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Under what conditions can small suppliers and small-firm-dominated industries comply with stringent standards without compromising their trade competitiveness? This question is at the heart of a controversial debate about the emergence of environmental standards as a new variable in global trade and market access. There are few documented cases of success and the literature remains sceptical about the ability of small supplier firms to comply with stringent environmental regulations. This paper draws on the Indian leather industry's relatively effective compliance with two German bans on Azo dyes and PCPs to argue that the supposed trade-off between environmental compliance and export competitiveness is not inevitable. Critical to India's compliance with the PCP and Azo dye ban was not merely private governance mediated by lead firms and global buyers but also the institutionalization of compliance by the Indian state, which became deeply involved in diffusing the new standards. The paper examines how and why the state got involved in ways that generated—and sustained—a process of negotiated collective action and broad-based environmental compliance by a small-firm-dominated sector.
Tewari et al. (Wed,) studied this question.