Are Free Trade And Environmental Sustainability Inconsistent Final

ARE FREE TRADE AND ENVIRONMENTAL SUSTAINABILITY INCONSISTENT

BY

ARCHIBONG UBONG

Free trade occurs when goods and services can be bought and sold between countries or sub-national regions without tariffs,quotas or other restrictions being applied. Sustainability in a general sense is the capacity to maintain a certain process or state indefinitely.Thebest known definition of sustainability or sustainable development is the one given by the World Commission on Environment and Development.This suggests that sustainability is defined as forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs. The expansion in world trade has raised the issue of the relationship between trade and the environment.Is trade good or bad for the environment? the answer is not certain .Production of goods that are imported and exported like any other production will often have environmental effects.The question is will this effects increase or decrease with expanded trade? Will they affect the exporting nation,importing nation or the world as a

whole? And whose responsibility is it to respond to environmental problems associated with trade? Questions as these have received increasing attention in recent years. International attention was first brought to these issues in 1991,when Mexican government challenged a United States law banning the import of tuna from Mexico.The U S Marine mammal protection act prohibited tuna fishing methods that killed large number of dolphins, and banned imports 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). The free trade principles that is basis for GATT and its successor the World Trade Organisation(WTO) states that countries cannot restrict imports except in limited cases such as the protection of health and safety of their citizens. A GATT dispute panel ruled that the U.S could not use domestic legislation to protect dolphins outside its own territorial limits. Though Mexico did not press for the enforcement of this decision, the tuna/dolphin decision sparked a major controversy of issues of trade and environment. In a similar case in

1999, the WTO ruled that the U S could not prohibit shrimp imports from countries using fishing methods that endangered sea turtles. The implications of this and the earlier tuna/dolphin decision could affect other international environmental issues,such as forest protection,ozone depletion,hazardouswastes and global climate change. All these issues are connected with international trade. To address these questions we need to look at international trade critically. Most economists believe that expanded trade is beneficial,promoting increased efficiency and greater wealth among trading nations. What if expanded trade causes environmental damage? At the national level the standard economic policy response is to implement policies that internalize externalities. At the international level the picture is more confused . The burden of environmental externalities associated with trade may be borne by importers,exporters and others not directly involved in the production or consumption of traded goods.The authority to formulate and enforce environmental policy is at the national level.This poses significant problems when environmental impacts are

transnational,since most international trade agreements do not have any provision for environmental protection. Since Ricardo(1817),economists believe that countries gain from free trade through an increase in welfare and suffer a reduction in welfare when trade is restricted through quotas and tariffs.Trade promotes specialization because countries can produce goods which have the lowest opportunity cost.This means they can achieve a level of consumption which is greater than they could achieve if they were restricted to what they could produce from their own resources.These principles were pursued through the General Agreements on Tarriffs and Trade and the World Trade Organisation.For the forseeable future we can expect a continued expansion in world trade that will tend to increase global production and consumption as shown in the table below GROWTH IN THE VOLUME OF WORLD MERCHANDISE TRADE BY SELECTED REGION,1980-1998(ANNUAL PERCENTAGE CHANGE) EXPOR TS

IMPOR TS

19908 6.5 7.0 8.5 6.0 6.0 5.0

7.5 2.5 10.5

19 97 1 0.0 1 1.0 1 1.0 9.5

19 98 4.0 WORLD

19908 6.5

3.5 NORTH 8.0 AMERICA 7.0 LATIN AMERICA 12.5

5.0 WESTERN EUROPE 9.5 5.5 EUROPEAN UNION 9.5 7.0 C./E.EUROPE/B ALTIC STATES/CIS 1 2.0 ASIA 2.0 1 JAPAN 2.0 1.5 1 2.5 SIX EAST 0.0 ASIAN TRADERS

19 19 97 98 9.5 4.0

5.5

1 3.0 2 2.0 8.0

5.5

7.5 7.5

5.0

1 5.0 3.5

6.5

6.0 8.0 1.5 5.5 6.5 12. 0

4.0 8.0

1 0.5 9.0 7.5

SOURCE:www.wto.org/wto/statis The table above gives the percentage change in the volume of trade from 1980 to 1988.The

average annual rate of growth of 6.5% in world trade in goods,if it continues would lead to a doubling of world trade after eleven years. This growth will no doubt have an effect on the environment but it is difficult to state whether it is beneficial or detrimental.On the negative side the first law of thermodynamics predicts that more output by increasing the quantity of material used will increase global pollution.The process of trade which involves the physical transportation of goods to different countries is also polluting.Trade can have detrimental effects on the environment when some nations(usually developing) have poorly defined property rights.This tragedy of commons can be intensified by freer trade. Environmental benefits from free trade include: trade may lead to the reallocation of production to countries which are able to deal with the environmental side-effects of production(pollution havens hypothesis). While ,Increased income may lead to consumers demanding higher environmental standards,this is the Kuznets curve effect. However, the porter hypothesis suggests that firms in areas with

the most stringent regulations will beat a competitive advantage. Strict environmental regulations will encourage firms to innovate.Innovation makes firms more competitive. This leads us to the place of trade policy in environmental protection. As stated earlier in the fifth paragraph of this discourse, the standard policy to control the effects of pollution is to internalize.This can be done by placing taxes and quotas on emission.Restricting production inputs or outputs is a second best policy because these variables may not be directly related to the level of emissions.Therefore restricting trade in inputs or ouputs is a suboptimal approach to conducting environmental policy. The fact that trade policy is often justified on the grounds of environmental protection should be viewed with suspicion: there is often a thin line between a policy protecting the environment and protecting domestic producers from competition. In a perfect world, a country’s domestic environment should be protected by national environmental policies and the international environment protected by international

environmental agreements.Restrictions to trade may be warranted as the only available sanction on a country causing an international environmental problem.For example,CITES(International Convention on Trade in Endangered Species) aims to protect species by reducing the demand for live animals and animal products.However,this convention does not proffer solutions to the source of the problem which is mostly the loss of habitat in the country which hosts an endangered species.Similarly the Basel Convention on the Transboundary Movements of Hazardous Waste , is an admission that some countries unless they are protected this way,may become a dumping ground for toxic waste. This agreement acknowledges a failure of domestic environmental policies which should price waste export and disposal at a level that will not lead to excessive dumping. From the theoretical analysis there is no justification for inhibiting trade in order to sustain the environment. Free trade for most countries is welfare increasing and so long as countries have effective domestic environmental policies,there is no reason why it should be

more damaging to the environment than restricted trade.However, free trade can expose the international environment to negative externalities due to the failure of a country’s domestic environmental policies.Instances include the Montreal Protocol,CITES and the Basel Convention on Hazardous waste. In all these cases,restricting trade might be the only feasible approach to curtail environmental damage. Two commonly opposed views about the impact of free trade on the environment are held in the policy community.While some believe that free trade will raise incomes in developing countries thus encouraging governments to protect the environment,others argue that free trade simply provides incentives for heavily polluting industries to move to developing countries with lax environmental regulations(pollution havens).To check this trend developed countries try to couple free trade agreements with environmental regulation. According to Ana I.Eiras and Brett D.Schaefer(2001),the strategy of some environmental activists to use free trade agreements to enforce environmental standards

for developing nations is fundamentally inconsistent with free trade. In view of the foregoing, I conclude by affirming that “free trade and environmental sustainability are inconsistent”.

REFERENCES Ana I.Eiras and Brett D.Schaefer(2001),Trade: The Best Way To Protect The Environment. Jonathan M.Harris and Tom Tietenberg(2008),Trade And The Environment.

Nick Hanley,Jason F.Shogren and Ben White(2001),Introduction To Environmental Economics. Tom Tietenberg,Seventh Edition,Environmental and Natural Resource Economics.