Trade-Related International Regulatory Co-operation: A Theoretical Framework

This report provides a conceptual foundation for the analysis of international regulatory co-operation (IRC) and its potential benefits through reduced trade costs. Different forms of IRC aiming to reduce specification, conformity assessment and information costs - which can arise from regulatory heterogeneity, costly conformity assessment procedures and insufficient regulatory transparency – are addressed. The report argues that trade costs need to be balanced against the regulatory objectives of mitigating various market imperfections. Integrating these two elements often allows significant gains in terms of national welfare, gains that can be augmented by negotiated outcomes among trading partners. IRC may also have important effects on trade with third countries. Related welfare implications are, however, ambiguous and depend on the specifics of the IRC outcome as well as on third countries’ own regulations.