Trade and the Environment - Assignment Example

? Issues in global political economy Question 3: International free trade and environmental protection can never be compatible Introduction The tradeoff between free trade and environmental protection is a highly debated and complex issue. The main concern is whether free trade and environmental protection can ever be compatible in order to ensure sustainable development in the global economy. The increase in global economic integration and inter-dependencies of national economies has led to immense pressures on natural resources and need to conserve the ecological environment (Esty, 1994). The relationship between the natural environment and free trade focuses on the trade policies impacts on the ecological environment, the impacts on the trade flows and use of trade measures in order to attain environmental policy objectives (Irwin, 2009). Free trade impacts on the environment drew international attention in 1991 when Mexican government challenges United States laws on ban of exports of tuna to the US from Mexico. The United States Marine Mammal Protection Act prohibited the import of tuna and dolphin from countries that used fishing methods that killed the dolphins (Mitchell, 2009). In its case, Mexican government argued that General Agreement on Tariffs and Trade (GATT) allowed free trade between the two countries. Accordingly, the World Trade Organization (WTO) outlined that countries could restrict free trade in instances when the measures are necessary to protect the safety and health of the citizens. In the ruling, GATT panel clearly outlined that the US government had violated GATT agreements since it could not utilise its domestic legislation to control and protect dolphins that were outside its territory (Geradin, 1997). This case opened new controversial issues on the impact of free trade on the environment since Mexico did not press for the implementation of the panel ruling. Thesis statement: International free trade and environmental protection can never be compatible. Free trade increases the global economic activities and leads to higher national incomes. The total global trade volumes have increased significantly due to trade liberlisation and free flow of labour among the trading partners (Irwin, 2009). The growth in free trade has been supported by advancements in transportation networks, increase in outsourcing, industrialisation and emergency of global trade organisations. Proponents of free trade assert that it leads to efficient resource allocation due to the comparative advantage of nations in producing certain commodities. Garber (1993) asserts that free trade increases global economic output due to expanded market for excess output and elimination of market access tariffs and regulations of the domestic economies. Accordingly, free trade encourages competition among various firms thus leading to high quality products and low prices to the consumers. It is acknowledged that free trade will foster technology transfer that contributes to human advancements and better quality of life in the society. Accordingly, free trade enables multinational companies to reduce the costs of production through attracting high qualified skill force at a lower cost and moving their manufacturing plants closer to sources of raw materials (Michalos, 2008). In addition, free trade will contribute to growth in domestic gross product by ensuring higher employment levels and consumer incomes thus ultimately contribute to increase in consumption levels in the economy. However, environmentalists assert that free trade leads to market externalities like pollution and thus stringent domestic environmental regulations are necessary in order to check the standards of goods imported in the economy (Esty, 1994). The WTO established a committee to deal with trade and environment in 1995 in order to deal with issues concerning domestically prohibited goods and eco-labelling. A major concern for the committee is the relationship between multinational environmental agreements (MEAs) and WTO regulations since the environmental agreements entail provisions that restrain the signatory countries to ban the importation of certain goods. For instance, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) prohibits its signatory countries from trading in endangered species (Mitchell, 2009). Accordingly, Montreal Protocol restricts the signatory countries from trading in ozone-depleting chemicals. Although WTO restricts nations from banning imports from other WTO member countries on environmental concerns, problems will arise if the importing country is a member of WTO and also a signatory of the environmental agreements (Morgera, 2012). At the same time, environmental standards imposed by regional economic blocks such as EU undermine trade with non-EU members. For instance, United States criticises the eco-labeling standards imposed by EU since it creates trade obstacles to global US companies thus limiting free trade. The controversy between free trade and environmental protection has also been witnessed at the North Atlantic Free Trade Agreement (NAFTA) level. The United States has accused Mexico of contaminating rivers by generating substantial toxic waste thus leading to pollution in San Diego beaches and parts of Texas (Michalos, 2008). In addition, the US food and drug agencies have lamented that fruits imported from Mexico have higher residues of toxic chemicals. In this case, the adverse environmental effects of free trade led to additional investments in water treatment plants, restriction of cross-border shipments of agricultural produce and enforcement of environmental laws thus adversely curtailing free movement of goods. However, NAFTA member countries have agreed on measures of reducing use of dangerous chemicals and trans-boundary pollution (Michalos,. 2008). Free trade policies have both positive and adverse impacts on the environment. However, the gains of trade liberalisation must reinforce existing efforts in environmental protection (Barfield, 2001). At the same time, environmental policies must provide incentives for technological innovations in order to ensure economic efficiency. The implications of free trade on the environment are witnessed in numerous international environmental controversial issues such as forest protection, hazardous waste, ozone depletion and global climate change issues. The environment is a source of natural resources and receiver of waste and consumptions of goods causes certain costs that are reflected in the market (Garber, P.M. 1993). in this case, free trade policies lead to market externalities due to absence of property rights on the use of environment. Environmental pollution affects the country’s international trade policy since it is carried across the borders without consent of the affected countries. On the other hand, free trade enables countries to trade due to comparative advantage that is evidenced by the availability of inputs and economies of scale in producing a particular good (Irwin, 2009). At the same time, the assimilative capacity of countries to reduce the adverse impacts of pollution varies across regions thus forcing some countries to enforce strict measures to regulate international trade in order to safeguard the ecological environment (Barfield, 2001). Population density, geography and level of industrialisation affect the assimilative capacity of a country thus leading to variations in the national environmental policies (Carbaugh, 2011). For instance, developing countries put more priority on benefits of free trade and economic production due to the need of high employment and income levels while developed countries put higher priority on the environmental quality (Barfield, 2001). In this case, free trade policies lead to more economic production and increase in consumer incomes thus triggering the demand for environmental quality. Environmental pollution across nations leads to adverse impacts such as sulphur dioxide emissions and acidic rainfall in other countries where the production has not taken place (Barfield, 2001). In 1970s, Organization for Economic Co-operation and Development (OECD) countries adopted the Polluter Pays Principle (PPP) to deal with the domestic environmental pollution through requiring the polluting countries to bear the costs related to pollution reduction. In this case, it was impossible for the mechanism to determine the environmental damage and the OECD countries went further to adopt the trans-frontier mutual compensation principle that requires the countries to provide an estimate of costs of pollution abatement (Carbaugh, 2011). The polluted country is also required to provide the costs incurred in reducing the costs of pollution and the polluting country will be required to pay taxes based on the costs of pollution control incurred by the polluted country (Garber, 1993). Environmental regulations as free trade barriers Environmental regulations in certain countries hinder free trade and foreign direct investment flows through requirements such as stringent business permit application process, regulation of the manufacturing process and control of the products that may be sold in the particular country (Rao, 2010). Environmentally related barriers such as quotas, government polices and standards on environmental issues like protection of natural resources and labeling of food force the foreign producers to adhere to an array of complex regulations thus limiting the volumes of international free trade (Rao, 2010). According to (Wold, Gaines and Block, 2005), cars may be required to meet certain fuel conservation standards or specified emission standards while certain empty beverage containers may not be accepted in the country and these differences in regulations will definitely impede free trade. According to OECD, harmonisation of the environmental standards may not be feasible, but WTO member countries have implemented measures of minimising the adverse impacts of the domestic standards while at the same time allowing the domestic countries to attain specific domestic environmental goals (Mankiw, 2012). However, this move makes it practically impossible to determine the appropriateness of certain domestic environmental standards that adversely affect free trade (Rao, 2010). A case scenario is the Canada and United States dispute over Lobsters standards. Although the United States and Canada had different standards on the size of maturity of Lobsters, Canadian Lobsters attained reproductive maturity at early stage and smaller size. In this case, the US banned the importation of live Lobsters from Canada due to the small size thus leading to a GATT free trade dispute after Canada complained of unfair measure by the US to ban Canadian imports of Lobsters that did not meet the US minimum standards. Although US argued it could not determine the origin of the imports in exercising its foreign Lobster conservation program, the deciding panel ignored the impacts of environmental standard on the free trade and concluded that Canadian and US Lobsters were subject to same US standard and that the regulation was fair (Rao, 2010). However, defenders of compatibility between free trade and environment use the environmental Kuznets curve (EKC) principle that asserts that environmental damages are evident at the early stages but decline after nations attain higher levels of income. In this case, countries with higher economic development and income levels will use their economic power to initiate environmental protection measures (Lofdahl, 2002). According to the model, trade-led economic growth has adverse impacts on the environment such as air and water pollution, but the economic growth leads to higher incomes thus forcing the countries to implement measures in order to control the unacceptable levels of environmental degradation (Rydin, 2010). Accordingly, environmental protection enables countries to implement innovative production methods that aim at ensuring safety of the consumers and conserving the environment. For instance, environmental laws on carbon emission have forced car-manufacturing companies to conduct research and development activities on carbon emission reduction techniques and fuel conservation (Rao, 2010). According to Kyoto Protocol, the parties must strive to implement measures that minimise the adverse impacts of international trade on the environment. In addition, Article XX of WTO allows countries to ban imports in order to safeguard the health of citizens and foster conservation. However, the 2001 Doha Communique opened room for negotiations in order to enable a non-discriminatory trading system that is mutually supportive and aims at supporting environmental conservation (Kutting, 2004). At the EU level, Directive 2003/87/EC aims at extending the EU greenhouse gas emissions allowance trading system so that energy-intensive industries that have a risk of significant carbon leakage to receive higher allocation of the carbon trading system (Goldstein, 2007). Conclusion Free trade fosters increase the global trading activities, enhances technology transfer and leads to high economic incomes. At the same time, free trade leads to market externalities such as pollution thus forcing domestic economies to implement environmental standards on goods. Environmental regulations create an incentive for the domestic economies to offer subsidies to domestic manufacturing firms in order to ensure high quality goods that meet the environmental safety standards of importing countries thus putting foreign firms at competitive disadvantage. I believe that free trade and environment are not compatible since domestic economies will implement measures that aim at ensuring the health and safety of their citizens. Domestic economies will use trade measures such as import restriction, quotas and discriminatory customs in pursuing environmental goals. Environmental agreements among certain countries such as the Montreal Protocol hinder the harmonisation of global environmnetla policies and standards on free trade. Bibliography: Barfield, C.E. 2001. Free trade, sovereignty, democracy: the future of the World Trade Organization. London: AEI Press. Carbaugh, R.J. 2011. International economics. Mason, OH: South-Western Cengage Learning. Esty, D.C. 1994. Greening the GATT trade, environment and the future. Washington, DC: Institute of International Economics. Garber, P.M. 1993. The Mexico-US free trade agreement. Cambridge: MIT Press. Geradin, D. 1997. Trade and the environment: a comparative study of EC and US law. Cambridge: Cambridge University Press. Goldstein, N. 2007. Globalization and free trade. New York: Facts on File. Irwin, D.A. 2009. Free trade under fire. New Jersey: Princeton University Press. Kutting, G. 2004. Globalization and the environment. Albany: State University of New York Press. Lofdahl, C. 2002. Environmental impacts of globalization and trade: a systems study. Cambridge: MIT Press. Mankiw, N.G. 2012. Principles of microeconomics. Mason, OH: South-Western Cengage Learning. Michalos, A.C. 2008. Trade barriers to the public good: free trade and environmental protection democracy and reducing environmental protection. Montreal: Mc-Gill Queen’s University Press. Mitchell, R.B. 2009. International politics and the environment. London: Sage Publications. Morgera, E. 2012. The external environmental policy of the European Union: EU and international law perspectives. Cambridge: Cambridge University Press. Rao, P.K. 2010. The architecture of green economic policies. New York: Springer. Rydin, Y. 2010. Governing for sustainable urban development. London: Earthscan. Wold, C., Gaines, S and Block, G. 2005. Trade and environment: law and policy. Carolina: Carolina Academic Press. Appendix 1 Environmental Kuznets curve Read More