Trade and Environment
Trade and Environment
policy brief
he environmental benefits of trade are manifold: diffusion of environmental goods and services,
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alleviation of materials scarcities, sending waste to high standards processing facilities.
hallenges arise as cross-country differences in environmental policy stringency can induce
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pollution and waste leakages, and unsustainable level of materials extractions.
rade-related environmental benefits are best maximised and risks minimised through
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international co-operation, as reflected by the emergence of environmental provisions in more
recent trade agreements.
The rapid expansion of goods and services trade over competitive on international markets. Recent evidence
the last several decades has created complex patterns suggests that countries with stringent environmental
of interdependencies between production, consumption regulations have larger domestic markets for, and are net
and job creation across economies. At the same time, a exporters of, environmental goods and services.
range of environmental issues –declining biodiversity,
water scarcity and water pollution, climate change, In addition, opening markets to environmental goods and
growing pressures from raw materials consumption, and services allows for the diffusion of new resource-efficient
the heath impacts of air pollution – are becoming more technologies and provides firms with incentives to adopt
acute, and call for a strong, immediate, and co-ordinated more stringent environmental standards. As a country
international action. In this context, addressing the becomes more integrated within the world economy, its
nexus between international trade policies and domestic export sector becomes more exposed to environmental
environmental regulations is now more urgent than ever, requirements imposed by the leading importers.
in particular related to: (i) their complementarity and; (ii) Innovations needed to meet these requirements, in turn,
the potential adverse consequences that intervention in flow backwards along the supply chain, stimulating the
one area can have on the other. use of cleaner production processes and technologies.
Trade can be a driver of environmental Trade can also enable waste to be sent to countries that
sustainability have the most-efficient sorting and processing capabilities,
including facilities with higher environmental standards
When new environmental regulations are introduced, one for material and energy recovery. This can reduce the
way that companies, governments, and consumers react is cost of waste treatment and recycling, which is beneficial
by demanding goods and services that alleviate associated to trading partners and leads to better environmental
compliance costs – for instance, goods and services that outcomes. Similarly, the substitution of primary raw
rely on cleaner technologies, reduce environmental risks, materials with secondary raw materials (i.e. scrap) can
and minimise pollution and resource use. Even without help decouple raw material extraction from economic
a regulatory push, there is a greater public awareness growth. International trade in secondary materials and
and consumer demand for products that better protect waste helps enable a transition towards a more resource
the environment. In this context, firms that produce efficient and circular economy.
environmental goods and services in countries where
environmental standards are already high could be very