Trade is one of the oldest forms of business in the human world and has taken place worldwide, not only between neighbouring countries but also across the globe. Many pathways have been specially curated to ease the trade of goods and services between many nations and countries. One of the major routes is the Suez Canal, constructed by the British and the French in 1869. However, the question to assess Trade comes to mind as many environmentalists point out the hazards of Trade and the negative effect it might have on the environment. On the other hand, many also claim that Trade is actually more beneficial for the environment than otherwise. In effect, it can be said that Trade has both negative and positive effects on the environment.
Positive Impact of Trade on the Environment
The relationship between the Trade and the environment is a strong one that goes together hand-in-hand. The environmental impact of “trade liberalization” has been divided into many types, including the scale, technique, and composition affect—the liberation of trade results in the expansion of economic activity and growth.
The scale effect suggests that it must be recognized that the balance between maintaining economic welfare and keeping pollution levels low is a hard one to maintain. In simple words, “if the scale effect dominates technology and composition effects and if externalities are not internalized, economic growth will always be harmful to the environment” (Stoessel).
Trade and national incomes are also very closely linked; as trade increases, national incomes also see a rise. This, in
turn leads to improvement in environmental aspects and quality of the surroundings (Grossman & Krueger, 1993; Copeland and Taylor, 2004).
The complex nature of the number of positives and negatives of Trade reminds us that Trade does not entirely lead to causing harm to the environment (Copeland and Taylor, 2004).
Keeping in mind the nuanced nature of the debate, it is very difficult and perhaps unfair to come up with a conclusively decisive answer.
The Environmental Kuznets Curve (EKC) helps explain the phenomenon that “raising incomes per capita are not linearly correlated with environmental deterioration. Rather, pollution increases in its early development stages until it reaches a turning point, and then declines since concern with environmental quality increases and long-term issues start to prevail” (Stoessel, 2001; Copeland, 2005; Copland and Gulati, 2006).
The Technique Effect
Many academics and researchers agree that 75% of technological advancements have been due to Trade. This model suggests, “New technology is thought to benefit the environment if pollution per output is reduced. Furthermore, if the scale of the economy and the mix of goods produced are held constant, a reduction in the emission intensity results in a decline in pollution. Hence, the technique effect is thought to have a positive impact on the environment.” (Stoessel, 2001; Mathys, 2002).
The Composition Effect
This model propagates that “Trade based on comparative advantage results in countries specializing in the production and trade of those goods that the country is relatively efficient at producing. If comparative advantage lies in lax environmental regulations, developing countries will benefit, and environmental damage might result. If instead, factor endowments (e.g., labor or capital) are the source of comparative advantage, the effects on the environment are not straightforward. Therefore, the impact of the composition effect of Trade on the environment is ambiguous.” (Mathys, 2002; Stoessel, 2001).
Trade with other countries can lead to growth on two levels, one for the trading partners, and the second for the indirect stakeholder countries that will be affected in the long term. Moreover, Trade, by pushing forward economic growth, has the capacity to lead to societal progress. This may be because development will be taken place as a result of an economic boom that will contribute to increasing the environmental capacity for efficiency. Further, the economic boom may also lead to advancement in research and development that will directly impact local and international production operatives and may discourage the use of dangerous substances in the field of production.
Another positive aspect of trade and commerce is that the process can result in the development of the objective of manufacturing and adopting pragmatic environmental policies and legal standings. This is so because the introduction of a country in international Trade exposes its trading sector to the other country’s trading sector and the involved checks and balances included in the exchange of Trade make the countries involved to better their trading policies and to integrate acceptable environmental policies that may contribute to the positive image building of the country in the international community. Hence the changes introduced in the supply chains and the associated trading sector enhances the importance given to the environment and makes Trade beneficial for it. This is essentially what Rose and Rankel (2005) suggest in their “Gains from Trade” Hypothesis that was a built upon the ideals and teachings of Adam Smith and David Ricardo whereby as per Smith, “the gains from trade arise from the advantages of division of labor and specialization—both at the national and international level.” Also, according to Ricardo, trade contributes “to increase the mass of commodities, and therefore, the sum of enjoyments…”.
Many people who are supportive of trade purport that trade boycotts and restrictions are in actuality, not helping to the improvement of the environment. Many international bodies and communities have recognized this argument and have united to improve Trade in an efficient manner. For instance, the formation of World Trade Organization (WTO) in 1995 has tried to bridge the gulf between these two discrepancies. WTO constantly works to propagate green economy and sustainable development; it has also introduced many policies to protect the environment. It is mentioned on the WTO website that “In the WTO, the Committee on Trade and Environment started its work on environmental reviews in 1996 under Item 2 Environmental protection and the trading system of its work program.
In 2001, the importance of environmental reviews in WTO trade negotiations was confirmed in paragraph 6 of the Doha Declaration. This reads We take note of the efforts by Members to conduct national environmental assessments of trade policies on a voluntary basis.
In Paragraph 33 of the Doha Ministerial Declaration Ministers “encourage that expertise and experience be shared with Members wishing to perform environmental reviews at the national level.” The continued work in the committee is based on this.
The importance of reviews was also confirmed in the Johannesburg World Summit on Sustainable Development’s Plan of Implementation of 2002.”
The Doha Declaration is testament to the fact that WTO is determined to ensure that Trade does not cause environmental destruction but rather propels the development of the environment with the help of Trade.
Negative Impact of Trade on the Environment
However, trading with other nations also posits many potential dangers.
Growth may lead to Pollution
One of the major negatives of Trade may be the resulting pollution due to the excessive degrading of resources used as power to make Trade possible. There is also a direct impact on climate change that results from Trade. The process of trading with countries far away from the home country may lead to intense weather changes and the severe changes in the content of the sea. Maritime transport is particularly harmful in some cases. It accounts for about 80% of the total international Trade and the chance of oil spills increased because of this high number.
Reports from International Tanker Owners Pollution Federation Ltd (ITOPF) suggest that
“between 1970 and 2016 approximately 5.73 million tonnes of oil were lost as a result of tanker incidents As single large incidents can be responsible for a huge share of all the oil spilled in a given year, it is advisable to look at trends or decade averages. Over these 43 years, the annual quantity of oil spilled decreased hugely. In the 21st century the quantity of spilled oil was smaller than in several single years in earlier decades. 2012 saw the lowest oil spillage on record so far: 1000 tonnes were spilled. The development can be seen in the following visualization.
Since reports on small (<7 tonnes) oil spills are less reliable only medium-sized and large oil spills are included in these estimates. These are the oil spills presented in the chart before (above).”
Oil spills have been known to cause extremely harmful environmental problems such as damaging the ecosystems and natural habitat found in beaches, ocean and seas that may affect birds, marine mammals, fish, and many more. Long term impacts of the oil spills are flabbergasting and intense. For instance, the short term impact on the sea turtles includes their difficulty in reaching the seashore, but the long term impact may include their eggs failing to develop properly in the oily field or platform and leading to a substantial decrease in the quality and quantity of the species.
Oil spills may also have deadly consequences for a larger marine community. Oil spills are known to repeatedly kill marine life including dolphins, whales, sea otters and many more. The oil property of blocking breathing regions of sea life is a significant factor in leading to the death of these mammals. Oil can completely or partially disrupt can the blowholes of the larger mammals that might hinder their breathing. Other than that, oil coats on animals can also lead to several harmful internal and external diseases such as hypothermia.
An example of the far-reaching impact of the oil spills is the Exxon Valdez oil spill that lead to the death of about more than 2500 sea otters, about 300 harbor seals, and approximately 22 killer whales. That is just the momentary and visible cost of the oil spill. An extensive team of scientists later carried out a longitudinal study of the affected region and found that the effects of the spill could be felt even years after the spill. These consequences included the increased death rate and extremely stunted growth. It is after thirty-five years of the disaster that the team found that the Prince William Sound ecosystem finally smelled of being on the path of recovery and other apparent effects on many animals such as the sea otters seemed to have disappeared as well.
It is also important to note that related carbon emissions are also closely linked with Trade as according to a survey in 2015, the transportation sector combined which is the largest contributor of providing Trade and making it a possibility in the first place, amounts to about 18% of the total carbon emissions.
Those who oppose the concept of globalization point out that Trade is harmful to the environment on a global scale. These people usually believe that “in open economies a race to the bottom in environmental standards will result from governments’ fears that enhanced environmental regulation will hurt their international competitiveness, the result is a race to the bottom in environmental standards.”
Jeffery Frankel and Andrew Rose Study – A Fall to the Top
The Research Associates at NBER, Jeffrey Frankel and Andrew Rose, studied the consequences of the prevalence of Trade in 1995 in a positivist analysis. Their findings included that “the impact of Trade on at least three kinds of air pollution appears to be, if anything, beneficial, not adverse, for a given level of income. Openness, measured as the ratio of Trade to income, appears to reduce air pollution. The level of statistical significance is high for Sulfur Dioxide (SO2), and moderate for Particulate Matter and Nitrogen Oxides (NOx)”.
However, it must be kept in mind that correlation does not equal causation. The apparent linkage of the two, between pollution and Trade, could have arisen from someplace else. There is a high chance that the places or countries that have more implementation of democracy might be more inclined towards Trade and may be more concerned with improving environmental facilities and policies. Moreover, there is also another postulation that higher levels of national income might be liked with Trade and environment in more than one way.
This study tested the causality between the concept of Trade and how the environment is linked with it. It does so by keeping the income level constant and under control while testing the outcome of free Trade on the environment. Later the researchers focus on exogenous factors such as distance, other geographical aspects, scales of growth, investment, education, and population.
These researchers also make use of the “Environmental Kuznets Curve” to measure the three aspects of air pollution. This concept, as explained in their study, suggests that “growth harms the environment at low levels of income, but helps at high levels. At higher levels of income per capita, growth stimulates the public’s demand for improving environmental quality, which in democratic societies is brought about through environmental regulation.” The researchers postulated that “SO2 pollution, for example, peaks at income levels of about $5,770 per capita, and thereafter starts to decline.” This analysis is in-line with many economic teachings that put forward that growth leads to many different types of pollution, such as air and water, especially when the region is going through industrialization. However, this gradually and ultimately leads to a reduction in pollution since with the passage of time, countries involved gain a stronger economic standing and become self-sufficient to clean up the pollution they create. It can be said that where the technology involved in Trade leads to pollution, it also leads to an increase in the income levels that ultimately aids in leading to an increased demand in environmental quality that places a force on the supply side to make positive changes in the environment.
The study of Frankel and Rose conclude that it is after a fall in environmental conditions that a change is observed in the environmental patterns and the environment starts to see an improvement. This entails that in the short run, Trade may deteriorate the environment to an extent, but in the long run, it actually benefits the environment by improving the conditions.
Conclusively, it can be seen that the impact trade has on the environment is multifaceted. There are many positive outcomes and many negative consequences of Trade on the environment. Some positive results include the models of the scale effect, the technique effect and the composition effect; moreover, the economic growth and the improvement in environmental policies. Trade also has some seriously dangerous consequences that include the overbearing cost of pollution. Pollution of different types is caused by many surrounding aspects of Trade. For instance the transport burden leads to the emission of harmful carbon emissions. A major threat is posed to marine life because much of the Trade is carried out using ships and cruises via seas and ocean routes and there are serious cases of oil spills whose consequences may last for decades. Lastly, the study by Jeffrey Frankel and Andrew Rose serves as a bridge between these two opposing beliefs. Their findings postulate that Trade initially will result in environmental harm but, in the long run, can actually improve the environment.
World Trade Organization, WTO.org
Nicolas Korves, Inmaculada M. Zarzoso, Anca M. Voicu, (2011) “Is Free Trade Good or Bad For the Environment? New Empirical Evidence,” intechopen.com, September 9th, 2011
Shruti, “The Gains from Trade (An Overview),” economicdiscussion.net
“Is Trade Good or Bad for the Environment?”, nbpr.org, May 28th, 2020
Larry West, (2020) “5 Environmental Consequences of Oil Spills”, thought.co.com, February 4th, 2020