International Regulatory Competition and Coordination: Perspectives on Economic Regulation in Europe and the United States

By Joseph McCahery; Sol Picciotto et al. | Go to book overview

12
Competitive and Non-Competitive Regulatory Markets: The Regulation of Packaging Waste in the EU

JOEL R. PAUL1


I. INTRODUCTION

Opponents of the World Trade Organization, the European Union, and the North American Free Trade Agreement (NAFTA) have popularized the idea that regulatory competition will lead to a race to the bottom. According to the conventional view of regulatory competition represented by these critics, where capital, finished goods, and services are relatively mobile across national borders, regulators will be induced to lower regulatory standards to compete for scarce investment capital ( Paul 1991: 70-4; Batra 1993: 215-30; Daly & Cobb 1989: 51-61). This paradigm of the relationship between private capital and state regulators describes a regulatory market in which competing states offer infrastructure, labour, and market access to private capital subject to certain regulatory conditions or costs, and private capital is free to select the state that offers the most favourable regulatory régime. If the production of widgets in the USA is advantaged by better highways, smarter workers, or close proximity to a large market, then private capital may be willing to pay higher regulatory costs than it would pay in a foreign state. The competitiveness of this regulatory market will be increased if states offer truly homogeneous infrastructure, labour, and market access. To the extent that reductions in trade barriers to goods and services allows equal access to all national markets regardless of where a good or service is produced or provided, regulatory competition intensifies.

Several approaches to the phenomenon of regulatory competition suggest themselves. One approach is to show that private capital is only marginally influenced by regulatory conditions in determining where to situate production. In fact, national markets are not homogeneous; differences in

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1
I am grateful to Robert Housman, David Kennedy, Duncan Kennedy, Al Klavoric, Anne- Marie Slaughter, and Joseph Weiler for their comments on earlier drafts and to my research assistant Theresa Swinehart. This chapter is a revised version of the author's article "'Free Trade, Regulatory Competition and the Autonomous Market Fallacy'" published by the Columbia Journal of European Law.

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