International trade vs protectionism…and the environment

Globetrotting crustaceans
A while ago I heard of a Scandinavian company that caught prawns in the Arctic Ocean, sent them to China where they were peeled and then sent back to Scandinavia where they eventually (after having been transported around a number of times) ended up on a plate somewhere. Unwittingly these prawns had been major CO2 culprits, not the least as they required frozen transport. This is just one example of trade routes that have opened up due to globalisation. While the example might be highly cost efficient, not even the staunchest defender of free trade could argue that it’s good for the planet!

When I did my first business degree back in the late 1990s, one of the main conclusion from Michael E. Porter’s book “Competitive Advantage of Nations” was the theory that everyone benefits from international trade. I agree with this but, as was also highlighted in the course material, the theory does not necessarily take into account the environmental cost of trade.

International trade and its consequences are complex issues with many faces.
Explosive increase in international trade is criticised by Greenpeace
World trade is nearly 32 times greater now than it was in 1950. The reasons for the massively increased global trade activities up to 2008 are many, including technological changes which have dramatically reduced the cost of transportation and communications, as well as the adoption of more open trade and investment policies.

However, Greenpeace has stated that the World Trade Organisation (“WTO”), which has been a significant facilitator of international free trade, is moving the world in the wrong direction: “away from peace, security and sustainability”. The WTO, Greenpeace argues, is promoting free trade for the gain of private interests, over and above our health and the environment.

More specifically, they argue that free trade is “speeding up the use of natural resources such as water, forests, fisheries, and minerals, much faster than they can be regenerated”.

As a results, Greenpeace demands that the WTO adopts a new policy of trade that “works for all and that preserves and restores the environment” in order to stop the “current form of globalisation that is increasing corporate power”.

While I agree with some of the points that Greenpeace are making, I disagree with the fact that free trade is working against peace. The European Union, for instance, was set up to make countries interdependent on each other financially after centuries of bloody warfare over land and resources.

Protectionism on the rise again
Senior politicians must have a lot of headaches at the moment; they are tasked with keeping the unemployment rate low on your home turf amidst the worst recession we have seen for decades at the same time as they are trying to solve a number of international issues, such as climate change, poverty and so forth.

Given that the public decides their fate every four or so years it is understandably quite tempting for politicians to be more interested in domestic issues. Therefore, it is not strange that protectionism is increasing again.

The WTO slashed its forecasts for trade volumes for this year and one of the interesting statements was the following: "In the past three months, there has been further slippage towards more trade restricting and distorting policies”. The WTO also said that there were more than twice as many new trade barriers introduced than new trade liberalising measures (even without taking into account measures introduced on the back of the swine flu pandemic). According to the WTO it was difficult to assess how national stimulus programs might distort markets and competition due to lack of information.

My own reflection on this is that regardless of whether you agree with Greenpeace’s opinion on free trade, given that we’re less than six months away from the Copenhagen seminar on global warming, international co-operation rather than self interest is needed more than ever. I cannot see how increased protectionism would facilitate international dialogue on other issues than trade. Protectionism and its ugly cousin, nationalism, alienate nations rather than bring them together.

International trade can be a catalyst for change
Not surprisingly, the recently published report “Trade and Environment” by the WTO and UNEP takes a positive stance on international trade. It is also quick to point out that international trade is predominantly carried out by maritime transport, which accounts for a relatively small part of the total greenhouse gas emissions in the world. Also, let’s not forget that it is through international trade that ideas about energy efficiency, clean technologies, etc. are spread and shared.

Therefore, I believe the report hits the nail on its head when it says “What is needed in the future is financing, technology transfer and cooperation between developing and industrialized countries to achieve emission reductions. In particular, bringing the potential of global mitigation to fruition will also depend on the ability of developing countries to manufacture, diffuse and maintain low carbon technologies, and this can be facilitated through trade and technology transfer”.

What I would like to add to that though is that international trade needs to bear its environmental costs as well (take the globetrotting prawns example above). Again, this could only be established through international negotiations and co-operation, not by protectionism and nationalism.

If you are interested in reading more about the report by the WTO and UNEP, please see my next blog post for my summary with the main conclusions or read the full report on www.wto.org.