Trade policy and environmental sustainability are inextricably linked. There are concerns that increased trade can negatively impact the environment, but freer trade can be a key driver of environmental sustainability.
Environmental provisions are increasingly being included in free-trade agreements but can also be a key sticking point in some trade talks. Around 725 trade deals signed since 1947 contain environmental provisions, although these vary in scope. Notably, the Comprehensive & Progressive Agreement for Trans-Pacific Partnership requires its 11 members to effectively enforce their environmental laws, while new EU agreements oblige trading partners to implement the Paris climate-change accord.
There are also efforts underway at the World Trade Organization to tackle harmful fisheries subsidies, and WTO rules permit members to implement trade restrictions for environmental protection purposes.
But there are calls for the WTO to better tackle environmental issues, even though it is not an environmental agency. Talks between 46 WTO members, covering 90 per cent of global environmental-product exports, to eliminate tariffs on goods such as solar panels and wind turbines via an Environmental Goods Agreement have stalled since 2016. And some members believe more can be done at the WTO to reform fossil-fuel subsidies and design disciplines to help mitigate climate change.
International trade can also facilitate the shift towards a circular economy, for example through increased trade in waste for recycling or second-hand goods. But there is a risk that free trade could lead to environmental degradation if countries have different standards.
In an effort to raise environmental standards, the EU is considering a Carbon Border Tax on certain imports to level the playing field between domestic production and imports from countries with lower standards. And China is among the Asian economies banning waste imports that flow largely from developed markets, to improve environmental outcomes.
As green issues rise in prominence, consumers and investors are focussing increasingly on sustainability. Environmental standards such as eco-labels or certification can help customers make more informed choices.
This trend towards sustainability matters for business. Exporters may need to focus on producing more environmentally-friendly goods and services, embracing more sustainable practices, and adopting environmental standards to better meet the needs of consumers and buyers.
Green strategies could also give firms a competitive advantage and lower operating costs. And environmentally-friendly trade agreements could increase trade in environmental goods and services.
On the other hand, failure to comply with environmental standards may result in lost market share or the inability to sell products and services abroad due to non-compliance.
Indeed, freer trade can support economic growth and improve nations’ capacity to manage environmental issues more effectively. Greater market openness could also enable the diffusion of environmentally-friendly technologies and may lead to the adoption of higher environmental standards globally. Therefore, trade policy can be an important tool to tackle environmental issues.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Shanella Rajanayagam,
Equities: Stock ratings and basis for financial analysis
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From 23rd March 2015 HSBC has assigned ratings on the following basis:
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