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Trade and Environment: Bargaining Outcomes from Linked Negotiations

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  • Lisandro Abrego
  • Carlo Perroni
  • John Whalley
  • Randall M. Wigle

Abstract

Recent literature has explored both physical and policy linkage between trade and environment. Here we explore linkage through leverage in bargaining, whereby developed countries can use trade policy threats to achieve improved developing country environmental management, while developing countries can use environmental concessions to achieve trade disciplines in developed countries. We use a global numerical simulation model to compute bargaining outcomes from linked trade and environment negotiations, comparing developed- developing country bargaining only on trade policy with joint bargaining on both trade and domestic environmental policies. Results indicate joint gains from expanding the trade bargaining set to include environment, opposite to the current developing country reluctance to negotiate in the World Trade Organization on this issue. However, compared to bargaining with cash side payments, linking trade and environment through negotiation on policy instruments provides significantly inferior developing country outcomes. Thus, a trade and environment policy linked negotiation may be better than a trade-only negotiation for developing countries, but compensation for environmental restraint would be even better for them. We provide sensitivity and further analysis of our results and indicate what other factors could qualify our main finding, including the erosion of the MFN principle involved with environmentally based trade actions.

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Bibliographic Info

Paper provided by Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick in its series CSGR Working papers series with number 27/99.

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Date of creation: Apr 1999
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Handle: RePEc:wck:wckewp:27/99

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Fax: +44 (0) 1203 572 548
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Web page: http://www.warwick.ac.uk/fac/soc/CSGR/
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Keywords: Global treaties; linked negotiations.;

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References

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  1. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas," NBER Working Papers 4364, National Bureau of Economic Research, Inc.
  2. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
  3. Rodney D. Ludema & Ian Wooton, 1994. "Cross-Border Externalities and Trade Liberalization: The Strategic Control of Pollution," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 950-66, November.
  4. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-65, September.
  5. Barrett, Scott, 1994. "Strategic environmental policy and intrenational trade," Journal of Public Economics, Elsevier, vol. 54(3), pages 325-338, July.
  6. Bagwell, Kyle & Staiger, Robert W, 1997. "Multilateral Tariff Cooperation during the Formation of Free Trade Areas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 291-319, May.
  7. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June.
  8. Carlo Perroni & Randall M. Wigle, 1994. "International Trade and Environmental Quality: How Important Are the Linkages?," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 551-67, August.
  9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  10. Dean, Judith M., 1992. "Trade and the environment : a survey of the literature," Policy Research Working Paper Series 966, The World Bank.
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Citations

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Cited by:
  1. Nuno Limão, 2002. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?," International Trade 0206001, EconWPA.
  2. Kamat, Manasvi & Kamat, Manoj, 2007. "Implications of the WTO on Indian Marine Industry, Issues and Policy Perspectives," MPRA Paper 6151, University Library of Munich, Germany.
  3. Markusen, James R., 2012. "Per-Capita Income as a Determinant of International Trade and Environmental Policies," Discussion Papers 2013-06, Graduate School of Economics, Hitotsubashi University.
  4. Raghbendra Jha, 2004. "Alleviating Environmental Degradation in the Asia-Pacific Region: International cooperation and the role of issue-linkage," Departmental Working Papers 2005-01, The Australian National University, Arndt-Corden Department of Economics.
  5. Caroline Freund, 2004. "Reciprocity in Free Trade Agreements," Working Papers Central Bank of Chile 279, Central Bank of Chile.
  6. Myriam Anna Scaringelli, 2011. "Commercio Internazionale E Ambiente: Un’Analisi A Livello Provinciale," Quaderni DSEMS 06-2011, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  7. Anriquez, Gustavo, 2002. "Trade And The Environment: An Economic Literature Survey," Working Papers 28598, University of Maryland, Department of Agricultural and Resource Economics.
  8. Conconi, P. & Perroni, C., 2000. "Issue Linkage and Issue Tie-in in Multilateral Negotiations," The Warwick Economics Research Paper Series (TWERPS) 558, University of Warwick, Department of Economics.
  9. Horn, Henrik & Mavroides, Petros C., 2013. "Multilateral Environmental Agreements in the WTO: Silence Speaks Volumes," Working Paper Series 983, Research Institute of Industrial Economics.
  10. John Whalley, 2011. "What Role for Trade in a Post 2012 Global Climate Policy Regime," NBER Working Papers 17498, National Bureau of Economic Research, Inc.
  11. Tai-Liang Chen & Leonard Wang, 2010. "Trade liberalization and transboundary pollution in an international mixed duopoly," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 12(4), pages 187-200, December.
  12. Lai, Yu-Bong & Hu, Chia-Hsien, 2008. "Trade agreements, domestic environmental regulation, and transboundary pollution," Resource and Energy Economics, Elsevier, vol. 30(2), pages 209-228, May.
  13. Basu, Arnab K. & Chau, Nancy H., 2001. "Market Access Rivalry and Eco-labeling Standards: Are Eco-labels Non-tariff Barriers in Disguise?," Working Papers 127662, Cornell University, Department of Applied Economics and Management.
  14. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September.
  15. Ignatius J. Horstmann & James R. Markusen & Jack Robles, 2001. "Multi-Issue Bargaining and Linked Agendas: Ricardo Revisited or No Pain No Gain," NBER Working Papers 8347, National Bureau of Economic Research, Inc.

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