Environmental Regulation Amid Economic Interdependence

Opponents of globalization argue that free trade will inevitably lead to the emergence of "pollution havens," most likely in developing countries with few environmental standards, and that such pollution havens in turn will trigger "races to the bottom" as other countries relax their environmental standards to compete for footloose capital. While there has been no shortage of rhetoric about races to the bottom, there have been few systematic studies of whether, in the context of global trade, policymakers actually relax their environmental regulations to protect existing industries and attract new ones. This project seeks to fill that gap by comparing environmental regulation of one global industry, pulp and paper, in five countries.

The study includes the industrialized countries that lead the industry (Canada, Sweden, and the United States) and two countries that sought in the late 1980s to attract major investments in pulp and paper, one an industrialized country (Australia) and the other a developing country (Indonesia). Political Scientist Kathryn Harrison reviewed documentary evidence and conducted interviews with policymakers, industry officials, and environmentalists in each country to assess the impact of both domestic and international factors on environmental standards and industry performance.

The first conclusion of the study was that domestic politics still matters even in an era of economic and political globalization. Significant differences remain among the environmental standards adopted for the pulp and paper industry by the five countries studied. Second, globalization did not yield a race to the bottom in environmental standards. Industrialized countries did not relax their regulations to compete with Indonesia’s weaker environmental standards. Indeed, in response to environmentalists’ market campaigns, foreign investors and customers demanded that Indonesian mills install state-of-the-art pollution control technologies to match Western environmental standards. Thus, the confluence of political and economic globalization created upward pressure on Indonesia, rather than Indonesia’s lax environmental record dragging other countries down.

One important caveat, though, was that global markets have been more attentive to pollution from pulp mills than to their fibre sources. Globalization thus has not had the same positive impact on Indonesian forestry practices.

Indeed, it can be argued that the Indonesian has offered a pollution haven for illegal logging, which contributed to the massive expansion of the Indonesian pulp and paper industry that occurred during the 1990s.

This project was funded by a Social Science and Humanities Research Council of Canada research grant for $58,000, which expired in 2000. Ongoing work was supported by visiting fellowships at Resources for the Future, a think tank in Washington DC, and the University of Melbourne. The project is now drawing to a close with preparation of a book manuscript.

Kathryn Harrison

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