"When you have polluted the last river, when you have caught the very last fish, and when you have cut down the very last tree, it is too bad that then, and only then, will you realize that you cannot eat all your money in the bank." -- Christian Bay (1)
Fifty years ago, global leaders representing states at all stages of development collaborated to create a new liberal international trading order. States sought to enhance their own economic welfare by taking part in multilateral management of the world economy. Yet this cooperative approach to international trade has not extended to environmental issues. As a result, growing environmental challenges continue to worsen in the absence of coordinated multilateral strategies for addressing these problems. This paper examines various approaches to understanding the relationship between trade and environmental issues and advocates a more balanced approach to reconciling economic growth with environmental sustainability.
Income, Trade and the Environment
What is the relationship between trade and the environment? Some observers argue that international trade enhances national wealth and that increasing wealth leads to stricter environmental regulation. Hakam Nordstrom and Scott Vaughn suggest that: "The willingness to pay for goods produced according to strict environmental standards increases with income.... Affluent communities with relatively educated populations can exert effective pressure on industries to clean up while poorer and uneducated communities find it more difficult to make firms behave in an environmentally responsible way"(7). Thus, the growth of international trade leads eventually to improved environmental protection.
And yet if economic growth is associated with improvements in environmental standards, why do statistics show that developed countries are worse at emitting toxic pollutants such as CO2, at rates nearly 5.5 times greater than developing countries? Studies conducted by the World Bank conclude that pollution-intensive production increasingly takes place in countries with relatively stringent environmental regulations (i.e., traditionally the wealthier states) (7).
While the answer may indirectly involve economic agreements and trade liberalization, the greater cause of failed environmental policies is failed market mechanisms. According to the World Trade Organization, market failures occur when producers and consumers do not have to bear the full costs of their actions, such as the impact emitted toxins have on third parties (7). Unfortunately, the environment lends itself to repetitive market failure. The virtuous wealth effect cited by Nordstrom and Vaughn is thus an inadequate guarantee against environmental deterioration in the face of global economic growth.
Another complication is the increasingly global scope of environmental problems. National governments have until now played the major role in addressing environmental issues. Yet many forms of pollution do not respect national borders. Moreover, global economic integration and the mobility of international corporations has diminished (or has at least created the perception of) the regulatory powers of individual states (7). The diminished capacity of state governments suggests the need for supranational regulation. Currently, the only supranational organization with the global scope to address such issues is the World Trade Organization. Knowing that unbridled economic growth cannot be sustained in an overpopulated world moving towards the "bankruptcy of critical natural resources and breakdown of Ö biophysical capacity" (5), the questions arises: Do environmental standards belong in multilateral economic agreements?
Petition for Inclusion: Environmental Standards in Multilateral Trade Agreements
Green politicians look to implement trade policies that respect the sanctity of the natural environment, and persuade other states to do the same. In the European regime, countries such as Norway, Finland, Sweden, and Germany are advocates of increased environmental standards and the inclusion of such policies into current supranational governmental policies. Under the German presidency, the European Union moved closer to harmonization in the area of energy taxation. That is, the European Union took an initiative to combine economic factors and new forms of regulation with the ultimate goal of more effective environmental protection.
Accountability at the Supranational Level
Global pollution of the atmosphere and the seas is closely associated with the Tragedy of the Commons. Because environmental effects transcend national boundaries, it is difficult to assign specific property rights, thus leaving the environment to communal property status. Polluters face few sanctions against activities that produce harmful environmental effects beyond national borders. Current environmental policies lack public accountability. Because of this lack of accountability on the part of industry and governments, feasible strategies for pollution-reduction go unpursued (7).
With greater accountability as the goal, it makes sense to seek ways to make sure that governments and industries pay a price for pollution-producing activities. Only in this way is behavior likely to change. Since many states value the benefits of trade, supranational regulations that condition trading opportunities on responsible environmental behavior could provide a powerful set of incentives for enforcing stricter global environmental standards (7).
It must be recognized, however, increasing factor mobility and competitive pressures can potentially undermine the regulatory efforts of government. In worst case scenarios, governments may actually decrease local environmental standards to attract new investment (7). This dynamic provides a powerful justification for supranational regulation. Unfortunately, international environmental law remains fragmented, lacking global authority, organizational structure, financial backing and legal status (5). Therefore, it is essential that the existing supranational structure is fully unitilized and indeed strengthened (8).
Trade Worsens the Environment
International trade is guilty of exacerbating environmental problems. Specifically, international trade has worsened environmental problems in the areas of chemical-intensive agriculture, deforestation, global warming, acid rain, and overfishing. In the case of chemical-intensive farming, farmers realize there exists a market for food staples. Because of the worldís growing population (which has risen from 2.5 billion persons in 1950 to 6 billion in 1999), pressures to expand food output are continually rising. However, economic incentives given to farmers for production (as is the case in areas like the European Union where production subsidies have resulted in wine lakes and butter mountains) (7), have resulted in over-farming and the use of chemical pesticides and production techniques which ultimately lead to water pollution, and endanger the health of those who apply the chemicals (7).
Deforestation is a second example of economic forces causing environmental degradation. Applicable mainly to developing countries, owners of these forests must confront a cost benefit analysis. They can choose to adhere to slash and burn practices where the end result is land suitable for farming, thus providing them with a source of income. Or they may also choose to hold their properties, allowing those around them to slash and burn and then ride out the increased worth of the forests as a result of the decrease in supply in a market, where one assumes demand for forest products remains constant.
In both case studies, environmental welfare is second to economic desires. In order to combat these atrocities (and the others listed above), economic policies can be used to change environmental actions. For example, taxation on either the consumption or production of food stuffs would potentially discourage farmers from overproducing, thus lowering the chance the farmer would use those pesticides most harmful to the environment (7). As stated earlier, governments have found this approach useful for encouraging participation in and enforcement of multilateral environmental agreements and modifying the behavior of violating governments.
Petition for Non-Inclusion
Misdirection of Efforts
Despite recognition of the connection between trade liberalization, income growth and environmental degradation, some observers argue that including environmental regulations in multilateral trade agreements could potentially further aggravate underlying problems. Like most problems, the best solutions come when the issue is addressed at the source. With respect to environmental issues this may mean either addressing production techniques that pollute heavily or tackling definitions of property rights (7). However, proposals that rely upon multilateral trade agreements to address environmental concerns often ignore production processes, particular types of consumption and the disposal of waste products. Efforts to address environmental degradation through trade policies could therefore be inefficient and misdirected.
Income Not Relevant
Despite economistsí arguments that income growth will lead to improved environmental conditions, environmentalists believe differently: "Studies of trade patterns have not found much evidence that developing countries have taken over the dirty end of production"(7). Between 1986 and 1995, researchers studied data on net exports from both developing and developed economies. Contrary to popular beliefs, these researchers found that developing countries actually import more pollution-intensive goods than they export, and the opposite is thus true for developed countries. Since polluting industries tend to be capital intensive, developed countries have strengthened their comparative advantage in the production of pollution intensive industries over the last decade (7).
Many countries have been able to promote environmental standards without relying on income growth or international/supranational bodies. Recognizing that the pollution composition of national output will change over time, these countries are working with firms and public opinion to alter attitudes towards environmental policy from a grassroots level (7), such that strong environmental standards may be maintained throughout emission changes. Firms are recognizing the value of having a "green profile" (7). That is, they are striving to qualify for eco-labelling seals that they can use as a valuable marketing asset. Additionally, attitudes of the populace recognize the correlation between poor environmental standards and poor performance in the market-place. There has been a considerable growth in the number of Eco-funds, which invest almost exclusively in firms with excellent environmental records of accomplishment, thereby giving extra aid to environmentally-conscious firms. The ultimate impact of these ecological funds is the promise of a boost in share prices and increased market penetration (7).
Contradiction in Ideals
Current supranational governance over environmental policies as a part of multilateral trade negotiations falls under the auspices of the World Trade Organization. Yet the most prominent and founding goal of the World Trade Organization is trade liberalization. When conflicts have arisen between trade openess and environmental protection, the World Trade Organization has consistently ruled in favor of open trade and agains the environment.
The World Trade Organization creates policies applicable on a global scale. Yet some argue that environmental policies are most effective if tailored to the particular needs and circumstances of specific regions. From this perspective, it would be detrimental to the environmental cause to attempt harmonization of environmental standards through a global institution such as the World Trade Organization (7).
Taiwan: A Brief Study
Taiwan exemplifies the effect of the liberalization of trade on environmental issues. Taiwan has achieved the income growth necessary to reconcile industrialization with stricter environmental standards. In practice, however, this goal has proven elusive. Taiwan finds itself, like many other states, caving to business demands for relief from environmental regulation (5).
In Taiwan, as in many other countries, environmental protection has taken a back seat to trade liberalization and economic growth. In general, political institutions everywhere are failing to address environmental issues, whether at the national or the global level. From the perspective of national governments like that of Taiwan or international institutions such as the World Trade Organization, the demands for open trade and economic growth take precedence over the needs of the environment.
Conclusion
Having discussed both sides of the issue, one can see how difficult it is for theorists to establish agreement on the pure effect of income. According to economists, higher income leads to the establishment of stricter standards regarding pollutants. However, it is these same states that are emitting the majority of industrial pollutants. It thus defies past experience to depend solely upon increasing wealth to solve the problem of environmental degradation.
Governments must identify, define, and enforce an appropriate balance between environmental and economic interests, or irreparable ecological damage will continue to occur. Recognizing these differences we must forge ahead and utilize those supranational institutions that already exist to prevent further damage and encourage open communication: "The way forward, it would seem to us, is to strengthen the mechanism and institutions for multilateral environmental cooperation, just like countries 50 years ago decided that it was to their benefit to cooperate on trade matters" (7).
Works Referenced
1. ) Bay, Christian. "Human Rights on the Periphery: No Room in the Ark for the Yanomani?" Human Rights in the World Community. University of Pennsylvania Press: USA, 1992. Pp124-136.
2.) Brack, Duncan (senior research fellow at Royal Institute of International Affairs) "Going Against GATT." Chemistry and Industry. v 15. 5 Aug 1995, pg 588.
3.) Economist. "Why Greens Should Love Trade," May/June 1999, v 29, n 3. pp 841-921.
4.) "Europeís Path Into the 21st Century: The Presidency (objectives and priorities)" European Union Homepage http://www.eu-president and http://www.europe.eu.int accessed 6.2.99 (during German Presidency).
5.) Goldwin, Ed. "Increasing Trade-Increasing Pollution". Ecologist May/June 1999, v 29 number 13 pp176.
6.) Guruswamy, Lakshman D. "The Promise of the UN Convention on the Law of the Sea." Ecology Law Quarterly. May 1998, v25 n2 189-227.
7.) Nordstrom, Hakan and Vaughan, Scott. "Special Studies: Trade and Environment." World Trade Organization, http://www.wto.org/ link to press release, page updated 8.10.99, accessed 15.10.99
8.) "Trade Liberalization Reinforces Need for Environment Cooperation". World Trade Organization. http://www.wto.org/ press release, page updated 8.10.99, accessed 15.10.99
9.) Wuld, Chris. "Multilateral Environmental Agreements
and the GATT: Conflict and Resolution?" Environmental Law.
Fall 1996 volume 26, n3. Pp 841-92