Environment

in Peril?
- Jagdish Bhagwati

Presented by Caroline, Joyz, Michelle & Sheen

Movie: An Inconvenient
Truth
The balance…
 IMPASSIONED
DIFFERENCES
 Environmentalist’s Viewpoint:
 Economic Globalisation is a Threat to the
Environment!
 Value Environment over Income

 Economist’s Viewpoint:
 Human-centric view of Nature
 Conventionally tend to value income over the
environment
 IMPASSIONED
DIFFERENCES
 Trade suggests absence of regulation,
whereas environmentalism suggests its
necessity.
 Trade is exploited and it’s virtues extolled
whereas Environmental objectives are
embraced by NGOs.
 Conflicts of ‘interest’ leads to distrust.
A COMMON FALLACY:
Freer trade, without environmental
policy in place is harmful
• That this MAY happen is surely correct.
That it MUST happen is incorrect.
• Possible benefits of Trade Liberalization
(Improve income, welfare & environmental
quality)
A COMMON FALLACY:
Freer trade, without environmental
policy in place is harmful
• Imposition of Protectionist Quotas had led
to both lower economic welfare and to
increased pollution.
 Problems from the “Blue Revolution” –
rapid expansion of coastal shrimp farming
in the 1980s in several countries.
 Water contamination by the effluents of the
shrimp ponds.
 Fresh and salt water table disruption.

 Surrounding ecosystems disrupted

A COMMON FALLACY:
Freer trade, without environmental
policy in place is harmful
• “Polluter Pay Policy” – cover social cost
and improve economic welfare. [as the
true social cost is reflected from the high
cost of production]
The “Best Policy”: Combines
Free Trade with Appropriate
Environment Policy.
 WHAT’S THE OPTIMAL POLICY?
 An Appropriate Environmental Policy

 Pursue Free Trade

AN APPROPRIATE
ENVIRONMENTAL POLICY –
Why?
 WE NEED TO BALANCE INCOME GAINS
AGAINST ENVIRONMENTAL BENEFITS.
 E.g. Shrimp Coastal
 A case that we weight ENVIRONMENTAL
CONSIDERATION and EXPORT EARNING OF SHRIMP
 It’s a Question of: “Do we want to protect environment
and not Export Shrimp?”
 If we do, the cost of Protecting Environment MUST
justify and Balance against the loss from Shrimp
Export Earning.
 Trade Off depends on the SOCIETAL
VALUATION of the environment income.
 William Nordhaus and James Tobin
(NOBEL Laureate)
 New measure of national income and its
growth taking into consideration of
environmental degradation.

 Herman Daly
 “Reduce Estimates of Growth Rate”
The Question of “VALUATION
OF ENVIRONMENT”
 Case 1: Demand for softwood, pulp and
paper, mahogany and other precious
hardwoods in USA

Defenders of Wildlife
(Environmentalist)
VS
Trade Expansion in USA
(Economist)
 Environmentalist Arguments
> Accentuated “Over-harvesting” of
boreal forest in Canada
Economist Arguments
> it’s a question of How Canadian
value the boreal forest
> it is up to Canadian (democratic
Society) , domestic political
process to make that choice and
NOT UP to environmentalist to
impose their extraneous
valuation on what Canadian
should do & not do, within their
own jurisdictions with their
natural resources.
 Environmentalist Arguments Economist Arguments

> Drives Deforestation in Brazilian WEIGHT YOUR OBJECTIVE

Amazon THROUGH SOCIAL/POLITICAL
VALUATION – IN TERMS OF
TRADE GAIN AND
ENVIRONMENTAL
CONSIDERATION AND OTHER
> Sq miles of native and globally- IMPLIED COST.
unique forest have been cleared
to make way for monoculture
tree plantation to feed
intentional demands for wood
products
 INCOME AND
ENVIRONMENT
INTENSITY OF ENVIRONMENTAL
PREFERENCE
1) POPULATION IMPLICATIONS
ESPECIALLY IN RICH COUNTRIES
 DEMOGRAPHICS IMPLICATIONS
 YOUNG AND OLD POPULATIONS
 YOUNG > RARELY THINK OF TRADE OFF
 IGNORE COST OF REACHING ENVIRONMENTAL
GAINS,
 OVERSIMPLIFIED VIEW OF WHAT MUST BE DONE
 OBJECTIVE – UNCLEAR (NO SYSTEMATIC AND
COMPREHENSIVE ANALYSIS
 UNMINDFUL OF COMPLEXITY AND TRADE OFF
 INCOME AND
ENVIRONMENT
INTENSITY OF ENVIRONMENTAL
PREFERENCE
 MIDDLE AGE
 WORRY ABOUT TRADE OFF AND COMPLEXITY
 DEMOGRAPHICS WILL REINFORCE THE REND EFFECT
FROM ENVIRONMENTAL ACTIVISM.
 THE NEED TO ADDRESS THE ISSUE OF ENVIRONMENTAL
VALUATION.
 Environmentalist Arguments Economist Arguments

 GROWING INCOME LEADS  ECONOMIC GROWTH

TO DETERIORATING PROMOTES DEMOCRACY
ENVIRONMENT OUTCOMES  RISING INCOME CREATES A
 GLOBAL TRADE AND BETTER ENVIRONMENT
INVESTMENT IN COUNTRIES
WITH LOWER
ENVIRONMENT STANDARD
LEADS TO UNFAIR
COMPETITION, DESTROY
LOCAL INDUSTRY THAT ARE
SUBJECT TO HIGHER
STANDARDS
 Growth will not automatically
take care of pollution.
 Environmentalist View vs Trade Economist’s View on
Environmental Regulations/Protections
 ↑ Income = > Trade activities that involves more
pollutions , we should contract it
 ↑ Income = > Trade activities that cause less pollution,
we may expand it.
 Imposing Environmental restriction is good, as it
promotes research. (e.g. Car firms to produce engines
that yield more miles per gallon.)
 Increase no. of Environmental Group gives rise to
environment-friendly technological innovation, hence
associated with increase income.
Competing with others who
have lower standards on
domestic pollution
 Main issue is pollution that is domestic
and not global.
 Global spillovers require that they be paid
for through appropriate taxes or
regulations.
 Country’s domestic pollution issue should
be dealt with by the country’s
government?
 If one country adopts a lower pollution tax
rate in the same industry as of another
country, then that country would enjoy
unfair advantage by exploiting the
environment.
 These unfair competition leads to “social
dumping” and must be countervailed
through trade protection.
 Illogical?
 Different countries have different wages,
capital costs, weather, infrastructure etc. and
these leads to differential advantages of
production and trade competitiveness.
 Different countries have different
environmental conditions.
 Sometimes standards are deliberately set at
higher levels, so that rivals abroad are unable
to produce economically and will not be
competitive.
Race to the bottom in
standards for domestic
pollution
 Difficult to find examples where
environmental standards are reduced in
practice due to lesser standards in other
places.
 Due to other compelling reasons that
outweighed the non-negligible financial
gains that could be earned if pollution
standards are lower…
 In practice, differences in standards
across countries in many industries are
not large enough to outweigh other factors
that typically affect investment.
 Multiplant firms that invest in different
locations will work uniformly with the most
stringent standards they face among
these locations (more cost-effective).
 Firms will predict that all countries are
escalating to higher standards and will try
to stay ahead and start having higher
standards themselves.
 Innovations lead to better technology,
which is more environmentally friendly,
that can be more productive and leads to
higher profitability.
 Replacement of environmentally unfriendly
technology with new environmentally
friendly technology over time.
 Use of environmentally unfriendly
technology just to obtain more gains by
exploiting lower standards in the host
country, would incur high reputation costs
instead.
Is the WTO Against the
Environment?
 Besides free trade issues, environmentalist
raised objections to the management in
WTO & its predecessor the GATT.
 Concerns were on ‘safety’ & ‘values’ issues
which both were felt to made trade rules put
environmental regulators at a disadvantage.
 WTO – rules that relate to trade in
products that raise safety questions. For
example; the Hormone-fed beef and GM
food products.
 For Hormone-fed beef :
 Cattles are feed with various drugs in order to speed up the
growth and to produce weight gain. A traditional raised cattle
takes 14 months to grow from 80 pounds to 1,200 pounds.
 As measurable amounts of hormones in traditionally raised beef
are transferred to humans and some scientists believe that
human consumption of estrogen from hormone-fed beef can
result in cancer, premature puberty and falling sperm counts.
 However such beef not only cause problems to human health
but to environment as well.
 Cattle production is a major source of environmental pollution as
rainforests of Central America and the Amazon were cleared to
make way for cattle.
 Organic waste produced by cattle each year causing water
pollution.
 The petro-chemical fertilizers used to feed the crop meant for the
cattle causes water pollution.
 GM food products
 The genetic material (DNA) has been altered in
a way that does not occur naturally. There are a
few names for it in the markets like modern
biotechnology, genetic engineering, gene
technology etc. It allows selected individual
genes to be transferred from one organism into
another, also between non-related species.
 Reasons for having GM food are:
 have perceived advantage to producers and consumers
(translate into a product with lower price and greater benefits
in terms of durability and nutritional value)
 to improve crop protection (to increase crop level as better
resistance against plant disease cause by insects or virus)
 Concerns of the GM products include: the capability of the
GMO to escape and potentially introduce the engineered
genes into wild populations.
 Safety on the consumption should be assessed on a case-
on-case basis as the current GM foods available in market
have passed risk assessments which not likely to cost risk for
human health.
 No effects on human health shown on the consumption of
such food.
 EU impose a ban on the sale of hormone-fed beef
however cannot pass without a scientific test. Thus EU
was found to be violating the WTO rules which cause
protest from environmentalists in Europe direct at
WTO.
 GM food products similarly, as at that time, when the
current available science technology are unable to
justify if the consumption of GM products will cause
health problems and pollution issues. Thus the US
complains to WTO.
 Conclusion
 Environmentalists regard the scientific test
requirement as demanding, inflexible. Thus
US and EU retaliate in the form of imposing
tariffs to reduce trading of the 2 products.
Trade of hormone-fed beef was reduced by
more than $200 million and the GM products
in billions.
The shrimp-turtle case
 The Appellate Body was established in 1995 under
Article 17 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU).
 It is a standing body of seven persons that hears
appeals from reports issued by panels in disputes
brought by WTO Members. The Appellate Body can
uphold, modify or reverse the legal findings and
conclusions of a panel, and Appellate Body Reports,
once adopted by the Dispute Settlement Body (DSB),
must be accepted by the parties to the dispute. The
Appellate Body has its seat in Geneva, Switzerland.
 In 1998, India along with 3 other developing
countries, Thailand, Malaysia and Pakistan
protest against US legislation on barrier of its
import of shrimp caught without the use of turtle-
excluding devices.
 All shrimps import into US have to be declare
using the Shrimp Exporter’s declaration form
attesting that the shrimp was harvested under
the condition that it does not affect sea turtles.
For example - harvested from areas where sea
turtles do not occur and with the use of TEDs
 Result:
 The WTO Appellate body sided with US
environmentalists and legislation that imposed trade
restriction.
 It was said that the GATT and WTO was influenced
by the richly endowed countries, thus lead to
inappropriate outcomes.
 Not the best policy involving a conflict between trade
and the environment.
 Victory for environmentalists
 Sad loss for the world, the battle was waged on the
wrong front.
 Suggestions:
 Bhagwati suggested that for the above case,
US could have bought the TEDs and send
them gratis to the developing countries for
their use.
 The global pollution may not be caused by
globalization, beside global environmental
problems have been addressed through
negotiated treaties and conventions, like the
MEA (Multilateral environmental agreements)
 Some of the MEA allows the use of trade
restrictions against non-members also known as
free riders and members.
 Example:
 The use of CFCs in refrigerators was forbidden by the Montreal
Protocol on substances that contribute to the depletion of the
ozone layer. If non members continue to use CFCs, the
members will then use trade sanctions against them. However
this applied academically, is not feasible.

 Another suggestion is to repay for the damage done in the past

that will take in the form of payment of fund going into the
Superfund.
 The set up of Superfund program in 1980 led by the Congress
locate, investigate, and clean up the worst sites nationwide. The
EPA administers the Superfund program in cooperation with
individual states and tribal governments. The office that
oversees management of the program is the Office of Superfund
Remediation and Technology Innovation (OSRTI).
 The Superfund could then use the funds to finance the use of
carbon-free technologies in developing countries and research
on new inventions.
 US leads in such research and therefore its
industry can profit from this arrangement which
will be a major motivating factor.
 Each country can be charged for its net
emissions of carbon minus its absorption of
carbon, which is buying permits for all
emissions. As most rich countries like US will
most likely have to pay a large amount to be
able to emit annually therefore will be motivated
to cut emissions.
 Efficient design and distributional fairness are
important in order to resolve the environmental
issues.
 CONCLUSION
 Objective of the article
 To highlight the issues of concerned of both
environmentalist and
trade economist.
 To bring forward academic discussions on these
issues.
 CONCLUSION
 Motivation of the article
 Attempt to address the many concerns and
impacts of trade with environmental
considerations.
 Attempt to change the general perspective of
trade impact on the environment.
 In view to address social/political/economical and
environmental concerns with a standalone
solution.
 Attempt to provide a bigger perspective of the
individual’s argumentative stand.
 As long as each is able to justify substantially,
there is no reason why one party's objective
should overwrite the other.
 CONCLUSION
 Contributions of the article
 It highlighted to the Economists to be mindful
of their economic activities.
 It highlighted to the Environmentalist to look at
the bigger picture instead of looking at its own
immediate domestic environmental problems.
 It highlighted to the Consumers that they too
have an active part to play in keeping the
balance between trade and environmental
protection.
Q&A