Trade and the Environment: A Critical Assessment and Some Suggestions for Reconciliation

Abstract

This article critically assesses three ways in which trade might harm the environment. First, trade liberalization might exacerbate existing levels of resource depletion and environmental pollution. Second, open borders might allow companies to migrate to “pollution havens,” thus undermining high environmental standards in host countries. Third, the dispute settlement system of the World Trade Organization (WTO) might favor trade over environmental interests in case of conflict. It is shown that although trade liberalization can lead to an increase in environmental degradation, pollution havens are not a statistically significant phenomenon. As concerns aimed measures at domestic environmental protection, the dispute settlement system in the WTO is not biased against environmental interests. The relationship is more complicated with respect to measures aimed at extrajurisdictional environmental protection and with respect to trade restrictions for health reasons under the Agreement on Sanitary and Phytosanitary Measures. The article concludes with some constructive suggestions on how trade and the environment can be reconciled in future trade negotiations.