Conference Agenda

International environmental agreements have historically been plagued with low or unstable membership, weak regulations, and ineffective enforcement. In a seeming attempt to combat these deficiencies, we have witnessed in recent years a significant increase in the inclusion of environmental coordination provisions in preferential trade agreements (PTAs). This follows from the fact that environmental regulation or the lack thereof, impact the competitiveness of firms and thus have important implications for international trade. As such, a country entering a pure trade-only (or “shallow”) agreement with a country with weaker environmental regulations may weaken or delay stronger regulations in an attempt to manipulate trade markets at the expense of their partner countries. By adding environmental provisions to trade agreements (or “deep” trade agreements), countries can avoid this “beggar thy neighbor” policy manipulation by all member countries. In this paper, we investigate the relationship between PTAs and environmental policy. We show that shallow and deep trade agreements have very different implications on tariff setting for both member countries (on non-members) and non-members (on members), suggesting that globalization and world welfare are impacted differently by the nature of these agreements. To empirically examine these relationships, we construct a unique, large dataset with industry-level bilateral trade and tariff data with all preferential trade agreements which were in force (for at least one year) in the world over the period 1988-2019, as well as the nature of the agreement and the number of unique environmental “norms” or provisions within each agreement.