Trade-Inducing Quality Standards for Used Durables

Sofronis Clerides, University of Cyprus and CEPR, and Costas Hadjiyiannis, University of Cyprus

2/12/2008
(Original Publish Date: 12/1/2004)

We construct a theoretical framework to study the impact of asymmetric quality standards on used durable goods on trade flows, profits and consumer welfare. We show that asymmetry in quality standards generates trade in used goods from high to low standard countries while at the same time reducing trade in new goods. The industry in the exporting country benefts from this change while consumers lose out. Consumers in the importing country are the biggest beneficiaries, but domestic industry is hurt. These results suggest that quality standards on used goods are a powerful policy tool whose use should be monitored by the WTO.