International Trade and Environment

International Trade and Environment

By Walter Chamochumbi

According to the paradigm of neoclassical economics - "economic growth as an engine of development" - "international trade comes to be considered as one of the fundamental engines of economic growth, and from this, the sustenance of development"

Scope of the controversy on the hypothesis of the Environmental Kuznets Curve and its implications to the North and South (**)

Around the complex field of international trade negotiations, economic growth and its environmental implications, as is known, the subject has been investigated and studied with greater interest since the 1990s. Coincidentally, the phenomenon of globalization is related not only in the impacts on economic policy and trade in the countries (North and South), but also in the consequences derived from the environmental problem. In this context, we ask ourselves some questions to be elucidated: what are the implications of the international trade-economic growth relationship on the environment? What are the arguments that exist for the controversy about the validity of the hypothesis of the Environmental Kuznets Curve? How is this hypothesis related to the policies and strategies of economic and commercial development promoted by multilateral organizations and developed countries in our countries? Around these concerns we will try some reflections on the reality in the South, the case of the Andean countries like Peru.

1. General Framework of International Trade, Economic Growth and Development: Some Previous Considerations.

According to the paradigm of neoclassical economics - "economic growth as an engine of development" -, it is affirmed that there can be no growth and improvement in the quality of life of countries if there is no market for the free exchange of goods. goods and merchandise they produce. Therefore, "International trade comes to be considered as one of the fundamental engines of economic growth, and from this, the sustenance of development" (Op cit de Gudynas (1996), p.8). Thought that we see reflected in the countries of the North and multilateral organizations such as the IMF, the World Bank and the WTO.

Indeed, this thought in its essence continues today to be the main axis of orientation of the economic and commercial development policies of the countries in the world. The production of goods and services to satisfy the enormous demand of the international market constitutes the engine from which the accelerated transformation of matter develops (as available natural resources) .Thus, this predominantly economic approach conceived -in a context of modernity - the “unlimited” possibilities to transform nature. However, as a result of the environmental impacts generated by the great industrial development and technological revolutions (especially in the 19th and 20th centuries), which starting in the 1970s - coinciding with the world energy crisis due to the rise in price of oil - and in a context of international market expansion, which - by dint of objective evidence from the various problems of environmental pollution - the classic vision of economic development has had to change slowly, but with no few difficulties (it begins to question whether GDP, as an indicator of growth, is sufficient in the context of trade and development of the countries, or if new indicators are required in the environmental field).

1.1. Brief description of scenarios to the North and South: how are we?

We undoubtedly have a high contrast scenario in growth and development indices to the North and South. On the one hand, the axis of domination made up by the countries of the North - the case of the so-called group of eight (G-8) -, which concentrate the greatest economic and commercial power in the world, presenting the highest indices of quality of life and where the large corporations, transnational industries and multilateral organizations are located. And on the other hand, the axis of dependency that make up the countries of the South, the little developed or "developing" (using a known euphemism), being the main suppliers of raw materials and holders of the greatest wealth in natural resources but with much poverty and relative indices of quality of life and very high social and cultural contrasts. This North-South domination-dependence relationship continues in force in the different spheres of political, economic, commercial activity and certainly in the environmental sphere. [1]

In Latin America - since the 1980s - the great difficulties related to the payment of the enormous external debt and the social, political and economic crisis of the countries, determined that the multilateral organizations of the countries of the North advised the governments to try a new package of economic development measures inspired by the principles of neoliberal economics, the so-called “structural adjustment policy”, and according to which the Latin American countries received financial aid in exchange for implementing a series of liberalization measures in their economies, greater promotion of its exports, reduction of public spending and of the state apparatus, privatization of public companies and services, labor flexibility, providing facilities for attracting foreign investment, etc. However, except for some functional measures to the needs of economic and commercial openness for the exploitation of natural resources, the environmental variable was not part of this package of measures. The results were seen later, observing a higher value of their exports in primary products with little added value but at the expense of a higher environmental cost. [2]

While Latin American countries have multiple difficulties in promoting the sustained growth of their economies, on the contrary, the countries of the North reached their highest industrialization and technological development, achieving accelerated growth in their economies, and to that extent, also reaching higher levels of consumption. energy as a requirement of its great industrial development. But also, presenting the greatest environmental implications (this related to the "lifestyles" of super-developed societies, those with the highest consumption). On the other hand, we said that in most southern countries their economies stagnate or grow very slowly, presenting very low industrialization processes, incipient to intermediate. And therefore - compared to the countries of the North - lower magnitudes of energy consumption and lower environmental implications. [3]

Regarding these scenarios and the implications of international trade on the environment, various theories are known that attempt to analyze and propose - based on scientific and empirical methods - multicriteria explanatory models for the described scenarios, as well as to predict their behavior, trends and repercussions on the global level. In this sense, there are various positions that have placed the debate as follows: on the one hand, those who argue that trade does indeed contribute to achieving environmental improvements and objectives; on the other hand, those who argue that the trade rules and mechanisms of the countries are insufficient (or do not correspond) to achieve environmental sustainability objectives; and finally, those who argue that the increase in environmental restrictions (regulations) can limit or modify - in the form of barriers or protectionism - international trade flows and the competitiveness of countries. According to the positions described, the question needs to clarify whether trade constitutes a means or an end in itself. To address this discussion we will turn to the CAK.

2. Scopes on the Hypothesis of the Environmental Kuznets Curve.

We are interested in referring to the hypothesis of the Environmental Kuznets Curve (CAK, CMK) -or also the Environmental Kuznets Curve (CKA, or EKC in English) - because it proposes an explanatory framework related to international trade negotiation mechanisms and the process of economic growth of the countries versus its implications on environmental pollution. In this regard, important organizations such as the WTO are investigating whether economic growth driven by trade could be part of the solution or of the pollution problem. Finding an answer in the CAK hypothesis. [4]

In general terms, the environmental Kuznets curve proposes that the developed countries that present the greatest environmental problems -due to their high level of industrialization-, as their income levels increase towards the highest levels, these environmental problems will decrease in the long-term. Accordingly, international trade negotiations are the ones that should accelerate this growth (with the increase in GDP per capita) so that environmental problems are later reduced (that is, accepting the assumption that once the country reaches a higher standard of living it will be better willing to invest in environmental improvements). A similar behavior - the CAK assumes - that developing countries should also follow. In other words, if they accelerate their industrialization process and the growth of their economies - from the increase in their exports and their insertion in the international market - then, with the increase in their income levels, they will reverse environmental problems in the future. that appear before, during its industrialization and economic growth.

According to the CAK, there would be no environmental implications derived from the framework of international trade negotiations that could not then be reversed in the long term, as long as the countries ensure the sustained growth of their economies and their industrial development (among other measures related to liberalization and business expansion). In this sense, it is important to know and analyze the grounds for and against the validity of this hypothesis, because it has been pointed out that it has served as one of the main arguments of the financial organizations of the Northern countries, in their policies and mechanisms of commercial negotiation with the countries of the South. The environmental implications can be diverse and complex, as well as being extensive to other fields of human activity.

2.1. What is the hypothesis of the Environmental Kuznets Curve (CAK)?

To summarize the theoretical considerations on the CAK we review the investigations of Eduardo Gitli and Greivin Hernández [5], Alejandra Saravia [6], Alejandro Caparrós [ 7 ], among others. According to the cited authors, the CAK is a hypothesis that maintains: “environmental pollution increases with economic growth up to a certain level of income (“ limit ”) and then decreases. Consequently, it is affirmed that the relationship between trade-economic growth and the environment tends to be positive in the long run. " This hypothesis was enunciated by Panayotou -in 1993- from studies related to the effects produced by economic growth on environmental indicators such as air and land. Panayotou built on previous studies by researchers such as Grossman and Kruegger [8], the World Bank [9], among others, who extrapolate the equity / income relationship to the environmental field from the theory formulated -in 1950- by Simón Kuznets (Nobel Prize in economics), who studied the evolution of income distribution in countries through their development processes. Kuznets was based on the equity / income relationship, proposing an inverted “U” -shaped relationship, and according to which, he measured as the progress of a country accelerates (due to the increase in income per capita) the level of equity deteriorates to a limit point and then this level of equity improves as income grows.

Regarding the previous studies by Grossman and Kruegger (in 1991) and the World Bank (in 1992), these were carried out –according to Caparrós (1996) - among other purposes to resolve the dilemma regarding how free trade and the consequent increase in growth economic results are positive from the perspective of their impact on the environment. A first response is the one mentioned corresponded to the approach of the GATT (current WTO) and the World Bank (considered as an approach of an empirical nature). And a second answer is the one that - Caparrós points out - corresponded to the "welfare economy" (considered as a rather theoretical approach). Regarding the first answer -the GATT and WB hypothesis-, the extrapolation of the equity / income relationship by the environment / income relationship occurs when measurements are made of the emission of some polluting gases: nitrogen oxides (NOx), oxides sulfur (SOx), lead and suspended particles, finding that some of these polluting emissions presented a behavior related to different levels of economic income, similar to that of an inverted "U".

Caparrós points out that the GATT relies on the studies by Grossman and Kruegger, based on information from GEMS [10], and by which air quality monitoring is carried out in the main cities of developed and developing countries. To do this, they consider different characteristics (the location of the city, the population density, etc.), relating the levels of contamination with the GDP. per capita of the country to which the city belongs. The GATT focuses on the evolution of SO2 (Sulfur dioxide) because it has the shape of an inverted "U", thus indicating the existence of a positive relationship between trade and economic growth on the environment. In this regard, they were based on the measurement of the level of income that grows with the emission of SO2 up to an inflection point (of US $ 5,000, according to Grossman and Kruegger), and from which then the contamination by this gas begins to be reduced.

Regarding the hypothesis of the GATT and the World Bank (which still does not appear explicitly as “Environmental Kuznets Curve”), Caparrós maintains that it is not valid because it is only fulfilled in the case of SO2 and dissolved oxygen in rivers but not in the in the case of CO2 or in the emission of urban waste (whose levels, on the contrary, skyrocket with the increase in the income level), which –as he concludes- questions its validity. As indicated, based on these studies, Panayotou carries out further work on the effect of growth on other environmental indicators, allowing him to state and use -for the first time in 1993- the expression: hypothesis of the "Environmental Kuznets Curve (CKA)" . We have also mentioned that its foundation is the empirical finding of an inverse relationship –of inverted “U” - between economic income and emissions or concentrations of various polluting gases (SO2, NO2, smog, etc.).

2.2. Controversy on the hypothesis of the Environmental Kuznets Curve: the argument for its existence is inconsistent.

Gitli and Hernández (2002) work on the basis of econometric models and reference data to analyze the arguments for and against the validity of the CAK (CKA) hypothesis, reaching the conclusions that we extract from the summary of their research: " a) The evidence on the existence of the CKA is contradictory; b) Econometric models are highly sensitive to changes in their specification or basic information; c) Despite the two previous limitations, the incomes at which emissions begin to decrease are still far from the reach of a large part of the population of the developing world; and d) Given that there is no clear evidence of the existence of CKA, it is necessary to consider the role of environmental issues in trade negotiations, and thus attack the growing trend of pollution in the countries of the South. The determined support of the countries of the North through cooperation programs seems fundamental to achieve the objective of sustainable development. " [11]In reality, there are several considerations around these conclusions, however, we allow ourselves to point out one of the arguments that Gitli and Hernández analyze about the validity of the CAK: regarding the relationship between trade and environment. And there are various positions: a) Those who ensure that the relationship between international trade and the environment is based on a positive effect in the long term (if economic growth is increased); and b) Those who, on the contrary, consider that trade between countries can have a negative effect on the environment [12]. Regarding the latter, the criticisms are based on the so-called “displacement effect”, which is detrimental especially for the countries of the South because highly polluting industries of the countries of the North move towards them (where there are strong environmental regulations). This trend is known as the “Pollution Refuge Hypothesis”, a condition under which the countries of the South are used as environmental garbage dumps for toxic waste and polluting technologies of the countries of the North.

In relation to those who analyze the positive effect of trade on the environment, they are based on two premises: a.1) “That trade and investment between countries increases technology transfer, benefiting developing countries that can grow with less environmental impact if they enter the global market”: Although it is true in general that greater technological development and commercial exchange should promote transfer processes between the countries of the North and the South, and to that extent, shorten stages in the technological progress of the less developed countries (since the dynamics commercial negotiation mobilize capital investment and demand greater capacities and competencies in the management of processes and products). However, it is true that there are also variants and conditions because the technological progress to follow is not always linear and ascending. In fact, not only can more sophisticated technologies be transferred from the North, but also environmental risks inherent to them (such as the “Hypothesis of pollution havens”). In addition, it is necessary to consider the context of application of the technologies, that is, their degree of efficiency and adaptation to the countries of the South (with different ecogeographic and cultural conditions) and the conditions in which these “technology transfer processes” occur. Therefore, technological progress can be complex, variable and even relative depending on the context, the purposes and conditions of commercial exchange;

a.2) " That greater economic growth - due to greater trade openness - generates greater demand for environmental quality, greater demand for environmental standards and stricter regulations”: We mention the case of Peru, where we observe that the relative growth of its economy in recent years, due to an important contribution of the mining sector to the national GDP, did not necessarily mean in real terms - on the part of the government and the mining companies - a greater commitment and willingness to incorporate and apply improvements in environmental and social policies and regulations. [13] The panorama seen in the different regions of the country is that of various conflicts in the territories of the communities and the operating environment of the mining companies, generating a climate of marked mistrust in the development of this activity and in the responsibility and capacity of the government. to respond in a timely manner to the demands of the communities affected by pollution, as well as to enforce the laws in force and punish the offending companies. For their part, the mining companies have not been concerned with achieving greater rapprochement and dialogue with the communities or making greater investment efforts in environmental and social improvements. In this regard, although there are some signs of change, there is still a lot of work ahead.

Another study of the context of Latin America and the Caribbean on the validity of the CAK (CMK) is carried out by Saravia (2002) , pointing out among his conclusions: “ a) That the CMK hypothesis is not a valid argument for the region, both in terms of CO2 and SO2 emissions; Y b) That inequality in income distribution is harmful to the environment. The link between the level of per capita income and environmental quality is affected by income distribution, obtaining better and faster results when the problem of distribution is considered. This conclusion is very important for the region and contributes to explain the ineffectiveness of the environmental policies developed in some of our countries in recent years. " [14] Indeed, "income" is a limited variable to achieve an improvement in environmental quality because it starts from a deterministic conception (assuming that only increasing its value will automatically achieve environmental improvements), when in fact one of the main problems in the region is the "unequal distribution of income." The link between income level per capita and environmental quality is affected by "income distribution." Therefore, the argument of the CAK is not valid because the unequal distribution of income not only generates greater economic and social inequity (with the serious damages that arise at the country level) but also because it also reduces the positive effect that could have economic growth in environmental policies. In this sense, comprehensive regional policies are required that combine and develop: economic, social and environmental policies. Furthermore, if the income measurement is only related to certain emissions of polluting gases (SO2, NO2, smog, etc.), it does not allow to address the complex environmental problems of a region, city or country, because it does not consider other measurement and evaluation parameters its effects (carrying capacity of ecosystems, resilience and stability, ecological footprint, etc.). These criteria can facilitate greater knowledge of the environmental situation of a town whose economy is growing but without knowing its degree of deterioration (this is the case of CO2, one of the most important greenhouse gases, whose emission level does not conform to the form of inverted “U” proposed by the CAK).

From the work of Roca and Padilla (2003) [15] in the case of Spain, analyzing the validity of the CAK in the relationship between GDP per capita and the main atmospheric pollutants, conclude in a similar way as the previous authors, "economic growth, by itself, does not lead to a reduction in pollution." Finally, according to a WTO report (1999) on the scope of the CAK (EKC) hypothesis, they have advanced - and perhaps with no little reluctance - in their inquiries regarding its validity, recognizing among their conclusions that growth economic per se it is insufficient to reverse the trend towards environmental degradation. [16]

3. Final Thoughts.

According to Gitli and Hernández and other researchers, even though this hypothesis of the CAK has not been proven, its foundation served as the main support of multilateral organizations in the field of international trade negotiations, especially those of free trade. That is why organizations such as the World Bank assumed it as true. We have found this approach in the different sources reviewed and allows us to understand the behavior followed by said organizations, not wanting to deepen or prioritize the environmental issue in their policies and trade negotiation frameworks with the countries of the South (even among the countries of the North, with the Free Trade Agreement of the USA and Canada, since environmental problems were deliberately left aside, to be treated separately).

We find a scenario of great contrast between the economic-trade policies of the countries of the North and the South and their implications on the environment. Despite the evidence on the inconsistencies of the CAK hypothesis, we assume that the controversy will continue and it is likely that the position - we will say "positivist" - of those who continue to affirm that the free market and economic growth constitute a central strategy ( if not the only one) to solve long-term environmental problems. In this sense, while recognizing the global importance of trade and the need to boost economic growth in countries (particularly in the countries of the South), different studies coincide in pointing out that the most sensible recommendation should be to focus on in favor of promoting comprehensive (regional) policies in international trade negotiation mechanisms, and in this, recognizing that trade and growth are important instruments (means) -together with others- to achieve a greater purpose: the Sustainable Development of peoples . It is clear that in this regard there are responsibilities that countries must assume to the North and the South (which marks some very important differences), but also - and above all - they must assume a real political will to change the asymmetries and inequities of the current global scenario. free market.

As a final reflection, we point out that probably the controversy generated around the existence of the CAK hypothesis constitutes one more sign of the criticisms and concerns expressed -from different political, academic and civil society sectors worldwide-, regarding the role that comes complying with the multilateral organizations and the countries of the North around the preponderance of development models based mainly on economic growth and the free market, insofar as they have been assumed as a central dogma, without considering other elements of balance or reevaluating in greater depth all its implications in the tremendous asymmetries of development, greater poverty and environmental deterioration in the countries of the South. In this sense, without entering into disquisitions at the ethical level due to the global scenario we are living in, the (re) distribution of income -among other elements- is a crucial variable to address around the prevailing economic development model.

As long as the position is maintained that environmental considerations should not be addressed in depth or not addressed in a comprehensive manner in international trade negotiation frameworks, the repercussions may be greater at the global level (if they are not already with the problems deforestation and desertification, greenhouse effect, warming, climate change, etc.). Evidence from studies and cases has confirmed this concern, however, it is also true that the possible alternatives in this regard are not sufficiently developed and require further investigation.

(*) Mag. Ing. Agronomist, Consultant in Environmental Management and Development

Cited Bibliography.

- GUDYNAS, Eduardo. (1996)… ”Selling Nature: environmental impacts of international trade in Latin America”, Latin American Center for Social Ecology (CLAES), German Technical Cooperation (GTZ) and Institute of Ecology, La Paz, 252 p.

(**) Summary version of the original article text, July (2005), Lima, 20 p.

[1]“There is a fundamental paradox in international trade. In the globalized world of the early 21st century, trade is one of the most powerful forces connecting the lives of all of us. It is also an unprecedented source of wealth generation, yet millions of the world's poorest people are left behind. Rising prosperity in industrialized nations has gone hand in hand with a dominance of the masses of poverty elsewhere: inequalities between rich and poor countries, already immoral before liberalization began in earnest, are deepening even further … The problem is not that international trade is opposed to the needs and interests of the poor, but that the norms that govern it are elaborated in favor of the rich. ”, Op cit Oxfam International (2002), p.3… "Change the Rules: Trade, globalization and fight against poverty", ( ), Spanish edition INTERMÓN OXFAM, 17 p.
[2]“Latin America and the Caribbean has a historical tradition as a producer of primary goods, a type of production that is particularly harmful to the environment. Another additional problem related to this primary production is related to its participation as a source of foreign exchange. Unfortunately, primary products have always suffered from the problem of the deterioration of the terms of trade, worldwide they are continuously decreasing in value but not in quantity. Some scholars have empirically verified the existence of a positive relationship between primary production and growing inequality in income distribution. ”, In Saravia, A. (2002), Note on p. 28.
[3]However, in Latin America its historical tendency to follow a primary export model with high environmental cost should be considered. In addition, in these countries - the case of the Andean Region - there is a significant percentage of indigenous population inhabiting territories with multiple cultures and particular "lifestyles", forming societies with lower energy consumption and greater environmental empathy but living in poverty and with many social demands unsatisfied by governments.
[4]“…Si la pobreza es un elemento crucial del problema, el crecimiento económico será parte de la solución, en la medida en que permitirá a los países dejar de lado preocupaciones más inmediatas para tratar de dar solución a problemas de sostenibilidad a largo plazo. De hecho, al menos algunos datos sugieren que la contaminación aumenta en las primeras fases de desarrollo, pero disminuye cuando se ha llegado a un cierto nivel de renta, observación que en los círculos académicos recibe el nombre de Curva Ambiental de Kuznets (EKC).” Extraído de NOTICIAS: COMUNICADOS DE PRENSA 1999 de la Organización Mundial del Comercio (OMC), PRESS/140 8 de octubre de 1999, “La liberalización del Comercio confirma la necesidad de cooperación ambiental”, p. 5. (en pw).
[5]Gitli, E. y Hernández, G. (2002), “La existencia de la curva de Kuznets ambiental (CKA) y su impacto sobre las negociaciones internacionales”. Serie Doc. de Trabajo 009-2002, CINPE (Centro Internacional de Política Económica para el Desarrollo Sostenible), Costa Rica, 30 p.
[6]Saravia L., A. (2002)…“la curva medio ambiental de Kuznets para América Latina y el Caribe”, Documentos de Reflexión Académica, Universidad Mayor de San Simón / Facultad de Ciencias Económicas, Programa de Cofinanciación para la Cooperación en la Enseñanza Superior (MHO), PROMEC, Número 23, Junio, Cochabamba, 31 p.
[7]Caparrós Gass, A. (1996)…” Algunos aspectos de la relación entre el comercio y el medio ambiente”, Documento de Trabajo de la Facultad de Ciencias Económicas y Empresariales, Profesor Javier Oyarzun. Curso de Doctorado 1995-1996, Departamento de Economía Internacional y Desarrollo, Universidad Complutense Madrid, 35 p. (en pw)
[8]Grossman G.M.and Kruegger, A.B (1991), son citados por Gitli y Hernández (2002) y Caparrós (1996).
[9]Saravia L., A. (2002), en p. 3., reseña que el interés surge con la publicación del World Development Report 1992 del Banco Mundial, titulado”Desarrollo y Medio Ambiente”. No obstante, según Gitli y Hernández (2002), en p.3., en estos primeros estudios del Banco Mundial no aparece aún la referencia específica de la Curva de Kuznets Ambiental, sino hasta 1993 con Panayotou.
[10]Sistema Mundial de Vigilancia del Medio Ambiente (una iniciativa conjunta de la OMS y del PNUMA).
[11]Op cit de Gitli, E. (2002), p. 1. (del Resumen)
[12](Suri and Chapman, 1998; Alier y Roca, 2000) son citados porGitli, E. (2002), p.14.
[13]Tal como lo señala un reciente informe preliminar del Banco Mundial: "Riqueza y sostenibilidad: dimensiones sociales y ambientales de la minería", de abril 2005, preparado por el BM a solicitud del Ministerio de Energía y Minas del gobierno peruano.
[14] Resumido de Saravia L., A. 28.
[15]Roca J. y Padilla E. (2003), “Emisiones atmosféricas y crecimiento económico en España. La curva de Kuznets ambiental y el protocolo de Kyoto”, Resumen en Economía industrial ( ).
[16]“También debe hacerse hincapié en que no hay en los estudios sobre la hipótesis EKC nada que sugiera que la tendencia a la degradación del medio ambiente se invertirá necesariamente al aumentar las rentas. Si los incentivos económicos para los productores y los consumidores no cambian cuando sus ingresos aumentan, la contaminación seguirá creciendo sin cesar a medida que crece la actividad económica. En otras palabras, el aumento de los ingresos, aunque pueda ser condición necesaria para que los países presten más atención a la sostenibilidad a largo plazo que a sus problemas económicos y sociales más inmediatos, no es condición suficiente para invertir la tendencia a la degradación ambiental. Es imprescindible poner en marcha políticas ambientales.” Extraído de “La liberalización del Comercio confirma la necesidad de cooperación ambiental” NOTICIAS: COMUNICADOS DE PRENSA 1999 PRESS/14, OMC, 8/10/99.

Video: The Environmental Bias of Trade Policy (June 2021).