Reflections on Climate Change and Trade

Let me start with a general comment that is relevant as background to the theme of this book, and then move on to some of the specifics of the interface between trade, the World Trade Organization, and the environment that many of the chapters above have addressed. At the outset, we need to remember that those who work on trade (mostly academics) and those who work on the environment (mostly activists) have traditionally been at loggerheads from time to time.

Why? One important philosophical difference that underlies much of this tension, which I think we tend to forget, is that trade economists are typically considering and condemning governmental interventions (specifically, protectionism, such as the imposition of tariffs and nontariff barriers) mainly as creating distortions and harming the general welfare. Conversely, environmentalists are typically dealing with what are best described as "missing markets" (for example, people dump carcinogens into lakes, rivers, and oceans and emit them into the atmosphere, and they do not have to pay for the pollution). Therefore, they see government intervention (for example, the use of pollution-pay taxes or the use of tradable permits) as correcting a distortion. It is useful to recall this fundamental difference in the experiences and lifestyles of the people on the two sides of the trade-and-environment aisle, because it underlies and explains, to some extent, the occasional frictions between them.

Of course, trade and the environment are integrally related, and that is why many disputes were coming up at the General Agreement on Tariffs and Trade (GATT)—the most important being, of course, the celebrated dolphin-tuna case between the United States and Mexico. I will return to the important issues raised by the dolphin-tuna jurisprudence and its later reversal in the shrimp-turtle dispute, also involving the United States. But let us start with the problems raised by global warming.

In his comment on chapters 5 and 6, Daniel Drezner points out that, in the past, America has opted for short-run adjustment costs with a view to long-run gain. I do not quite know what he means by "short-run adjustment costs," but I would simply say that an enlightened hegemon like the United States, when going in for the GATT, certainly did not insist on the developing countries having reciprocal obligations. It simply gave away membership. It was, in fact, getting the developing countries into the GATT while gaining nothing in terms of an immediate, reciprocal opening of markets.

I think the intention was to create more legitimacy for the GATT by increasing membership. Down the road, then, you would have graduation and begin to "collect"—via what is called extended reciprocity or intergenerational reciprocity. There were no short-run costs à la Drezner either. After all, the developing countries at that time, in the mid-1940s, were not important markets anyway; nor were they, by and large, major exporters. They were really small players in world trade, and it was only later, when they had grown, that the usual question of reciprocity would become economically relevant.

So one may ask why this argument does not work with the Kyoto Protocol at the moment. Why are we not willing to play that old GATT game? I think we need to look into this question carefully to get a sense of where the problems might be with how we approach the design of the successor pact to Kyoto—what I like to call Kyoto II.

A key problem, of course, is that there are two big players, India and China, with current and prospective emissions of carbon dioxide that are simply large for India and huge for China. We did not have anything like this at the time the GATT was formed; then, as noted, the developing countries were all little players in trade, for all practical purposes. Exempting India and China from the emission obligations of a climate change treaty today is thus not like exempting the developing countries from trade obligations in the 1940s. Moreover, India and China are not willing to make any payment to get into the Kyoto club, as it...