Free trade has no colour bar

  • 30/04/1994

OVERTURNING age-old fears, free trade is now being seen as the market miracle that will bail out the earth from the environmental mess it finds itself in; free trade is expected to bring about the most efficient allocation of natural resources. Environmental concerns -- so far stubbornly kept out of the marketplace -- will probably henceforth be a value taken into consideration during the pricing of a tradeable commodity.

At present, GATT does not allow any country to restrict those imports that are harvested or produced in an environmentally harmful manner. But later this month, during the formal signing of the GATT Uruguay round in Marrakesh, Morocco, environmentalists will prod industrialised countries into starting a process to introduce this pricing policy in the new trade body.

Every sovereign country has a right to protect its people and its environment from imports that are harmful to either of them. With environmental awareness burgeoning globally, consumers are bound to prefer products that are "clean" in both moral and manufacturing terms. In Rio, the major consensual agreement was for an open, equitable, secure, non-discriminatory and predictable multilateral trading system to bind together trade and environmental policies.

Beyond this particular goal, however, the use of the mechanics of trade is protectionism in camouflage. No country has the right to refuse to trade at all just to improve its environment. Instead, developing countries should ensure that all the resources and services concerning them be rightfully owned and priced so as to maintain their sustainable use or conservation. In many cases, these services protect the global environment but come gratis. Tropical forests, for instance, provide both carbon-sink and biodiversity services but their gross undervaluation has led to excessive exploitation. To make up, tropical countries can be paid opportunity costs for refraining from using their forests, like the Northern system where farmers are compensated to keep part of their land fallow for conservation purposes.

The mathematics are simple: a price of $40 per year per hectare has been calculated by an economist for conserving tropical forests; the payment required for conserving the 0.72 billion ha of rainforests will be US $24 billion, and $70 billion for the 1.76 billion ha of tropical forests.

Further, within the developing countries, most of the natural resources used in tradeable goods remain unowned and grossly underpriced. The large foreign debt is used as the excuse to allow destructive industries and technologies from the North. So each time a government devalues its currency, it reduces the value of all the inputs required to produce an exportable item -- raw material, energy, labour. In purely macroeconomic terms, the government gets a competitive edge globally, but only by reneging from paying the full cost for its natural resources. Whether free trade can eventually help governments labouring under these agonies is a moot question.

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