Regulatory standards, such as on health and safety, may be subject to strategic bias
when a country engages in trade. Where regulation is to correct an undersupply of
quality by a monopolistic industry, if regulators do not cooperate and …rms can vary
standards, there will be a tendency to strategic overregulation, which leads to excessive,
rather than inadequate trade. When there is a mixture of horizontal and vertical quality
regulations, the pro…t-shifting motive for protection is less than the previous literature
suggests. In this case, contrary to previous …ndings, mutual recognition agreements
lead to underregulation.