Import Tariffs as Environmental Policy Instruments

Transcription

1 Import Tariffs as Environmental Policy Instruments

2 Economy & Environment VOLUME 19 Scientific Advisory Board Scott Barrett, School of Advanced International Studies, fohns Hopkins University, Washington DC, U.S.A. Klaus Conrad, University of Mannheim, Mannheim, Germany David James, Ecoservices Pty. Ltd., Whale Beach, New South Wales, Australia Bengt J. Kristrom, University of Umea, Sweden Raymond Prince, Congressional Budget Office, US. Congress, Washington DC, US.A. Domenico Siniscalco, ENI-Enrico Mattei, Milano, Italy / University aftorino, Italy The titles published in this series are listed at the end o/this volume.

3 Import Tariffs as Environmental Policy Instruments by Christiane Kraus The World Bank, Washington DC, U.S.A. and Hannover University, Hannover, Germany... " Springer-Science+Business Media, B.Y.

4 A C.LP. Catalogue record for this book is available from the Library of Congress. ISBN ISBN (ebook) DOI / Printed on acid-free paper All Rights Reserved 2000 Springer Science+Business Media Dordrecht Originally published by Kluwer Academic Publishers in Softcover reprint of the hardcover 1st edition 2000 No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner.

5 Import Tariffs as Environmental Policy Instruments ABSTRACT This study presents an integrated theoretical and political approach to assess import tariffs to support environmental policy instruments. To analyse rigorously the theoretical claim for such eco-tariffs, we provide a unified framework in form of an international trade model enriched by a domestic respectively global environmental externality. In the course of the investigation, we modify the model to analyse an array of contexts for which an environmental quality or welfare improving effect of eco-tariffs has been claimed. We characterise circumstances and conditions under which such tariffs can be shown to improve environmental quality and social welfare, taking into account general equilibrium effects. Furthermore, we apply the theoretical results in a policy analysis of ecotariffs and other trade instruments in the context of domestic and global environmental policy to assess the relevance of the theoretically analysed eco-tariffs. Finally, we present the GATT/WTO rules and regulations which to date ban use of eco-tariffs for environmental objectives. Mapping those rules and regulations against our theoretical results, we attempt to isolate which rules ought to be changed. v

6 VI ACKNOWLEDGEMENTS This book is the result of more than three years of research that began in Brussels, continued in Kiel, was mainly undertaken in Hannover, and concluded in Washington, DC. I first started thinking about the suitability of trade instruments to further environmental protection while working in 1995 for DG I at the European Commission where my Conseiller Ramiro Cibrian brought this question to my attention. Thereafter I began my doctoral studies at Kiel University where Prof. Dr. Michael Rauscher took an interest in my work. Prof. Rauscher subsequently agreed to co-supervise my doctoral thesis when I moved in 1996 to Hannover University to continue - and eventually finish - my doctoral studies in the department for Quantitative Economic Research under the supervision of Prof. Dr. Hans-Joachim Heinemann, chair for International Economics. I am highly indebted to both Prof. Heinemann and Prof. Rauscher for their continued support over the course of this my doctoral studies. Prof. Heinemann provided excellent working conditions at Hannover University. He also sharpened my mind on issues of international monetary and trade economics, and challenged my views on various issues of this study. Prof. Rauscher, chair for International Economics at Rostock university, encouraged and guided me in a truly marvellous fashion. Without his expert knowledge in the field and outstanding qualities as a supervisor I would not have mastered the challenge of a doctoral thesis. Support by the Studienstiftung des deutschen Volkes is gratefully acknowledged. My friends at Hannover University - Lars, Nelli, Boris, Karen, Adrian and Dirk formed a wonderful team. Special thanks go to Dirk for helping me with a lot of tricky analytical questions and reading the entire manuscript, and to Adrian for formatting the graphs. I would also like to thank Martin for long discussions on GATT law issues, and Sophia and Stefan for their flexibility to tum a social visit into an intense last-minute proof-reading effort. Special thanks go to my mentoress Lilo who always had a supportive and watchful eye on me from Brussels. Finally, I would like to thank Jane for her invaluable editorial support. I am deeply grateful to my friends Barbara, lise, Lilja, Marietta, Sophie and Philipp for providing the emotional backbone to live through the ups and downs of doctoral studies. My greatest debt is to my parents who carried much of the burden and shared my joy in completing this book - lowe them so much more than my doctorate.

7 WERWEISS? Ein Mensch schreibt feurig ein Gedicht: So, wies ihm vorschwebt, wird es nicht. Vielleicht hat Gatt sich auch die Welt Beim Schopfen schaner vorgestellt. (Roth [1983,265])

8 TABLE OF CONTENTS Page Abstract... v Acknowledgements... vi List of Abbreviations...,... '"... xiii List of Symbols... xiv List of Figures..., "... xv List of Tables... xvii CHAPTER 1. INTRODUCTORY REMARKS SUBJECT, MOTIVATION, OBJECTIVE, ApPROACH AND STRUCTURE ISSUES, CONCEPTS AND DEFINITIONS... 5 CHAPTER 2. ECO-TARIFFS TO AVOID ECO-DUMPING AND ENVIRONMENTAL RACES TOWARDS THE BOTTOM (ERTB} EMPIRICAL ASSESSMENT OF ECO-DUMPING AND ERTB THEORETICAL ASSESSMENT OF ECO-DUMPING AND ERTB ECO-TARIFFS TO COUNTERACT ECO-DUMPING AND ERTB? SUMMARY AND CONCLUSIONS CHAPTER 3. AN INTERNATIONAL TRADE MODEL WITH POLLUTION AND ECO-TARIFFS MODEL EFFECTS OF TRADE LIBERALISATION AND TRADE POLiCy EFFECT OF NON-OPTIMAL ENVIRONMENTAL AND TRADE POLICY CONCLUSIONS CHAPTER 4. TARIFFS TO AVOID ECO-DUMPING FOR TERMS OF TRADE REASONS ECO-DUMPING AND TERMS OF TRADE IMPROVEMENTS ECO-TARIFFS AND TERMS OF TRADE IMPROVEMENTS COMPARISON OF ECO-DUMPING AND ECO-TARIFFS FOR TERMS OF TRADE REASONS CONCLUSIONS CHAPTER 5. TARIFFS TO AVOID ECO-DUMPING FOR STRATEGIC TRADE POLICY REASONS STRATEGIC ENVIRONMENTAL POLICY STRATEGIC ENVIRONMENTAL AND TRADE POLICY... 90

9 x 5.3 DISCUSSION CONCLUSIONS CHAPTER 6. TARIFFS TO COUNTERACT ECO-DUMPING CAUSED BY REGULATORY CAPTURE ENVIRONMENTAL REGULATION UNDER REGULATORY CAPTURE Eco-TARIFFS AND REGULATORY CAPTURE Eco-tariffs and Regulatory Capture in a Small Country Eco-tariffs and Regulatory Capture in a Large Country DISCUSSION AND EXTENSION Regulatory Capture, Environmental and Trade Policy Conditional Eco-tariffs and Regulatory Capture CONCLUSIONS CHAPTER 7. THE ROLE OF TARIFFS IN PROTECTING GLOBAL ENVIRONMENTAL COMMONS GLOBAL COOPERATION AND LEAKAGE EFFECT TRADE INSTRUMENTS AS SECOND BEST MEASURES TRADE INSTRUMENTS TO ACHIEVE GLOBAL COOPERATION DISCUSSION AND OPEN ISSUES SUMMARY AND CONCLUSIONS CHAPTER 8. AN INTERNATIONAL TRADE MODEL WITH SPILL-OVER POLLUTION SPILL-OVER POLLUTION ENVIRONMENTAL POLICY IN THE PRESENCE OF SPILL-OVER POLLUTION CONCLUSIONS CHAPTER 9. TARIFFS AS SECOND BEST INSTRUMENTS TO INTERNALISE SPILL-OVER POLLUTION Eco-TARIFFS IN THE PRESENCE OF SPILL-OVER POLLUTION WELFARE EFFECTS OF ECO-TARIFFS FOR THE REST OF THE WORLD IN THE PRESENCE OF SPILL-OVER POLLUTION GLOBAL WELFARE EFFECTS OF ECO-TARIFFS IN THE PRESENCE OF SPILL-OVER POLLUTON CONCLUSIONS CHAPTER 10. INCENTIVE EFFECTS OF ECO-TARIFFS ENVIRONMENTAL POLICY EFFECTS OF AN ECO-TARIFF INCENTIVE EFFECTS OF A CONDITIONAL Eco-TARIFF DISCUSSION AND EXTENSION CONCLUSIONS

10 10.5 ARE ECO-TARIFFS WELFARE-ENHANCING MEASURES TO A VOID ECO-DUMPING OR TO PROTECT THE GLOBAL ENVIRONMENTAL COMMONS? CHAPTER 11. TARIFFS TO COUNTERACT ECO-DUMPING CAUSED BY REGULATORY CAPTURE CHAPTER 12. ECO-TARIFFS AND DOMESTIC ENVIRONMENTAL POLICY ISSUES, POLICY INITIATIVES AND PROPONENTS ECO-TARIFFS AND OTHER TRADE RESTRICTIONS TO OFFSET COMPETITIVE EFFECTS OF ENVIRONMENTAL REGULATION: POLICY ANALySIS GATT/WTO RULES: CURRENT INTERPRETATION, POSSIBLE CHANGES ANDEVALUATION CONCLUSIONS CHAPTER 13. ECO-TARIFFS AND GLOBAL ENVIRONMENTAL POLICY ISSUES AND POLICY INITIATIVES ECO-TARIFFS AND GLOBALENVIRONMENTAL PROBLEMS: POLICY ANALYSIS GATT/WTO RULES: CURRENT INTERPRETATION, POSSIBLE CHANGES AND EVALUATION CONCLUSIONS CHAPTER 14. CONCLUDING REMARKS References Appendix...,243 xi

11 xiii LIST OF ABBREVIATIONS BTU ch. CFC CRS CTE ed./eds. et al. ERTB EU EPA FOCs GATT GHG ITO NAFTA NIMBY OECD PPM sg SPSS TBT U.S. UV-B Vol. w.r.t. WTO British Thermal Unit chapter chlorofluorocarbon constant returns to scale Committee on Trade and Environment editor/editors et alia/alii (and others) Environmental Race towards the Bottom European Union Environmental Protection Agency first order conditions General Agreement on Tariffs and Trade greenhouse gas International Trade Organization North American Free Trade Agreement not in my backyard Organisation for Economic Cooperation and Development production and process method sign Sanitary and Phytosanitary Standards Technical Barriers to Trade United States (of America) ultraviolet-b Volume with respect to World Trade Organisation

12 xiv LIST OF SYMBOLS Usually, lower case letters denote variables of the home country, upper-case letters denote variables of the rest of the world c i, C i f,f,h,h g, G k, K, k,,k ki,f(,ki, Ki I, L, L L. t Li}1 [I,,, p,p i r, R s,s u, U, v, V W, W Wi x, X, x, X, y, y, y, y p K 1t, n 't, T <p,s I consumption production functions environmental (,green') tax rate capital stock capital input labour supply labour input product prices reaction functions polluting smoke utility functions disutility functions social welfare function factor rates of return supply of goods parameter scale parameter profit functions tariff rate production function political support function

13 xv LIST OF FIGURES Page Figure 3-1: Effect I of the Environmental Tax g: Change of the Contract Curve Figure 3-2: Effect II of the Environmental Tax g: Shrinkage of the Production Possibility Space Figure 3-3: Effect III of the Environmental Tax g: Non-tangency of the Price Vector Figure 3-4: Effect I of Trade-liberalisation on the Production Possibility Space Figure 4-1: Effect of Eco-dumping in the Production Possibility Space I: At Constant World Prices Figure 4-2: Effect of Eco-dumping in the Production Possibility Space II: Change in World Prices Figure 4-3: Nash Equilibrium in Eco-dumping and NIMBY in the Goods Space Figure 4-4: Nash Equilibrium in Eco-dumping and NIMBY in the Tax Space Figure 4-5: Effect of an Eco-tariff in Home: Protective and Price Effect Figure 4-6: Comparison of Nash Equilibria in Eco-dumping & NIMBY, and Eco-taxltariff & NIMBY Figure 5-1: Nash Equilibrium in Quantities Chosen by Home's and Foreign's Duopolists Figure 5-2: Nash Equilibrium in Quantities Chosen by Home's and Foreign's Duopolists with Eco-dumping in Home Figure 5-3: Nash Equilibrium in Quantities Chosen by Home's and Foreign's Duopolists with Eco-dumping in Home and Foreign Figure 6-1: Nash Equilibrium in the Tax Space under Regulatory Capture Figure 6-2: Comparison of Nash Equilibria in Eco-dumping and NIMBY and Eco-taxltariffand NIMBY if the Labour Abundant Country is subject to Regulatory Capture

14 XVI Figure 9-1: Effect Of Spill-over Pollution on the Optimal Tariff Figure 9-2: Outward Movement of Home's Reaction Function and Inward Movement of Foreign's Reaction Function if Pollution Spills Across Borders Figure 9-3: Trade Contract Curves Omitting and Considering Spill-over Pollution Figure 9-4: Export Offer Curves and Contract Curves Omitting and Considering Spill-over Pollution

15 xvii LIST OF TABLES Page Table 4-1: Factor Abundance and Terms of Trade Improving Environmental Policy Table 4-2: Effects of an Environmental Policy War Table 4-3: Effects of an Environmental Tax and Tariff War Table 4-4: Comparison of Unilateral Eco-dumping and Eco-tariff Table 4-5: Comparison of an Environmental Policy War and an Environmental Tax and TariffWar Table 9-1: Effects of an Environmental Tax and Tariff War for Spill-over Pollution