TRADE AND THE ENVIRONMENT
CH. 13
IS FREE TRADE POLICY ANTIENVIRONMENT?

4 arguments:
Free trade policies can make environmental
problems worse.
Protectionist trade policy can make environmental
problems worse
Free trade policies can make environmental
problems better.
Free trade shifts production to countries with lax
environmental policies/standards.
1.
2.
3.
4.
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Race to the bottom
IS FREE TRADE ANTI-ENVIRONMENT?

Test: What should happen to the environment
with a decrease in protectionist trade policy after
the Uruguay Round of the WTO (1986-1995)?
1.
2.
3.

Composition effect: We know freer trade will
change the composition of what is produced and
consumed in each country.
Size Effect: Freer trade may also mean that the
size of the economy for a given country will be
larger (this is a gain from trade). But as economies
grow, increased production/consumption may mean
more pollution (this is a cost from trade).
Income Effect: As economies grow, incomes grow.
We also know that when incomes rise in countries,
wealthier people demand a better environment.
Which effect is larger (size or income)?
IS FREE TRADE ANTI-ENVIRONMENT?

Consider the 'environmental Kuznets curve'.
1.
2.
3.

Rising Environmental problems: Environmental
harm rises with income per person
Declining environmental problems: Environmental
harm declines with rising income per person.
This is where we see a inverted-u shape.
Where is the turning point?

Research suggests it is an income level higher than
most in LDCs, but lower than most DCs
DATA ON TYPES OF ENVIRONMENTAL PROBLEMS
THAT WE EXPECT TEND TO HAVE A U-SHAPE
WTO ARTICLE XX

Subject to the requirement that such measures are not
applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination between countries
where the same conditions prevail, or a disguised restriction
on international trade, nothing in this Agreement shall be
construed to prevent the adoption or enforcement by any
contracting party of measures:
(b) necessary to protect human, animal or plant life or health;
 (g) relating to the conservation of exhaustible natural resources if
such measures are made effective in conjunction with restrictions
on domestic production or consumption;

IS THE WTO ANTI-ENVIRONMENT?

3 important types of policies that may qualify for
exceptions to free trade
1.
Consumption of products can cause environmental damage





The WTO rules make it clear that a country can impose
product standards or other limits on consumption to protect
their country's health, safety or the environment.
These policies may limit imports.
But: many WTO disputes over this cause environmental
damage.
The WTO also examines whether a policy has a scientific
basis for the standard, for health and safety in particular.
Point: you can’t treat imports differently than home produced
goods.
IS THE WTO ANTI-ENVIRONMENT?

3 important types of policies that may qualify for
exceptions to free trade
Production in foreign countries can cause
environmental damage.
2.

The WTO permits an environmental exception for national
rules that limit imports of product using a process that
harms the environment with strict standards:

rules must demonstrate they assist in a legitimate
environmental goal. They must limit trade as little as
possible

rules must be equally applied to foreign and domestic
production

the country imposing the rule must be engaged in
multilateral negotiations to establish an agreement to
address the environmental problem.
IS THE WTO ANTI-ENVIRONMENT?

3 important types of policies that may qualify for
exceptions to free trade
Some environmental problems are global in scope and
may require global solutions to be negotiated
3.


Can non-WTO multilateral environmental agreements
impose trade restrictions?
The following two use trade bans.

The Convention on International Trade in Endangered
Species

Montreal Protocol