The United States expends significant economic resources in its efforts to control pollution. For example, in 1993 alone U.S. industries spent $26.4 billion to reduce pollution (U.S. Department of Commerce 1993): this figure does not include additional billions spent by federal, state and local governments on pollution control activities (Office of Management and Budget 1994).

This paper contributes to the growing effort to synthesize the fields of trade policy and environmental policy. We discuss: the question of whether international trade undercuts unilateral internalization policies: the role of income constraints in environmental policy; and the possibility of using trade policy to achieve environmental objectives. We review estimates of environmental damage in agricultural production and processing, and we summarize current policy measures. We use a static empirical model to estimate the effects of several internalization policies. We show how a dynamic model can be used to simulate the effects of policy over time, for both environmental and economic variables.