Green Trade Liberalization

This paper explores three crucial contemporary issues to reveal the consequence of tariffs as instruments to overcome environmental concerns. In other words, we try to find under what circumstances tariffs can be considered green policy instruments. Starting with conventional trade theory, we study how country characteristics, including environmental policies, can determine each country’s comparative advantage. We then study how governments may create “pollution havens” by setting lax environmental standards in order to maintain international competitiveness. Finally, we look at the role of multilateral trade organizations such as the WTO in muddling with international environmental agreements. Using conventional theory along with contemporary environmental concerns, we argue the need for a new phase of globalization, namely one accompanied by ‘green’ trade liberalization.