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Broken Promises: How the Clinton Administration is Trading Away Our Environment Executive Summary Introduction Recommendations Promise #1 Promise #2 Promise #3 Promise #3. Trade and Growth Equals Environmental Protection "[I]ncreased trade leads to economic growth, which is a prerequisite for improved environmental protection." -- Amb. Michael Kantor, Remarks to the Environmental Defense Fund, April 21, 1994. "Free trade will accelerate economic progress, making greater resources available for environmental protection." -- Vice President Albert Gore, Jr., Statement at the signing of the Uruguay Round Agreement, Marrakesh, March 1994. When all else has failed in justifying their performance on trade and environment issues, Administration officials resort to assuming the problem will take care of itself. According to this theory, trade brings economic growth which, eventually, leads to environmental protection. Reality Check #9. No Justification for Complacency In 1994, at the height of the debate over the North American Free Trade Agreement (NAFTA), economists Grossman and Krueger published a study purporting to show that environmental conditions deteriorate for a time as per capita income rises, but then start to improve as incomes improve beyond a certain "turning point." Theirs was the most widely cited of several studies offering empirical evidence for a relationship between economic growth and environmental quality first postulated by economist Simon Kuznets. That relationship can be expressed by an inverted U-shaped curve between per capita income and levels of environmental degradation. (See Box: The Environmental Kuznets Curve.) Backed up by Grossman and Krueger’s empirical study, the Environmental Kuznets Curve has became a pillar of support for free trade orthodoxy in its defense against environmental critics. As economist Jagdish Bhagwhati wrote, "The fear is widespread among environmentalists that free trade increases economic growth and that growth harms the environment. That fear is misplaced. Growth enables governments to tax and to raise resources for a variety of objectives, including the abatement of pollution and the general protection of the environment. In short, environmentalists are in error...." Comforting words, indeed. But, in 1996, economists at the New Economics Foundation and the World Wide Fund for Nature took a closer look at Grossman and Krueger. They found enough flawed assumptions, methodological weakness, questionable data, and over-generalization to dispense with any notion that the Kuznets justifies complacency about trade and the environment. For example: The empirical estimates of where "turning points" occur for different pollutants vary so widely as to cast doubt on the validity of any one set of results. For instance, where Grossman and Krueger found turning points for certain air pollutants at less than $5,000 per capita, others found turning points above $8,000 per capita. For some air pollutants, Grossman and Krueger found that emissions levels don’t follow an inverted U-curve, but following an S-curve which starts to rise again as incomes rise. For instance, they found that sulphur dioxide emissions start to rise above $14,000. The implication is that efficiency gains from improved technology at medium levels of per capita income are eventually overwhelmed by the growing size of the economy. Grossman and Krueger measured the effects of rising income on the type of pollutants whose emissions can be controlled most easily by the pollution control devices that rising incomes might make available. But they ignored emissions of the chief global warming gas, carbon dioxide, emission of which tends to rise as incomes rise, in a curve that resembles a J, not an inverted U. Since most of the world’s population earns per capita incomes well below estimated turning points, global air pollution levels will continue to rise for nearly another century. By that time, emissions of some pollutants will be anywhere from two to four times higher than current levels. Even for the limited number of pollutants that Grossman and Krueger study, they only demonstrate a correlation between changing per capita income and changing levels of environmental quality. They do not demonstrate a causal connection. The positive relationships they describe could actually be caused by non-economic factors, such as the adoption of environmental legislation. Finally, while some pollution issues may be resolved as incomes rise, Grossman and Krueger don’t explain what happens to environmental values that are hard to measure, such as the destruction of natural ecosystems or the permanent loss of biodiversity. In short, there is little basis to assume that trade and growth will cure environmental problems by themselves. If the environment is to be protected, it will be protected by a combination of strong leadership, government action, corporate accountability, and individual responsibility. Reality Check #10. Trade and Global Warming In the wake of the Kyoto Summit on climate change, US policymakers, industry and environmentalists are locked in a bitter debate over who should take the lead in controlling greenhouse gas pollution. Industry wants developing countries to commit to specific emissions cuts before the U.S. takes action. Environmentalists argue that the rich countries should act first. After all, they caused the problem in the first place. But while the debate rages, US trade policy exacerbates the problem -- and makes a solution all the more difficult. For instance, by fostering economic growth without regard for environmental impacts, our trade policy ensures that developing countries will adopt the car culture and energy-intensive life style that caused much of the global warming problem in the first place. President Clinton has acknowledged that it makes little sense to aggravate global warming by exporting our own unsustainable development model. As he told President Jiang Zemin on a visit to China in 1996, "[U]nless we try to triple the automobile mileage and to reduce greenhouse gas emissions...we won't be breathing very well.... [I]f you behave exactly the same way we do, you will do irrevocable damage to the global environment. And it will be our fault because we got there first and we should be able to figure out how to solve this problem." That, he said, is "[t]he greatest threat to our security that you present...." Yet just last year, the President appointed General Motors Chairman John F. Smith Jr. as one of three U.S. representatives to the Business Advisory Council of Asia Pacific Economic Cooperation (APEC). (APEC is the free trade forum for the Pacific basin economies.) Smith’s obvious objective is to sell more cars in Asia’s emerging economies. As he has stated, "It is no secret that the days of substantial growth in the U.S. automotive market are over -- this is a mature market, so the growth must come from outside North America.... China is the ideal cornerstone for growth in Asia." Of course, China must develop. The only question is how. Will it create a fossil-fuel dependent car culture that speeds global warming? Or will it opt for public transportation and remain bicycle-friendly? Under current trade policy, car advocates are winning. A powerful alliance of China's Ministry of Machine-Building Industry and international automobile companies is pressing the Chinese government to "divert more money into highway and road construction to support an automobile-based economy." Meanwhile, major subway projects languish uncompleted in 13 cities. Vice President Gore has not always played a helpful role on China’s global warming problem. He joined GM CEO John Smith in Beijing in March 1997 to celebrate GM’s partnership with Shanghai Automotive Industry Corp. to build 100,000 mid-sized Buick Centurys annually. "It is the policy of the Clinton Administration to pursue agreements that are in the commercial interest of the United States," said a senior administration official traveling with the Vice President. GM had beaten out Honda, among others, for the contract. Honda had planned to build a version of the much more fuel-efficient Civic. Unless current trends are reversed, China will eventually replace the United States as the world's top source of global warming pollution. It will do so all the sooner because of an Administration trade policy that elevates commerce above all else. Reality Check #11. Increased Capital Mobility Increases Corporate Bargaining Power When corporations gain rights to trade and invest wherever they wish, those rights are not matched with strong, well-enforced environmental responsibilities. Countries increasingly compete against each other for economic advantage by waiving the enforcement or adoption of strong environmental laws or by offering breaks on taxes needed to pay for clean water and clean air. Recognizing this risk, the North American Free Trade Agreement (NAFTA) package included institutions designed ostensibly to prevent a competitive "race to the bottom." An environmental side agreement was written to ensure that each of the NAFTA countries (the United States, Canada, and Mexico) maintain and enforce high environmental standards. NAFTA Article 1114 allows for government-to-government consultations if countries compete for investment by weakening their environmental laws. As United States Trade Representative Mickey Kantor promised in September 1993, "[The side agreement] ensur[es] that laws and standards continue to provide high levels of environmental protection and that those laws are enforced." Unfortunately, these environmental agreements lack teeth and have failed to deliver on their intended purpose. Instead, NAFTA trade and investment rules have made it easier for companies to bargain-down standards by threatening to move jobs abroad. Did NAFTA "cause" the weakening of environmental laws described here? Obviously, not by itself. But it added to pressure already building from other trade agreements and from economic globalization. For instance: In the United States, timber giant Boise Cascade closed mills in Joseph, Oregon (1994) and Council, Idaho (1995) and moved operations to the impoverished state of Guerrero, Mexico, taking advantage of new investment protections under NAFTA. Before moving, the company exploited job insecurity in the United States to wrest more timber from U.S. national forests. A company spokesman told The Idaho Statesman, "How many more mills will be closed depends on what Congress does.... The number of timber sales will determine our decision to move south." The 104th Congress was all too eager to bow to such pressure. It passed a law that mandated a vast increase in logging in our national forests, but suspended all environmental laws and the citizen’s right to seek redress in court. Contrary to arguments that environmental protection rises as countries grow richer, Canada has weakened its environmental laws by turning over environmental responsibilities to the provinces. Investors can more easily play subnational units of government against one another, so the Canadian provinces have weakened important environmental protections. For instance, the Province of Alberta adopted legislation in May 1996 prohibiting citizens from suing environmental officials to enforce the law. Ironically, Alberta was the first of only two Canadian provinces to bother singing the NAFTA environmental side agreement. When Canadian environmentalists declared their intention last summer to complain to the NAFTA environmental commission about the new gag law, Alberta’s environment minister, Mr. Ty Lund, simply threatened to withdraw Alberta from the side agreement. Apparently, Alberta is willing to abide by its NAFTA’s environmental commitments only as long as they are not enforced. Instead, Alberta authorities advertise the province’s lax regulatory climate as the "Alberta Advantage." In so hospitable a business climate, it is little wonder that Pittsburgh’s Consolidation Coal, Shell Oil, and other international mineral companies have flocked to Alberta. Mexico also has backed away from commitments to adopt and enforce strong laws made during the NAFTA debate. In October 1995, Mexico announced it would no longer require environmental impact assessments (EIAs) for investments in such highly polluting sectors as petrochemicals, refining, fertilizers, and steel. Mexican officials said they were eliminating the requirement for EIAs to "increase investment" -- an apparent violation of a NAFTA provision that prohibits weakening laws to attract investment. Of course neither Canada nor the United States will take Mexico to task because each is guilty of the same violation. Up to Top HOME | Email Signup | About Us | Contact Us | Terms of Use | © 2008 Sierra Club