AGRICULTURAL TRADE IN THE URUGUAY ROUND: INTO FINAL BATTLE

The emergence of a two-tiered international structure of environ-
mental regulation results from increasingly stringent rules and reg-
ulations and a rising concern with environmental quality and human
health among wealthy nations.

Pursuit of Growth Results in ‘Environmental Arbitrage’

In most developing countries, however, rapid economic growth re-
mains the primary focus of concern. This creates incentives to ex-
port restricted industrial materials—or whole production proc-
esses—from North to South. A kind of “environmental arbitrage”
results, in which profits are gained by exploiting the differential in
regulations.

In the United States, for example, the Federal Insecticide,
Fungicide, and Rodenticide Act (FIFRA), the Safe Drinking Water
Act (SDWA) and the 1990 farm bill are all likely to be amended in
ways that effectively constrain chemical and land use choices. These
are but several examples that may lead multinational firms to ex-
pand in markets where regulatory oversight is less constraining.

This environmental arbitrage results from conscious policy choices
that reveal differences in the value attached to environmental quali-
ty by rich and poor countries. As these paths of institutional innova-
tion increasingly diverge, so will the differential impact of environ-
mental constraints on businesses in Europe, North America and,
say, Argentina and Brazil.

The competitiveness implications of these trends are not lost on
developed country firms. They have been quick to see the trade
relevance of environmental and health standards in limiting access
both to developing country competition and other developed coun-
tries. Growing consumer concerns with health and the environment
create a natural (and much larger) constituency for nontariff barriers
to trade.

It is doubtful, for example, that beef-offal merchants in the Euro-
pean Community could have blocked competitive U.S. imports
solely in the name of superior French or German beef kidneys. But
the hormones question created a large, vocal and committed constit-
uency for denying U.S. access to this market.

These distortions threaten more liberal international trade in ways
that are damaging to both developed and developing country inter-
ests, yet are not widely appreciated.

Bilateral, Multilateral Fronts Related

The beef hormones dispute, while a relatively minor bilateral dis-
pute in terms of total trade value ($100 million annually), thus illus-
trates the importance of bilateral trade diplomacy in conditioning

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