ABSTRACT
This chapter demonstrates that governments may have incentives to impose weak environmental standards on industries that compete for business in imperfectly competitive international markets, where “weak” means that the marginal cost of abatement is less than the marginal damage from pollution. However, such an intervention is not as efficient as an export or R & D subsidy in improving competitiveness, and depending on the form of competition and market structure, it may instead be optimal for governments to impose strong environmental standards, where “strong” means that the marginal cost of abatement exceeds the marginal environmental damage.
The existence of less strict environmental standards in a lower income country … is not a sufficient basis for claiming that the environmental standards are “too low” or that the country is manipulating its environmental standards in order to improve the competitiveness of its producers. To substantiate such a claim, it would be necessary at the very least to demonstrate that the standards are even lower than would be expected on the basis of such factors as the level of per capita income and the characteristics of the physical environment.
Clearly, that would be very difficult to do. Moreover, the charge might also be aimed at highly developed countries in which stringent environmental standards may have been adopted in some areas but where, because of competitiveness considerations, governments have shied away from high standard in others. [GATT (1992, p. 29)].
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