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Abstract

The paper explains why institutions matter for a deep integration process, as illustrated by the liberalization of Non-Tariff Barriers (NTBs) in Europe. We argue that deep trade liberalization requires supranational institutions of deeper integration that permit enforcement, surveillance, and adjudication. To support the claim, we develop a simple model showing why mutual recognition of norms and testing procedures, coupled with a supranational institution can shape the equilibrium level of NTBs in every member state. Member states host special-interest groups that make political contributions to influence their respective government's choice of NTBs. Politicians maximize a realistic welfare function that favours contributions over consumer's social welfare. The supranational institution drains the incentive to lobby for NTBs. The paper discusses the structure of protection that emerges in the equilibrium, stressing how the lobbies' contributions vary with the effectiveness of the supranational institution in reducing NTBs in the final policy outcome. We then use the model to explain the liberalization of NTBs in the EU.

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