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 Chapter 6

Trade and
Environment
Evelyn S. Devadason
Santha Chenayah

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 Learning Objectives

 Trade contributes to green growth as the multilateral

trading system makes possible for a more efficient
allocation and use of resources that frees and
generates resources for environmental protection,
promotes import of environmentally sound
technologies (ESTs) and trade in environmental
goods and services.
 Sound environmental policies then guarantee the
current and future sustainable use of resources
necessary to maintain and increase trade further.
 Hence, trade and environment are considered
mutually supportive and consistent policies.
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  even though the tight link between trade and
environment, the trade policy community and
environmentalists seemingly have squared off over
the environmental consequences of liberalize trade.
 This concern is about the global warming, species
extinction and industrial pollution.

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 INTERACTION BETWEEN
TRADE AND ENVIRONMENT
 trade liberalization is pursued primarily to increase
economic growth and thus affects the level of
environmental protection, as depicted by the
“environmental Kuznets curve (EKC)”

 Diagram figure 8.1

 Though the inverted U-shaped Kuznets curve explains
that environmental conditions deteriorate in the early
stages of industrialization (of which many developing
countries are positioned at this stage), improves as
nations move into higher income levels, the latter is not
guaranteed.
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  Expanded trade may in fact worsen environmental
conditions if scales effects (increased pollution
arising from expanded activity and consumption)
outweigh techniques effects (adaptation of better
technologies and environmental best practices) and
composition effects (shift in preferences toward
cleaner goods).
 Critics argue that the EKC does not apply to the
full environmental impact as there is little evidence
that the relationship holds true beyond water and air
pollution to include natural resource use.
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  Finally, political factors such as the role of the
institutions beyond income levels may be more
important for environmental performance.
 This has led some to believe that an N-shaped
curve better explains the pollution from solid wastes
and heavy metal concentrations in rivers.
 That is debated that N-shaped curve describes the
continuous pollution increases in developed
countries, specifically the high greenhouse gas
emissions from rich countries.

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  According to Brooks (1998), there are four basics
avenues in the life cycle of traded products for
environmental degradation through international
trade.
 They are through production (including resource
extraction), shipping or handling (including storage),
consumption, and finally waste, disposal or
recycling of the product.
 There are studies that reveal resource degradation
effects of trade due to commercial exploitation of
environment at the expense of environmental
quality.
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  It should be borne in mind that nation governments
alone cannot regulate entirely the environmental
impacts of trade particularly if the pollution involved
is no longer local but includes transboundary
externalities such as global warming, ozone layer
depletion or acid rain.

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 Conflicting Views and Global
Threats of “Greening Trade”
 The debate on trade and environment surrounds
two key areas: First, the conflicting views on the
issue of linking or de-linking the former and the
latter; and Second, the potential threats of greening
trade.
 With regards to the first issue, those who propose
the de-linking of trade laws and environmental
policies claim that environmental issues should be
tackled at their source (point of production),
occasionally at the point of the consumption and
rarely at the point of exchange.
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 Concept of Green Trade

 Green trade is defined as export and import of

goods and services which are produced, traded,
used, and disposed of in an environmentally
sustainable manner or that which promote
sustainable development.
 It encompasses four components as depicted in the
diagram.

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 CONCEPT OF GREEN TRADE

COMPONENTS OF Traded Goods and Services

GREEN TRADE conform to internationally agreed
environmental and health
standards

Environmental Goods (EGs), Environmentally Sound

Environmentally Preferable GREEN (“clean”) Technologies
Goods (EPGs) and TRADE (ESTs)
Environmental Services (ES)

Trade in Renewable Energy

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 Apart from the ISO 14000, conformity issues (standards
and assessment systems) are tackled within the confines
of the Agreement on technical barriers to trade (TBT) and
the agreement on application of sanitary and phytosanitary
(SPS) measures.
 The TBT ensures that regulations, standards, testing and
certification procedures do not create unnecessary
obstacles as it takes into account special problems of
developing countries in this area.
 It recognizes that since technical regulations and product
standards vary across countries, different regulations and
standards become problematic for procedures and
exporters.
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  The ISO 14000 family addresses various aspects of
environmental management.
 The very first two standards, ISO 14001:2004 and ISO
14004:2004, deal with environmental management
systems (EMS)
 ISO 14001:2004 provides the requirements for an EMS
and ISO 14004:2004 gives general EMS guidelines.
 The other standards and guidelines in the family
address specific environmental aspects, including
labeling, performance evaluation, life cycle analysis,
communication and auditing.

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  The goods and services classified as green trade
comprise environmental goods (Egs), products,
systems and services for pollution management,
cleaner technologies and resource management
(such as wind turbines, solar panels, geothermal
energy sensors).
 Environmentally preferable goods (EPGs) are
goods which have a minimum impact on the
environment or comparatively less impact, for
example, natural fibres, organic agricultural
products, recyclable and biodegradable products
and sustainably produced forest products.
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  Finally, environmental services (ES) include sewage
services, refuse disposal services, sanitation and
similar services, consultancy services and other
environmental services (cleaning exhaust gases,
and landscape protection services and recycling).
 With regards to renewable energy (RE), developed
countries generally dominate the high-technology
end of exports, even though some developing
countries have emerged as noticeable exporters on
the low-technology side.

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 Domestic Initiatives and
Environment Intensive Activities
 There is a liberalization that the enactment and
enforcement of national regulations on the
environment are becoming an international
obligation, given the imposition of the various ETBs.
Environment matters were first given attention in the
Third Malaysia Plan (1976 – 1980) and further
strengthened under the Fifth Malaysia Plan (1986-
1990) and Sixth Malaysia Plan (1991-1995).
 The Committee on Trade and Environment (CTE)
was set up in the Malaysian International Trade and
Industry (MITI) under the Seventh Malaysia Plan
(1996-2000)
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  In the 2008 budget, the government announced two
incentives: an additional pioneer status of 10 years
for companies that provide energy conversation
services and tax exemption for income derived
from trading certified emission reduction (CER)
certificates.
 In the 2010 budget, the “green initiative policy” was
announced by the Prime Minister, whereby a total of
RM1.5 billion will be established by the government
to provide loans to companies supplying and
utilising green technology.
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  The government has committed to the following:
restructure the Malaysia Energy Centre as the
National Green Technology Centre and give priority
to environmental-friendly products and services.
 Historically, environmental regulations had been
implemented rapidly for two major export industries,
palm oil and electronics. The palm oil had their own
separate regulations, formulated earlier than other
environmental regulations as they were considered
the greatest polluters.

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  Thereafter regulations were enacted for all factories
to comply with both air emission and effluent
discharge (black smoke, dust or solid particles,
metals or metallic compounds and gaseous
substances) standards.
 Steps are also taken to eliminate specific
chlorofluorocarbons in order to protect the ozone
layer was set up in the Department of Environment
(DOE) in January 1997, further to funding a project
for phasing out ozone depleting substances.

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