One of the motivations for these standards is the fear that unrestricted trade will lead to a “race to the bottom” in labour and environmental standards, as multinationals around the world seek low wages and lax environmental legislation to reduce costs. Yet there is no empirical evidence of such a race. In fact, trade generally involves the transfer of technology to developing countries, which allows for an increase in wage rates, as the Korean economy – among many others – has demonstrated since the 1960s. In addition, increased revenues allow cleaner production technologies to become affordable. Replacing scooters made on Indian territory in India with scooters imported from Japan, for example, would improve air quality in India. The implementation of NAFTA on January 1, 1994 resulted in the immediate removal of tariffs on more than half of Mexican exports to the United States and more than one-third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all U.S.-Mexico tariffs would be eliminated, with the exception of some U.S. agricultural exports to Mexico, which were to expire within 15 years. Most U-Canada trade was already duty-free. NAFTA also aims to remove non-tariff barriers and protect the intellectual property rights of products. In response to such a proposal, Bagwell et al.
(2007) are considering using an auction with sealed bids to exchange retaliatory rights. They use a multilateral business model in which two foreign countries import a product from their home country and two foreign governments participate in the auction to impose a retaliatory duty on imports from their home countries. To introduce asymmetrical information into this auction, Bagwell et al. (2007) assume that each foreign government is subject to fortuitous political pressure, allowing them to take into account their political economic parameters (section 2.2.1) before participating in the auction. Unlike the standard allocative efficiency result of the auction, where the auction function increases the bid`s valuation to the point that the highest always wins the position, the foreign government will not offer low political parameters, the government with intermediate values will offer an exogenous minimum price for the auction, and only the government with high political parameters will increase its bid with its valuation.