Topic 21: Trade and the Environment

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Topic 21 Trade and the Environment

• David Letson
• Marine Affairs/Economics
• University of Miami

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Main Points

• Reasons for Overlap
• Comparative Advantage
• GATT/WTO
• Good or bad for the environment?

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Lots of Overlap

• Quality of life issues
• Emerging global environmental issues
• Expansion of environmental protection laws
• Environmental standards trade frictions
• Non-tariff trade restrictions remain

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Dutch Disease

• Who wouldnt want to win the Lottery?
• 1960s, the Netherlands, natural gas.
• Other sectors higher wages
• Currency appreciation.
• More likely in smaller, open economies.

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U.S. Sugar Quota

• Important for Florida 25 of U.S. sugar.
• Allows 1.256 million tons of imports each year,
  then applies prohibitive tariff.
• Estimate transfer and deadweight loss.
• Expensive Program.

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Gains from trading?

• Pick two nations.
• Does absolute advantage matter?
• David Ricardo comparative advantage
• Tiger Woods
• Opportunity cost

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General Agreement on Tariffs and Trade (GATT)

• 117 nations signed the Uruguay Round of 1993.
• Seven prior rounds reduced tariffs by 75.
• Signed in 1947 by US and 22 other nations
• Centerpiece of international governance on trade.

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Key GATT Articles

• Article I, most favored nation clause
• Article III, the national treatment clause
• Article XI, tariffication clause
• Article XX provides exceptions
• Article XXII, consultation clause

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Uruguay Round

• Created World Trade Organization
• Included 28 separate accords
• agriculture,
• textiles,
• services,
• intellectual property, and
• foreign investment
• Annual world income to rise 213B

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Bad for the environment?

• Freer trade promotes economic growth
• Efficient resource use through specialization
• Scale of economic activity expands.
• Composition of output.
• Technological innovation.
• Harmonization
• Enforcement of IEAs

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International Environmental Agreements (IEAs)

• Montreal Protocol, Kyoto, CITES, etc.
• How many nations? How stable?
• Should we allow trade restrictions?

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Is trade good for the environment?

• Pervasive externalities and market failures.
• Manage resources and enforce property rights.
• Trade not fundamental cause of degradation.
• Wealth and quality of life preferences.
• Allocative efficiency.

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Too Much Consumption?

• Yes, says Norman Myers.
• Societal expectations for consumption.
• Population growth and adverse technology.
• change in lifestyle and reduced consumption.

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Too Much Consumption?

• No, say Jeffrey Vincent, Theodore Panayotou
• Consumption patterns rather than levels.
• Incentives for work and saving.
• Market and policy failures.

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Conclusions

• Trade and environment More overlap to come.
• Comparative advantage.
• Trade as stimulus to growth.
• Poverty sucks.

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Questions?