If income expansion does not automatically imply that environmental harm will rise from specific pollutants, the complaint about competi- tion with producers in countries with lower standards is also unjusti- fied, plausible as it appears.
It is worth stressing that the issue at stake here involves pollution that is domestic, not global (concerning which, as with the Kyoto treaty on global warming, wholly different issues arise; these are considered below). To see the distinction clearly, consider that if I pollute a lake that is entirely within India, the issue is domestic to India. But if I pollute the
Ganges River, which flows into Bangladesh, then the problem becomes international. If I use cars or scooters that take leaded fuel, I pollute the air in the cities where this happens, and it is the local populations that are hurt; but if my factories produce a lot of pollution in American cit- ies close to the border between the United States and Canada, I can cause acid rain across the border in Canada, producing an international prob- lem of spillovers. If I smoke, I will hurt those around me in New York, so Mayor Michael Bloomberg has to deal with this domestic pollution is- sue; but if I use aerosol cans and help destroy the ozone layer, I imperil the earth and therefore all others multilaterally.
In technical jargon, global (whether bilateral or multilateral) pollu- tion spillovers require that they be paid for through appropriate taxes or regulations. These policies generally call for international cooperation, since no one jurisdiction can normally take the required action. But that is obviously not true for domestic pollution phenomena.
You would think that the issue of what India does with her purely domestic environmental pollution is one for the Indian democracy to resolve. That was precisely what I argued earlier.24 This would also be
the case for the public debate in the United States on whether drilling for oil in Alaska’s Arctic National Wildlife Refuge should be permitted. In fact, the environmental groups and the oil lobbies, with their respec- tive allies among the NGOs and among politicians and the media, are fighting it out over this issue. As a citizen of the United States, I weigh in on the side of the environmentalists and am rooting for them to win. Few Americans would, however, tolerate foreign groups, whether oil firms or the Greens, actively intruding into the politics of this debate; there- fore hardly any foreign lobby intrudes.
Yet, ironically, it is precisely in these domestic pollution matters that much of the current agitation against trade’s adverse effects is centered. In fact, the assertion is that if India chooses to adopt lower pollution tax rates in an industry than the United States does, then the resulting com- petition is “unfair” to American producers in that industry. If such un- fair competition is allowed, then American industry will be destroyed. Or else the result will be political pressures to reduce the American stan- dards, to “save jobs,” to “level the playing field,” leading to the race to the bottom that was discussed and discounted in the previous chapter in regard to the possible erosion of labor standards. Either way, the out- come would be undesirable.
In fact, a number of environmentalists have argued that such unfair competition amounts to “social dumping” and must be countervailed through trade protection. David Boren, who during his time in the U.S. Senate introduced legislation to countervail the “social dumping”
Environment in Peril?
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147allegedly resulting from lower standards abroad, proposed such a mea- sure on the grounds that
we can no longer stand idly by while some US manufacturers, such as the US carbon and steel alloy industry, spend as much as 250 percent more on envi- ronmental controls as a percentage of gross domestic product than do other countries. . . . I see the unfair advantage enjoyed by other nations exploiting the
environment and public health for economic gain when I look at many in-
dustries important to my own state of Oklahoma. [Italics added]25
But the argument that the resulting competition is “unfair” is illogical for several reasons.
First, the fact that others in the same industry abroad do not carry the same burden is in itself not a reason to cry foul. After all, different countries have different wages, capital costs, infrastructure, weather, and what have you. All of these factors lead to differential advantages of pro- duction and trade competitiveness. Diversity of environmental tax bur- dens is part of the immense diversity that makes for the gains from trade, in this perspective.
Second, the rates at which pollution taxes are levied in the same industry across countries should differ because they should reflect dif- ferent conditions in those countries. Thus, even if Mexico and the United States were to value the environment equally, the fact that Mexico has cleaner air and fouler water than the United States would mean that in Mexico there would be a greater negative valuation put on industries that pollute water and a lesser negative valuation on industries that pol- lute the air than there would be in the United States. It would therefore be strange to say that Mexican and American industries should have identical tax burdens, regardless of the differences in their situations that require that these tax rates be different. And it would be stranger still if the pollution tax rates that are appropriate to the United States, in the view of Boren or Gephardt, were to be necessarily the ones chosen as those which others must converge to, rather than the other way around. Third, there is also the fact that sometimes the standards are set de- liberately at higher levels so that rivals abroad, who would have to incur great costs to meet them, are unable to produce economically with those standards and thus get to be uncompetitive. The higher standards then are being strategically set. This was the charge made against the Japa- nese car manufacturers in the 1980s: their frequency of mandatory safety inspections was so high that Detroit alleged that it was enacted as a trade barrier, since it added disproportionately to the costs of operating in the Japanese market for Detroit. In particular, small firms with an inadequate scale of operation are likely to find the adaptation of their products to incorporate new regulations developed elsewhere to be a serious obstacle.
This is also a reason often advanced by poor-country producers and exporters against our labeling requirements, which of course represent higher standards. They argue that, often lacking modern packaging and selling without bottles and cans in accumulated heaps in bazaars and informal markets, they are unable to comply and hence are excluded from markets where such labeling is required. As Prime Minister Indira Gandhi once remarked tellingly, it is hard to lift oneself up by one’s boot- straps when one is too poor to be wearing boots.
Finally, if the “polluter pay” tax rates are different across countries in the same industry, it still does not follow that the industry in the coun- try with a higher tax rate will lose in international competition. To un- derstand this subtle point, remember that resource allocation will reflect the pollution tax rate differences in other industries as well. It is per- fectly possible therefore for a tax on steel emissions to be higher in the United States but for resources to be pulled into, rather than away from, the steel industry if the pollution tax rates are differentially higher in other industries in the United States than elsewhere. A focus on just one sector is quite inappropriate, even as the differences in tax rates are le- gitimate in any case and attempts at making them uniform across coun- tries within the same industry defy logic.