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The Interaction of Competition, Co-operation and Communication: TheoreticalAnalysis of Different Sources of Environmental Policy ConvergenceKatharina Holzinger a; Christoph Knill a

a Department of Politics and Management, University of Konstanz, Germany

Online Publication Date: 01 December 2008

To cite this Article Holzinger, Katharina and Knill, Christoph(2008)'The Interaction of Competition, Co-operation and Communication:Theoretical Analysis of Different Sources of Environmental Policy Convergence',Journal of Comparative Policy Analysis: Researchand Practice,10:4,403 — 425

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The Interaction of Competition,Co-operation and Communication:Theoretical Analysis of Different Sourcesof Environmental Policy Convergence

KATHARINA HOLZINGER and CHRISTOPH KNILLDepartment of Politics and Management, University of Konstanz, Germany

ABSTRACT Comparative studies on cross-national policy transfer and diffusion emphasize animpressing degree of policy convergence in many areas. This holds true, in particular, for theenvironmental field. However, we are still confronted with limited knowledge about themechanisms accounting for this phenomenon. Against this backdrop, we theoretically investigatethe impact of three different convergence mechanisms that are generally seen as central sources ofcross-national policy convergence: regulatory competition, international co-operation andtransnational communication. In particular, our focus is on the analysis of the interaction ofthese three factors. As will be shown, the empirically rather likely interaction of differentmechanisms constitutes a plausible explanation for the still puzzling gap between the theoreticalprediction of a race to the bottom through regulatory competition and the lacking empiricalsupport for this hypothesis.

Introduction

Comparative studies on cross-national policy transfer and diffusion emphasize animpressive degree of environmental policy convergence which cannot only beobserved across the member states of the European Union, but also at the level ofthe Organization for Economic Cooperation and Development (OECD) (Kern et al.2001, Jacob and Volkery 2004). On the other hand, research findings provide onlylimited empirical support for the often predicted race to the bottom as a result ofregulatory competition between states (Tobey 1990, Levinson 1996). Convergence

Professor Dr. Katharina Holzinger is Chair of International Relations and Conflict Management at the

University of Konstanz, Germany. Her main research interests include decision making and constitutional

processes in the European Union, environmental policy analysis, and conflict management in intra-state

conflicts and civil wars.

Professor Dr. Christoph Knill is Chair of Comparative Public Policy and Administration at the University

of Konstanz, Germany. His main research interests are on policy making in the European Union, the

analysis of processes of international policy convergence and policy diffusion as well as research on policy

implementation.

Correspondence Address: Professor Dr. Katharina Holzinger, Chair of International Relations and

Conflict Management, and Prof. Dr. Christoph Knill, Chair of Comparative Public Policy and

Administration, Department of Politics and Management, University of Konstanz, Box 90, D-78457

Konstanz, Germany. Email: Katharina.Holzinger@uni-konstanz.de

Journal of Comparative Policy Analysis,Vol. 10, No. 4, 403–425, December 2008

ISSN 1387-6988 Print/1572-5448 Online/08/040403-23

ª 2008 The Editor, Journal of Comparative Policy Analysis: Research and Practice

DOI: 10.1080/13876980802468857

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obviously does not coincide with a general decrease in environmental protectionlevels.

Which factors account for the striking degree of environmental policy convergenceand how can we explain that convergence levels only in rare cases reflect the outcomeof a race to the bottom? In the literature, we are confronted with still limitedknowledge about the causes and conditions of cross-national policy convergence(Drezner 2001). It is the objective of this article to develop theoretical expectationsabout the degree and levels of cross-national policy convergence not only forindividual mechanisms, but also with respect to potential interaction effects. Weconcentrate on three mechanisms, which are generally viewed as the most importantdriving forces of policy convergence, namely, regulatory competition, internationalco-operation and transnational communication. We develop our argument againstthe empirical background of policy convergence in the environmental field. Althoughmany of our considerations might be generally valid, this more restrictive approachis justified by the fact that relevant convergence mechanisms and their effects mightvary across policy areas.

In a first step, we introduce the different convergence mechanisms underinvestigation and our conception of policy convergence (section 2). Second, wedevelop hypotheses not only on the conditions under which cross-national policyconvergence will occur, but also on the degree and level to which national policiesconvergence. We start with hypotheses on the isolated effects of each mechanism(section 3), and – on this basis – continue with the development of hypotheses on theinteraction effects (section 4).

Mechanisms and Concepts of Environmental Policy Convergence

Cross-national policy convergence is generally defined as an increase in policysimilarity between countries over time (Bennett 1991: 219). While this definition iswidely accepted, the picture is less clear when it comes to underlying causes andconditions of convergence. Although there is considerable overlap, the type andnumber of identified mechanisms vary greatly, depending on the underlyingtheoretical focus of the different studies. In view of this conceptual variety, weconcentrate on the analysis of three mechanisms which are generally considered asmajor driving forces of cross-national policy convergence: regulatory competition,international co-operation and transnational communication (Bennett 1991,DiMaggio and Powell 1991).

Regulatory competition is generally expected to emerge as a result of economicintegration. With the increasing integration of global markets and the abolition ofnational trade barriers, the international mobility of goods, workers and capital putspressure on national governments to redesign domestic market regulations in orderto attract foreign investment and to avoid regulatory burdens restricting thecompetitiveness of domestic industries threatening to shift their activities elsewhere.This way, regulatory competition among governments may lead to a race to thebottom in environmental policy, implying policy convergence at the lowest commondenominator: states will gravitate towards the regulatory level of the most laissez-faire country (Drezner 2001: 59). However, notwithstanding the seemingly clearand concise argument, the empirical literature provides only limited support for it

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(Tobey 1990, Vogel 1995, Levinson 1996). In a recent study on the development of40 environmental policies in 25 OECD countries, for instance, Holzinger et al.(2008a, 2008b) find a continuous strengthening of environmental standards acrosscountries and over time, notwithstanding increasing economic interlinkages betweenthe involved countries. One reason for this development might be that in theenvironmental field regulatory competition works not so much via the lowering ofregulatory standards but via ineffective compliance (Winter and May 2002).

The second convergence mechanism under investigation refers to legal obligationsemerging from international co-operation. As a result of international agreements,national governments are legally required to adopt policies and programmes(Bennett 1991: 225). This mechanism is traced to the existence of interdependencieswhich push governments to resolve common problems through co-operation withininternational institutions, hence sacrificing some independence for the good of thecommunity. Although the achievement of harmonized rules can hardly be taken forgranted in view of different domestic interests, political cultures and regulatory styles(Geva-May 2002, Bandhauer et al. 2005), once established institutional arrange-ments will constrain and shape domestic policy choices, even as they are constantlychallenged and reformed by their member states (Martin and Simmons 1998: 743).

Finally, the literature emphasizes varying convergence mechanisms which arebased on transnational communication. The first scenario of policy emulation impliesthe simple copying of policy decisions taken elsewhere. This pattern is generallyexplained by a broad variety of factors, including the number of countries whichhave already adopted a certain policy (Meyer and Rowan 1977), the striving forlegitimacy in constellations of high uncertainty (DiMaggio and Powell 1991: 70,Pollitt et al. 2001), the desire of actors not to be left behind, the existence of timepressures (Bennett 1991: 223), or the striving to avoid high costs of informationwhich are probably much less with simple imitation than with more demandingforms of learning (Simmons and Elkins 2003). Second, policy convergence can be theresult of learning processes (Graham et al. 2001), understood as the rationalutilization of available experience elsewhere (Rose 1991). Learning throughtransnational communication is not restricted to bilateral policy transfer, but canalso result from the development of common problem perceptions and correspond-ing solutions within transnational elite networks or epistemic communities (Haas1992). A third convergence factor linked to transnational communication is thepromotion of policy models by international institutions. In constantly searching fornew policy ideas, disseminating best practice and evaluating domestic policyperformance, international institutions function as mediators of cross-nationalpolicy transfer, driving national governments to adopt successful policy models(Kern et al. 2001, 10).

In the following sections, we develop hypotheses on both individual andinteraction effects of the three convergence mechanisms. They are related to twoaspects, namely (1) the expected degree of convergence implied by the underlyingmechanisms; and (2) the expected level of convergence for each mechanism.

The idea of convergence of policies implies decrease in variation of policies amongthe countries under consideration over time. Thus, convergence is the decrease ofstandard deviation from time t1 to t2. A change in the regulatory level implies anupward or downward shift of the mean from time t1 to t2 (Botcheva and Martin

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2001: 4). Convergence at the top or bottom presupposes therefore both decrease ofstandard deviation and a shift of the mean. To assess the extent of convergence, aswell as shifts in the level of regulation a point of reference is needed. We assume asthe reference point a situation where no mechanism is at work and where the policiesof the countries under consideration are characterized by diversity (assumption 1).

Theoretical Expectations: Individual Convergence Mechanisms

Potential interaction effects between different convergence mechanisms can hardly beunderstood without knowledge about their individual effects on the degree and levelof policy convergence. In the following, we thus develop hypotheses on theindividual effects of regulatory competition, international co-operation, andtransnational communication.

Regulatory Competition

From theories of regulatory competition (see Vogel 1995, Scharpf 1997, Holzinger2003) several expectations about the convergence effects of this mechanism as well asits conditions of effectiveness can be derived. Regarding the degree of convergence,the basic expectation is that policy similarity across countries increases with theextent to which they are exposed to competitive pressures following from higheconomic integration.

It follows from this argument that convergence effects can only be expected if twoconditions are fulfilled. The first requirement is a country’s exposure to internationalmarket pressures. In the absence of such pressures, no convergence will be observed.Lacking competitive pressures can either be the result of trade barriers or of lackingcompetition in or between non-market economies. Second, convergence effects willemerge only for those policies which affect competition among national industries.No convergence is predicted for policies subject to low competitive pressures frominternational markets. This holds true for all environmental policies that are notdirectly related to products or production processes, such as ambient qualitystandards, or nature protection. The same applies to trade-related policies if theireffects on production costs are low.

Theories of regulatory competition imply that countries move their levels ofregulation towards equilibrium. As a consequence, there is full convergence only at theend of the process. During the process there is ever increasing convergence. If otherconvergence mechanisms become effective some time after the mechanism of regulatorycompetition, we assume increased but not yet full convergence (assumption 2).

There is an ongoing debate in the literature on the level of convergence caused byregulatory competition. In this context, a distinction is often made between productand production process standards. Typical examples of environmental productstandards are car emission limit values (e.g. for carbon monoxide or nitrogen oxide),examples of process standards are limit values for the emissions of large combustionplants (e.g. for sulphur dioxide or again nitrogen oxides). While for productstandards several factors might inhibit a race to the bottom and even trigger a race tothe top, we find a widely shared expectation that policy convergence will occur at thelowest common denominator in the case of process standards.

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In the case of product standards, industries in both low-regulating and high-regulating countries have a common interest in harmonizing standards to avoid thecosts of market segmentation, for example the cost of producing and licensingvarious different types of a car for different national markets. Whether harmoniza-tion occurs at the level of high-regulating or low-regulating countries depends on anumber of additional factors. Most important is the extent to which high-regulatingcountries are able to factually enforce stricter standards. If it is possible to erectexceptional trade barriers, as for example for health or environmental reasons underEU and WTO rules, convergence at a high level of regulation is likely (Scharpf 1997:523). If such exceptional trade barriers cannot be justified, by contrast, competitivepressure is expected to induce governments to lower their environmental standards.Moreover, an upward move of regulatory levels can only be expected if theharmonization advantage is valued higher by business and governments than thecost difference between high and low levels of regulation (Holzinger 2003: 196).1 Theclassical example of a race to the top of product standards is car emission standards.When California raised its emission standards, most US states followed quickly inorder not to lose the market in California (Vogel 1995).

By contrast, none of these conditions avoiding downward pressures on nationalregulation is given for process standards. As these standards apply to the technicalprocedures of an immobile and non-traded entity, e.g. a power plant, there are neitherharmonization incentives to avoidmarket segmentations, nor do national governmentshave the opportunity to erect exceptional trade barriers. Hence, if the regulation ofproduction processes increases the costs of products, regulatory competition willgenerally exert downward pressures on economic regulations (Scharpf 1997: 524). Strictstandards demand filters, which raise production costs. As a result, the domestic steelindustry, for example, will suffer from competitive disadvantages, if steel producersfrom abroad face standards that are less strict. In order to avoid such a disadvantagegovernments may want to decrease standards to the level of other countries.

For reasons of terminological simplicity, we use the term product standards onlyfor those specific constellations in which product regulation is characterized by largeharmonization advantages and the possibility to erect exceptional trade barriers,hence implying a race to the top. With process standards, by contrast, we refer to allconstellations of (process and product) regulation characterized by the exclusion ofexceptional trade barriers and/or the lack of harmonization advantages, henceleading to a race to the bottom.

Hypothesis 1: Regulatory Competition and Environmental Policy Convergence

1.1 Degree of ConvergencePolicy convergence through regulatory competition increases with the extent towhich countries are exposed to competitive pressures following from higheconomic integration.

1.2 Level of ConvergenceWhenever there is a strict free trade regime, excluding exceptional trade barriers,there will be a decrease of both standard deviation and mean, irrespective of thetype of regulation (race to the bottom).

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In case of product regulation there will be a decrease of standard deviationbut an increase of mean, given large harmonization advantages and thepossibility of exceptional trade barriers (race to the top).

International Co-operation

The extent to which legal obligation emerging from international co-operationactually leads to the convergence of policies across countries is affected by a numberof factors. First, it is obvious that convergence effects can only be expected amongstthe member countries of the corresponding institution or regime with obligatorypotential. Another important factor influencing the degree of convergence is the typeof harmonization used. Convergence effects will be most pronounced for totalharmonization, followed by minimum harmonization, differentiated regulatoryrequirements and mutual recognition. Differentiated harmonization has similareffects to total harmonization. The only difference is that it cannot be expected tolead to full convergence. Mutual recognition as a technique of international co-operation has the same effects as regulatory competition alone. In the following, wedevelop hypotheses only for total and minimum harmonization, given their strongereffects on convergence.

In the environmental field total harmonization has so far only been used forproducts. The regulation of car exhaust emissions follows this technique since theintroduction of the catalyst car in 1989 (Holzinger 1994: 329). Minimumharmonization has been used for air and water quality standards, such as the SO2

directive or the quality standards for drinking water, but also for process standards.In addition to the specific regulatory technique applied, the converging impact of

legal requirements depends on the capacities of the international institution toenforce legally binding rules and, related to this issue, the actual compliance by themember states. For the following analysis we assume that there are no enforcementproblems and all countries fully comply with international law (assumption 3).

Having elaborated on the conditions and degree under which international co-operation results in the convergence of national policies, we still have no informationon the convergence level. With respect to legal obligation, the answer to this questionbasically depends on factors such as decision rules, interest constellations and thedistribution of power between the involved actors (typically national governments)which shape the negotiations at the level of international institutions.

In light of this constellation, which might vary from case to case, it is difficult todevelop general hypotheses on the conditions under which the negotiated agreementreflects a shift of mean towards either the top or the bottom. In principle, every result(most probably within the span of existing national regulations) is possible,depending on the dynamics of the international decision-making process. Theliterature generally predicts an outcome which reflects a compromise in the middlebetween countries favouring extreme positions of either rather strict or weakregulations (Drezner 2001: 61). Therefore, we assume that the level of harmonizationwill take place at the mean of the national regulation levels (assumption 4).

However, even if we assume that the final agreement reflects a compromisebetween high-regulating and low-regulating countries, we still need to know whetherand in which direction the mean of national regulatory levels will change after a

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decision has been taken. Predicted mean changes are different for total and minimumharmonization.

In the case of total harmonization, the expected result is that convergencecoincides with no mean changes of regulatory levels. The required upward anddownward moves of national standards will neutralize each other, hence implying nodeparture of the mean from the original position. For total harmonization we canassume that all countries move to the level of standard agreed upon, as we have ruledout enforcement problems. In fact, after the change to total harmonization of EUcar emission regulation in 1989, all new cars sold in the EU were fitted with catalystsafter 1993, the year of introduction of this standard (Holzinger 1995).

The constellation looks different, however, in case of minimum harmonization.Here it is still possible for countries with a preference for higher regulatory levels toenact standards beyond the minimum level specified in international agreements.While deviations to the top are therefore still possible, countries with lowerstandards are obliged to raise their standards levels at least to the internationalminimum level. Minimum harmonization is thus likely to result in shifting theregulatory mean upward. This expectation rests on the assumption that not all high-regulating countries will lower their standards towards the minimum level(assumption 5). A case in point is the German Large Combustion Plant Regulation.This regulation contains some standards that are stricter than the requirementsspelled out in the corresponding EU Directive (Knill and Lenschow 1998).

Hypothesis 2: International Co-operation and Environmental Policy Convergence

2.1 Degree of ConvergencePolicy convergence through international co-operation increases with the extentof integration of nation states into international institutions.

Policy convergence increases with the extent to which legal obligations requirethe harmonization of national policies.

2.2 Level of ConvergenceIf legal obligation requires the total harmonization of national standards, thelevel of convergence implies no significant changes of the mean.

If legal obligation requires the minimum harmonization of nationalstandards, the level of convergence implies an upward shift of the mean.

Transnational Communication

What are the factors affecting the degree of policy convergence if this basic conditionfor the effectiveness of transnational communication is fulfilled? First, the potentialthat this mechanism drives the similarity of national policies increases with thedensity of information exchange within transnational networks (Simmons andElkins 2003). This includes not only the frequency of interaction, but also thebreadth of interaction – i.e., the functional differentiation of transnational networks.It is well acknowledged in the literature that interaction density between statesincreases with their membership in international institutions which strongly facilitateand intensify transnational information exchange (Bennett 1991, Haas 1992).

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Second, convergence effects might increase with the extent to which policy transferoccurs between countries with strong cultural linkages. In their search for relevantpolicy models, decision makers often look to the experiences of those countries withwhich they share an especially close set of cultural ties (Rose 1991, Strang and Meyer1993). Especially in constellations characterized by high uncertainty about theconsequences of policy choices, decision makers are likely to imitate the practices ofnations with which they share linguistic, religious, historical or other culturallinkages (Friedkin 1993, Simmons and Elkins 2003).

Under which conditions does transnational communication lead to an upward ordownward shift of convergence levels? To answer this question, the differentmechanisms linked to transnational communication can be divided into twosubgroups, namely policy copying and benchmarking.

Under policy copying, we summarize the mechanisms of emulation and learning.This can be justified by the fact that in reality it will hardly be possible to decidewhether the adoption of similar policies was the result of simple imitation ordeliberate lesson drawing (Bennett 1991). In the case of copying, no predictionsabout the level of convergence are possible. The fact that other states adopt a certaininnovation or copy policy concepts successfully applied in other countries does notautomatically imply that this results in an increase in regulatory levels. It might wellbe the case that states adopt less demanding regulations, following correspondingpatterns in other countries (e.g. replacing of interventionist regulation by self-regulation). The range of possible convergence levels thus encompasses the wholerange of regulation levels given in the involved countries.

The picture is less open if transnational communication is directed at thepromotion of policy models by benchmarking activities of international organiza-tions. As a result of the competition of ideas emerging from the dissemination andevaluation of best practice, benchmarking can be expected to result in an overallstrengthening of regulatory concepts; hence inducing an upward shift of the mean.Since international organizations will generally promote the most progressivenational approach, we assume that the benchmark will be set at the level of thehighest regulating country (assumption 6). Notwithstanding the dynamics under-lying the promotional activities of international organizations, however, thevoluntary nature of this approach should not be overlooked. As a consequence,we assume that only some countries will move their regulatory levels to thebenchmark, while others will stick to their existing regulations (assumption 7).

Hypothesis 3:Transnational Communication and Policy Convergence

3.1 Degree of ConvergenceThe extent to which the exchange of knowledge in transnational networksresults in cross-national policy convergence increases with the density ofinteraction and cultural linkages among the involved states.

3.2 Level of ConvergenceIf exchange of knowledge in transnational networks is based on policy copying,the level of convergence might imply either no mean change or an upward ordownward shift of the mean.

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If exchange of knowledge in transnational networks is based on benchmark-ing, the level of convergence implies an upward shift of the mean.

Theoretical Expectations: Interaction Effects

In the following, we develop hypotheses on the interaction effects of the threeconvergence mechanisms. We first delineate the scope of effectiveness for theinteraction of several factors and then formulate hypotheses on the degree and levelof convergence. The interaction analysis pursues the aim of comparing situationswhere no mechanism is effective to situations where two mechanisms interact. Insome cases the consequence of the interaction depends on the sequence in which themechanisms become effective. Therefore we analyze the interactions in a sequentialmode.

Interaction of Competition and Co-operation

The interaction effects of co-operation and competition depend on the type of legalharmonization used, total or minimum harmonization. With total harmonization,international co-operation dominates regulatory competition. Whenever totalharmonization is agreed upon, regulatory competition cannot develop or it willstop. Therefore, the interaction of both mechanisms leads to full convergence at thelevel of harmonization. The level of convergence, however, depends not only on thetype of policy – product or process regulation – but also on the sequence ofinteraction.

The graphical representations in Figure 1 depict three cases of changes instandard deviation and mean. We first assume that after an initial phase ofdiversity of countries’ policies (t1), the mechanism of regulatory competition startsworking (t1 to t2), and after some time international co-operation takes place (t2 tot3). The mean in t1 is given by the median country, as for simplicity the regulatorydistance between the countries is assumed to be equal in the graphical illustrations(assumption 8).

What happens to the standard deviation and the mean in case of productregulation (Figure 1.1)? While both remain constant in the first phase, after t1 thestandard deviation decreases, whereas the mean increases from t1 to t2 (race tothe top). In t2 an international agreement is concluded which totally harmonizes theproduct standard. Following assumption 4, harmonization takes place at the meanin t2. Thus, in the next phase standard deviation decreases to zero as a result ofharmonization (full convergence at the standard), implying that the level of the meanfrom now on is the same as the level of the standard. Therefore, the interaction leadsto full convergence and an upward shift of the mean from m (t1) to m (t2), which is atthe same time m (t3). For production standards the process and the result are similar.The only difference is that regulatory competition in this case drives the meandownward before total harmonization becomes effective (Figure 1.2).

An example can again be taken from car emissions regulation. Obligatoryregulation of car emissions at the EU level started in 1970. Thus, the phase beforecan be seen as a phase of regulatory competition. However, in fact there was nocompetition but harmonization at the level of the UN Economic Commission for

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Europe (ECE). The regulations developed there aimed at promoting free trade bymeans of technical harmonization. This was voluntary regulation; the countries werefree to apply the regulation. The ECE standards became stricter over time and wereusually adopted by all European states (Holzinger 1995). This pattern did not reflectregulatory competition in the strict sense; rather it can be characterized as voluntaryco-operation. However, there was a kind of regulatory race to the top of caremissions standards that was driven by the desire for harmonization. EU legalobligations relied upon this harmonized standard (Holzinger 1994: 273ff.).

Figure 1. Competition and total harmonization

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What happens if total harmonization becomes effective before regulatorycompetition? This scenario does not make much sense, as total harmonizationsupersedes regulatory competition. This sequence implies, however, that the level ofconvergence is different than in the two cases described above. Total harmonizationtakes place at the mean m (t1) of countries’ positions in the initial phase. Allcountries converge to this level and stay there, as they are not permitted to deviate.There is no shift of the mean upward or downward in this scenario, and there is nodifference between product or process standards (Figures 1.3 and 1.4).

In contrast to total harmonization, the isolated effect of minimum harmonizationdoes not lead to full convergence of policies. Co-operation does not fully replacecompetition. In this case the two factors truly interact. Again, however, the type ofstandard and the interaction sequence lead to different levels of convergence. Thefour cases are represented in Figure 2.

We start with the assumption that regulatory competition is at work (t1) beforeinternational co-operation leads to the setting of a minimum standard (t2). In thecase of product standards, regulatory competition will lead to a decrease of standarddeviation and an increase of the mean level of regulation (hypothesis 1.2). In t2minimum harmonization is introduced at the current mean. Legal obligation causescountries with policies below the mean to raise their standards to the minimumstandard level. Countries with regulations above the minimum standard are notobliged to lower their standard levels. There is a high probability, however, that theydo so. This can be traced to the fact that – as soon as minimum standards areestablished – high-regulating countries are no longer permitted to erect exceptionaltrade barriers on the ground that products from low-regulating countries complyingwith the minimum standard constitute a threat to national health. Assuming thatstricter product standards coincide with higher production costs and hencecompetitive disadvantages, high-regulating countries have a strong incentive toreduce their regulations to the level of the minimum standard. Thus, full convergenceat the level of the minimum standard occurs. Regulatory competition shifts the meanupward from m (t1) to m (t2), co-operation fixes the mean at m (t2) as the minimumstandard, and finally co-operation and competition drive all countries towards theminimum standard, such that mean and minimum standard become identical at m(t3) (Figure 2.1).

In the case of process standards the development is similar (Figure 2.2). Again, thedifference is solely that regulatory competition in the first phase leads to a shift of themean downward, and thus the minimum standard will be set at a lower level. Afterminimum harmonization, all countries converge to the standard level, some becausethey are obliged to raise their standards, others because regulatory competitionexerts a downward pressure on process standards (hypothesis 1.2).

What happens if the sequence is changed and minimum harmonization is effectivebefore regulatory competition? We start again with product regulation (Figure 2.3).After a phase of diverse policies, international co-operation introduces a minimumstandard in t1. As usual, the standard level is the mean (m (t1)). There is no fullconvergence, as national standards above the minimum standard are permitted. Ifwe assume that some countries keep their higher standards, the mean shifts upwardto m (t2). In t2 regulatory competition becomes effective and drives the countrieswhich apply higher standards towards the minimum standard, as they want to enjoy

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the harmonization advantage. As a consequence, the mean m (t2) falls back on theminimum standard level (m (t1)). Thus, there is no overall upward shift of the mean.Compared to both the isolated effects of minimum harmonization and the oppositesequence of interaction the mean is lower.

Finally, what happens in the case of regulation of production processes ifminimum harmonization is effective before regulatory competition (Figure 2.4)? Aswith product regulation, the minimum standard leads to some but not fullconvergence and it raises the mean level of standards to m (t2). Regulatory

Figure 2. Competition and minimum harmonization

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competition drives the countries with stricter regulation towards the minimumstandard, as a consequence of the downward competitive pressure (hypothesis 1.2).Therefore, the picture is exactly as with product standards. After an intermediaryraising of the mean above the minimum standard to m (t2), it falls back to m (t1).Compared to the isolated effects of minimum harmonization the mean level is lower,but compared to the opposite sequence of interaction the mean level is higher.

The interaction of competition and minimum harmonization constrains thepositive effects of minimum standards and of regulatory competition in the case ofproduct standards, as it implies an upper limit at the level of the minimum standard.In the case of process standards, the interaction of both effects provides a lower limitto regulatory competition at the level of the minimum standard. Thus, given theinteraction of co-operation and competition, the effects of total and minimumharmonization do not differ. Minimum harmonization is factually equivalent to totalharmonization.

Interaction Hypotheses: Competition and Co-operation

4.1 Degree of ConvergenceThe interaction of international co-operation and regulatory competition leadsto the full convergence of national policies, irrespective of the type ofharmonization, the type of policy, and the sequence of interaction.

4.2 Level of ConvergenceWhenever international co-operation becomes effective before regulatorycompetition, the mean remains at the initial level, irrespective of the type ofharmonization.

Whenever regulatory competition is effective before international co-operation and product standards are concerned, the mean regulatory levelrises compared to the initial level.

Whenever regulatory competition is effective before international co-operation and process standards are concerned, the mean regulatory leveldeclines compared to the initial level.

Interaction of Competition and Communication

In developing hypotheses on the interaction effects of regulatory competition andtransnational communication, we first differentiate between policy copying (no clearlinkage between convergence mechanisms and convergence level) and benchmarking(upward shift of the regulatory mean). Second, for both constellations we distinguishbetween process and product standards, given their different effects on convergencelevels. Third, following hypothesis 3.1, we base our analysis on a distinction betweencountries among which convergence effects as a result of transnational communica-tion are more or less likely (given different degrees of cultural interlinkages).

Figure 3 shows the interaction effects for competition and copying. Threecountries (B, C and D) are assumed to have close cultural linkages. We assume thatfor these countries, policy copying is very likely. As it is impossible to theoreticallypredict the concrete level at which convergence through copying takes place, we have

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illustrated the potential bandwidth of convergence levels by grey hatching. To set anexample, we have selected a possible convergence point within this bandwidth.

Regardless of the interaction sequence of competition and communication, weexpect that both mechanisms mutually strengthen each other with respect to the degreeof policy convergence. Policy convergence as a result of transnational communicationis overlapped by similar effects of regulatory competition. Countries characterized bystrong communicative convergence effects will either move simultaneously (in caseswhere communication precedes competition) or converge faster than other countries(in cases where competition precedes communication) towards either the top or thebottom, as implied by regulatory competition (Figure 3).

Figure 3. Competition and copying

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Implicit to this argument is thus the expectation that the extent to which theinteraction of both mechanisms implies an upward or downward shift of the mean isbasically affected by regulatory competition rather than policy copying. Thisstatement follows from the above differentiation between countries whereconvergence effects, as a result of transnational communication, are more or lesspronounced. Policy convergence and hence the reduction of regulatory competitionbetween some countries does not exclude that these countries are still exposed tocompetition from other countries where transnational communication has no effecton existing regulatory diversity. Hence, it makes no difference which level ofconvergence between the affected countries is implied by transnational communica-tion. The major determinant of the convergence level stems from the effects ofregulatory competition.

This is no longer the case, however, if the impact of transnational communicationrests on benchmarking. In contrast to policy copying, this mechanism is expected toresult in an upward shift of the regulatory mean. Considering the interaction ofbenchmarking with regulatory competition, we arrive at rather different expectationsin terms of both the degree and level of convergence. As is illustrated in Figure 4,these differences emerge not only from the mean shift implied by regulatorycompetition, but also from the interaction sequence between both mechanisms.

In Figure 4.1 benchmarking precedes regulatory competition and regulatorycompetition on product standards implies an upward shift of the mean. In the firstphase, benchmarking is expected to lead to policy convergence at a higher level. Asnot all states will move towards the benchmark (assumption 7), m (t2) is expected tolie somewhere in between the level of the benchmark and m (t1). It is only as a resultof regulatory competition that we can expect a further upward mean shift toward thebenchmark. This can be traced to the harmonization advantages associated withuniform product standards; hence there is an incentive for all states to adopt acommon standard, as defined by the benchmark. In this case, regulatory competitionwill not only lead to an upward shift of the mean, but also further increase the degreeof cross-national convergence.

Expected results are only slightly different if regulatory competition precedesbenchmarking (Figure 4.3), with the main variation being an even higherconvergence level. Regulatory competition in the first place leads to convergenceand an upward shift of the mean. Consequently, subsequent benchmarking occurs ata higher level than in the first sequence, because even high-regulating states will havefurther increased their regulation levels in the context of competitive pressures. Atthe same time, harmonization advantages of uniform product standards are expectedto yield full convergence at the level of the benchmark.

The expected results will differ, however, if regulatory competition implies a raceto the bottom. In Figure 4.2 benchmarking is combined with subsequent competitionon process regulation. In this case, the final convergence level depends on the relativeimpact of countervailing pressures emerging from benchmarking and economiccompetition. While some states (most probably those for which competitive effectsare less pronounced) will move towards the benchmark, other countries will enter arace to the bottom. The concrete balance of these forces is difficult to predict.Although it is rather likely that regulatory competition will imply that m (t3) movesbelow m (t2), the extent to which m (t3) lies even below m (t1) is affected by the

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number and extent to which states move toward the benchmark or the bottom. Thisway, two convergence levels (benchmark and bottom) are predicted. Albeit notleading to full convergence, regulatory competition thus increases the overall policysimilarity across countries, at least when compared to the initial constellation. On theother hand, the emergence of two levels implies a lower degree of convergence, ascould be expected from the mere impact of regulatory competition.

Figure 4. Competition and benchmarking

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Two convergence points, albeit at lower levels, are also predicted if regulatorycompetition precedes benchmarking activities (Figure 4.4). Since regulatorycompetition implies a convergent move towards a lower regulatory level, thebenchmark will be set at a lower level, as it would be the case if regulatory competitionwas not effective. Assuming again that some states move to the benchmark whileothers converge at the bottom, this scenario implies that convergence coincides with adownward shift of the mean; i.e., m (t3) lies below m (t1).

Interaction Hypotheses: Competition and Communication

5.1 Degree of ConvergenceThe interaction of regulatory competition and transnational communicationleads to increased convergence of national policies, irrespective of the sequenceof interaction and the mechanisms underlying transnational communication.

5.2 Level of ConvergenceThe interaction of regulatory competition and transnational communicationleads to an upward shift of the regulatory mean whenever the isolated impact ofregulatory competition drives into this direction, irrespective of policy type andsequence of interaction.

If regulatory competition implies a move to the bottom and communicationeffects emerge from benchmarking, convergence will occur at two points,irrespective of the sequence of interaction of the mechanisms. In all otherconstellations, full convergence is expected.

The interaction of regulatory competition and transnational communicationreduces the potential of a downward shift of the regulatory mean whenever theisolated impact of regulatory competition drives into this direction andcommunication effects emerge from benchmarking.

Interaction of Co-operation and Communication

The theoretical assessment of interaction effects of co-operation and communicationis based on two analytical distinctions. First, effects differ with the extent to whichlegal obligation implies total or minimum harmonization. Second, the convergencelevel is also affected by the extent to which the relevant mechanism underlyingtransnational communication is based on benchmarking (implying an upward meanshift) or policy copying (where the direction of mean change is open).

The possible constellations for the case of total harmonization are summarized inFigure 5. In all constellations, total harmonization implies the full convergence ofnational policies to the level defined in international legislation. The scenarios differ,however, with respect to potential mean changes induced by co-operation. Nochanges of the initial mean m (t1) are expected if co-operation is effective beforecommunication (Figures 5.1 and 5.2). Subsequent benchmarking or copying willhave no additional effect, as all countries have already switched to similar policymodels.

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The situation differs, however, if communication precedes co-operation (Figures5.3 and 5.4). The effectiveness of communication mechanisms before co-operationmight imply that national levels of regulation shift as a result of benchmarking orcopying; hence leading to a mean shift in t2. Consequently, subsequent harmoniza-tion will occur at another level than in the initial constellation. In the case ofbenchmarking, this will induce an upward shift of the mean (Figure 5.3), while forcopying, no clear statement is possible (Figure 5.4). Depending on the effects of

Figure 5. Total harmonization and communication

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communication, all outcomes in the range between the highest and lowest level ofinitial national regulation are conceivable. To set an example, a possible convergencepoint was selected in Figure 5.4.

Figure 6 illustrates the interaction effects in the case of minimum harmonization.In contrast to total harmonization, the combination of co-operation andcommunication yields increased, but not full convergence of national policies. Interms of convergence levels, however, the interaction of both mechanisms bears a

Figure 6. Minimum harmonization and communication

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higher potential for upward moves, as it is the case for total harmonization. This ismost apparent in the cases where co-operation interacts with benchmarking.Regardless of the interaction sequence, we predict a twofold upward shift of themean. If co-operation precedes communication (Figure 6.1), the first upward moveemerges from minimum harmonization at the level of the initial mean. While allstates below the standards will have to move upwards, some high-regulatingcountries will remain above the minimum level; implying that m (t2) lies above m (t1).As subsequent benchmarking occurs at the highest national level and some, but notall countries will move towards the benchmark (see assumptions 6 and 7), a secondincrease of the mean is predicted, with m (t3) lying between the benchmark and m(t2). The same pattern, albeit in a different sequence, is expected if communicationbecomes effective before co-operation (Figure 6.3).

If transnational communication is based on copying, however, clear statementsabout expected mean changes are impossible. Whenever communication precedesco-operation, the scenario is similar to total harmonization; all outcomes betweenthe highest and lowest level of initial national regulation are conceivable (Figure 6.4).The range of potential outcomes is reduced, however, in the case of the oppositesequence (Figure 6.2). Depending on the specific effects of copying, the minimumstandard set at the initial mean m (t1) marks the lowest possible level, while theregulatory level of the highest regulating country marks the other end of thespectrum. Upward mean shifts are thus rather likely, as any moves below m (t1) areexcluded by the minimum standard.

Interaction Hypothesis: Co-operation and Communication

6.1 Degree of ConvergenceThe interaction of international co-operation and transnational communicationleads to full convergence if legal obligation is based on total harmonization,irrespective of the sequence of interaction and the mechanisms underlyingtransnational communication.

The interaction of international co-operation and transnational communica-tion leads to increased, but not full convergence if legal obligation is based onminimum harmonization, irrespective of the sequence of interaction and themechanisms underlying transnational communication.

6.2 Level of ConvergenceThe interaction of international co-operation and transnational communicationis more likely to lead to an upward shift of the regulatory mean if co-operationis based on minimum rather than total harmonization.

The interaction of international co-operation and transnational communica-tion is more likely to lead to an upward shift of the regulatory mean ifcommunication is based on benchmarking rather than policy copying.

Conclusion

Our theoretical considerations on the causes and conditions of cross-national policyconvergence in the environmental field indicate several general findings. First, the

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analysis of individual convergence mechanisms and their interaction indicates thatfundamental shifts in the level of regulation can only be expected in rather specificconstellations. Such scenarios are restricted to situations in which regulatorycompetition is the only or dominant mechanism to be effective. In all other cases,either upward or downward mean shifts are expected to occur on a less dramatic scale.

Second, the interaction of several mechanisms generally leads to an increase incross-national policy convergence. In many instances, combined effects result in fullconvergence, with all affected countries adopting similar policies, or at leastconvergence at two levels (especially in cases where benchmarking overlaps withregulatory competition on process standards).

Third, the broad range of possible convergence levels, as suggested by ourtheoretical considerations, provides a plausible explanation for the rather mixedempirical findings which provide limited support for a general race to the bottom asa result of regulatory competition. The extent to which this scenario can be expectednot only depends on the assumptions underlying theories of regulatory competition,but also on possible interaction effects with other convergence mechanisms whichmight weaken or even prevent downward pressures on levels of environmentalprotection.

These interaction effects between different sources of policy convergence so farhave hardly been investigated in the literature. The hypotheses developed in thisarticle thus might constitute a promising starting point for empirical research intothis field.

Note

1. In addition to these factors, a race to the top on product standards can be induced if national

regulations serve as a certificate of superior product quality that is rewarded by the market. This

constellation, in which national governments upgrade their own regulation to protect their firms against

attractive, more highly regulated foreign competitors, seems to explain some aspects of the race to the

top in international banking regulation. There is limited evidence, however, for similar scenarios in the

environmental field.

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Annex: List of Assumptions

1. The reference point for the analysis is a situation where no mechanism is at workand where the policies of the countries are characterized by diversity.

2. If another convergence mechanism becomes effective some time after regulatorycompetition, there is increased but not yet full convergence.

3. All countries fully comply with international law.4. The level of international harmonization takes place at the mean of the national

regulation levels.5. In the case of minimum harmonization, not all high-regulating countries will

lower their standards towards the minimum level.6. In the case of benchmarking, the level of the benchmark is equivalent to the

highest level of national regulation.7. In the case of benchmarking, some, but not all countries raise their levels of

regulation to the benchmark.8. For the sake of simplicity, the initial regulatory distance between the countries is

equal in the graphical illustrations.

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