Economic Globalization and the Environment

1. What Do Trade, Investment, and Finance Have to do with Nature? Economic Globalization and the Environment

2. Free trade is good for the environment Free trade increases growth (which is a good thing, recall): Based on the theory of comparative advantage (Ricardo; Heckscher, Ohlin): countries will do best producing those things in which they have a comparative advantage, and trading for other goods and services. Free trade improves efficiencies and reduces waste. If Cote D’Ivoire is really good at producing cocoa, but can only produce cars in a way that is inefficient and wasteful, while South Korea is an excellent car producer, but would only be able to produce cocoa inefficiently (relative to Cote D’Ivoire) then it is resource-efficient to allow both to produce what they produce best and trade.

3. Free trade is good for the environment 3. Free trade regimes that end subsidies reallocate production to more efficient locations; production comes to reflect existing scarcities (Agriculture: subsidies are huge in the OECD countries, and they’ve risen from $275 billion in 1986 to about $380 billion in 2009. These areas use enormous amounts of water, chemical inputs. Ending these subsidies would reallocate production to areas that are more resource-efficient). 4. Trade encourages exporters to account for the (higher) standards of large market importers, so environmental standards globally are likely to rise (eg. Mexico-US trade in fruit and vegetables) 5. Free trade enables countries to take advantage of their endowments and preferences. Some countries actually have more capacity to absorb pollution (their “sinks” aren’t full). Free trade encourages “dirtier” production to locate in these areas (Summers Memo).

4. Free trade is bad for the environment Free trade increases growth (this is a bad thing, recall). The scale effect will in all likelihood outstrip the efficiency effect, resulting in greater throughput and an unpleasant encounter with “natural limits.” Lower prices deriving from free trade encourage overconsumption. Mobility of capital lumps most environmental hazards and degradation in the South, (production is usually less-regulated, more damaging, and more pollution-intensive) while benefits (profits, low prices) are enjoyed in the North. The North draws down the “carrying capacity” of the South, and is thus enabled to live well beyond its own ecological means.

5. Free trade is bad for the environment 4. Distancing: Feedback loop between production and consumption is ruptured. 5. Transportation of goods is itself a major polluter (only about 4% of global C02 emissions from shipping, which accounts for 90% of international cargo, but bunker fuel emits a huge amount of other pollutants—particularly sulphur). 6. Race to the bottom: Standards become a dimension of competition for capital whose mobility is increased due to free trade regimes. 7. Institutional prioritization of trade liberalization over environmental protection (WTO, NAFTA codify a preference for ensuring trade flows even at the expense of environmental regulation, legislation; partly a product of insistence on “scientific evidence of harm”).

6. The World Trade Organization • Est. 1995 • GATT (precursor to WTO) est. 1948 • Forum for multilateral negotiations on the liberalization of trade • Covers not only trade in goods, but also services like banking and telecommunications (GATS), intellectual property rights (TRIPS), government procurement, and others.

7. The World Trade Organization • Principles Enshrined in the WTO • Trade should be made “freer” (liberalized): The direction of negotiations should be toward lowering barriers to trade. • National Treatment: Domestic producers should be treated the same as foreign producers. • Most-Favored Nation: Countries cannot show favoritism in trade policy toward individual or groups of countries.

8. The World Trade Organization • The Dispute Settlement Body (The Teeth) • If one country feels as though another is violating the WTO trade agreements, it can launch an appeal. • Panels of 3-5 experts convene to hear the cases of countries involved in the dispute. • Panel members are either chosen jointly by the countries involved, or appointed by the Director General of the WTO • Settlements take about one year and three months • If found in violation of the WTO, countries must change their trade laws to be in accordance with the relevant agreement, or the appellant (and sometimes third parties) can implement “countervailing duties.”

9. Institutions: the WTO and the environment How does the institutional architecture of world trade consider nature? State-led environmental protection is legitimate (Article XX) if: Resource scarcity is the issue (and then limits on extraction must be applied equally to domestic producers) Human, animal, or plant life or health is threatened Limits: Measures have to be the least trade-disruptive, backed by “sound science,” non-discriminatory (national treatment and MFN remain key principles) and can’t differentiate between “like” products (issue of NPR-PPMs).

10. Investment and the environment The usual growth debate carries on….Does FDI spur growth? Is that a good thing or a bad thing? Specific debate is over the practices of TNCs, mostly in the South Differential Standards: Do TNCs relocate toward areas of low environmental standards, or flee areas of high environmental standards? (Pollution Haven/Regulatory Flight); Are differential standards a “problem” or a reflection of different domestic conditions and preferences? (Summers Memo, again). Do they practice “clean” production abroad (relative to either local conditions or “home” conditions), thus raising standards?

11. institutions Bioenvironmentalist/Social Green call for global standards and TNC accountability in international law has been unsuccessful Voluntary Standards are the dominant institutional category for governing the practices of TNCs (ISO 14000; UN Global Compact; Coffee Code of Conduct, OECD Guidelines for MNEs, etc…) NAFTA Chapter 11: A model for “investor rights” or a bulwark against environmental regulation?

12. Global Financing and the environment Flows of money to the developing world come in a number of forms: Investment (incl. portfolio investing); Aid (multilateral and bilateral); Loans. ODA (as % of inflows) has been falling, while debt from non-ODA loans has been rising (total debt of low and middle income countries, 2007, was US$3.4 trillion) Global finance is the lifeblood of much economic activity in the South (extraction, agriculture, production) Critical for the question of finance and the environment are the practices and policies of the major multilateral lenders, particularly the World Bank.

13. Global finance and the environment Up to the mid 1980s, the World Bank paid next to no attention to the environmental consequences of its lending, taking the market-liberal position that growth was paramount, and would be environmentally beneficial. Consequences were dire: eg’s: Polonoroeste, Narmada Project, Singrauli. Institutional “Greening” 1987-1997: Environmental Reviews, Increasing staff at Office of Environmental Affairs, World Development Report 1992, Global Environmental Facility increases environmental lending.

14. Global Finance and the environment SAPs: (Now called “Poverty Reduction Strategy Papers—PRSs): Standard “Washington Consensus” policies (liberalization, deregulation, devaluation, privatization, fiscal austerity) geared at maximizing foreign exchange and ability to service debt. Effects? New efficiencies and “correction” of market signals? Increased resource exploitation and unsustainable agriculture? (eg. coffee modernization, flower production) Decreased government spending on environmental protection?

15. Global finance and the environment Rise of the ECAs: Total ECA finance is twice the value of all bilateral and multilateral development assistance; Accounts for 40% of debt owed to official agencies; Finances 10% of global exports. Key environmental impact: they socialize risk of environmentally risky or intensive projects (oil, gas, mining, logging dams, nuclear power generation, chemical plants). Increases incentive for developers. No environmental or social standards, very little external oversight (US is the exception). Impacts of Private Finance? ….