Are trade agreements good for you?

Abstract

We examine how deep agreements on domestic regulations affect welfare in a world where such agreements are influenced by producer lobbies. The answer to this question depends in a critical way on whether the agreement focuses on product standards or on production regulations. International cooperation on product standards can decrease welfare, and this is more likely to happen when producer lobbies are stronger. On the other hand, international cooperation on production regulations tends to enhance welfare when lobbying pressures are strong. A key determinant of the welfare impact of deep agreements is whether the interests of producer lobbies in different countries are aligned or in conflict: the former situation tends to occur in the case of product standards, while the latter situation tends to occur in the case of production regulations.