US-Brazil Trade: Financial Services Case Studies

 People in Brazil may be concerned about the agreement's effects on the environment since it will be one of the main partners in the Free Trade Area of the Americas (FTAA). If the developing countries in the region agree to join the FTAA, it should get rid of the United States' trade barriers for agricultural goods and some industrial industries. Getting rid of pollution generally has benefits for whole societies. People who suffer from the harmful effects of pollution can't get full compensation from polluters because it costs a lot to give and secure property rights over most goods and environmental services. In this case, there is a negative externality, which means that the market is not properly pricing the harm that this does to a third party. If the benefits of pollution control for polluters (like not getting fined) are less than the costs of private control, people who release pollution will not be motivated to do anything about it. So, pollution control is a common example of how the government steps in to fix a problem with the market. 

The traditional way of thinking about environmental policies is built on the regulator (a principal) who controls private agents through rules

In this view, if an organization doesn't follow the rules and norms set by officials, it will be punished or have other legal problems. Becker's groundbreaking work on general legal compliance in 1968 said that agents would try to balance the costs of noncompliance and compliance at the margin in order to maximize profits. Compliance costs mean that businesses have to change how they do business by raising their incomes and spending enough to pay compliance costs. Noncompliance costs can be found by imposing fines on companies that haven't made the necessary changes. These fines are based on the amount of the sanction and how likely it is that the company will be caught and punished, which is called the expected sanction value. Firms don't directly look at the chance of getting caught and fined, but they do know the values of sanctions like penalty values, closure costs, and so on. As a result, officials may use a range of approaches, ranging from low punishments with lots of checks to high punishments with few checks. Companies decide for themselves how likely it is that they will get caught and fined, and they base their decisions on how much they think it will cost them to not follow the rules. For their part, regulators often have the power to make environmental rules more strictly enforced. But companies that are closely regulated may lose their economic edge compared to companies that have to deal with less strict environmental rules. 

The theory goes that if some countries pass stricter environmental laws

It should change international relative costs, which would change comparative advantages and trade patterns. As a result, businesses that produce a lot of pollution will likely move to countries with less strict environmental laws when trade is opened up. This is known as the "pollution haven hypothesis." There will be a balance between the benefits of better air quality and the costs that come with firms reallocating their resources, such as losing money on exports and having to pay more for imports. When countries don't work together or enforce environmental laws, they all tend to be less strict. Smaller countries will have lower environmental standards because they want to attract new businesses more. As Neumayer (2001) pointed out, the World Bank's World Development Indicators (1998) show that "dirty" industries work in developed countries because they require a lot of capital and don't save jobs like "clean" industries do. There isn't much evidence to back up this idea, but trade is still thought to be bad for the environment. This fear is clear when it comes to trade agreements, which has caused a lot of heated discussion. In the European Community (EC), among the North American Free Trade Agreement (NAFTA) countries, and in the talks for an FTAA, this is still a worry.

The suggested FTAA would get rid of trade barriers between the United States and other countries 

This would help the agricultural and industrial sectors grow in those countries, especially Brazil, which already has a lot of modern agricultural and industrial activities. As these areas grow, they may put more pressure on land use and cause more pollution to be released into the air. Deforestation and land damage in developing countries seem to get more attention from people around the world than pollution from factories, even though pollution can hurt people just as much in developing countries as it does in developed ones. This study knows that land issues are important when it comes to trade issues, but it only looks at problems with pollution from factories because it didn't have enough time or resources to look into issues like deforestation and land damage. This study looks at how the expected rise in trade from FTAA will impact the environmental performance of Brazil's industry sector. The method will be based on the static CGE model data from Tourinho and Kume (2002), which will be used to look at Brazil when trade tariffs are taken away, based on a made-up FTAA scenario. The environmental effects can be found by turning changes in output, like those shown in the model application, into amounts of industrial pollution, water use, and energy use. This method checks the direct impacts of trade in a fixed setting, but it doesn't look at how firms change their behavior over time. To make up for this, the analysis will be grown to include indicators on what factors affect environmental success.