Trade and environment issues in APEC

Abstract

The central argument of this article is that regional economic integration must be complemented by the creation of regional frameworks for environmental management. Beyond working to expand market access, Asia-Pacific Economic Cooperation Mechanism (APEC) countries must cooperate to create conditions which provide incentives for sustainable resource and ecosystem use. In this way, trade and environmental policies can mutually reinforce each other. In one way or another, it is likely that environmental issues will be on the agenda. The crucial issue is how deep and broad will be the integration of trade and environmental concerns. This article suggests some guiding principles and innovative strategies.

Notes

1 APEC includes 21 members, which are ASEAN countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam), the United States, Canada, Australia, New Zealand, Republic of Korea, Japan, People's Republic of China, Hong Kong, Chinese Taipei, Taiwan, Russia, Papua New Guinea, Mexico, Peru, and Chile. APEC members represent about 40% of the world's population, about 50% of world total GDP and about 40% of world total trade (the intra-regional trade being about 30%). Its intra-regional trade in monetary terms is larger than that of the EU's intra-regional trade.

2 The authors view openness to foreign trade, technology, and capital flows as significant in fostering growth and possibly development. Participatory democracy is essential for the political sustainability of growth-promoting policies.

3 We use italics in Part I to show the sustainability commitment of APEC.

4 We also assume that economic growth can be compatible with environmental protection. However, it is worth to mention that some authors diverge from this opinion and see the free trade and environment as completely opposite, for more details see Daly (1996a, 1996b), Goldsmith (1996), and Morris (1996). We believe that the trade-growth-environment debate must be further encouraged, this article being a modest contribution to the topic. As the text makes clear, the compatibility between trade and the environment is not automatic: rather adecuate mechanisms must be created and maintained.

5 According to the “Environmental Kuznetz Curve” hypothesis (EKC), countries develop according to a two-stage development path. Due to scale effects (more production is associated with more emissions) and the composition effect (through their initial development stage, countries will increase their manufacturing output relative to agricultural and services output), economic growth is associated with higher levels of environmental pollution in the first stage of development. As services become more important and the overall population becomes increasingly aware of the risks associated with pollution, the second stage of development is characterized by decreasing emissions levels (Kuznetz, 1963). For more optimistic theories regarding the environment see Lomberg (2001) and Simon (1995, 1996).

6 However, observers have pointed to the danger of a “race to the bottom” in countries competing for export markets and foreign investment. See, e.g., the argument in Korten (1995).

7 At purchasing power parity (PPP).

8 There are formidable problems in identifying and valuing the costs of using environmental resources and allocating costs to particular goods. But that only underscores how urgently those problems need to be addressed. Broadly speaking, the problems can be divided into three groups. First, consensus is only beginning to emerge on essential concepts, definitions, measurement techniques, data needs and methods of analysis, and further research is urgently needed. Even where the theory is fairly clear, there is often disagreement as to how internalization should be put into practice. Frequently the process is further complicated by poorly defined property rights to environmental resources. Second, in the course of internalizing costs, producers fear there will be inadequate offsetting gains in efficiency, and that they will lose business to competitors facing less onerous requirements. It is not yet clear to what extent these fears are in fact valid, as evidence on this issue remains inconclusive. Third, cost internalization is not an adequate approach to dealing with environmental costs stemming from irreplaceable losses, such as species extinction or lasting damage to the regenerative capacity of renewable resources. These problems are discussed in more detail below, under the principle of Environmental Integrity. Despite these considerable complications and challenges, it is evident that cost internalization based on the polluter pays principle must play a central role in efforts to improve efficiency, improve the management of natural resources and promote worldwide sustainable development.

9 The Economist, October 21, 2004.

10 A more extensive paper would include detailed consideration of possible concrete actions such as the afford mentioned emission permit trading, voluntary agreements and other measures, that alas, lies beyond the purview of the present contribution.