ENVIRONMENTAL REGULATIONS AND COMPETITIVENESS

Costs of environmental regulations, although relatively small, can be critical in the competitiveness of a product since the cost advantages of producers in one country are often very slim. Additional costs derived from new regulations are a factor in the continued importance of exports and of the maintaining or increasing a nation’s share of the international market. Governments try to assist their industries in overcoming the disadvantages caused by such added cost through subsidies, tax breaks, technical assistance or in other ways. In agriculture these are increasingly taking the form of green payments, which are currently exempt from the limits imposed on domestic subsidies. In addition to these mechanisms for addressing the environment, there also has been a selective but subversive process of erecting non-tariff barriers based on environmental protection issues. It is often difficult to determine if such measures are really for protecting the environment or for protecting domestic producers. They are, none-the-less, generally effective approaches for achieving environmental objectives and can also be effective measures to alter competitiveness. Competitiveness can be either enhanced or diminished by the environmental regimes of competing nations. The existence of negative externalities means that prices are lower than would prevail if all costs where included in the prices of the products.