Environmental impacts of the ASEAN-China Free Trade Agreement on the Greater Mekong Sub-region

Environmental issues have received attention from Greater Mekong Sub-region (GMS) leaders. However, there is lack of institutional mechanisms to coordinate the implementation of environmental protection policies or action plans. The absence of provisions concerning environmental cooperation in the ASEAN-China Free Trade Area (ACFTA) also suggests significant shortcomings in regional economic policy making. In this context, the present study demonstrates a number of possible environmental problems that may arise from trade liberalisation. The paper argues that trade could be a source of significant environmental problems, especially in countries without the necessary regulatory frameworks to ensure sustainable exploitation of natural resources.

The paper states firstly that competitiveness concerns over environmental policies seem to have been overstated. While environmental controls are likely to create additional costs to production, their costs do not seem to be significant to total production costs. Another question that has been discussed is whether environmental regulations stimulate the shift of pollution-intensive industries to countries with relatively low environmental standards. The paper answers that this hypothesis and their empirical results vary according to the studied countries, timeframe and research methods. Nevertheless, the paper finds that trade liberalisation could have negative environmental consequences in two cases:

• if scale and composition effects outweigh the technique effect in countries with comparative advantage in dirty industries
• if the scale effect outweighs the technique and composition effects in countries with comparative advantage in clean industries
  

The paper indicates that total trade between GMS countries and China in the most polluting sectors has increased over time at a faster pace than other sectors. The paper suggests that China exports from its most polluting sectors, and is likely to remain the main producer and exporter of most polluting products in the region. This means that the majority of additional pollution intensity will be generated in China as a result of greater production in response to emerging trade opportunities. However, ACFTA intra-trade in moderately polluting sectors has witnessed rapid growth over time. These products are likely to remain the major trading commodities that the GMS countries and China will export to each other. Since the production of these products is more technology based, an increase in their trade is less likely to significantly increase pollution.

The paper concludes that economic growth at the expense of environmental degradation will not lead to sustained social and economic progress. Therefore, finding the balance between economic growth and environmental sustainability is a priority issue for achieving sustainable development in the GMS countries. In this regard, the paper deems that environmental issues must be included in trade agreements in order to mitigate any negative consequences of trade to the environment.