Free Trade and the Environment

Since the 1992 landmark United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro, trade and the environment have been linked together as two factors critical to a lesser-developed nation's formula for achieving modernization and development. The challenge now is how to express this trade-environment linkage in public policy.

Should it be in separate agreements (such as the Montreal Protocol to ban the production and use of ozone- depleting chlorofluorocarbons, or CFCs)? Should it be in parallel, coordinated agreements that liberalize trade while protecting the environment, or perhaps in side agreements (such as the Commission for Environmental Cooperation under the main NAFTA treaty)?

Or should it be in comprehensive trade agreements that, in addition to addressing environmental issues, may also address labor rights and the equity question—that is, raising the standard of living of the poorer nation in the trade agreement to the level that is comparable with that of the richer nation? Free markets are efficient, but unregulated free markets do not sufficiently advance the public interest, as the late- nineteenth-century reformers understood.

Taking a leaf from their book, one could argue that free trade in the current era of globalization requires more than simply cutting all forms of protectionism, setting up rule-based systems to protect and encourage investment flows, and creating a dispute settlement mechanism. Those goals are encompassed in the new World Trade Organization (WTO). Necessary, but not sufficient, the critics say.

To be sure, the goals of free trade and environmental protection do mesh nicely in the new pollution trading schemes based on market mechanisms. In the United States, the establishment of a market in 1990 to trade pollution credits has worked well to reduce emissions of sulfur dioxide and acid rain from coal-fired power plants.

Combining mandatory emissions reduction targets with emissions trading, this "cap and trade" program enables large polluters to buy credits from companies that are far below their pollution limits. This market rewards clean producers; less controlled plants must pay for the privilege to pollute. Tradables (as they are called) are incorporated in the Kyoto treaty on global warming, and may become the market instrument of choice to control regional crossborder air pollution, as for example in North America.

With respect to the environmental history of free trade, it is abundantly clear that the long-running debate between free traders and protectionists was until recently little concerned with the environmental consequence of creating wealth through market integration. The quantifiable benefits of goods produced, of markets opened, and of people moving freely, rarely, if at all, factored in the full costs of this increased production and exchange.

All too often the natural world was accepted as a given—a storehouse of resources to be used, used up, and replaced with new sources, little concern being given to the destruction of habitat and the loss of biodiversity, forests, croplands, and wetlands, let alone the rising tide of pollution.

Nor were the losers in this grand exchange given much heed— witness the displacement of native peoples and the replacement of customary systems of resource allocation and communal rights by individual property rights. Only recently, with the rise of environmentalism and environmental consciousness in the 1970s, has the possibility (and the promise) of achieving a balance between market integration and environmental protection been a viable option. The bar is raised higher still when sustainability is made the goal.

No one denies that since the 1870s and the first age of liberal internationalism, free trade has been a driver in accelerating the pressure on nature. But it is difficult to untangle free trade from other factors, such as the role of new technologies, changing energy sources, and the enhanced ability of capital and people to flow freely across international borders, all in the general march toward market integration.

The conservationists who made their entrance at the end of the nineteenth century grappled with this problem. In our day, in the second age of market integration that began after 1945 and accelerated in the late 1980s, environmentalists seeking out the links between trade and the environment are very much engaged with the same problem.

Achieving clarity and specificity is important if sound policy choices are to be made, including the choice to adopt market mechanisms to abate pollution.

When all is said and done, what has been the outcome of the accelerating use and abuse of nature? Historians with a "declentionist" bent—focusing on the negative impact that free trade has on the environment—point to the heedless destruction of tropical forests in order to produce such mass consumption goods as coffee (in Brazil) and bananas (in the Caribbean basin), reckless overfishing, and unreclaimed mine sites, among other things.

Other historians see the emergence of small farmers, cooperatives, and labor unions in the wake of this commodity exchange; the recovery of fisheries through regulation and finding alternative sources of income, and the move (still in early days) to socially responsible production methods in mining and minerals. All along, voices were raised against the destruction of resources, some even couching it as an attack on nature, though until recently few were listening.

Did free trade bring unidirectional catastrophe to various world areas? In policy terms, a somewhat more generous view of the history and process of exchange may provide new insights into how the benefits of free trade were actually distributed.

In light of the brief history traced above, the conclusion must be that free trade has been and is today a powerful engine for creating wealth. How that wealth was created in the past, for whose benefit, and at what price to the environment are very modern questions, questions that belong, rightly and inescapably, to the debate over free trade today.