Edited by Ronaldo Seroa da Motta
Chapter 2: The impact of perverse subsidies on international trade and the environment
Cees van Beers and André de Moor 2.1 INTRODUCTION The relationship between international trade and the natural environment has, until the end of the 1980s, received relatively little attention within both international and environmental economics. Most textbooks in both areas still do not pay much attention to this interface. For several years now there has been a great deal of research on the potential conﬂict between free trade and environmental regulation, on the impact of environmental regulation on international trade ﬂows and the location choices of ﬁrms, and on the use of trade measures in environmental policy. Both international and environmental economists have contributed to this. There has been some debate on free trade versus protectionism, and the discussion in the institutional context has been, from the beginning, whether the greening of international trade agreements, notably the WTO, is useful and possible. What is accepted by most participants in the debates is that the classic theory of comparative advantage cannot be straightforwardly applied to situations in which signiﬁcant environmental externalities exist.1 In this chapter it is argued that the discussion on the relationship between trade and environment is still incomplete. It appears that trade patterns are not only disturbed by incorrect prices as a result of market failures but also as a result of the policy failures of governments. Market failures mean that trade patterns are disturbed because prices do not incorporate environmental externalities caused by the production or consumption of commodities traded. Policy failures mean that trade...
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