In a recent speech before the Institute for International Economics, US Trade Representative Robert Zoellick did a fairly convincing job of knocking down a straw man in his discussion of environmental concerns over trade. “Given America’s respect for our sovereign authority to set environmental standards,” he said, “we need to be cautious about infringing on others’ sovereignty by trying to compel their standards through trade agreements.” Unfortunately,

Zoellick appears to have listened to everyone except environmentalists in determining what concerns we actually have. Environmentalists do not seek to use international trade to set air pollution standards for New Delhi, water pollution rules in Johannesburg, or standards for genetically modified foods in Italy. We do not expect the World Trade Organization (WTO) to solve the world’s environmental problems. Instead, we hope it will not worsen those problems or tilt the playing field against efforts in other arenas to achieve planetary sustainability.

Globally, we seek a rules-based system that allows, and ideally encourages, societies to internalize the environmental costs of economic activities. We want to avoid three kinds of subsidies: subsidizing local producers at the expense of local communities, subsidizing present generations at the expense of future generations, and subsidizing global commodity production at the expense of the global commons. What we have received, instead, is a rules-based trade system that discourages and, in some cases, effectively prohibits certain kinds of environmental protection strategies while setting the global economy against the internalization of environmental costs. Advocates of the current system argue that existing trade rules do not encourage a “race to the bottom” with regard to environmental standards because the WTO subsidy rules could, in theory, allow challenges to a nation that degraded its existing environmental standards to gain a trade advantage. But it is not this kind of extreme race to the bottom that most concerns environmentalists.

Greenless Subsidies

Since 1960, the global trend in virtually all countries has been toward stronger environmental standards. Indeed, only a global race to the top can achieve planetary sustainability. If WTO rules discourage nations from improving their environmental stewardship, then environmentalists have good reason for concern. But in a recent issue of the Harvard International Review (“National Sovereignty and the World Trading System,” HIR, Winter 2001), economists Kyle Bagwell and Robert Staiger concede that “if a country were to significantly improve its existing standards in a way that raised the production costs of domestic firms, it might wish to unilaterally raise its tariffs...This degree of unilateral flexibility is not provided for under the WTO rules.” By focusing on national efforts to maintain domestic markets for domestic producers, Bagwell and Staiger ignore the heart of the problem: the most critical environmental threats to planetary sustainability are overwhelmingly concentrated in commodity production. Environmental damage is largely caused by agriculture, logging, mining, energy production, and fisheries. These industries are, in most countries, export-driven. Unfortunately, current WTO rules explicitly prohibit subsidies to exports in the form of financial aid, but implicitly allow subsidies in the form of environmental degradation. For example, Canada cannot provide economic assistance to its timber industry in the form of replanting subsidies, but it can allow logging without replanting. Clearly, the odds of adopting an environmentally sound policy with such perverse incentives in place are dramatically lowered.

The WTO system is biased. It favors the least environmentally protective methods for countries seeking to increase the market share of their producers. There is no logical or systematic basis for this discrimination. In principle, it is no more difficult to identify subsidies that result from incomplete internalization of environmental costs than it is to identify subsidies that result from biased systems of taxation. The former is especially easily identified in the case of the most environmentally damaging activity— commodity production—as Robert Repetto of the World Resources Institute has shown in studies quantifying the natural capital lost as the result of clear-cut logging in Indonesia and overfishing in Costa Rica. Whenever there is environmental degradation, there is a subsidy—natural capital is being provided to the producer for less than the cost of replacing it. It is not necessary to argue that all such degradation should be prohibited by the WTO, simply that the WTO should recognize these practices as subsidies. If the WTO is going to allow challenges to financial subsidies, it should also allow challenges to ecological subsidies.

The WTO has already gone far beyond simply skewing the economic playing field based on its arbitrary definition of unfair subsidies. In addition, the WTO actually injects itself into the manner in which nations choose to protect public health and the environment. In the effort to eliminate so-called “nontariff trade barriers,” the WTO enforces a broad range of limitations on domestic and international law. Health and safety standards must meet trade-driven, corporate-dominated tests on the adequacy of their scientific underpinnings. Most countries are barred from limiting imports based on the way products were produced or harvested, even if the production methods involved directly damaged global commons of vital concern to the importing country. To gain exceptions for health or environmental protection, the WTO requires that standards be “least trade restrictive.” This would not be a problem if “least trade restrictive” and other WTO “disciplines” always resulted in greater health or environmental protection. Unfortunately, they often do not.

Innocent Until Proven Guilty?

The United States, for example, successfully used the WTO to challenge European restrictions on beef treated with artificial growth hormones. The United States argued that Europe’s standard for hormone-treated beef was not based on science because no ill effects could be proven for people who had consumed such beef. To say that there have been no proven health effects is however, not to say that there is no scientific basis for banning beef grown with artificial hormones. The International Agency for Research on Cancer has compiled extensive scientific evidence demonstrating that exposure to hormones of the kind fed to livestock can cause cancer in laboratory animals and humans. In addition, the same agency has noted that exposure to hormones can magnify the effects of other carcinogens. In effect, the WTO is asking consumers to act as guinea pigs until actual health effects can be observed. Prevention of harm is, in theory, allowed, but prevention of risk is prohibited, assuring that harm will, time and time again, occur before action is taken.