Agriculture, Trade, and the Environment

Discovering and Measuring the Critical Linkages

Maury E. Bredahl

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9780367167240
• eBook ISBN: 9780429723599
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

In this timely volume, an international group of economists, trade negotiators, and environmentalists brings diverse perspectives to bear on the contentious issue of international trade and the environment. Providing a conceptual framework to help assess the issues, the contributors discuss three themes: the dimensions of the economic and political

Part One
Introduction

1
Introduction

Maury E. Bredahl, Nicole Ballenger and John C. Dunmore

Most of the chapters in this book were presented at a symposium sponsored by the International Agricultural Trade Research Consortium: Agriculture, Trade and the Environment: Understanding and Measuring the Critical Linkages. Additional chapters were invited to provide more complete coverage of the broad range of topics in this area.

The symposium grew from the perceived opportunity to contribute to the debate on the interaction of trade and the environment, with a special emphasis on agricultural trade and the interaction of food and agricultural production with the environment. The goals of the symposium, and this book, were:

• to explore the important policy issues in the trade and environment debate, the perspectives of different interest groups, and the evolving roles of international institutions such as the World Trade Organization and NAFTA;
• to focus the trade and environment debate on agricultural and natural resource issues;
• to assess the state of knowledge in the economics profession regarding two sets of critical linkages: between agricultural trade liberalization and natural resources and the environment, and between environmental policy and agricultural trade and competitiveness;
• and to identify a research agenda for agricultural economists, particularly trade consortium members.

Reflecting that agenda, the book is divided into four parts. The first explores the emerging critical linkages of trade, international institutions and the environment. The second develops the conceptual linkages between trade, renewable resources and international environmental goods.

The third part presents a variety of measurements of the critical linkages. Measurements range from the global effects of trade liberalization on the environment to the decidedly micro-level analysis of the impacts of trade policies on agricultural production and environmental quality in the Andes. Other chapters attempt to measure the impacts of environmental regulations on the competitiveness of agricultural production in the developed countries. The final part of the book attempts to identify research issues and the needs for future research.

The chapters in Section Π of this book are about the interest groups and political forces that are shaping the trade and environment debate, and thereby reshaping the institutions and rules of international trade. These chapters also turn to economics to ask: what is known generally about the conceptual and empirical linkages between trade and the environment; and to ask what can economics contribute to resolving the more critical issues?

Bhagwati opens in Chapter 2 by acknowledging that trade and environment issues became important in shaping the final outcome of the Uruguay Round and the implementation of the World Trade Organization. Pointing to the economics literature, which finds a positive correlation between income growth (stimulated by freer trade) and the demand for environmental protection, and the initial empirical evidence regarding the impacts of agricultural trade liberalization on the environment, he concludes there is no inherent reason that the two great objectives of environmental protection and freer trade cannot both be pursued. Bhagwati also reasons the institution of the GATT can and will accommodate some legitimate concerns raised by environmentalists.

Bhagwati discusses “competitiveness and harmonization” issues, particularly the concern of countries with high environmental standards for the competitiveness of their industries. While making the case for the validity of diverse preferences and, thus, differing standards and tax rates, Bhagwati also acknowledges that political market failures can lead to lower-than-optimal levels of environmental protection in these countries with lower standards. He indicates a possible practical solution of requiring multinational firms to follow “home” rules and preferences.

A later section of the chapter discusses “values-related issues,” which include objections to the ways in which goods are produced—such as catching tuna in a manner that harms dolphins or trapping fur-bearing animals in steel leg-hold traps. Bhagwati again argues in favor of preserving a diversity of production and processing methods (PPMs)—and suggests that allowing general objections to PPMs based on value judgements could lead to serious trouble for international trade. However, striking a practical note, he suggests that specific pernicious practices could be outlawed based upon international consensus. He also suggests that environmental interests should be better represented in the GATT’s dispute settlement process in order to provide more balance. Overall, he believes the GATT is on the right track and that many environmental objectives can be accommodated without real difficulty.

In the third chapter, Gruenspecht also reviews the evidence regarding trade and environment linkages. In the second section of his chapter, he discusses the politics that have demanded the two issues be linked. In the last section, he reflects on the environmental implications of the Uruguay Round. According to Gruenspecht, the evidence does not support the view that current environmental regulations affect competitiveness to any significant degree. There is evidence, however, that the trade liberalization—through its well-recognized impact on economic growth—enhances the demand for environmental protections generally. An important exception is carbon dioxide emissions, which increase with income.

According to Gruenspecht, the potential loss of specific, identifiable jobs (not the impact on jobs in the aggregate), motivates the concern with both trade liberalization and environmental regulation, and thus provides the political demand for linkage. The call for international harmonization of environmental standards, as one example, reflects the environmentalists’ interest in removing political objections to their agenda from vulnerable labor and industry groups. Gruenspecht also notes that some environmental interest groups oppose trade liberalization for strategic reasons even when their own internal analyses show net environmental gains; the reasons are to get better deals or to raise their influence in the WTO.

In reflecting on the outcome of the Uruguay Round, Gruenspecht sees increased latitude for environmental policy actions, particularly through changes to the sanitary and phytosanitary code, the technical barriers to trade code, and the agreement on subsidies and countervailing measures. He foresees increases in the use of environmental policy as a form of protection, and that trade liberalization losers will align themselves with environmental interests.

In the fourth chapter, Ambassador Smith poses the daunting challenges facing negotiators of a “Green Round.” “If we think we endured agonies in agriculture just from a trade viewpoint,” he writes, “imagine what torture we have in store when the traders and the environmentalists lock horns over agriculture in the Green Round. If the trading system survives, it will be akin to a miracle.” Concerned by this potential, Smith has been bringing the traders and the environmentalists together in a “pretrench” effort to find common ground. He believes the first challenge is to design a trading system that to the greatest degree possible takes into account environmental impacts. (He believes this can be done because many free traders are at heart sympathetic to environmental concerns.) Thus, environmental impact statements are not uncalled for; likewise, environmental measures should require a “trade impact statement.” In other words, politicians and citizens should know the benefits and costs of both trade and environmental measures. Smith argues that economists can contribute significantly by computing non-market values for external—or environmental—costs.

Another major challenge to the traders and the environmentalists is to reach an agreement on the use of trade tools to enforce environmental rules. Smith believes that the trading system has an obligation to the world’s citizens not to condone the ruthless spoiling of the planet. However, he argues, trade policy offers the only current means of enforcing multinational environmental agreements; and thus there must also be other forms of penalties if the trading system is to survive. The issue of whether environmental subsidies will be countervailable poses another serious challenge to the Green Round negotiators. Lastly, Smith argues that the traders and the environmentalists must both “weed out the extremists” if a consensus is to be reached.

In Chapter 5, Chamovitz intrdduces the “ecolonomy,” a planetary system in which the economy and the environment are symbiotic systems. The first section of the chapter discusses the connections between economic and environmental policy making, and the need for closer linkages at all levels of government. Chamovitz notes that the new generation of market- oriented environmental policies is an example of how a closer connection between economics and the environment can yield better outcomes. Despite the potential for collaboration, the goals of economists and environmentalists are fundamentally different, he states.

In the second section Chamovitz turns to rules for the ecolonomy. He makes the point that even if nations did not trade at all they would need environmental agreements so long as they share the planet. The existence of trade complicates environmental policy because consuming nations do not regulate the production of what they consume, which interferes with their ability “to engage in social costs internalization, life cycle analysis, and sustainable development,” weakening the ability of governments to engage in environmental regulation. Thus, trade strengthens the case for better international environmental governance.

In the last section, Chamovitz makes the case for a global environmental organization (GEO) rather than a “greener” WTO, because the WTO mandate is already broad and demanding enough. A GEO would devise environmental standards for serious issues; conduct negotiating rounds; reconcile international environmental disputes; and improve the delivery of environmental technical assistance. Environmental non-government organizations would be represented alongside governments and businesses at the GEO.

Ballenger and Krissoff turn from GATT (and the Uruguay and “Green” Rounds) to NAFTA (and its environmental provisions and side agreement). They first review the environmental provisions and terms of the side agreement. They make the point that there has been little economic analysis of the environmental agreements because the provisions are difficult to interpret and much less specific than the trade provisions (which have been analyzed quite thoroughly). Ballenger and Krissoff suggest, however, that the environmental components may, over the long run, have a greater impact than the reductions in trade barriers. This is, in part, because they create a “living” document. They establish new institutional structures and rules—that promote environmental cooperation and facilitate public challenge—and thus have the potential to generate a continuing evolution of environmental policy change.

In the next section of the chapter, they report the results of interviews with environmental and farm groups that had an interest in NAFTA. They found that environmental and farm groups shared an interest in the sanitary and phytosanitary provisions: both groups were concerned that the agreement would result in easier entry into the United States for Mexican food and agricultural products that do not currently meet U.S. health and safety standards. Some farm and some environmental groups (particularly those that ultimately opposed NAFTA) also shared an interest in the impacts of trade liberalization on smaller family farms and sustainable agriculture in the U.S., and environmental organizations expressed concern with the impacts on Mexico’s small-scale, subsistence producers. Both groups felt that the PPM debate, not being resolved in the NAFTA, is likely to become very important for agriculture.

Despite statements of shared interests and concerns, environmental groups felt they knew too little about agriculture (or how it related to their issues) and farm groups were not very involved in the discussions or negotiations surrounding the environmental provisions.

The chapters of Part III turn to the critical linkages of trade, renewable resources and international environmental goods. The thrust of Chapter 7 by Heal is the management of international environmental goods. Examples of such goods include climate change from the emission of carbon dioxide, depletion of the ozone layer, and acid rain and the international movement of environmental pollutants. Heal develops a model of efficient carbon dioxide abatement characterized by trade in private goods and emission permits. Surprisingly, trade in goods coupled with international trade of emission permits does not lead to an efficient outcome. Rather, additional lump-sum transfers are needed to reach an economically efficient point.

Heal then applies the framework of trading emission permits to the joint implementation introduced at the Rio Convention on Climate Change. Joint implementation is reasoned to be an inadequate precursor to trading of emission permits, but it is an approach that might be justified if there is a clear migration to a more multilateral and organized market for permits.

Chichilnisky focuses on the linkage of property rights, trade, and resource dynamics in Chapter 8. A traditional model of trade is modified in two important ways. First, one of the inputs in production is an environmental resource, i.e., it is renewable and exhaustible. The second is the assumption of differing regimes for property rights in the two regions. Chichilnisky concludes that the difference in property rights is sufficient to explain differing trade patterns between two regions with the same endowments, preferences and technologies. The logic is extended to trade between the North and the South, with the conclusion that property rights improvements in the South could mitigate the economic source of resource overuse (prices which are below social costs).

Diao and Roe develop a general-equilibrium model, where health is an argument of the utility function, to consider trade impacts of three types of pollution: local-disembodied (local air pollution), global-disembodied (pollution that migrates to other regions), and embodied pollution (associated with consumption of the good). The model is complex, and meaningful results can be arrived at only with a number of assumptions about the relative size of certain effects.

The results show that an optimal tax can, in principle, improve each country’s welfare if the country is small in the world market. However, for a large country or region, changes in the terms of trade may cause one country to be made better off at the expense of the other. Then, a Pareto improvement can only be reached by an optimal tax with compensation, which suggests that some form of compensatory payment may be required to encourage the other country to pursue abatement policies. Under cooperative behavior, both countries can improve their welfare by jointly imposing a pollution control tax with a necessarily compensatory transfer.

For the case of embodied pollution, the optimal tax for the exporting country not only depends on its own marginal welfare loss of pollution, but also on the losses the country’s exports caused on consumers in the importing country. Further, if only the polluting input is taxed, then its after tax rental rate falls if this input is intensively used. Hence the effectiveness of this instrument to lower the embodied pollutants is limited and can even be negative. Instead, a tax on the polluting input in combination with a subsidy to the non-polluting input can reduce pollution and improve a country’s welfare if the country is small in the world market.

Whalley, in Chapter 10, surveys the quantitative dimensions of linkages between trade and the environment emerging from economy wide modeling. Preliminary findings from five studies are summarized. Whalley concludes that many of the proposed environmentally motivated trade actions have surprising little consequence for the global system. Conversely, environmentally motivated policies, such as carbon taxes, have major impacts on global production and trade patterns.

The policy debate surrounding the trade and environment nexus will increasingly demand informed answers to the questions: (1) How do environmental policies affect agricultural trade and competitiveness; and (2) How will trade and policy reform, and accompanying economic growth, affect environmental quality. Section IV reviews various attempts at quantifying the trade and environment linkage. Accurate empirical estimates of the trade and competitiveness consequences of environmental policy and regulation, or the environmental consequences of trade and policy reform are difficult to obtain. While the authors review a multitude of specific constraints to obtaining accurate empirical estimates, most fall into the generic class of “aggregation problems”—the difficulty in linking site-specific environmental and resource adjustments with trade or policy adjustments occurring at a nation’s border.

Chapters by Blom (13), Gardner (14), and Leuck and Haley (15) consider agriculture related environmental policies in the United States (Gardner) and Europe (Blom, and Haley and Leuck) and derive implications for the balance of agricultural trade and competition in the global marketplace. They conclude that environmental policies can and do influence the level and composition of trade, as well as the competitive positions of countries, industries, and firms. However, they also conclude that the direction and magnitude of the effect of environmental regulation on costs of production, prices, and trade competitiveness in agriculture could vary on the basis of several factors, thus it is difficult to make generalizations. For example, Gardner points to the stringency of the environmental measure as one significant factor. The stringency of the regulation or environmental measure (a complete ban versus a tax, for example) would have a differential effect on production costs.

Another factor may be the narrowness of application—to a specific commodity or geographic area—of an environmental measure. Trade competitiveness is determined at the national border. Leuck and Haley point out that environmental regulation targeted at a particular geographic site or environmental problem may result in geographically diverse costs, and resource and production adjustments. Price and trade competitiveness at the national border may be only slightly affected.

One other factor is the availability, or lack thereof, of alternative low- cost or cost-reducing production techniques. One of the major factors underlying the differences in the magnitude of the trade effects of European environmental regulation between the chapter by Blom and that of Leuck and Haley is the assumption made with respect to the potential availability of alternative low-cost livestock production and management techniques.

Lucas, Anderson and Strutt, and Antle, et al, consider trade-related policy reform and approaches to measuring the associated changes in production practices and linkages to environmental change. Lucas takes a broad approach and investigates the linkage of a country’s economic growth strategy, including its trade orientation, to environmental change and poll...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• PART ONE INTRODUCTION
• PART TWO DISCOVERING THE CRITICAL LINKAGES: TRADE, INTERNATIONAL INSTITUTIONS AND THE ENVIRONMENT
• PART THREE DISCOVERING THE CRITICAL LINKAGES: TRADE, RENEWABLE RESOURCES AND INTERNATIONAL ENVIRONMENTAL GOODS
• PART FOUR MEASURING THE CRITICAL LINKAGES
• PART FIVE KEY QUESTIONS AND RESEARCH NEEDS
• About the Contributors and Editors
• About the Book