Benefit or Peril
For The Environment?
By Kumar Venkat
09 January, 2004
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
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
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 worlds
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
worlds 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.
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.
The National Environmental Education & Training Foundation