Sustainable DevelopmentInternational Trade and International Agreements

Chapter 20

© 2007 Thomson Learning/South-Western Callan and Thomas, Environmental Economics and Management, 4e.

Understanding Sustainable Development

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Sustainable Development as a Global Objective

Sustainable development refers to managing earth’s resources to assure long-term quality and abundance for future generations Aims to achieve economic prosperity and environmental quality Also referred to as intergenerational equity

Involves fundamental change in how society makes market decisions – both consumption and production

In practice, there are criticisms and concerns e.g., Nobel Laureate Robert Solow argues against using

sustainable development as a policy objective because it is a vague concept; instead consider sustainability as an obligation to future generations

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Growth and the Environment

Sustainable development relies on the premise that economic growth and environmental quality must not be competing goals. Why is this important?

Data show that the environmental impact per unit of income associated with growth must decline between 3.5 and 4 percent per year to avoid further pollution and natural resource depletion Problem is more serious for developing countries that have

high growth rates and rapidly rising populations, such as China and India

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Growth and the EnvironmentEnvironmental Kuznets Curve (EKC)

Research has examined whether a technical relationship exists between economic growth and pollution

A model of this relationship is the environmental Kuznets curve (EKC), an inverted U shape, implying that: Early stages of industrialization are linked to relatively high

pollution levels when growth is a priority and environmental controls are lenient or nonexistent

More advanced economic development is linked to a shift in the opposite direction with greater concern for environmental quality and a strengthening of environmental regulation

A consensus is forming that this tradeoff is not as severe as once believed

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Environmental Kuznets Curve

More advanced stages of development

Early stages of industrial development

Income per capita

Pol

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EKC

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Framework for Sustainable Development

United Nations Conference on Environment and Development (UNCED) – commonly known as the Rio Summit – was a forum held in 1992 to discuss issues relating to sustainable development

Included in the summit’s key documents were: Agenda 21 – a voluntary action plan outlining the course

for worldwide progress toward sustainable development Rio Declaration – a list of 27 principles to act as

guidelines for achieving global environmental quality and economic development

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Framework for Sustainable Development (continued)

World Summit on Sustainable Development (WSSD) was held in Johannesburg in 2002 to renew interest in sustainable development and assess progress since the Rio Summit

Among the summit’s accomplishments: Adopted a plan to fully implement Agenda 21 Strengthened the notion of sustainable development Established over 300 partnership initiatives to complement

government actions aimed at sustainable development

Controlling Transboundary Pollution

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International Agreements to Control Transboundary Pollution

Montreal Protocol and Amendments Aimed at phasing out ozone-depleting substances Established and made permanent a Multilateral Fund to help

developing nations in this effort U.N. Framework Convention on Climate Change (UNFCCC)

Garnered a commitment by each signatory nation to launch a strategy limiting releases of greenhouse gases (GHGs)

Kyoto Protocol to the UNFCCC Calls for 38 developed nations to reduce GHG emissions to 5.2%

below 1990 levels by 2012 with no targets on developing countries Provides for the use of market-based instruments, called flexible

mechanisms to achieve emissions targets, including a trading system of GHG allowances

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International Agreements to Control Transboundary Pollution (continued)

London Dumping Convention (LDC) Prohibits ocean dumping of certain wastes,

including radioactive wastes

US-Canada Air Quality Agreement Calls for each country to set emissions caps on

sulfur dioxide (SO2) and nitrogen oxides (NOx)

International Trade and Environmental Protection

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Free Trade Versus Protectionism

Proponents of free trade argue that nations should trade with one another because there are tangible gains, such as Higher worldwide output Efficiency gains from specialization More competition and lower prices in global markets

Protectionism supports using trade barriers to protect the domestic economy from foreign competition, because they believe trade can have negative consequences such as Unfair competition Job losses Threats to environmental quality

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Concerns about International Trade and Environmental Quality

Production costs are lower in nations with more lenient environmental standards, giving their producers a competitive advantage, sometimes called the pollution haven effect

Quality of imports produced in nations with lax regulations on toxic chemical use, fuel efficiency, coal consumption, etc. may lead to international externalities

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Counter Arguments

Economic gains from trade will help poorer nations afford the costly cleanup of environmental pollution

An improved economy can provide means to implement better environmental policy, as implied by environmental Kuznets curve

This argument is consistent with sustainable development

Both sets of arguments were part of negotiations for major international trade agreements

International Trade Agreements and Environmental Goals

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North American Free Trade Agreement (NAFTA)

NAFTA was reached by the U.S., Mexico, and Canada in 1992

Provisions dealing with the environment include: Commitment to sustainable development Agreement to implement NAFTA with the aim of

environmental protection and not to lower standards to attract investment

Consensus to aim for congruence of each country's environmental regulations

Agreement that NAFTA dispute settlement panels will solicit environmental experts as needed

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NAFTA (continued)

The three nations formed the North American Commission for Environmental Cooperation (CEC) to address environmental impact of increased trade

In 1992, the U.S. and Mexico initiated an Integrated Border Environmental Plan (IBEP) Aimed at improving water quality, monitoring air pollution,

tracking hazardous waste, and promoting pollution prevention for the border region

Border 2012 Program extends efforts of the IBEP and the Border XXI Program; aims to protect health and environment in the border region following sustainable development

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General Agreement on Tariffs and Trade (GATT)

Executed in 1947, GATT was a major international treaty aimed at reducing trade barriers

Environmentalists were concerned about how GATT rulings might run counter to environmental goals e.g., under GATT, an import cannot be restricted solely on

the basis of an exporter using a pollution-generating input or production method

After negotiations called the Uruguay Round, countries had to use least trade restrictive measures to achieve environmental goals, and World Trade Organization (WTO) was formed as successor to GATT

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World Trade Organization (WTO)

An international association aimed at facilitating trade and overseeing trade policy

It established a Committee on Trade and Environment (CTE), whose directive is: To identify the relationship between trade

measures and environmental measures to foster sustainable development

To recommend any necessary changes to the multilateral trading system