Chapter

Globalization
Few economic stories have caught the public attention and imagination more
in recent years than the phenomenon called globalization. Globalization
appears to involve inexorable, worldwide forces that are producing funda-
mental changes in the way people live. Proponents point out the advantages
of globalization and the positive impacts it can have on the welfare of people
in diverse circumstances around the world. Critics stress the economic and
social threats to which many people will be exposed as globalization rolls
onward in apparently ever strengthening waves.
Our subject in this chapter will be the environmental implications of global-
ization. We will first look at the kinds of changes that globalization entails, then
discuss a number of ways in which globalization and environmental issues ap-
pear to be closely interwoven.

Dimensions of Globalization
First let us be clear about what globalization actually is. Globalization has a
number of dimensions:
Increasing trade among nations: Over the last 60 years, the annual growth
rate of total economic activity in the world has been about 3.5 percent; the
annual growth rate in total global exports has been about 6.2 percent. In
other words, international trade has grown about twice as fast as overall
economic growth. Economies are becoming increasingly interconnected
through trade.
A part of the trend is interconnectedness of financial markets; money and
other financial assets can be, and are, moved about the world very rapidly.
The flows are large, and they can be volatile, moving into and out of a
country so fast that they can destabilize economies, especially those that are
relatively small by international standards.
Globalization also involves movements of people: Every year millions
of people in the world move from one country to another (and there is

404
 Chapter 20 Globalization 405

even more moving around within countries). The movement is response

to many things, but a primary factor is economic migration, where
people move from one country to another in search of better economic
prospects. Demographic factors (e.g., differentiated fertility rates) are
also important here.
In addition to these very direct and obvious impacts of globalization, there
are others that perhaps are less obvious:
Changes in economic institutions: Globalization is often thought to involve
a general predisposition for shifting economic activity toward private sector
and market-oriented institutions. This has been stressed especially in the de-
veloping world, where substantial fractions of the economies have been run
by state-owned and/or operated firms. On the other hand, a huge impetus
to global trade has been the ascendency of China, which has encouraged
the growth of managed trade, using large public, or combination public/
private enterprises.
Significant realignments in political power: Many observers feel that glo-
balization will have important local political impacts, especially shifting
political power away from national governments and toward international
bodies. Two types of institutions are singled out: multinational companies
and international policy bodies. By opening up their economies to the full
forces of international commerce, nations may give large international
companies (the multinationals) greater power over domestic economic
policy, at the expense of local authorities. This would not necessarily be
bad if these multinational companies had the interest of the local citizenry
at heart, but they very often do not. Globalization may also shift politi-
cal power toward large international agencies such as the World Bank, the
International Monetary Fund (IMF), and the World Trade Organization
(WTO).
Greater inequalities in income and wealth: A major point of contention on
globalization is whether it is leading to greater levels of economic inequality
among and within countries. Critics say it does; others say it doesn’t. In fact,
the distribution of income and wealth and its connection with trade and eco-
nomic development have been much studied. While there have been small
changes in the worldwide distribution of wealth over the last 50 years, these
are nowhere near the extreme changes that took place in the first half of the
19th century, when some countries were embracing the industrial revolution
aggressively.
Cultural and economic homogenization: The term cultural homogenization
is sometimes taken to imply an increased attachment to the “cultural prod-
ucts” of the developed world, especially American products. Likewise, eco-
nomic homogenization usually refers to a situation in which people strive to
achieve a material standard of living characteristic of the developed world as
opposed to the local, subsistence-based economies of much of the developing
world.
406 Section Six Global Environmental Issues

On Sorting Out Cause and Effect

As the above comments suggest, while globalization is obviously a major force
in the world, the extent and direction of its impacts are matters of great con-
troversy. In sorting out the causes and effects of these events, it is important
to guard against several modes of thought. One is to attribute everything that
happens to globalization. The problem with this is that there are many other
profound changes taking place around the world: political, social, religious,
and so on. These developments are important drivers of world events in their
own right. For example, we have seen a profound demographic revolution in
the last 50 years; for every world citizen at the beginning of this time there
are now 2.5 people. Much of the turmoil and conflict around the world can be
attributed to this population explosion. Some have argued that integration of
world economies may have had the effect of actually ameliorating the impacts
of this phenomenon.
In analyzing the impacts of globalization, we must also guard against draw-
ing general conclusions based on anecdotal evidence. It is abundantly clear that
globalization does not benefit everyone. But looking at the circumstances of
individual components may not be a reliable way to draw conclusions about
overall trends. For example, reading a story about a highly polluting company
relocating to a developing country doesn’t necessarily mean that low-income
countries are becoming havens for polluting firms headquartered elsewhere. To
find out whether this incident is part of a larger trend we have to look at all the
data in a comprehensive way.
But it is important also to keep in mind the opposite tendency: looking only at
averages without breaking these down to examine subgroups of populations. The
movement of averages (e.g., rising average income levels) can sometimes mask
the fact that important subgroups of a population are moving in the opposite di-
rection. A drop in the average levels of urban air pollution, for example, doesn’t
necessarily mean that air pollution in each and every urban area has been reduced.

Trade and the Environment

What are the interactions, or connections, between trade and the environment?
The most direct question that could be asked is: does trade, in and of itself, in-
volve higher environmental costs?
As we have discussed throughout the book, environmental damages in
production and consumption are the result of externalities and public goods.
If, in a producing country, the production of a tradable good is also producing
environmental damage of one type or another, increased export demand will
clearly result in increased environmental damage.
History, and experience, is replete with instances in which added production
for export has added to the burden of environmental damage. China’s export-
driven growth can be taken as a macro example of this. But micro cases are also
common, as Exhibit 20.1 illustrates.
 Chapter 20 Globalization 407

The Plundering of Nauru EXHIBIT 20.1

Nauru is a tiny (8-square mile) speck of The people of Nauru achieved indepen-
an island in the western Pacific, home dence in 1968, by which time two-thirds of
historically to about 10,000 people, but the phosphate was gone. Phosphate con-
since reduced by the depredation of co- tinued to be extracted and exported, now
lonialism and WWII to about 600 souls. under local control, and several funds were
In the early 1900s, a valuable deposit set up to rehabilitate the land and provide
of phosphate was discovered on the is- for social services. But money distributed to
land. One might think that this would the local population was not wisely spent.
have been a great boon to the people In effect the incomes from the resource ex-
of Nauru, whose livelihoods had been traction were squandered, so today Nauru
sorely constrained by the natural limits of is sinking back into impoverishment, this
the island. The extraction and export of time with a natural resource base that has
phosphate should have been a source of been seriously degraded.
rising incomes and improved welfare. It Nauru is clearly a case where an open
was not, however. economy and world trade did not lead to
For many years extraction and ex- sustainable economic growth.
port were controlled by colonial powers,
chiefly, Australia. Net incomes (revenues
For more information, see Paradise Well and
minus costs) were chiefly to these pow- Truly Lost, Economist, December 22, 2001;
ers, not to the local people. Most im- Naazneen H. Barma, K. Kaiser, T. Minh,
portantly, scant attention was given and L. Viñuela, Rents to Riches? The Political
to the consequences of the extraction Economy of Natural Resource-Led Development.
Washington, DC: The World Bank, 2012.
operation.

One could argue effectively that in cases like this it is not the trade that
leads to environmental costs, but the lack of effective pollution-control tech-
nology and institutions by the trading countries. If there is sufficient control
over detrimental externalities in the affected countries, added trade will not
create added environmental costs. This essentially means that it is a ques-
tion of the political economy of the environmental policy within exporting
countries.

Free Trade Versus Environmental Trade Restrictions

Over the last four decades or so, the countries of the world have made special
efforts to foster free and unhindered trade. This has been done in the name
of improved economic welfare. Free trade allows countries to prosper by giv-
ing them expanded markets for things on which they have a comparative ad-
vantage in production and gives them greater opportunities to procure goods
for which they have a comparative disadvantage. The prosperity of many
countries, both developed and developing, depends critically on international
trade. The problem is whether the emphasis on moving toward free trade may
make it more difficult for countries to protect the environmental resources that
they value.
408 Section Six Global Environmental Issues

The main international institution governing trade is the World Trade

Organization.1 Its purpose is to set out a list of rules and procedures to be fol-
lowed by nations in their international trade relationships. It is especially aimed
at reducing the barriers to trade, to get nations to refrain from putting tariffs and
quotas on imports or subsidies on exports, and in general to move toward condi-
tions of free trade among the world’s nations, almost all of which are members
of the WTO. One section of the WTO agreement also outlaws what are called
nontariff barriers such as excessive inspection requirements, excessive product
specifications, and the like. But there is a very broad list of conditions that are
exceptions to WTO rules; one is that governments are allowed to set restrictions
in order to achieve the “protection of human, animal or plant life or health,”
and the “conserving of natural resources.”
Consider the analysis of Figure 20.1. It shows the behavior of producers and
consumers of a product in a particular country that also relies upon imports
for a large part of its supply. The demand curve (D) is domestic demand for
the product, whereas S is the domestic supply curve, that is, the supply curve
of domestic producers. Without imports, price and quantity would settle at
the intersection of these two curves. But let us introduce an import supply

FIGURE 20.1 Effects of Environmental Regulations on Domestic

Production and Imports

$ S'
S

I'

0
q1 q2 q0
Quantity of a good

1
WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which came into
being in the 1940s as an international effort to foster an increase in world trade.
 Chapter 20 Globalization 409

curve, labeled I. This supply curve is actually horizontal because we assume

that a relatively large amount of this item is produced in the world, so this
importing country could import larger or smaller quantities without affecting
the world price. With the addition of imports, this country now ends up with
a total consumption at q0. Domestic production, meanwhile, is q1. The differ-
ence, (q0 − q1), is imported. With imports, the domestic price is also equal to
the world price.
WTO rules allow governments to set import restrictions on products that
have direct health implications, as long as it is done in a nondiscriminatory
way. Suppose the good in question is automobiles, the use of which causes
air pollution. Setting tight emission standards increases the production costs
for automobiles and therefore their prices. The importing country may require
imported cars to meet strict emission standards, which would have the effect
of lifting the import supply curve to I’. This is nondiscriminatory as long as do-
mestic producers are held to the same standards, in effect shifting the domestic
supply curve up to S’. The result of this is first to lower the total quantity of cars
purchased by people in this country, from q0 to q2. Second, assuming that the
emission standards increase the costs of domestic supply as much as they do
imports, the pollution control applied to both domestically produced cars and
imports will leave domestic production unchanged but reduce imports, from
(q0 − q1) to (q2 − q1).
In this case the purpose of the strict emission standards was to protect hu-
man health. When it is not a matter of human health but, say, one of environ-
mental aesthetics, the case may be less clear. In recent years Denmark placed a
ban on the use of nonrefillable drink containers. This was presumably done in
the name of reducing litter. It also proceeded to ban the importation of nonre-
fillable containers from neighboring European countries. These countries ob-
jected, saying that the ban was really just a way of protecting Danish drink
producers from competition. But in this case the European court ruled in favor
of Denmark.
Things become decidedly less clear when it is not the consumption of a good
that causes pollution but its production. Suppose that a country produces a
product and in the process also causes a certain amount of air pollution. Sup-
pose further that it adopts an air-pollution program to curb emissions from
this industry. Suppose even further that the item is produced in other coun-
tries and imported, but that the countries from which it is imported do not
undertake any type of pollution-control efforts. The producers of the import-
ing country are now at somewhat of a cost disadvantage because they have
to operate under environmental constraints and their competitors don’t. Can
this country legally (i.e., within the WTO rules) put a tariff on the importation
of this item to equalize the cost burden? One might argue that this would tend
to protect people in other producing countries who are exposed to air pollution
from the firms making this item, but WTO rules presumably allow countries
to take action only to protect their own citizens, not those in other countries.
And a tariff against the good may have no impact on lessening air pollution
in other countries; the only way that could be done would be through explicit
410 Section Six Global Environmental Issues

pollution-control programs in those countries, and there is certainly no way for

the first country to enforce such programs.
The interrelationship of environmental issues and trade problems has
recently raised the possibility that environmental standards will be co-opted
by those whose interest is primarily to protect themselves against international
competition. It is a familiar sight to see representatives of some industry that
feel threatened by producers in other countries appealing to political authori-
ties for a tariff or some other barrier against imports. Environmental factors
now may give them added ammunition. If they can plausibly argue that the
foreign competitors are causing damage to environmental resources, they may
be better able to justify the trade barrier. The key is whether the environmental
impacts of foreign producers are legitimately a concern of the importing coun-
try. In one case, the United States barred imports of tuna from Mexico that had
been caught using methods that cause excessive mortality among dolphins. The
question that needs to be sorted out is whether Americans really do have a sub-
stantial willingness to pay for protecting dolphins, wherever they may be, or
whether this was just being used as an excuse by U.S. tuna companies to shield
themselves from foreign competition.

Globalization and a “Race to the Bottom”

Opponents of globalization sometimes paint a bleak picture about the impact it
might have on environmental regulations throughout the world. The supposed
scenario goes something like this: trade and finance liberalization increases in-
ternational commerce and the flow of investment among countries. More peo-
ple around the world, in both developed and developing countries, become
dependent on international markets for their livelihoods and prosperity. In an
increasingly competitive world economy, countries and regions look for ways
of boosting the competitiveness of their local businesses. This means trying to
find ways of lowering the costs of production and distribution. Governments
are pressured to relax environmental regulations so that firms can avoid costly
pollution-control measures. Countries that have had higher environmental
standards have to lower them to keep their businesses from fleeing to countries
with the lower standards. Pollution levels surge as countries engage in competi-
tive lowering of their environmental standards in order to give their own firms
an advantage in international markets.
The phrase sometimes used to describe this phenomenon is race to the
bottom, a progressive weakening of environmental standards brought on by
the need to be competitive in an increasingly integrated world economy.
Is this concern well founded? Are we actually seeing a general race to the bot-
tom in environmental regulations as a result of globalization? There has been a
lot of close analysis of this question in the last decade or so, and the clear answer
is: no. Around the world we see general improvements in environmental qual-
ity and increasingly stringent environmental regulations. There has been many
an anecdote that globalization critics can point to in apparent support of their
 Chapter 20 Globalization 411

argument. But anecdotes do not make trends, and the trends are clearly in the
other direction. Most integrated economies grow faster, and the higher incomes
and wealth this produces lead societies to pursue more stringent standards, not
weaker ones.
Studies have been done to assess the correlation across countries between
their income levels and the stringency of their air pollution–control regula-
tions. 2 That correlation is clearly positive—higher incomes are associated with
higher standards, not lower ones. Many other studies have found corroborating
evidence: the race-to-the-bottom hypothesis, as a generalized phenomenon, is
false. If the diagnosis is wrong, so is the implied prescription: that countries
should either restrict trade, or all agree to adopt the same set of environmental
standards governing their industries.
But let us not be overly glib about this relationship. Environmental pol-
lution from industrial firms are externalities, impacts that take place away
from perpetrators, downstream or downwind. Getting polluters to do
something about these effects doesn’t just happen automatically as a coun-
try’s economy grows. It requires also the development of legal structures
and the growth of politically active groups who will raise the necessary
questions and work for their resolution. These laws and groups are more
likely to materialize in situations where the economic welfare of people is
improving.

The Pollution-Haven Issue

Closely allied to the race-to-the-bottom idea is the pollution-haven hypoth-
esis. A major part of globalization is the international fluidity of capital.
Financial capital can flow easily and rapidly among most countries, often
with destabilizing effects. Investment capital is also globally mobile, as firms
in one country can invest in new or existing firms in others. Thus many have
expressed fears that heavily polluting firms in countries of the developed
world, rather than undertaking the costs of lowering their emissions, would
pick up and relocate to countries where effective environmental standards
are less restrictive. Countries with lower standards would thus tend to at-
tract firms with relative large emissions; they would become, in other words,
pollution havens.
Is there any credence in the pollution-haven hypothesis? Is there evidence
that this process is underway? There is no question that there is some amount
of truth in the pollution-haven hypothesis. An example is the ship-breaking
industry. Every year hundreds of very large, old, oceangoing tankers and
freighters are dismantled; the separated parts and materials are then recycled.

2
Dasgupta S, A. Mody, S. Roy, and D. Wheeler, Environmental Regulation and Development: A Cross
Country Empirical Analysis, World Bank Policy Research Department Working Paper No. 1448,
March 1995.
412 Section Six Global Environmental Issues

This activity is currently concentrated in coastal enclaves located in several

developing countries, India and Bangladesh, in particular. One of the attrac-
tions of these locations is that there are no effective environmental regulations
governing the activity; to this extent it is pollution-haven story. Beyond this,
however, it is largely a story of low labor costs; the work is extremely labor
intensive and supplies of low-wage labor are abundant in these locations.
This highlights the main problem with trying to determine the validity of the
pollution-haven thesis; while weaker environmental regulations are clearly
a plus if you are trying to decide where to locate a dirty industrial enter-
prise, other factors, especially labor and transportation costs, are also primary
criteria.
The behavior of multinational firms in developing countries is also an is-
sue. Suppose a large manufacturing firm in a developed country is moving to a
developing country. Suppose further that environmental standards in the two
countries differ. They are quite strict in the firm’s home country and much less
so in the adopted country, either because the standards themselves are weaker
or because they are badly enforced or both. Which standards should the firm
follow in its new home? There are two extreme points of view on this. One is
that the company should seek to adopt the local practices with respect to ac-
ceptable emission controls and emissions. This means recognition of local laws,
as well as “normal” behavior vis-á-vis the local authorities who enforce these
laws. The other is that the firm should continue to follow the stricter pollution-
control practices of its original country, with the same technology and practices
that would have governed its operations had it not moved. But there is
also an intermediate ground. A company may, for example, move toward
local standards, but operate with progressive attitude; that is, it could obey
local rules even though they may not be energetically enforced or showcase
new pollution-control methods that local firms might be persuaded to adopt,
and so on.

Trade and Carbon

Globalization implies increased trade, which involves large quantities of goods
and services entering international transport. Transport requires the expen-
diture of fossil fuels. From which it may be concluded that more trade will
increase the carbon footprint of global output. This conclusion follows, how-
ever, only if there is no substantial difference between exporting and import-
ing countries in terms of the carbon footprints of their respective production
technologies. It does not follow if the technology of the exporting country is less
carbon intensive than that of the importing country. The difficulties of knowing
this a priori is illustrated by the example in Exhibit 20.2. This also shows the
difficulty of trying to estimate, with reasonable accuracy, the carbon footprints
of the tens of millions of items, both goods and services, entering international,
or even national, commerce.
 Chapter 20 Globalization 413

Carbon Footprints EXHIBIT 20.2

The complexity of measuring embodied fully offset the differences in embodied
carbon is illustrated in Blanke’s (2006) life- carbon for fruit imports from South Africa
cycle analysis of apples, which compares or New Zealand, home-grown apples had
the primary energy consumed for both to be stored locally for nine or 18 months,
imported and home-grown apples in the respectively, that is, in the latter case
Rhein-Ruhr area in Germany in the month beyond the next harvest. As such, in
of April. The primary energy to produce this case, the embodied carbon differen-
home-grown apples included energy for tial between local and imported goods
five months of cold storage, compared to changed with the month of the year and
the energy requirements of transporting the age of the local produce.
apples from New Zealand (28 days trans-
port) or South Africa (14 days transport).
Source: Kejun, Jiang, Aaron Cosbey and
The increased energy required to import Deborah Murphy: Embodied Carbon in Traded
fresh fruit from overseas was partially off- Goods, International Institute for Sustainable
set by the energy needed for cold stor- Development, Winnipeg, Manitoba, June
age of domestic apples. But in order to 2008.

Regional Trade Agreements

The WTO agreement is worldwide in scope, meant to address trade-related is-
sues among all the countries of the world. There also have been many bilateral
or regional trade agreements among smaller groups of countries, and these
have had, and will continue to have, important environmental implications.
Two major agreements now being negotiated by the United States are the
Transatlantic Trade and Investment Partnership, and the Trans-Pacific Partner-
ship. Agreements of this type are controversial, because the general desire for
increased trade opportunities sometimes conflicts with other goals. Environ-
mental factors play an important role. Most countries have public regulations
to protect the environment, though not all are vigorously enforced. It is impor-
tant that the enthusiasm for more trade opportunities not be used to weaken
current environmental regulations or the need to tighten these regulations as
conditions change.
From the standpoint of the United States and its neighbors, an impor-
tant trade agreement is the North American Free Trade Agreement, NAFTA
(1994). This is an agreement negotiated among the United States, Canada,
and Mexico primarily to reduce tariffs and other barriers to trade among
the three countries by expanding markets for the goods and services they
produce, or might produce in the future. Environmental concerns played
an important role in the NAFTA negotiations. There were, and still are,
substantial differences of opinion about how NAFTA has impacted
414 Section Six Global Environmental Issues

environmental quality in the participating countries. The specific concerns

related to NAFTA are:

Increased pollution in the countries, especially Mexico, because of increased

economic activity accompanied by pollution-control regulations that are too
lax, or are not sufficiently enforced.
Increased cross-border pollution as a result of the economic stimulus NAFTA
apparently gives to the Maquiladora program. This Maquiladora program
allows firms in Mexico to import production supplies and equipment duty
free if the resulting output is exported. Although there are few limits on
where these firms may locate in Mexico, in practice they have concentrated
near the Mexico/U.S. border.
Pressure for reduced environmental standards, particularly in the United
States and Canada, so firms in those countries can better compete in a liberal-
ized trade environment. This is the familiar “race-to-the-bottom” argument.

It is not easy to find unambiguous and definitive information on the en-

vironmental effects of NAFTA. The political combat surrounding NAFTA is
ongoing, so information tends to be presented to support particular political
positions rather than to provide objective analysis of the situation. It is also true
that environmental issues, though important, are not the main points of conten-
tion in the NAFTA conflict; the main issue is the effect on wages and employ-
ment on both sides of the U.S./Mexico border.
The common perspective at the time of the NAFTA negotiations, especially
among U.S. environmental interests, was that environmental regulations in Mexico
were substantially weaker than in the other two countries. While laws might be on
the books, there was a serious problem with enforcement. This would have sev-
eral effects, according to NAFTA critics. It means that increased economic activity
in Mexico would have large environmental impacts. Not only would there be in-
creased pressure on Mexican wildlife, forests, and energy resources, but the added
air and water pollution would be significant. This is a familiar argument; for any
given regulatory regime, more economic activity implies more pollution. But the
way to attack this is by tightening regulations, not by suppressing economic activ-
ity. Having said this, one should not underestimate the difficulty of doing this.
An enormous amount of political energy and activity will be needed to introduce
effective environmental regulations into a situation where polluters have been op-
erating without them, and where there may be many poor people. Moreover, the
perception of weaker environmental restrictions in Mexico fuels the concern that
American and Canadian firms relocate to Mexico in search of a pollution haven.
As regards the Maquiladora program, there has been a substantial industrial
growth of this type in the borderlands area of Mexico. Initially a large part of this
was in the clothing industry, while more recently the largest components are
chemicals, electronics assembly firms, and automotive producers. Also, Mexican
agricultural production, particularly fruits and vegetables often associated with
intense pesticide use, has expanded, with increased exports to Canada and the
United States. Much of this growth occurred before NAFTA. There is no doubt
 Chapter 20 Globalization 415

that the growth of Maquiladora firms has led to more pollution in the border
area, but whether it is more or less in proportion to non-Maquiladora industry
in Mexico is still an open question. The other unanswered question is whether
NAFTA had indeed led to higher Maquiladora growth, or whether the latter
was caused by other non-NAFTA events.

Environmental Trade Restrictions

In some cases international environmental agreements involve trade agreements.

Montreal Protocol
As part of the international effort to reduce ozone-depleting chemicals, the Mon-
treal Protocol prohibits exports of controlled substances (basically CFCs) from any
signatory nation to any state not a party to the protocol. Furthermore, signatory
countries may not import any controlled substance from any nonsignatory state.
The purpose of these trade regulations is to ensure that production of CFCs and
other ozone-depleting chemicals does not simply migrate to nonsigning countries.

London Guidelines on Chemicals

As we have discussed many times throughout this book, one major obstacle to
controlling environmental pollutants is lack of information—information on pol-
lutant emissions, damages, control costs, and so on. On the international level
the problem is even more severe than it is domestically because of the different
ways countries have approached pollution-control problems and the vastly dif-
ferent information requirements and availabilities among them. In 1989, 74 coun-
tries agreed to adopt the London Guidelines for the Exchange of Information on
Chemicals in International Trade, under the auspices of the United Nations En-
vironment Program (UNEP). The guidelines require that any country banning or
severely restricting a particular chemical notify all other countries of its actions,
so that the latter can assess the risks and take whatever action they deem appro-
priate. The guidelines also encourage “technology transfer,” stating that states
with more advanced chemical testing and management technology should share
their experience with countries in need of approved systems.

Basel Convention on Transboundary Movements of Hazardous Wastes

This agreement, enforced in 1992, is aimed at the issue of international trade in haz-
ardous wastes. It does not prohibit this trade but does put requirements on it, espe-
cially information requirements. It puts an obligation on countries to prohibit any
export of hazardous wastes unless appropriate authorities in the receiving country
have consented in writing to the import and unless it has assurances that the waste
will be properly disposed of. It also has provisions on notification, cooperation on
liability matters, transmission of essential information, and so on.

Convention on International Trade in Endangered Species

of Wild Fauna and Flora
Roughly 35,000 species of animals and plants, whether they are traded as live
specimens, leather accessories or herbs, are protected under the international
416 Section Six Global Environmental Issues

Convention on International Trade in Endangered Species of Wild Flora and

Fauna (CITES). CITES came into force in 1975; now 180 countries are parties to
CITES. Under it, each country establishes its own permit system to control the
movement of wildlife exports and imports, and must designate a management
body to handle the permit system and a scientific body to determine whether
trade is likely to be detrimental to the survival of the species. Species are sepa-
rated into three classes:
Class I. Species threatened with extinction, in which commercial trade is
banned and noncommercial trade regulated;
Class II. Species that may become threatened if trade is not held to levels con-
sistent with biological processes, for which commercial trade is al-
lowed with conditions; and
Class III. Species that are protected in at least one country and international co-
operation is appropriate, for which trade requires permits.
The endangered species trade is considered by many to be a qualified success,
although much more remains to be done, especially in improving national permit
processes. There are some simple lessons to be derived from considering this type
of trade restriction, which we will pursue by looking at an international supply-
and-demand model of an endangered species. The same conclusions can apply
to other cases, such as export restrictions on logs to protect rain forests. Consider
the market model of Figure 20.2. This shows the world, or aggregate, supply and

FIGURE 20.2 Effects of Trade Policy on the International Market

in an Endangered Species

D0

$ S1

D1
S0

p1

p0

p2

0
q1 q0
Quantity of trade in an endangered species
 Chapter 20 Globalization 417

export demand conditions for a species of wildlife. The supply function is based
on the costs of hunting, transporting, processing, recordkeeping, and so on, nec-
essary to bring the wildlife to the point of export. It is an aggregate supply func-
tion made up of the supply function of the various countries in which that species
grows. The demand function shows the quantities that the export market will
take at alternative prices. The intersection of the two functions shows the market
price and quantity of this type of wildlife that will be traded in a year’s time.
Two types of trade constraints could be used to reduce the quantity of this spe-
cies moving in international trade: export controls and import controls. Each will
reduce the quantity traded, but they will have very different impacts on price.
Export controls work by essentially making exporting more costly, which has the
effect in Figure 20.2 of shifting the supply function upward from supply curve S0
to supply curve S1. The result of this is a reduction in quantity traded, in this case
to q1. The amount that quantity falls depends on the extent to which the supply
curve shifts up and also on the slope of the demand function; the steeper this
slope, the less will quantity contract. But this approach to trade reduction also
leads to an increase in price, from the original price p0 to p1. This price increase
could have several impacts, depending essentially on property rights. Imagine a
case where the endangered species is subject to private ownership, either by indi-
viduals or by small, well-defined groups. Perhaps the habitat of the species is un-
der private ownership, for example. The higher price for the species now becomes
a signal for its owners to be more concerned about its safety and welfare because,
in this circumstance, efforts at conservation will have a direct market payoff.
The added price will have the opposite effect, however, when property
rights in the endangered species are ill-defined or completely absent, which
is the usual case. Most of the habitats for the world’s endangered species are
common property, in the sense that either everybody has the right to enter and
harvest the animal or plant, or that, as in public parks, authorities are unable
to keep people from taking the species “illegally.” We saw, in Chapter 4, the
problem to which common-property resources are prone: because other users
cannot be kept out, nobody has an incentive to conserve the resource. It’s either
use it or lose it to some other harvester. The increased price for the endangered
species in this case will work against conservation. It will encourage higher
rates of extraction, higher rates of poaching on common-property habitats, and
thus higher pressure on the endangered species.
Controlling imports, however, drives the price downward. Import controls
have the effect of reducing the demand for the imported species. In Figure 20.2
this leads to a backward shift in demand, from D0 to D1. This has been
drawn so as to give the same quantity reduction as before. But in this case the
price drops to p2. The effect of this price decrease is to decrease the incentives
discussed in the previous paragraphs. In particular, where endangered species
are subject to common-property exploitation, the lower price would lead to
reduced pressure to harvest and less rapid population decline. Something of
this sort has happened recently as a result of an international ban on ivory im-
ports. The ban has led to a substantial drop in the world price of ivory, which
has reduced the pressure of poachers on the elephant in many parts of Africa.
418 Section Six Global Environmental Issues

Summary
Globalization is the increased integration of national economies around the
world, involving greater international flows of goods and services, financial as-
sets, and people. It may also lead to significant institutional change and altered
power relations. There are important questions about the interaction of trade and
the natural environment. If national environmental regulations are unchanged,
increased trade will lead to greater environmental damages. This has led in
many cases to calls for trade restrictions to protect environmental values. Trade
also opens up the opportunities for strategic behavior among countries, such as
the potential “race-to-the-bottom” and the “pollution-haven” phenomena. In the
context of potential climate change, increased trade may increase the carbon foot-
print of the global economy. The contemporary efforts to foster regional trade
agreements have led to conflicts over their possible environmental impacts, and
some established environmental agreements incorporate trade limits.

Questions for Further Discussion

1. Suppose Country A imports a product from Country B, and that Country B
lacks environmental laws governing the production of the item. Under what
conditions might Country A be justified in putting a tariff on the imported item?
2. If all countries adopted the same emission standards in similar industries,
would this tend to equalize production costs and put each country on the
same footing with respect to environmental matters?
3. Which of the many aspects of globalization do you think will have the
greatest long-run impact on environmental quality around the world?
4. In the early 1990s, the United States attempted to put restrictions on the
importation of tuna from Mexico because Mexican fishers used methods
that destroyed relatively large numbers of dolphin when catching the tuna.
These fishing methods are illegal for U.S. tuna fishers. Is this trade restriction
efficient? Is it equitable?
5. How might globalization and the growth of multinational corporations in
the envirotech industry be a positive force for environmental protection in
the countries of the world?
6. Why has trade policy been effective in protecting some endangered species
and not others?
7. What do we mean by “race to the bottom” in environmental regulation?
As countries discuss climate change mitigation options, how does race-to-
the-bottom relate to establishing CO2 emissions or GHG reductions among
countries?
For additional readings and Web sites pertaining to the material in this chapter,
see www.mhhe.com/field7e.