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Free Trade and the Environment: Mexico, NAFTA, and Beyond (review)

Few topics are as hotly debated, both in the public press and the academic realm, as the impact of globalization on the environment. Globalization, understood as the decrease in barriers to trade and communication, has been blamed for many environmental ills. Increasing trade between countries with diverging degrees of environmental regulation and enforcement has been singled out as particularly worrisome, though some argue that this situation leads to environmental improvement. A number of researchers argue that, as trade increases and economies strengthen, countries will be able to increase their wealth enough to invest in pollution prevention measures. The Environmental Kuznets Curve (EKC) hypothesis suggests that, as countries develop, the level of environmental degradation follows an inverted U-shape: levels of pollution arst increase with rising wealth, but then decrease. Others are more pessimistic. Two related hypotheses, the Pollution Haven Hypothesis (PHH), and the Race to the Bottom Hypothesis, have long been postulated. The pollution haven hypothesis argues that, under conditions of liberalized trade, polluting industries from rich, developed countries will choose to relocate to poor, developing countries where environmental regulations are arguably less strict and enforcement is lacking. The race to the bottom hypothesis suggests that international trade encourages trading partners (e.g. the United States) to relax environmental regulatory standards down to the level of their counterparts (in the case of the North American Free Trade Agreement, Mexico). Competition for trade and foreign direct investment would lead countries to relax their environmental standards in order to attract investment. Gallagher sets out to evaluate two of these competing hypotheses, the EKC and the PHH. His central research question is posed at the beginning of the book (p. 2): “to what extent has economic integration affected levels of environmental degradation in Mexico?” His analysis spans the period 1985 to 1999. This research design conforms not only to data availability but also to the period of highest economic liberalization in Mexico. Five years after NAFTA, Mexico was touted as one of the most open economies worldwide.