Trade Liberalisation and the Environment: The Case of the Uruguay Round M.A.Cole, A.J.Rayner and J.M.Bates 1. INTRODUCTION LTHOUGH a growing body of literature now exists on the relationship between trade liberalisation and the environment, few studies have attempted to quantify the environmental impact of a specific trade agreement. Those that have (see for example Beghin and Potier, 1997; Grossman and Krueger, 1993; and Beghin et al., 1995) tend to concentrate on the impact of three mechanisms associated with trade liberalisation, namely the composition effect, the scale effect and the technique effect. The composition effect refers to the fact that trade liberalisation is likely to change the composition of industry as countries specialise to a greater extent in those sectors in which they enjoy a comparative advantage. This change may have either a positive or negative impact on the environment. The scale effect stems from the expansion in the scale of production which is likely to occur as markets expand due to trade liberalisation. Taken in isolation, the scale effect is likely to prove damaging to the environment. Finally, the technique effect refers to the fact that following trade liberalisation, a nation may have greater access to resource efficient production methods whilst at the same time individuals may begin to demand a cleaner environment as they experience increasing incomes. Thus, the manner of production may change as a result of trade liberalisation, to the benefit of the environment. This paper estimates the impact of the Uruguay Round of trade negotiations, in terms of these three effects, on five air pollutants for a number of countries/ regions. The five pollutants are nitrogen dioxide, sulphur dioxide, carbon monoxide, suspended particulate matter and carbon dioxide. In this paper the scale and technique effect are combined into one effect, hereafter referred to as Blackwell Publishers Ltd 1998, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA. 337 M. A. COLE is from the Institute of Energy and Sustainable Development, De Montfort University. A. J. RAYNER and J. M. BATES are from the Department of Economics, University of Nottingham.