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Reviewed by:
  • Free Trade and the Environment. Mexico, NAFTA and Beyond
  • Raul Pacheco-Vega
Gallagher, Kevin P. 2004. Free Trade and the Environment. Mexico, NAFTA and Beyond. Palo Alto, CA: Stanford University Press.

Few topics are as hotly debated, both in the public press and the academic realm, as the impact of globalization on the environment. Globalization, understood as the decrease in barriers to trade and communication, has been blamed for many environmental ills. Increasing trade between countries with diverging degrees of environmental regulation and enforcement has been singled out as particularly worrisome, though some argue that this situation leads to environmental improvement.

A number of researchers argue that, as trade increases and economies strengthen, countries will be able to increase their wealth enough to invest in pollution prevention measures. The Environmental Kuznets Curve (EKC) hypothesis suggests that, as countries develop, the level of environmental degradation follows an inverted U-shape: levels of pollution first increase with rising wealth, but then decrease.

Others are more pessimistic. Two related hypotheses, the Pollution Haven Hypothesis (PHH), and the Race to the Bottom Hypothesis, have long been postulated. The pollution haven hypothesis argues that, under conditions of liberalized trade, polluting industries from rich, developed countries will choose to relocate to poor, developing countries where environmental regulations are arguably less strict and enforcement is lacking. The race to the bottom hypothesis suggests that international trade encourages trading partners (e.g. the United States) to relax environmental regulatory standards down to the level of their counterparts (in the case of the North American Free Trade Agreement, Mexico). Competition for trade and foreign direct investment would lead countries to relax their environmental standards in order to attract investment.

Gallagher sets out to evaluate two of these competing hypotheses, the EKC and the PHH. His central research question is posed at the beginning of the book (p.2): "to what extent has economic integration affected levels of environmental degradation in Mexico?" His analysis spans the period 1985 to 1999. This research design conforms not only to data availability but also to the period of highest economic liberalization in Mexico. Five years after NAFTA, Mexico was touted as one of the most open economies worldwide. [End Page 125]

The book makes key contributions. Gallagher uses extensive data gathering and analysis to test the two hypotheses. He does not argue for or against either of the competing hypotheses theoretically, but rather evaluates them with empirical data at the level of the national economy. Using quantitative data on air criteria contaminants, he tests the EKC hypothesis in Chapter 2 of the volume. The available data does not prove the EKC wrong, nor it does not prove it correct. Gallagher indicates that "if there is an EKC for Mexico, the turning point must be well above current income levels" (p.23). In chapter 3 he tests the PHH and shows that the costs of pollution abatement are not a factor in a company's locational decisions. He concludes that Mexico is not a pollution haven and that US firms have not fled their home state in search of the lax Mexican regulatory framework. He nevertheless finds that, "on average, Mexican industry is much more air pollution intensive than U.S. industry" (p.59).

Gallagher also argues that, instead of creating a race to the bottom, NAFTA and its environmental side agreement, the North American Agreement on Environmental Cooperation (NAAEC), could contribute to some degree of upward harmonization, producing more stringent environmental regulation. The fact that the pollution intensity of the Mexican industry is increasing suggests that there are severe environmental policy gaps and a lack of regulatory enforcement in Mexico. He argues that the North American Commission on Environmental Cooperation (NACEC) has implemented programs that could potentially strengthen Mexican environmental capacity. If these programs succeed, NAFTA will have positive environmental effects.

While Gallagher's empirical and theoretical contributions to the trade and environment debate are outstanding, more research on the topic needs to be undertaken. Gallagher's empirical data only extends through 1999, and we are now more than ten years past the negotiation of NAFTA. One small criticism of the book is the fact that it examines only air contaminants...

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