Irwin's Fallacious Arguments about Trade and the Environment

The argumentation of Irwin’s wholehearted free trade defense(Irwin, 2002) is familiar to students of international economics and has become a standard theory where any counterarguments, which would put free trade in question are essentially of non-economic nature. His style is characterized by a rather one-sided observations based on economic efficiency criteria. The only intention is to prove that free trade is the superior option for all countries and that there is no convincing and enduring evidence that protectionism has served any good purpose. Since Irwin is very eager to present only positive arguments for free trade, he doesn't provide a more profound analysis of the contentious issues in trade. 

In the vigorous attempt to disconnect trade and the environment and to prove that free trade is the wrong culprit of environmental degradation, Irwin throws in some hasty and simplified arguments. Inarguably, trade is only indirectly connected to environmental problems, yet the interaction between economic, environmental and institutional factors would determine if trade is overall beneficial or detrimental to resource-trading countries. In an overview of the literature on trade and renewable resource management one of the most prominent authors Erward Barbier, who was also cited by Irwin, aimed at establishing common ground between environmentalists and economists, (Bulte and Barbier, 2005). Since property rights are not perfectly defined and not all externalities can be internalized, natural resource management takes place in a second-best world. So in the case of imperfect institutions, opening for trade can have welfare-decreasing effect: ”While trade restrictions and impediments lower welfare in a first best world (Lipsey and Lancaster, 1956), it is evident that export and import measures may promote welfare in exporting countries when, say, enforcement of property rights is imperfect.”

Irwin’s claim that the burning of the Amazon’s rain forests is mainly driven by local inhabitants ”clearing land for their own use, not international trade” is inaccurate, since multinational corporations have increasingly planted monocultures like soy beans for the production of biofuels in e.g. Brazil and Uruguay. The growing global demand for carbon- free fuels and alternatives to oil is creating pressure on many developing countries, which have comparative advantage in growing crops that can be used for the production of bio-fuels. Free trade agreements like NAFTA have also increased investment in forest extraction industries, yet lacking environmental safeguards and public policies increase the monopoly power of the international corporations and fail to provide benefits for the local communities(Laurance, 1999).

Particularly in the case of Indonesia, singling out timber exports as the focal question of international trade is beside the point, since the tropical forest area is being cleared for the production and export of palm oil. The pledge of the European Commission to have 10% biofuels in transport by 2020 (current proportion amounts to 5%) will require significant increase in the imports of palm oil. The rising palm oil price has prompted the Indonesian government to double the production areas of the palm oil plantations over the period 2010-2020 (Dera, 2009), which would have serious implications for carbon emissions, the income of small farmers and livelihood of indigenous communities.

Bulte, E., and Barbier, E. (2005). “Trade and renewable resources in a second best world: an overview.” Environmental and Resource Economics, 30(4), 423–463.

Dera, P. (2009). ”Biodiesel”- Wachstumsmarkt mit Nachhaltigkeitsgarantie?: Soziooekonomische Dimensionen der Palmoelproduktion in Indonesien. Regiospectra Verlag Berlin.

Irwin, D. A. (2002). “Free Trade under Fire” Princeton University Press, 21-69.

Laurance, W. (1999). “Reflections on the tropical deforestation crisis.” Biological Conservation, 91(2-3), 109–117.

Lipsey, R., and Lancaster, K. (1956). “The general theory of second best.” The Review of Economic Studies, 24(1), 11–32.