The use of trade measures in [multilateral environmental agreements] has been and will continue to be an effective tool for achieving important environmental objectives. Non-paper by the United States Government (1996), submitted to the Committee on Trade and Environment, World Trade Organization (September 11, 1996)
The theory developed thus far tells us that it is especially hard for the international system to supply global public goods. The punishments needed to deter free-riding, or to sustain efficient provision levels, will not usually be credible when the number of countries is very large. And yet I have also argued that the Montreal Protocol sustains full cooperation, or something very close to it. So how was Montreal able to do this? As explained in Chapter 8 , a favorable cost-benefit ratio helped. But so did strategy. This chapter and the next emphasize how the treaty manipulated the incentives to sustain full cooperation. This chapter stresses the importance of sticks; the next chapter emphasizes the need for carrots. It is really the combination of the two instruments that makes Montreal a success.
Of course, we have already examined the utility of sticks, and the problem of making sticks credible. And we have learned that credibility limits the level of international cooperation that can be sustained. But we have thus far restricted choice of sticks to choice of pollution abatement (reciprocity). This chapter considers the advantage in expanding the strategy space—in letting countries use instruments other than strategies of reciprocity for deterring non-cooperation. In particular, the focus of this chapter is on the use of trade restrictions.
Trade restrictions can do two things. They can be used both to punish countries that do not cooperate and to correct for a loss in the “competitiveness” of the countries that do cooperate. And it turns out that there is an intimate connection between these different purposes. Concerns about a loss in “competitiveness” help to make the threat to punish, and punish severely in some cases, credible. At the same time, trade restrictions are not a ready cure-all for every cooperation problem. They need to be dispensed with great care.
The problem with reciprocity is that it loses its strength as the number of countries supplying a public good increases. This is because, when limited to choosing provision