Trade and Sustainable Development: Friend or Foe?

In most international organizations, including the United Nations (UN) and the World Trade Organization (WTO), conventional wisdom is that international trade supports sustainable development. “Trade growth enhances a country’s income generating capacity, which is one of the essential prerequisites for achieving sustainable development,” the WTO noted in the 2016 UN High-Level Political Forum on Sustainable Development.

This belief is usually based on the relationship between trade and only one — or, at most, two — of the three pillars of sustainability. These pillars are: the economy, social interests, and the environment.

It’s pretty obvious how trade can support the economic pillar of sustainable development. Over the past few decades, we’ve seen the significant role of global trade in reducing poverty, creating jobs, and promoting growth. According to the World Bank and the WTO, developing countries made up 48 percent of world trade in 2015, up from 33 percent in 2000. Meanwhile, the number of people living in extreme poverty was cut in half between 1990 and 2015. Trade helps provide more and better jobs to people, lower prices for products, and stimulate the growth necessary to end poverty. (See Sustainable Development Goal (SDG) #1, which aims to eradicate poverty, and SDG #8, which focuses on decent work and inclusive economic growth.)

The effect of trade on social interests is more mixed. The economic benefits of trade can empower people to address major social needs in their communities, like protecting human rights, improving working conditions, and achieving gender equality. Further, trade agreements and rules also have the potential to serve as social safeguards. In 2011, the WTO estimated that 75 percent of the world’s countries were bound by a free trade agreement (FTA) that included provisions addressing human rights. In 2013, around 120 of the 190 countries that were parties to FTAs were parties to an FTA that includes labor rights protections. All of European Union’s trade agreements contain gender equality regulations. (See SDG #5, which aims to end gender discrimination, and SDG #8.) On the other hand, trade agreements can lead to worsening working conditions, as NAF TA has demonstrated. In addition, these provisions are difficult to enforce.

But the big subject that’s overlooked, at least in the SDGs, is how trade can help the environment. The relationship between trade and the environment is complex and certainly not always positive. For example, the global agricultural trade has caused agricultural expansion, deforestation, and biodiversity loss in producer countries. Exports of soya and palm oil bring revenue to countries like Brazil, Indonesia, and Malaysia, but the intensive farming of these crops also causes rainforest and habitat destruction, overfarming, and the destruction of soil and water. (See SDG #6, which focuses on reducing water scarcity and improving access to clean water, and SDG #15, which aims to conserve land-based ecosystems like forests and wetlands.)

Trade may also be an obstacle to combating climate change. According to the WTO and the UN, open trade would increase industrial production and eventually increase CO2 emissions. Also, “trade may increase the vulnerability to climate change of some countries because it leads them to specialize in the production of products in which they have a comparative advantage, while relying on imports to meet their requirements for other goods and services. These countries may become vulnerable if climate change leads to an interruption in their supply of imported goods and services.” (See SDG #13, which focuses on the need for climate action.)

Although some FTAs have environmental protection provisions on paper, they are seldom able to be enforced. Even though there have been documented violations, no Party has ever brought a formal case based on the environmental provisions of any US FTA. In fact, the enforcement of trade provisions usually does the opposite of protecting the environment: Companies regularly use Investor-State Dispute Settlement (ISDS) to sue governments for enacting and upholding laws that are meant to protect the environment and communities. This failure to enforce hinders society’s progress toward sustainability.

So, how do we mitigate the harms caused by trade to sustainable development? Sometimes, trade itself can be a solution. In the previous example, if climate change leads to a scarcity of certain goods and services in a country, trade can be a means for the country to obtain what it needs from other regions of the world. In other situations, we may combine trade with other economic, social, or environmental methods for a positive outcome. For instance, countries and cities signed the Paris Agreement in April 2016 and the Chicago Climate Charter in December 2017, committing to international and local efforts to tackle global temperature rise.

Trade impacts different aspects of sustainability in various ways, both positively and negatively. It has a rich context in the real world, so we must understand the full scope of the effects of trade when talking about it as an engine or impediment for sustainability. But trade is not the only tool we have. Sustainable development depends on thoughtful use of the whole toolbox, and tailoring it to achieve all three pillars of the goals.

Siyi Shen, CIEL legal intern

By Siyi Shen, Legal Intern

Originally posted on February 6, 2018