International Regulatory Cooperation, a Trade-Facilitating Mechanism

The regulatory landscape of cross-border trade has to be improved in order to expand trade opportunities. Differences or incompatibilities in regulations across jurisdictions, however slight, can impede the trade in goods or services. Domestic regulations often translate into trade costs for businesses and affect all agents along the supply chain, from producers to consumers. This paper discusses trade-related international regulatory cooperation as a means to provide a balance between domestic regulatory activities and more open international trade. It addresses the potential effects of various types of regulatory cooperation initiatives by dissecting some of the elements that policymakers should gauge to reach an optimal regulatory decision: trade effects of regulatory heterogeneity and economic welfare benefits for society. It also looks more specifically at the role of transparency. This paper offers suggestions to contribute to practical decisions in the process of regulatory cooperation. First, countries should seek to bridge the gap of regulatory divergence through the lens of joint welfare by ensuring a balance between the welfare costs related to regulatory changes and the benefits resulting from reducing regulation-related trade costs. Domestic regulations, hence, should be conceived by taking into account the trade impact on trade partners. Countries should start by looking outwards to take into account the impacts of their domestic regulations across borders. There are many ways to undertake regulatory cooperation and each initiative hinges upon the degree of importance given to trade benefits and wider impacts on welfare.

Tag: Commercial Frictions & Uncertainties, Compliance and Transparency, Diversification & Competitiveness, Monitoring, Regulation, Regulatory Systems Coherence, Small and Medium-Sized Enterprises, Standards