Introduction

Trade-environment policy issues are complex and often controversial. This chapter describes the evolution of the debate and presents an analytical framework for sorting out the relevant questions. Most trade-environment policy issues can be fitted into one of four categories: competitiveness questions and appropriate policy response; questions of market access and market opportunity, which include environmentally related product standards, ecolabelling, and “green” trade; the use of trade measures to secure international environmental objectives; and the effects of trade and trade liberalization on environmental and natural resources. The first three categories are concerned with the effects of environmental regulations on the international trade system. The fourth turns the question around and examines how trade and trade policy affect environmental objectives.

It is useful to start with three observations. First, although currently fashionable and much debated, trade-environment policy issues are not new, but were first addressed in the early 1970s. The interesting question is why discussions became increasingly strident in the early 1990s. Second, at a high level of generality there is no fundamental conflict between good trade policy and good environmental policy. Both require the internalization of the full social costs of production, including environmental protection costs, by either passing these costs forward to consumers in prices or backward to the factors of production. Often what appears to be a conflict between trade and environment is the result of either poor trade policy or inadequate environmental protection.