Chapter 13 Trade and the Environment
Is Free Trade Anti-Environment?
Is globalization anti-environment?
Chapter 13. Trade and the environment
Is Free trade anti-environment?
Setting debate: Might refer to this as globalization and the environment.
Standard view in the media is that with increased trade/globalization,
Link to syllabus environment gets sacrificed.
Author’s general view is that trade is not anti-environment, and that specificity rule says trade policy is not best solution to environmental problems.
Examples. North Alaskan oil and environment (not trade per se).
Brazilian tropical forest and wood exports. Can the opposite be true?
US restrictions on Japanese autos was anti-environment. Also, US uses excessive pesticides on its agricultural products, which are then exported.
Recent examples: Swiss and GMOs; China and river pollution. Nigeria and oil pollution
Club of Rome:
“
Limits to Growth”
1970’s
Post 1970s
David Malthus , 1766-1834
1798 Essay on the Principle of Population
Overpopulation; economics as
“the dismal science”
Improved living standards (from industrial revolution) will lead to population growth, which will nullify previous increase in income/capita
“Neo-Malthusians:” resources and environmental problems concern
Still valid.
Scientific
Why was he wrong? a)Ignored possibility of continuous technological progress; b) New ag lands in western hemisphere c) Demographic theory was wrong
Figure 13.1 page 266
Environmental problems by income level community not decided
Figure 13.1 p. 286 Environmental problems by income level
The three possibilities:
Declining: smoke particles (in hut), urban population without sanitation, lead in water
Rising: carbon dioxide (autos), general urban waste
Inverted U sulfur dioxide (which causes acid rain), lead. Turning points at gap between LDCs and DCs.

Presented as a Kuznets inverted U and development.
Figure 13.2 page 267
Environmental effects of the Uruguay Round
Figure 13.2 page 287 Environmental effects of the Uruguay round. Expressed as % change in emission of pollutants.
Divides up into composition (who exports what) and size and income effects.
Table seems to say that Uruguay round had small effects, that most pollutants are on the downward part of the Kuznets curve, and that monetary gains could finance a clean-up.
Points out that capital and skill intensive products are more polluting
(minerals, oil, pulp), and these are produced in DCs. Textiles are cleaner.
Concludes that Free trade is not inherently anti-environment-indeed, that relocation effects are small.
Counter-arguments:
Uruguay round didn’t do much, so there are small net effects. what is anti-environment is push to get new trade.
Study assumes constant pollution per product, not a different price due to different environmental standards.
Is WTO anti-environment? WTO will not allow countries to use trade policies to punish other countries for polluting. (Different question is multilateral agreements?) Considers three situations
1) Consumption of products… autos and fuel efficiency-should not be by brand. Thailand cannot ban imported cigarettes
2) Production can cause damage.
Case Study. Dolphins & tuna. US pressured firms not to buy tuna
(may have been some cheating). Direct controls against Mexico were protested, successfully in WTO. Trade policy cannot be used to enforce an environmental policy elsewhere.
Also sea turtles, shrimp.
3) Global problem such as endangered species. Hasn’t really come to
WTO.
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Pollution is an externality. Analysis comes back to specificity rule.
Two strategies:
Use of taxes or subsidies to affect amounts of pollution, instead of tariffs.
Change property rights, to privatize the impacts.
Figure 13.3 page 273
Types of Externalities and Product Prescriptions.
Figure 13.3 page 294 Types of (negative) externalities, and product market prescriptions.
Distinguishes between 1) action of world
Country can be better off taxing domestic production, and importing.
agency, 2) single country-in some cases, tariffs are o.k.
Could be said to be very theoretical
Trade and Domestic Pollution . e.g. Pollution of domestic paper companies.
Figure 13.4 page 277
When domestic production causes domestic pollution
Figure 13.4 page 296 When domestic production causes domestic pollution (e.g. logging). Comparison of what could happen if social costs are incorporated. Comparison of triangle (a) for benefits from trade with rectangle (b) of social costs or benefits. In this case, country is worse off with trade, due to external costs.
Pre-trade: production of 2 billion reams, at $1.00/ream. With free trade at price of 1.10, gain is ‘a’ (=$25m), which is less than the social cost ‘b’ (=$90 m).
Country could prohibit export trade. Or following the specificity rule, it could tax production/pollution. If social cost is $0.30, Sd moves up and therefore back, eliminates negative social costs.
With free trade and tax, country will import. Transference of external costs overseas. Conclusion, country is better off with taxing pollution, and free trade. (Importing product, exports pollution).

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If companies complain about higher domestic prices, due to taxes, solution is to import from abroad. Let them worry about it. WTO rules do not support countervailing duties.
Transborder Pollution
German paper company, polluting on Danube at border with Austria; downstream people suffer pollution.
Figure 13.5 page 279
Classic case of international pollution & ideal solution
Figure 13.5 page 299. Classic case of international pollution, and ideal policy solution.
Contrast between no control (A) and total elimination (D). Optimal solution – go to point B, perhaps by a tax of 400 euros per ton.
Point is, optimal situation isn’t zero pollution.
World Court could assign taxing rights--Coase argued that the same result occurs if owner is Austrian or German. Property rights must be enforceable. If a German owner, the Austrians will pay to reduce pollution. If an Austrian owner, Germans will buy pollution rights.
But without a superior force, negotiations would break down.
So, what is second best? One option might be, if Austria imports paper, to import less. WTO impedes use of trade controls to reach point B.
NAFTA. Mexico has good laws, doesn’t enforce them. Maquiladora.
Set up a commission and a fund. Not much to show.
Global Environmental Challenge . A sobering picture
Global Problems need Global Solutions. Depletion of Ozone layer.
Appropriate international agreement is difficult to negotiate. Considers four cases.
Extinction of species. Has been accelerating; 52 mammals and 70 birds
1900-1987. CITES (Convention on International Trade in
Endangered Species of Wild Life and Fauna). Rhinoceros. Tigers.
Perhaps agreement has slowed decline. African elephants. Their

5 population cut in half during 1980s. Ban on ivory trade caused prices to fall from $100/K to $4/Kilo. Southern African countries requested an end to the ban, which has been granted. Once again, suggestion that solution is economic management.
Overfishing. Classic example of “the tragedy of the commons.” Not much progress-is getting worse. Difficult to control fishermen.
(problem isn’t trade as much as production).
CFCs (air conditioners) 1987, Montreal Protocol on depletion of the
Ozone layer. Progress. Why? Scientific case was good. Small group of products, accessible substitutes, cost wasn’t high. Production in
US and EU, where attention was focused.
Greenhouse effect rising carbon dioxide- Fossil fuels.
One degree Farenheit in last 20 years.
Background facts. 1) Scientific facts not agreed 2) proposed solutions won’t solve the problem 3) international trade is not the cause nor the cure.
Proposed, inadequate Solutions: remove subsidies to energy.
Reforestate (different from protecting mature forests, and would not solve more than 25% of problem). Wait until the price of energy goes up.
Direct solution: tax producers and/or consumers, to reduce fossil fuel emissions by half. Analysis by Whalley/Wigle of a carbon tax of
$448/ton--$54/barrel/oil or $1.34/gallon gas. Decline of income by
4% after 30 years.
Figure 13.6 page 289
Welfare effects of carbon taxes on various regions
Figure 13.6 page 312. Welfare effects of carbon taxes on various regions of the world.
$448/ton, $54/barrel oil, $1.34 /gallon gasoline.
Numbers indicate the practical importance of whether tax is on producers or consum

Kyoto Protocol (1997). George W. pulled out, claiming that LDCs made no commitments. Included provision of trading in pollution rights. Other countries are going ahead.
Why U.S. is opposed:
Too costly for U.S. (too much reduction)
Big LDCs not involved (China, India, Brazil)
Inherent distrust of a market for pollution rights
Appears to give power to international organization.
My articles:
TRIPs and the Environment. Trade Related Intellectual Property
Rights.
Negative implications for biodiversity
1) Spread of monocultures
2) Increased use of chemicals; genetically engineered herbicide tolerant crops
3) New risks of biological pollution, as patented genetically engineered organisms are released into the environment
4) Undermines the ethics of conservation, as the intrinsic value of species is replaced by instrumental value
5)
Undermines traditional communities’ biodiversity
Genetic Engineering and Privatization of Seed
Monsanto: genetic pollution, farmers have to buy new crops each year.
MST in Brazil has vowed to destroy Monsanto soybeans thus genetically engineered.
Green Revolution: post 1950s, monoculture, dependent on chemical fertilizers, pesticides, herbicides. Uses phrase ‘industrial farming’ to refer to agribusiness in Third World.
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