TCS Daily

Protectionism and Pollution

By Jan Arlid Snoen - January 20, 2004 12:00 AM

OSLO -- Food and other agricultural products are at the heart of the battle over liberalization of world trade. The Cairns group of agricultural exporters and their allies are pressing for better access to foreign markets, but the EU, Norway, Switzerland, Japan and a handful of other countries insist on keeping their current high level of protection, or are at best willing to consider only small steps to open up. The anti-globalization movement is mostly supporting these protectionist countries, abandoning poorer exporters such as Brazil, Argentina and Thailand. The environmentalist wing of that movement repeats its litany -- that free trade is bad for the environment. There are good reasons to think they are wrong -- again.

Trade is based on each party utilizing their comparative advantage. In agriculture, as well as some other sectors, this advantage to a large degree originates from superior natural resources -- soil and climate. Countries like Norway, Switzerland and Japan are obviously not very well suited for agriculture. Production can only be sustained by a very high level of subsidies and protectionism. This is, however, not enough. Agriculture in these countries is also in general very intensive, and the level of chemical fertilizer and pesticide use is high.

Chart: Relationship between agricultural subsidies and the use of fertilizers, 2001

Sources: OECD, FAO and author's estimates of PSE in developing countries

The chart shows fertilizer use and Producer Support Estimate (PSE) in key countries. PSE is an indicator developed by the OECD to measure the total level of support received by farmers per unit produced, and includes both direct subsidies and protection against foreign competition. The countries shown are the six top exporters of agricultural products outside of the EU (U.S.A., Australia, Brazil, Argentina, Thailand and Canada) and the four countries with the highest PSE in the world. For comparison, three EU countries are also included. EU is a major food exporter, but this has more to do with high domestic support and export subsidies than comparative advantage. The chart shows that agricultural exporters are taking advantage of their soil and climate, and that their production is far less dependent on fertilizers than in the protectionist countries.

High levels of pesticide and fertilizer use harm the local environment, and are a major source of water pollution. If high protection countries reduced their agricultural production, most of the resulting increase in imports would come from highly competitive countries such as Argentina. Looking at the chart, it is easy to see that the environment would gain from such a shift. Production would decrease in countries where agriculture has high environmental impact and increase in more hospitable environments. This is also the conclusion of a major review of the relationship between trade and the environment done by the WTO in 1997, which partly relied on analysis done by Kym Anderson at the University of Adelaide, Australia.

Of course, biodiversity considerations might lead in the opposite direction. Less agricultural production in Norway and Switzerland might return some land to forest or wasteland, with uncertain implications for local biodiversity. Increased agricultural production in countries like the U.S., Canada and Australia would most likely have little impact on biodiversity. The concern is however centred on countries like Brazil and Thailand, where more production for export could put extra pressure on the rain forest. On the other hand, poverty is just as important in creating this pressure as development, and if these countries gained free access to world markets, it would most certainly contribute to reducing poverty. It is possible that some of the global environmental gains caused by reduction in fertilizer and pesticide use might be offset by losses of biodiversity, but this does not significantly alter the general conclusion: A shift of agricultural production from highly subsidised countries to those with no or smaller subsidies would be beneficial for the environment.

Jan Arild Snoen is an independent writer and consultant living in Oslo, Norway. His book on globalization will be published in the spring.


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