Trade and Development
Chapter Thirty-Six
Syllabus topic 2, "Sustainable Development."
Pages 106 to 108 of 663
In one line
Trade is how a developing country turns its resources into income, and the terms on which it does so decide how fast those resources are used up.
In exam wording: the relationship between trade and development is that trade in primary commodities is the principal source of foreign exchange for many developing States, that the terms on which such commodities are exchanged for manufactures have historically moved against the producers, and that this drives extraction volume, discourages the internalisation of environmental cost, and concentrates the environmental burden in the producing State while the value is captured elsewhere.
Why MU sets this in an environmental paper
She sets it as a short note in 2015. The link is direct and it is worth stating in the first paragraph of an answer: a country that must export more to earn the same must extract more, and extraction is where the environmental damage is.
The four propositions
One: dependence. Many developing economies earn most of their foreign exchange from a small number of primary commodities. A fall in one price is a national fiscal crisis.
Two: the terms of trade. The argument associated with the founding of the United Nations Conference on Trade and Development in 1964 is that the prices of primary commodities decline over time relative to those of manufactures. The argument is contested by economists and the policy conclusions drawn from it shaped a generation of institutions, including the New International Economic Order of 1974.
Three: value capture. Processing adds most of the value. A State that exports raw ore keeps the mine, the tailings and the water use, and exports the profit and the manufacturing jobs.
Four: the environmental consequence. Volume pressure, low margins, and a reluctance to add compliance cost that a competitor in another country will not bear.
The legal instruments, and what they do
| Instrument | What it does | Limit |
|---|---|---|
| Generalized System of Preferences | Lets developed States give tariff preferences to developing ones | Voluntary and unilateral; may be withdrawn |
| Commodity agreements | Attempt to stabilise price by buffer stock or quota | Almost all have collapsed |
| Rio Principle 12 | An open international economic system leading to growth and sustainable development in all countries; trade measures for environmental purposes should not be arbitrary or unjustifiable discrimination or a disguised restriction | States the tension without resolving it |
| Framework Convention article 4, paragraph 8 | Requires Parties to consider actions to meet the specific needs of countries whose economies depend on fossil fuel production and export | Rarely operationalised |
| Export restriction and domestic processing requirement | Forces value addition at home | May conflict with trade obligations |
Worked example
Country F earns sixty per cent of its export income from one mineral. The price falls by a third.
Trade and Development
- What happens to volume? It rises. F must export more to earn the same.
- What happens to environmental compliance? The pressure is to relax it, because the marginal mine is now unprofitable and the alternative is job losses.
- What can F do lawfully? Ban the export of unprocessed ore to force domestic refining, which several States have done; or diversify, which takes a generation.
- What does international environmental law offer? Rio Principle 12 acknowledges the tension. The Framework Convention's article 4, paragraph 8, requires Parties to consider the needs of States dependent on fossil fuel exports. Neither gives F money or a market.
That last line is the honest conclusion for an answer. Trade and development is the part of this subject where international environmental law has least to offer, and saying so is better than pretending otherwise.
The counter-argument, which belongs in the answer
Trade also carries technology, and it is the enforcement mechanism of half the treaties in this book.
- Article 4 of the Montreal Protocol bans trade in controlled substances with non-Parties, which is what brought reluctant States in.
- Article 4, paragraph 5, of the Basel Convention prohibits export to a non-Party.
- CITES runs entirely on export and import permits.
So the same trade system that drives extraction is also the lever by which environmental treaties are enforced. A candidate who states both halves has understood the subject.
What it does NOT mean
It does not mean trade restrictions are always permissible. A measure that discriminates arbitrarily between countries where the same conditions prevail, or is a disguised restriction on international trade, is not saved by an environmental purpose. Rio Principle 12 says so in terms.
It does not mean the terms of trade argument is settled economics. It is not. Its legal significance is that it shaped the institutions and the arguments the developing States still make.
Quick revision
- Four propositions: commodity dependence, terms of trade, value capture, environmental consequence.
- The link to state first: exporting more to earn the same means extracting more.
- Rio Principle 12: an open economic system, and no arbitrary or unjustifiable discrimination or disguised restriction.
- Framework Convention article 4, paragraph 8: the needs of fossil-fuel-dependent economies.
- The counter-argument: trade restriction is the main enforcement tool of Montreal, Basel and CITES.
Test yourself
1. State in one sentence why a falling commodity price is an environmental problem. Because the producing State must export more volume to earn the same revenue, and volume is what causes the extraction damage.
2. Which Rio principle governs trade measures taken for environmental purposes, and what limit does it set? Principle 12. Such measures should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.
Trade and Development
3. Give two treaties that use trade restriction as their enforcement mechanism. The Montreal Protocol, whose article 4 restricts trade with non-Parties, and the Basel Convention, whose article 4, paragraph 5, prohibits export to a non-Party. CITES is a third.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.