Free trade and environmental economics

Abstract

In this paper, I argue that there is no essential inconsistency between a well-constructed free trade policy and environmental sound development. From an examination of the concept of “free trade,” I argue that “free trade” must mean “environmentally sustainable trade.” The argument is conceptual in nature. I argue that free trade must mean trade free of subsidies in which the price of a good fairly reflects the costs of its production. I then argue that environmentally unsustainable commodity trade is in fact “subsidized.” Therefore, the international regulation of this trade would be consistent with the goal of free trade. Moreover, such regulation could promote both environmental conservation and the long-run interest of developing countries. However, ethical and practical considerations demand that these regulations must be structured so that they do not have a negative short-term economic impact on developing countries. A mechanism to implement this policy is suggested.