In his recent comment on trade and environment, professor Dani Rodrik (Project Syndicate 12/2022) argued that environment should under present circumstances come first and before trade considerations. In simple terms, what Dani is saying is that the environmental crisis is serious and that its protection is more important than gains we can obtain from more and efficient trade. To an outsider, this argument could sound almost like a non-brainer but non-brainer it is not.
Many years ago, I had a short debate with the guru and the highly respected international economist professor Jagdish Bhagwati. I wrote to him in response to one of his policy papers I which he was strongly defending the classical trade theories based on the Ricardo’s theory of comparative advantages. It is well known that professor Bhagwati has been a strong believer in comparative advantages and was trying to defend the thesis with other academic economists. My head was at the time full of various ideas concerning market imperfections, and their role in the construct of the theory. One area of such imperfections was (and is) labour markets and, by way of a relevant example, the employment of child labour. When I wrote to Jagdish I asked him how he would look at the treatment of child labour by the theory. His answer was a reluctant but definitive yes – if a country creates a comparative advantage with distorted prices of production, so be it, it can still gain.
This story brings me back to professor Rodrik’s recent piece published by the Project Syndicate on environment and comparative advantages. As he rightly says, imposing costs on other countries while addressing climate change is, however, precisely what the European Union has been planning to do. Through its carbon border adjustment mechanism (CBAM), the EU will soon impose duties on certain carbon-intensive imports. The goal is to maintain a high domestic price for carbon without allowing foreign firms to undercut European producers through cheaper imports. But the import duties will also hurt many lower-income countries such as Mozambique, Egypt, and India.
As he also rightly says,… one country’s levelling of the playing field is another country’s unfair targeting of comparative advantage. This brings me back to my correspondence with professor and the treatment of child labour. I am sure professor Rodrik will agree with me that ” child labour is bad”. However, if we accept his argument about environmental standards in trade as being protectionist for the rich countries, should we also not use the logic the other way round when countries like India, Pakistan or Bangladesh allow child labour to protect their comparative advantages?
The problem is, of course, that we are comparing two social goods (or “bads”) – environmental deterioration and inhuman treatment of children. Maybe, there is a scientific way of saying that one is “better” than the other and, maybe, someone knows to do it. I do not, I admit.
Z. Drabek, Prague, 27 December 2022