The Polluter Pays Principle has become a very familiar concept in the last few
decades. Environmental policies that hold the polluter accountable are necessary
to realize the sustainable development goals that have been established and
re-established by different countries and organizations on an international
level at multiple conferences and conventions.
Similarly, there has been a significant rise in international trade in this
century, and the policy of Free Trade removes barriers to international trade
through non-application of tariffs or quotas. Governments keep out of the import
and export business and let international trade take place naturally.
Liberalization in trade practices does impact the environment and this is where
the concept of having the polluter pay for the environmental damage comes in.
Free Trade, like all other such liberal practices, is not absolute. There has to
be a measure of accountability that seeks to restore environmental balance.
This paper discusses the concept of Polluter Pays Principle with respect to the
policy of Free Trade and throws some light on the connection between the two by
analyzing the international agreements concerning trade and environment.
The Polluter Pays Principle is the practice which makes the polluter responsible
for the damage caused to the environment as a result of their action. This is
done to meet the cost pollution control. The principle was adopted by the
Organization for Economic Co-operation and Development (OECD) in 1972.
As per the Guiding Principles Concerning International Economic Aspects of
Environmental Policies, Polluter Pays Principle means that the polluter should
bear the burden of carrying out cost allocation measures for pollution
prevention and control, to ensure that the environment is in an acceptable
state[i]. These measures are decided by public authorities and the polluter is
legally bound to take them to protect the environment.
Environmental pollution is unavoidable. As trade industries grow and
globalization gives rise to exchange of goods and services across the globe, the
environmental damage caused by persons and such industries increases. So, the
cost of the measures of pollution control are reflected in the goods and
services that generate pollutants in the course of production and/or
Free Trade is the policy of non-interference by the government in international
trade. Liberalization is at the center of the Free Trade policy but like all
liberties and freedoms, the freedom from government intervention in import and
export business is not absolute. There has to be a system of regulating the
economic activities that take place nationally and internationally to ensure
that such activities do not become harmful for human life or the environment.
The most effective instrument of global trade liberalization was the General
Agreement on Tariffs and Trade (GATT) which aimed at abolishing quotas and
reducing tariffs among contracting nations.[ii] It was replaced by the World
Trade Organization in 1995, and the aims are broader and more comprehensive now.
Impact Of International Trade On The Environment
It is true that traders are not limited by the territorial boundaries of their
countries anymore and trade has expanded throughout the global platform.
Naturally, this expansion impacts the environment. There also comes the question
whether trade liberalization is good or bad for the environment.
Trade can affect the environment both in the positive and the negative manner.
Economic growth that results from trade expansion can have an apparent direct
impact on the environment by an increase in pollution or degradation of natural
resources. In addition to this, trade liberalization may lead to specialized
pollution-intensive activities in some countries if environmental policy
severely varies across countries [iii].
International trade involves transportation through air, land, or water, and
transportation is a major cause of pollution of these three elements of nature.
The damage caused in the process of export and import, particularly from the
transport of goods and services, adds to the harm done to the environment as a
consequence of human actions and activities attached to what we call a progressive life
Despite all this, the trade trend of expanding the scale of production for the
global market means that the volume of pollution and environmental damage will
most likely increase and impact the quality of living of all beings. There can
also be indirect environmental effects of trade, for example when peasant
farmers are displaced by larger-scale export agriculture onto marginal lands
such as hillsides and forest margins [iv].
However, increased trade can also contribute to a greater capacity to manage the
environment more effectively by supporting economic growth, development, and
social welfare. More importantly, open markets can result in improved access to
new technologies that make local production processes more efficient by
diminishing the use of inputs such as energy, water, and other environmentally
Similarly, liberalization in trade and investment provide firms and companies
with incentives to adopt better and higher environmental standards. As a country
integrates itself within the world economy, it exposes its export sector to the
environmental requirements that leading importers present. Changes needed to
meet these requirements, consequently, flow backwards along the supply chain,
encouraging the use of cleaner production processes and technologies.
Subsequently, trading nations may come under pressure to improve environmental
standards when product quality or transboundary impacts are at issue. So,
looking at the positive impacts of free trade on the environment as a whole, we
can find that trade industries can avoid the cost of pollution prevention and
control if the positive outcomes of their trade supersede the negative ones.
Trade Agreements And The Environment
Over the last few decades, several trade agreements have been signed and have
come into force to facilitate international trade with minimum restrictions and
interventions so that the concept of Free Trade can be realized fully. They have
also touched upon the environmental perspective of liberalizing trade, and have
approached the concept of making industries responsible for the damage caused to
The World Trade Organization
Under the General Agreements on Trade and Tariff (GATT), which later became the
World Trade Organization in 1994, rounds of trade agreements have worked to
retain the over-achieving policy goal of free and liberalized trade.
Although economic growth may lead to increased capabilities of nations to
promote environmental protection, avoiding unacceptable levels of environmental
damage requires specific policies to reduce pollution. Although the WTO
recognizes a special exception to trade rules under Article XX for resource
conservation and environmental protection, its panel rulings have interpreted
this narrowly. WTO authorities tend to be suspicious of green protectionism
the use of trade barriers to protect domestic industry from competition under
the guise of environmental regulation. They are also not very sympathetic to
nations' efforts to use trade measures to affect environmental policy outside
Looking at it from the WTO perspective, the responsibility for environmental
policy should remain at the national level and as far as possible, decisions
regarding international trade policy should not be complicated with the
involvement of environmental issues. This is according to the economic principle
of specificity rule which says that policy solutions should be targeted at the
source of the problem, and not get sidetracked.
The use of trade measures to
accomplish environmental-related goals is somewhat secondary and not as impactful.
So, the use of an economic proposition like getting the polluter to pay for the
damages is only a half-measure, because it relies on the possibility, which
although highly likely, is only an after-effect, of the individual or the
industry to pollute or cause damage to the environment.
The North American Free Trade Agreement (NAFTA)
In 1993, the United States, Canada, and Mexico signed the NAFTA agreement, which
was aimed at lowering the trade barriers across the continent. During the
agreement, negotiations were done where environmental groups argued that
liberalizing the trade beyond a point and giving traders strong freedom could
result in negative impacts on the environment. Consequently, the North American
Agreement on Environmental Cooperation (NAAEC), which was a side agreement, set
up the tripartite Commission for Environmental Cooperation (CEC)[v].
promotes sustainable development based on cooperation and mutually supportive
environmental and economic policies, and fosters the protection and improvement
of the environment in the territories of the Parties for the well-being of
present and future generations[vi].
This specific attention to social and environmental aspects of trade was
remarkable and likely unprecedented in trade agreements.
Naturally, the Polluter Pays Principle acts as a tangent to both economic and
environmental policies. Trade freedom cannot and should not be absolute.
Policies that keep any arbitrary and harmful trade activities in check are
required to keep the environmental damage in control.
The European Union
The European Union is unusual in being a free-trade area that has its own
legislative and administrative institutions. Unlike the North American CEC, the
European Union has the power to set environmental standards which have binding
power on its member countries. This is referred to as the harmonization of
environmental standards [vii].
However, this policy involves more than free trade; it encompasses the creation
of a supranational authority[viii] with the power to set environmental
standards. Regional trade area policies also compared the ideas of harmonizing
up and harmonizing down.
Countries may need to change their policies to meet the EU standards. For some
it would mean tightening their rules, for others it may mean losing some of the
command. For example, a law that required returnable bottles in Denmark was
overturned by the EU for the reason that it was a trade barrier. On the other
hand, Norway decided not to join the EU fearing that they would have to modify
some strict environmental regulations.
According to Jonathan Harris[ix], it is not common for trade agreements to
include the kind of enforceable supranational environmental regulations that
exist in the EU. Even though the Standards Code that was adopted after the
Uruguay Round negotiations in 1992 encourages international harmonization
regarding environmental standards, the process is voluntary.
Multilateral Environmental Agreements (MEAs)
It has long been recognized that some environmental problems require
international solutions. The first international treaty dealing with trade and
the environment was the Phylloxera agreement of 1878, which restricted trade in
grapevines to prevent the spread of pests that damage vineyards. In 1906 an
international convention was adopted banning the use of phosphorus in matches.
Phosphorous was responsible for serious occupational disease among match
workers, but it was the cheapest ingredient for matches. An international
convention was required to prevent any exporting country from gaining
competitive advantage by using phosphorus in match production. Since then,
numerous international treaties have been adopted to respond to specific
These include conventions protecting fur seals, migratory
birds, polar bears, whales, and endangered species. Transboundary and global
environmental issues have been addressed in the Montreal Protocol on Substances
that Deplete the Ozone Layer (1987), the Basel Convention on Hazardous Wastes
(1989), the Antarctic Treaty (1991), and the Convention on Straddling and Highly
Migratory Fish Stocks (1995).
In 1997 the Kyoto Protocol on Climate Change
established guidelines for reducing greenhouse gas emissions, including
important trade-related measures. These international treaties have addressed
the environmental impacts of production methods in ways that individual nations
The local imposition of PPM standard on domestic manufacturing industry is
obviously a national prerogative, but it should not be used to restrict imported
products, whatever the process used for their production. This kind of action
would prove to be contradictory with the GATT. If PPMs[x] are included as
appropriate measures within an Multilateral Environmental Agreement (MEA),
however, this would be much more acceptable, as their imposition would be
multilateral rather than unilateral. [xi]
The question of the compatibility of MEAs with the WTO rules still remains
doubtful, especially regarding precedence during a conflict. For example, the
Kyoto protocol encourages the subsidized transfer of energy efficient technology
to developing nations - but this provision could be in violation of the WTO's
prohibition of export subsidies. Whereas national laws such as the U.S. Marine
Mammal Protection Act have been found incompatible with WTO rules, there has so
far been no major test case involving conflict between an MEA and a trade
The Polluter Pays Principle is still a much more vague principle than the Free
Trade Principle. It's impact is not as significant as that of the Free Trade
principle. More attention has been paid to defining this principle and what it
means in the global market in the last few years of trade and environment
discussions than in the twenty years since its adoption.
The Polluter Pays
Principle has a very specific definition in the OECD context, including how its
implementation is to be proceeded with. In the present context, the Polluter
Pays Principle is a cost allocation or non-subsidization principle which is
intended at guiding governments in addressing domestic pollution[xii].
Groups and organizations have been on the works to expand the extent of the
scope of this principle, and naturally, their ideas often conflict with one
another regarding its application to the trade market. However, interpreting it
in a broad and idealistic manner would bring the effectiveness and development
to the same old status of a general slogan.
The fact that the debate on environment and trade becomes a blame-game rather
than a discussion on possible solutions and future steps is an issue that
results in stagnancy in the whole process of liberalizing trade and protecting
After evaluating a history of trade and environmental movements, it can be
concluded that environmental conservation in our time needs to be based on more
than a policy by-product. This paper describes the conflicts that arise between
environmentalism and advocacy for trade liberalization. Even though instances of
countering climate change with trade policy are present, the underlying
principle of minimizing pollution suggests that we treat the polluter pays
approach and the trade liberalization approach separately.
Often, governmental measures against trade liberalization are disguised as
green measures supposedly aimed at environmental conservation. These domestic
protectionist measures restrict exports and encourage domestic imports by citing
an environmental benefit to preferring domestic production over foreign
production that may not comply with environmentally sound standards. The World
Trade Organization has aptly expressed discontent over disguising trade
protectionism as these environmentally conscious actions.
NAFTA is another example of international cooperation in balancing trading
freedoms with environmental concerns. As explained before, the NAAEC supplements
the trade liberalization aspects of NAFTA with environmental cooperation, thus
making trade in North America a balanced affair. This mutual cooperation among
the USA, Canada, and Mexico ensures that the environment is not sidelined while
trade is being promoted.
The approach taken by the European Union can be simplified as the Polluter Pays
Principle. The EU, being more than just a multilateral treaty, can practically
enforce its decisions on member states. The administrative powers resting with
the EU allow it to mandate individual states to curb their carbon emissions and
other forms of pollution.
While we cannot pinpoint an international policy yet to counter pollution
created during movement of goods through global supply chains, we can employ a
mixture of trade and environmental measures to obtain the best possible results.
Depending on the geographic region, industries, and international relations of
polluting units, any variation of the polluter pays principle can be utilized
in addition to other approaches mentioned in this project.
- OECD/LEGAL/0132 (Adopted on 14.11.1974)
- Britannica, The Editors of Encyclopaedia. "General Agreement on Tariffs
and Trade". Encyclopedia Britannica, 22 Nov. 2019, https://www.britannica.com/topic/General-Agreement-on-Tariffs-and-Trade.
(Accessed 20 Feb 2021).
- Oecd.org, Trade and Environment (Accessed 20 February 2021).
- Jonathan M. Harris, Trade and the Environment (Houghton Mifflin, 2002)
- United States Environmental Protection Agency, EPA's Role in the North
American Commission for Environmental Cooperation (CEC) (Accessed on
- Jonathan M. Harris, Trade and the Environment (Houghton Mifflin, 2002)
- A supranational organization is a multinational association in which
member countries cede authority/sovereignty on at least some internal
matters to the group, whose decisions are binding on its members.
- Jonathan M. Harris is Senior Research Associate at the Tufts University
Global Development and Environment Institute.
- Parts per Million- mass of a chemical or contaminate per unit volume of
- Duncan Brack, Trade and Environment: Conflict or Compatibility, 1998.
- Candice Stevens, Interpreting the Polluter Pays Principle in the Trade
and Environment Context