The Russian Federation’s accession to the World Trade Organization (WTO) is an event of exceptional importance. On many levels, there are concerns that the environment in Russia will be negatively affected by trade liberalization. A growing body of research looking at economic and physical linkages between trade, environment and development shows that these linkages are often complex and interdependent.
Scientists have implicated that from an economic perspective, trade liberalization and environment are related because most economic output is based on input from the environment, including the energy for processing them, and waste released to environment. However, the effect of trade liberalization on the environment would vary depending on sector, country policies, markets, technologies and management systems. Changes in environmental quality as a result of potential expansion of “dirty industries” (e.g., ferrous and non- ferrous metals, chemicals) could be mitigated by effective and transparent enforcement mechanisms. Russia’s economic gains from trade liberalization are estimated at about $49 billion annually. For these gains to be environmentally sustainable, it will be crucial to implement complementary “do-no-harm” policies tailored to address environmental concerns. This will be pivotal in sustaining the sources of gains from WTO accession in the long run.
So how does trade liberalization affect environmental quality?
There is a positive correlation between trade and environment. The wealth that trade liberalization creates tends to generate a demand for environmental improvements; and trade liberalization induces efficiency gains from more effective use of resources and lower waste generation. Increased access to global markets and growing trade cooperation will create national wealth that can be used for environmental protection .
Trade liberalization will create consumer surpluses associated with falling prices or increased quality. There will be structural changes associated with trade liberalization. The effect is that certain economic sectors or activities will be reduced because their products can be imported at a lower cost or higher quality. Sectors that are likely less susceptible to innovation may not benefit from the resources associated with higher growth. Such sectors could present specific environmental problems that will require policy-makers’ attention.
Trade liberalization could induce reallocation of resources within Russia with some sectors expanding and others contracting. If expanding sectors are more pollution-intensive than contracting sectors, the reallocation of output will not be neutral to the environment – unless countermeasures are put in place to reduce pollution.
These and other challenging aspects of trade and environment and the key measures that can be taken by Russian policy and decision makers were discussed in Moscow at a consultation event on a draft report titled Environmental Perspective of Russia’s WTO Accession. The report is intended to be the starting point for a much broader policy dialogue on the opportunities and challenges associated with trade liberalization concerning environment.
By adding an environmental dimension to the earlier research on the economy-wide impacts of WTO carried out by the World Bank, the analysis addresses a specific question : what are the environmental prospects of WTO accession and what policies can be implemented that will allow Russia to achieve environmentally sustainable growth? The report responds to the question by reflecting on three aspects of economic development associated with trade liberalization: change in production output (the scale effect), sector mix (the composition effect), and productivity (the technique effect). It highlights how Russia’s accession to the WTO might acerbate environmental challenges and how the economic gains from trade liberalization could be used in part to better protect the environment.