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

• Author: Mitchell, Shannon K.

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...