THE PROSPECTS FOR ENVIRONMENT-FRIENDLY WORLD TRADE LIBERALIZATION
Mariya Hnatyshyn
Ivan Franko National University of Lviv, Lviv, Ukraine
The problem of ecological economic well-being in the process of world trade liberalization exists in two dimensions environmental and economic. To tackle the problem we should identify the main threats to the environment at this stage of
human development and in the future. We have then to take into account these threats while building our economic system. In
most cases trade in this context doesn’t influence ecological economic system directly, its ecological economic consequences
depend on the environment, i.e. between which ecological economic systems trade is concluded and on adopted international
regulations.
First of all let us consider causal ecological economic linkages between trade and environment. Openness usually
increases real income per capita, output and consumption:
- Increased production contributes to higher pollution through physical scale of producti on;
- Higher income per capita increases the demand for environmental quality. Provided appropriate institutions are in
place the demand is transformed into environmental regulations, which in turn contribute to cleaner environment;
- The relationship between income per capita and some types of pollution follows environmental Kuznets curve;
- Higher income means more consumption and consequently more consumption pollution.
Effects of openness on the environment for a fixed level of income:
- Race to the bottom hypothesis. Countries tend to lower their environmental standards because of the risk of losing
international competitiveness;
- Benefits from trade hypothesis. Trade allows countries to get more of the same goods, including environmental
goods. Even with the stable level of income environmental quality may increase due to international trend to implement higher
environmental standards, technological and managerial innovations;
- Pollution havens hypothesis. Developing countries with usually lax environ mental regulations receive a comparative
advantage due to lower environmental standards and specialize in polluting production, while developed countries specialize
on cleaner production;
- Porter hypothesis. According to the hypothesis increased environmental regulations stimulate technological
innovations and thus positively affects the economy and the environment;
- Factor hypothesis. It claims that harmful capital intensive production as a result of trade liberalization will move to
relatively capital abundant developed countries;
- Tragedy of the commons hypothesis (by Garrett Hardin). If the country has competitive advantage in resource sector
without appropriate property rights in the context of trade liberalization it will cause resource depletion, d eforestation, overfishing etc;
- Contamination during transportation.
According to Herman Daly, the country should be able to implement trading mechanisms to protect their effective
internalization of externalities. Free trade would not be feasible for a stable state economy, as producers in these economies
have to transfer considerable sums on the environment, while producers in countries where there is a growth economy are not
paying money for sustainability. So in the case of free trade the first group of countries will lose their competitive edge. This
point of view may be feasible to tackle a number of local environmental problems. However, many environmental problems
extend beyond a single country, let alone global threats such as global warming. In this case an effective national system of
internalization of externalities will not suffice.
We believe that environmental safety of trade ought to occur within the framework of WTO. When a country
unilaterally introduces environmental restrictions it suffers economic losses. If such implementation were harmonized with
other countries, the losses could be avoided. Cooperation within the WTO is beneficial for the country, because it helps to
reduce the uncertainty in international trade. It has to be a mutually beneficial system, under which countries agree to follow
certain rules and obligations to one another. It is an example of "prisoner dilemma" from the game theory when arrangement
will benefit both parties. However, there is a temptation to win at the expense of the other side, to find a way to protect
domestic producers. This often means using hidden environmental regulations and restrictions. Therefore it is important for
WTO to be cautious in this area. On the other hand ecological economists warn th at sometimes GATT/WTO rules oblige
countries to facilitate degradation of the environment providing a market for goods produced by environmentally harmful way.
Guidelines for “ecolomically” balanced liberalization of world trade:
- to prohibit trade in some goods (extremely polluting goods, rare species);
- to include environmental damage price in the world market price of traded commodity (internalization of
externalities);
- to certificate goods according to the place and process of manufacturing;
- to create a free market for environmentally friendly goods and environmental technologies;
- to ensure optimal distribution of global production;
- to reduce dependence on natural resources exploitation in developing countries by providing them access to world
market;
- to make sure that trade liberalization does not undermine international and national efforts to preserve the
environment;
- to use profits from trade liberalization adequately, particularly to compensate environmental damage from the
liberalization;
- to consider the difference in a relative cost of environmental measures in developed and developing countries.