This document summarizes a presentation on the challenges for Asia's trade and environment. It discusses several key topics: (1) the effects of rapid economic growth and trade expansion in Asia have come at a high environmental cost; (2) trade policy can indirectly influence the environment through economic growth and production, but targeted environmental policies are more effective; and (3) international cooperation will be important to address issues related to trade and the environment, but more research is still needed.

1. •The views expressed in this presentation are the views of the author/s and do not necessarily reflect the views or policies of the Asian
Development Bank, or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included
in this presentation and accepts no responsibility for any consequence of their use. The countries listed in this presentation do not imply any
view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.
Challenges for Asia's Trade
and Environment
Olivier Serrat
2000

2. Contents
Asia's Emerging Agenda for Trade and the Environment
International Efforts on Trade and the Environment
Effects of Environmental Policies on Trade
Effects of Trade Policy on the Environment
Growth, Trade, and the Environment
Preamble

3. Preamble
The rapid growth of commerce in Asia and the degradation of that
region's natural resources have highlighted the nexus between trade
and the environment.
Trade policy is an inefficient means of achieving environmental
objectives; but, it is a peaceful means of influencing the environment;
similarly, environmental policies often have implications for
international trade.
Further trade liberalization, new international production standards,
and international cooperation will increasingly influence, and be
influenced by, the linkages between trade and the environment.
This development warrants a better understanding the effects of trade
policy on the environment, the effects of environmental policies on
trade, and the role of international efforts on trade and the
environment.

4. Growth, Trade, and the
Environment
Gross domestic product among developing Asian economies grew at
an average annual rate of 7.6 percent during the 1980s.
From 1990 to 1996, average annual growth in GDP ranged from 6.3 to
8.5 percent; even on a per capita basis, average annual growth in GDP
remained between 4.7 and 7.0 percent from 1990 to 1996.
Over the same period, average growth in trade was even stronger than
growth in GDP in these economies.
Despite the Asian crisis, which struck in 1997 and continues to affect
some economies, growth in the Asian and Pacific region will remain
strong.
Demand for infrastructure in the region will intensify in coming
decades; population growth, of itself, will generate demand; this will
be compounded by what new demand rapid growth creates.

5. Growth, Trade, and the
Environment
Yet, the rapid growth accompanying trade expansion has come at a
high environmental cost.
Pollution and congestion, with high health and productivity costs, are
common in urban areas.
Meanwhile, in rural areas, deforestation or desertification, depletion
or contamination of groundwater supplies, soil salinity or
waterlogging, loss of biodiversity, and erosion are just some of the
problems.
Developing Asian economies account for slightly more than half the
world's population, and the bulk of its poor population; despite
declining rates of fertility and poverty, these countries will add almost
one billion new consumers to the world's population by 2010.

6. Growth, Trade, and the
Environment
There are good arguments against setting priorities on development
first and worrying about the environment later; but, at rapid growth
rates in the face of continuing poverty, there is often little time for
environmental considerations.
At least, more attention must be paid to which degradation is likely to
be at high permanent cost, which may later respond to remedial
actions, and which can most profitably be tackled now.

7. Effects of Trade Policy on the
Environment
Economic theory suggests that trade measures are second-best
responses to environmental issues, which should be handled by
internalizing all costs.
This overlooks the limits on scientific information about many
environmental interactions, challenges in valuing resources and
amenities (despite improvements in applying the polluter pays
principle, in contingent valuation techniques, and in developing
satellite national income accounts to reflect changes in natural
resource stocks), and difficulties in enforcing international agreements.
Yet, international trade increases competitive pressures for efficient
resource and energy use.
This calls for the identification of areas that offer practical promise for
a better understanding of the effects of trade policy on the
environment.

8. Effects of Trade Policy on the
Environment
The environmental attributes of a product, process, or service often
become clearer through the application of a product life-cycle
assessment.
The assessment helps to identify the stage(s) where environmental
impact is greatest, and has proven to be a useful tool in development
of eco-labels and national environmental standards.
Besides the indirect effects of trade
on the environment through
general income growth resulting
from gains from trade, there are
four basic avenues in the life cycle
of traded products for
environmental degradation to arise
through international trade:
Production (including resource
extraction);
Shipping and handling (including
storage);
Consumption; and
Waste, disposal, or recycling of
the product

9. Effects of Trade Policy on the
Environment
Product standards or eco-labels based on a product-life cycle
assessment are also increasingly being considered as environmental
instruments.
So far, they have often been used to reduce trade opportunities by
acting as non-tariff barriers to trade, discriminating between
domestically produced and imported goods.
But, recent agreements have placed greater limits on the ability of
governments to set products standards; the Agreement on Technical
Barriers to Trade, for instance, applies a "least trade restrictive" and
"no more trade restrictive than necessary to fulfill a legitimate
objective" test to national regulations.
Eco-labels in particular have the potential to express consumer desires
through market forces, avoiding the need for command-and-control
approaches.

10. Effects of Trade Policy on the
Environment
As voluntary measures, eco-labels based on product life-cycle analyses
provide an avenue through which consumers can influence
environment aspects of production in a manner consistent with
international trade rules.
This is one area where capacity building in less developed countries,
including technology transfer and human capital investments, can
increase welfare and protect the environment there and in more
developed countries.

11. Effects of Environmental Policies
on Trade
There is concern in both more developed and less developed countries
about the effects of environmental policies on trade, although for
different reasons.
In less developed countries, this concern is usually directed at
perceived green protectionism in more developed countries, in which
ostensibly environmentally directed standards are used as non-tariff
barriers to trade.
In more developed countries, there are fears of a "race to the top" as
green protectionism in developed competitors demand stricter
standards, and of a "race to the bottom" as less developed countries
concentrate on production of environmentally-intensive products or
methods, or attract polluting industries or technologies from more
developed countries.

12. Effects of Environmental Policies
on Trade
Concern about green protectionism, in less developed countries, is not
surprising; beyond difficulties in planning, implementing, monitoring,
and enforcing the controls desired, pollution taxes levied on
production of a pollution-intensive commodity raises its relative price
and reduces the country's comparative advantage; but, the demand
for exports from less developed countries is relatively price-inelastic.
Evidence of firms or industries migrating to locations with lower
environmental standards remains largely anecdotal; on the other
hand, there is solid evidence that the bulk of foreign direct investment
is targeted at countries with higher environmental standards.

13. International Efforts on Trade and
the Environment
There is no international agency with authority to settle major
disputes and enforce settlements related to transboundary
environmental interactions.
International cooperation on the environment and its relations with
trade takes place through multilateral environmental agreements,
which must be negotiated individually, usually in separate fora, or
through institutions such as the World Trade Organization.
For political reasons, and for want of better information on resource
values and ecological interactions, environmental policies tend in such
cases to take the form of command-and-control regulations rather
than that of market incentives.
They have been used to (i) enforce agreements through the threat of
trade sanctions, (ii) persuade nonparticipants to accede to an
agreement, and (iii) set environmental conditions on traded products
or processes and production methods.

14. International Efforts on Trade and
the Environment
Over the last two decades, as the economic and environmental
interdependence of developing Asian economies increased, so have
their efforts toward regional and subregional cooperation.
Prominent among these are the APEC forum, ASEAN, SAARC, the South
Pacific Forum, and the South Pacific Commission..
Subregional cooperation in Asia include the Southern China Growth
Triangle, the Singapore-Johor-Riau Growth Triangle, the Tumen River
Economic Development Area, the Indonesia-Malaysia-Thailand Growth
Triangle, the Brunei-Indonesia-Malaysia-Philippines East ASEAN
Growth Area, and the Greater Mekong Subregion Economic
Cooperation Program.
But, most of these cooperative efforts aim to liberalize trade, with
environmental consequences in the interim.

15. Asia's Emerging Agenda for Trade
and the Environment
The international efforts under way in various global, regional, and
subregional for a related to transboundary environmental interactions
cover a wide range of activities; these include capacity building,
biological research, control of cross-border movements of hazardous
wastes, bans on driftnet fishing, and efforts to slow down global
warming and protect the ozone layer.
Yet, there remain many areas for further action on trade and the
environment, both in more developed and less developed countries,
together and individually.
Of concern are the gaps in our scientific knowledge of environmental
interactions; more research needs to be carried out at the national,
subregional, regional, and global levels, with international cooperation
playing a key role in exchange of knowledge, technology, and human
and financial resources for research and dissemination.

16. Asia's Emerging Agenda for Trade
and the Environment
More research is also needed on the institutional aspects of solving
market failures that result in environmental problems.
In practice, property rights and the tax or subsidy approaches differ
more in emphasis than in substance; developing countries must
examine the extent to which red tape can be reduced or reformed to
facilitate more efficient trade and resource use.
Elsewhere, a consensus needs to be reached on acceptable use of
trade measures in multilateral environmental agreements and criteria
need to be developed for their judicious application.
Yet, proposals for a global environment organization to coordinate
international environmental activities have met with lukewarm
responses; a structured organization may not be needed, but with little
coordination in efforts and poor understanding of environmental
factors on which our lives depend, the dangers may be great.

17. Asia's Emerging Agenda for Trade
and the Environment
International aid for the environment, as with other types of aid,
suffers from problems of coordination; strengthening and coordination
of certification bodies, along with adoption of common sets of
standards, can improve efficiency.
Regional and subregional cooperation in Asia play an important role
and deserve international support; but, the comparative advantage of
each grouping should be established and exploited to increase the
efficiency of environmental efforts.

18. Further Reading
• ADB. 1998. Challenges for Asia's Trade and Environment.
Manila. www.adb.org/publications/challenges-asias-trade-
and-environment

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