ABSTRACT
Trade expansion can often have environmental implications. Trade may increase environmental externalities at the national, regional, or global level. Although it is usually economically advantageous for countries to pursue their comparative advantage through trade, trade may have environmental repercussions such as increased pollution or natural resource degradation. Economic theory indicates that trade may not make a country better off once environmental impacts are considered.
Trade has both positive and negative impacts on the environment. Expanded agricultural trade has increased deforestation and the use of chemical fertilizers and pesticides. Research suggests that foreign investment motivated by trade can expand polluting industries. The increased transportation associated with trade results in greater greenhouse gas emissions. Positive impacts of trade on the environment include increased access to environmentally friendly technologies and requirements for the phaseout of distortionary subsidies in trade agreements.
International trade agreements make provisions for resource conservation and environmental protection, but these are usually limited exceptions to a general principle of free trade. In the World Trade Organization (WTO), countries may consider the environmental impact of a product but not of its production processes. This has led to numerous trade disputes over whether specific measures are justified on the grounds of protection of life and health or are simply disguised protectionism.
Policy responses to trade and environment issues can occur at the national, regional, or global level. The European Union is an example of a free-trade area that includes institutions for transnational environmental standards enforcement. The United States–Mexico–Canada Agreement (USMCA) incorporates several beneficial environmental provisions but omits any discussion of climate change.
Multilateral environmental agreements (MEAs) address specific trans-boundary or global environmental issues. Conflicts between MEAs and WTO rules are possible but have so far largely been avoided. A major challenge for the future is dealing with the implications of carbon emissions reduction for international trade, including “exported emissions” by developed countries. In addition to ideas for greening existing trade organizations, proposals have also been made for a World Environmental Organization to oversee global environmental policy and to advocate for environmental interests in the world trade system.
