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Paying poor countries for environmental protection achieves more than linking environment with trade

Originally Published - 07 March 2000

Research by economists led by Dr Carlo Perroni at the University of Warwick reveals that paying poor countries to protect their environment achieves much more that simply linking trade talks with environmental concerns. The study uses a numerical world trade model to show that negotiations exchanging environmental for trade concessions would be beneficial to less developed countries (LDCs) and also improve conservation - but trade and environment negotiations would induce LDCs to take only partial environmental measures. They conclude that negotiations involving direct financial compensation for LDCs could achieve considerably more.

The study notes that developed countries and LDCs are in different positions in terms of their relative bargaining strengths and policy goals for international trade and environmental protection. Poor countries control a large fraction of the most sensitive environmental assets, such as tropical forests containing most of the world's endangered species. But because of their lower productive capacity, they find themselves at a bargaining disadvantage in trade talks with richer countries.

In the last decade, the relationship between trade and the global environment has been a high profile topic in developed countries and LDCs alike. Environmental groups have argued that trade restrictions on certain goods are needed to safeguard the environment. But LDCs have opposed this view, which they see as a new threat against their exports.

Advocates of trade liberalism have also dismissed trade measures as an ineffective form of environmental policy, and have worried over environmental legitimisation of new trade restrictions by protectionist interests. The researchers also note suggestions that environment-related trade restrictions should be included in future trade negotiations under the WTO. Developed countries have supported this but LDCs are more reluctant, instead seeking direct compensation for implementing growth-slowing, environment-protecting policies.

Note for editors: The Research Project Fiscal Policies and The Environment by Dr. Carlo Perroni and colleagues was funded by the Economic and Social Research Council (ERSC) as part of its Global Environmental Change Programme. Dr Perroni is in the Department of Economics at the University of Warwick.

For further information contact:

Dr. Carlo Perroni, telephone: 023 76 523032
Dept of Economics University of Warwick

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