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For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The debate has often been unproductive. It has been hampered by the lack of a common language and also suffered from little recourse to economic theory and empirical evidence. The purpose of this essay is set out what we currently know about the environmental consequences of economic growth and international trade. We critically review both theory and empirical work to answer three basic questions. What do we know about the relationship between international trade, economic growth and the environment? How can this evidence help us evaluate ongoing policy debates? Where do we go from here?

Australian Centre for International Agricultural Research (under PN9449) and the World Bank for financial assistance. Will Trade Liberalization Harm the Environment? The Case of Indonesia to 2020

Does trade liberalization increase (global) environmental degradation? Do environmental regulations hinder the competitiveness of domestic industries against their foreign rivals? Can trade policies be used as an enforcement tool for the international environmental agreements to protect the global environment? We present a survey of the trade and the environment literature from these perspectives. Mainstream economic argument- that free trade is bene cial to every participanthas been questioned by many authors who formally consider environmental consequences of trade liberalization in their studies. Secondly, the supposedly adverse e ects of environmental policies on international competitiveness have not been supported by empirical studies. Finally, it has been shown that free riding on the contribution to global environmental protection of other countries becomes less likely when the countries are trade partners to each other.

ESTIMATING ENVIRONMENTAL EFFECTS OF TRADE AGREEMENTS WITH GLOBAL CGE MODELS: A GTAP APPLICATION TO INDONESIA Anna Strutt and Kym Anderson Provided globally optimal environmental and other policies are in place, mostfavoured -nation (MFN) trade liberalizations will always improve global economic welfare. But since the proviso is not met in practice, empirical studies of the environmental and resource depletion effects of such reforms are needed to determine whether trade reform is still worthwhile. This paper provides a methodology for doing that, using a modified version of a multi-country economy-wide model. Attention focuses on environmental effects in just Indonesia, a large newly industrializing country that is rich in natural resources and committed to taking part in major multilateral and regional trade liberalizations over the next two decades. A modified version of the global CGE model known as GTAP is used to project the world economy to 2010 and 2020 without and with thos...

Summary. — This paper uses a large database of laboratory test results to investigate the sources of international variation in pesticide residues on food products. We specify and estimate a model that incorporates contamination effects attributable to product pest sensitivity, pesticide toxicity levels and characteristics of the producing country. Among the latter, our model tests for the effects of income, education and openness to trade. We find large and highly significant ‘‘generic’ ’ differences in contamination of food products, reflecting pesticide applications that vary with pest sensitivity. Controlling for these differences, we find strong effects for income and education. Pesticide residues on agricultural products fall sharply as income increases, but rise significantly with education. Our model attributes the latter effect to the choice of more capital-, skill- and pesticide-intensive technologies in better-educated societies. We find no significant impact for openness to trade. Our results suggest that workers and consumers in low-income societies have far higher exposure to toxic pesticides than their counterparts in high-income societies, but that consumers in the latter experience significant increases in toxic exposure risk as agricultural trade with developing countries expands. The paper concludes with a discussion of appropriate instruments for resolving a potentially serious trade-environment conflict on this front.

Bonn, June 2001The CENTER FOR DEVELOPMENT RESEARCH (ZEF) was established in 1997 as an international,

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the characteristics of goods, are critical to the effective functioning of markets and provide important support to the trade system. For example, government testing and certification of the bacteria content of imported beef safeguards health and increases consumer acceptance of imported products. Product standards in the international trade system do, however, raise difficult issues for developing countries. These countries ’ limited technical capability and financial resources make it hard for them to participate effectively in negotiations governing standards or to bring disputes. In addition, pressures sometimes exerted to use trade sanctions in support of labor and environmental standards—legitimate and desirable as these standards may be intrinsically—threaten to restrict developing countries ’ access to international markets without achieving their professed goals. The rapid growth of international trade has greatly increased the importance of effective regulation of standards at the international level. This chapter examines how standards imposed by governments in importing countries affect developing-country exporters and discusses the international regulation of some of the more prominent standards addressed in global trade negotiations. 1 Its main messages are as follows: • Insufficient technical and financial resources limit developing countries ’ abilities to play an effective role in the design and implementation of product standards and thus constrain their access to some markets. Many developing countries, particularly the poorest ones, lack the technological capabilities and financial resources to participate effectively in the development of product standards, to meet industrial countries ’ import requirements, and to bring disputes when standards are used to discriminate against their exports. For example, the European Union (EU) is harmonizing standards for levels of aflatoxin, a substance that may cause liver cancer, in food products. The new standard, which is more stringent than would be suggested by internationally accepted standards, would lower risks by approximately 1.4 cancer deaths per billion per year. 2 The new standard has the potential for substantially reducing exports of cereals from developing countries into Europe (Otsuki, Wilson,