A Race to Bottom: Trade v Environment

Globalization has helped increase the extent of International Trade manifold, but has also simultaneously attracted significant criticism with respect to its harmful effects on the environment which has consequently led to climate change at an alarming rate. Hence, environmentalists are constantly criticising current trade trends while also stepping up demand for an increase in obligations, responsibilities and liabilities for corporations and companies regarding environmental matters to be well defined. This interdependence between various nations, economy and environment is facilitated in a huge way by globalization which stimulates economic growth of the countries, however its detrimental impacts on the environment cannot be neglected.[1]  

How does trade affect the Environment? Positively or Negatively.

Trade expansion has a direct bearing impact on the environment since it results in an increased consumption, degradation of natural resources while also skyrocketing pollution levels, ironically in nations which are governed by stringent environmental policies.

Yet, increased trade also allows for more economic growth which in turn benefits social welfare and the environment, since it provides the government with more renewed financial capacity to bring forth a change. Also, the twin effect of globalization and investment liberalisation exposes the nations and exporters to the environmental standards followed by different countries as well as their importers which further introduces more efficient technologies and processes into the general supply chain system. Such changes flow backwards in the supply chain ending up reforming them for better.

Moreover, it is evident that trade is surrounded by external factors such as political climate, elections, terrorist activities and territorial clashes in countries across the whole world. Similarly, environmental factors like climate change also affect trade since rising sea levels and frequent weather disruptions affect the supply and demand chain since associated factors like transport are majorly affected due to sudden extreme weathers.  Rapidly melting ice and increasing sea water level has damaged maritime shipping, which facilitates most of the global trade both in a positive and negative way. Trade via Ports gets hampered by frequent extreme weather bouts which causes disruption and damage whereas rapidly melting ice of the arctics has now opened Arctic Route for faster and cheaper trade.[2]

Thus, it is important that the national as well as the international governments and organisations answer the simple question, whether international trade & investment allows more economic growth for any given level of environmental quality or do they damage environmental quality for any given rate of economic growth?

Conflict of Commerce and Environment: Tug of War of Differential Attitudes

The timeless conflict between environment preservation on the one hand and profitable trade on the other, gathered international attention in 1991 when the USA and Mexico were at loggerheads, over the issue of banned tuna imports and the concept of free trade under GATT came to the fore. 

In those times, it was believed that imports could be placed under a ban only if they pose a serious harm to the safety and health of the citizens and not the environment. Article XX of GATT stated that life and health are important issues but restrictions on International Trade cannot be easily imposed and should only be imposed as a last resort.  Similarly, in 1999 WTO ruled that the USA could not ban imports of shrimp only because of the environmental harm caused by it due to certain procedures involved. It is common knowledge that until a few years back economy and monetary benefit were preferred over the environment since the general attitude towards the environmental implication of free trade and globalization was not serious. As a result, we have witnessed alarming international environmental issues, like ozone depletion, global climate change. It is evident that during those times international trade compelled countries to lower environmental standards which is widely criticised now, and we often witness environment case laws wherein economic and financial gain are given less importance than the environment like in the Dupont case [3]. 

However, now things have changed and the general public as well as the government are gravitated towards the  concerned environmental impact of all activities primarily concerning production, infrastructure and trade. A recent development in international trade aims to ensure minimal harm to the environment is the introduction of Environmental tariffs which are employed against trading partners that are deemed to propel inadequate environmental standards. This highlights that it is only when the masses collectively bring forth a shift in their attitudes and perception about the active threat to the environment that one would unearth a balance between human development and preservation of the environment and its resources.[3] After seeing the adversities of the weather changes due to climate change now people across the world recognise it as not only an environmental issue but also a development and survival issue. This recent perception and knowledge has led to people rallying for being more sensitive about the environment, albeit only for selfish reasons – survival. Developed countries are in favour of linking trade policies to climate change policies whereas other nations are not in favour since it involves other issues like increased economic competitiveness and Intellectual Property Rights. [4]

International Treaties and their effects on International Trade and Environment

The Kyoto Protocol, 2005 and United Nations Framework Convention on Climate Change, 1994 are international treaties that were enacted for the protection and preservation of the environment. Perhaps, they do not delve into the problems which stem from unscrupulous trading policies or even laws that are harming the environment in wake of several economic benefits. Instead it is left to the different nations to take steps deemed necessary, appropriate and less harming for international trade to protect the environment [5].  

The UNFCCC[6] safeguards against trade protectionism like Article 3.5 of the 1994 Convention clearly stated that International Trade could not be hindered arbitrarily meaning thereby restrictions imposed on trade should be necessary and nations should not use environmental issues like climate change for political reasons to ban trade. This article specifically protects the interests of developing nations.

The Paris Agreement[7] has indirect trade and investment implications as it helps to successfully implement Nationally Determined Contributions NDCs. Also, this provides new opportunities for the global green economy through trade liberalization.     

The WTO regime is equally solicitous of the environment. The Preamble of 1995 Marrakesh Agreement establishes that WTO seeks “to protect and preserve the environment”.  Also, the 2001 Doha Declaration started new negotiation regarding establishing trading system that is mutually supportive of the environment.[8]


Negative Impact of Interdependence between Environment and Trade

It might be possible to export pollution by importing goods whose production involves high environmental impacts. In addition, expanded form of trade tends to upscale production for the world as a whole, meaning that the total volume of pollution and environmental damage is likely to increase.[9] Trade also necessarily involves energy use for transportation, with resulting air pollution and other environmental impacts. There can also be indirect colossal environmental effects of trade, for example when peasant farmers are displaced by larger-scale export agriculture onto marginal lands such as hillsides and forest margins. [10]

Specific kinds of trade, such as trade in toxic wastes or endangered species, have obvious environmental impacts. Globalization of trade can also create “boomerang” effects through the transboundary exchange of externalities. Poor laborers who apply pesticides without safety precautions suffer harmful effects, as do adults and children who drink water from streams polluted by runoff.[11]

Technical Trade Barriers and the WTO

The WTO thrives on promoting free trade and prohibits formal trade barriers in the form of quotas, import limits, import taxes, price supports. Although the WTO recognizes a special exception to trade rules under Article XX for resource conservation and environmental protection, its panel rulings have interpreted this narrowly. WTO authorities tend to be suspicious of “green protectionism” – the use of trade barriers to protect domestic industry from competition under the guise of environmental regulation. They are also unsympathetic to efforts by nations to use trade measures to affect environmental policy outside their borders. From the WTO perspective, the responsibility for environmental policy should remain at the national level. As far as possible, decisions on international trade policy should not be complicated with the myriad environmental issues. This is consistent with an economic principle known as the specificity rule: policy solutions should be targeted directly at the source of the problem. Using trade measures to accomplish environmental policy goals is therefore a second-best solution, which is likely to cause other, undesired effects such as the reduction of gains from trade. [12]

Two of the most infamous cases to go before the WTO were the Turtle [13] and Beef [14] case. Each case raised questions about domestic sovereignty—the right of the people of a nation to make their own laws. These cases are at the heart of the protests in Seattle at the WTO ministerial conference in 2000 and the IMF/World Bank Protests in Washington and Montreal in 2001.

The Turtle Case [13]

In 1998 US Congress closed its market to shrimp caught without turtle exclusion devices in support of the US Endangered Species Act. Nations like India, Malaysia, Pakistan and Thailand challenged this ban under the principles of WTO. Later, WTO ruling and subsequent appeal concluded that the US is in violation of WTO rules (not under Article XX for promoting environmental objectives, but because it discriminated between WTO members).

Asian shrimpers sued the WTO arguing that the U.S.’s environmental law was a technical trade barrier, a disguised tariff, and not really about protecting turtles. They even argued that even if domestic U.S. shrimpers and imports were subject to the same rules, it did not matter. The WTO ruled against the U.S., forcing either a dropping of the requirement or thereby facing retaliatory tariffs.

In essence, legal reasoning herein acknowledged that in some circumstances, countries can use trade measures to protect global resources. The US still maintains this statute, but restricts it significantly on the basis of shipment, not by country however.

The Beef Hormones Case [14]

The Montreal Council to the UN’s treaty on Sanitary and Phytosanitary Measures (SPS) explicitly adopted the precautionary principle as a basis for making food safety decisions (Article 57). The EU banned altogether, administration of substances having thyrostatic, estrogenic, androgenic or gestagenic action to farm animals. It also clamped down on the sale of meat of animals to which such substances had been administered as a precautionary health measure. These rules applied to EU beef producers and to beef importers as a whole.

U.S. and Canadian beef producers, who use these growth hormones to fatten cattle, sued the council under WTO rules. As in the turtle case, the producers argued that these were technical barriers to trade and not real safety measures. The U.S. and Canadian beef producers won in this case.

Disputed WTO

What is More Important Money or Nature? How to Further the Interests of all Countries Together?

Thus, it is evidently clear that in these cases trade barriers with specific evidences pertaining to environmental harm, had been disallowed in favour of profitable trade thus clearly favouring Profits over Mother Nature.[15] The arguments of the dispute panel aim to avoid countries attempting to impose ethical standards on other countries over which they have no jurisdiction as seen in US MEXICO Tuna Case. Although the US and Mexico ultimately decided to settle their dispute bilaterally the tuna dolphin case seemed to have troubling consequences. [16]

Environmental impacts often concerning cross national boundaries are difficult to resolve due to conflicting laws and interests. Surely a country can have a legitimate interest in environmental events occurring in areas outside its legal jurisdiction but they are difficult to approach due to factors like domestic laws and sovereignty.[17]

Furthermore, the dispute resolution panel seemed not to distinguish between environmental resources which were not in the jurisdiction of any state such as atmospheric or oceanic resources, and those that were within the jurisdiction of a state. [18] The GATT secretariat made it explicitly clear that it was “not possible under GATT rules to make access to one’s own market dependent on the domestic environmental policies or practices of the exporting country”.


[1] Richard B. Stewart, “International Trade And Environment: Lessons From The Federal Experience”, 49 Wash. & Lee L. Rev. 1329 (1992).

[2] Barrett, “Strategic environmental policy and international trade. Journal of Public Economics”, 54(3), 325-338 and Friends of the Earth (1999).

[3] United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316 (1961).

[4] Jeffrey A. Frankel and Andrew K. Rose, “Is Trade Good or Bad for the Environment? Sorting Out the Causality”, The Review of Economics and Statistics 2005 87:1, 85-91.

[5] Intergovernmental Panel on Climate Change’s (IPCC) “4th Assessment Report, September 2007” and “5th Assessment Report, November 2014”.

[6] UNFCCC, “Trade and the Environment: Use of Protectionist Trade and the Environment: Use of Protectionist Unilateral Trade Measures”, Presentation by India .

[7] United Nations Framework Convention on Climate Change, 1994.

[8] The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change, 2015.

[9] The Doha Declaration explained, available at: https://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm(last visited on December 20, 2020).

[10] Leonard J. H., “Pollution and the struggle for the world product”, Cambridge UK: Cambridge University Press(1988).

[11] Markandya A., “Is free trade compatible with sustainable development?” UNCTAD Review, 9-22, 1994.

[12] S. Charnovitz, “An Introduction to the Trade and Environment Debate” Handbook on Trade and the Environment, Edward Elgar Publishing, 2008 and P. Sands and J. Peel, “Principles of International Environmental Law”, Cambridge University Press, 4th edn., 2018, Chapter 18.

[13] United States — Import Prohibition of Certain Shrimp and Shrimp Products, available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds58_e.htm, (last visited on December 19, 2020).

 [14] European Communities — Measures Concerning Meat and Meat Products (Hormones), available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm (last visited on December 19, 2020).

[15] Trade and Environment at WTO, available at: https://www.wto.org/english/tratop_e/envir_e/envir_wto2004_e.pdf (last visited on December 18, 2020).

[16] Sampson G. P., “Trade, environment, and the WTO: A framework for moving forward” ODC Policy Paper, Washington, DC: Overseas Development Council, February 1999.

[17] Neumayer E., “How regime theory and economics can learn from each other: A plea for inter-disciplinary research on international environmental agreements”.

[18] Sorsa Piritta, “The environment: a new challenge to GATT,” Policy Research Working Paper (Series 980) 1992., The World Bank.


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