Presentation & Purpose

What is the field of Trade & Environment and why is it important?

The current world governance structure of international economic law and policy has its basis in the post-war Bretton Woods system, which came into being essentially by having the victors of the war draw up the map for commercial and financial relations between nations. Closely related, though technically not part of the Bretton-Woods agreement, was the realization that world trade governance needed similar structure to it. Despite significant effort, the proposed International Trade Organisation (ITO) never saw the light of day the way its sister institutions the IMF and the World Bank did, mainly due to obstructionism from the US congress. Instead, the UN negotiated General Agreement on Tariffs and Trade (GATT), soon became a de facto world trade organization, laying down fundamental rules of trade as negotiated by its member nations. Finally, in 1995, the GATT assumed the role that had been envisioned almost 50 years earlier by becoming the World Trade Organization (WTO).

Unlike trade, there is no such thing as world environmental governance. The primary tool used to tackle large international environmental issues is the United Nations system, which coordinates discussions and provides a forum for negotiation for nation states. The reason for this is historic as much as organizational. Though the importance of regulating international trade was clear to the participants at Bretton-Woods, the world of 1945 was less inclined to worry about environmental limits and overshoot of the planet’s ecological carrying capacity. Quite understandably, as these were neither critically urgent nor known issues at the time. Thus, the so called ‘environmental movement’ that gradually arose during the decades after the war did not benefit from a coherent framework supported by a wide array of member states the way trade regulation did from early on. As many environmental issues came to the brink of being untenable, it was only during the last few decades that serious and lasting attempts were made at creating a true world governance of environmental issus through the United Nations system. These attempts, however, come on the world stage at a much different time than what was the case in 1945. Consequently, the “crash course” of solving environmental issues with a global character has been fraught with difficulty and a steep learning curve.

The externalization of environmental consequences is unaccounted for under the current international economic governance structure. The historical reason for this comes mainly from ignorance, not resistance, which is a crucial point.

As ignorance of the environmental consequences of human economic activity has given way to clarity and strong concern over their effects on the planet’s ecological status, increasing calls have been made to integrate environmental concerns into economic governance. An understanding has entered the mainstream that many of the assumptions of inexhaustibility that underlie our economic activity are unsustainable, denying us the luxury of taking for granted the ecological and environmental processes that all human economic activity ultimately rest on.

The area often referred to as “Trade and Environment” is thus a facet of these attempts at integrating  environmental consequences into current modes of international economic governance, dealing specifically with the current international trade regime and the places in which it brushes up against environmental issues. More specifically, it is an attempt first and foremost at making sure that trade regulation does not hinder environmental progress. This is the crucial first step. Step two is to hopefully make trade regulation an actual driver of environmental progress by instituting fair, transparent and environmentally beneficient trade rules that are widely respected and help accomplish national, regional and global environmental goals.

Despite such clarity on the fundamental underpinnings of synergizing trade and environment issues, progress has been elusive and slow. A key concern for those who take issue with the above said integration of environmental consequences into world trade governance is loss of competitiveness. The concern itself is simple. Internalizing costs of any kind means more costs have to be paid. If a competitor does not internalize the same cost, he will attain a comparative advantage and be more likely to outperform you. Thus, unless the world trading system can somehow guarantee a level playing field, nations are wary of internalizing environmental costs over competitiveness concerns. To understand this field, it is thus imperative to understand international competitiveness.

Competition over anything by its very nature arises from scarcity, whether real or perceived. Understanding this, it is helpful to know that one of the definitions of economics is choice under conditions of scarcity. Thus, the study of economics is closely related to competitiveness and vice versa, since by their very nature neither economics nor competition can exist without scarcity of some sort. Consequently, studies of international economic governance is also the study of international competitiveness between nations. Perhaps nowhere is this as apparent as with regards to international trade, where issues of competitiveness are constantly at the forefront of concern.

The important thing to understand is that there is no “world competitiveness rulebook”. Apart from regional efforts such as the EU single market, the closest thing to an attempt at governing global competitiveness is the WTO. Thus, concerns over international competitiveness are fundamentally trade relevant.

To understand how competitiveness, trade and environmental issues form a single entity one must explore several areas such as law, economics and politics. The point is of course that the area of trade and environment requires an understanding of many fields of knowledge, as these issues are fundamentally synergistic and multi-faceted in their nature.

Perhaps most importantly, one needs to underline the importance of non-technical aspects. By and large, there is a good degree of understanding over what exactly are the legal and economic issues related to this field, for example the above mentioned competitiveness concerns. What is less explored are the dynamics of politics and power, which are every bit as essential, if not more, for finding solutions in aligning trade and environment.

When the Bretton Woods system was laid down, the world was a very different place. Above all, the predominant powers of the time provided a relatively homogenous group, under the aegis of which important economic decisions could be taken with some efficiency. In many ways, the status quo that was laid down at that time is the dynamic of international economic governance that we are still living with today, though under increasingly greater strain. In the world as of 2012, the international political power landscape is a much more scattered affair, with many viable powers again competing more forcefully on the world stage. This dispersal of the concentration of power provides for pressure towards a “messier” landscape of power, leading in turn to strain many of the current international institutions that must attempt to accommodate such pressure. Consequently, many calls have been heard that we are moving toward a more regionally, as opposed to globally, oriented world, shunning the “single undertaking” type negotiations that were the hallmark of post-war global cooperation. In such a regionally oriented world, issues of international competitiveness will become more relevant than ever, perhaps even dangerous, if they lead to dissolvement of international mutual interest.

It is under this new landscape of international competition that trade and environment concerns come on to the world stage to be solved. Consequently, multilateral attempts in this area have vacillated between weak and non-existent within a multilateral system that itself is under great strain. The synergistic nature of the area is especially problematic, as it necessitates strong cooperation between what is at current completely separated avenues of authority in the worlds of international trade vis-à-vis environmental governance. Strong cooperation, let alone understanding of priorities, has been quite slow between the worlds of trade and environment.

Unless further strong headway is made in this area, trade frictions on environmental grounds are likely to increase in intensity. Left unchecked, such developments can jeopardize both environmental progress as well as the trust in the trading system itself.

It is important to understand that these issues are not academic sophistry. Trade and environment concerns will come to a head before long whether we deal with it or not. Indeed, these issues are directly relevant to solving what is quite literally the most important problems facing humanity at this point in time. If fears over competitiveness and power loss in the trade world become a barrier to moving forward with national, regional or global environmental progress then it will be a decidedly less peaceful world that we have to inhabit in the next century. On the other hand, if international trade regulation and cooperation can be skillfully navigated to successfully integrate environmental concerns, trade can and will be an absolutely crucial tool for improving living standards and human quality of life globally.

In reality, there is no “choice” to be made here. Neither international trade or environmental concerns are going away from the world stage anytime soon, and we cannot afford to ignore one in favour of the other. The choice lies in how we handle the synergy between the two while avoiding fear, conflict and the unsustainable comfort zone of business-as-usual.

My work and this site centers on the constructive path in navigating these important and difficult issues, with an eye towards a positive and prosperous future.

/C. Johan Westberg

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