focus on domestic taxes rather than regulatory standards. Grossman, Horn and Mavroidis (2013) also provide an extensive study of the GATT national treatment provision and argue that case law, economic theory and the negotiation record all suggest that the purpose of the national treatment provision is to outlaw protectionist use of domestic policies.<sup>83</sup> Moving beyond shallow integration? The case for shallow integration described above rests on the assumption that all international externalities are pecuniary and travel through the terms of trade. This case can be weakened, however, when governments possess private information, a point we discuss in Section 5.3. And as Antràs and Staiger (2012a, 2012b) argue, more complex forms of integration may be required in the presence of o¤shoring, which alters how prices are determined and complicates the nature of international pecuniary externalities. We discuss their work in Section 6.3. Similarly, “deeper”forms of integration may be needed if the trade agreement is created with the goal of also addressing non-pecuniary international externalities (e.g., global pollution).<sup>84</sup> Limão’s (2005) model, which we discuss next, o¤ers one illustration of this point.

Limão (2005) explores a model of self-enforcing cooperation among governments, with the new feature that production in the import-competing sector generates a negative non-pecuniary externality that travels (at least to some degree) across national borders. Each government selects an import tari¤ and a domestic production tax, and both policies a¤ect the terms of trade. In Limão’s model, therefore, international externalities travel through the terms of trade as well as through a non-pecuniary channel. His ...ndings illustrate that a form of “deep integration” is attractive to governments in such a setting as a means of relaxing enforcement constraints, where deep integration in this context refers to a policy linkage whereby the potential for retaliation in both policies deters deviations in any one policy alone.<sup>85</sup> In particular, Limão ...nds that governments can achieve higher welfare in a self-enforcing agreement when the policies are linked; however, there is no guarantee that linkage raises the level of cooperation in each policy.<sup>86</sup> In total, our survey of research in this section provides support for the shallow integration approach of the GATT/WTO when externalities are pecuniary and travel through the terms of trade. GATT/WTO rules concerning non-violation complaints and national treatment can be interpreted from this perspective and rest on a solid economic foundation. Anticipating discussion in later sections, we also note that the case for shallow integration can be weakened when governments possess private information, and arguments for deeper integration may also emerge in settings where international externalities travel through other channels.

> 83 Other related studies include Battigalli and Maggi (2003), Copeland (1990) and Costinot (2008).

> 84 For discussion of the extent to which GATT/WTO rules can be used to address non-pecuniary international externalities, see, e.g., Bagwell, Mavroidis and Staiger (2002) and Trebilcock, Howse and Eliason (2013, Chapters 17 and 18) and the references cited therein.

> 85 Retaliation in Limão’s (2005) repeated-game model occurs o¤ the equilibrium path and thus carries the interpretation of a breakdown in cooperation with respect to the relevant policies.

> 86 See also Spagnola (1999a,b), who develops related themes for a distinct class of interdependent payo¤s.

56