Race to the bottom is a common phrase criticizing the implications of trade

liberalization for environmental standards. Many critics of free trade argue

that unfettered trade threatens the environment by undermining environ-

mental regulations (see Ecologism and Environmentalism). In a competitive

world where firms are free to locate anywhere, multinational companies

(MNCs) will move production lines from countries with high levels of

environmental protection to those with lower levels of environmental reg-

ulation. Given the importance of foreign direct investment for the economic

development of industrialized and developing countries alike, an incentive is

created for countries to lower their environmental standards in order to

remain competitive. It has been claimed that the race to the bottom is con-

tributing to environmental degradation world-wide.