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Global Trade and Environment



Introduction

There is a great relationship between trade and environment. However, this relationship is complex and has been highly debated globally. It is essential to understand and address this relationship in order to provide the sustainable development of trade in different parts of the world. For this reason, the United States of America and the European Commission (EC) have been actively involved in linking the correlation between trade and environment, both at the community and global level in different discussions, negotiations, and encouragement of sustainable trade activities. This study will comprise two parts. The first part will be devoted to the relationship between trade and environment, and the second part will respond to the country level questions with a focus on the United States of America.

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Trade and Environment

Following the rising global economic inter-dependence, economic globalization, and current trade liberalization, there is an increase in pressure on the utilization of the natural environment resources. It is evident that there is a correlation between trade and environment, and thus, an increase in the trade activities results in over-utilization of the environmental resources. The following tendency calls for the effective and controlled implementation of trade activities in a manner that will not negatively impact the environment. Several world bodies acknowledge that trade and environment, when appropriately used, are mutually supporting. For instance, the Commission Communication on Trade and Environment (CCTE) that was established in 1996 underscored that trade liberalization and trade policies could have either positive or negative impacts on the environment (Ec.europa.eu, 2014). In order to enhance a mutually supportive relationship between the two, countries need to meet the minimum trade conditions to ensure that positive effects of globalization and trade liberalization support and reinforce the protection of the environment.

One fundamental condition to make trade and environment mutually supportive is to ensure that the trade liberalization process used in the international market is conducted concurrently with the establishment and reinforcement of effective and environment protectionist legislation at the global, regional and national levels. When these two are considered, the sustainability of both trade and environment is guaranteed. Similarly, the environmental policies could encourage various technological innovations, stimulate economic efficiency, and, in turn, improve the productivity of countries. It should be noted that it is the responsibility of countries and international trade and environmental bodies to develop such policies and trade regulations that do not constrain but rather promote countries in developing and implementing different adequate and non-protectionist environmental measures, at both the national and international levels.

It is worth noting that international and national trade policy determines the sustainability of the trade flows. Trade policy and trade-related bodies, such as the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA), and International Monetary Fund (IMF) among others, need to play a role of a sustainable driver of the environmentally friendly trade regulations and pacts that give incentives for more sustainable trade flows in the global markets (Ec.europa.eu, 2014). Such trade pacts and regulations are beneficial at the multilateral level, regional and bilateral trade levels. They help develop positive synergies, as well as encourage co-operation between the countries. Such bilateral and multilateral trade agreements encourage sustainable production of goods and services and influence various sustainable consumption patterns. In this respect, sustainable production considers different external environmental constraints and helps eliminate the environmentally damaging subsidies.

The Multilateral Level

There are three main aspects to the relationship between trade and environment, particularly its significance to the international relations. These include: the impact of trade and trade policies on the environmental, the potential impacts of the environmental regulations on the trade flows between countries, and the use of the trade regulations to achieve environmental protection objectives. The complex relationship between trade and environment was first discussed in 1992 at the International conference in Rio. This relationship has been followed by the consistent and intensive talks led by the WTO, the United Nations Environment Programme (UNEP), the Organization for Economic Co-operation and Development (OECD), and other financial bodies, such as the IMF and the World Bank, as well as political bodies, such as the European Union, and different countries if the world.

In order to address this relationship in detail, the WTO was commissioned and created the Committee on Trade and Environment (CTE) in April 1994, following the agreements signed in Rio in 1992. Since its establishment, the WTO Committee on Trade and Environment (CTE) has been actively participating in this debate guided by the principles defined in 1996. This led to the recommendations suggested at the 1-st WTO Ministerial Conference that took place in December 1996, in Singapore. It should be noted that since 1996, the WTO has had its mandate to build a constructive policy relationship between trade, environment, and sustainable development.

Trade and Domestic Policy

Trade policies impact both domestic and international policies. Most often, the trade policies limit or weaken the independence of countries to adopt their own social and environmental policies. The limitations given to ensure sustainable trade activities and utilization of resources has elicited concerns of a ‘race to the bottom’ in the sense that the environmental standards are somewhat considered too stringent, especially by the developing countries, thus limiting their ability optimally to use their resources and engage in production and trade. In this case, ‘race to the bottom’ refers to reduced productivity of countries, thus making them poorer instead of improving their GDP.

Many countries would opt to lower the environmental and social standards in order to increase their production and trade and, subsequently, gain competitive advantage. Usually, the producers based in the countries enforcing the stringent trade and environmental process principles will suffer trade and economic competitive disadvantage compared with producers situated in the member-states enforcing less strict standards. Thus, producers situated in the countries enforcing the relaxed regulations are likely to register an increase in their sales, market share, and profitability, whereas producers located in the countries that enforce the stringent trade and environmental laws would steadily experience low sales, loss of market share, reduced profitability. Thus, ‘the race to the bottom’ would be witnessed by countries and their producers.

In order to remain competitive and to improve their status from the poor to middle-income countries, the low trade standard counties faced with the prospect of their industrial growth often opt not to raise their environmental standards or may loosen their current standards. This measure is aimed at minimizing the competitive disadvantage in the world trade market. Thus, in order to ensure that there is a fair playing field, the trade and environmental agreements should be bilateral, multilateral and jointly. They should also be fairly enforced by the world bodies, such as the WTO, and other regionally binding agreements, such as the NAFTA. Thus, countries will be made to operate under the same standards for the sustainability of the environment.

Expansion in trade, as a result of the globalization and trade liberalization, also has direct or indirect valuable effects on the environment. The theory of comparative advantage indicates that trade prompts the countries to be more efficient in the utilization of their resources, thus minimizing wastes. Trade liberalization also reduces barriers and discretionary subsidies related to the production and pricing policies that may disadvantage other players, especially when some products from a country are overly underpriced in the international market due to the subsidies.

For instance, the widespread subsidies on chemical fertilizers and pesticides make the products readily available, consequently stimulating environmentally harmful farming methods that lead to widespread pollution of land, water, and air. The widespread subsidies and globalization of trade also create the ‘boomerang’ effects as a result of the trans-boundary exchanges of different commodities. In relation to the use of the chemical fertilizers and pesticides in the developing countries with fewer restrictions, the laborers applying such substances without safety attire suffer different detrimental effects, such as skin or respiratory diseases. People can inhale the chemicals during sprays or get affected when they drink water from the streams polluted by the runoffs from the farms.

The harmful effects of these chemicals can also return to the United States through various imported fruits and horticultural products infiltrated with dangerous chemicals. It is important to note that trade agreements prohibit such subsidies for the domestic producers. If these subsidies are eliminated, both economic efficiency and environmental sustainability at the local and global levels will be protected. It should be noted that these two sides of the relationship between trade and environmental are very complex. On the one hand, free trade encourages economic growth as a result of the increased trade activities, thus reducing some negative environmental impacts, whereas on the other hand, an increase in trade results into some negative impacts on the environment, thus influencing sustainability. Therefore, there must be a clear balance between the two and adequate control provided by such world bodies as the IMF, the WTO, and the World Bank, as well as other regional trade agreements, such as the NAFTA and the Common Market for Eastern and Southern Africa (COMESA) among others.

Trade, to a larger extent, also promotes the spread and development of the environmentally friendly technologies that minimize pollution and facilitate efficient utilization of resources. For example, in energy and industrial production, many developing countries and formerly communist countries are overly dependent on the outdated, inefficient, and high-polluting power plants. Trade with the machine producing countries could facilitate the replacement of the outdated plants with modern, highly efficient machines. The following modernization could help such countries utilize their resources efficiently in the industrial sector. As a result of the continued call for environmental sustainability, industrial production and emission, multinationals are presently responsible for the development of cleaner industrial machines and processes, which are also distributed to different countries of the world through trade. This measure contributes to the overall sustainability programs.

Trade Agreements and the Environment: Rich vs Poor Countries

Trade agreements in relation to the environment between the rich and poor countries may not be balanced since such rich countries as the USA may have strict environmental regulations, whereas poor ones may have flexible rules that may harm the American firms and result into the imbalance of trade. Such limitations can be addressed by the trade pacts set by the regional or world bodies. A number of approaches have been used to create a balance in the policies by different institutions that will ensure the achievement of the goals and benefits of trade, as well as guarantee environmental protection.

The Approach of the World Trade Organization (WTO)

The approach of the WTO is to maintain liberalized trade. The following objective was reached after several trade treaties under the General Agreement on Tariffs and Trade (GATT) framework, the predecessor body. The WTO, whose membership presently comprises120 countries, has managed to negotiate the lower tariffs and non-tariff barriers to trade, as well as to eliminate subsidies for the export industries. On the other hand, this liberalized trade may lead to over-utilization of resources that may, in turn, have different negative environmental impacts (European Commission, 2007).

Despite the fact that the WTO identifies a distinctive exception to trade rules, particularly under Article 20 related to resource conservation and environmental protection, the regulations have been narrowly interpreted, being suspicious of ‘green protectionism’ in which national trade barriers are used to insulate the domestic industries from international competition under the pretense of environmental policies. Similar to the Kyoto Protocol, the WTO places the responsibility for environmental regulation on the national governments and not the individual industries. Countries, therefore, have a responsibility to create regulations that will follow the global agreements concerning the environmental protection.

The Approach of the North American Free Trade Agreement (NAFTA)

The NAFTA was signed by the United States, Mexico, and Canada in 1993. This agreement lowered trade barriers across the North American continent to facilitate free trade. During the talks before signing this agreement, different agencies dealing with environmental protection pointed out that free trade could lead to negative environmental impacts, as well as severe environmental challenges that could be witnessed near the maquiladoras regions, along the Mexican border. As a result, the subsequent agreement led to the creation of the North American Agreement on Environmental Cooperation (NAAEC). The mandate of the NAAEC was to establish the Commission for Environmental Cooperation (CEC) that was supposed to be responsible for ensuring that the three states would follow all issues related to environmental sustainability.

It should be noted that the North American Agreement on Labor Cooperation (NAALC) was signed in order to deal with the labor-related issues. However, the CEC powers were limited only to fact finding and recommending the future actions in case any party failed to follow the set regulations and agreements. As a result of this weakness, for a long time, the three countries failed to provide the funding meant to clear the environmentally deteriorated areas along the border of the USA and Mexico. This example is a clear manifestation that trade agreements between a rich country (USA) and a poor country (Mexico) significantly influence the environment, as well as put the US firms at a disadvantage because of the strict environmental rules of the USA.

Further, the establishment of trade in the agricultural sector under the NAFTA allowed the small corn farmers in Mexico to compete with the low-cost corn imported from the USA. On the one hand, the agreement also helped reduce industrial pollution in Mexico, but on the other hand, it opened another challenge of the industrial concentrations in particular areas, consequently worsening the environmental and the quality of life. As a result, the illegal cross-border migrations were seen to increase in some areas of both countries. The US government has been fighting with the challenge of illegal migrants, as well as transits of drugs from Mexico for several decades. Thus, it can be concluded that signing an agreement with Mexico disadvantages the stringent environmental rules of the USA.

The NAFTA has also resulted that the environmental regulations were viewed as barriers to trade agreements signed between the three countries. For example, the Canadian asbestos industry challenged the U.S. limitations on the sale of asbestos products that are believed to be one of the causes of cancer. On the contrary, the United States pesticide industry challenged the strong Canadian pesticide regulations. Ethyl Corporation based in the USA also successfully challenged the Canadian ban on the gasoline additive methylenedioxy- methylamphetamine (MDMA), which is a chemical considered to cause nerve damage. In this litigation, Canada was ordered not only to withdraw the ban, but also to pay $10 million as compensation to Ethyl Corporation for the legal costs and lost sales. Such positions that are replicated in many parts of the world has put the U.S. firms at a trade disadvantage because of the stricter environmental rules. When trade agreements are enforceable, countries will respect the agreements and those flouting the environmental standards will be fined appropriately in order to protect the environment.

Prospects for a Global Treaty to Replace the Kyoto Treaty

The Kyoto Protocol is a global agreement related to the United Nations Framework Convention on Climate Change (UNFCCC), which sets the internationally binding emission reduction targets. It aims at reducing the amount of CO2 emission from different industrial activities and minimizing the emission of other greenhouse gasses that are presently threatening the environment and resulting into adverse climatic change effects. The Kyoto Treaty has set the limits that all the parties must adhere to. After having recognized that the developed countries are overly liable for the current high levels of greenhouse gas emissions in the atmosphere because of their industrial activity for the last 150 years, the Kyoto Protocol placed heavier responsibilities on such countries under the principle of "common but differentiated responsibilities." On 11 December, 1997, this Protocol was signed in Kyoto, Japan. It was enforced on 16 February, 2005, setting the first commitment period to run from 2008 to 2012 with the detailed rules (the Marrakech Accords). The following accords are to guide the implementation of the Protocol adopted at the Seventh session of the Conference of the Parties in 2001, in Marrakech, Morocco.

It is significant to note that several developed countries agreed to the legally binding limitations and reductions of the greenhouse gases emissions in two commitments phases: the first one - from 2008-2012 and the second one - from 2013-2013. Many developed countries in the European Union, as well as Japan, New Zealand, and Russia successfully participated in the first phase of the Kyoto Protocol. About 37 countries have already committed to the second phase of the Protocol. It is worth noting that there are different prospects for a global treaty to replace the Kyoto Protocol. A new global treaty is supposed to be signed and ratified by all, both developed and developing countries.

Since some countries, for instance, the USA, have failed to ratify the first or second phases of the Kyoto Protocol, the countries presently responsible for 80% of all emissions of greenhouse gases (GHG) have been trying to find a consensus and control the following issue. The United Nations, the European Union and other countries have been doing their best to control and influence the reduction of the greenhouse gases emissions. This fact brings out the prospect of a binding agreement since the USA is one of the biggest GHG emitting countries. President Obama is planning to reduce the US emissions of GHG by 15% by 2020. Comparably, the EU aims at reducing the emissions of GHG by 20% by the year 2020. It should be stressed that the EU is ready to reduce up to 30% of emissions if other developed countries agree to the same commitment. In as much as the levels of reduction are different, the intension and current commitment indicate that the fight towards sustainable utilization of resources and minimizing of environmental pollution will be won in the future.

Should Agreements be Tradable?

Once these targets and commitments to reduce or limit pollution are signed, they should be implemented and enforced. It is the responsibility of the developed countries to limit their emissions based on the "common but differentiated responsibilities" principle set by the Kyoto Protocol. There is no ‘pollution rights’; thus, the agreements are not tradable between countries, but should be faithfully be adhered to.

Conclusion

There is a great relationship between trade and environment. The following relationship is, however, complex since the increase in trade may have either positive or negative impact on the environmental sustainability. This study consisted of two parts. The first part is focused on the relationship between trade and environment. The second one is devoted to country level questions, with a particular focus on the United States of America. It is of great significance to understand and address the relationship between trade and environment as it significantly contributes to the sustainable development of trade in different parts of the world. It is revealed that trade policies impact both domestic and international policies and regulation of every contry. Most often, the trade policies limit or weaken the autonomy of countries, as well as their own environmental and social policies. It should be noted that in different perspectives, trade policies may be considered as a factor towards the race to the bottom.

It is also found that trade agreements between the USA and poor countries may not be balanced since the USA may have strict environmental regulations, whereas poor countries may have flexible rules. These rules may harm the American firms and result into the imbalance of trade. It is revealed that there is a prospect for a global treaty to replace the Kyoto Protocol. All the global stakeholders should sign a binding agreement in order to minimize environmental pollution and to ensure sustainable utilization of natural resources. The second part two of the study is devoted to answering the country level questions regarding the international trade of the United States of America.

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