Relational Contracting in International Commercial Trade

Recent free-trade agreement negotiations have raised concerns about the effect of free-trade agreements on sovereignty, democracy, and the rule of law. An often-repeated concern is that harmonization provisions, which seek to achieve regulatory equivalence, will jeopardize domestic standards. These concerns may be overcome through regulatory governance and cooperation. Mechanisms which seek to promote regulatory cooperation, such as the exchange of information following ex ante monitoring of goods, enable states to protect their own standards while positively influencing the regulations of their trading partners. Moreover, mechanisms promoting regulatory cooperation can enhance democracy since they require consultation and publication of information. These are examples of provisions contained within FTAs that resemble features of relational contracting. Incorporating these provisions in FTAs is advantageous to both parties and may help to overcome public opposition to FTAs