An Economic Analysis of Trade Measures to Protect the Global Environment

In this article, Professor Howard Chang addresses the role of trade restrictions in supporting policies to protect the global environment and proposes a more liberal treatment of these environmental trade measures than that adopted by dispute-settlement panels of the General Agreement on Tariffs and Trade (GATT). The GATT Secretariat has recommended that countries like the United States rely on carrots rather than sticks in order to induce the participation of other countries in multilateral environmental agreements. Professor Chang defends the use of sticks on the ground that they encourage more restrained exploitation of the environment pending a multilateral agreement. First, sticks discourage countries from harming the environment. Second, carrots create perverse incentives. Countries may seek to convince others that they derive large benefits from exploitation by engaging in a great deal of exploitation, so that other countries will offer larger carrots to induce their restraint. Professor Chang also addresses how GATT should limit the use of trade restrictions to prevent the protectionist abuse of trade measures