Trade and Environment


The relationship between trade and development has long been discussed on the international arena. However, in recent years, the relationship between trade and environment, which has been described as a clash of two “cultures” – the culture of liberalized trade and the culture of environmental protection (Housman et. al., 1995) has also attracted much attention. The World Trade Organization (WTO) has established a Committee on Trade and Environment, which aims to promote mutually supportive trade and environment policies (UNEP, 2000).

Trade policy can have profound effects on the environment. For example, trade liberalization could lead to expanded exports, which might generate increased environmental damage if no proper measures are taken. As a result, the social and environmental costs might outweigh the increased gains from trade (UNEP, 1999).

Another important issue related to trade policy is concerning natural resources subsidies, which can be very environmentally damaging. For example, subsidies provided for energy would distort market pricing and encourage overuse of the resource and disregard the adoption of environmentally friendly technologies such as renewable energy. Similarly, it has been shown that subsidies to fisheries production could lead to over-fishing and depleting of the fish stocks (Porter, 1998). The WTO Committee on Trade and Environment is also focusing on issues related to the environmental benefits of reducing or eliminating trade-distorting policies, among others.

Thus, governments are encouraged to formulate trade policies that would ensure efficient use of natural resources and environmental protection. However, the identification of suitable policies requires an understanding of the nature of environmental problems, the economic impacts of alternative environmental policies, and, the institutional conditions and societal arrangements required for policies to be implemented effectively.

Some trade restrictions are imposed internationally based on environmental and health ground. For example, fish from developing countries exported to the European Union are required to meet certain environmental criteria. The International Tropical Timber Organization (ITTO), of which Malaysia is a member, requires that by the year 2000, all tropical timber products traded internationally by Member States shall originate from sustainably managed forests.

Some argue that developed countries are using environmental criteria as an “excuse” to set up trade barriers so as to favour their own products (“trade protectionism”). However, these barriers are also forcing developing countries to raise their environmental standards in order to be competitive in the world market under the current trend of globalization.

Trade restrictions in developed countries can cause adverse environmental and economic consequences not only for their developing country trading partners, but also for their own societies. For example, Repetto (1994) pointed out that agricultural protectionism in Europe, the United States, and Japan has resulted in much more intensive farming in these regions than is environmentally or economically justified. By inflating prices and per acre revenues, while (in some cases) limiting the acreage that can be planted, agricultural policies induce farmers to use more inputs on each acre planted than they otherwise would. Driven by these incentives, farmers adopt chemical-intensive monocultures that lead to more soil erosion, chemical runoff, loss of biological diversity, and conversion of once-natural ecosystems to cropland than would otherwise take place.

UNEP has published a series of research documents contributing to the debate of trade and environment (see The reconciliation of environment and trade regimes in a fair and equitable manner remains a major challenge for the international community.

Mitali Kikore

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