(1) Under what conditions will lobbying by firms that have adopted transnational private standards lead to strengthening of government regulation? (2) Under what conditions will this lobbying lead to weakening of government regulation?
If firms use adoption of Transnational Private Standards (TPS) as a means of gaining competitive advantages over rivals, governments should enact stronger regulation when these provide benefits to firms that exceed the costs of certification. I hypothesize that as penetration of TPS increases in industries that are struggling due to high competition and slow growth, and where adopting TPS does not confer market advantages (i.e., sell to consumers products at a premium), government policies are more likely to strengthen. Firms that have adopted TPS (e.g., due to pressure from NGOs) have already incurred the costs of certification, yet under status quo market and regulatory conditions, gain no financial benefit. If these firms are struggling to compete in the global market, they should lobby governments to incorporate their adopted TPS into regulation as a means of increasing the regulatory costs of their competitors, and as a result, improving their relative competitiveness.
Conversely, I hypothesize that as the penetration of TPS (i.e., the proportion of firms within an industry that have adopted TPS) increases in industries characterized by low competition and steady growth, and where adopting TPS provides market advantages, government policies are more likely to weaken. In these instances, under status quo market and regulatory conditions, firms’ adoption of TPS has generated profits. The premium paid for by consumers for certified products more-than-offsets the costs of TPS certification. While these firms could gain advantages over competitors if governments strengthened regulation to match that of their adopted TPS, the result would be that all products within the domestic market would be certified. This would increase competition among producers of certified products and subsequently place pressures on their ability to differentiate their product and charge consumers a premium. Consequently, when these industries face little competition, they should lobby to preserve the status quo.
Using maximum likelihood estimation models to examine the effect the adoption of forestry TPS had on national government timber procurement policies in 38 countries from 1999 to 2011, I find several statistically significant results that support my hypotheses. Increased penetration of TPS in industries that produce products for which consumers are willing to pay a premium for certification, and are characterized as low in competition, is associated with both weaker government policies and a delay in the enactment of stronger policies. Conversely, I find that increased penetration of TPS by industries that produce products for which consumers unwilling to pay a premium for certification, and are characterized as high in competition, is associated with both stronger government policies and earlier enactment of stronger policies. In addition, I find that an increase in the market share of imports is also associated with both stronger government policies and earlier enactment of stronger policies. These results support the contention that stronger regulations that include TPS may be selectively used as non-tariff barriers to protect domestic industries struggling to compete on global markets.