This in the host country. Two main reasons

This curve shows the how environmental quality varies with increase in economic development. In the early phase of economic development, the quality of environment degrades due to the increase in number of industries. This in turn led to economic development in the country. As the development increases, stricter environmental laws and better emission control are in place which led to reduction in environmental damage. (Frankel 2009)Example: In China a study was conducted to analyse the impacts of trade liberalization on water pollution. Study suggests that environmental damage aggravated in the initial years but with openness in trade income per-capita increased leading stronger regulation. Study found that environmental damage in China would have been higher without trade openness. (Dean 2002)Race to bottom hypothesisIn this hypothesis, the environmental regulations in a developing country will be lower than what it would have been if trade in a developing country has not opened to international firms. The hypothesis state that domestic companies put pressure on government to reduce the existing environmental standards to overcome the competition arising from international firms. Gains from trade hypothesis This hypothesis states that with openness in international trade there will be improvement in the environment standards in the host country. Two main reasons are the improvement of technological and managerial innovations and also the requirement of following international environmental standards. With new multinational corporations enter into the domestic market they bring in new clean production technologies to host countries. Also formal international cooperation among countries lead to higher environmental standards. (Frankel 2009) Example: European Community imposed ban on import of US beef produced with hormone supplements. (Jonathan M. Harris 2004)Pollution Haven HypothesisIt states that with the opening of trade agreements with a developed country and developing country, the environmental quality of developing country goes down because of lower environmental regulations in the country. The developed country produces all the dirty goods in the country with less environmental regulation.Eg: In Denmark over the years we can see that GDP is increasing without impacting environment. This is mainly because they have outsourced much of the energy intensive industries to China and other countries.Positive impact of Trade AgreementTrade agreement can have positive impact on environment based on the terms and conditions about environmental protection in the agreement.Example: In 1996, French banned import of Canadian Asbestos to their market citing harmful impact of asbestos to public health. Canada approached WTO for appeal and a panel was set up to study.  According to Article XX(b) of the GATT, WTO agrees on the ban imposed on Canadian asbestos by French. (WTO Rules in Favour of French Asbestos Ban 2000). This ruling show how International trade agreements and organisations can support environment.

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