Market Access and Minimum Quality Standards

We analyze market access blocking properties of a Minimum Quality Standard (MQS). For a country that imports a high and low quality good, the welfare maximizing optimal MQS permits market access only to the high quality firm. This result is further confirmed for a uniform MQS imposed by a high quality producing country that imports a low quality good. The optimal MQS in this case always blocks entry to the low quality foreign firm. We then propose a Flexible Quality Standard (FQS). Under a FQS a good faces a tariff only if it does not meet the standard. Both firms stay in the market under a FQS and a discriminatory import tariff. Total welfare in this case is greater than under free trade and the optimal MQS. Both firms also stay in the market under a uniform conditional tariffs, however, the welfare obtained is greater than under free trade and lower than under a MQS