International trade and environmental protection: Reconciling competing interests under the WTO law

This paper models the impact of environmental regulations on international trade flows within the framework of the World Trade Organization (WTO) law. With the aim of reconciling the competing interests of trade liberalization and environmental protection, this study analyzes how stringent environmental policies affect bilateral trade among countries. An augmented gravity model of international trade is employed, incorporating environmental regulation indices into the traditional gravity equation. The model utilizes hypothetical data from 10 countries, including variables such as GDP, distance, and environmental regulation indices ranging from 1--10. Ordinary least squares (OLS) regression is used to estimate the coefficients of the model. The results indicate that larger economies and shorter distances positively influence trade flows, which is consistent with traditional gravity models. Importantly, stricter environmental regulations are significantly associated with reduced trade. Specifically, the environmental regulation indices have negative coefficients (−0.150 for exporting countries and −0.120 for importing countries), suggesting that greater regulatory stringency hinders trade competitiveness under WTO law. The paper underscores the need for policymakers to design environmental regulations that protect the environment without unnecessarily impeding international trade. Harmonization of environmental standards and international cooperation are recommended to balance trade and environmental objectives within the WTO framework.