Friday, September 15, 2006

Environmental regulations as trade barriers?

Today's ENN article titled "World Needs Clearer Rules To Avert Trade Rows" touches on a topic that environmental economists have been looking at for a while.

World Needs Clearer Rules To Avert Trade Rows
September 15, 2006 — By Alister Doyle, Reuters
OSLO — The world needs clearer rules to judge when trade curbs on environmental or health grounds are justified or are simply protectionist, a U.N. study said on Thursday.

Trans-Atlantic trade tensions could worsen without a common understanding of a "precautionary principle" in environmental law that is often invoked to allow trade barriers such as the European Union ban on U.S. genetically modified food, it said. "The seriousness of these disputes and the importance of the technology threaten great damage to international cooperation and law," said A.H. Zakri, director of the U.N. University's Japan-based Institute for Advanced Studies.

Countries sometimes use a "precautionary principle" to justify measures to prevent serious or irreversible harm even if the feared damage is not certain to happen. But the principle has no accepted definition worldwide.

In their 2003 article in the Canadian Journal of Economics paper Josh Ederington and Jenny Minier discuss whether international trade agreements should be extended to include environmental policy. This has spurred a number of papers in this area and indeed we have cited this paper many times. Here is the abstract:

Should international trade agreements be extended to include negotiations over environmental policy? The answer depends on whether countries distort levels of environmental regulations as a secondary means of providing protection to domestic industries; our results suggest that they do. Previous studies of this relationship have treated the level of environmental regulation as exogenous, and found a negligible correlation between environmental regulation and trade flows. In contrast, we find that, when the level of environmental regulation is modelled as an endogenous variable, its estimated effect on trade flows is significantly higher than previously reported.

Ederington and Minier

No comments: