Chapter 4 Research Methodology and Data
4.2 EIA Method on Trade Policy the Regulatory Effect of CPTPP on the Environment
4.2.3 General Procedures of the EIA Method on Trade Policy
Considering the existing guidelines on an EIA on trade policy, it is recognisable that the guidelines on conducting EIAs on trade policies differ in countries and international organisations in terms of purposes, situation, location, culture, etc. The guidelines published by international organizations such as the World Trade Organization (WTO, 1999), the European Union (SECSO, 2006), the Organization for Economic Co-operation and Development (OECD, 1994), and the United Nations Environment Programme (UNEP, 2005) usually cover not only the environmental impact but also economic and social impacts (Mao et al., 2015). Ultimately, the main goal of an EIA on trade policy is to minimise the harmful effects of trade on the environment in a sustainable manner (UNEP, 2000; OECD, 2000; GoC, 2009; GoJ, 2004).
The environmental impact assessment can be performed at two levels. The first level is commonly called "sectoral assessment” and examines the environmental effects of the economic changes resulting from a FTA. The second level is a “regulatory assessment” that attempts to analyse the text of the FTA, which could potentially affect the ability of a country to enact, maintain, or enforce its regulations on environmental protection (Gallagher et al., 2002).
In developed countries such as the US and Canada, conducting an environmental assessment on a proposed policy includes four distinct stages (Gallagher et al., 2002). These stages include: (i)
Identification of the economic effects of a proposed free trade agreement; (ii) Identification of the likely environmental impact of economic changes; (iii) Consideration of the significance of the identified likely environmental impacts; and (iv) Identification of enhancement or mitigation options. The contents of each stage are described below.
Step 1 - Identification of the Economic Effects of a Proposed Free Trade Agreement
This step determines the potential economic results of a proposed trade policy, including potential changes to trade flows and economic activity arising from the proposed policy. This procedure also helps to identify the sectors/product groups that will increase or decrease through appropriate trade policy. Particular consideration focuses on environmentally intensive products/industries. This step also can be named “screening” that helps to narrow trade agreements and needs further
consideration in terms of environmental impacts (GoJ, 2004).
In order to identify sectors/product groups that can be increased or decreased via a free trade agreement, there are three main methods identified in the literature: trade indicator, the SMART- WITS model15, and the CGE-GTAP model (Global Trade Analysis Project) (Plummer et al., 2010). These
methods differ mainly in terms of the questions about a proposed FTA. Trade indicator is the simplest and most direct method to examine the trend (increasing or decreasing) in the production pattern of a country in terms of a specific product group. Trade indicator is an index or a ratio that can be used to describe and assess the state of trade flows and trade patterns of a particular economy (Mikic & Gilbert, 2007).
In some studies, the CGE model is conducted to predict the change in domestic production as a result of a trade openness policy (such as the EIA on FTA reports conducted by the Canadian and US
governments). The main benefits of CGE models include: (i) the CGE model can quantitatively capture effects of the changes from an FTA on all markets/countries, rather than just the changes on one market/country; (ii) the CGE model is an economy-wide specification and a full system approach; thus the welfare changes as a result of trade liberalisation can be comprehensively assessed by the CGE model (Martin, 2000); (iii) the CGE model is extensively developed and widely applied by developed countries such as the US and Canada to examine the changes in the whole economy as a result of a trade policy change.
Having recognizing the benefits of CGE models, however, the CGE model is not appropriate for our study because it is a simulation and calibration model and not an estimation model. CGE models are often developed and presented in the context of formal, highly mathematical economic theories
15 SMART-WITS stands for the software for market analysis and restrictions on trade in the world integrated
such as the inclusion of the input-output structure of each country and the calibration equations that claimed to be of great mathematical sophistication (Martin, 2000). Furthermore, the theory on general equilibrium, which is the core foundation of the CGE model, is often argued to be problematic in applied economics (Ackerman, 1999). CGE models are calibrated models that are based on the validity of the general equilibrium theory, thus CGE models can only be used for simulation purposes but not for testing purposes (Rauscher, 2005; Berman, 2005). The required data set is enormous which includes the input-output, SAM data, labour, etc.
Thus we use the RCA index instead of the CGE model to predict the change in domestic production in Vietnam as a result of the CPTPP. The advantage of using the RCA index is that it considers the intrinsic advantage of a particular export commodity and is consistent with changes in an economy relative to factor endowment and productivity (Nguyen, 2011). The RCA index is a simple useful tool and the most widely used in the literature despite its own shortcomings (Grigorovici, 2009; Le, 2010). Although the method is simple, using trade indicator analysis is adequate to answer research
question three and research question four of our study. Furthermore, the trade indicator analysis method is also suitable in our study in terms of the data availability as well as time and budget allocation and efficiency.
Step 2 - Identification of the Likely Environmental Impact of Economic Changes
This is an assessment of the likelihood or probability of environmental impacts of the economic changes determined in step 1. This step helps to answer questions such as what are the
environmental impacts of economic changes. How did they occur and the extent of their impacts by scale effect.
This step can be named as “scoping” which focuses on the main fields and sectors that have a substantial impact on the environment from changes in the economic and industrial structures. 'Scoping' is a critical step in the preparation of an EIA. It helps to identify the most important environmental issues that are likely to arise and the information requirements necessary for further analysis. It presents a qualitative measurement in terms of (i) Not likely; (ii) Increasing Likelihood; (iii) Certain with a probability of 0% or 100%.
For instance, from our preliminary analysis of the CPTPP, the CPTPP (which is the Initial Provisions and General Definitions) provides general definitions and provisions that will be applied in
understanding and interpreting the text of the agreement (Section 1, CPTPP, 2017, pp. 1-11). However, there is no relevant possible environmental impact in this section of the CPTPP.
Consequently, neither further analysis nor environmental consequences consideration is required. Meanwhile, Chapter 7 of the CPTPP on Sanitary and Phytosanitary measures (SPS), aims at enhancing animal and plant health and food safety among the CPTPP member countries (CPTPP, 2017). The
increased use of SPS measures in trade activities may mitigate risks in the environment in terms of ensuring the biosafety and quality of the products traded. As a result, the SPS chapter may generate a positive effect on the environment.
Step 3 - Assessment of the Significance of the Identified Likely Environmental Impacts
The positive and negative environmental impacts determined in step 2 are subjected to further consideration about their nature, geographical scale, magnitude, frequency and duration, timing, severity of the environmental impacts and possible synergies between them in order to identify their levels of significance.
Step 4 – Identification of Enhancement or Mitigation Options
This step helps to identify the solutions to improve the positive impacts and to mitigate the negative impacts of a trade policy on the environment. The solutions are a set of proposed laws, regulations, and policies initiatives.