Introduction
“We need to remember that trade is a great peacemaker that enriches people and increases international understanding and ties between nations” - Dan Quayle
The act of buying and selling goods and services between two or more countries is known as International Trade and mechanism which facilitates it is known as a market. It is not a new concept and has its origin 9000 years ago when Egyptian settlers came to Egypt. They realized that a country need not be self-sufficient in all the resources that are vital for sustenance. Instead, they could satisfy their wants through different international channels using the process of trade. This idea got atoll in the market nationally as well as globally and thus international trade has become the cynosure of economic growth and development. The bare essential function of trade is to keep a globally competitive economy and helps in dwindling the prices of goods around the world. It happens sometimes that there is no domestic production of a certain commodity and hence trade helps one provide that thing which would otherwise have been unattainable. There is a major trade institution that regulates the trading world over and is widely known as World Trade Organization.
Establishment of World Trade Organization (WTO)
The Bretton Woods Conference of 1944 led to the foundation of two prime institutions, the International Monetary Fund (IMF) and the World Bank (WB). Besides this, there was a suggestion of creating a third leg of the system, the International Trade Organization (ITO). While the United States and the United Kingdom spearheaded this idea of ITO, this negotiation led to the signing up of the Havana Charter in 1948 but due to it becoming mainstream and neglected, it never came into force and thus ITO was stillborn. Meanwhile, discussions for a multilateral agreement concerning the lessening of trade barriers led to the creation of GATT (General Agreement on Trade and Tariff) in 1947. Although the agreement has certain discrepancies and flaws, it passed the test of time and managed to function as a de-facto international organization that supported eight rounds of negotiations commonly known as the Uruguay Rounds from 1987 to 1994. The eighth round culminated in Marrakesh Treaty in 1994 and thus on 1st January 1995, World Trade Organization was established. Its headquarters are situated in Geneva, Switzerland. It is aimed at the reduction of all barriers that hinder an individual to trade effectively and progressively. There is also a well-structured dispute settlement system that understands the original agreement and makes sure that the policies are followed with utmost sincerity.
Repercussions of trade on the environment
The enlargement of trade globally has given surge to the issue of the relationship between trade and the environment and how does the former impact the latter. It is pretty obvious to say that the trade of produced goods would affect the environment adversely. This issue came to light first in around 1991 when a United States law that banned the trade of tuna from Mexico was challenged by the Mexican government. The tuna fishing method used by the country was perilous for a large number of dolphins and US Marine Mammal Protection Act prohibited such kinds of methods for fishing and thus banned the imports of tuna fish from all such countries that incorporated such unsafe methods. The Mexican government contended that the law in question violates rules laid down by the GATT (General Agreement on Trade and Tariff). According to GATT rules, no domestic law can be laid down that restricts imports except in some special conditions concerning the health and safety of the citizens of that country. The dispute panel of GATT too reiterated the same provision and gave a ruling in favor of the Mexican Government. Although the US government wasn’t successful in this dispute, the decision inevitably opened up a huge controversy over the issues of the environment that arise because of trade. In 1999 again, protestors wore turtle costumes to give effect to their anti-globalization demonstration. The reason for this protest was that the shrimp trade globally was detrimental to the sea turtles by entangling them in nets. Here again, the decision was against the US government. Not only the trade in sea creatures is problematic, in some cases, shifting to export crops can also be harmful. For example, a study of Mali while evaluating the development of cotton as a cash export crop found that “There is evidence of farmers’ occupying and working the land over their real needs to forestall its use by others. Almost no fallowing is practiced in the region. The environmental effects are evident in land degradation and soil erosion owing to over-cultivation, insufficient fallow, and the use of marginal land against a backdrop of increasing aridity.” . The defenders of free trade have often focussed on what is known as an Environment Kuznets Curve principle. According to this principle, there is an inverse relationship between environmental damage and growth. Harm to the environment increases in the early stages of growth but constantly once a country attains a higher level of economic development. But this principle wasn’t completely reliable as it takes into account only certain specific entities like air or water pollutants whereas others like CO2, methane, ozone, etc. weren’t included. A study by the World Bank suggests that carbon emissions and municipal waste continued to rise with surging economic growth. Thus, it is evident that the direct impact of globalization on the economy is encouraging whereas its impact on non-economic factors like the environment is a cause of concern.
What are Carbon Pricing and Its impact?
With the advent of Globalization and subsequent environmental consequences, the term “Carbon Pricing” is in vogue. It refers to the imposition of tax on carbon pollution with the view to dwindle the emissions worldwide and also to allocate those funds into safer and sustainable alternatives. Some 40 countries and more than 20 cities or states have already incorporated this carbon pricing mechanism and many have planned to have it in the future. This mechanism of two main types:
- Emission trading system – Under this system, a market price is established for greenhouse gas emissions. Industries having low emissions trade their extra allowances to larger emitters.
- Carbon Tax – It imposes a tax rate on greenhouse gas emissions. It is different from an emission trading system in that the outcome here is not pre-defined whereas it is previously known in carbon tax.
This mechanism helps cut effluents from the atmosphere and there is empirical data t support this claim. In 2019, a carbon tax was imposed by Canada at $20 per tonne of CO2 emissions which rose to $50 per tonne and it was estimated that this tax would reduce the pollution by these hazardous gases by 80 to 90 million tonnes by 2022. In India also, 2% of the GDP can be generated if a carbon tax is imposed in the country at $35 per tonne. India, being a monopsony (a giant buyer in the international market) should use this position to its advantage and should impose a carbon tax. This tax on emissions worldwide would encourage the users of fossil fuel to move on to a safer source of energy which is solar, wind, etc., and thus can surely assist in reducing the environmental concerns.
Encouraging a sustainable trade
The emerging twenty-first century is the era of globalization, the expansion of which will bring plenty of assistance like increased efficiency, tech transfer, and much more. But we surely cannot neglect the trade’s social and ecological implications. A world Bank review on this subject found that “many participants in the debate now agree that (a) more open trade improves growth and economic welfare, and (b) increased trade and growth without appropriate environmental policies in place may have unwanted effects on the environment.” To counterbalance the World Trade Organization, a required reform is to institute a World Environmental Organization. This may seem a little unrealistic, but it has a supporting statement by Sir Leon Brittan who said that “Setting environmental standards within a territory may be fine, but what about the damage that spills over national borders? In a rapidly globalizing world, more and more of these problems cannot be effectively solved at the national or bilateral level, or even at the level of regional trading blocs like the European Union. Global problems require global solutions.”. The establishment of bodies on a national level can help advance this goal of sustainable trade by taking up responsibilities of national mandate. Many countries can take inspiration from Germany which has a “Green Dot system” which is a labelling and certification technique to help producers make informed decisions about the product. All in all, it is of utmost necessity to have an environmental advocate who can foster the idea of the well-being of the environment among every global trade chatterbox.
Conclusion
The expansion of trade base around the world is a serious cause of environmental implications. While Global trade has a direct and beneficial effect on the economic attributes of a nation, its impact on non-economic entities is detrimental such as pollution and degradation of resources provided to us by nature. Global trade is regulated by World Trade Organization which was established in 1995. Here in this organization, the environmental impacts of products during production are often ignored which invariably leads to various trade disputes as to whether specific laws and measures taken by member countries can be allowed to prevail on some particular grounds like health and safety of citizens, etc. Like FTA’s (Free Trade Agreement), Multilateral Environmental Agreements are also prevalent which takes into account the prevailing issues related to the environment in and around the world at a global level. With all these agreements, we still have measures to deal with the situation globally but more intermediate policies and institutions established at the national level are much needed to address this concern at a more root level because that wealth and economic development are of no use which is attained at the cost of environmental degradation.