International trade and the environment – Environmental Studies for NCET

Free trade and protectionism

Free trade means trade between countries without barriers such as tariffs and quotas. It is based on comparative advantage (David Ricardo): each country gains by specialising in what it produces at relatively lower opportunity cost. Supporters argue that trade raises incomes, spreads cleaner technologies and gives the resources needed for environmental protection.

Protectionism uses tariffs (import taxes), quotas (limits on quantity), subsidies and non-tariff barriers (standards and licences) to protect domestic industry. Environmental standards can sometimes act as disguised protectionism if they are designed to keep out foreign goods.

Environmental effects of trade

Scale effect: more trade means more production and transport, so more pollution and resource use.
Composition effect: countries specialise; some may specialise in polluting or resource-intensive goods.
Technique effect: richer countries demand and can afford cleaner technology.
Pollution haven hypothesis: dirty industries may move to countries with weak environmental laws. A related fear is the "race to the bottom", where countries lower standards to attract investment.
The Environmental Kuznets Curve suggests pollution first rises and then falls as income grows (an inverted U), though it does not hold for every pollutant.

Transnational corporations (TNCs)

TNCs are companies that produce in more than one country. They bring investment, jobs and technology but can also export hazardous processes, exploit resources and lobby against regulation. The Bhopal gas tragedy (1984), caused by a leak of methyl isocyanate from the Union Carbide pesticide plant, is the classic case of TNC accountability failure.

India's trade

Before 1991 India followed import substitution with high tariffs and licensing. The 1991 reforms (liberalisation, privatisation, globalisation) lowered tariffs, opened the economy to foreign investment and linked India more closely with world trade. Growth in exports of goods such as textiles, leather, chemicals and marine products has brought jobs but also pollution concerns, for example tannery effluents and pressure on fisheries.

Key points

Comparative advantage underlies the case for free trade.
Tariffs, quotas and subsidies are tools of protectionism.
Pollution haven hypothesis: dirty industries move to lax-regulation countries.
Bhopal (1984) highlights TNC accountability.

Common mistakes

Treating a tariff (a tax) and a quota (a quantity limit) as the same.
Assuming trade is always good or always bad for the environment; scale, composition and technique effects pull in different directions.

A limit on the quantity of a good that may be imported in a year is called:	Easy
The theory that each country should specialise in goods it produces at a relatively lower opportunity cost was put forw…	Medium
A tannery company closes its plant in a country with strict effluent rules and reopens it in a country with weak enforc…	Medium
The Bhopal gas disaster of 1984 involved a leak of which chemical from a pesticide factory?	Easy
Rising trade increases total shipping and factory output, but the same trade also spreads cleaner technology to exporte…	Hard