Trade Greens the Environment; the newest case for free trade: open market economies are cleaner, greener and far more prosperous

Latin CEO: Executive Strategies for the Americas, Dec, 2001 by Ana I. Eiras, Brett D. Schaefer

As THE UNITED STATES CONGRESS prepares to vote on whether to grant Trade Promotion Authority (TPA) to President Bush, activists again are raising the specter of an environmental "race to the bottom" caused by free trade. While mostly well-intentioned, such arguments undermine the most effective means of increasing environmental protection worldwide: increasing economic growth through trade.

If this "race to the bottom" were in fact occurring, nations with open economies should have a poor track record on the environment. But the facts point to just the opposite: The more open the economy, the cleaner the environment.

This can be shown by comparing objective measures of trade openness and environmental sustainability. A "Trade Openness Index" was calculated by averaging the score for trade policy, property rights, capital flows, foreign investment and regulatory factors from the 2001 Index of Economic Freedom--an analysis and ranking of the economic policies of 161 nations published annually by The Heritage Foundation and The Wall Street Journal. The Index divides nations by four categories: "open" (with an average score from 1 to 1.9), "mostly open" (2 to 2.9), "mostly closed" (3 to 3.9), and "closed" (4 to 5).

The Environmental Sustainability Index (ESI), produced by the World Economic Forum, the Center for International Earth Science Information Network, and the Yale Center for Environmental Law and Policy, measures a nation's environment by assigning it a number between zero and 100--the better a nation's environment, the higher its ESI score (the highest ranked is Finland at 80.5; the worst is Haiti at 24.7).

When the trade openness scores are compared with the ESI, a clear pattern emerges: Nations with an open trade policy have an average environmental sustainability score more than 30 percent higher than nations with moderately open economies, and almost twice as high as nations with closed economies.

This global relationship holds within the Latin American region. Of the 21 nations in the region ranked both by the Index and the ESI, the more-open economies outperformed the more-closed economies in environmental sustainability. The only "open" economy in Latin America that is ranked by both the Index and the ESI--Chile--had an average trade openness score of 1.75 (open) and an average ESI score of 56.6. Compare this score with those of the two "closed" economies in Latin America--Cuba and Haiti--which had an average trade openness score of 4.6 (closed) and an average ESI score of 39.8.

The "mostly open" economies in Latin America are ranked 3 percent better on their environmental policies, on average, than the "mostly closed" economies. The eight "mostly open" economies in Latin America ranked by both the Index and the ESI--Uruguay, El Salvador, Argentina, Bolivia, Costa Rica, Trinidad and Tobago, Colombia and Jamaica--had an average trade openness score of 2.4 and an average ESI score of 53.8. In contrast, the nine "mostly closed" economies ranked by both the Index and the ESI-Panama, Brazil, Guatemala, Paraguay, Ecuador, Honduras, Nicaragua, Dominican Republic and Venezuela--had an average trade openness score of 3.1 and an average ESI score of 50.7.

Despite the arguments made by most environmental organizations, free trade is decidedly pro-environment. Openness to trade facilitates economic growth. Wealthier societies not only are better able to afford environmental protection, but they show a proven desire for such protection--a desire that increases as income grows. Requiring mandatory environmental standards in trade agreements reduces the chances of negotiating free-trade agreements in the future and, with that, the means to achieve the economic gains that fund environmental improvements.

As noted by Dr. Alan Moghissi, president of the Institute for Regulatory Science, "How do you explain to a father in the Brazilian rainforest, who is poor, has sick children and is hungry that he should not cut trees because it may [hurt] biodiversity? ... Poverty [is] the equivalent to exposure to the most toxic pollutant."

Money may not grow on trees, but the more money you have, the more trees you are likely to keep.

Ana I. Eiras is a Latin America economic policy analyst, and Brett D. Schaefer is the Jay Kingham fellow in the Center for International Trade and Economics, for The Heritage Foundation.