Trade vs environment

Trade vs environment

Nine years since the North America Free Trade Agreement (nafta) was created, the environmental impacts of trade liberalisation in the region remain uncertain. It is clear, however, that neither the dire environmental fears predicted nor the direct improvements in environmental performance, stemming from higher income, have generally materialised.

Between 1995 and 1999, the Commission for Environmental Cooperation of North America (cec) -- a body created under the North American Agreement on Environmental Cooperation to assess the impact of trade liberalisation on the environment -- developed a framework to analyse the environmental impacts of nafta. It tested initial hypotheses regarding trade-environment linkages:

• Does trade liberalisation lead to a regulatory or migratory race-to-the-bottom?

• Does it give rise to pollution havens?

• Does it lead to upward convergence of environmental practice that offset the scale effects?

• Does it reinforce existing patterns of comparative advantage to the benefit of efficiency?

• Do liberalised rules serve to increase the use of environmentally preferable products?

Since nafta was the first agreement to include new disciplines covering trade-related investments, the framework also includes the relationship between foreign direct investment and environmental quality. Further, an important assumption of the framework is that institutions matter for environment quality.

From nine years of evidence, the fundamental conclusion is not that free trade itself is bad or good for the environment, but that freer trade and sustainable development need not be incompatible.

race to the bottom: Little evidence of this; environmental quality and protection improved for all us states during the 1990s.

pollution havens: At the aggregate level, there is little proof that variations in environmental regulations between nafta partners are leading to widespread pollution havens. Yet Canada has seen a nearly five-fold jump in hazardous waste imports from the us since nafta came into effect.

the convergence question: Scale effects of the increased flow of traded goods pose serious challenges to environmental infrastructures and policy implementation.

Evidence suggests that nafta has led to marginal increases in emissions from three sectors: petroleum, base metals, and transportation equipment.

A clear and direct impact is increased transport. Expanded road freight transport has led to an absolute increase in air pollution concentrations at Mexico- us and us-Canada border crossing points.

Mexican companies have increasingly built and bought cement plants in the us to counter tariffs against imports of Mexican cement. This has lead to an increase in energy consumption per ton in the us by 12 per cent resulting from an increase in the use of older less efficient dry kiln technology. Greenhouse gas (ghg) emissions have increased in proportion to the rise in cement production in the us and have decreased slightly in Canada.

the efficiency question: There is little evidence to refute or support this hypothesis. In the agricultural sector, prices have been declining reflecting at least in part the gains in efficiency. However, nafta has contributed to more environmentally degrading practices in the cattle, beef and corn sectors.

Increased us corn export to Mexico accounts for one per cent of us corn production. This proportion is higher for genetically modified (gm) corn since Mexico has become a major export market, following the controversy over gm crops in Europe and elsewhere. Trade liberalisation has, however, been a great blessing for the Mexican tomato sector.

A few cases apart, the integration of environment and trade policies continues to remain weak. There has been tentative progress in economic-environmental policy links, particularly in the early 1990s (At this time, the development of market-based measures or the inclusion of environmental goals in fiscal policy instruments gained momentum). However, the integration of environmental factors into the mainstream remains distant.

The logic of integration remains fairly straightforward. As long as the environment continues to be external to economic priorities and therefore serves as little more than a policy appendage or an after-thought to core economic decisions, the world would find itself increasingly lurching from one ecological problem to the next. Efforts to include, or internalise, environmental costs that are external to final market prices have been considered an important fiscal policy principle for some time. In practice, little headway has been made in moving the environment up the policy priority list.

Chantal Line Carpentier is head of the Environment, Economy and Trade Program, North American Commission for Environmental Cooperation