Trade and the Environment: The Influence of the European Union`s Environmental Directives on China

Abstract

Trade between the European Union and China has increased tremendously over the last decade, with the EU becoming China`s largest trading partner However, free trade advocates and environmentalists are engaged in a debate about the impacts of trade on environmental regulation setting. China`s integration with the world economy has triggered concerns that trade will put advanced nations under strong competitive pressure to lower their environmental standards in order to Slav competitive (race to the bottom). In addition, developing nations will have no incentive to strengthen their environmental protection measures as this would carry costs and reduce their global competitiveness (stuck at the bottom). However, in the case of trade between the EU and China, the opposite can be observed. The EU has implemented tight environmental directives, and China has upgraded its environmental regulatory .system. This study analyzes the linkage of trade and environmental standards between the two trading powers by adopting Putnam`s two-level games approach. The research is based on three case studies: the restriction of hazardous substances (RoHS), car emissions standards, and the registration, evaluation, authorization, and restriction of chemicals (REACH). It provides insights into how China is affected by these regulations and how it tries to utilize them to boost its economic development and enhance the quality of its environment.