Great Plains: Impacts of Trade on Sustainability

Impacts of Trade on Sustainability

Concern over trade policies and their impact on the environment led to the following statement by the United Nations Conference on Environment and Development (UNCED):

"Environment and trade policies should be mutually supportive. An open, multilateral trading system makes possible a more efficient allocation and use of resources and thereby contributes to an increase in production and incomes and to lessening demands on the environment. It thus provides the additional resources needed to economic growth and development and improved environmental protection. A sound environment, on the other hand, provides the ecological and other resources needed to sustain growth and underpin a continuing expansion of trade. An open, multilateral trading system, supported by the adoption of sound environmental policies, would have a positive impact on the environment and contribute to sustainable development." ¹

Notwithstanding the choice of words by the Commission, one of the most contentious issues remains, that of dealing with externalities and internalization of costs. It is argued that trade negotiations should now be directed toward encouraging internalization of these externalities either through regulation or other economic instruments. Some forms of environmentally sound practices are not allowed under the GATT rules. Furthermore, countries or firms which attempt to raise prices to cover the environmental costs of production are likely to be priced out-of-the-market by others not so disposed. In no case was this concern more obvious than during the NAFTA discussions where environmental and labour practices in Mexico led the U.S. to attempt to extend its jurisdiction to the other countries involved, Canada and Mexico, through extraterritorial action. Unfortunately, much of this action can only be seen as a covert means of restricting trade.

Pearce and Warford ² state that given the large gains to be obtained from free trade, policies that restrict trade for environmental purposes must be approached with caution. All other approaches to reducing environmental damage should be exhausted before trade policy measures are contemplated. They state that there are four results of free trade which have implications for the environment. These include: an increase in economic activity which tends to drag more materials and energy through the economic system; a potential industrial and agricultural reorganization to capture the economies of scale made possible by larger markets; neglect to take into account environmental losses in the same fashion as does production for the domestic markets; and removal of subsidy systems which in turn lead to a reduction in output. While trade liberalization may produce negative environmental externalities, there are also environmental gains. The implications do not mean that free trade should be resisted but rather that the most cost effective policies should be adopted to deal with any externalities. Restricting trade is unlikely to be the most efficient way of addressing such externalities.

The relationship between trade and sustainability comes to the fore with respect to trade in grains and oilseeds. Trade and pricing practices by the EEC encourage potentially unsustainable production practices. Similarly, grain trade policy in the U.S. encourages exports, with minimal attention given to the relationship between production and the sustainability of agriculture. Canada is not immune in this respect since it has essentially fostered exports of grain, particularly wheat, so as to retain a share of the world market regardless of the costs in terms of potential pollution and the deterioration of the soil resource. If the costs of all externalities were incorporated into total production costs, the volume and the value of trade could dramatically change. Furthermore, this change in trade (and attendant increase in world prices) could be beneficial to agriculture in many developing countries now serving as sinks for the grain exports of the developed countries. Gray and Furtan ³ in their research establish that under current income support and export programs for grain (wheat), the net gains from the present volumes of trade have been negative even without accounting for any adverse effects on sustainability. Their research indicates that Canadian gains from trade would be improved by a unilateral reduction in wheat acreage. Even under multilateral free trade the net gain from wheat exports remains modest.

Any form of trade-liberalizing agreement trades off some domestic sovereignty for some domestic economic benefits, the protests of former Canadian prime minister Brian Mulroney that no sovereignty will be sacrificed notwithstanding.⁴ The cost of losing local control over services is difficult to quantify. The cost of losing control over foreign investment may be high. Under free trade such costs can be expected to impact on agriculture and its sustainability. Nonetheless, there is something to be gained by a country such as Canada in development of a sustainable agriculture. The standards established will ultimately have to be adopted by competing exporters and the technologies developed utilized by others. Canada will therefore continue to benefit from the improvements fostered in technology both from its application at home and its subsequent adoption abroad.

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