The Environment and International Trade

This article examines the increasingly important and often contentious relationship between international trade and environmental regulation in the United States. It begins by explaining why these two policy areas have recently become more interdependent and then explores some of the specific controversies surrounding the contemporary linkages between trade policy and environmental regulation. The article concludes by analyzing the long-term political and economic impact of the relationship between trade and environmental policy.

The growth of policy linkages between the formerly distinct policy areas of trade and environmental regulation is related to the convergence of two postwar trends: a reduction in trade barriers and an increase in environmental regulation. ¹

Since the mid-1930s, the United States has played an important leadership role in promoting free trade. In 1948, twenty-three nations led by the United States entered into a General Agreement on Tariffs and Trade (GATT), which committed its signatories to reduce barriers to trade among them. A series of “rounds” of global trade talks steadily reduced tariff levels. By the time of the eighth round of trade negotiations, known as the Uruguay round, trade negotiators had begun to pay increasing attention to reducing nontariff barriers (NTBs) as well. These are government policies that discriminate against imported products through means other than tariffs. Examples of NTBs include quotas, procurement policies favoring domestic producers, and government health safety and environmental regulations. Many of the latter, often inadvertently, but sometimes intentionally, restrict trade by imposing greater burdens on foreign producers than on domestic ones. An important accomplishment of the Uruguay round of trade negotiations, which led to the establishment of the World Trade Organization (WTO) in 1995 as the successor organization to the GATT, was to strengthen the ability of the GATT/WTOs to prevent national standards from serving as “technical barriers to trade.” It did this by strengthening the Agreement on Preventing Technical Barriers to Trade, commonly referred as the Standards Code, making it an official part of the GATT/WTO agreement, and establishing new procedures to facilitate its enforcement.

As a result of trade liberalization, an increasing number of public policies that were formally the exclusive purview of national governments have become subject to international scrutiny. Many national environmental policies have become globalized. In formulating their environmental policies, nations must now take into account their impact not only on national producers but on their foreign competitors as well. At the same time, trade agreements have provided foreign producers with a legal vehicle for challenging the domestic regulations of their trading partners, if those regulations appear to discriminate unfairly against their exports.

The second trend fostering increased policy linkages between trade and regulation has been the steady expansion of environmental regulation. The past three decades have witnessed a significant increase in the number of government regulations that directly affect traded goods. These include automobile emission standards; rules governing the content and disposal of packaging; chemical safety regulations; regulations for the processing, composition, and labeling of food; and rules to protect wildlife and natural resources. The steady growth of protective regulation has forced exporters to cope with an increasingly diverse and complex array of national standards, many of which have made trade more difficult. Because nations generally want to maintain their own standards in spite of—or sometimes because of—the burdens they impose on imports, the continual growth of national environmental regulations has become a growing source of trade conflict.

The geographic scope of environmental policy has also expanded over the last two decades. Many environmental problems require actions by more than one national government if they are to be effectively addressed. These include saving endangered species located in foreign lands or international waters, protecting the ozone layer, safeguarding the shipment and disposal of hazardous wastes, and preserving tropical forests in developing countries. Many international environmental agreements include trade restrictions either as a means to prevent “free riding” or because the harm itself is trade related.

More controversial are the initiatives of a number of “green” countries to use trade restrictions as a way of changing the domestic environmental practices of their “less green” trading partners by keeping out products...