Should Environmentalists Support Free Trade?

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Laura Jones

Protesters are sure to greet representatives from 134 countries as they gather in Seattle to undertake the latest round of multilateral trade negotiations under the auspices of the World Trade Organisation (WTO) this November. These people protest because they believe that the goal of the WTO - to reduce trade barriers - is antithetical to their causes. One the most vocal groups among them will doubtless be the so-called environmentalists.

Supporters of free trade emphasize its ability to make individuals and nations better off. Exchanging goods and services allows for specialization. This, in turn, increases productivity and allows citizens to consume a wider variety and greater amount of goods and services than they could without trade. This positive effect of trade holds for all countries, rich and poor.

Why are many environmentalists not impressed? They abhor trade for some of the same reasons trade supporters are enamoured of it - the move away from self-sufficiency leads to a corresponding increase in productivities and income. Environmentalists’ basic objection is straightforward: producing more will pollute more. As a result, many environmentalists argue that people should buy only locally-produced goods and services. Some of the more extreme groups would prefer that individuals return to a state of autarky where they are totally self sufficient - consuming only what they can produce with their own hands.

The produce-more-pollute-more model implies a trade-off between international trade, which encourages economic growth, and environmental quality. While more pollution would be the outcome if more of the same goods were produced using the same production techniques, the effects of trade are considerably more dynamic and favourable to the environment. As peoples’ incomes increase through trade, pollution control becomes an affordable priority. According to one study done by economists Gene Grossman and Alan Krueger, most indicators of pollution start to fall before a country reaches a per capita income of US$8,000.1 Another study done by the World Bank indicates that pollution rates for particulate matter and sulphur dioxide begin to fall at per-capita incomes of US$3,280 and US$3,670 respectively. Fecal coliform in river water declines after a per capita income of US$1,375. Access to safe drinking water and the availability of sanitation improve almost immediately as incomes rise.2

Competitive markets and free trade encourage producers continually to invest in newer technology to improve productivity and profits. Economic growth makes it possible for producers to invest in new technology, and free trade accelerates its diffusion. Why is new technology good for the environment? Because newer technology tends to be cleaner technology. Older "smoke stack" technologies will be competed away by the cleansing currents of free trade.

But even if trade is good for the environment overall, some worry that it will create pollution havens. The idea that firms will move to other countries to take advantage of laxer environmental standards may have considerable intuitive appeal, but there is little empirical evidence to support it. The costs of complying with environmental regulations simply do not represent a high enough fraction of a firm’s total costs to determine location. In the US, for example, the Census Bureau found that even the worst polluters do not spend more than two percent of their revenues controlling pollution.3 There are several other reasons to believe that firms will hesitate to take advantage of laxer environmental standards in developing countries. Many producers fear that such a move would damage theirreputations in the home country. In addition, in a world where environmental standards are expected to become stricter rather than more lenient, it makes more sense to use modern, cleaner technology to avoid expensive retrofits.4

Some environmentalists oppose free trade because they don’t want countries to have different standards. This rationale delights protectionists who try to make a "level playing field" a moral principle. Environmentalists tend to think that imposing a uniform level of environmental regulation in all countries will improve environmental quality. But why should many less developed countries agree to such uniform strictures when the resources required could, in their view, be better devoted to improving local water quality and health care? There are trade-offs between environmental quality and other goods, and if pollution is not transboundary, the call for uniformity in standards is difficult to support. Differences in environmental quality reflect a nation’s own choices, priorities, and differing absorption capacities.

Even when environmentalists accept the idea that trade agreements should not force countries to adopt the same strict standards, they worry that trade may cause a "race to the bottom" as countries are prevented from pursuing their own higher levels of protection. The WTO in particular has been criticized in this regard. But this claim is false. Article XX of the charter of the WTO clearly says that member countries may impose trade restrictions that are "necessary to protect human, animal, or plant life or health." The only qualification, added at the Uruguay Round, is that such restrictions must be based on sound scientific evidence and must apply to both importers and domestic producers. This qualification is necessary to prevent disguised protectionism.

As those who are concerned about the environment watch developments in Seattle, they should be pushing for a world with freer trade. Trade can help solve some of the world’s worst remaining environmental problems by spreading the use of cleaner technology and raising standards of living so people have the financial means to express their concern about the environment.

Notes

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Last Modified: Wednesday June 9, 1999.