The Meaning of Free Global Trade and its effects on the Environment
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
May 7, 2022
The Meaning of Free Global Trade and its effects on the Environment
In theory, the meaning of “free trade” is simple: it is the reduction, and ultimately,
elimination of government-imposed barriers to international trade. Emotionally, free trade is a
tinderbox of conflicting issues involving human rights, global economic growth, environmental
standards, job creations on an international stage and regional job loss. Free trade is the best
thing that can happen to a global economy, and the worst thing that happened to your town.
World Trade Organization
At the center of free trade is the World Trade Organization (WTO), which describes itself as
a forum for countries to negotiate trade agreements. Its objective is to liberalize trade by
lowering barriers caused by high tariffs, quotas and protectionism through unilateral action on
imports. The WTO works toward its objective by helping settle trade disputes through
interpreting trade agreements. Most of the groundwork for those agreements come from the
1986 through 1994 negotiations referred to as the Uruguay Round, and in earlier negotiations
for the General Agreement on Tariffs and Trade (GATT), first set in 1948. GATT and the Uruguay
Round eventually led to the birth of the WTO in 1995.
"Freer" Trade
What happens in agreements under the auspices of the WTO isn’t really free trade. The
WTO website describes it as “freer,” as trade barriers are reduced through negotiation, but not
entirely eliminated. The WTO advocates a trade system that acts without discrimination
between trading partners, granting them all “most-favored-nation” status. But disputes arise
when governments accuse exporting countries of using unfair practices by supporting exports
with subsidies and dumping products at below cost to increase market share in an importing
country--at the expense of a domestic industry. When such claims are substantiated, the WTO
allows barriers.
Protectionism
While a nation can protect itself against an exporting country’s unfairly subsidized goods,
an importing country can also face claims of the unfair practice of protectionism under trade
agreements by giving domestic goods and services an advantage over imports. The advantage
can be subsidies to domestic goods or high tariffs on certain imports, effectively closing the
market to a specific set of foreign products. The goal of the WTO is to promote fair competition.
Race to the Bottom
What’s fair in international trade isn’t always fair to the worker in developing countries.
Free trade has opened up new export markets to poorer nations, and multinational
corporations have taken advantage of cheaper labor costs to locate factories in these countries
and export the goods back to richer nations. But to gain a cost advantage and open up new
markets, developing counties may impose harsh working conditions and poor pay. Costly
environmental protection standards can also be sacrificed to lower the price of exports. Yet the
WTO currently does not take into account worker conditions when considering trade issues.
Global Economic Growth
The WTO points to the experience after WWII when GATT first started reducing trade
barriers as an example of what free trade efforts can do. Trade barriers on industrial products
fell steeply, while the world economy grew at an average of about 5 percent per year for the
first 25 years after the war. The organization bases its efforts to improve the global economy on
the economic principle of “comparative advantage”: countries prosper by using the assets they
have to concentrate on what they can produce best, and then trade these produces for those
that other countries produce best. But that can happen only if there is free trade between
these countries, or at least "freer" trade.
Effects of Free Trade on the Environment
Free Trade Carbon Print
The Global Development And Environment Institute (GDAE) article, “Environmental
Impacts of Trade,” appearing in the Encyclopedia of Earth, states that the carbon footprint of
transportation must necessarily rise with free trade to export goods to foreign countries. And
since the goal of free trade is to increase production for the world as a whole, the GDAE’s 2008
report contends the total levels of pollution and negative environmental impacts would likely
increase.
Agricultural Impact
The environmental impact of free trade on agriculture is more varied. A rise in corporate
farms can increase pesticide use and consume more energy to push agriculture into marginal
lands. Yet the transition to some crops meant for export rather than local consumption can
have a positive environmental impact. Latin American and African farmers are replacing
domestic crops with tree crops such as cocoa and coffee, which reduce erosion. A mixed impact
can even be seen in one crop. Kenya has increased its horticulture to grow high-value flowers to
export to Europe. The flowers themselves have little negative environmental impact, though
fears arise over the use of pesticide. The flowers are shipped by jet, consuming more energy.
But that energy is argued to be less than energy needed to grow flowers in heated European
greenhouses, notes the GDAE.
Free trade lets countries export their pollution as production plants move to nations with
cheaper labor and lower environmental standards. Harvard’s Jeffrey Frankel wrote in a report
to the Swedish Globalization Council in 2009 that a large scale increase of production can bring
about a “race to the bottom” for national environmental regulations. He raises the hope,
however, that new production facilities can bring cleaner techniques and innovative power
production.
Environmental Protectionism
The Global Neighbourhood website argues the World Trade Organization (WTO) takes a
position that a country should not put up a barrier to an import based on environmental
standards. The GDAE reports the issue first arose in 1991, when Mexico challenged a U.S. law
that prohibited imports of tuna caught using methods that also killed a large number of
dolphins. A dispute panel for the General Agreement on Tariffs and Trade, the forerunner to
the WTO, ruled in Mexico’s favor, deciding the United States could not protect dolphins outside
its territorial limits. Mexico did not push the GATT to enforce the legislation, but later in the
1990s, the WTO made a similar ruling on a U.S. prohibition of shrimp imports over fishing
methods that threatened endangered sea turtles. The WTO points out it based the ruling on the
discriminatory manner in with the United States imposed the ban. After the United States
revised the way it applied the ban, the WTO ruled in its favor. The ruling drew attention for
accepting a ban on a product for the manner in which it was processed, in this case, causing
environmental harm outside U.S. boundaries, rather than the product itself posing a threat. The
WTO states on its website it has no “specific agreement” that deals with environmental issues.
The North American Free Trade Agreement is an agreement between Canada, the United
States and Mexico stipulating that no tariffs, import duties or protectionist trade tactics will be
employed between the member-nations. Although an agreement like this offers distinct
benefits to all parties, opponents of the agreement have legitimate concerns about its true
economic effects. There appears to be both advantages and disadvantages of NAFTA, but the
weights in the chart of NAFTA pros and cons may depend on your perspective.
Comparative Advantage
Each country boasts unique natural advantages that allows it to produce certain goods or
services more cost-efficiently than others. By eliminating tariffs, NAFTA allows all three member
countries to focus their productive efforts on their natural advantages, according to Ablison
Energy. The U.S., for example, produces high-quality consumer goods at low cost, while Mexico
produces certain foods and crops at low cost. Eliminating tariff barriers allows Mexicans to
purchase cheap consumer goods from the U.S. while allowing U.S. Food distributors to
purchase cheap Mexican crops.
This shift of industrial focus in each country naturally causes job losses on all sides. As each
country shifts its demand for a certain product from domestic purchase to imports, the
industry-in-question in the importing country loses business, leaving many people without a
job. Entire industries can weaken and possibly disappear over time due to free trade
agreements, such as NAFTA.
Political Ties
Free trade agreements can help to encourage coordination and cooperation among
member states. Some may argue that NAFTA has, for example, increased Mexico's willingness
to cooperate in the U.S.'s crackdown on illegal immigration and international smuggling; others
would argue that these problems have not diminished enough to prove that the cooperation is
helpful.
Strong ties between North American countries grant each nation a defensive tactic against
protectionist actions from other foreign nations. If a NAFTA member relies on an outside nation
for a particular import, and the exporting nation suddenly imposes aggressive tariffs or other
measures, the importer can switch demand to one of its domestic allies, alleviating the effects
of the original exporter's actions.
Although the interdependence created by free trade agreements carries powerful benefits,
all nations can suffer if the ties are ever broken. Countries may be left with crippled industries
or a lack of labor for certain industries if they rely on imports from each other for too long.
Consumer Prices
Consumer prices for imported goods are kept under control within NAFTA countries
because import prices are not artificially inflated by tariffs. This allows importers to purchase
more goods and services, which in turn allows the exporters to produce more, increasing their
nation's Gross Domestic Product, according to Smart Asset.
The very factor that is a pro to consumers, however, is a con to governments.
Governments rely on tariff revenue the same as any other tax, and eliminating tariffs can take a
effect government budgets. When imports from a member-country increase, imports from
other foreign nations tend to decrease, which has an additional negative effect on tariff
revenue.
