Reconciling Free Trade with Responsible Regulation

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With strong leadership, liberalizing trade can go hand in hand with strengthening environmental and public safety standards.

Does free trade threaten national initiatives to improve environmental quality and consumer safety? Does the growth of environmental and safety regulation pose a threat to free trade? As recently as five years ago, few policymakers gave much thought to these questions.

Now, however, trade policy and regulation are rapidly becoming intertwined and this relationship is fast becoming politically important. U.S. environmental and consumer organizations were active participants in the politics of both the North American Free Trade Agreement (NAFTA) and the recent Uruguay Round accord of the General Agreement on Tariffs and Trade (GATT). All future trade agreements entered into by the United States can expect to be closely scrutinized for their impact on regulatory standards.

Congress, the administration, indeed all policymaking arms of the federal government must find ways to directly manage this new political linkage, or it will stymie any attempt to craft future trade policy.

Three issues are particularly critical, because they are central to future trade policy and because they are the most potentially threatening to the United States' role in maintaining and promoting a liberal global economy. In addition, these issues have major political consequences, because many citizens, lobbying groups, and business alliances care deeply about them.

The first has to do with "unfair" trade: Is it fair for companies in nations with strict environmental and safety regulations to have to compete with companies in nations with much weaker rules? The second deals with the imposition of regulations on other countries: Should nations be permitted to make access to their domestic markets contingent on their trade partners' development of stricter standards? The third has to do with using regulations as de facto trade barriers: How can policymakers distinguish between necessary national environmental, health, and safety standards and the use of those standards as nontariff barriers?

The forces driving these issues could soon become unbalanced. Yet there are appropriate steps Congress and the administration can take to reduce tensions between the goals of free trade and responsible regulation.

Reaching a crossroads

As long as protective regulations have existed, they have affected trade, either indirectly by influencing the composition of imports and exports, or directly by determining the standards that imports must meet.

The use of regulations as trade barriers also has a long history. During the latter part of the 19th century, various U.S. meats were banned from Italy, France, and Germany because of inadequate U.S. sanitary standards for meat processing. During the 1930s, anxious to protect the U.S. cattle industry, the federal government banned all imports of Argentine beef following an outbreak of hoof and mouth disease in that country. The country-wide ban remained in place even after the disease had been confined to a few local areas.

Even with the trade liberalization of the postwar period, innumerable Japanese product, certification, and inspection standards have restricted outside access to the Japanese market. Likewise, European standards for products ranging from household appliances to bread, beer, and pasta functioned as trade barriers within western Europe as well as internationally.

Yet it is only recently that consumer and environmental regulations have emerged as an important focus of trade conflicts and agreements. This is due to the convergence of several developments: an increase in regional and international efforts to promote economic integration; growth in the number of health, safety, and environmental regulations; and the expansion of international trade itself.

The seven rounds of GATT negotiations prior to the Uruguay Round reduced tariffs by an international average of nearly 75 percent. Tariffs have been eliminated within western Europe and are being phased out in North America. Therefore, the relative importance of nontariff trade barriers such as health, safety, and environmental regulations, has grown.