European Union environmental policy threats to United States exports

The next round of the World Trade Organization negotiations will most likely incorporate environmental concerns into agricultural trade policy. It is important to investigate situations where both environmental and trade policy tools could be used together in a bargaining framework. The purpose of this study is to determine whether in the future the United States would be willing to bargain with the European Union by placing a pesticide or fertilizer restriction in exchange for liberalizing agricultural producer supports in Europe. The paper develops a theoretical model and outlines the conditions that must be met if a bargain between the United States and European Union is to occur. Partial equilibrium commodity models are used to test whether the United States would be willing to restrict its use of pesticides or fertilizer in return for reduced EU agricultural price support. The results show a number of critical conditions which must be met including the slope, concavity and indexing of the iso-welfare contours in order for a bargain to exist. The research indicates that in all three empirical models, a potential bargain is possible if there is a positive externality in either the European Union, United States or both regions, for stricter U.S. environmental regulations and cuts in EU producer supports