Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Fighting Pollution Through the World Trade Organisation

Written by johnleemk on 1:50:31 pm Jul 16, 2007.
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The most practical solution to environmental problems is an economic one — one that focuses on incentives. The prevailing solution supported by many economists is a tax on pollution.

However, efforts to implement such a tax have often found immense difficulties. No nation is willing to impose a tax on local goods produced through a process that emits pollutants, for fear of jeopardising the economy as demand for the locally-made goods falls.

It seems that we will need a world government to impose the tax necessary to curb pollution and internalise the external costs imposed on humanity by carbon emissions and the like.

The World Trade Organisation (WTO) was formed specifically to encourage trade by dismantling barriers to the international exchange of goods and services. At first glance, then, it seems a bit ridiculous to propose using the WTO to impose a tax.

However, after a little bit of thinking, it seems to me that it would be a sound proposal for the WTO to impose a worldwide minimum tariff on the trade of goods whose production entails pollution.

The tariff would apply only to goods imported from countries which don't already have a pre-existing tax on pollution, or countries where pollution is taxed, but not at the minimum rate set by the WTO.

The result is that the playing field is not imbalanced — everyone is subject to a tax on pollution. Of course, there is a chance that the global economy will shrink a little, but that's a cost we're willing to accept for cleaner air and water, right? (Not to mention that there is a roughly equal chance the economy will grow.)

There are naturally problems with this policy — it reduces government autonomy, and is thus not suited for tackling different local conditions. Developing countries might also feel it is unfair for them to be subjected to green taxes while they are getting off the ground, while the developed nations had no such setback. (Then again, it's an incentive for developing countries to get it right the first time. The developed nations will have bigger problems readapting their economy.)

Still, I think this is one idea worth considering. The WTO has the power to reduce tariffs worldwide — but why not erect tariffs for one of the things most worth erecting trade barriers for?


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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.


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