Quality standards for used durables: An indirect subsidy?

We construct a theoretical framework to study the impact of quality standards for used durable goods on trade flows, profits and consumer welfare. We show that asymmetric quality standards generate trade in used goods from high- to low-standard countries while at the same time reducing trade in new goods. Producers in the exporting country benefit from this change while consumers lose. In the importing country consumers are better off but domestic industry is hurt. These findings suggest that quality standards on used goods may be a powerful policy tool whose use should be monitored by the WTO.