The Strategic Choices Of Export Enterprises Under The International Environmental Regulations

With the development of the economy, the environment protection in the international trade calls people's attention. The reason why trade and environment conflict with each other is the market failure caused by the externality of environment cost. In the international market, the export enterprises are facing environmental regulations. How to use strategic choices to improve their competitions is a grave subject. There is an important connection between the environmental regulation, international trade and vertical structure. This paper builds a relationship between them, basing on the analysis of internalization of environment cost from the economics perspective, discussing the strategic choices of export enterprises under the international environmental regulation.Based on the above analysis, this paper analyzes the effect of vertical market structure on the design of international environmental regulation. Based on the vertical model developed by Stephen F.Hamilton and Till Requate, we frame our model focusing on the strategic choices of export firms under the situation that they were regulated by the import country. The model is consisted of an international contract game between upstream and downstream firms. Under the quantity competition, the equilibrium vertical contract for the downstream firm involves an upstream price below the regulated price of the polluting input and a positive lump sum payment to the upstream firm. Under the price competition, the equilibrium vertical contract for the downstream firm involves an upstream price above the regulated price of the polluting input and a negative lump sum payment to the upstream firm. When a single polluting input is used to produce multiple export products, our suggestion is to allow for vertical contracts. The optimist regulation policy of import country is use Pigouvian tax. Further more, according to analyze the ASUS case, we analyze the problems of Chinese export firms under the environmental regulations in the Europe market, giving several feasible strategic choices.