Allowing the most efficient producers to provide the world's goods and services is a central rationale for an open trading system. Just as the efficient use of land, labour and capital is central to development efforts to combat poverty and satisfy human needs, more efficient production reduces the drain on scarce resources such as raw materials and energy, and limits the demands placed on the regenerative capacity of the environment. In this respect environmentalists, development specialists and trade economists share a common interest in promoting trade efficiency.
The increased environmental damage generated by expanded exports might outweigh the increased gains from trade. This is not merely a hypothetical theoretical curiosity. Even partial economic accounting for resource degradation and depletion in developing countries suggests that the costs are large – of the order of 4-5 percent of GDP per year. Country case studies of previous trade liberalization programs suggest that the expansion of export sectors, absent effective domestic policies, can exacerbate these damages significantly.
An OECD paper (2002) calculates that rich countries now subsidise their industries by up to $1,000m a year, including more than $300bn in agriculture. This is having increasing effects on the development of poor countries and on environmental degradation. If unrestricted market access were given to just the four richest economies in the world, it would increase per capita incomes of more than 2 billion people in the world's most populated countries by 4% a year.
In order to ensure that rapid export-led growth in a region is environmentally sound and the potential economic gains from trade expansion are realized, increased investments are required to strengthen institutional environmental capacity and to provide necessary infrastructure. These investments should be made in anticipation of export-led growth, because the costs of preventing environmental degradation are much less than the costs of remediation, or environmental degradation's economic damages. Unfortunately, decades of underinvestment in environmental protection and significant unmet needs for infrastructure and institutional strengthening let damages accumulate.
If US sugar price supports and protectionist barriers to imports are dropped, and the industry is forced to pay the full US costs of its water and drainage works, sugar production in South Florida (and other high cost producing areas) will fall dramatically. Consumers will benefit; efficient foreign producers will benefit; and the principal threat to the Everglades will be resolved. This is a prime example of complementarity between trade and environment objectives. Trade liberalization accompanied by strengthened environmental protection and better resource management can be a "win-win" option for countries in the North and South.
Sustainable development cannot be achieved worldwide while massive poverty persists. Poverty alleviation is a central objective of development, and a key concern for environment policies. Wealth created by trade is an essential means to achieving this end.
Transnational corporations (TNCs) from the oil, petrochemical, agrichemical and nuclear industries are among those claiming that free trade, open markets and voluntary codes of environmental conduct will combine to provide economic growth with environmental protection. In the world view of corporate "environmentalists," environmental protection is subservient to free trade.