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GTAP Resource #1260

"How Can Trade Liberalization Be Conducive to a Better Environment?"
by Alpay, Savas


Abstract
This paper surveys trade and the environment literature from the perspective of the impact of trade liberalization on the environment. Many theoretical and empirical studies that investigate this subject with different modelling approaches provide evidences for the two possible outcomes: (1) trade liberalization generates positive environmental side effects, and (2) trade liberalization increases the environmental degradation. Thus, a universal conclusion related to the environmental impact of trade liberalization will be dubious.
The interactions between trade liberalization and environmental quality depend on the country-specific factors and the existing institutional structures, especially related to the environment. We may list following set of factors as the key determinants of this interaction: (i) whether the country in consideration is a developed or developing one (demand for environmental quality is a positive function of income); (ii) the comparative advantage of the country implementing liberalization policies; (iii) resource intensity of the traded product and the property-rights structure associated with the use of the resource; (iv) existence or enactment of environmental policies during trade liberalization; and (v) whether environmental policies are affected by strategic trade considerations. In fact, all these issues can be considered as the points of departure among the studies in this literature, and naturally, they may be seen as the main constituents of the contrasting results summarized in our survey.
Due to differences in the environmental policy stringency levels between developed and developing countries, developing countries will most likely have comparative advantage in pollution intensive goods; thus, production of these goods may easily shift to the developing countries following trade liberalization policies, and consequently, may result in increased pollution both locally and globally. It has been shown strongly that the differences in pollution policies would generate incentives to trade, and one should seriously consider further environmental deterioration in countries with lax regulations following trade liberalization. Therefore, from an environmental perspective, it is important that trade liberalization policies should be accompanied by “harmonization” of environmental policies across countries; given the current differences between developing and developed country stances on this issue, this seems to be not very plausible at this point.
The contribution of our survey is to highlight the linkages through which trade liberalization impacts the environment, and as a result, to put together and to disclose all possible means indicated in the literature in order to make the environmental impact of freer trade positive both locally and globally. Obviously, environmental quality is a normal good and demand for higher environmental quality will rise with increases in income. The current environmental awareness in developed countries is mainly due to increased income levels. The role of trade liberalization in reaching this wealthy position can not be ignored. For developing countries, the policies generating higher economic growth (including trade liberalization) are therefore important from an environmental perspective; however, developing countries do not need to repeat the environmental mistakes of developed countries. It is wrong to assume that trade liberalization can only be achieved in the framework drawn by the current GATT rules. It will be much better if free trade targeting of the GATT is changed to sustainable free trade. Short term expansion of GATT articles for the protection of the environment and the transformation of GATT into GATE (General Agreement on Trade and the Environment) over the long term emerges as an important policy. The key factors in the design of GATE will be to generate a consensus for treating trade and the environment equally (i.e. do not favor one over the other without any scientific reason), and to allow for a functional trade system with utmost environmental quality. This should be an important item of the agenda of the next round of the GATT.



Resource Details (Export Citation) GTAP Keywords
Category: 2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Version:
Created: Alpay, S. (4/30/2003)
Updated: Bacou, M. (4/30/2003)
Visits: 3,436
No keywords have been specified.


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