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Abstract Ecological dumping refers a situation where governments choose less strict environmental standards. In consequence, dumping refers to producers obtaining hidden subsidies in the form of less strict pollution abatement requirements, this situation allows them to dump their products in international markets at prices that not reflect the true cost of production. In contrast to normal dumping, ecological dumping is an activity performed by governments, not by companies. In the European Union the principle of subsidiarity calls for national standards, whereas harmonization of national regulations calls for European standards. The common European objective was the assessment of the possibilities that governments might compete by undercutting each others' environmental standards in a federal economy consisting of countries that differ in size and other characteristics. In the case of EU countries trade policy is banned, but the responsibility for environmental policies is common. European Union has created European Union's Emissions Trading System (EU ETS) which is the first large emissions trading scheme in the world
Key words:
Ecological dumping; environmental standards; principle of subsidiarity; trade policy; emissions trading system.
JEL Codes:
F18
1. Introduction
The environmental policy of a single country, nowadays, is not independent anymore of what is going on in the rest of the world. Environmental preservation is an important contemporary issue, and many countries are attempting to develop institutional program and policies to deal with this issue. However, environmental preservation is difficult to assure in countries that place high priority on economic growth, because such countries are concerned about a higher international competitiveness of domestic companies. Thus, the governments in such countries may impose lax environmental regulations on companies so that they are able to retain their competitiveness. Ecological dumping is characterizing this situation.
In an international trade context the problem arises that even a country acting in a benevolent fashion by unilaterally addressing transboundary pollution and global environmental problems would be discouraged to do so by so-called leakage effects1: tighter environmental standards in one country simply move the source of the problem from one side to the other side of the border and global pollution remains unchanged.
In the same time, industry lobbies often argue that tight environmental standards and high pollution taxes have a negative impact on competitiveness. Many environmentalists...