Peace and prosperity through world trade: Achieving the 2019 vision

Destructive trade winds: trade, consumption and resource constraints

By Chandran Nair

This article appears in a recently published book commissioned by the International Chamber of Commerce (ICC) for its 90th anniversary: Peace and Prosperity through World Trade: Achieving the 2019 Vision”

Any article which attempts to suggest that trade is destructive is going to be controversial. It will attract the attention of the pro-globalization and trade lobby whose attacks on the underlying arguments will be swift and stacked with conventional arguments.  The reality though is that both directly and indirectly free trade encourages the unrestrained consumption of goods and services, thereby playing a potentially negative role in the world by increasing the pressure on resources in a constrained planet.

Conventional wisdom holds that trade over the centuries has been the great integrator of societies and been the catalyst for human advancement and global prosperity creation. This is even if one discounts the fact that in the pursuit of trade colonial powers sowed the seeds for many current day inequalities in numerous parts of what is now the developing world.

The common response to any suggestion that this issue needs be considered seriously is to dismiss it as naive and unrealistic. The often used retort is; “If there is less free and open trade then what?”  But is that the question we should be asking ourselves in the 21st century knowing what we now know with the benefit of modern science about resource constraints?

No one is denying that trade in its numerous forms and shapes is needed, that it is very much part of what drives the human desire to be resourceful, that it creates much needed economic activity and thus is even essential for  human development. However as we enter the 21st century, with a population of 6 billion that may peak at 9 billion by 2050 , the question is whether we will need to cast aside many previously held beliefs and re-define trade by bringing in new rules of trade and commerce that recognize resource limits? The acknowledgement of the limits to consumption due to resource constraints needs to now take centre stage at the global trade framework for the 21stcentury. Conscious and even rules based consumption will need to replace that which is simply conspicuous.

Therefore the questions we will need to ask are as follows. What sorts of trade activities should we encourage, on what aspects might we even impose restrictions, how do we make it fair as opposed to just free, and how do we ensure it is less destructive given that growth in trade is dependent on encouraging consumption and thus depletion of precious but finite resources.

Examples abound but let us just consider sectors such as fisheries, industrial meat production, forestry and vegetable oil production, whilst leaving aside energy. Most of these sectors are on an unsustainable path as their trade and consumption push the resource base to the brink. But if we are truly concerned it is entirely possible to put in place economically viable schemes which make most ocean caught fish certified to sustainable standards and meat priced to take account of the carbon footprint of current inefficient conversion processes. The same can be achieved with forest related products certified to sustainable standards and limiting the production of vegetable oil to essential needs so that more forests (carbon sinks etc) are not destroyed. If we are to suggest this is not possible then all discussions on resource protection and planetary well being should stop now.

In addition it must also be blatantly obvious to all except the most fundamentalist of free marketers that peace in the 21st century will be shaped by resource ownership issues and the challenge of our times: climate justice.

These questions are often discussed amongst academics and intellectuals but rarely within trade negotiating circles. Even the best books on the history of trade and globalization rarely examine the issue of consumption and resource constraints even when they superficially address environmental issues. It seems just too uncomfortable to address this perfectly logical question with its harsh realities. The deniers typically revert to the tired old arguments that the solutions are to be found in the workings of efficient markets, the role of technology and even finance, and somehow find ways to ignore all the evidence of the last 30 years and even the lessons of the last two years.

But let us be very clear that trade in itself is a good thing. However we must now be honest if we are to act and re-examine the conventional wisdom which has held sway for so long. Promoted by economists this has created the myth that trade naturally contributes to sustainable development by promoting efficient allocation of resources, economic growth and increased income levels. On the economic growth front the jury is still out as to whether trade promotes growth though in developing countries it has undeniably had a positive impact.

Even if conventional wisdom to date has been largely true, the current evidence on resource depletion demands an honest re-examination driven by the harsh reality of our current economic model. This is the gross under pricing of social and environmental costs in a resource constrained planet in which the population has more than quadrupled in just one hundred years. Climate change due to ever growing emissions of greenhouse gases driven by unrestrained consumption is just one example of this failure and it is unlikely that market instruments (cap and trade mechanisms) and/or technology is going to help solve this problem.

As the volume of world trade has increased nearly by 32 times since 1950 and its share of global GDP grown from 5.5 percent to 21 percent in 2001, the issue of limits, constraints and sustainable development must be thrust at the heart of all discussions about promoting trade, both fair and free. A fundamental rethink is needed at the heart of global trade negotiations. This is not a side bar discussion about going green or environmentalism where it is normally relegated to. The answers are not going to be easy and the journey will create huge tensions but the issues are far too important to be left to trade negotiators only.

Whilst there has been in recent years a wider recognition that trade does have an impact on the environment and climate change this discussion had typically centered on the impacts from the production side, conveniently side stepping the question of resource exploitation because of the need to see growth in consumption by driving demand. The production side initiatives have paid attention to supply chain issues of using more resources and energy for production and transport resulting in more pollution, carbon emissions and environmental destruction. Even there progress has been slow.

Trade by encouraging consumption beyond meeting needs (not just basic needs) is creating too many losers as it creates elite winners. The losers at the bottom of the pyramid are usually also on the wrong side of the resource ownership and control equation. They are typically the developing countries and in these the most marginalized populations.

Against this background, unprecedented levels of investment and speculation on commodity markets are making prices both higher and more volatile. 

A challenge is that the current trade regime, lead by the WTO, is often characterized by developing countries as being run by the developed nations to serve their appetite for cheap consumer goods whilst protecting their own industries, environmental quality and resources. At the same time the WTO does not have any special provision for the environment with onus put on its member states. It is common knowledge that at the Doha Round, even discussions about reducing tariffs for environmental goods and services did not amount to any action. Enabling policies that allow for easier transfer of clean/climate mitigating technology whilst important do not address the real resource constraints issue. This approach has been the usual response from international agencies ranging from the WTO to the UN and World Bank even as the latter two acknowledge that trade increases the speed and scale of resource consumption and therefore consequences such as climate change.

The World Bank report on “International Trade and Climate Change” states that “the trade-environmental debate has so far considered little in terms of global-scale environmental problems – declining biodiversity, depletion of fisheries, overexploitation of shared resources. These public goods which require international cooperation can lead to trade tensions”.

For an organization such as WTO which is meant to help frame the international laws to govern trade this significant omission and inability to direct action to the most pressing challenges of our time very clearly highlights the old world thinking which has dominated trade discussions and which is now in need of urgent and major surgery.

Tired arguments have been used by both sides to explain the background to this lack of attention but they only go to show how the members are caught in a vicious cycle of legal arguments about trade and the inequalities of the numerous current and proposed rules.

This is akin to villagers arguing about how many wells there are in the village and who has rights to what, whilst ignoring the fact the wells are already drying up and not at all appreciating that the watershed surrounding the village which feeds the wells is being destroyed by illegal loggers.

Resource constraints will take the wind out of the sails of global trade unless we act now before the trade that we will all badly need to prosper in a resource constrained planet is truly endangered.

Chandran Nair is the founder and CEO of the Global Institute For Tomorrow. He is also Chairman of Avantage Ventures. His book is entitled, Consumptionomics: Asia’s role in Reshaping Capitalism and Saving the Planet.