Globalisation, trade and the environment10.1 Does free trade result in ‘industrial flight’ to ‘pollution havens’?One of the main drivers of globalisation is
foreign direct investment by the rapidly growing
number of transnational corporations (TNCs). A
major criticism of TNCs is that they locate their
most polluting operations in countries with
weak or poorly enforced environmental
regulations. ‘Industrial flight’ takes place when
environmental standards are raised in one
country, prompting industry to move to another
country with lower standards. A ‘pollution
haven’ is a country that sets its environmental
standards inefficiently low (in economic terms)
to attract foreign direct investment and where
there is clear evidence that an industry does
relocate there to avoid pollution abatement
costs. There are clearly many developing
countries that have low environmental
standards and suffer from high levels of
pollution, but those features do not in
themselves make them pollution havens.
Several econometric studies of US
manufacturing firms, mostly from a pro-free
trade perspective, have argued that industrial
flight is unlikely, primarily because other costs,
such as labour or technology, are much higher
than environmental costs. Whilst not denying
that polluting industries have grown in
developing countries, proponents of free trade
blame changes in domestic production and
consumption, rather than relocation by TNCs.
Local firms lack resources to invest in modern
cleaner technologies, the products from dirty
production methods tend to be for domesticmarkets and they often find it easier to avoid
compliance with environmental regulations
because they are smaller and more dispersed.
By contrast, TNCs operate to higher
environmental standards and use greener,
more efficient technologies. So, different
environmental standards are inevitable, but
they do not result in industrial flight.
Critics argue that the most polluting, high-
impact industries, such as mining, oil drilling
and logging, have a high concentration of
TNCs. Many TNCs operate double standards,
stricter in industrialised countries, laxer in
developing countries. There are numerous case
studies of highly polluting TNCs in developing
countries, including themaquiladora
manufacturing plants in Mexico, where around
2,000 American companies, mostly in polluting
chemical, electronics and furniture industries,
have moved in, partly in response to higher
regulations in the USA, and partly attracted by
laxer enforcement of standards across the
border. It is argued that economic globalisation
means that even the smallest of cost
differences can be enough to persuade TNCs
to relocate, whilst governments in poorer
countries are put off raising environmental
standards for fear of driving firms away.
One reason why this debate rumbles on is
that it is very difficult toproveeither
interpretation is correct.
Based on Clapp and Dauvergne ( 2005 : 161–9). See
Clapp ( 2001 ) and Neumayer ( 2001 ).◗ The WTO and the environment
Defenders of the WTO argue that it can and does protect the environment;
its opponents claim that the WTO and the international trade rules it gov-
erns are biased against environmental interests. This section analyses this
question by examining the impact of the WTO disputes procedures and
assesses the relationship between the rules governing international trade
and the multilateral treaties that underpin environmental regimes.