International Trade, Factor Movements, and the Environment

By Michael Rauscher | Go to book overview

4
International Trade in Hazardous Waste

4.1 Introduction

International trade in toxic waste is a controversial issue. The extreme positions are those of the free-trade advocate and of the environmentalist.1 The liberal position is that the acceptance of toxic waste in exchange for goods must be mutually beneficial. Otherwise the exchange would not take place. The exporters benefit since they get rid of the problem of storing the waste; the importers gain because they are compensated in terms of better-consumption possibilities.2 Environmentalists argue that the recipients of the waste are not free to choose. Usually these countries are relatively poor and, therefore, have a weaker position than the waste exporters. Moreover, it is often argued that the storing facilities in poor countries are unsafe compared to those existing in the exporting countries and the worldwide pollution problems may be aggravated for that reason. On top of that, there may be information asymmetries in that the exporter has better information about the composition of the toxic waste and about its least damaging treatment. Thus, trade in toxic waste tends to be inefficient-at least in the technical meaning of the term. Another green argument is that the possibility to export environmental problems reduces the incentives to solve them. If trade in hazardous waste were banned, the main exporters would have to find ways to avoid the creation of waste, and this would be beneficial to the environment.3

This chapter is devoted to the examination of these views on the advantages and disadvantages of free trade in hazardous substances. Moreover, a number of other problems will be addressed. One of them is the choice of the environmental policy. How does the possibility to dump one's own waste into one's neighbour's backyard affect the design of environmental policy? In a next step, strategic considerations have to be taken into account. There may be incentives to capture rents by designing environmental policies appropriately. This results

____________________
1
See Wynne ( 1989) and Hilz and Ehrenfeld ( 1991) for arguments in favour of and against toxic- waste trade.
2
This line of argument has been carried to extremes by Lawrence Summers in an internal World Bank memo parts of which have been published in The Economist 1992 and led to major controversies (see Anonymous ( 1992)). He argued that it would be optimal to export toxic waste to the countries with the lowest incomes since toxic waste would cause the least damage there in terms of forgone income. For a critique, see Swaney ( 1994).
3
These and other green positions are presented by Moyers ( 1990) and Daly and Goodland ( 1994).

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