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Environmental Effects Of Trade In The Agricultural Sector: A Case Study

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  • Runge, C. Ford
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    Abstract

    Agriculture has been at the center of conflicts over world trade from the beginning in 1986 of the eighth, Uruguay Round, of multilateral trade negotiations. Yet it is only in the final phases of the Round that linkages from trade to the environment have come to the fore. In this paper, the specific linkages from trade to the environment in the agricultural sector are developed. The impacts of trade flows and policies on environmental quality in agriculture have features which make them unusually difficult to resolve. In many respects, the same domestic agricultural policies at the root of trade distortions also encourage environmental damages. Hence, reforming these domestic and trade policies would be a partial, though not a complete, step in the direction of greater environmental benefits. A complete set of policies will require targeted environmental interventions as well. Market failures in agricultural production and consumption have widespread effects on soil, water, human health, and natural ecosystems which are difficult to monitor and therefore to estimate. These market failures are generally reinforced by government policies which distort the prices of agricultural products and inputs (water, fertilizers, pesticides). These distortions occur in agriculture to a greater extent than in many sectors of both developed and developing countries. Trade flows and policies are a direct result of these domestic distortions. This case study will consider market failures with adverse environmental impacts in agriculture and their interaction with failures in agricultural trade policy in developed and developing countries. Section II develops a theoretical perspective on market and government failures in agriculture. In it, a simple model is discussed which emphasizes the distinction between the welfare effects of trade liberalization with and without appropriately targeted environmental policies. Section III provides some concrete examples of trade flows in agriculture and their environmental impacts in developed and developing countries, and analyzes the domestic policies at the root of distortions in agricultural trade. Section IV considers the likely impact of agricultural trade liberalization on market failures with adverse environmental effects, and the need to integrate environmental and trade policy reforms. Section V discusses the relationship between trade and environmental policy instruments in this context, and proposes some principles to guide trade and environmental policy in the agricultural sector. Section VI offers a summary and some proposed guidelines for the agricultural sector.

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    Bibliographic Info

    Paper provided by University of Minnesota, Center for International Food and Agricultural Policy in its series Working Papers with number 14449.

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    Date of creation: 1992
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    Handle: RePEc:ags:umciwp:14449

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    Keywords: Environmental Economics and Policy; International Relations/Trade;

    References

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    1. D. Gale Johnson, 1987. "World Agriculture In Disarray Revisited," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 31(2), pages 142-153, 08.
    2. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 141-62, April.
    3. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
    4. Barbier, Edward B., 1989. "Cash crops, food crops, and sustainability: The case of Indonesia," World Development, Elsevier, vol. 17(6), pages 879-895, June.
    5. Sullivan, John B., Jr. & Gonzales, Melissa & Krieger, Gary R. & Runge, C. Ford, 1991. "Health Related Hazards Of Agriculture," Staff Papers 13336, University of Minnesota, Department of Applied Economics.
    6. Ernst Lutz, 1992. "Agricultural trade liberalization, price changes, and environmental effects," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(1), pages 79-89, January.
    7. Munson, Robert D. & Runge, C. Ford, 1990. "Improving Fertilizer and Chemical Efficiency Through "High Precision Farming"," Reports 52687, University of Minnesota, Center for International Food and Agricultural Policy.
    8. Grossman, Gene & Krueger, Alan B, 1992. "Environmental Impacts of a North American Free Trade Agreement," CEPR Discussion Papers 644, C.E.P.R. Discussion Papers.
    9. de Wit, C T, 1988. "Environmental Impact of the CAP," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 15(2/3), pages 283-96.
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    11. Wolf, Charles, Jr, 1979. "A Theory of Nonmarket Failure: Framework for Implementation Analysis," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 107-39, April.
    12. Merrifield, John D., 1988. "The impact of selected abatement strategies on transnational pollution, the terms of trade, and factor rewards: A general equilibrium approach," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 259-284, September.
    13. Just, Richard E & Antle, John M, 1990. "Interactions between Agricultural and Environmental Policies: A Conceptual Framework," American Economic Review, American Economic Association, vol. 80(2), pages 197-202, May.
    14. Taff, Steven J. & Runge, C. Ford, 1988. "Wanted: A Leaner and Meaner CRP," Choices, Agricultural and Applied Economics Association, vol. 3(1).
    15. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
    16. Bonnieux, F & Rainelli, P, 1988. "Agricultural Policy and Environment in Developed Countries," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 15(2/3), pages 263-81.
    17. Carlisle Ford Runge, 1987. "Induced Agricultural Innovation and Environmental Quality: The Case of Groundwater Regulation," Land Economics, University of Wisconsin Press, vol. 63(3), pages 249-258.
    18. Stiglitz, Joseph E, 1987. "Some Theoretical Aspects of Agricultural Policies," World Bank Research Observer, World Bank Group, vol. 2(1), pages 43-60, January.
    19. Hrubovcak, James & LeBlanc, Michael & Miranowski, John, 1990. "Limitations in Evaluating Environmental and Agricultural Policy Coordination Benefits," American Economic Review, American Economic Association, vol. 80(2), pages 208-12, May.
    20. Runge, C. Ford, 1990. "International Public Goods, Export Subsidies, and the Harmonization of Environmental Regulations," 1990: The Environment, Government Policies, and International Trade Meeting, December 1990, San Diego, CA 50876, International Agricultural Trade Research Consortium.
    21. Lutz, Ernst & Saadat, Yasmin, 1988. "Issues relating to agricultural pricing policies and their analysis in developing countries," Agricultural Economics, Blackwell, vol. 2(1), pages 19-37, June.
    22. Binswanger, Hans P., 1991. "Brazilian policies that encourage deforestation in the Amazon," World Development, Elsevier, vol. 19(7), pages 821-829, July.
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    Cited by:
    1. Maya, Peter H. & Bonilla, Olman Segura, 1997. "The environmental effects of agricultural trade liberalization in Latin America: an interpretation," Ecological Economics, Elsevier, vol. 22(1), pages 5-18, July.
    2. Runge, C. Ford & Vande Kamp, Philip R., 1993. "Agricultural Policy Developments In The United States: 1991-93," Staff Papers 13906, University of Minnesota, Department of Applied Economics.
    3. Colyer, Dale, 2002. "Environmental Issues In The Ftaa," Conference Papers 19107, West Virginia University, Department of Agricultural Resource Economics.
    4. Hillman, Jimmye S., 1994. "The Uruguay Round: From Cold War To Cooperation In Negotiating Temperate-zone Agricultural And Trade Policies," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 62(02), August.
    5. Harold, Courtney & Runge, C. Ford, 1993. "Gatt And The Environment: Policy Research Needs," Staff Papers 14207, University of Minnesota, Department of Applied Economics.

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