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IV. CONSIDERATION OF MULTILATERAL TRADE AND ENVIRONMENT AGREEMENTS IN DOMESTIC
POLICY FORMULATION
[ A | B | C
| D | E ]
B. Relationship between trade and the environment
Environmentalists argue that international regulation of trade is necessary in order to "build environmental responsibility into economic activity" and to ensure that "trade meets the goals of environmentally sustainable development" (Hair, 1993). As trade has become globalized, environmentalists have argued that the magnitude of environmental degradation has worsened. According to Daly and Cobb (1089), "further growth beyond the present scale is overwhelmingly likely to increase costs more rapidly than it increases benefits, thus ushering in a new era of 'uneconomic growth' that impoverishes rather than enriches".
Environmentalists generally oppose free trade from the viewpoint of "market failure". That view has it that wherever the market "fails" to protect environmental values to the desired degree, government intervention is necessary. According to Daly (1993), "a more accurate name than the persuasive label 'free trade'...would be deregulated international commerce". Most environmentalists view economic growth as being incompatible with the maintenance of environmental quality, and they therefore advocate political constraints on economic activities, both domestically and internationally. While it is true that all economic activities do impact on environmental quality to some degree, government intervention in every case would be impractical and may not be optimal.
The contradiction between trade and the environment has not been proven beyond doubt. Numerous empirical studies have established that there is a positive link between economic growth and environmental quality. The relationship between income and environmental quality is what has now come to be known as the environmental transition hypothesis or the environmental Kuznets U-curve hypothesis. Grossman and Krueger (1991) found that "economic growth tends to alleviate pollution problems once a country's per capita income level reaches about US$ 4,000-US$ 5,000". The study also found that levels of sulphur dioxide are noticeably lower in countries that engage in significant international trade.
While acknowledging that some positive links exist between trade and the environment, other studies (Asafu-Adjaye, 1996; Seldon and Song, 1994; and Shafik and Bandyipadhyay, 1992) have found that a number of environmental indicators (e.g., carbon dioxide and nitrous oxide) worsen incomes increase. For example, Asafu-Adjaye (1996) conducted an empirical test of the environmental transition hypothesis for two environmental indicators, reforestation and carbon dioxide emissions, using cross-section data for 83 countries. A U-curve relationship between environmental quality and per capita income was found for reforestation but rejected for carbon dioxide emissions. Institutional factors related to property rights were found to be important determinants of environmental quality. The main conclusion of the study was that economic growth was a necessary but not a sufficient condition for environmental improvement.
While not suggesting an inevitable or automatic relationship between income levels and particular environmental problems, above studies demonstrate that countries can choose policies which can lead to better environmental conditions while, at the same time, achieving economic growth. According to the World Development Report 1992 of the World Bank, two sets of broad policies are required to attack the underlying causes of environmental damage. They are::
- Policies that seek to harness the positive links between development and the environment by correcting or preventing policy failures, improving access to resources and technology, and promoting equitable income growth;
- Policies that target environmental problems; regulations and incentives are required to force the recognition of environmental values in decision-making (World Bank, 1992).
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