Trade and Environment

trade
policy brief
Trade and the environment February 2019
he environmental benefits of trade are manifold: diffusion of environmental goods and services,
T
alleviation of materials scarcities, sending waste to high standards processing facilities.
hallenges arise as cross-country differences in environmental policy stringency can induce
C
pollution and waste leakages, and unsustainable level of materials extractions.
rade-related environmental benefits are best maximised and risks minimised through
T
international co-operation, as reflected by the emergence of environmental provisions in more
recent trade agreements.
What's the issue?
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
www.oecd.org/trade [email protected] @OECDtrade

Trade and the environment
An interconnected world also carries

environmental risks Further reading
By contrast, because of the increasingly fragmented

nature of production processes across countries, domestic • Garsous, G. (2019, Forthcoming), “A report on a set
CO2 emissions are sometimes generated to produce goods of policy indicators on trade and environment,”
consumed in other countries. Global interconnectedness OECD Trade Policy Papers.
therefore carries the risk that uneven domestic policies • Kozluk, T. and C. Timiliotis (2016), “Do
can lead to pollution havens, whereby countries with environmental policies affect global value
lower environmental regulations and enforcement chains?: A new perspective on the pollution
progressively specialise in pollution-intensive goods haven hypothesis”, OECD Economics Department
that are exported to other countries with more stringent Working Papers, No. 1282, OECD Publishing, Paris,
environmental policies. Recent analyses suggest that a http://dx.doi.org/10.1787/5jm2hh7nf3wd-en.
subset of countries specialise in economic activities that
are consistent with the existence of pollution havens. • Sauvage, J. (2014), “The Stringency of
Similarly, concerns regarding trade in waste and scrap Environmental Regulations and Trade in
arise if exports destinations lack regulatory frameworks Environmental Goods”, OECD Trade and
for environmentally sound waste management and the Environment Working Papers, No. 2014/3,
associated infrastructure capacities. Trade flows of waste OECD Publishing, Paris, http://dx.doi.
destined to informal and non-compliant waste-recovery org/10.1787/5jxrjn7xsnmq-en.
facilities, uncontrolled landfills, or even open dumping • Yamaguchi, S. (2018), "International Trade and
will have an adverse effect on the environment. the Transition to a More Resource Efficient
and Circular Economy: A Concept Paper",
What should policy makers do?
OECD Trade and Environment Working Papers, No.
Ensuring that environmental benefits associated with 2018/03, OECD Publishing, Paris, https://doi.
trade are maximised while the risks are minimised org/10.1787/847feb24-en.
will require international co-operation. Countries have
undertaken a number of important environment-related
efforts under the World Trade Organization (WTO)
multilateral framework, including negotiating tariff
reductions in environmental goods, seeking more clarity
on the relationship between existing WTO rules and
specific trade obligations in multilateral environmental
agreements, and seeking disciplines on environmentally
related subsidies (e.g. fisheries).
Co-operation on issues at the intersection of trade

and environment can also be achieved by including
environmental provisions in Regional Trade Agreements
(RTAs). In recent years, the number of RTAs has increased,
and many of them contain environmental provisions
setting ambitious environmental objectives. Between
1959 and 2016, of the 691 RTAs signed, 596 included
environmental provisions, 494 of which included broader
and deeper commitments. While the multilateral trading
system under the WTO should be the preferred approach
to establish trade and environment disciplines, RTAs offer
a pragmatic approach to explore the possibilities in better
addressing environmental objectives in trade agreements.
Policy alignment and co-operation for environmentally

sustainable trade will make meaningful contributions
to address concerns against trade and globalisation and
raise the public acceptability of trade agreements more
broadly. These efforts will also help achieve the ambitious
goals of multilateral systems such as the UN 2030 Agenda
and Sustainable Development Goals (SDGs) and the
COP21 Paris Agreement.
www.oecd.org/trade [email protected] @OECDtrade

Trade and Environment

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trade

Trade and the environment February 2019

What's the issue?

www.oecd.org/trade [email protected] @OECDtrade

An interconnected world also carries

By contrast, because of the increasingly fragmented

Co-operation on issues at the intersection of trade

Policy alignment and co-operation for environmentally

www.oecd.org/trade [email protected] @OECDtrade

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