Trade or the Environment, Trade and the Environment?

  

  
Jill Stoffers
March 22, 1999

  
jill.stoffers@miis.edu
831/647-0410

The Seattle Times                                                 February 23, 1999

Trade or the Environment, Trade and the Environment?

Submitted by Jill Staffers, a professor of Economics at the University of Washington Seattle residents are becoming increasingly familiar with trade jargon as we prepare to host the World Trade Organization's (WTO) Ministerial meeting in November. This fall, Seattle will welcome more than 5000 delegates from 134 member-countries to the largest trade event ever held in the United States.

US Trade Representative Charlene Barshefsky will Chair the meeting and present the US agenda. Of all the issues slated for discussion, the relationship between trade and the environment will be the most controversial. Seattle residents might remember the
NAFTA-inspired debates and the spotted owl conflict. The debate between environmentalists and free traders continues and the upcoming WTO Ministerial is about
to spark a new round of name calling and blaming.

From my perspective they are fighting about the wrong issue. We are neither
going to live in a world of all green policies, nor in a world without trade. Rather, we will
live somewhere in-between. It is time environmentalists, trade policy experts, and
business leaders stop name-calling and start working together to find realistic policy
solutions. Their challenge: To balance national and international environmental
concerns while maintaining the rule-based trading system that has evolved over the
past 50 years.

In preparation for the WTO Ministerial Meeting that will be held in Seattle in
November, the Seattle Times is running a series of related opinion and editorial
articles.

   
TheWTO

The WTO was founded to oversee the world's trading system. It grew out of the post-war General Agreement on Tariffs and Trade (GATT) and in 1995 expanded into a full-fledged international organization. Like the United Nations, the WTO is a supra-national decision making body that operates on consensus. Headquartered in Geneva, it has permanent delegates, a decision-making body, and a Dispute Settlement Board.

What do we gain from trade?

Economists believe production and trade should be based on the most efficient use of scarce resources. For example, due to climate, land, and other factors, it makes sense for Washington to produce timber and for Honduras to produce mangos and then trade. Growing mangos in Washington would require clearing native forestland, constructing greenhouses, and using energy to create a climate suited to growing tropical fruit. Clearly, this would be bad for business as well as the environment. It would be a waste of land, construction materials, and energy, all of which are scarce resources. Additionally, mangos grown in Washington would be considerably more expensive than mangos grown in Honduras. Even more, the money used for producing Washington mangos would therefore not be available for the production of other goods, like airplanes.

With Washington producing timber and Honduras producing mangos, the nations
can specialize in products they are more suited to produce. As a result of this
specialization and trade, both countries can have more of both goods, which makes them
happier. These are called "gains from trade."

Does trade harm the environment?

We have just seen that specialization and trade usually leads to the most efficient
use of scarce resources; that should be good for the environment, right? Unfortunately, it
is not that simple. In fact there is a huge debate on whether trade helps or harms theenvironment. I share the opinion of most economists, trade policy analysts, and development experts and see economic development as a necessary precursor to environmental protection. In many countries, providing food, housing, and education are higher priorities than protecting the natural environment. A study conducted by economists at Princeton University and an economic think-tank demonstrated that pollution is directly related to income. They found that a nation's environmental quality improves after annual per capita income rises to $4,000 -$5,000 per year. Trade is often the engine responsible for that economic growth.
 
Others argue however, that economic growth and the increased production resulting from trade harms the environment. Environmentalists worry that open borders cause businesses to move to places with lax environmental standards. They claim this has led to increased instances of "eco-dumping," or polluting in one country and exporting to another. This has become a popular way for environmentalists to attack multinational firms.
 
Who makes environmental law?

But is it the fault of the multinational? Nations have the sovereign right to establish and enforce environmental protection laws. The WTO recognizes this right and has exceptions that allow nations to use trade restrictions to protect its animal and plant life. Additionally, in cases where pollution crosses national borders, or is transboundary, international trade provisions allow countries to ban or restrict imports. In the US Congress regulates the amount of pollution emitted within our bofc-ders, not the WTO.
  
Problems arise when nations look inside the borders of other countries. Does one country have the right to ban or restrict products because the process and production methods, or even the final product, pollutes in another country? Environmentalists say yes, the WTO says no.

Here is an example: Sea turtles are an endangered species. One cause of death for turtles is drowning in nets used by commercial shrimpers. In an effort to save sea turtles, Congress passed a law requiring US shrimpers to use nets equipped with "turtle excluder devices," or devices that allow turtles to swim out if they are accidentally caught. US shrimpers felt this put them at a disadvantage compared to their foreign competitors. So, Congress passed another law requiring all foreign shrimpers who export shrimp to the US market to use them too. Essentially, the US passed a law and expected the rest of the world to follow it. Because this law affected trade, foreign nations took the US to the WTO for a ruling. The WTO ruled that the US could not apply law extra-territorially, or in other countries. Environmentalists were outraged by the WTO's decision. 

The shrimp/sea turtle example highlights the difficulty inherent in the relationship between trade and environment. Laws passed by governments apply exclusively within national borders. Endangered species and pollution, however, know no borders. So, whose job is it to create laws to protect the global environment? Precisely, who is responsible making international environmental rules and for monitoring and punishing nations that do not adhere to the rules? The WTO is not the appropriate forum; not all nations in the world are members. In fact, neither China nor Russia, two of the world's largest polluters, are members. Moreover, trade policy experts should not make and enforce environmental policy.

The relationship between trade and the environment poses difficult problems that must be solved. As keepers of international trade rules, the WTO clearly must be involved, but so must environmentalists and business leaders, for they too have a stake in the outcome. The WTO has taken an important step by hosting high-level meeting this month to discuss the relationship between trade and the environment. Bringing these disparate groups to the same table is a positive start. As we have seen, their work will notbe easy, but it must continue. Only by working together will they find or establish the appropriate cooperative body for making, monitoring, and enforcing international environmental rules. I truly believe that when these groups stop yelling and start working together they can create policies for a sustainable relationship between trade and the environment.