econ 3003 Economics

Analysis of the relationships between international trade and the environment, and implications for global sustainable development

Background for the research topic:

The nations of the world are increasingly interlinked. They are exchanging more goods and services than ever before, but they now also share trans-boundary and global environmental problems.

In general, production and consumption can cause environmental damage. However, as  country’s GDP per capita grows, the environmental damage first grows and then eventually declines as the country gets rich enough to protect the environment. Refer to the EKC Hypothesis for this kind of relationship. While trade has increased incomes largely by making poor countries richer - which is a good thing - it may have been bad for the environment.

One important consideration relevant to the recent historical experience of many of the High-income OECD countries is the shift in their economy away from manufacturing raw materials towards services industries. This shift has required more highly trained labour and more technologically sophisticated capital equipment. For example, iron and steel production has declined in volume terms in the most advanced economies, instead they increasingly import the steel to be used in for instance car manufacturing, from developing countries. This process has been largely driven by the fact that developing countries can process raw materials cheaper than the developed countries can. However, processing basic raw materials is more environmentally damaging than for instance high technology engineering. For example – when iron or steel works are moved from Germany to India, and then having Germany instead importing Indian-made steel to make cars, then this is good for the quality of the environment experienced by people in Germany, but worse for the people in India.

It is important to note that while removing polluting industries from one country to improve environmental quality for an open national economy, this cannot work for the world economy as a whole, which is closed and with finite global natural resources (clean air, soil and water). there is no ‘overseas’ in which to relocate dirty basic raw materials processing activities. It also needs to be noted that there are some environmental problems for which relocation is irrelevant for instance climate change. Concentration of greenhouse-gases such as CO2 affects the climate worldwide no matter where the CO2 was emitted. Simply moving a steel works and its CO2 emissions from Germany to India has no implications for the future climate in India or Germany.
Based in the above established background; write a research essay wherein you will investigate and critically analyse the followings:

· How national environmental and trade policies interact;

· Find out in what sense globalisation has further outreach than international trade;

· Look at the means by which environmental policy can be implemented in the context of international trade;

· Consider the advantages and disadvantages of living in a world where nations move closer together.

· What does WTO have to say about the importance of interactions between trade and environmental legislation?

Suggest in the conclusion what kind of trade policies you would recommend addressing these challenges of maintaining both a sustainable trade and global environmental problems for a nation like Australia