Trade and the Environment: from a 'Southern' Perspective

Ecological Economics 36 (2001) 281–297 www.elsevier.com/locate/ecolecon

ANALYSIS Trade and the environment: from a ‘Southern’ perspective

Roldan Muradian *, Joan Martinez-Alier

Uni6ersitat Auto`noma de Barcelona, Departamento d’Economia i d’Histo`ria Econo`mica, 08193 Bellaterra, Barcelona, Spain

Received 3 January 2000; received in revised form 12 July 2000; accepted 13 July 2000

Abstract

The relationship between free trade and the environment is one of the main issues of contention between environmental and ecological economics. Environmental economics assumes a positive relationship between free trade, economic growth and environmental policies. Environmental externalities may cause important damage. However, trade is not to be blamed for this. Instead, the fault lies with policy inadequacies at the national level. On the other hand, some ecological economists criticise the assumptions of environmental economics, especially the immobility of production factors and the positive correlation between income and environmental quality. They plead for measures to prevent deterioration of ‘Northern’ environmental standards in a ‘race to the bottom’ due to ‘ecological dumping’’ from the South. In this paper, we argue that neither environmental economics nor ‘Northern’ ecological economics take into account the structural conditions determining the international trade system. Based on some new empirical evidence on material flows, we stress the notion of environmental cost-shifting. If physical and political ecology perspectives are adopted, a ‘Southern’ approach to the trade-and-environment issue may arise. © 2001 Elsevier Science B.V. All rights reserved.

Keywords: North–South trade; Dematerialisation; Environmental Kuznets curve; Environmental cost-shifting; Ecologically unequal exchange

1. Introduction literature (Verbruggen, 1999; Jayadevappa and Chhatre, 2000). Leveson-Gower (1997) recognises The relationship between trade and the environ- three different approaches on the subject: tradi- ment is one of the main issues where a clear tional, environmental and ecological. The former divergence between environmental and ecological is essentially neo-classical trade economics. It economics can be found. The discussion started in tends to stress the dangers of environmental pol- the late 1970s and it is still a ‘hot’ issue in the icy for the trade system rather than the reverse. The environmental trade approach also starts * Corresponding author. from neo-classical economics. It emphasises policy E-mail addresses: [email protected] (R. Muradian), inadequacies at the national level and assumes a [email protected] (J. Martinez-Alier).

0921-8009/01/$ - see front matter © 2001 Elsevier Science B.V. All rights reserved. PII: S0921-8009(00)00229-9 282 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 positive relationship between trade and environ- among others, on the following assumptions: (i) mental quality. Some ecological economists are there are two countries producing n commodities representative of the third approach, the ‘ecologi- with an endowment of m production factors that cal’. This viewpoint questions the ability of the is different between the two countries; (ii) mobil- trade system itself to promote ecological sustain- ity of production factors is perfect among domes- ability. This paper will start by describing both tic industries but impossible internationally, and main positions, and later, based on a political (iii) there are no externalities in production (van ecology perspective, it will emphasise North– Beers and van den Bergh, 1996). South environmental conflicts. Presenting some Building on the above indicated models and empirical evidence, it will introduce a ‘Southern’ premises, the neo-classical theory (and environ- point of view on the debate, ending with some mental economists) state that free trade strategies policy proposals. lead to a win–win result: all participants gain. Trade promotes economic growth and welfare improvement in the exporter as well as the im- 2. The neo-classical theory and environmental porter country. Growth enables governments to economics tax and to raise resources for a variety of objec- tives, including the abatement of pollution and David Ricardo formulated the basis of the cur- the general protection of the environment. More- rent economic theory of trade almost 200 years over, growth affects positively the demand for a ago. Ricardo’s main contribution was the ‘law of good environment. Also, trade enables pollution- comparative advantage’. He showed that the fighting technologies available elsewhere to be gains from trade still accrue to both sides even imported. Freer trade can lead to better environ- when a country has no absolute advantage what- mental outcomes also from a shift in the composi- soever. As long as the cost ratios differ between tion of production. Under this approach, countries in the absence of trade, every country international differences in environmental stan- will have a comparative advantage, an ability to dards are perfectly natural (Bhagwati and Srini- find some good it can produce at a lower relative vasan, 1996). Each country will have less of the cost than other goods. This good should be ex- industry whose pollution it fears relatively more ported in exchange for some others. So, trade is than other countries, and should not impose its preferable to autarky. Eli Heckscher made the big environmental preferences abroad. Thus, the no- second step in the economic theory of trade at the tion of ‘unfair trade’ and ‘unfair competition’ beginning of the 20th century. His ideas were based on different environmental standards is ille- developed later by his student Bertil Ohlin in the gitimate (Bhagwati, 1993). Each country has the 1930s. The resulting model was called thereafter right to impose local standards according to its the Heckscher–Ohlin (H–O) theory. It can be particular priorities (Klevorick, 1996). summarised as follows: a country has a compara- According to Repetto (1994), inward-looking tive advantage in producing and exporting the development policies may produce as serious envi- commodity in the production of which the rela- ronmental problems as the outward-looking tively abundant production factors at home are strategies, along with significantly lower living used. Commodities requiring for their production standards. India and China (already prior to eco- locally abundant factors of production (labor, nomic reform) experienced a high rate of environ- capital, technology, natural resources, etc.) and mental degradation. Trade restrictions imposed little of scarce factors are exported in exchange by OECD countries also damage their own envi- for goods that call for factors in the opposite ronments while reducing incomes abroad. US proportions (Lindert, 1986). Trade is assumed to sugar-protectionist policy has produced a loss of generate welfare increases, since every country 400 000 jobs in the Caribbean countries alone, an produces and exports the commodities it can pro- increase of 50% in domestic prices and extensive duce more efficiently. The H–O model is based, destruction of the Everglades ecosystem in South R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 283

Florida. According to this author, if developing subsequent changes in the local environmental countries collectively adopt reasonable environ- legislation or retrospective ‘Super-Fund’ legisla- mental standards in commodity production and tion (French, 1994; Bhagwati, 1995). Because of increase the prices to include the cost of environ- such evidence and arguments, most environmental mental compliance, their terms of trade would economists believe that a generalised lowering of improve because northern consumers, whose de- environmental standards (a race to the bottom) in mand is relatively insensitive to prices in the pri- order to attract foreign investment or to favor mary sector, would be paying a larger share of the local industries is unlikely to happen. environmental costs associated with their con- Based on the above arguments, and assuming sumption. Repetto (1994) proposes as key aspects also that free trade gives the consumers the great- of an agenda to conciliate environmental and est opportunity to choose ‘green’ products and trading policies the following points: (a) Reorient establishes the best climate for multilateral co-op- agricultural policy and reduce agricultural protec- eration to solve environmental problems, the tionism in OECD countries. (b) Reduce barriers GATT (nowadays WTO) concluded that, since in OECD countries to exports of labor-intensive trade is such a great advantage, our present trad- manufactures from developing countries. (c) Use ing system should not be jeopardised by trade trade and investment incentives to induce co-oper- restrictions motivated by environmental concerns ation in international environmental protection. (Lee, 1994; Liebig, 1999). From the neo-classical (d) Developing countries should enforce reason- environmental-economics point of view, the main able environmental standards and the Polluter challenge to achieve sustainability is the internali- Pay Principle. (e) Governments should eliminate sation of environmental externalities. Environ- natural resources subsidies. mental economists argue that a failure to place a For most environmental economists, lower en- ‘right’ value on environmental resources would vironmental standards are unable to encourage undermine sustainable development even in com- industrial mobility. The empirical evidence seems plete autarky. Trade is seen, rather, as a ‘mag- to reveal that it has not happened in the past nifier’. If policies necessary for sustainable (Batabyal, 1995; Levinson, 1996; Eskeland and development are in place, trade promotes devel- Harrison, 1997; Tobey, 1990) and for many au- opment that is sustainable. thors it is unlikely to happen in the future. Basi- cally, the reason is that the costs of compliance with environmental standards are not high in the 3. Trade and ecological economics North, not exceeding 3% of the total costs, and therefore they are outweighed by other factors One of the main criticisms of ecological eco- affecting location decisions, labor costs for exam- nomics against the environmental economics posi- ple (Batabyal, 1995). Xu (1999) found that the tion on trade is that it assumes too easily two export performance (in monetary terms) of envi- positive relationships: (i) between international ronmentally intensive products for most countries trade and economic growth and (ii) between eco- remained unchanged between the 1960s and the nomic growth and environmental protection. Em- 1990s despite the introduction of stringent envi- pirical evidence supporting the idea that countries ronmental standards in most of the developed with rapidly growing exports have a higher rate of countries. On the other hand, exploiting differ- GDP growth is abundant (Dollar, 1992; Frankel ences in standards may not be a good strategy to and Romer, 1999), and this proposition has been attract international capital because it may gener- taken as a ‘dogma’ by many politicians and devel- ate strong local resistance due to deterioration of opment economists. Nevertheless, empirical stud- life quality. Corporations may prefer to adopt ies usually do not demonstrate the direction of the standards from the headquarter-country to ho- causal relationship between trade and income mogenise procedures, but also to avoid local and (Edwards, 1993). Moreover, ecological economists international suits and the cost of complying with criticise GDP as a measurement of social welfare. 284 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297

If economic growth rests on depletion of natural studies only for selected environmental variables capital (as in the case of primary-goods exporters) are often larger than the current world median and increasing environmental externalities, GDP GDP per capita. This would mean that extensive can be a misleading indicator of real welfare environmental degradation at a global level would (Daly and Cobb, 1994; Max-Neef, 1995; El Ser- carry on many years in the future. ‘London’ smog afy, 1997; Faucheux and O’Connor, 1999). For can be corrected at a relatively low level of in- example, Winter (1995) found no positive rela- come, but ‘Los Angeles’ smog (produced basically tionship between exports and economic growth in by cars) increases with income up to a very high African countries specialised in non-renewable re- level of per capita income. On the other hand, sources when a revised national income is applied some pollutants do not show an inverted ‘U’ (according to El Serafy or Repetto methods). The relationship with income (garbage per capita for second positive relationship, between economic example). It has been estimated, based on habitat growth and environmental quality, has received loss, that 30 000 species a year are currently being support from the ‘environmental Kuznets curve’ lost in tropical forest, coral reefs, wetlands, is- evidence (Grossman and Krueger, 1995; Barbier, lands and montane environments, almost all in 1997; Ekins, 1997; Stern, 1998). Economists sup- the South (UNEP, 1995). If this rate continues for porting this proposition assume that economic a few decades, the environmental consequences growth will change preferences toward environ- will be catastrophic. Since most of the current mental quality and will reduce pressure on the biodiversity rest in the South, and diversity exploitation of ecosystems, whether in terms of thresholds (below which the changes in environ- natural resources inputs (dematerialisation) or mental functions’ output are irreversible) are not pollution outputs. Nevertheless, if the economic known. To trust in an inverted-U curve between process that generates economic growth results in income and environmental condition may lead to irreversible environmental degradation, then the surpass the ecological threshold before reaching very process that generates demand for environ- the economic one. When economic growth has mental quality in the future will undermine the made people wealthy enough (to clean up the ability of the ecosystem to satisfy such demand damage done by growth) it may be ‘too late to be (van den Bergh and Nijkamp, 1991). Since much green’. of the Southern environmental damage is irre- Another key point of disagreement between versible loss of biodiversity and it cannot be made environmental and ecological economics is the good because replacement costs are infinite, the role of international competition in determining South cannot blindly follow the rule ‘damage the environmental and labor standards. Some ecologi- environment in order to grow, and then (with the cal economists (Daly, 1993; Ayres, 1996) argue revenues) cure it’ (Goodland and Daly, 1993). that competition promoted by free trade will en- Not only loss of biodiversity, also the dispersal of courage lowering of environmental standards and minerals cannot be reversed; we have no technolo- wages at a global level, producing environmental gies to produce a new Cerro Rico of Potosı´. As deterioration in both North and South and lower regards biodiversity, species are interconnected in wages and enlargement of unemployment in the a web of interrelations that are basically non-lin- North. According to this position, free competi- ear and discontinuous and there exist thresholds tion between different cost-internalising regimes is of diversity below which ecosystems lose the self- utterly unfair because it would produce a ‘race to organisation that enables them to provide ecologi- the bottom’. Overpopulation and the high rates of cal services (Perrings and Opschoor, 1994). In population growth in the South will collaborate to many cases, these thresholds are unpredictable maintain the wages in poor countries low and to and once they are surpassed it is impossible or too push the northern wages downward. They point difficult to come back to the initial state. out also that the key assumption of immobility of The income levels above which environmental factors of production (on which the neo-classical degradation start to diminish found by the EKC model of trade is based) cannot be accepted easily R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 285 nowadays. Currently, capital flows along the from North to South rather than the reverse. For world almost without any restriction. Thus, what instance, exports of maize from the US to Mexico really matter are absolute advantages and not under NAFTA threaten Mexico’s wealth of maize comparative ones. Capital can migrate to coun- varieties (around 1600), which have co-evolved tries having absolute advantage, and a few coun- with southern Mexico peasants during thousands tries may have absolute advantage for many of years (Martinez-Alier, 1993; Boyce, 1996; Dra- products. So, only a few countries may attract gun, 1998). most of the world’s capital (and yield most of the Other authors suggest an approach that simul- world’s production), leaving other countries in an taneously accelerates progress towards trade liber- ‘absolute disadvantage’. The fear of some ecologi- alisation and encourages countries to pursue cal economists is that lowering of environmental first-best policy solutions to global environmental and labor standards may become the main strat- problems, including international agreements egy used by countries to achieve absolute advan- (Young, 1994) or appropriate local abatement- tage (Daly, 1997). For example, lower pollution tax policies (Lee and Roland-Holst, environmental standards in Mexico seem to have 1997). It has been also proposed that trading played an important role in the reallocation of partners and integrated trading zones (like maquiladoras to the US-bordering area of Mexico NAFTA and MERCOSUR) should enact com- (Steininger, 1994) and this has produced employ- mon trade agreements with emphasis on environ- ment loss in the US and serious environmental mental aspects (DeBellevue et al., 1994). Market damage and health problems in Mexico (Wallach segmentation through product certification (eco and Naiman, 1998). or green-labeling) has been proposed also as a Currently, the WTO allows trade restrictions mechanism to reach international harmonisation for products generated by some ‘social dumping’ of environmental regulations. In these cases, the like prisoners’ labor (although not children’s demand in the North for green products will play labor) and also for products that may harm the a key role in changing the patterns of production importing country’s environment or health. WTO in the South (May and Segura, 1997). Duchin et lets countries choose their own processes of pro- al. (1995) argue that this process of environmental duction, including environmental standards harmonisation has as a prerequisite large transfers (Eglin, 1995). In the current controversy on genet- of technology from the North to the South, ically modified (GM) agricultural imports (maize, though in other cases (coffee production under soybeans) into Europe, one sees clearly the dis- shade, and in multi-cropping systems) the ques- tinction between the presumed health risks in the tion is to preserve the traditional technology quality of the product (which, for instance, has rather than to import a new one. led to call for labeling by the British Medical Association), and the environmental and health risks because of the process of production — for 4. Race to the bottom or polarisation of instance, gene transference to wild relatives of environmental conditions? GM crops in exporting countries. Some ecological economists (Daly and Goodland, 1994; The viewpoint that conceives international Steininger, 1994) argue that WTO should include competition and capital mobility as important an article permitting importing countries to estab- forces driving down environmental standards re- lish trade barriers to avoid unfair competition sponds mainly to ‘Northern’ fears (Bhagwati, between local industries and foreign industries 1997). The North is afraid of losing its high benefiting from weaker environmental standards. standards through eco-dumping from the South In general, this measure would protect local in- and it is interested in putting trade barriers based dustries in the North against ‘ecological dumping’ on environmental considerations. This strategy, from the South. Although, there are some cases in however, may become easily an ‘eco-imperialistic’ which free trade implies ‘ecological dumping’ measure. Currently, non-tariff barriers are the 286 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 most important mechanisms halting international However, in countries with low-standards and trade and ecological concerns may be used to hide weak institutions, competitive pressures do have a economic interest of lobbies in the North. In this substantial impact, creating what might be called sense, the point of view from the South would be the ‘stuck at the bottom’ effect. This could lead to closer to that of environmental economists, who a polarisation of the international environmental state that each country has the right to impose its conditions. own environmental standards according to its de- Daly’s appeal (Daly and Cobb, 1994) to the velopment priorities. But the key part of the self-interest of the United States working class to argument in favour of trade restrictions may be prevent entry of products produced with low so- looked at from an opposite perspective. If one cial and environmental standards is perhaps too conceives international flows of cheap primary optimistic. First, the US working class is surely products (or environment-intensive products in worried about cheap Chinese steel imports (as general) as ‘ecological flows’, that is, as environ- shown in the ‘battle of Seattle’ of late 1999), but mental-cost shifting from the importing to the it is also a big consumer, interested in cheap exporting country, then freer trade can promote imports of oil, other raw materials and consumer increasing environmental-load displacement from goods. Second, when US capital moves to coun- the importing to the exporting country. Imports tries that produce cheaply because of their abso- of environment-intensive goods may be a way to lute advantages and low social and environmental improve local environmental standards at the ex- standards, the US economy profits, and it carries pense of environmental degradation abroad. its working class along. Third, one part of this Ekins (1997) points out that it is possible that the working class is ill-paid and demoralised, but consumption of environmentally intensive goods another part is becoming interested in the stock is increasingly being met by imports. For exam- market, privately and through pension funds. ple, there is some evidence showing that US pollu- Cheap imports, a large trade deficit made possible tion control programs have induced changes in by a strong dollar and high-yielding investments the US trade pattern, favoring more imports of in other countries, resemble more a ‘Swiss rentier high-abatement-cost goods (Robinson, 1988). The way of life’ than an ‘American working class way EKC may be the result of international specialisa- of life’, but they are attractive. The political con- tion: poor countries may attract ‘dirty’ and mate- stituency for the ecological economics viewpoint rial intensive production while richer countries is not so much the American working class as the specialise in clean and material extensive produc- populations in the South who suffer from their tion, without altering the consumption pattern inability to prevent exports that imply ecological (Stern et al., 1994; Suri and Chapman, 1998). If and social dumping. this hypothesis applies, the ‘race to the bottom’ is At the global level, there is a clear flow of a fallacy because free trade does not promote a primary commodities from poor to rich countries. general deterioration of environmental standards, Developed countries consume the majority (two- but instead it produces environmental improve- thirds) of all primary commodity exports and ment and economic growth in the North and these kinds of products account for the majority environmental deterioration and economic stag- of export earnings in the Third World (Arden- nation in the South. From this viewpoint, in a free Clarke, 1992; OECD, 1997). Clearly, the Third trade system, capital migration to poor countries World is specialised in exploitation of natural will not convert affluent countries in ‘absolute resources. Specialisation in resource-intensive or losers’ (as Daly and Ayres fear). Instead, poorest environment-intensive products (especially those countries may become the real losers by suffering with low income elasticity) may generate a ‘spe- the environmental load of ‘affluent’ consumption. cialisation trap’. When the economic activity is According to Porter (1999), the race to the bot- based on non-processed products, attempts to tom does not apply to those countries with al- increase earnings need either an agreement among ready high standards and strong institutions. exporters, which is difficult to organise, or an R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 287 increase in supply, which produces a downward ing and they can lead to unsustainable ways of pressure on prices and deterioration in the terms development. Thus, strategies of development of trade. If this pattern is not broken, ‘free’ trade intending to attract international capital to the becomes, in reality, ‘forced trade’ (Ropke, 1994). export-oriented primary sector, as those imple- Moreover, most developing countries have huge mented by Bolivia, Peru, Chile or Venezuela, for debt-loads. In order to pay these obligations, example (ECLAC, 1998), and also Indonesia and countries need to foster resources exploitation and other countries in South East Asia, may lead to supply (Schatan, 1998), collaborating in the fall of increasing (national and international) income prices. In the last decades prices of primary re- distribution asymmetries and ‘illusory’ growth in sources have dropped substantially. In order to the short term, but unsustainable development in maintain their revenues, countries must sell grow- the long term (Tussie, 1999). ing quantities of resources, thus generating in- The fact that the non-exporting sector consti- creasing environmental damage. Specialisation in tutes the bulk of the economy in most developing natural resources-intensive products with a low countries (exports of good and services in the degree of processing may have also important developing world usually are below 30% of GDP) consequences for the prospect of development in does not necessarily imply low environmental the future. Raw materials production does not pressure from the exporting sector. Primary com- promote technological innovation or development modities still account for the largest share of of labor skills as do the information-intensive developing countries’ export earnings and 45% of sectors. Therefore, countries specialised in the pri- developing countries have primary products (fuel mary sector tend to have a limited range of occu- and non-fuel) as the main source of export earn- pational choices, staying back in the creation of ings (IMF, 1998). Unprocessed raw materials ac- new ways of generating revenues. Not every com- counted for an estimated 75% of the 48 poorest parative advantage promotes development in the countries’ exports in 1995 (OECD, 1997). Thus, same way. Countries that specialise in the least although the exporting sector in most developing dynamic comparative advantage may find them- countries is not the main economic activity in selves locked into economic stagnation (Ekins et terms of revenue and employment, it can have a al., 1994). Moreover, tariff escalation (import du- great environmental impact relative to its eco- ties that rise with the level of processing of the nomic share because it mostly relies on the ex- goods purchased), very common in the current ploitation of natural resources. Additionally, world trade system (Hecht, 1997), may play a key international financial institutions ‘recommend’ role in the maintenance of the specialisation trap. an outward strategy of development by exploiting On the other hand, there is empirical evidence local comparative advantages. This probably will showing that the growth of primary exports ex- lead to a general increment of exports, and the hibits little or no external impact on the non-ex- environmental cost associated with it (Rock, port sector, which constitutes the bulk of the 1996), and it could also lead to an oversupply of economies in most developing countries (Fosu, natural resources and therefore to deteriorating 1996). This evidence is against the staple theory of terms of trade for the primary sector. growth, a classic export-led development model There could be an alternative look at the prob- that states that the expansion of the resource- lem. Under an institutional perspective, and tak- based exporting sector induces higher rates of ing into account the international market growth of aggregate per capita income due to structure of primary products, it is misleading to links with other sectors of the economy (Watkins, consider countries as the most suitable unit for 1963). If the staple theory’s assumptions are not the analysis of the ‘trade and environment’ issue. well founded and the resource-exporting sector is First, there is an uneven distribution of power ‘delinked’ from the rest of the economy, policies inside countries. For example, revenues and envi- intending to promote (cheap) primary exports ronmental costs from oil exports or from copper expansion as an engine of growth can be mislead- exports in Nigeria and Indonesia are enjoyed by 288 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 and fall upon different sectors of the population. banana plantations, on the practices of Texaco in How are a country’s environmental preferences to Ecuador, Freeport McMoRan in West Papua be aggregated? Second, corporations play a deter- (Indonesia), the Southern Peru Copper mining role. For example, the international mar- Corporation). ket in the mining sector is increasingly dominated In summary, TNCs’ activities in the agriculture, by transnational corporations due to capital re- mining, mineral processing, paper and chemical quirements and a generalised strategy of privatisa- sectors are usually directed to cover the demand tion in the Third World. Extractive industries may of industrialised countries. Many primary markets function as enclaves, which rely largely on inputs are oligopolistic, dominated by few TNCs. Intra- imported from the parent company to which the firm trade represents a remarkable part of the subsidiary ‘export’ the production and repatriate international primary products flows. Lastly, the bulk of its profits, creating important balance there could be important asymmetries in the dis- of payment problems in the ‘exporting’ countries tribution of profits between TNCs and the host- (Jenkins, 1987). Moreover, if national govern- economies in the environmentally intensive ments use tax incentives to attract international sectors. Then, from a political ecology perspec- capital (as it has been the case in many developing tive, one could address the ‘trade and environ- countries) the asymmetries in the distribution of ment’ issue, emphasising the strategic managerial profits can be even greater. A substantial part of decisions inside multinational corporations in- world trade now takes place within corporations stead of focusing on how national economies (Gilroy, 1989; OECD, 1993) and it allows, among exploit comparative advantages to compete in a other things, transfer pricing. By systematic under ‘perfect’ international market. Despite the increas- or overstating the price of commodities in intra- ing importance of TNCs in the world economy, enterprise transactions, multinational firms can this ‘institutional’ approach has been almost ab- increase their global profits, reduce risk, move sent in the current debate on trade and the envi- funds across national boundaries and allocate ronment. Further research is needed on this topic. them between subsidiaries (Lecraw, 1985). TNCs have been reluctant to accept any environmental liability. There is no international agreement or 5. Looking at some ‘weighty’ evidence treaty regulating the conduct of TNCs. There have been attempts to control TNCs’ behaviour Table 1 shows the percentage of change be- at the international level, one from the UN and tween 1971–1976 and 1991–1996 in the average another from the ‘group of 77’ (the latter code aggregated imports (weight and prices) of the US, was related specifically to environmental liability). Japan, France, Italy, Germany (Federal Republic However, both attempts failed because of the from 1971 to 1996 and unified Germany from opposition from the transnational corporations 1991 to 1996), Netherlands, Spain, Sweden, Den- and the governments of US, UK and Japan mark, UK and Ireland of non-renewable materi- (Goodland and Daly, 1993). als coming from developing countries. One It is usually assumed that multinational corpo- hundred percent of change means an increase by a rations in the primary sector have a far better factor of 2. Low and middle income countries, environmental performance than state-owned en- according to the World Bank classification terprises because of more efficient production and (World Bank, 1998), are considered here as devel- management and updated technology (Hodges, oping countries. Data comes from the World 1995). It is also commonly assumed that TNCs Trade Annual, a periodical (annual) hard-format tend to maintain parent-country’s environmental publication of the UN statistical office. It reports standards in the subsidiaries. Nonetheless, there commodity imports and exports (in weight and have been well-known recent (largely unsuccess- value) by country, specifying also the place of ful) attempts of class action environmental suits in origin or destination. For the selected developed US courts against TNCs (on DBCP pesticides in countries and the period specified, we gathered R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 289 data for the share of the total quantity of some more value-adding activity in the South (of prod- non-renewable materials imports coming from de- ucts facing a deteriorating evolution of prices). veloping countries. Prices of these imports were However, imports of semi-manufactured materials also taken into account. Table 1 shows that, in may imply larger environmental cost shifting general, physical de-linking between economic compared to imports of non-processed materials growth in the North and non-renewable resources because they embody the environmental impacts imported from the South is not taking place and of both extraction and processing. also that prices for most of these products have Environmental problems associated with trade deteriorated considerably in 20 years. of natural resources include habitat destruction These data suggest that the North’s economic (specially deforestation), species loss, land, water growth goes together with: (a) increasing con- and air pollution and promotion of human dis- sumption of non-renewable resources coming eases (Lee, 1996). Worsening terms of trade pre- from developing countries; and (b) worsening vent internalisation of these environmental terms of trade for exporting countries specialised externalities. In this sense, countries specialised in in non-renewable resources. Oversupply, rather polluting products, whose prices tend to fall down than decreasing demand, is likely the principal along time, tend to have fewer opportunities to cause of price deterioration and probably it is the internalise environmental costs into prices. On the result of the ‘specialisation trap’. Table 1 seems to other hand, private sector practices, such as trans- reveal that, in general, imports of raw materials fer pricing, can make the situation even worse. If have increased less than imports of semi-pro- international conditions determining prices make cessed materials. This indicates a trend towards the South less able to internalise externalities, then there is a transfer of wealth from poor Table 1 countries to rich countries. This mechanism has Change in South–North non-renewable resources flows and been called unequal (ecological) exchange (Mar- a prices between 1971–1976 and 1991–1996 tinez-Alier and O’Connor, 1996; Hornborg, 1998). Item % of change In this sense, externalities can be seen not so much as ‘market failures’, but as ‘cost-shifting Weight Price (US$ 1987) successes’ allowed by social asymmetries in the distribution of (mostly de facto) property rights, Aluminum 660 −12 income and power (Martinez-Alier and O’Con- Pig iron 306 −26 Iron and steel shapes 238 −31 nor, 1999). If non-renewable resources flows are Petroleum products 230 −21 seen as ecological flows and prices of these prod- Nickel (alloys) 196 −22 ucts tend to deteriorate, then we can argue that Gas natural and128 10 the North is transferring environmental costs to manufactured poor countries. Zinc 87 −35 Copper ores 70 −52 In Latin America, the CEPAL school of the Copper (alloys) 32 −35 1950s and 1960s (led by the Argentinean Bauxite 30 71 economist Raul Prebish) argued that there was an Tin (alloys) 12 −63 inescapable trend towards deterioration of the Lead 9 −46 terms of trade for primary commodities for the Zinc ores 8 −45 Nickel ores −3 −46 following reasons. As productivity increases in the Iron ores −10 −32 production of minerals, metals, oil and agricul- Lead ores −10 −34 tural commodities, the gains in productivity are Crude petroleum −12 −10 not captured by increasing wages because of the Fertilisers −51 −17 large supply of cheap labor. On the other hand, Tin ores−97 22 the markets for such commodities are competitive a Data source: authors’ calculations on the basis of the (and, we would add, future demand for ex- World Trade Annual (UN statistical office). haustible resources is heavily discounted). On the 290 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297

metals, industrial chemicals, petroleum refineries, non-metallic mineral and pulp and paper prod- ucts. The results show that with few exceptions developing countries tend not to specialise in heavy polluting industries. Instead, exports are lower than imports for the polluting sectors and the export–import ratio is less than one. This means that poor countries are net importers of environmentally intensive products. The World Bank also concludes that developed countries are increasingly net exporters of products with big environmental rucksacks. Figs. 1 and 2 show the exports–imports ratios for the same six most pol- luting sectors in the European Community with Fig. 1. European export–import ratios (world) for the six most the rest of the world and with developing coun- polluting sectors. tries, respectively. They present the trade ratios in monetary and weight units. Data was taken from the Eurostat (1998) database of intra and extra EU trade. It is clear that conclusions can vary importantly if we adopt one or another unit. Now, in order to estimate the environmental effects of trade, the problem necessarily has to be addressed in physi- cal terms. Monetary variables are inappropriate because of price variation along time, among products and among countries. Instead, physical units can be translated into emissions and materi- als hidden flows (Adriaanse et al., 1997). Figs. 1 and 2 reveal that Europe is in some years a net exporter in monetary terms, being always a net Fig. 2. European export–import ratios with developing coun- tries for the six most polluting sectors. Table 2 US foreign trade for polluting sectors (1993) (million metric a contrary, markets for imported manufactured tons) products or services are more oligopolistic, and Category Exports Imports Export–import gains in productivity in the rich countries were ratio not translated into declining prices but into higher wages and salaries because of the existence of Minerals47.8 54.2 0.88 Metals and ores27.0 76.4 0.35 well-organised unions. The environmental issues Chemical and41.3 14.4 2.87 were not considered in the CEPAL’s argumenta- allied tion, but they could be added to it. products Apparently contrary to our main thesis, in a Petroleum34.1 96.9 0.35 products recent report (World Bank, 1998), the World Paper and 6.2 11.9 0.52 Bank published some data about monetary ex- board port–import ratios in low, middle and high in- Total 156.4 253.8 0.62 come countries for the six most polluting economic sectors: iron and steel, non-ferrous a Source: US Bureau of the Census (in Wernick, 1996). R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 291

Fig. 3. Origin of European imports for the six most polluting sectors. Weight.

importer in physical terms. Table 2 shows that 6. Weak vs. strong sustainability the US (at least for 1993, chosen because of data availability) is also a net importer (in weight The adoption of monetary units to deal with units) for five pollution-intensive sectors. environmental issues may also distort local and In principle, it is possible to estimate the rela- global policies intending to conciliate economic tionship between extraction and processing of growth and environmental sustainability. For ex- materials and pollutants emissions (Hettige et al., ample, the World Bank takes weak sustainability 1995), habitat degradation or removed land. Ma- criteria to evaluate its projects (UNEP, 1995). In terials flow can be translated into ‘ecological macroeconomic accounting, it publishes ‘genuine flows’, in terms of environmental load in the savings’ indicators (also based on weak sustain- exporting country by unit of consumption in the ability), according to which most poor countries importing country. In this sense, Europe and the have a low or negative savings rate and all of developed countries a high and positive one US, being net importers (in weight) for the most (Hamilton and Clements, 1999). (For a critique polluting sectors, could have an ‘ecological of World Bank’s ‘genuine savings’ numbers for deficit’, especially with developing countries (see Ecuador, see Falconi, 1999). Under the weak Fig. 3). sustainability approach, complete substitution be- However, it is difficult to use these kinds of tween human-made and natural capital is as- figures to estimate real environmental load dis- sumed, and the sustainability is achieved when placement, because too much information is lost the sum of both kinds of capital is at least con- due to aggregation. Since externalities associated stant in time, that is, when savings are equal or with trade depend on the specific pollution inten- larger than the sum of depreciation of both natu- sity of products, calculations of environmental ral and human-made capital. Some studies, in- cost shifting must be addressed taking into ac- cluding calculations for depletion of natural count the ‘environmental rucksack’ of each trad- capital and externalities, have shown that the able item separately. The most relevant point world as a whole is currently ‘sustainable’ in the here is that World Bank’s conclusions about in- above-described ‘weak’ sense, (Pearce and Atkin- ternational specialisation could change substan- son, 1993) and its degree of sustainability is in- tially if a ‘physical’ perspective is adopted. creasing along time (Proops et al., 1999). These 292 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 results arise basically because the huge net savings to rise and minerals scarcity does not seem to be of developed countries compensate natural capital a serious problem at least for the next century depletion at a global level. However, since deple- (Hodges, 1995). On the other hand, there is a tion of natural capital is calculated according to possible perverse side on a dematerialisation strat- actual prices of natural resources, which are low egy in the North: a falling demand of natural and tend to drop along time, to adopt a weak resources probably will produce a drop in the prices sustainability criterion to design policies may lead and even worse terms of trade for the South. to an irreversible loss of ‘critical natural capital’ Therefore, in any case, dematerialisation in the (Victor, 1991). Moreover, the larger the difference North should be accompanied by a progressive between the value-added of manufactured products abandonment of the current natural resources and services in the North and the prices of natural export-oriented pathway in the South. resources sold by the South, the larger the possibil- ity of savings in the North and therefore the larger 7. Policy proposals the degree of sustainability of the world in a weak sense. Therefore, under this preposterous perspec- From our point of view, the South has three tive, worsening terms of trade for the South will be possible ways to address the problem of deteriorat- favorable for the global sustainability (measured in ing terms of trade and North-to-South environ- monetary units). To rely solely on the weak sustain- mental cost shifting. One tactic may be to create ability concept is particularly dangerous in the case international cartels of natural resources producers of the World Bank because of the immense leverage like the OPEC. These cartels should include among this institution has in economic and social policies its explicit purposes (and this would be a novelty) of developing countries (Krueger and Rajapati- that a part of the increased revenues must go to rana, 1999). alleviate the environmental liabilities generated by Environmental problems in the North related to the exploitation of natural resources. In this sense, increasing material consumption are perceived they could be seen as ‘eco-cartels’. Nonetheless, the mainly with respect to waste disposal after final use. political feasibility of this kind of agreement seems However, in the life cycle of materials great envi- low. There have been many attempts to establish ronmental loads are also associated with the first international cartels for non-renewable resources in steps: extraction, purification and processing. the past, but almost all of them have failed. Therefore, it is possible that environmental costs of Another possibility is to apply international Northern material requirements are mainly suf- monetary environmental policies. Globalisation fered by exporting countries. If this is the case, there should not be only accompanied by free movement would be fewer incentives to reduce total material of capital, it also should imply the extension of the throughput in affluent countries. Dematerialisation institutional control of the economic activity at a has been proposed as a key strategy to achieve global level. The same logic underlying the applica- sustainability, and for many authors a reduction of tion of state intervention in a national level can be material flows should be introduced as a priority in applied at a global scale. Costanza et al. (1997) the agenda of developed countries in order to propose to shift the taxation of ‘goods’ like income achieve a sustainable development pathway (Daly, and labor to ‘bads’ like ecological damage and 1991, 1995; Hinterberger et al., 1997; Hinterberger consumption of natural resources. They consider as and Schmidt-Bleek, 1999). However, if the environ- crucial measures to achieve sustainability the imple- mental costs of these flows (pollution, habitat mentation of a ‘natural capital depletion tax’ to destruction, loss of biodiversity, etc.) are not suf- promote reduction in the total throughput, the fered in the industrialised world, it will be a hard adoption of the precautionary principle and an task to convince the lay community and decision environmental assurance bonding system. This makers to adopt ‘dematerialising’ measures or latter would consist in posting bonds (deposit-re- policies. Additionally, economic incentives are fund system) equal to current best estimate of the lacking because prices of raw materials do not tend largest potential future environmental damage R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 293 from current projects and activities. Portions of porting countries have enough savings to pay the bond (plus interest) would be returned if capital depletion to exporting countries, but this and when the agent could demonstrate that the transference is not occurring. These results seem suspected worst case damages had not occurred to reveal that some redistribution of income or would be less than the originally assessed. may occur through a natural capital depletion This kind of measure could be applied in an tax, but also that if this transference does take international arena (especially to assure TNCs’ place, and a weak sustainability rule is taken to environmental liability). define social aims, nothing substantial would According to the OECD’s Polluter Pay Princi- change about the environmental repercussions of ple, the additional production costs arising from the global economic performance. What matters stronger environmental measures should be in- is not the financial compensation of environ- ternalised into prices, so that eventually they are mental degradation in itself, but rather whether paid by consumers. The Polluter Pay Principle the money flows from natural capital depletion then equates the User Pay Principle (Kox, taxes would be incorporated into resource-saving 1993). According to this, benefits from eco-taxes technologies (for instance, solar energy). should go to compensate damage at the point What are the limits of this international fiscal where it is suffered, not where consumption oc- policy? Would it guarantee sustainability? curs. If environmental costs arising from natu- Perhaps we should see natural depletion taxes ral-resources exports are not internalised, then (which we favor) in a ‘cost-effective’ perspective ultimate consumers in importing countries are only. That is, the objective would be to reduce implicitly subsidised at the expense of welfare to some (politically negotiated) extent the mate- and environmental losses in exporting countries. rial export flows from poor countries, to pro- To correct this, a natural capital depletion tax mote technological innovation and to improve could be implemented. It should be equal to the their terms of trade and environmental condi- needed investment to create an equivalent hu- tions. In this approach, no pretense of sustain- man-made capital, which will produce at least ability is implied. As pointed out by Victor the same economic revenues. This is equivalent (1991), Martinez-Alier and O’Connor (1996, to a fiscal implementation of El Serafy’s rule. This has as premises that: (a) total benefits (in 1999), and other authors, in ecological econom- the market or not) produced by natural capital ics allocative and distributional issues cannot be can be calculated; (b) there is a high degree of dealt with independently. Endowment of prop- substitutability between both kinds of capital; erty rights and the distribution of income and and (c) the market role of interest is accepted as power are predetermining the allocative outputs. a sustainable rate of return on the invested capi- It can be completely efficient in economic terms tal. This means, a natural capital depletion tax to allocate pollution to poor countries or poor assumes a high commensurability of values and communities in the same country because, as a ‘weak’ sustainability criterion. If a weak sus- Summers (1992) argued, ‘‘the measurement of tainability criterion is assumed, an international the costs of health impairing pollution depends natural depletion tax on inelastic products on the foregone earnings from increased mor- would produce a redistribution of income at the bidity and mortality. From this point of view, a global level, displacing savings from developed given amount of health impairing pollution countries to resources-exporting developing should be done in the country with the lowest countries, but it would likely not change the cost, which will be the country with the lowest ‘environmental’ performance of the world’s wages’’. Under neoclassical thought it will be economy. Proops et al. (1999) report that some perfectly logical to displace environmental load oil-exporting countries are not sustainable in a to poorer countries even if the rich countries ‘weak’ sense, but the global economy and all the have to financially compensate the environmen- industrialised countries are so. Therefore, oil-im- tal degradation of cheap land and diseases and 294 R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 deaths of poor people. However, when there are stitution industrialisation strategy of develop- huge income inequalities and disparities in ment in the 1950s was that a deterioration in power between economic agents, economic poli- the international price of raw materials would cies, although improving economic efficiency, result, in the absence of industrialisation in the may lead to unsatisfactory results from an eq- developing world, in a ever-growing gap be- uity viewpoint. Social, spatial and temporal eco- tween rich and poor countries. This is still com- logical inequalities, like social asymmetries in pletely valid currently. In fact, income the use of natural resources or in the burdens of inequalities in the world never have been as ex- pollution, between different human groups can treme as nowadays, most developing countries persist even when implementing perfectly esti- are still specialised in primary products and mated Pigouvian taxes. prices of commodities are in general now lower Environmental economic policies intending to in real terms than 40 years ago. The challenge is internalise externalities are not enough to re- how to promote stronger internal markets and solve environmental conflicts because valuation non-primary industrial development in the South depends on income and power, but also because without the negative effects (monopoly, ineffi- the market is not the universal arena where hu- ciency, etc.) of protectionist measures. One strat- man conflicts can be resolved. Poor communities egy could be to attract foreign investments to often appeal to extra-market principles and val- the non-primary sectors. Special attention has to ues to resolve inequalities in the ecological dis- be devoted to avoid the appearance of new mo- nopolies. In Latin America for example, some tribution. Examples of that are the different civil foreign-owned monopolies are replacing former movements against environmental inequalities state-owned inefficient monopolies in the service that have arisen in the South, also called the sector, not resolving what constituted the main environmentalism of the poor, and the Environ- problem of the import-substituting strategy. mental Justice movement in the US (Guha and It is clear that international structural condi- Martinez-Alier, 1997). These environmental–so- tions and asymmetries in power or income are cial movements may become a key force for not the unique causes of extensive environmen- achieving sustainability. Extra-market mecha- tal degradation in the South. Many times, cor- nisms to enforce sustainability may be more im- rupt and weak regional or national institutions portant than economic measures in cases where are directly responsible for environment-degrad- there exist remarkable asymmetries in the distri- ing activities in developing countries. Undoubt- bution of income or power, or exploitative and edly, in order to allow the emergence of real unfair definition of property rights, and also participatory democracies and sustainable ways where uncertain externalities are not at all mea- of development in the South, changes in the in- surable in monetary terms. ternational conditions have to be accompanied We consider as the best policy for developing by internal structural and institutional reforms. countries, the generalisation of a development North–South networks of civil society coopera- path intending to change current comparative tion can be crucial in promoting this kind of advantages and to reinforce South–South net- change. works of co-operation and trade. Since not ev- ery comparative advantage is dynamically equivalent, by following the neo-classical advice the South would stay specialised in natural-re- Acknowledgements sources-intensive products, and it would be con- demned to stay economically behind. A change We are grateful to Maite Cabeza, Mario of emphasis is necessary from ‘exploiting com- Giampietro and Giuseppe Munda for comments, parative advantages’ to ‘changing comparative and to the project DGESIC-PB 98-0868 for advantages’. The key premise of the import sub- funding. R. Muradian, J. Martinez-Alier / Ecological Economics 36 (2001) 281–297 295

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