Expert Speak Raisina Debates
Published on May 06, 2020
International trade and environment sustainability: The two must tango

Each time there has been a crisis at a global scale, the aftermath has involved a demonstrated effort towards collective action to prevent history from repeating itself. The COVID19 pandemic is another instance where anthropogenic forces have disturbed the ecology, society and economy equilibrium. In a post-COVID19 world it is imperative that efforts converge towards preserving this equilibrium. With global value chains (GVCs) introducing a new paradigm in production and consumption, international trade has become the keystone of world economic order. Incremental land-use change, driven primarily by consumption demand, has increased exposure to emerging zoonotic diseases by bringing humans and wildlife closer to each other. International trade has played an important role in driving this change by contributing to global biodiversity loss.  and around 30 percent of global threats to species. In this light, it is important to revisit international trade policies, and bring them in consonance with sustainable development – especially with respect to the natural environment.

What went wrong?

Trade policies and environmental impacts have multiple feedback mechanisms. Foundations of international trade rely on comparative advantage reflected in the relative prices of goods as the basis of arbitrage between trading partners. This relative price of goods, however, is dictated by several factors such as resource endowments, competition policies, government subsidies and taxes, and environmental regulations and standards to name a few. Countries utilise these tools to influence the competitiveness of their export sectors, and at times faulty understanding or implementation results in a conflict between trade competitiveness and environmental sustainability. As economic activity is intrinsically based upon profit and utility maximisation axioms, they often fail to internalise the social and environmental costs associated with it. Thereafter, total production and consumption exceed the optimum levels which subsequently leads to transgression of the planetary boundaries defined by air quality, health of oceans, hydrological cycles, ozone layer and land systems, among several others.

International trade policies, such as harmful subsidies at the production stage aimed at enhancing competitiveness of the export intensive sector have led to unscrupulous practices. For example, the global fishing industry has received subsidies of various forms which has directly enhanced their fishing capacity. Estimates suggest that these subsidies have been directly responsible for overfishing of one-third of global fish stocks. Furthermore, approximately 85 percent of subsidies are directed to the large fishing fleets, and only a small amount accrues to the artisanal fishermen – the primary target of these subsidies. Subsidies in other sectors have also had detrimental impacts on the environment. Transport of freight, using fossil fuels, has contributed to global greenhouse gas emissions. More importantly, due to increased fragmentation of production processes, there have been larger distributional implications of international trade in terms of resource use – both natural and human, across the world. A pattern has emerged where most of the 'dirtier' production has been shifted to developing countries. Due to inadequate institutional mechanisms, it has also led to extractive practices such as unhygienic working conditions, wage inequalities and child labour. Redistribution of production to the developing regions of the world has accentuated environmental degradation as economic activities in these countries are more ecologically intensive and socially unregulated. Reiteratively, more than 50 percent of global biodiversity loss associated with food consumption in developed countries occur outside their territorial boundaries in much less developed regions.

As a corollary, violations of planetary boundaries have also had significant impacts on international trade. Trade is crucial for food and nutritional security for poor regions across the world not only for providing access to basic goods, but also as a source of income. Vulnerabilities to climatic factors pose a major threat to the securitisation of these people. When people are dependent upon food from a different part of the world, small changes in the production ecosystem can have large implications in the importing nations. For instance, transgression of the planetary boundaries like the hydrological cycle, land-use systems, and biodiversity have a huge impact on the yield of export-oriented crops resulting in global scarcity reflected through higher prices. Additionally, as more than 80 percent of international trade is sea-borne, and food trade passes through choke points like the Panama Canal, Hormuz strait, Malacca strait etc., global warming induced sea level rise and weather-related events such as cyclones and hurricanes could also disrupt port operations, and coastal storage infrastructure. These factors, especially the effect of global warming, have a significant impact on the supply chain and adversely affect food security of poor countries. Furthermore, climate risks also pose a challenge to the financial stability of investments and undermine competitiveness of industries.

How can the two tango?

There exists a plethora of opportunities for reconcilement that undergird the achievement of broader goals of economic wellbeing within the limits of Earth’s carrying capacity. A report by the United Nations Environment Programme and the WTO identified how ecologically sustainable trade can provide business opportunities and competitive advantage to developing nations. Through its ability to act as the medium connecting production to consumption, trade can be the linking factor between 'green' production and 'sustainable' consumption. Environmental standards, non-tariff barriers such as sanitary and phytosanitary conditions, and taxes are imposed to ensure that production processes entail environmentally and socially ethical practices. Quite often these measures are used as protectionist measures against competitors. However, genuine implementation, in accordance with scientific knowledge, will result in promoting fair trade practices. Once the latter is ensured, complying with these regulations will yield additional advantages by guaranteeing market access across the globe. Developing countries can adopt strict measures of labelling and product standards. In the long run economic, social and ecological gains will be larger than the initial costs of implementing these drastic changes. It will also provide developing countries with a comparative advantage in ‘cleaner’ goods – which is experiencing a gradual rise in demand.

In similar vein, sustainable agriculture can also play an important role in ensuring responsible consumption and production, especially when around 30 percent of global biodiversity threats are due to consumption of food commodities. To begin with, domestic agriculture policies must be re-examined to ensure that they do not promote ecologically destructive practices. Firstly, in many developing countries, such as India, there is a nexus between chemical fertilisers and crop yield initiated by the large subsidies to fertilisers. Not only is it harmful for the environment, but also adds to the financial burden of farmers, despite these subsidies. Secondly, government interventions through price signals determine the cropping patterns. It has been observed that these price signals are often detrimental to the natural resources in an area – as exemplified by the cultivation of water intensive paddy even in areas that are relatively water scarce in India. Given that 43 percent of agriculture labour force in developing countries are women, training them in sustainable agriculture practices, and empowering them through financial inclusion etc., will play an instrumental role in ensuring holistic development of the global agrarian sector. The fishery sector, another major component of global food trade, is also fraught with inefficiencies. Instead of providing additional subsidies to the large fleets, they must reach the targeted groups, who actually depend on marine resources for livelihood like the poor coastal communities. Not all subsidies are harmful, and certain kinds that promote fishery managements through research and development must be encouraged. Additionally, fishery agreements between nations must be respected, and best practices from across the globe must be emulated in fishing grounds that are subject to illegal, unreported and unregulated (IUU) fishing.

Role of institutions 

Realigning trade with sustainable development is an arduous, but possible, task. Tackling this will require global concerted efforts primarily due to the transboundary nature of the problem. Institutions such as the WTO must assert themselves better. As the SDGs highlight most of the concerns facing the world, it should be integrated into the trade policies of individual nations across all levels of government. The targets and objectives should be clear, and interlinkages between the goals must serve as a yardstick to ensure that the goals are compatible with one another. This will require greater coordination between departments in national governments, and across countries wherein overseeing the entire process should be done by institutions like WTO. Economic competitiveness must be made compatible with the social and environmental foundations. The Dispute Settlement mechanism at the WTO is equipped to ensure that trade practices follow principles of fair competition. However, the process is in a limbo after the US blocking the appointment of the judges. This is a major blow to the entire process of ensuring ecologically sustainable trade. Operationalising the dispute settlement mechanism is imperative in this case. Furthermore, the recommendations of the WTO must be binding on the members, and there should be a practice of ensuring adherence to the suggestions.

Ecologically destructive activities will introduce new uncertainties into the world – such as the pandemic has done. Trade, being an integral part, can play an important role in ensuring that humans are more responsible towards society and environment. This will, however, require immediate action.

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Roshan Saha

Roshan Saha

Roshan Saha was a Junior Fellow at Observer Research Foundation Kolkata under the Economy and Growth programme. His primary interest is in international and development ...

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