Transnational Private Standards in Regulation: Pursuing Protectionism or Promoting Sustainability?

Why do governments enact policies that incorporate TPS and what determines their design, especially when doing so has international trade implications?

I hypothesize that governments include TPS as proof of conformance in regulation when doing so will bestow trade advantages on their domestic industries. In other words, I examine whether the inclusion of TPS in regulation is used as a non-tariff barrier to provide import-competing producers competitive advantages over foreign producers. I expect that governments will not include TPS in policies regulating exporting industries. As exporting industries primarily rely on foreign markets, their industry representatives should lobby in opposition to domestic increases in regulation that could be construed as protectionism by trade partners who could in turn retaliate with reciprocal trade barriers and jeopardize their access to markets. As the incorporation of TPS in government regulation may serve as a non-tariff barrier, exporting industries should advocate against such changes, and governments should opt to continue the status quo.

On the other hand, I expect that policies regulating import-competing industries will incorporate TPS, and that the strength of these policies is determined by the extent of the regulated industry’s TPS penetration. As import-competing industries primarily rely on domestic markets, their industry representatives should lobby in support of regulations that provide preferential treatment of domestic products and improve their competitiveness relative to foreign import-producing firms. Because of this lobbying, government policies on industries with shallow TPS penetration should include TPS, but provide preferential mechanisms that allow domestic firms to demonstrate conformance without adopting TPS, but oblige foreign firms to adopt TPS. By increasing the conformance costs of foreign and not domestic firms, these policies improve the competitiveness of the latter. However, trade agreements limit the extent governments can design policies to provide preferential treatment, and thus to maintain some semblance of fairness, these policies may only confer limited protectionist benefits. However, when a regulated industry has deep TPS adoption, these industries should benefit from stronger policies that are at parity with their voluntarily and widely adopted TPS. In such instances, industries should not only lobby for preferential treatment, but for strong regulations that impose no costs on domestic firms, but the greatest costs possible on foreign firms. In response, governments should enact regulations that are strong and include TPS as a mechanism to prove conformance.

For this analysis, I compare changes in both sector-deep (timber procurement and illegal logging bans) and industry-specific (sustainable construction and paper procurement) forest policies across Australia, Canada and the UK from 1997 to 2016. Supporting my hypotheses, I find that across these countries and over time, the strength and the extent TPS are incorporated in sector-deep policies is related to the trade orientation and TPS penetration of regulated industries. However, for industry-specific policies, I find that while these industry conditions are associated with the strength of government regulation, the extent policies incorporate TPS is also related to additional factors such as the structure of domestic markets and the policies of important trade partners.