This study by the WTO addresses several key questions related to the environment. The study shows that trade could play a positive role in the diffusion of environment-friendly technologies around the world and is backed up by the five case studies on chemical-intensive agriculture, deforestation, global warming, acid rain, and overfishing.

Executive Summary:
The world economy has changed profoundly over the last 50 years. The sheer size of economic activity has increased tremendously as a result of population and per capita income growth. World population has more than doubled from 2.5 billion in 1950 to 6 billion today, at the same time as average income has risen by a factor of twoand-a-half. The cumulative effect is a six-fold rise in global GDP over just half a century.

During this period, the world economy has become more integrated as a result of three factors: advances in communication and information technologies, reduced trade barriers, and reduced barriers to foreign investment. These factors have reduced the transactions costs of international commerce substantially, in turn stimulating trade directly, by allowing countries to specialize in different sectors, and indirectly, by allowing production processes to be subdivided geographically among specialized production units around the world. The net result is a 14-fold increase in trade since 1950. At the same time, industries have become more mobile, as reflected by an even more rapid growth in foreign direct investment.

The growing world economy has been accompanied by environmental degradation, including deforestation, losses in bio-diversity, global warming, air pollution, depletion of the ozone layer, overfishing and so on. (See Box 1). Part of the explanation, of course, is the sheer number of us. Six billion people obviously put more pressure on natural resources and ecological systems than 2.5 billion, and this pressure will continue to rise as we grow towards 10 billion in the next century. What is more, there is no indication that consumption per capita is slowing.

On the contrary, globalization has led to an acceleration of economic growth. At the current growth trend, per capita GDP will double by 2035 and quadruple by 2070.

In light of the strain already put on the environment, it is not difficult to appreciate the concern that current trends are not sustainable unless tough measures are taken to temper resource consumption and polluting emissions.

Slow progress in introducing adequate environmental taxes and regulations has in part been blamed on the multilateral trading system. There are essentially two sides to the argument, one legal and the other involving political economy considerations. As far as the legal argument is concerned, it is claimed that WTO rules circumscribe environmental policy-making. It is also claimed that the WTO rules provide legal cover for foreign countries to challenge domestic environmental policies that interfere with their trading rights.

The political economy argument is that competitive pressure from the world market sometimes makes it impossible to forge the necessary political support at home to upgrade environmental standards. The perceived costs of acting alone in terms of lost investments and jobs often take the steam out of regulatory initiatives.

In the worst case scenario, environmental regulations may even be bid down in the relentless competition for market share, investments, and jobs.

In addition, the environmental community is fearful that international trade will magnify the effects of poor environmental polices in the world. For example, demand from the world market may magnify the tendency of overfishing. Or more generally, economic growth driven by trade may speed up the process of environmental degradation unless sufficient environmental safeguards are put in place. These are among the issues explored in this study. ...

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PDF format, 1.1MB, 109Pages.

HåkanNordström and ScottVaughan
WTO Publications
Centre William Rappard
154 rue de Lausanne
CH-1211 Geneva
Tel: (41 22) 739 5208/5308
Fax (41 22) 739 54 58

ISBN 92-870-1211-3
© World Trade Organization 1999

TABLE OF CONTENTS:
Executive Summary 1
I. Introduction 9
II. Causes of Environmental Degradation and the Interaction with Trade 13
A. Chemical-intensive agriculture 14
B. Deforestation 16
C. Global warming 18
D. Acid rain 20
E. Overfishing 21
F. Concluding remarks 26
III. General Equilibrium Linkages Between Trade and the Environment 29
A. Theoretical overview 29
B. Empirical overview 31
C. Applied models 33
D. Concluding remarks 34
IV. Does Economic Integration Undermine Environmental Policies? 35
A. The competitive consequences of environmental regulations 36
B. Do environmental regulations induce the relocation of firms? 38
C. International evidence 39
D. Restraining factors that prevent the migration of polluting industries 40
E. A race-to-the-bottom, a race-to-the top, or no race? 41
F. Empirical evidence of regulatory races and chills 44
G. Concluding remarks 46
V. The Relationship Between Trade, Economic Growth, and the Environment 47
A. Theoretical overview 49
B. Is economic growth sufficient to induce environmental improvements? 51
C. Empirical evidence 52
D. International trade and the EKC 54
E. Concluding remarks 57
VI. Concluding Remarks 59
Bibliography 61
Annex I: Trade and environment in the GATT/WTO 67
Annex II: Report by Ambassador H. Ukawa (Japan), Chairman of the Group Environmental
Measures and International Trade, to the 49th Session of the Contracting Parties, L/7402 (without annexes) 88
Annex III: Report (1996) of the Committee on Trade and Environment, WT/CTE/1,
(Section III, Conclusions and Recommendations) 98
Annex IV: Committee on Trade and Environment, 1995 to mid 1999 104
Annex V: Marrakesh Decision on Trade and Environment 109

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