Regulatory harmonization in the WTO Doha Round is blocked due to the opposition of key developing countries. Yet, the same countries agree to such harmonization in the framework of regional trade agreements. We present a theory to explain why this happens. Our argument posits that the key determinant of developing countries willingness to commit to costly regulatory harmonization at a high level is the default condition of non-agreement. In multilateral negotiations, non-agreement is equivalent to the status quo. Due to the trade diversion effects of regional trade agreements however, non-agreement may make them worse off with respect to the status quo. This leads to a change of preferences of both developing and developed countries, which in turn makes cooperation on regulatory harmonization possible. We use game theoretical modeling to illustrate why the strategic interaction of a developed country and a developing country in a multilateral setting is likely to lead to a non-cooperative outcome, while in the context of a regional trade agreement can lead to a cooperative outcome. We illustrate the validity of our argument with an empirical analysis of negotiations concerning intellectual property rights protection.
