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Free Trade: Benefit or Peril for the Environment? | Kumar Venkat on GreenBiz.com



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« Prev Post | All Posts | Next Post » By Kumar Venkat, January 7, 2004

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One of the most contentious issues surrounding globalization is the
concern that free trade hurts the environment, both locally and globally. The
classic argument for free global trade is that it is efficient for countries to
specialize in producing goods where they have a comparative advantage, which
they can then exchange for other goods. But skeptics like ecological economist
Herman Daly have questioned this on the grounds that the real costs of trade --
including depletion of natural resources and pollution -- are hidden and
routinely ignored.
In the new book “Trade and the Environment: Theory and Evidence,” economists
Brian Copeland and Scott Taylor attempt to replace some of the rhetoric in this
debate with systematically produced results. Based on a study of sulfur dioxide
concentrations in over 100 cities around the world from 1971 to 1996, they reach
the surprising and provocative conclusion that free trade can actually be good
for the environment.
Copeland and Taylor find no evidence for the “pollution haven” hypothesis, which
states that free trade will prompt polluting industries to move to poor
countries where environmental regulations are lax. Their results suggest that
rich countries have a comparative advantage in capital-intensive polluting
industries, so these industries are likely to stay in rich countries even if
environmental regulations are tighter.
For these developed countries, the right environmental policy can produce a net
good for the environment. Pollution policy, in the form of regulation or taxes,
can lead to cleaner production methods by encouraging better technologies. The
message to developing countries is that environmental problems can be
exacerbated if trade liberalization outpaces environmental policy -- as we will
see shortly, therein lies one of the conflicts between trade and the
environment.
The complexity of the subject becomes evident as the book leaves a host of
questions unanswered. The authors limit their focus to local pollution caused by
production of goods, while ignoring other significant environmental impacts of
trade.
If a car is manufactured in Japan and then shipped to the U.S., there would be
some local pollution in Japan due to the manufacturing process. Some natural
resources -- both local and imported -- would also be used up in manufacturing
the car. There would be additional resource use and pollution from transporting
the car to the U.S., and even more from driving that car year after year.
Pollution from transportation and consumption of goods, as well as resource use
throughout the life cycles of products, are all potentially major avenues
through which global trade can damage the environment. When all these effects
are combined with production-driven pollution, the final outcome could easily
reverse the optimistic result that trade benefits the environment.
The argument that polluting industries will stay in capital-rich developed
countries also loses steam when capital itself is highly mobile. China, for
example, received $44 billion in direct foreign investment in 2001. Even if
companies are investing in China to take advantage of its cheap labor, an
indirect consequence of concentrating an increasing part of the world’s
manufacturing in China will be heavy resource use and pollution locally.
A more direct instance of the “pollution haven” effect is the routine transfer
of e-waste -- used computers and other electronic appliances that contain highly
toxic chemicals -- from the U.S. to countries like India, China and the
Philippines. Low-paid workers in these countries work under hazardous conditions
to salvage valuable materials from this fast-growing waste stream, while
polluting the soil, air and water in the process.
These recent examples heighten the concern that developing countries, where the
bulk of the world’s population lives, may be unprepared for the environmental
consequences of global trade.
Studies of air quality show that it deteriorates in the early stages of economic
growth, and then starts improving when per-capita income exceeds $5000 per year.
If this holds for most kinds of pollution and resource depletion, then incomes
will have to increase by a factor of five to ten in large developing countries
like China and India before there is sufficient local demand for environmental
protection. Assuming that free trade can eventually deliver this income growth,
a big unknown is whether it will result in income-induced policy changes before
the cost of cleaning up the environment becomes prohibitively high.
Equally troublesome is the issue of trans-boundary pollution such as
greenhouse-gas emissions, where countries with widely different income levels
will have to come together with a unified policy response. Between 1973 and
2001, a period in which many domestic economies were turned inside out by
globalization, annual carbon-dioxide emissions from worldwide fuel combustion
increased by 50 percent. By 2030, these emissions are projected to be 60 percent
higher than in 2001 if no new policies are adopted. Power generation and
transportation -- two sectors crucial to trade -- will account for
three-quarters of this increase.
A great deal of uncertainty remains about the long-term environmental impacts of
globalization. But the evidence we have so far suggests that free trade
unconstrained by environmental protection could be a recipe for disaster.
------------------
Kumar Venkat works in Silicon Valley's high-tech industry, and writes about the
social and environmental impacts of technology and globalization.
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