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ENVIRONMENT
AND
TRADE

Submitted by:

Neha Agarwal (10HS60010)

Princy George (10HS60013)

ABSTRACT

This paper gives a brief history of international trade and the core problem faced at present. The main focus is
on the impact of trade on importing as well as exporting countries. It also provides a view of trade agreements
between countries and the need for a central body to deal with trade impacts on environment.

Environment is affected in various fields of trades like agriculture, fish eries, mining etc. The paper gives us fair
idea about these issues. Trade flows and trade liberalization have four categories of physical and economic
impacts on environment in terms of product, technology, scale and structure. Also we give a solution to
minimise the problem.
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1 INTRODUCTION ................................ ................................ ................................ .............................. 4
1.1 The Core Problem ................................ ................................ ................................ .................... 4
2 AN INTRODUCTION TO INTERNATIONAL TRADE ................................ ................................ .............. 4
2.1 International Trade History: GATT to the WTO ................................ ................................ ......... 4
3 IMPACTS OF TRADE................................ ................................ ................................ ......................... 5
3.1 Effects of Trade on the Importing Country................................ ................................ ................ 6
3.2 Effects of Trade on the Exporting Country................................ ................................ ................ 7
3.3 Negative Impacts of Trade................................ ................................ ................................ ........ 8
3.4 Positive Impacts of Trade ................................ ................................ ................................ ......... 8
4 A PEEK INTO THE ACTUAL ENVIRONMENTAL ISSUES CAUSED BY TRADE ................................ .......... 9
4.1 Environmental Problems caused by the Forest Sector................................ .............................. 9
4.2 Environmental degradation due to Diamond Trade................................ ................................ .. 9
4.3 Environmental problems caused by the Agricultural Sector................................ .................... 10
4.3.1 Issues arising due to Livestock ................................ ................................ ......................... 10
4.3.2 Land transformation and degradation ................................ ................................ ............. 10
4.3.3 Eutrophication................................ ................................ ................................ ................. 10
4.3.4 Insecticide ................................ ................................ ................................ ....................... 11
4.3.5 Climate Change ................................ ................................ ................................ ............... 11
5 PHYSICAL AND ECONOMIC LINKAGES ................................ ................................ ............................ 11
5.1 Product Effect ................................ ................................ ................................ ........................ 11
5.2 Technology Effect................................ ................................ ................................ ................... 12
5.3 Scale Effect ................................ ................................ ................................ ............................ 13
5.4 Structural Effect ................................ ................................ ................................ ..................... 13
6 TRADE AGREEMENTS AND ENVIRONMENT ................................ ................................ ................... 14
6.1 The World Trade Organization Approach................................ ................................ ................ 14
6.2 The North American Free Trade Agreement (NAFTA) Approach................................ .............. 15
6.3 The European Union Approach................................ ................................ ............................... 16
6.4 Multilateral Environmental Agreements (MEAs)................................ ................................ ..... 16
6.4.1 Impact of Montreal Protocol ................................ ................................ ........................... 16
6.4.2 Impact of Kyoto Protocol ................................ ................................ ................................ . 19
7 SOLUTIONS AND STRATEGIES FOR SUSTAINABLE TRADE ................................ ............................... 20
8 CONCLUSION ................................ ................................ ................................ ................................ 21
References................................ ................................ ................................ ................................ ....... 22
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In this fast moving world of growing economy, globalization and competition, all countries are striving hard to
be the leading country of the world. Foreign Trade, imports, exports, maximum output and exploitation of
resources are the key words for success of countries. Only 1 percent of the country¶s 560 million city inhabitants
(2007) breathe air deemed safe by the European Union. At present rates, tropical rainforests in Indonesia would
be logged out in 10 years, Papua New Guinea in 13-16 years. A major source of deforestation is the logging
industry, driven spectacularly by China and Japan. India and China are big oil consumers of the world. In
China, oil consumption has grown by 8% yearly since 2002, just double from 1996±2006. 2006 report of state
of the world said the two countries i.e. India and China high economic growth hid actual scenario of severe
pollution. Current climatic warming is occurring much more quickly than old events of warming.

The statistics shown above clearly states where the core problem lies. People are using the natural resources and
externalities without analysis of the future impacts and effects. The link between environment and trade needs to
be re-examined and recognized. To ignore these links is to misunderstand the full extent and nature of trade and
to miss out on critical opportunities to address some of the most pressing environmental challenges faced by
humanity.

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A liberal international economic order has to be created which must be stable along with beginning of
international political order for long lasting peace. This was the plan of United States and its allies.

In post World War 1 era, a financial system which could emerge as an alternative to regionalism characteristic
was required. The two pillars, IBRD and IMF - International Monetary Fund - International Bank for
Reconstruction and Development started at that time.

An international trading system which was built on free trade principles, was considered as an alternative to the
protectionist global trade regime that evolved in the post-World War I era. It was the time after the depression.
During that time period, state foreign economic policies promoted high tariffs on the goods which are imported
to make local goods more cost efficient.

In the post-World War II era, a formal trade management organisation, The International Trade Organization
(ITO) was formed. ITO was negotiated in Havana, Cuba. Due to political disagreements, ITO came to an end.
The participants of ITO considered trade issues important enough to revive portions of the ITO charter and
transform them into a less formal, free standing trade agreement. This gave birth to the agreement General
Agreement on Tariffs and Trade (GATT).

For around first twenty odd years of its existence, focus of the members of GATT was almost always on
negotiations resulting in reducing tariffs (taxes on imported goods), one of the traditional barriers which states
claim in order to protect their markets from six rounds of negotiations, through the completion of the Kennedy
round in 1967, accomplished substantial tariff reductions in the manufacturing sector among the then most
industrialized states, the United States, the member states of the European Economic Community (EEC), the
UK and Japan. Table 1 below briefly outlines the history of GATT activity. It summarise the place where round
took place, when it happened and also the achievement and conclusion from the particular round.

V


Round Dates Achievement

Geneva 1948 Oc GATT entered into force

Annecy (France) 1949 Oc Tariff reduction

Torquay (England) 1951 Oc Tariff reduction

Geneva 1956 Oc Tariff reduction

Dillon 1960-62 Oc Tariff reduction

Kennedy 1962-67 Oc Tariff reduction Anti-dumping code

Tokyo 1973-79 Oc Tariff reduction Non-tariff barrier codes

Uruguay 1986-94 Oc GATT enlarged World Trade Organization

These rounds proved to be quite successful. By the 1970s, the tariffs on most goods substantially reduced. There
were countries falling into a depression/hyper-inflation cycle due to the twin oil price shocks, they started
implementing other non-tariff policies as a way to protect their industries from import competition. Non -Tariff
Barriers of trade gave a completely new direction to world. Government policies promoting, export credits,
industry subsidization and legislative codes and standards as import obstructions, together came to be known as
non-tariff barriers (NTBs) to trade. These issues were handled through an agreement which was reached during
the Tokyo Round.

With time, countries realised the need of a formal trade system. As the 1980s came and went and the 1990s
dawned, GATT members were strongly convinced that the increasing complexity of the international economy
necessitated a far more formal, powerful international trade regime. This thought gave birth to WTO, the World
Trade Organisation. It was declared at Uruguay round, the final GATT round (1986-1994). The World Trade
Organization, a global trade regime complete with a legally binding dispute resolution mechanism.

At present, Sustainable development and protection and preservation of the environment are basic goals of the
WTO. There is no specific agreement dealing with the environment, under WTO rules members can adopt
trade-related measures aimed at protecting the environment. The WTO contributes to protection of the
environment through trade openness, its rules and enforcement mechanism. Also work in different WTO bodies,
and ongoing efforts under the Doha Development Agenda helps in protection. The Doha Agenda includes
specific negotiations on trade and environment and some tasks assigned to the regular Trade and Environment
Committee.

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Trade is ³The business of buying and selling commodities´. The definition is very simple but is this only
meaning of trade. All the countries focus on maximizing profits, output. Many other words are related to trade,
free trade, and foreign trade. Thomas Friedman explains how the flattening of the world happened at the dawn
of the twenty-first century; what it means to countries, companies, communities, and individuals; and how
governments and societies can, and must, adapt. No country is untouched by Globalization, export and imports.

Now the issue arise is the issue of the relationship between trade and the environment. Is trade good or bad for
the environment? The question is not easy to answer. We have direct or indirect effects from production of
goods, imported or exported. But will these effects increase or decrease with expanded trade? Another question
arise is who is most effected from the trade, the one who import, export or all the nations? And who is going to
be responsible for environmental effects. At present, countries have become environment friendly and taking
various initiatives to solve the core problem.

In 1991, International attention was first focused on trade and environment issues, when the Mexican
government challenged a United States law banning imports of tuna from Mexico. The U.S. Marine Mammal
Protection Act prohibited tuna fishing methods that killed large numbers of dolphins. Tuna imports were banned
from countries that used such fishing methods. The Mexican government argued that this U.S. law was in
violation of the rules of the General Agreement on Tariffs and Trade (GATT).

According to the free trade principles that provided the basis for GATT and for its successor, the World Trade
Organization (WTO), countries cannot restrict imports except in very limited cases such as protection of the
health and safety of their own citizens. A GATT dispute panel ruled that the U.S. could not use domestic
legislation to protect dolphins outside its own territorial limits.

Although Mexico did not press for enforcement of this decision, this issue gave a new direction to people. A
thought of environment and trade was in the minds of people. There was a similar case in 1999, wh en the World
Trade Organization ruled that the U.S. could not prohibit shrimp imports from countries using fishing methods
that killed endangered sea turtles.

These issues touched the environmentalist and many environmental issues, such as forest protection, ozone
depletion, hazardous wastes, and global climate change. Above issues are related to international trade
specifically.

For understanding and analysing these issues, first let us examine International trade from an economist¶s point
of view as well as from an environmentalist¶s point of view. We all are aware of the fact that more trade is
expanded, more the country progress. This is one aspect of economies. But production of goods, use of natural
and manmade resources, does that not affect environment? Are the natural resources not coming to an end with
new technologies every day?

At the national level, economic policies aim to implement policies that internalize externalities. At the
international level, however, the picture is more complicated and difficult to analyse. The burden of
environmental externalities associated with trade may be due to importers, exporters, or by others not directly
involved in the production or consumption of traded goods. At national level, there are authorities to regulate
environment problems. This can create significant problems when environmental impacts are transnational,
since most international trade agreements do not include any provisions for environmental protection.

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Now we will use economic theories to study the gains and losses associated with environmental effects of trade.
Let us build a logical and mathematical approach to understanding the effects of trade on importing country.
The theory of comparative advantage tells us that both trading partners gain from trade through specializing in
the goods that they can produce most efficiently. But this basic theory does not consider environmental
externalities that may be associated with the production or consumption of goods. By taking an example of
automobile, let us analyse the welfare of trade. Refer to Figure 1.
The supply curve S takes into account private costs, whereas S¶ shows social costs including both private costs
and externalities. P* is the domestic price in the absence of trade, whereas Pw is the world price, which will also
be the domestic price under conditions of free trade. Q* is the quantity produced domestically with no trade,
while with free trade Q1 is produced domestically and (Q2 - Q1) is imported, for a total domestic consumption
of Q2.

Figure 1

How does trade affect domestic economic welfare? Domestic producers of automobiles lose the shaded area A,
since they now sell fewer cars at a lower price. Domestic consumers gain areas A+B, sin ce they can now buy
more cars at the same lower price. The net gain from trade is therefore (A+B) - A = B.

But this leaves out any environmental externalities associated with trade. If the production of automobiles
causes environmental damage, then by lowering production the country gains cross-hatched area C in reduced
environmental costs²costs which are shifted to countries producing cars for export. On the other hand, if
environmental damage is associated with the consumption and use of automobiles, lowering the true marginal
benefits from consumption, then trade increases the environmental costs of consumption by the shaded area D.

This has important implications for trade theory. In the basic trade case without externalities, we can state
unambiguously that there are overall gains from trade. Even though one group (automobile producers) loses, the
gains to consumers outweigh these losses. But once we introduce externalities, we can no longer be so sure that
there are net gains from trade. It depends on the nature and size of the environmental damages C and D. Of
course, there are policies that can internalize these external costs, such as environmental taxes, permits, or
regulations. But unless we can be confident that such policies will be put in place, we cannot be sure that there
will be a net gain from trade.

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Environmental effects must also be figured into the analysis of the effects of trade on an exporting country. This
is shown in Figure 2. Here we use timber exports as our example. In the ordinary analysis of trade without
externalities, timber producers gain areas A¶+B¶ since with trade they can produce and sell more timber, at the
higher world price Pw. Domestic consumers of timber lose A¶, being able to afford less timber at the higher
world price. The net gain to the country is B¶.
Figure 2

The external costs associated with higher timber production ± which could include land and watershed
degradation as well as user costs, option values, and ecological costs ± are shown by the area of C¶. We cannot
tell for sure how B¶ and C¶ compare in size. Thus we cannot say unambiguously that there are net benefits from
trade to this exporting country. In more commonsense terms, it is not clear that the economic benefits of
increased exports outweigh the environmental damage associated with expanded logging.

It may be possible to export pollution by importing goods whose production involves high environmental
impacts.

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More expansion and diversification of trade, more production and hence more damage to environment. Trade
involves energy use for transportation, resulting air pollution, waste generation from industries giving water
pollution and other environmental impacts. There can also be indirect environmental effects of trade, for
example when peasant farmers are displaced by larger-scale export agriculture onto marginal lands such as
hillsides and forest margins. Specific kinds of trade, such as trade in toxic wastes or endangered species, have
obvious environmental impacts. Poor countries are more prone to environmental impacts; trade liberalisation
may be beneficial for developed countries.

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Environment has many positive impacts due to trade. If many countries work together for a common cause, it is
efficient and easy to implement. The environmental friendly policies are much easy to implement in a world of
free trade. Also effective production is promoted with less energy use per unit of output. When issues are faced
by nations, it becomes mandatory for trading nations to strictly follow the environmental friendly policies. The
main question is how to balance trade and environment. Yes the benefits from trade and harm to our natural
resources which are deleting every day. Also sometimes increasing and sometimes decreasing total external
costs. We will look into how to internalize externalities and carry forward a sustainable development.

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Of late, the concern for the relationship between the environment and forestry is increasing. This is mainly
because of the increased awareness both among the policy-makers and the public of the importance and
multiplicity of the benefits that forests provide which are being rapidly lost. Additionally, this is because a lot of
forestry activities are perceived as potentially damaging to the environment.

Negative impacts on the environment occur at two levels. The first effects are at the forest level - damage
caused by poorly planned silviculture or excessive harvesting and the potential effects on biodiversity, local
communities, global climate change etc. At the other level are the effects of transport, processing and
consumption, including the use of polluting materials in the production of forest products; pollution from
processing plants; heavy energy requirements for processing; excessive consumption; and waste disposal.

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Gleaming gems sparkling from plush velvet cases in sophisticated jewellery stores make it easy to forget that
some of these symbols of love originated in faraway lands, deep in the soil of conflict.

In the United States, it is illegal to dump the finely ground ore materials (³tailings") into waterways. However,
gem mining operations outside U.S. borders are not subject to the same rules, even if run by U.S. companies or
if their goods are bought by American consumers. Big-scale demand calls for big-scale mining, which involves
massive amounts of tailings falling into water systems around the world. The cyanide and mercury used to
separate copper and gold from rock also finds its way into underground water reserves. The victims of these
mining activities are local wildlife and indigenous communities who live in these resource -rich regions.

For example, in 1996, New Orleans-based Freeport-McMoRan was sued by indigenous leaders of Papua New
Guinea for dumping 80,000 tons of tailings into the local river system daily. Freeport's environmental auditors,
Moore and Dames, said plans to expand Freeport's mining activities in Indonesia could increase its dumping of
tailings by 285,000 tons daily.

The diamond trade in Angola, the Democratic Republic of the Congo and Sri Lanka has become one of the
greatest sources of internal conflict in those areas. According to the Africa Policy Information Centre, Sierra
Leone rebels made an estimated $3.7 billion in diamond sales between 1992 and 1998 to fund their war effort
against the government. Until the war is over, environmentally sensitive issues due to mining techniques will
continue to be placed on the back burner. Meanwhile, diverted rivers are causing locals to dislocate, dredging
ponds are ruining large masses of land, and the polluted water table is causing sickness in local villages and
wildlife.

Mining for jewels, however, is not inherently destructive: people have been finding gems for centuries by
panning in rivers at little environmental cost. The harmful effects of mining can be controlled if the issue is
given importance and placed on the front burner.

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Agriculture imposes external costs on the society through insecticides, excessive water usage, nutrient runoff
and a range of other problems. An assessment of agriculture in the UK, held in 2000, determined total external
costs for 1996 as £2,343 million, or £208 per hectare. A 2005 analysis of these costs concluded that cropland
imposes approximately $5 to 16 billion, while livestock production causes $714 million. Both studies concluded
that more should be done to internalize externalities, and noted that subsidies also influence the cost of
agriculture to society. Both were focused on fiscal impacts. The 2000 review included reported insecticide
poisonings but did not include the speculative chronic effects of insecticides, and the 2004 review relied on a
1992 estimate of the total impact of insecticides.

Norman Borlaug is credited to saving billions of lives because of his work in developing new agricultural
techniques. His revolutionary work brought high-yield crop varieties to developing countries and bought him
the title of ³The Father of the Green Revolution´.

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Henning Steinfeld, a senior UN official, said "Livestock are one of the largest contributors to today's most
serious environmental problems". Livestock production occupies 70% of all the land used for agriculture,
which is 30% of the land surface of the Earth. It¶s one of the major sources of greenhouse gases, responsible for
18% of the world's GHG emissions as measured in CO2 equivalents. In comparison, transportation emits lesser
i.e. 13.5% of the CO2. Livestock produces 65% of human-related nitrous oxide (which is 296 times as warming
as CO2) and 37% of all human-induced methane (which has more than 23 times the global warming potential of
CO2,). It also creates 64% of the ammonia in the atmosphere, contributing to acid rain and acidification of
ecosystems. Livestock expansion is counted as a major factor driving deforestation; 70% of previously forested
area in the Amazon basin is now occupied by pastures and the remainder is used for feed crops. Through land
degradation and deforestation, livestock is driving reductions in biological diversity.

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Land transformation which is the use of land to yield goods, is the most substantial way humans alter the
planet¶s ecosystems, and is considered the driving force in the loss of biological diversity. Estimates vary from
39±50%. The long-term decline in ecosystem function and productivity and land degradation, is estimated to be
occurring on 24% of land worldwide, with cropland overrepresented. The UN-FAO report says that 1.5 billion
people rely upon the degrading land and cites land management as the driving factor behind degradation.
Degradation can be desertification, deforestation, mineral depletion, soil erosion, or chemical degradation
(acidification and salinization).

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Eutrophication which is excessive nutrients in aquatic ecosystems resulting in anoxia and algal blooms, leads to
loss of biodiversity, fish kills, and renders water unfit for drinking and other uses. Excessive manure application
to cropland and fertilization, as well as high livestock densities cause nutrient runoff (mainly nitrogen and
phosphorus) and leaching from agricultural land. These nutrients are pollutants causing eutrophication of
aquatic ecosystems.

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Insecticide use has increased since 1950 to 2.5 million tons yearly, yet the crop loss from pests has remained
relatively constant. In 1992, the World Health Organization estimated that 3 million insecticide poisonings
occur annually, causing 220,000 deaths. Excessive use of pesticides causes resistance in the pest population.
This leads to a condition called the 'pesticide treadmill' in which pest resistance necessitates the development of
a new pesticide.

An alternative viewpoint is that the way to 'save the environment' and prevent famine is by using pesticides and
through extensive high yield farming. The Centre for Global Food Issues website heads this quote: 'Growing
more per acre leaves more land for nature'. Critics, however, argue that a trade -off between a need for food and
the environment is not inevitable, and that insecticides simply replace good agronomic practices such as crop
rotation.

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Global warming can be either mitigated or worsened by agriculture. Decomposition of organic matter in the soil
causes some of the increase in CO2 in the atmosphere, and decomposition of organic matter in wet soils such as
rice paddies causes much of the methane emitted into the atmosphere. Further, denitrification causes wet or
anaerobic soils also lose nitrogen, releasing the greenhouse gas nitric oxide. Changes in agricultural
management can reduce the release of these GHGs, and also to lessen some of the CO2 in the atmosphere
coming from denitrification of the soil.

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Trade flows cause four types impacts on environment: product effects, technology effects, scale effects and
structural effects.

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Product effects are when the traded products have an impact on the environment or development. On one side,
trade may lead to the evolution of new technologies such as microbial techniques for cleaning up oil spills, for
protecting the environment. Or it may more rapidly spread technologies that have less environmental impact²
for example, more fuel-efficient automobiles, solar power technology etc. Openness to investment and trade can
also help contribute to development objectives, by facilitating transfer of improved management systems and
technologies.

On the negative side, trade causes international movement of goods that would best never be traded, from an
environmental perspective. With hazardous wastes and toxic materials, the further the goods are transported, the
more the environmental risk since spillage is always possible. Such "goods" may end up being dumped in
countries without the administrative or technical capacity to properly dispose of them, or even to assess whether
or not they should be accepted. Over-exploitation of species to the point of extinction is also made possible by
international trade ²there is rarely enough domestic demand to create such pressure. The Basel Convention and
CITES, are Multilateral Environmental Agreements (MEAs) that restrict such trade because of its negative
direct effects.
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A subset of product effects, also referred to as ³technology effects,´ is associated with differences in how
products are made depending on the technology used. Technology effects stem from the way in which trade
liberalization affects technology transfer and the production processes used to make traded goods. Positive
technology effects occur when the total output of pollution per unit of economic product is reduced. Cleaner
technologies may get transferred abroad by foreign producers when a trade measure or agreement results in a
more open market and a business climate conducive to business and investment. Processes of capital and
technological modernization for all firms can be hastened by trade-induced growth and competitive market
pressures generated by liberalization. Newly opened markets can provide the revenue and the income to allow
firms to accelerate capital turnover, and invest in cleaner, more efficient plants, technologies and processes.

On the other hand, an expanded marketplace and trade liberalization may harm socially valuable and
environmentally friendly traditional production methods. Trade liberalization can also promote the use and
spread of less-environmentally friendly, harmful technologies. Whether effects of technology arising from
liberalization have a positive or negative effect on the environment will depend on policies in the marketplace
and other conditions that decide the availability and choice of those technologies (for e.g., national
environmental regulation and price). These effects are put under the heading "imported efficiency" in Box 1.

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. Liberalization of trade allows countries to specialize in
producing those things at which they are more efficient² where they have a
"comparative advantage." Thus more goods and services are produced by nations
that engage in trade, thereby increasing GDP. The other side of the coin however, is
that trade distortions or restrictions tend to decrease allocative efficiency. For e.g.,
if a country that generally imports coffee put enough subsidies or tariff protection in
place, and devoted enough greenhouses and energy, it could produce its own coffee
for its markets. But this would be both inefficient economically and
environmentally damaging.

 




. Another way in which trade creates wealth is to
expose domestic firms to foreign competition, and thereby force them to innovate to
become more efficient. Sometimes, better provision of goods can directly serve
development objectives, as in the case of telecommunications and other such
infrastructure provision. Again, these efficiency benefits are missed where trade is
restricted or distorted. Of course, even efficient domestic producers may suffer if
exposed to competition from firms with international monopoly power.


 

. A third way in which trade creates wealth is through imports
of foreign technology, or, openness to foreign investment which can bring more
efficient processes and methods of production. These can be embodied in a piece of
equipment, or in the management techniques brought by a foreign firm setting up
shop in a host country. Some multinational firms adhere to global standards, and
bring an equal level of technology to all their worldwide locations. Others will
reduce the imported efficiency effect by using less efficient, outdated technology in
countries where environmental protection and health, safety regulations is more lax.
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Trade and trade liberalization can expand the level of economic activity. This can be done by making that
activity efficient. Trade can increase efficiency, producing more goods with the same given set of natural
resources, labour, machines and technology as explained in the box above.

This expansion mainly creates additional wealth which has positive effects on the environment and
development. It has many development benefits; although development is more than economic growth, this
growth is essential for development in most countries. There are three important qualifications to a positive link
between trade and development:

‡ If trade supports inequity by creating wealth that is mostly concentrated in the hands of the wealthy, then it
works against important development objectives.

‡ Also, not everyone will get advantage of trade liberalization; inherent in the wealth-creating process is
destruction of inefficient firms and sectors.

‡A large amount of resources to building capacity in their export sectors may be devoted to enjoy trade's full
potential.

Wealth creates benefit but also environment may get advantage as well. First, if efficiency is more, it can
directly benefit the environment, since efficient firms will need fewer natural resource inputs and produce less
polluting waste. Hence there is also a competitive advantage of efficient use of resources. It helps in achieving
the goal of sustainable development.

Second, more efficiency leads to people becoming more wealthy and hence more strong environmental
protection. But the poor also value the environment; indeed, their poverty implies they depend on it more
directly than do the rich. But it may have a low priority than for those with stable employment and adequate
income, food and housing. It has been seen that richer economies will likely have lower levels of some harmful
emissions than poorer ones. Where trade alleviates extreme poverty, it may save people from a vicious cycle
where they are forced to degrade their environment to survive, in the process becoming increasingly deprived.

An increased scale of economic activity can also have negative environmental effects. Most economic activity
damages the environment, whether in exploiting raw materials, harvesting renewable resources, or in creating
waste and pollution. Increasing the scale of economic activity means increasing the levels of environmental
damage, unless there are regulations to ensure that the additional activities cause no harm.

One more negative effect stems from the additional wealth created by trade²the same wealth that can benefit
the environment and development. For some pollution, increased wealth may result in more pollution. The
richer countries of the world have much higher per capita emissions of all types of greenhouse gases as
compared to developing countries, and far higher per capita emissions of such toxins as dioxins, PCBs and
furans. With sufficient wealth comes the opportunity to consume at levels that are worse for the environment.


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Trade liberalization will result in changes in the mix of a country's economy, which may lead to produce more
of the goods it makes well or has in abundance, to trade for the one it does not. For example, a heavily forested
country that did not trade would produce only enough forest products for its own people. Under a trading
scenario it might produce enough for export, increasing the share of forestry's slice in the nation's economic pie.
The structural effect can be either positive or negative for the environment and development.
Positive aspect is, if the makeup of the economy changes such that less polluting sectors have a bigger share of
the pie, then trade has resulted in environmental improvements. Similarly, trade liberalization would help foster
development if the composition of the economy changed to include sectors or firms with stronger links to the
domestic economy, increased employment prospects, or otherwise more potential for creating income equity.

The composition of the economy may also be changed if consumers demand green goods, if exporters respond
by creating new products or sectors. For example, a number of coffee producers in Mexico have collaborated on
marketing organically grown coffee, which can be sold at premium prices. Usually the impetus for a green shift
in composition comes from other firms buying inputs and not from final buyers of goods. Some policies are
really appreciable. Automobile manufacturing Giants like Ford and GM, have declared that they will buy only
from suppliers that are certified as following the ISO 14001 environmental management system. If ISO
certification leads to environmental improvements, then Ford and GM will have forced such improvements
down the supply chain to foreign and domestic suppliers.

One more advantage can be trade liberalization may remove subsidies, quotas or other trade-restrictive
measures. If trade liberalization forced a Northern country to stop protecting its own coffee industry, the
resource which is used for that industry could go to other more productive use. The countries will have
development benefits where coffee grows naturally, which could increase their exports. Environmental benefits
will also be observed. For example, far less heat (or none) from fossil fuels would be needed to grow the same
value of more traditional produce in the former coffee greenhouses.

Some negative aspects can be, if the goods that a country makes well are based on natural resources, or are
pollution-intensive, and then trade liberalization would increase the share of such industries in the national
economy. There won¶t be any environmental policies resulting in increased pollution, or more harvesting of
natural resources such as fish or timber, that too at unsustainable levels. When trade liberalization creates
opportunities, linking domestic natural resources to international demand, environmental degradation and
resource depletion can be quick. Similarly, trade liberalization may change the composition of industries that do
not help advance development objectives.

Timing of liberalization and the transitional process of economic restructuring gives another set of negative
effects. These result from openness to trade in goods and services, as well as to flows of investment. More and
more research shows that timing is very important in trade and investment. Small developing economies in
particular may be crippled by geographical, sectoral or institutional problems that cannot be easily overcome.
Hence in these economies, economic openness must be properly analysed, and also the policies specifically
designed to ease the restructuring process. Liberalization must work against growth, employment, poverty
alleviation, environmental protection and other components for having a sustainable development.

˜  )

 

After the study of problems regarding trade and environment, we must analyse what all policies are framed to
aim at better relationship between the two. Let us look at some approaches which are suggested for effective
balance of the trade benefits and environmental protection.

˜ !  

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This retains the overarching policy goal of ³liberalized´ trade, pursued for five decades through ³rounds´ of
trade agreements under the General Agreement on Tariffs and Trade (GATT), which became the World Trade
Organization (WTO) in 1994. The GATT and the WTO, whose membership now includes over 120 nations,
have worked together to lower tariffs and nontariff barriers to trade. It also helped in elimination of subsidies for
export industries.

WTO recognizes a special exception to trade rules under Article XX for resource conservation and
environmental protection, but its panel don¶t support it much. WTO authorities tend to be suspicious of ³green
protectionism´ ± application of trade barriers to protect domestic industry from competition under the guise of
environmental regulation. They are also unsympathetic towards the nations to use trade measures to affect
environmental policy outside their borders.

According to WTO, environmental policy must remain at the national level. International trade policy should
not intervene with environmental issues. This is in accordance with an economic principle known as the
specificity rule: policy solutions should be targeted directly at the source of the problem. Using trade measures
to accomplish environmental policy goals is therefore a second-best solution, which is likely to cause other,
undesired effects such as the reduction of gains from trade.

This argument is criticized at many grounds. Today globalization and competition is at peak. It could not
analyse that the competitive pressure may encourage trading nations to reduce environmental protections, as
well as the inadequate institutional structures in many developing countries. It is also inadequate for dealing
with environmental problems which are truly transboundary or global.

˜ ±   "
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. /## " 

In 1993, the United States, Canada, and Mexico signed the NAFTA agreement, lowering trade barriers across
the continent. During the negotiations for this agreement, there was a strong argument among the environmental
groups that freer trade could lead to adverse consequences, pointing to the severe environmental problems
already affecting the maquiladoras²tariff-free industrial zones along the Mexican border. As a result, a side
agreement, the North American Agreement on Environmental Cooperation (NAAEC), set up the tripartite
Commission for Environmental Cooperation (CEC), while another side agreement, the North American
Agreement on Labor Cooperation (NAALC), dealt with labor issues.

This specific attention to social and environmental aspects of trade was remarkable and almost unprecedented in
trade agreements. Some environmental groups in the U.S. supported the agreement, while the CEC has few
powers. It may respond to a country's failure to enforce existing environmental regulations, but its role is
generally limited to producing a fact-finding report and recommendations to the government involved. In
addition, promises of funding to clean up environmentally damaged areas along the Mexican/U.S. border have
generally not been fulfilled, while border conditions have continued to deteriorate.

There were both social and environmental effects in the opening of agricultural sector trade under NAFTA. It
happened when the small corn farmers in Mexico were able to compete with cheaper grain imported from the
U.S. The migration of displaced farmers from rural to urban areas will intensify urban environmental pressures,
as well as creating greater pressure for illegal migration across the U.S./Mexico border. In addition, the genetic
diversity characteristic of small-scale farming may be endangered, which could result in the loss of a ³living
seed bank´ of great value to world agriculture.

In some areas like industry, NAFTA has had both positive and negative impacts. The enforcement of Mexican
environment has improved, but increased industrial concentrations have led to direct effect to local
environmental quality in some areas.
˜ ï % #


## " 

The European Union (EU) is not keen in being a free trade area that has its own legislative and administrative
institutions. Unlike the North American CEC, the European Union has the full rights to set environmental
standards which are binding on its member countries. Popularly known as harmonisation of Environment
standards. Note, however, that this policy involves more than free trade; it encourage the creation of a
supranational authority with the power to set environmental standards.

Regional trade area policies also raise the issue of ³harmonizing up´ versus ³harmonizing down´. Some
countries may be forced to tighten their environmental policies to achieve EU standards. But other countries
may find their environmental standards weakened.

It is relatively rare for trade agreements to include the kind of enforceable supranational environmental
regulations that exist in the EU. Although the Standards Code adopted after the Uruguay Round negotiations in
1992 focus on international harmonization of environmental standards, there is no ground for this process to be
other than voluntary.

˜
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It has long been studied, analysed and observed that some environmental problems require international
solutions. The first international treaty dealing with trade and the environment was the Phylloxera agreement of
1878.It restricted trade in grapevines to prevent the spread of pests that damage vineyards. In 1906 an
international convention was adopted banning the use of phosphorus in matches. Phosphorous was responsible
for serious occupational disease among match workers, but it was the cheapest ingredient for matches. Any
exporting country was prevented to use phosphorus in match production.

Many international treaties have been used to respond to specific environmental issues. These include
conventions protecting fur seals, migratory birds, polar bears, whales, and endangered species. Montreal
Protocol address issue that are Trans boundary and global environmental. Issues on Substances that Deplete the
Ozone Layer (1987), the Basel Convention on Hazardous Wastes (1989), the Antarctica Treaty (1991), and the
Convention on Straddling and Highly Migratory Fish Stocks (1995). In 1997 the Kyoto Protocol on Climate
Change established guidelines for reducing greenhouse gas emissions, including important trade-related
measures. International treatise addresses the environmental issues.

But question arises is whether MEAs is compatibility with WTO rules. Which agreement must be use d in case
of conflict For example, the Kyoto Protocol encourages the subsidized transfer of energy efficient technology to
developing nations ± but this provision could be in violation of the WTO¶s prohibition of export subsidies.
Whereas national laws such as the U.S. Marine Mammal Protection Act is incompatible with WTO rules, there
has so far been no major test case involving conflict between an MEA and a trade agreement.

˜
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The graphs below, provided by the CSIRO Marine and Atmospheric Research, illustrate the global observations
of the impact the Montreal Protocol on the levels of ozone depleting substances in the atmosphere, and suggest
the impact into the future to 2050:



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All countries are progressing, trade policies are formed and efficient production taking place. But do we
consider always how does trade impact social and ecological factors. We have limited natural resources. How
efficiently we use them. Expanded global trade will bring benefits in terms of increased efficiency, technology
transfer, and the import and export of sustainably produced products. It is very important for us to analyse and
measure its effect on environment.

There is a debatable point across the people and various countries. Some thinks more trade automatically results
in better growth and economic welfare, and a share of crowd thinks that if there is no appropriate environment
policy, there will be many unwanted environmental effects. Whenever there is a trade agreement formed,
environment sustainability must always be taken into account. At global, regional as well as local level,
sustainability should be the priority of economist.

³Greening´ Global Environmental Organizations

WTO doesn¶t have any defined policies for environmental issues. A major proposal is that a separate body for
environment can be made equivalent to WTO i.e. World Environmental Organization. This will take the
responsibilities of global, local issues on regular basis with setting standards according to growth of country. It
might lead to conflict and deadlock with other transnational institutions.

We can think of altering the missions of already working organisations. We can make them ³green´, broadening
the environmental and social provisions of GATT's Article XX. This would add a new perspective to trade
policies formed and make them environment concerned.

The idea of a World Environmental Organization may seem visionary, but there is a good argument for its
establishment. Sir Leon Brittan, former Vice President of the European Commission said, ³Setting
environmental standards within a territory may be fine, but what about damage that spills over national borders?
In a rapidly globalizing world, so many problems cannot be effectively solved at the national or bilateral level,
or even at the level of regional trading blocs like the European Union. Global problems require global
solutions.´

A World Environmental Organization could serve as a platform for the implementation of existing multinational
environmental agreements, as well as encouraging further agreements consistent with global sustainable
development strategies. Global public goods such as biodiversity, climate stabilization, protection of the ozon e
layer, and the protection of oceans and water systems, would be the responsibility of the WEO.

A WEO could also play a role in the dialogue of trade agreements on agricultural subsidies, keen to redirect
farm subsidies to soil conservation and development of low-input agricultural techniques. Trade in the energy
sector may need to accommodate a substantial carbon tax or tradable permit scheme as global carbon dioxide
(CO2) emissions continue to rise. Global agreements on forest and biodiversity preservation are also likely to
involve specific tariff preferences, trade restrictions, or labelling systems. In all these areas, the existence of a
powerful operating body for environmental interests would have a major impact on the shaping of trade treaties
and regulations.

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There is question that whether environment policies to be framed at global or at local level. The trend towards
globalization, increasing the logic of the global marketplace, is in conflict with t he goal of strengthening local
and regional policies promoting sustainable development. It is important for local and regional institutions to
reserve powers of resource conservation and management to the sustainable management of resources. Even if
"greened", and the local institutions that are crucial to effective implementation of resource conservation and
environmental standards, it is difficult to make a match between centralized World Bank. Most environmental
policies are implemented at the national level, and it is important to maintain national authority to enforce
environmental standards.

In approach such as NAFTA, trade agreements gives preference to national policies aimed at sustainable
agriculture and resource management. NAFTA rules takes international environmental treaties like the Basel
Convention on hazardous wastes, the Montreal Protocol on ozone depleting substances, and CITES on
endangered species into more account. All national environmental protection policies could be expanded and
establishment of effective sanctions for environmental violations.

In regional trade and customs unions such as the European Union bodies must take responsibility for
environmental and social issues to the extent that their legitimate democratic mandate allows. Supranational
bodies are highly responsible for environmental rule making in transboundary issues.

Consumers can make informed purchasing decisions through certifications for sustainably produced products.
Germany¶s ³green dot´ system has also set up certification systems for goods such as coffee and timber.
Certification systems must be international in this globalized economy. This requires support and
encouragement from both the national and corporations and international agencies.

ð
ð


Wesley Bland said that

³Cannot fish or Swim, how the hell are we suppose to serve our kids now´.

The rapid acceleration in global economic activity and our dramatically increased demands for critical, finite
natural resources undermine our pursuit of continued economic prosperity. Achieving this goal will be a major
challenge for trade negotiators at both regional and global levels for the foreseeable future.

In conclusion, it is clear that there are many various approaches to reconciling the goals of trade and
environmental policy. Daniel Esty of Yale University concludes that ³there is no real choice about whether to
address the trade and environment linkage; this linkage is a matter of fact... Environmental rules cannot be seen
simply as pollution control or natural resource management standards; they also provide the ground rules for
international commerce and serve as an essential bulwark against market failure in the international economic
system. Building environmental sensitivity into the trade regime in a thoughtful and systematic fashion should
therefore be of interest to the trade community as well as environmental advocates.´
 !
"

http://internationalecon.com/Trade/

http://www.wto.org

http://www.diamondfacts.org/pdfs/media/media_resources/fact_sheets/Diamond_Mining_Environment_Fac
t_Sheet.pdf

http://en.wikipedia.org

http://www.oecd.org

http://www.ducks.ca/conserve/wetland_values/pdf/nv12_for.pdf

http://www.thomaslfriedman.com/bookshelf/the-world-is-flat

http://z4.invisionfree.com/Popular_Technology

http://www.environment.gov.au/atmosphere/ozone/legislation/montp-graphs.html