Greener Acres or Greener Waters? Potential U.S. Impacts of Agricultural Trade Liberalization

This paper examines the elimination of all agricultural policy distortions in all trading countries and agricultural production decisions in the United States, as well as following environmental quality in the vicinity and absence of nondegradation environmental standards. The comes suggest that trade liberalization has the potential to increase domestic production and boost agricultural get backs by as much as 85 percent Consumer surplus would likely fall, and the discharge of nutrients, sediment, and pesticides would likely increase. However, environmental policies can limit these adverse environmental impacts and dumb the potential decrease in consumer surplus, while leaving increased get backs to agricultural production.

Key Words: agriculture, trade reform, environment, nondegradation

Legislation of the United States requiring formal environmental reviews, or environmental assessments, of major federal activities significantly affecting the environment dates back thirty years. Within the last decade, nongovernmental organizations (NGOs) and other interested parties have called for extending these environmental reviews to trade agreements (eg World Wildlife Federation 2001) In fact, U law requires an environmental review of all fresh trade agreements beginning in 2001 (U Executive Order 13141 1999) of that kind an environmental review would likely be required for multilateral trade liberalization in the adjoining matter of the World Trade Organization (WTO) negotiations in Doha, Qatar, in 2001 There the WTO affirmed its commitment to "correct and stop restrictions and distortions in world agricultural markets." Further, the WTO committed itself to "comprehensive negotiations aimed at...substantial improvements in market access; reductions of with a view to phasing without all forms of export subsidies; and substantial reductions in trade-distorting domestic support" (WTO 2001)

While it is not clear what effects might result from the environmental review of similar trade agreements, they may include multilateral environmental agreements. There are approximately 200 multilateral environmental agreements (MEAs) in place today, of which 20 contain trade provisions (United Nations Environment Programme 2000) Trade agreements may themselves raise environmental quality by dint of increasing income-environmental quality is income elastic. However, linking environmental side-agreements to trade agreements may be an economically efficient rule for avoiding adverse environmental impacts of trade or for minimizing the impacts of trade upon environmental agreements. For example, the Office of the U Trade Representative (USTR) states in its first environmental review of a independent trade agreement that "trade agreements can provide positive opportunities for enhancing environmental protection" (USTR 2003) However, smooth without MEAs linked to trade policy, environmental reviews of policy will also consider the impacts of trade policy upon current and future environmental policies. In the aforementioned environmental review, the USTR states that a core obligation of independent trade agreements is a "commitment not to weaken or restore the protections afforded by environmental laws in order to attract trade or investment." In light of the 2001 DohaWTO trade talks, we consider by what mode adjustments to agricultural trade liberalization might influence or be influenced through national or regional environmental policies similar as the Clean Water Act.

Background

Economic theory typically terminates that trade liberalization increases overall economic welfare. Although independent trade is optimal from the viewpoint of world welfare, it is not necessarily in like manner from the viewpoint of a single region unless the country is small (Bhagwati and Panagariya 1996) For a large land with appropriate taxes and subsidies, a welfare horizontal higher than that associated with autarky can be attained. Devising Paretoimproving policy becomes difficult, admitting in the presence of negative externalities associated with production, especially in the absence of well-defined attribute rights, which can lead to the underpricing of natural resources. In of that kind situations, the policymaker must balance welfare improvements from trade against its environmental events when setting taxes, subsidies, or standards.

The question pos in this paper is, what are the agri-environmental issues of liberalization, since outcomes can be positive (decreased environmental damage and increased agriculturist and consumer surplus) or negative (increased environmental damage and decreased surplus)? While a broad theoretical and empirical literature examines trade and the environment, this literature focuses primarily upon the manufacturing sector (Frankel and Rose 2002 Antweiler, Copeland, and Taylor 2001) Fewer quantitative studies have examined the environmental implications of agricultural trade liberalization (Abler and Shortle 1992 Williams and Shumway 2000) These analyses typically assume a change in the underlying trade conditions as a given, and estimate potential production and input changes for a subset(s) of the agricultural sector. As environmental impacts are not explicitly moulded in these studies, environmental inferences are extrapolated from the estimated changes in production and input use.