On the linkages between preferential trade agreements and environmental policy

The existence of transboundary environmental externalities requires international cooperation over environmental policies. Therefore, the interaction between trade and the environment has become vital for sound economic policy making. Recently, the number of preferential trade agreements has risen exponentially, and they increasingly include disciplines aimed at achieving non-trade objectives. These include deep reforms in regulatory rules and harmonization with partner countries on issues such as environmental policies and regulations. This paper focuses on recent literature examining the linkage between deep and shallow trade agreements and environmental policies. We also discuss the recent carbon border adjustment mechanism (CBAM) introduced by the European Union (EU) as an example of how a deep trade agreement (such as the EU) offers a practical channel through which environmental policies can be implemented, harmonized, and enforced internationally.