitz et al., 1996, pp. 226-229). The minimum requirements
for successful public participation in monitoring and enforcement
include certain legal rights and remedies for citizens with regard to
bringing suits before courts, access to monitoring and enforcement data,
and statutory language that provides clear standards of conduct against
which the performance of polluting industries can be judged (Casey-
Lefkowitz et al., 1996, pp. 223-226).
An agreement among rapidly industrializing countries would be the
policy response that is most appropriate to the political realities sur-
rounding the issue of pollution standards and trade. Confining the
negotiations to countries in the similar circumstances of having

pollution control requirements that have been significantly lower than

the OECD countries and are more likely to be influenced by competitive-
ness pressures would increase both the utility of the agreement for the
parties and its political feasibility. By insulating pollution requirements
from competition with other low-standard countries, the governments
of rapidly industrializing countries would be maximizing their ability to
create standards that are optimal for their own societies.
Summary and Conclusion
The debate on the linkage between competitiveness pressures and

pollution control standards has relied too heavily on economic models
and too little on the analysis of political forces. Thus, even though the
economic logic of a race to the bottom in high-standard countries may be
strong, it appears there is minimal impact on standards because of the
institutionalization of political support for the standards in the OECD
countries. In the rapidly industrializing countries, on the other hand,
competitiveness pressures reinforce political forces that have kept pol-
lution abatement requirements relatively low.
Thus far, the international debate has all but ignored the stuck-at-
the-bottom problem. This analysis shows that the most important
impact of international competition for markets and foreign investment
is on rapidly industrializing countries that need to raise their lax pollu-
tion control standards. Thus, harmonization of standards makes the
most sense, primarily as a means of freeing the low-standard countries
from the pressure of unregulated competition on the difficult political
process of tightening their requirements. The international policy option
that responds most directly to this problem is the negotiation of common
minimum standards among the rapidly industrializing countries
themselves.
As the issue shifts to the industrializing countries, the United Nations
Environment Program (UNEP) and UNCTAD may have to play lead
roles in bringing greater clarity to it. Previous UNCTAD studies of the
trade-standards linkage in industrializing countries have focused on the
effect of environmental standards in the major markets for their exports
on their competitiveness (see UNCTAD 1995). What is needed now to
reinvigorate the international debate on pollution standards and trade is
a more detailed and systematic study of the impact of competitive-
ness concerns on the setting and enforcement of pollution standards
in the industrializing countries. Such an in-depth study could ana-
lyze the degree to which competitiveness concerns in low-standard
countries constitute an obstacle to progress in raising pollution stan-
dards. It could also examine the advantages and disadvantages as well

as the technical feasibility of a South-South agreement on minimum pol-

lution standards.
Manuscript submitted June 28, 1998; revised manuscript accepted for publication
December 17, 1998.
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JOURNAL

Trade Competition and Pollution

A major argument for upward harmonization of national industrial pollution

T he debate about the need for an international policy to address the

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global agreement on upward harmonization of standards (Esty, 1994,

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Competitiveness, Pollution Standards,

Demonstrating conclusively that international disparities in indus-

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model predicts that it would force a jurisdiction to lower standards to a

The “Stuck at the Bottom” Problem

Although there is no evidence that international trade competition

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• high and growing incidence of mercury poisoning in Chinese rivers

The economic costs of these suboptimal pollution standards have

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2. Although the United Nations Conference on Trade and Development (UNCTAD)

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developing countries whose comparative advantages are similar to Chi-

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bottom but the stuck-at-the-bottom problem that should concern the

The option of multilateral agreement on common minimum stan-

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And it would be consistent with the affirmation by the United Nations

efforts . . . geared to promoting the convergence of environmental stan-

An agreement among countries in which pollution control standards

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of ambient standards into emissions standards would have to be open

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pollution control requirements that have been significantly lower than

Summary and Conclusion

The debate on the linkage between competitiveness pressures and

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as the technical feasibility of a South-South agreement on minimum pol-

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International Conference on Environmental Compliance and Enforcement, April 22-26, 1996,

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Downloaded from jed.sagepub.com at PENNSYLVANIA STATE UNIV on May 9, 2016

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