Do Greener Trade Agreements Call for Side-Payments?

• Author: Clara Brandi,Frederik Stender,Jean-Frédéric Morin
• DOI: 10.1177/10704965221076070
• Published date: 01 June 2022
• Date: 01 June 2022
• Subject Matter: Articles

Article

The Journal of Environment &

Development

2022, Vol. 31(2) 111–138

© The Author(s) 2022

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DOI: 10.1177/10704965221076070

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Do Greener Trade

Agreements Call for

Side-Payments?

Clara Brandi

1

, Jean-Fr ´

ed´

eric Morin

2

and

Frederik Stender

1



Abstract

Preferential trade agreements (PTAs) increasingly include environmental provisions.

While the existing literature documents these provisions’environmental impacts, this

paper sheds light on their relation with aid flows. Using an event-specification and data

on bilateral Official Development Assistance (ODA) commitments for a sample of 147

developing country recipients in the period from 2002 to 2017, we find evidence that

the number of environmental provisions in PTAs is positively associated with aid during

negotiation phases. With high-income countries typically pre-determining the extent of

environmental provisions in their upcoming PTAs, this suggests that aid serves as a side-

payment for recipients to sweeten the pot and agree upon already formulated PTA

content. While both aggregate ODA and its subcomponent environmental aid a priori

qualify as candidates for pre-signature side-payments, we find that only the former

fulfills this expectation, presumably reflecting more leeway to exploit aid fungibility.

Keywords

environmental provisions, official development assistance, preferential trade agreements,

trade and environment, trade policy

Introduction

Preferential trade agreements (PTAs) are becoming greener. Environmental provisions

in PTAs have been proliferating and are increasingly diverse and extensive. Recent

1

German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE), Bonn, Germany

2

Canada Research Chair in International Political Economy, Universit´

e Laval, Quebec City, Canada

Corresponding Author:

Frederik Stender, German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE),

Tulpenfeld 6, Bonn 53113, Germany.

Email: frederik.stender@die-gdi.de

PTAs, such as the United States-Mexico-Canada Agreement (USMCA) or the Eu-

ropean Union-Vietnam Free Trade Agreement (EVFTA), include far-reaching envi-

ronmental chapters. Some of these provisions entail so-called environmental

exceptions that allow countries to restrict trade to protect biodiversity or conserve

natural resources similar to those in the General Agreement on Tariffs and Trade

(GATT)of 1947 (article XX(b) ). Other environmental provisions are more prescriptive.

For example, environmental provisions in PTAs can promote the harmonization of

environmental policies, require the ratification of multilateral environmental agree-

ments (MEAs), or call for greater inclusion of civil society organizations in envi-

ronmental lawmaking. Environmental provisions cover a manifold of environmental

issues, such as limiting deforestation, protecting fish stocks, reducing hazardous waste,

and mitigating CO

2

emissions.

PTAs offer several benefits over MEAs for the negotiation of environmental ob-

ligations. These benefits include the facilitation of trade-offs across diverse issue-areas,

and stronger mechanisms to ensure compliance and enforcement. As a result, some

PTAs set environmental obligations that are more precise, more stringent, and more

enforceable than those contained in MEAs (Jinnah & Lindsay, 2016;Jinnah & Morin,

2020).

These developments appear to have positive impacts on the environment. Recent

studies have found that the signing of PTAs with environmental provisions is related to

the adoption of domestic environmental regulation (Brandi et al., 2019), reductions of

carbon dioxide emissions (Baghdadi et al., 2013), decreases in suspended particulate

matter (Mart´

ınez-Zarzoso & Oueslati, 2018;Zhou et al., 2017), and improvements in

overall environmental performance (Bastiaens & Postnikov, 2017).

1

Indeed, while the

specific patterns vary across analyses, existing studies provide evidence that some

environmental benefits are occurring both in high-income as well as in developing

countries.

This paper explores the bargaining process that drives the trend of linking trade and

environmental policy. Notably, some developing countries are reluctant to include

certain environmental provisions in their PTAs for fear that these provisions might

restrict their exports and limit their economic growth (Draper et al., 2017). By contrast,

high-income countries, often equipped with higher domestic environmental standards,

insist on promoting their own environmental standards in their trade agreements with

developing countries (Blümer et al., 2020). Since foreign aid operates as a side-

payment in various policy fields (Alesina & Dollar, 2000;Baccini & Urpelainen, 2012;

Dreher et al., 2008;Kuziemko & Werker, 2006), we hypothesize that one attractive

solution is to raise development assistance to increasing acceptance of environmental

provisions in PTAs. Exchanging aid for environmental provisions might benefit both

donors seeking to include environmental provision in trade agreements and recipients

in need of financial resources.

Such linkage between PTA negotiations and aid commitment is not surprising given

substantial coordination between the actors negotiating PTAs and those responsible for

providing aid. For example, the Office of the US Trade Representative underlines the

importance of linking trade and development and the importance of interagency

112 The Journal of Environment & Development 31(2)