The analysis stated above provides a theoretical possibility for the international environment cooperation. In reality, however, there are some unsurpassable obstacles. In the first place, the model assumes all nations have full knowledge about the pollutionreduction's marginal revenue and marginal costs. The knowledge serves as not only the basis of the model, but the prerequisite condition for the unilateral payment. Unfortunately, it is extremely difficult to prove the knowledge in the real world. Moreover, it is very difficult to identify the guideline governing the unilateral payment and transferal payment mechanism. Therefore, people do not hold an optimistic view in this regard. According to the two possibilities proposed by Barrett (1994), allocation is to be made in accordance with a nation's population or the level of cooperation taken by every nation. Without the presence of a "world government" above all nations and without any punishment or incentive, all nations are likely to act selfishly.
The international environment cooperation forums, dedicated to solve the issues related to climate changes, are currently attempting to resolve environment issues together with trade liberalization. Trade liberalization entails elimination of discrimination and compromise. All parties' understandings are needed to reach a multiple or regional trade agreement. If one party is expected to give in, other parties are motivated to compromise. If the opponent is unlikely to reduce its price, other parties are likely to give in, either. In the analysis of trade liberalization negotiation, both players' strategies and behaviors are defined as assurance problem (AP) from the game standpoint. AP leads to two possible equilibriums - a successful negotiation with compromise and a failed negotiation. However, it is important to note that pareto optimal solution can be attained for both players' benefits, even if trade is not liberated entirely.
The rivalry between international trade and environment cooperation is a classic example of Prisoners' Dilemma (PD)1. External strength is needed to solve environment issues; players are forced to cooperate compulsorily. Without the presence of an enforcement agency above nations, international environment cooperation is unattainable. No player is willing to provide public property at all. According to the bundled solution devised by Hansen (1999) for trade and environment issues, this study applied game theory methods to examine the possibility of including environment issues into trade negotiations.
I. Constructing model
As shown by Fig. 2, V^sup i^^sub jk^ and V^sup i^^sub jk^ denote the payments for the games in which superscript represents player i= 1,2 , subscript c denotes cooperation and d represents betrayal, first alphabet/ represents the strategy adopted by player 1 , second alphabet k represents the strategy adopted by player 2. The payoff matrix is illustrated as follows:
Following equation represents the cooperation payoff matrix being included into trade model:
Optimal strategy is obvious: remove trade barriers to enhance two-way trades. To imitate the real scenario, assume there are two Nash Equilibriums in AP; one of the equilibriums represents trade protection from each other while the other represents trade liberated for each other. The mutual trade liberation is beneficial to both players.
When AP involves a mixed strategy, π^sub c^ denotes the probability of nation 1 adopting cooperative strategy. When nation 1 adopts cooperative strategy, π^sub c^ denotes the probability of nation 2 adopting cooperative strategy. (1 - ps} and (1 - ps) represent lhe probabilities of nation 1 and nation 2 adopting betrayal strategy, respectively. Assume the expected cooperation payment equals the expected betrayal payment, probability is calculated through #"c . The probability of nation 2 can be calculated by following equation:
Wherein π^sub c^ denotes the payments earned from cooperation, π^sub c^ represents the payments earned from betrayal, and π^sub c^ denotes the probability of nation 1 adopting cooperative strategy in the trade game. If the probability of nation 1 adopting cooperative strategy is larger than π^sub c^, nation 2 adopts cooperative strategy, too. Probability π^sub c^ reveals the moves to be taken by players throughout the game. For example, nation 1 knows the probability of nation 2's removal of trade barrier is larger than Tt c , nation 1 is most likely to remove its trade barrier, too. Cooperation between international trade and environment can be considered a simple game involving two players as opposed to a trade game in which PD denotes the payment matrix (p^sup p^ and p^sup p^ denote the probabilities of nation 1 and nation 2 adopting cooperative strategy, respectively).
Payment matrix (PD):
The equations indicate that players reduce pollutions to obtain benefits and other players act as free riders to obtain benefits without reducing pollution.
Joint game between trade and environment
At first, combine both games together. Then, use the revenue obtained from trade game and the motivation structure of environment game to relieve environment from prisoner's dilemma (PD) and thereby facilitate the analysis the bundled solution for environment issues and trade negotiations.
Pareto optimal solution requires both players to change the environment PD by the revenue obtained from trade game. Similarly, whichever player chooses betrayal will cause other player to choose betrayal. Once the games are combined, cooperation reaches strategic equilibrium "liberate trade - control pollution" while betrayal reaches strategic equilibrium "restrict trade - emit pollution". 2 Then, the payments made by both games respectively are added to obtain a combined game.
The combined game is described in this paragraph. Assume trade game as AP and environment game as PD. 3The game leads to either PD or AP. If the benefits obtained from trade game are sufficient to offset the benefits obtained by alleviating pollution control from environment game, then:
The combined trade and environment game leads to AP. If the former is not sufficient to offset the later, the combined game leads to PD. Apparently, no player earns any benefit when environment protection and trade are combined, because the potential trade benefit decreases at the time that trade and PD-featured environment game are combined. The scenario implies the following: the revenue obtained from mutual trade liberalization has to be larger than the costs of the public goods in the environment. If not, the combination of trade and environment causes threats to trade liberalization and the combination itself is unable to solve the environment issues. Therefore, following criterion has to be included into consideration: after games are combined, both players choose their strategies based on the opponents' willingness for cooperation.
Let p^sup e^ be the probability of nation 1 adopting cooperative strategy in the combined game, then:
Find solution from following equation:
Wherein PD is a prerequisite condition, (U^sup 2^^sub cc^ + V^sup 2^^sub cc^) > V^sup 2^^sub cd^ and (V^sup 2^^sub cc^ - V^sup 2^^sub cd^) < 0
(PD payment assumption), either of (10) equations sustain:
Equation (10) indicates: p^sup c^ > p^sup s^ (11)
According to the foregoing analysis, when environment issues are included into trade liberalization negotiation agenda, both trade issues and environment issues are likely to be solved. When trade and environment are combined, however, the issues become complicated, because the combination highlights the contradiction and disputes between the developed nations and the developing nations.
The distribution of benefits between the developed nations and developing nations
International community resolves the issues related to environment protection and trade liberalization through negotiations in order to upgrade benefits for all parties concerned. The benefit distribution mechanism is discussed in this paragraph. Different income levels are satisfied with different levels of environment quality. The benefits of environment protection are distributed to the advantage of thee developed nations. In following equation, nation 1 denotes the developing nations and nation 2 represents the developed nations. Assume both players obtain less trade liberalization benefits than before and pollution-reduction costs are higher than the maximum costs born by the developing nations, then:
Nation 1 refuses the motivation associated with cooperative strategy throughout the environment game. 4 Assume nation 1 earns more pollution-reduction benefits, nation 2 urges the environment topics to be included into trade liberalization negotiation agenda and stresses the trade not to be bundled with environment issues. Thus, nation 1 is pushed to take a cooperative stance in the environment issues and eventually sign "a series of agreements. Therefore, following condition has to be satisfied in order to produce "commitments" based on the threats 5:
(v^sup 1^^sub cc^ + U^sup 1^^sub cc^) > V^sup 1^^sub dc^ ≥ 0 (13)
Following is another assumption: nation 1 expects the developing nations to adopt "liberate trade - emit pollution" strategy. Therefore, nation 2 conveys a message to nation 1, saying nation 2 will adopt "restrict trade - emit pollution" strategy if its opponent adopts "liberate trade - emit pollution" strategy. When nation 2 promises to "restrict trade - emit pollution" strategy, nation 1 will most likely choose "liberate trade - control pollution" strategy as shown by Fig. 3.
Following is a possible solution: nation 1 earns less pollution-reduction benefits than nation 2 does. Therefore, nation 1 refuses the environment issues to be bundled with trade negotiation and chooses "liberate trade - emit pollution" strategy. In such case, nation 2 will most likely choose not to cooperate in the trade negotiations in order to threaten nation 1 . If nation 1 feels the threats absurd, the most feasible strategy is combine trade and environment together although that strategy is unlikely to maximize the short-term benefits for nation 1. Nonetheless, nation 1 has to choose the second best strategy in order not to lose the benefits produced by trade liberation any more.
From theoretical standpoint, trade issues and environment issues can be solved simultaneously when environment issues and trade liberalization are included into negotiation agenda. In light of the symmetric trade issues and environment issues, however, the model is unlikely to serve the real issues at this moment. Moreover, without an effective and unbiased coordination mechanism, the model is far from perfect.
Asymmetric relationship between the developed nations and the developing nations
For the developed nations and the developing nations, the relationship between environment protection and trade liberalization is asymmetric. Trade liberalization improves environment quality. However, the improvement varies from nation to nation. Trade liberalization upgrades environment quality for the developed nations substantially. Unfortunately, trade liberalization imposes negative influence on the environment quality of the developing nations. Secondly, the growth path differs from nation to nation. Although the correlation between environment quality and economic growth appears to be negative, the relationship between environment quality and growth path is not unchangeable. Economic growth destructs environment, regardless of high growth, low growth or negative growth6. Nonetheless, it is possible to maintain high economic growth and minimize environmental destruction at the same time. Structural effect and technical effect are sufficient to offset the negative influence imposed by scale effect. The developing nations' trade growth policies contradict their sustainable development policies more or less. A number of factors cause the asymmetry, such as economic and technical difference, resource endowment difference, the biased structure between consumption and trade, and the unfairness in the international arena.
Using the concepts and calculation methods of "real domestic saving rate" 7, World Bank (2000) concluded the developing nations' saving rate 25% in 1997. However, the real domestic saving rate was mere 14% when the excessive exploitation was excluded from the saving rate. Therefore, the developing nations' economic growth quality is considerably lower than average. Apparently, the developing nations' ecological environment will be destructed if trade liberalization is measured by nothing but economic efficiency.
Unfairness in the international arena
Following the conclusion of Uruguay Round and Doha Round, trade liberalization has become an irreversible trend throughout the world. The major economic powers initiate international trade standards and establish a new order for international trade in their ways. The new standards and order obstruct the developing nations' economic development and distort the trade liberalization. WTO former Secretary- General Moore stated in an article publicized in 1999, "In fact, the wealthy nations impose more tariffs on the poor nations than they impose tariffs on each other." Moore's remarks reflect the unfair and unethical international economic order, indicating the developed nations develop their economies by sacrificing the developing nations in the name of free trade.
As to the international cooperation on environment protection, both factors influence differently. Most environment policies and measures related to international trade were enacted and promoted by the development nations. The policies and measures were designed to internalize the environment costs through systems or motivations in order to eliminate the different levels of environment cost internalization through the unified standards and thereby ensure environment protection and fair trade. Apparently, the policies and measures implemented by the developed nations serve as an environment barrier.
Faced with the imbalanced relationship between trade and environment, the developing nations have to take a defensive stance in the international arena. For example, WTO concentrated on the issues related to the bundled solutions for trade and environment only. WTO Trade and Environment Committee" discussed the relationship between trade measures and multilateral trade system outlined in the Multilateral Environmental Agreements (MEAs) as well as the product-related Process or Production Methods (PPM) and environment logos. The relationship between MEAs and WTO and the relationship between nondiscriminatory environmental standards were discussed, but the issued faced by the developing nations, such as market access, control measures for domestic prohibited goods, and technical transfer, were ignored.
Opinions divided over trade and environment issues
The developed nations perceive trade liberalization and environment issues differently from the developing nations. Their disagreement is irreconcilable.
The developed nations believe:
(1) Trade restrictions are most powerful means to solve environment issues
All nations have the right to use either tariff or non-tariff to control or prohibit the import/export of pollutant products. All control measures have to meet WTO requirements regarding nondiscrimination, open market, fairness, and transparency. The developed nations maintain a higher environment standard than the developing nations and argue that the higher environment standard has decreased their competitive edge. But, the developed nations are unwilling to lower their environment standard same as the developing nations' standard. For example, United States strives to achieve the desirable health, safety, and environment goals, even if its standard is higher than the international standard, in order to promote the environment protection awareness and protect its domestic industries. Therefore, the developed nations urge WTO to allow its member nations adopting countervailing-measures against dumping if different nations impose different taxes on the same product or if exporting nations imposes fewer taxes. Secondly, if a nation imposes fewer taxes, other nations are likely to lower their environment standards to the standard adopted by that nation. In other words, the "race to the bottom" triggers the developed nations to lower their environment standards. Therefore, international organizations had better allow their member nations to impose anti-subsidy taxes as the countervailing-measure against dumping.
(2) Environment protection is a top priority for international trade
Pollutions are threatening human beings' existence and development. In consideration of sustainable development, pollution has to be minimized, environment-hostile products have to be prohibited, environment-friendly products have to be encouraged, eco-markets have to be expanded, cost internalization and adaptability has to be stressed throughout the trade liberalization process.
(3) Unification of international environment standards
Environment standard is one of the most controversial issues between the North and South. The developed nations believe that a unified and appropriate environment standard has to be adopted and attached to WTO multilateral trade system regardless of whatever economic development status. In addition, the developed nations disagree to the environment subsidy granted by government to enterprises.
The developing nations believe:
(1) Economic development and elimination of poverty are the top challenges faced by the developing nations. It is, therefore, difficult for the developing nations to formulate their policy priorities in the same manner as the developed nations do.
(2) The tariffand non-tariff trade barriers adopted by the developed nations in relation to environment protection are known as green barriers, influencing the developing nations' export tremendously. B The developed nations resort to trade sanctions all the time and thus cause unfairness between the North and South. United States uses trade sanctions and barriers frequently. From the developing nations' standpoint, environmentalism is nothing but an excuse, protecting United States and Europe. Furthermore, some developing nations indicate that the developed nations are spending too much. The North keeps 80% of the world's wealth, consumes 80% of the world's resources, and produces 80% of the world's pollutions. They urge the aforesaid imbalance to be included into consideration for the bundled solutions between trade and environment.
(3) To protect their "sunset industries", the developed nations have initiated a number of environment protection technical standards and ecological logo system, protecting their trade discreetly. These standards and logos were initiated in accordance with the developed nations' technical achievements. The developed nations force the financially stressed developing nations to accept their environment standards. As a result, the developing nations' production costs increase while their export's competitive edge decreases. The developing nations really have to implement special clauses for their benefits.
(4) Most enterprises of the developing nations are short of financial capability and are therefore unable to bear the environment cleanup costs. Their governments should subsidize the enterprises and products to a certain extent.
(5) The developed nations must not resort to a double-standard, implementing non-tariff barriers to ban the developing nations' products on one hand and encouraging their enterprises to ship the contaminative production facilities to the developing nations on the other hand.
Based on the 'bundled solutions' view of trade and environment proposed by Hansen (1999), game theory analysis methods were applied to examine the possibility of including environment issues in trade negotiations. According to the research results, once trade and environment liberalization are combined in the negotiation, the international community will combine trade issues and environment issues in the decision-making process. The approach is highly efficient and serves the developed nations' interest. The developing nations worry about trade protection and cannot but join the game. They are afraid if the rules 'turn into' a system in the near future. Therefore, how to help the developing nations accept and join the game remains the focus of debate. As to trade liberalization, the developing nations are worrying less than before. As for the relationship between economic development and environment protection, the developing nations stick to their own criteria and have different priorities from developed nations. It is important to note that the 'biased' distribution of benefits between the North and South disturbs the balance between trade and environment policy.
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