Environmental Impact of China's Accession to WTO in the Manufacturing Sector

Abstract

This paper estimates the immediate impact of China's accession to WTO on water, air and soil pollution in the Chinese manufacturing sector. The pollution effects of WTO accession are decomposed into three categories: composition, technical and scale effects. The results suggest that the immediate environmental impact of China's WTO accession will be largely positive. The dismantling of import barriers on China's highly protected heavy industries and the phasing out of MFA enable China to specialize according to its comparative advantage. Its resources will be relocated from capital, land, energy and other natural resources intensive heavy industries and channeled into labor-intensive light industries. As the latter industries are cleaner than the former, the compositional change in Chinese manufactured output would reduce Chinese aggregate pollution level by 4 per cent. At the same time, China 's WTO accession enable China to gain increased access and induces it to adopt cleaner production technology. This would lead to significant drop in the pollution intensity of its manufacturing sector. Though the expansion of the Chinese manufactured sector as a result of China's accession to WTO is likely to increase the emission of all three pollutants, this negative scale effect is not large enough to offset the large environmental gains from increased specialization in light industries and increased access to best international practice in pollution abatement technology. As a result, China is expected to experience a fall in air, soil and aggregate pollution levels after its entry into WTO. However, water pollution is expected to rise.