An Introduction to Trade and the Environment

Where are the roots of the trade and the environment debate? Many analysts bifurcate the discussions into two periods, the 1970s and the 1990s.

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Initial concerns about the effect that increased trade would have on the environment emerged at the beginning of the 1970s, the same time the environmental movement in the industrialized states begins gaining strength.

At the time, the Organization for Cooperation and Development (OECD), a multilateral organization composed of members from the industrialized nations, served as the lead organization considering the issues. OECD members specific concerns focused on the issue of "competitiveness", or how the new wave of environmental laws requiring corporations to invest in pollution reduction equipment, might harm their competitive standing in the trade arena.

OECD's answer to the problem was to issue a set of guidelines, OECD Guiding Principles Concerning the International Economic Aspects of Environmental Policies (1972), with the hope that all member states could cooperate and thus alleviate any potential competition problems. Without a doubt, the principle receiving the most attention was the Polluter Pays Principle (PPP), which suggested that the effects of competition could be muted if all member states agreed not to subsidize (reimburse) industries, but instead required them to absorb (pay for) the costs of the soon to be required pollution reduction equipment, with the cost eventually being transferred to the consumer and reflecting a more accurate price of production.

Trade and environment issues started gaining mainstream attention in the beginning of the 1990s, in the wake of the now (in)famous General Agreement on Tariffs and Trade (GATT) Tuna/Dolphin decision. In this particular case, the WTO ruled the US policy of banning imports of tuna from states that used purse seine fishing techniques to catch tuna, and subsequently kill dolphins, violated the terms of GATT. The ruling struck a raw nerve among the flipper generation and provided the impetus for bringing the issues associated with trade and the environment to national attention.

The topic stayed inf front of the public throughout the 1990s because in 1998, the WTO again ruled against a US ban on shrimp imports caught without Turtle Excluder Devices (TEDs), equipment developed to help save endangered sea turtles.

These two cases show how process, the issue of how goods are produced, can stir up trade and environmental problems. However, trade and environment issues encompass a much broader and complicated set of issues than merely the issue of process. The competition issues that started in the 1970s still stand high on the environment agenda. Consider the debates surrounding the ratification of the North American Free Trade Agreement (NAFTA), where labor and environmentalists voiced concerns about companies moving their manufacturing operations from the United States to Mexico, the new pollution haven, because of the Mexican government's comparatively minimal environment and labor standards.

The current rules of the game in the international trading arena are also problematic with respect to many international environmental treaties. The Montreal Protocol and Convention on International Trade in Endangered Species, for example, incorporate trade sanctions into their texts as punitive measures for non-complying states. The goal of trade sanction clauses is to provide incentives for states who are party to these treaties to live up to their treaty obligations.

Environmentalists express concern that years of work negotiating environmental treaties could be disrupted if WTO rules of trade are used to nulify those environmental enforcement measures under the assumptions that they violate free trade principles.

© 1999 Patricia A. Michaels. All rights reserved.