Pollution Policy and Liberalization of Trade in Environmental Goods

Abstract

During the Doha Round at the World Trade Organization (WTO), reductions in trade barriers on environmental goods (EG) were put forward as a means of helping developed and developing countries alike deal with current environmental problems. We examine the potential effectiveness of such a strategy in countries that rely on imports for their needs in EG. We point out that liberalizing trade in EG might in fact lead to less stringent environmental regulations, resulting in an actual rise in pollution levels. We then show conditions under which the environmental effectiveness and the welfare improvement objective of this trade reform are compromised.