Free trade is being promoted like a new religion. Like other religions, free trade has a basic appeal: if artificial barriers to international trade are reduced, everyone can buy more things at cheaper prices. In theory all of humanity could benefit.

However, it must be obvious that increased trade will harm the environment if it promotes increased consumption of goods made from non-renewable resources or manufactured by polluting technologies.

Therefore, free trade is only beneficial if it provides ways to reduce environmental contamination.

There are three basic ways to restrict pollution. They go by the names "command-and-control," "full cost pricing" and zero discharge.

Command-and-control is what we have been trying for the past 20 years. It uses both a carrot and a stick: subsidies, and regulations. For example, if the goal is clean water, the federal government offers low-cost loans (a form of subsidy) to communities so they can build sewage treatment plants. Then a regulation restricts the amounts of nasty chemicals that can be discharged from the sewage treatment plant. An enforcement bureaucracy checks to see that the regulations are obeyed. At least in theory that's how it works.

Another way to control pollution would be "full cost pricing." If the price of a toothpick reflected the full cost of making and disposing of the toothpick (including all the pollution involved), then the lowest-cost toothpick would be the lowest-pollution toothpick and the market would become a mechanism for reducing pollution. Advocates of this technique say the way to make prices reflect the full costs of an item is to (a) remove all subsidies, and (b) impose pollution taxes. If toothpick manufacturers had to pay a tax on every pound of pollution they emitted, they would have to include the tax in the prices of their toothpicks. If a competitor could discover a way to cut pollution, he or she could pay less tax and could drop the price of toothpicks accordingly. Naturally the public would buy the cheaper toothpicks, thus rewarding reduced pollution.[1] A third way to control pollution is zero discharge.[2] Zero discharge forbids the intentional release of any synthetic chemicals (chemicals that do not occur in nature), and it forbids the release of naturally-occurring chemicals in concentrations greater than the concentrations that occur in nature. There are two ways to achieve zero discharge of a chemical: ban the chemical entirely so no one can legally use it; or, require that manufacturers use "closed loop" technologies that prevent all intentional releases to the environment. Naturally, with "closed loop" technologies there will be unintended releases (spills, accidents, and so forth), so discharges will be greater than zero under this plan. The only way to achieve a true zero discharge is to ban a substance entirely, the way the U.S. banned DDT and PCBs in the 1970s.

It is worth noting that these different approaches are not mutually exclusive. You could establish true zero discharge limits for particularly dangerous substances, such as chlorine, and force a phase-out; establish a pollution tax on coal and petroleum to make their prices more closely reflect their costs; and establish a tight numerical limit on sulfur released from coal and oil combustion to keep from making people sick.

We do know, however, that command-and-control by itself does not work. We know because the U.S. has tried it for the past 20 years. As a result, we have thousand of pages of regulations on the books. We have an enormous and enormously expensive pollution-control bureaucracy in every state and at the federal level. And we have a dangerously polluted planet, and a situation that is steadily worsening.

Today nearly everyone agrees that command-and-control is too expensive and isn't achieving the goal of a sustainable environment. Even the U.S.'s major polluters seem to recognize that command-and-control won't reduce pollution sufficiently to prevent destruction of the planet as a place suitable for human habitation. For example, Robert D. Kennedy, the chairman of Union Carbide, recently said, "It's painfully obvious that we have neither gone far enough nor fast enough."[3]

The Business Council for Sustainable Development--a consortium of the world's largest polluters, including the heads of Dow Chemical, Du Pont, Shell Oil, Alcoa, Chevron, Nissan Motor, Mitsubishi Corporation, and about 50 others--has recently come out strongly favoring full cost pricing. The Council says, "...we must ask ourselves why the past record of industrialization is largely one of unsustainable resource use and high levels of pollution. The answer is that markets have simply not efficiently reflected the costs of environmental degradation."[4] And the Council says, "The cornerstone of sustainable development is a system of open, competitive markets in which prices are made to reflect the costs of environmental as well as other resources."

How do we adjust prices so they begin to reflect the full costs of producing items for commerce? The Business Council says, "The first priority must be to abolish subsidies so that prices at least reflect the full economic costs of energy."[5] If a toothpick is manufactured from wood that has been transported a thousand miles, the cost of that transport needs to be reflected in the price of the toothpick. This means the true cost of fuel (petroleum) needs to be factored into the price of the toothpick. So long as the price of oil is kept artificially low by hidden subsidies to the petroleum industry, the price of toothpicks is kept artificially low and the true costs of producing toothpicks will not be reflected in the price paid by the purchaser of toothpicks.

David Morris--one of the most thoughtful and interesting critics of free trade--recently wrote,[6]

A FEW YEARS AGO I WAS EATING AT A ST. PAUL RESTAURANT. AFTER LUNCH I PICKED UP A TOOTHPICK WRAPPED IN PLASTIC. ON THE PLASTIC WAS PRINTED THE WORD, 'JAPAN.' NOW JAPAN HAS LITTLE WOOD AND NO OIL. NEVERTHELESS IT HAS BECOME EFFICIENT ENOUGH IN OUR GLOBAL ECONOMY TO BRING LITTLE PIECES OF WOOD AND BARRELS OF OIL TO JAPAN, WRAP THE ONE IN THE OTHER AND SEND THEM TO MINNESOTA. THIS TOOTHPICK MAY HAVE TRAVELED 50,000 MILES. BUT NEVER FEAR, WE ARE RETALIATING IN KIND. A HIBBING, MINNESOTA FACTORY NOW PRODUCES A BILLION DISPOSABLE CHOPSTICKS A YEAR FOR SALE IN JAPAN.

IN MY MIND'S EYE I SEE TWO SHIPS PASSING ONE ANOTHER IN THE NORTHERN PACIFIC. ONE CARRIES LITTLE PIECES OF MINNESOTA WOOD BOUND FOR JAPAN; THE OTHER CARRIES LITTLE PIECES OF JAPANESE WOOD BOUND FOR MINNESOTA. SUCH IS THE LOGIC OF FREE TRADE.

Such absurd trade goes on because the full cost of transportation (chiefly the cost of burning oil, including the cost of warming up the whole planet--see RHWN #300 and #301) is being subsidized so the purchasers of Japanese toothpicks in Minnesota are not paying the true costs of those toothpicks. Mr. Morris gives half a dozen other examples of costs that are not reflected in price and thus prevent market mechanisms from helping humans achieve sustainable communities.

So the thoughtful critics of free trade and the thoughtful advocates of free trade agree on one important point: free trade will harm the environment if the full costs of commodities are not reflected in the prices of commodities. "...Free trade advocates acknowledge that the environmental benefits of free trade will be realized only if 'environmental costs' are internalized in the price of products through process standards, pollution taxes, or pollution permit schemes," says a recent report on free trade by the Environmental Grantmakers Association.[7]

Serious advocates of free trade can be distinguished from mere religious zealots by their strong desire to end government subsidies--particularly in the energy sector of the economy--and by their insistence on full cost pricing and zero discharge as techniques for pollution control BEFORE free trade agreements can be signed.

By this criterion, present-day proponents of NAFTA (the North American Free Trade Agreement which President Bush has proposed, to link Canada, the U.S., and Mexico into a free trade partnership), and GATT (the General Agreement on Tariffs and Trade--see RHWN #303 and #304) must be classified as religious hucksters promoting defunct and discredited mythologies left over from the Reagan years, aiming merely to make the world safe for corporate polluters, not for people.
--Peter Montague, Ph.D.

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[1] Allen V. Kneese and Charles L. Schultze, POLLUTION, PRICES AND PUBLIC POLICY (Washington, D.C.: The Brookings Institution, 1975).

[2] Theodore Taylor and Charles Humpstone, RESTORATION OF THE EARTH (New York: Harper and Row, 1973).

[3] Robert D. Kennedy, "Sustainable Development--The Hinge of History." A speech delivered to the Industry Forum on Environment and Development in Rio de Janeiro, Brazil, May 28, [1992.] 8 pgs. Available from us for $2.00 (the cost of copying and mailing).

[4] Stephen Schmidheiny and the Business Council for Sustainable Development, CHANGING COURSE; A GLOBAL BUSINESS PERSPECTIVE ON DEVELOPMENT AND THE ENVIRONMENT (Cambridge, Mass.: MIT Press, 1992), pgs. 14-15. See especially chapter 2, "Pricing the Environment: Markets, Costs, and Instruments." However, note the important caveat they offer on pg. 80: "The question that remains--and to which we have no convincing answer nor indeed know of one--is how can a developing nation charge a price for exports that reflects their environmental costs, and compete against other nations willing to absorb such costs for short-term profits."

[5] Schmidheiny, cited above, pg. 39.

[6] David Morris THE TRADE PAPERS (Washington, DC: Institute for Local Self Reliance, no date). $4.50 from the Institute for Local Self Reliance, 2425 18th St., N.W., Washington, DC [20009;] phone (202) 232-4108. Highly recommended. Philosophically attacks the concept of free trade, with considerable success.

[7] Thomas A. Wathen, A GUIDE TO TRADE AND THE ENVIRONMENT (New York: Environmental Grantmakers Association and the Consultative Group on Biological Diversity, July, 1992), pg. 18. Available from: Environmental Grantmakers Association, [1290] Avenue of the Americas, Suite 3450, New York, NY 10104; phone (212) 373-4260.

Descriptor terms: free trade; zero discharge; sustainable development; nafta; gatt;