The first approach is satisfactory if the adjustments are relatively small and not abrupt. Preliminary evidence indicates that this may be the case for most industries, but much more thorough research is needed to verify this. The second approach has historical precedent in the adjustment assistance provision of the 1962 Trade Expansion Act. This approach seems most promising for situations in which adjustments would be sharp and substantial. It may be noted that additional costs are a very strong spur to technological improvements which, together with transitional assistance to firms and workers, should ease adjustment in a dynamic economy. The third approach-export subsidies and import surcharges to compensate industries for the cost of pollution control-while superficially attractive, has major disadvantages. First, it will be difficult to identify with reasonable accuracy the additional cost and price, by product, of pollution control and hence the size of the subsidy or surcharge. It could easily serve as an open invitation for this country or for other countries to covertly control imports and expand exports, contravening the existing principles governing foreign commerce. Second, the surcharge/subsidy scheme does not provide an incentive for either switching production techniques or minimizing pollution control costs, and consequently does not lead to eventual adjustment and lower pollution levels. Third, such a scheme would set a precedent for other countries, and could lead to an international escalation of taxes and rebates internationally for pollution control costs and perhaps for the costs associated with securing other social objectives (for example, taxes and rebates to adjust for international differences in minimum wage regulations). Fourth, the scheme may be in violation of GATT obligations. (4) Accordingly, the United States should not institute a regime of export rebates and import surcharges to compensate for pollution control costs, and should vigorously oppose, in international organizations and in bilateral negotiations, the acceptance of the scheme by others. (5) The degree to which environmental control programs are initiated and the level of acceptable pollution is basically a domestic question, and does not appear to be subject to general international negotiation and agreement. We do not recommend an international convention to set pollution standards. There are two major exceptions to this position. Clearly, transnational pollution must be considered internationally and it will be appropriate to negotiate standards among countries. This is equally true for pollu tion which deteriorates international resources-the oceans—and pollution which originates in one country and impinges on a second. Second, there appears to be scope for international standards of pollution which merge with health and sanitary regulations. The area with most promise "Even if pollution control takes the form of a charge on effluents, the cost to the firm cannot be inferred by the charges paid. Presumably the firm would incur pollution control costs to minimize the charges they pay, and hence the charge itself does not reflect the costs incurred. concerns the use of pesticides in agricultural products which move in international trade. The negotiation of international standards would be clearly desirable, for they would reduce arbitrary and capricious national policy. (6) In contrast to production pollution, it will be desirable to rebate taxes imposed for controlling consumption pollution, and impose corresponding taxes on imported products. For example, if we find it desirable to tax leaded gasoline or impose a tax on the disposal of automobiles in order to discourage their use or to incorporate their costs into the price, it is altogether appropriate to rebate the tax at the border and to assess a corresponding tax on the importation of like products. The essential difference is that products which pollute in use are a cost to the country in which they are consumed; products which pollute while they are being produced are a cost to the country in which they are produced. (7) It may be tempting to use environmental control and pollution abatement measures as subtle NTBs. For example, national restrictions concerning the use of pesticides in production might be motivated by legitimate concern for health, but could reflect a desire to avoid import competition. It is in our interest to insure that environmental control does not become a major undesirable NTB. In this connection, we suggest an explicit statement through the GATT, reaffirming the basic. principles of nondiscrimination in the treatment afforded domestic and foreign products, and standards that reflect legitimate domestic objectives, not directed toward control of trade. Furthermore, we should express our willingness to discuss the formulation of our own standards with other governments and, when feasible, make available pollution abatement technology. Finally, the structure of existing international institutions should be examined to see if they have adequate machinery for policing the international effects of pollution control. International machinery for notice, consultation, and confrontation concerning pollution abatement regulations should be available. (8) There is a pressing need for empirical research in the area of environmental control benefits and costs. Although we recognize that the international economic consequences of pollution control should not be the central issue in this research, we nevertheless urge that they be included as an integral and important aspect. The Council on Environmental Quality is an appropriate instrument for organizing and coordinating this work. VIII. SUMMARY This paper attempts to analyze the international economic consequences of environmental control and pollution abatement programs, and suggests appropriate policies for the United States. The Introduction points out that pollution control programs, or measures designed to offset the trade consequence of pollution control, are special examples of the more general problem of non-tariff trade barriers. The Background section explains why the price/market system, if left unregulated, fails to meet the problem of pollution, and describes methods of government intervention. Following this, three major types of pollution are identified and the international economic implications of each are discussed. The very important area of pollution abatement costs and methods of financing are considered next. Three considerations emerge. First, estimates of pollution abatement costs are highly tentative and depend on the standards desired by the society. This is basically a domestic decision. Second, the method of financing pollution abatement activities is important in determining the international economic consequences. There are strong arguments for incorporating pollution control costs. in the price of products, and the U.S. should press for international acceptance of this principle. Third, the available evidence, while still incomplete, indicates that the international economic consequences of pollution control may be relatively modest for the United States in comparison to other industrialized countries. A short description of the governmental and inter-governmental response to the international aspects of pollution problems follows. The final section makes recommendations for U.S. policy. The immediate need to establish international principles and provide international consultative procedures to minimize problems is stressed. The major recommendations are: (1) To negotiate an international agreement accepting the principle that pollution control costs should be incorporated into price. (2) We should avoid the device of export subsidies and import surcharges to compensate industries for pollution control costs. (3) We should oppose the imposition of export subsidies and import surcharges by other countries, except to control consumption pollution. (4) When appropriate, we should employ temporary adjustment assistance to specific export and import-competing industries adversely affected by pollution control measures. (5) Transnational pollution may be subject to international negotiation and standards. (6) Pollution control measures should not be used to control international trade and investment. We recommend an explicit statement. through the GATT, reaffirming the basic principles of non-discrimination in the treatment afforded foreign and domestic products, and pollution standards which reflect legitimate social objectives rather than covert NTBs. |