Greening Trade Agreements Through Harmonization of Environmental Regulations
- Resource Type
- Original Paper
- Authors
- Kawabata, Yasushi; Takarada, Yasuhiro
- Source
- Environmental and Resource Economics: The Official Journal of the European Association of Environmental and Resource Economists. :1-25
- Subject
- Customs union
Free trade agreement
Multilateral trade agreement
Environmental taxes
Tariffs
F12
F13
F18
- Language
- English
- ISSN
- 0924-6460
1573-1502
Countries are increasingly using free trade agreements (FTAs) and customs unions (CUs) to cooperate on environmental issues by including environmental provisions in regional trade agreements (RTAs). We examine whether countries form RTAs with regional environmental regulations and join a multilateral trade agreement (MTA) with a common environmental regulation that maximizes world welfare. Each government imposes an environmental tax to mitigate negative externalities caused by the consumption of differentiated goods. The main finding is that a deep FTA with regional harmonization of environmental taxes may act as a stumbling block for an MTA with multilateral harmonization of environmental taxes if the degree of product differentiation is intermediate. In contrast, a deep CU with a regional environmental tax serves as a building block, even if negative consumption externalities are transboundary.