Making trade and environmental policies mutually reinforcing: forging competitive sustainability.

• Author: Housman, Robert F.
• Position: Trade and the Environment

The authors assert that environmental and international trade policies must become mutually reinforcing so that environmental policies do not distort trade flows and economic activities do not continue in an unsound and unsustainable manner. Competitive sustainability is the mechanism for achieving sustainable development by harmonizing domestic and international environmental standards through the use of competitive forces which reward the cleanest and most efficient economic actors. An international system of incentives and disincentives will create a mutually reinforcing mechanism for directing trade and environmental policies toward improving the worldwide standard of living.

1. INTRODUCTION

   Former U.S. Ambassador to the General Agreement on Tariffs & Trade(1) Michael Smith astutely noted that the environment is the trade issue of the 1990s, and that, unless a considered solution is developed to allow constructive interaction between trade and the environment, each of these vital policy spheres May find themselves compromised. Put in "Smithese," "[t]he question is whether you want to lay down in front of the train or get in the cab and steer it."(3) Steering in the preferable approach.

   As the contributions to this issue demonstrate, the steering process for trade and environment policy indeed has begun. The dialogue is rapidly evolving from its early emphasis on potential conflicts between trade and environmental policies to a more positive attempt to minimize or eliminate frictions between these two policy spheres. Though this evolution is positive from both trade and environmental perspectives, it simply does not go far enough. We need to rethink the course we want to steer. True advancement of both ecological and economic imperatives will occur only when trade and environmental policies are mutually reinforcing.(4) "Competitive sustainability" defines a mechanism for realizing sustainable development through the "upward harmonization" of domestic and international environmental standards, using competitive forces to create a level playing field for commerce at consistently higher levels of environmental and social protections that reward the cleanest and most efficient economic actors for their efforts.(5) The goal here is not to overburden economic activities, but to put them to work for the environment. By focusing economic activities, through incentives and disincentives, in directions that yield both economic and environmental benefits, these economic activities can become engines to drive standards of living - broadly defined to include economic, environmental, social, and health stability and security - upwards.

   1. The Untenable Status Quo

      Environmental policies have long relied on trade sanctions to advance their goals,(6) and trade tribunals nearly a decade ago found environmental laws in conflict with trade rules.(7) Yet, it was not until the Tuna-Dolphin decision(8) that trade and enviromental policies were perceived as significant threats to each other.(9) Only in the wake of the Tuna-dolphin panel's sweeping pronouncements did trade advocates come to fear environmentalists and vice versa. There has been no rush, however, to use environmental policies to disrupt the trading system or to use trade policies to undermine environmental protections. Thus, the current ecological and economic state of the world - the status quo - is a product of coexisting trade and environmental policies.

      Yet, even a cursory glance at the Earth's "vital signs" shows that this status quo is simply not working.(10) Environmental degradation, driven principally by economic activities, is already occurring at a rate and scale that places both ecological and economic system at risk.(11) Take, for example, the threat of global warming caused chiefly by carbon dioxide emissions.(12) Assuming the present growth rate in greenhouse gases remains constant, we may have already committed the planet to a mean global warming of three to eight degrees Fahrenheit (1.5 [degrees] C to 4.5 [degrees] C).(13) Global warming is expected to cause a mean sea-level rise of approximately twenty-eight to ninety-eight centimeters by 2090.(14) A rise of only twenty-five centimeters would render countless island-state uninhabitable, as well as the delta regions of the Nile, the Ganges and the Yangtze rivers, displacing millions of people.(15) Given than and other consequences, the potential economic and social effects of global warming are substantial.

      Global warming is just one of the many threats that jeopardize the long-term prosperity of both our ecological and economic systems. Ozone depletion will also place major burdens on these systems. Scientist have recently detected record high levels of ozone-depleting chlorine monoxide over New England and Canada.(18) These record levels are troubling when one considers that epidemiologists estimate that each one percent loss of stratospheric ozone leads to an increased incidence of skin cancer of three percent or more.(17) The human and economic costs of increasing cancer rates by even three percent are substantial, to say the least.

      The deliberate overutilization of natural resources in compromising global economic and ecological security (18) by threatening biodiversity and depleting the world's economic capital reserves.

      The result is that our standard of living is falling. Environmental harms, such as air and water pollution, are causing greater numbers of people to become afflicted with illnesses such as respiratory disease and cancer.(19) Meanwhile, the overexploitation of resources jeopardizes our ability to feed the world's current population at a time when that population is steadily Increasing.(20) Simply put, everything that should be increasing is, decreasing and everything that should be decreasing is increasing. Economic activities are intended to make our lives better, yet in their current form they are making our lives worse.

      It follows that we have to rethink the direction of economic activity. The global economy must be directed toward activities that not only reap economic benefits but, at a minimum, do not degrade the environment, and preferably work in some way to ameliorate past environmental trespasses. Paul Hawken, the founder of the environmentally conscious Smith & Hawken company, summarized this need in the following manner: "Business is the only mechanism on the planet today powerful enough to produce the changes necessary to reverse global environmental and social degradation."(21) In rethinking the course of economic activity Hawken goes on to state that "[t]here is an economy of degradation, which is one objective way to describe industrialization, and there is a restorative economy that is nascent but real, whose potential size is as great as the entire world economy is today."(22) The question remains: How can the global economy be encouraged to follow a restorative path? One of the principal mechanisms for encouraging this conversion is the international trade system.

   2. Where Trade Fits into Competitive Sustainability

      With the mass globalization of economic activity now occurring,(23) economic activity is rapidly becoming synonymous with international trade.(24) In the United States, for example, from 1988 to 1991, gross domestic product (GDP) increased $129.8 billion in constant dollars.(25) Exports of products alone accounted for seventy percent of that growth.(26) Moreover, at least one group of experts the Council of Economic Advisors, estimates that if the current Uruguay Round of the GATT can be successfully completed, the United States will add $1.1 trillion (in constant 1989 dollars) to GDP over the next ten years.(27)

      The numbers are equally impressive at the international level. Although growth has been sluggish over the past three years, in 1991 the volume of world trade in merchandise reached a new peak of $3.53 trillion.(28) The services sector contributed an additional $850 billion to world trade volume - a figure that even GATT cautions is likely to be an underestimate.(29)

      If one follows the Ricardo and Smith schools of thought,(30) free trade allows each country to do that which it does best at a "comparative advantage."(31) The efficiency and comparative advantage of individual countries, acting through free trade, result in a magnified efficiency of the global economy.(32) In addition, trade rules, Uke the U.S. Internal Revenue Code, provide incentives for cortain activities and disincentives for others, directing, to a degree, what activities will be undertaken.(33) In a perfpect system, trade provides incentives for, and magnifies the effects of, economic activities that benefit larger numbers of people around the world.(34) But if, as is now occurring, economic activities decrease human well-being, trade actually makes economic activity more efficient at diminishing the overall standard of living.(35)

      If free trade is a mechanism to advance other goals - as opposed to a goal unto itself - the current condition that allows trade to lower standards of living is unacceptable. This is not to say that trade is the "great destroyer,"(36) but that the incentives trade currently provides to economic activities are misplaced. The key is to alter trade incentives to encourage economic activities that provide increasing levels of economic and ecological well-being. Redirecting these incentives so that trade and environmental policies are mutually reinforcing will rejuvenate economic and social bases, encourage increased efficiency in economic systems, and provide additional support for each nation's comparative advantage.

      Competitive sustainability provides a theoretical framework for thinking about mutually reinforcing economic and ecological systems. One of the principle goals of competitive sustainability is a concurrent increase in domestic and international environmental standards. The theory further provides that the best mechanism...