The Hindu Business Line : WTO: Missing the wood for the trees

The globalisation of trade has been hailed not only as the most revolutionary step towards promoting free, unhindered world trade but also as an economic panacea for developing countries by taking full advantage of ‘comparative advantage’, and thereby sharing in the growing world prosperity.

Whether the socio-economic impact of the WTO is positive or negative is debatable. Meanwhile, nations with stronger trade muscle are trying to manipulate the WTO and extract one-sided and selective advantages while evading their obligations thereunder. Even if the WTO does promote economic development, in the medley of economic debate we are liable to lose sight of another crucial dimension — the environment.

Perennial debate

Making economic growth environmentally sustainable is a major challenge, and effective action on this front has been largely elusive. Let us first understand some important aspects of the issue.

Broadly, there are three perspectives on economy-environment interaction:

Technical optimism: Human beings need not be constrained by nature. Economic growth and the environment are two separate problems and have to be, and can be, tackled separately as and when they arise.

Environmental pessimism: Human beings are parasites on the environment. There is an ecological Plimsoll line beyond which we cannot load the environment and this has already been reached. Without a decrease in the scale of human activity, an ecological collapse is certain.

Ecological, economic perspective: The challenge is to convert rapidly rising brute material consumption into a development which is resource-efficient and vitally connected to the functions and processes of the ecological system. It is how growth occurs and in what direction technological development takes place that will determine whether economic development will be sustainable.

The following points relevant to the environmental problem are also connected with the functioning of the WTO:

If the WTO’s policies, systems and procedures encourage a brute quantitative increase in international trade which includes activities which aggravate long-term, dispersed problems such as climate change, global warming, etc., then increased trade, while seeming to increase short-term prosperity, will only hasten a long-term environmental crisis.

Over-optimistic

The hope that prosperity resulting from increased trade would help countries, especially the developing ones, to invest in improved technologies for managing the environment better is somewhat overoptimistic.

Technological developments’ contribution to the solving of environmental problems will be limited because most of the technologies are based, and will continue to be based for a long time to come, on fossil fuel. Hardly any focussed efforts are being made to harness renewable energy sources. Widely applicable solutions in this field appear to be still far away.

If a country overexploits or abuses its local environment in order to enhance foreign trade in the short run, this may not remain the sole concern of that country.

What appears to be a local environmental problem may have its cause half a continent away. In an environmental sense, everyone is in everyone else’s backyard! The WTO’s trade policies and procedure with a narrow country orientation may miss the broader environmental perspective.

Toxic waste disposal

If the scale of human activity is constantly increasing, mere resource efficiency cannot guarantee sustainability. Even if the production of exported goods is done in an environmentally friendly fashion, increasing consumption always produces waste and related problems of disposal.

Toxic waste being dumped on unsuspecting developing poor countries for paltry payments is a real possibility. Interestingly, the WTO has not prohibited export of toxic waste. Apart from exporting environmental damage, this demotivates developed countries from finding safe methods of disposal.

The WTO’s obsession with a quantitative increase in world trade ignores the ‘at-a-time’ environmental impact of the volume of trade and the crucial relationship between the scale of human activities and the environment’s time-cycle-based coping capacity.

All trade, by definition, involves transportation which is an important potential source of environmental damage.

Environment protection regulations may have a restrictive and cost-enhancing effect on production and may affect the international competitiveness of goods. This may result in such goods moving from strictly-regulated countries to less environment-conscious ones, thus worsening the latter’s environment, or in governments being pressured by business to liberalise the regulations to the advantage of trade and to the possible detriment of the environment.

Advanced countries may exploit the ecosystems of less developed countries to get cheaper products for themselves. (Ironically, having done this, the former sometimes impose non-tariff barriers on other commodities of the latter on the ground that they are produced in an environment-unfriendly fashion!)

Exporter turns importer

Developing countries, in order to exploit trade opportunities and earn foreign exchange, may export their scarce raw material to developing countries even to the point of depletion and become importers of the same commodities. Thailand, Nigeria and the Philippines, once net exporters of timber, have now become net importers.

If the growing scarcity of the exported raw material is not fully reflected in its price, the exporting country, while appearing as a successful exporter in the short run, would be the loser in the long run. Though the Rio Declaration envisages governments internationalising environmental costs, this is subject to trade and investment not getting distorted!

The treaty of Rome prescribes that the environmental gain from regulation should be at least as large as the trade loss!

(The author is a former Special Chief Secretary, Government of Andhra Pradesh.)

The WTO’s rules apply only to goods and services and not to the production processes even if the latter are damaging to the environment.

As traditional peoples get integrated into the global economy, they often lose their attachment to their own restricted natural resource catchments. This could lead to a loss of motivation to observe traditional social restraints towards sustainable use of a diversity of local resources along with the long-accumulated pertinent indigenous knowledge that usually goes with it.

The assumptions behind the classical theory of comparative advantage viz. perfect competition, perfect and costless information, correct pricing of goods and services, immobility of factors of production, etc. do not hold in practice in international trade.

There is, therefore, no guarantee that every country will necessarily benefit, or benefit equally, from international trade. Moreover, the theory itself is inapplicable to irreplaceable and life-sustaining environmental resources.

A country which destroys its natural rain forest and earns profit is not only not enjoying genuine comparative advantage but is conferring a permanent, long-term absolute disadvantage on itself and the world in terns of climate change and loss of bio-diversity.

Summing up

The scarcity of natural resources should be valued higher than that of economic resources.

Environmental degradation is a trans-boundary issue.

The genuine uncertainty of the limits and thresholds of ecological systems should be built into the operation of international trade.

Those who damage the environment should bear the cost thereof to the maximum extent possible.

Trade magnifies development. If the latter is itself damaging to the environment, trade will further magnify the damage.

Rules and practices in accordance with international environmental agreements should override all other trade agreements whether between countries or under the WTO.

All rules under the WTO and all trade agreements should be subjected to an environmental impact assessment.