WTO's Environmental Impact: Trade and Sustainability Interplay - Prof. Gregory Veeck, Study notes of Geography

Download WTO's Environmental Impact: Trade and Sustainability Interplay - Prof. Gregory Veeck and more Study notes Geography in PDF only on Docsity! 1/9/2009 1 Environmental Implications of the WTO Geography 1000 Spring 2009 Lecture 23 There are no CHAPTER readings but……the WTO and its environmental impacts is on the test!!! • Please read pages 578-579, and Inset box p. 581 to become more familiar with the WTO. The WTO is based upon the foundation of an earlier agreement: GATT –The general agreement on tariffs and trade). Consider the world’s economy (GDP)grew from $6.7 trillion in 1950 to 48 trillion in 2007! Trade has increased more dramatically from $311 billion in 1950 to $14.4 trillion in 2004! Talking about the WTO and its environmental impacts is like the Blind (men?) Mice and the Elephant (or whatever that story is..) Basic Principles of Trade Agreements • NAFTA and WTO use the same basic principles • Procedural rules are based on the principles of transparency and reciprocity • Other fundamental principles prohibit discrimination Environment and Trade Policy • Why environmental issues are becoming more entwined with trade policy? • Recently, environmental concerns has grown rapidly: resource depletion, species extinction, animal rights. – Reason(?): Economic growth in developing countries with laxer standards. – Environmental Kuznets curve 1/9/2009 2 WTO GENESIS • The General Agreement on Trade and Tariff (GATT) came into existence in 1947 • It sought substantial reduction in tariff and other barriers to trade and to eliminate discriminatory treatment in international commerce. • 22 nations were signatory to GATT 1947. • Eight rounds of negotiations had taken place during five decades of its existence • Contd. WTO GENESIS • WTO Came into existence on 1-1-1995 with the conclusion of Uruguay Round Multilateral Trade Negotiations at Marrakesh on 15th April 1994, to : • Transparent, free and rule-based trading system • Provide common institutional framework for conduct of trade relations among members • Facilitate the implementation, administration and operation of Multilateral Trade Agreements • Rules and Procedures Governing Dispute Settlement • Trade Policy Review Mechanism • Concern for LDCs and concern on Non-trade issues such as Food Security, environment, health, etc. BASIC PRINCIPLES 1. NON-DISCRIMINATION  MFN status open to all  National Treatment—all in a market should have access to all markets— national and international 2. MARKET ACCESS  Reduction and binding of tariffs  General elimination of quantitative restrictions on imports and exports State sovereignty • Empowers countries to enter into treaties. • Gives governments authority to regulate the acts of persons inside their territory and their own citizens. • Gives countries the right to exploit their own resources as they wish. • Gives countries the responsibility to ensure that activities inside their borders do not cause damage to the environment outside their borders (in other countries or in international areas). Tariffs • Import duties of general application • Different from anti-dumping and countervailing duties • Rates vary by product and country • MFN tariff rate is the one applied to WTO members • Once reduced, tariffs are bound. Tariff Elimination • Canada-US eliminated January 1998. • NAFTA eliminates other tariffs over 15 years (12/2008 most are to be gone????). • WTO has eliminated some and reduced others • WTO Information Technology Agreement – computers, telecom, chips, networks, etc. – 40 countries signed, represent 92% of trade – tariffs eliminated January 1, 2000 – April 2003, China and Egypt become 58th and 59th members of ITA 1/9/2009 5 Because resources are finite and pollution crosses ―borders‖…. • The environment has become an important domestic political concern for all members of the WTO. • There is a growing realization that environmental problems do not respect national borders. • A number of ambitious multilateral environmental agreements have been signed by countries that are also member of the WTO. • Personal values - friction between countries with different values, resource endowments, incomes, knowledge. In the end…there is money in environmental control • BUT currently, markets for environmental services are underdeveloped because of disputed or nonexistent property rights, or because of the high cost of enforcing those rights. • At the multilateral level, cooperative inter- governmental mechanism have only recently begun to be formed in the environmental area, and it will take some time before many of them become effective. Environmental Kuznets curve A Lot of Work Needs to be Done (1) Forums for multilateral environmental dialogue not developed. (2) The latest scientific evidence giving new urgency to environmental questions. Environmental groups are increasingly turning to one of the few policy instruments available to their governments for influencing environmental outcomes both at home and abroad - trade restrictions. Environmentalist view • Infinite value of environment. Trade penalties to enforce environmental standards are justified without regard to the disruption to trade or any cost-benefit analysis. Free Traders’ View • Free traders believe that reducing trade barriers is likely to be environmentally friendly and consistent with sustainable development in the long run. 1/9/2009 6 Environmentalists against free trade Objections of environmentalists to free trade: 1. Unfair trade promoted environmental degradation 2. Losing higher standards of environmental protection established by developed nations 3. Conflicting ethical preferences between developed and developing nations Losing higher standards • If free trade occurs with countries having "lower" environmental standards, the effect will be to lower their own standards: "race to the bottom" • Forum shopping: the increased cost base will cause companies to shop around for other countries with less stringent tax systems. Product standards and Process standards • Distinction must be made between product standards and process standards. Product standards (externalities in consumption) need to be enforced in the consuming jurisdiction irrespective of the source of the product. Process standards (externalities in production) should generally be specific to the location of protection. • GATT and trade negotiations should work on how to avoid the use of process standards as protectionist devices. Unfair trade • If you do something different concerning environment than I do in the same industry or sector, this difference is considered to be tantamount to lack of "level playing field" and therefore amounts to "unfair trade.― • Eco-dumping: domestic costs and prices will increase, while imported goods produced under less environmentally friendly regimes will undercut those domestic products, at home and abroad. Non-green products will thus undercut green products. Hecksher-Ohlin Model (?) • In production: As capital is accumulated comparative advantage shifts from labor- intensive goods to capital-intensive goods. • In consumption: As a country's per capita income and industrial output grow, the value its citizens place on different goods changes. The value on environment increases. An Economic View—Remember Herman Daly? • Interpret environmental scarcity as a factor of production that influences the comparative advantage of a country. • The environmentally more (less) abundant country A will produce and export the relatively more (less) pollution- intensive commodity. Environment Production factor Consumption Other factors Other goods Production Consumption 1/9/2009 7 Environmental policy and comparative advantage • If country A implements environmental policy by means of an emission tax, and such measure implies the reversal of comparative advantage, the country A would shift to exporting the relatively less pollution-intensive commodity. • The environmental quality of the home country improves, while that in the foreign nation deteriorates. More on Rational Choice Model • If all economies were growing equally rapidly, the progressive introduction of national environment taxes and regulations would tend to cause pollution-intensive production processes to relocate gradually from wealthier and more densely populated countries to developing and more sparsely populated countries. Production factor Consumption Production factor Consumption Environmentally abundant country Non-Environmentally abundant country Transborder externalities - The case of one-way transmission • U.S. is transmitting acid rain to Canada, thanks to its CO2-intensive way of producing electricity. • If U.S. refuses to tax its electricity producers for the CO2 they generate, should Canada impose tariff on electricity imports from U.S.?  Second best solution. • Maybe the loss is larger than gain. Gain is small because it is not a direct tax. Loss of gains from trade. Concerns about using discriminatory trade measures to address environmental issues. • Trade policy measures are not the best instruments for achieving environmental objectives. • Producer interest groups and some environmental groups are nevertheless finding it mutually advantageous to use environmental arguments in support of their claims for unilateral import restrictions, particularly following the costly imposition of stricter environmental standards on domestic producers. Protectionism will always make strange ―alliances‖ • Protectionist measures threaten to be followed by retaliatory and counterretaliatory action, ultimately undermining the rules-based open global trading system. • Some environmentalists oppose trade and investment liberalization. – Freer trade > more output and income > more consumption > resource depletion and degradation of the natural environment. – The relocation of environmentally degrading industries to countries with lower environmental standards. Multilateral environmental agreements (MEAs) • The most immediate problem faced by the WTO in its environmental work is its compatibility with existing multilateral environmental agreements (MEAs) a number of which include measures about trade. – Almost every country that is a member of the WTO is also a signatory of the MEAs. > potential inconsistencies