TRADE AND ENVIRONMENT LESSONS FROM NAFTA FOR THE FREE TRADE AREA OF THE AMERICAS. Mónica Araya *

Transcription

1 TRADE AND ENVIRONMENT LESSONS FROM NAFTA FOR THE FREE TRADE AREA OF THE AMERICAS Mónica Araya * INTRODUCTION Traditionally, trade negotiators have argued that trade agreements should deal solely with trade, while environmental concerns should be addressed separately through specific environmental agreements. However, addressing each dynamic in isolation from the other has proved to impair solutions the appropriately address the complex interaction between trade liberalization and environmental protection efforts. How to make mutually reinforcing free trade goals and environmental objectives is clearly a challenging and controversial question. This challenge cannot be addressed through policy or analytical frameworks, which ignore or deny the growing degree of economic and ecological interdependence the world faces. Could this challenge be faced, at least partially, by explicitly including environmental concerns in trade negotiations? Despite the resistance from many trade negotiators and the fears of the developing world about hidden green protectionism, non-state actors such as academia, non-governmental organizations, and some business associations are increasingly suggesting, and in some cases demanding, that trade agreements deal with the environment, explicitly and in a ex-ante fashion. There is a need to explore practical ways to address environmental considerations in the context of a trade negotiation. Thus, the North American Free Trade Agreement (NAFTA) offers a relevant experience by explicitly linking trade and environment through specific mechanisms. NAFTA used a "parallel-agreement" approach by creating a North American Environmental Side Agreement. Therefore, while admitting the linkage between trade and environment, it did recognize the differences in trade and environmental goals and provided specialized institutions * Mónica Araya is a research associate at the Global Environment and Trade Study (GETS) and the Yale Center for Environmental Law and Policy. The author wishes to thank Daniel E. Esty, Steve Charnowitz, Carry Wofford and Jaime Granados for useful comments on earlier drafts, however, the views expressed here are under the sole responsibility of the author. Corresponding address monica.araya@yale.edu.

2 2 to administer the two agreements. This model has delivered significant outcomes in the area of environmental cooperation in North America, without damaging trade flows. Clearly, as this paper will show, it is a precedent-setting agreement whose lessons could be useful in the context of the Free Trade Area of the Americas (FTAA), 1 an enterprise in which the three NAFTA members are involved. However, these lessons are not being explored because the Latin American trade community is skeptical about the legitimacy and appropriateness of trade and environment linkages, in general, and about the NAFTA environmental model in particular. This study addresses the reasons why the NAFTA s environmental model is not being analyzed as a potential model, or at least as a starting point in the FTAA process. In this paper I argue that the negative perspectives regarding such model are not fully justified. Section 1 explains why there was a need to make explicit the trade and environment link in NAFTA. Section 2 presents the approach used to address environmental concerns. Since NAFTA s experience with regard to the environment has been criticized by the Latin American trade community, in particular the Mexican officials, Section 3 explores the bases for the Mexican critique: Where is the harm? Are there facts and empirical data to justify it? This section also identifies non-trade-related factors involved in the assessment of the environmental side agreement experience. Finally, Section 4 points out the trade and environment lessons from the NAFTA experience for the FTAA process. The paper ends with a general reflection. 1. NAFTA: A PRECEDENT-SETTING AGREEMENT This section explains the main reasons why there was a need to make explicit the trade and environmental link in the NAFTA negotiations. The debate about free trade and environmental protection became an international issue in the early 1990s. One triggering event was a panel in 1991 at the General Agreement on Tariffs and Trade (GATT) -the World Trade Organization predecessor. The panel's ruling against the U.S. ban on imports of tuna caught in nets that killed 1 All the countries of the Western Hemisphere (with the exception of Cuba) have been actively involved in the creation of a FTAA since the 1994 Summit of the Americas in Miami. The process started in 1995 through a preparation period with the meetings of 12 hemispheric working groups and several Vice-Ministerial and Ministerial Meetings. The negotiations were launched in March 1998 at the II Summit of the Americas in Santiago, Chile. The negotiations schedule to conclude by the year For more information about the FTAA check the The lack of fast-track authority in the US and the

3 3 dolphins caused a tremendous public outcry. Especially among the environmental community, it seemed that the GATT was sacrificing dolphins for the sake of trade. Suddenly, U.S. environmental groups and voters, never before interested in trade, mobilized against the efforts to further trade liberalization 2 (Esty 1994a). In 1992, candidate Bill Clinton s initial criticism of NAFTA was partially based on environmental grounds and promised the environment (and labor) be addressed through specific side agreements. 3 By 1993, as he became the U.S. President, the number of environmental organizations involved in the NAFTA debate had grown steadily. It became clear to the U.S. trade officials that a trade agreement opposed by the environmental community would never make it to Congress. 4 The fact that the U.S. held a presidential election empowered labor and environmental interests, weakened business interests, and compelled a commitment from candidate Clinton that endured beyond the elections into his presidency (Mayer 1998). Mexico did not welcome the supplemental negotiations carried out between March and August 1993, especially because they had expected to sign the agreement earlier, by the fall of Despite the complexity of the domestic political situation in the U.S., which made it difficult to agree upon a national negotiating position, and the difficulties to agree among the three countries, in August 1993 the supplemental negotiations concluded. The three countries agreed to have two side agreements, one on the environment and one on labor (Mayer 1998). prospects of a new multilateral round of trade negotiations have created some uncertainty about the likelihood, contents and speed of the FTAA negotiations. 2 Environmental groups had started demanding the inclusion of environmental considerations in NAFTA during the negotiations under the Bush administration. However, the debate about trade and environment in the NAFTA context became a widely discussed issue afterwards (Weintraub 1997). 3 Mayer (1998) offers an analysis of the U.S. politic context during the NAFTA debate. Most of the Democratic Party was opposed to the agreement. Clinton was being urged, especially by trade unions, to renegotiate the whole "Bush NAFTA". On the other hand, sectors from the centrist "New Democrat" coalition, partially in the business community, urged him to support the agreement. Several conferees pushed a middle course, in which Clinton would support NAFTA but promise to strengthen its labor and environmental provisions. Environmental groups and other centrists Democrats supported this middle course. With this "yes, but" support to Bush NAFTA, side issues (labor and environment) became central during his campaign. Once he became the President, the political situation was complex since, on the one hand, NAFTA was unpopular with key Democratic labor and environmental constituencies, and on the other hand, NAFTA would not pass without Democratic votes in the Congress. How to address the supplemental agreements was a great concern. As Mayer explains, the policy design challenge included an essentially political objective: to find a solution that would be simultaneously acceptable in the US domestic arena and negotiable with Mexico and Canada. 4 By 1993, virtually the entire U.S. environmental community was involved in the debate. The community was far from being homogeneous, but some shared objectives were: better enforcement of Mexican environmental laws, guarantees of the U.S. environmental laws, greater cooperation between Mexico and the U.S., and more funds to clean-up the US-Mexico border. Two general views formed, on group viewed NAFTA more as an opportunity to accomplish environmental objectives than a threat. The other view was very skeptical and critical of the NAFTA, which was perceived as a great threat to the environment (Mayer 1998, Runge 1994, Esty 1994a, 1993). Audley (1997) presents an evaluation of the active role played by environmental organizations during these negotiations.

4 4 2. MAKING THE TRADE AND ENVIRONMENT LINK EXPLICIT This section presents the main characteristics of what it is called the NAFTA approach to the environment. According to Runge (1994) the logic of this approach can be summarized as: a) the NAFTA could lead to environmental damages or could aggravate existing environmental conditions; b) solving such damages requires a regulating mechanism, over-and-above the agreement, to enforce environmental safeguards; and c) since environmental problems include not only local externalities affecting the domestic market, but also transnational and even global externalities, a coordinated trilateral response was required, involving a new institutional authority. The environment was addressed through provisions within the trade agreement and through a side agreement, the North American Agreement on Environmental Cooperation (NAAEC). In the next sub-sections these two components of the NAFTA environmental model are explained Environmental Provisions in the NAFTA Text The environmental provisions included in the NAFTA represent an unprecedented addition of environmental issues in a trade agreement. The center of the relationship between trade and the environment is found in the NAFTA text (Audley 1997), therefore reviewing the "green provisions" is necessary to capture the sense of how the link between trade and environment was forged. a) The Preamble: The preamble establishes that the NAFTA should promote sustainable development and strengthen the development and enforcement of environmental laws and regulations. 5 It adds that the trade goals have to be achieved in a manner " consistent with environmental protection and conservation". While preambular language carries no obligation on behalf of the NAFTA parties, it was a positive step to make explicit the importance of the environment in a trade context. It can be interpreted as an increased sensitivity with respect to the increasing environmental concerns b) Relation to Environmental and Conservation Agreements (Article 104): This provision refers basically to the Convention on the International Trade in Endangered Species of Wild Fauna

5 5 and Flora (CITES); the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol), and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal (Basel Convention). 6 These environmental agreements should be given precedence if there were any conflict between a party s trade obligations under the environmental agreement and NAFTA. In other words, the trade restrictions contained in those agreements are considered legitimate. Esty (1994b) highlights a positive feature of this provision: it waives trade rights in favor of environmental principles which could be explored in the WTO context to address potential clashes between WTO rules and the trade measures contained in some multilateral environmental agreements (MEAs). To avoid abuses, the NAFTA parties are encouraged to implement environmental agreements in ways that allow the accomplishment of environmental goals while minimizing trade impacts. a) Right to take Sanitary and Phytosanitary Measures (included in Chapter 7): Countries may, in protecting human, animal or plant life or health, establish its appropriate levels of protection in accordance with Article They have to ensure that any sanitary or phytosanitary measure adopted, maintained or apply is (a) based on scientific principles, taking into account relevant factors including, where appropriate, different geographic conditions; (b) not maintained where there is no longer a scientific basis for it; and (c) based on a risk assessment, as appropriate to the circumstances. When adopting, maintaining or applying the measure the country has to ensure that it does not discriminate arbitrarily or unjustifiably between its goods and like goods of the other two countries. b) Standards-Related Measures (Chapter 9): Countries must follow the obligations under the WTO Agreement on Technical Barriers to Trade and other agreements, including environmental and conservation agreements (Article 903). Countries may adopt standardrelated measures, including those related to protection of human, animal and plant life and health and the environment (Article 904 (1)). In pursuing its legitimate objectives (including protection of the environment) each country may establish the levels of protection it considers 5 The full text of NAFTA is available at (for general reference only). 6 It also mentions other agreements set out in Annex Article 715 deals with "Risk Assessment and Appropriate Level of Protection" and makes explicit what countries must take into account when conduction a risk assessments (some of them are international and North American techniques and methodologies, relevant scientific evidence and relevant ecological and other environmental conditions). It also some requirements for determinate the appropriate level of protection (such as minimizing negative trade effects).

6 6 appropriate (Article 904(2)). Article 906 encourages countries to make compatible to the greatest extent possible their respective standard-related measures, without reducing the level of protection of the environment, among other factors. When a country considers necessary to address an urgent problem related to protection of the environment (among other problems) the normal steps of the notification provisions can be avoided. c) Environmental measures under the Investment Chapter 11: Under Article 1114 (2) parties are discouraged from attracting investment by relaxing domestic health, safety or environmental measures. Countries should not waive or derogate from such measures for the establishment, expansion or retention of an investment. If one party considers that another party of the NAFTA has offered such an encouragement, it can request consultations with the other country with a view to avoiding such behavior. 8 d) Dispute Settlement: A country that complains about an action taken under Article 104 (Environmental agreements) or Subchapter 7(b) (Sanitary and Phytosanitary measures) or Chapter 9 (standards-related measures) concerning a measure adopted or maintained to protect its environment, among other objectives, can have recourse to dispute settlement procedures solely under NAFTA if the country requests so. Under Article 2015, a country can request the panel to receive input from a scientific review board on environmental issues (among others) during a dispute. The panel can take the board's report into account in the preparation of its report. e) General Exceptions (Article 2101): The General Agreement on Tariffs and Trade (GATT) s Article XX and interpretative notes are part of NAFTA (except for the provisions that apply to services and investment). The measures referred to in Article XX include (b) environmental measures necessary to protect human, animal or plant life or health, and (g) applies to measures relating to the conservation of living and non-living exhaustible natural resources. With respect to investment, Article 2101 (3) establishes that the agreement does not prevent countries from adopting or maintaining measures, including environmental 8 The environmental consequences of the NAFTA provisions protecting investors have been addressed in several studies. This interesting and relevant area of research falls out of the scope of this paper. For an analysis of this problem see Mann and Von Moltke, (1999).

7 7 measures, necessary to protect human, animal or plant life or health or necessary for the conservation of living or non-living exhaustible natural resources. Some commentators have addressed the question of how to improve the NAFTA model. Esty (1994b) suggests to: a) develop greater "transparency" in dispute resolution and; b) clarify when a party may take unilateral or extraterritorial actions with adverse trade impacts in defense of its environmental policies. These suggestions are valid and make sense from a democratic and environmental perspective, not only at the NAFTA but also at the WTO level. However, any suggestion to extend the scope for using unilateral and extraterritorial measures would be highly controversial, if proposed in either the NAFTA or the WTO contexts. It would be a dangerous argument because it can easily be misinterpreted by the already suspicious developing world. According to prevailing developing-country perspective, the trade and environment debate is threatening because it opens the doors to unilateral and extraterritorial actions for environmental purposes, especially on behalf of the U.S. A 1999 statement by the Minister of Commerce and Finance of India clearly captures the widespread position among developing countries, "we would, however, strongly oppose any attempt to either change the Committee [of Trade and Environment] 's structure or mandate which can be used for legitimizing unilateral trade restrictive measures. [ ] [Environmental issues] go beyond the competence of the multilateral trading system and have the potential to open the floodgates of protectionism". (Statement by Shri Murasoli Maran, WTO III Ministerial Conference, November 30 th, 1999, Seattle). Therefore, U.S. support to such reforms should be avoided, or at least they should be crafted in the most careful way in order to stop widening the North-South gap that already dominates the trade and environment debate. 2.2 The North American Agreement for Environmental Cooperation (NAAEC) The second component of the NAFTA s approach to the environment is the North American Agreement for Environmental Cooperation (NAAEC); commonly known as "the side agreement". This agreement builds upon and complements the environmental provisions established in the NAFTA. The objectives of the environmental side agreement are: a) to protect

8 8 the environment through cooperation; b) to promote sustainable development; c) to support the environmental goals of the NAFTA and avoid creating distortions or new trade barriers, d) to strengthen cooperation on the development of environmental laws and enhance their reinforcement; and e) to promote transparency and public participation. The main commitments from the three signatory countries are (CEC 1996): striving for improvement of environmental laws and regulations; effective enforcement of environmental law; reporting on the state of the environment; and publication and promotion of information The North American Commission for Environmental Cooperation (CEC) The stated goals of the North American Commission for Environmental Cooperation (CEC) are to ensure high levels of environmental protection, foster public discussion of environmental concerns, formally advise trade representatives from the three countries, secure effective enforcement and provide for transparency and access to enforcement process. It is composed of three bodies: a) The Council of Ministers (cabinet level or equivalent representatives); b) the Secretariat (technical, administrative and operational support); and c) the Joint Public Advisory Committee. A positive aspect of the work of the CEC is its contribution to the clarification of the links between trade and environment. One important area of their action plan 9 is "Environment, economy and trade" which aims to implement the trade and economy-related provisions in the NAAEC through an assessment of the trends in North America and the study of the environmental effects from NAFTA. In the report "Assessment of the Environmental effects of the NAFTA" (CEC 1999), the study of the links between trade and environment provides empirical evidence and methodological advice. This is an important contribution to the growing debate about methodologies for environmental assessments of trade initiatives. According with some commentators, the development of such methodologies is one of the most relevant in the ongoing trade and environment debate (Scott Vaughan s presentation at the Workshop on 9 The other areas of work are Conservation of Biodiversity; Pollutants and health; law and policy; and a set of other initiatives.

9 9 "Openness and Sustainability in the FTAA", Ottawa, October, 14, 1999). 10 Other positive, direct and indirect, outcomes from the CEC work in North America are outlined in Table 1. Table 1. Key outcomes from the Commission for Environmental Cooperation (CEC) Outcome Enforcement and strengthen of the environmental domestic law Brief explanation One of the most constructive features of NAFTA s approach to environmental issues is that each country must implement its own environmental legislation. This approach helps reducing the fears of unilateral imposition of environmental standards. Public participation Since the beginning of the work of the CEC, the input from civil society has been actively promoted. One mechanism that is currently working is that of citizens submissions on enforcement matters. 11 Over 20 submissions have been presented to the Secretariat over the last five years. Information Hub In a short period of time, the CEC has established itself as an important repository of regional data and information on the North American environment. CEC reports, factual records, and databases empower citizens and governments by providing important regional information on the environment and the policies employed to protect it. This is a key mechanism since an important concern in the environmental community is the perceived lack of access and information 10 The High Level WTO Symposium on Trade Environment (available through webcast at held in Geneva in March 1999, showed wide support from civil society for such assessments. How will these assessments be? Are available methodologies sufficiently tuned to concerns? These are some of the questions that are being raised internationally. For more information on the latest methodologies see Vis-à-vis the new round of multilateral trade negotiations, both the US and the European Union have stated they will conduct national assessments of the environmental impacts of the trade agreements (See 11 Under Article 14 of the NAAEC, the Secretariat may consider a submission from any non-governmental organization or person asserting that a Party to the NAAEC is failing to effectively enforce its environmental law. Where the Secretariat determines that the Article 14 (1) criteria are met, it shall then determine whether the submission merits requesting a response from the Party named in the submission under Article 14 (2). In light of any response provided by that Party, the Secretariat might recommend to the Council that a factual record be prepared, in accordance to Article 15. The Council, comprised of the environmental ministers (or their equivalent) of Canada, Mexico and the U.S., may then instruct the Secretariat to prepare a factual record on the submission. The final factual record is made publicly available upon a two-third vote of the Council. Until October 1999 there have been over 20 citizens submissions. More information about the submissions is available at

10 10 Outcome Model for a bilateral free trade agreement Brief explanation concerning trade and environment linkages. During the negotiations of the Canada -Chile Bilateral Free Trade Agreement, the NAFTA model was used to address trade and environment concerns and consequently, both countries signed a side agreement on environmental cooperation. 12 Chile considers that the side agreement is working well and views it as a reasonable approach to environmental issues in a trade context (Rossi, personal communication). Special mechanism to address specific problems The Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADBank) have worked to address the environmental problems in the U.S.-Mexico border region and the paucity of capital in the region needed to invest and solve these problems. 13 The North American Fund for Environmental Cooperation (NAFEC) is a source of funding for community-based environmental projects. Source: Information from the CEC website ( as December MEXICO S ARGUMENTS AGAINST TRADE AND ENVIRONMENT LINKAGES The lack of support to repeat NAFTA s environmental model in the FTAA, or at least to take it into consideration, is part a broader opposition to link trade and environment goals. The trade community in Latin America and the Caribbean has opposed any attempt on behalf of the U.S. and Canada to include an environmental dimension with the negotiations. 14 A detailed analysis of such rejection is beyond the scope of this paper. 15 It is important, one must bear in mind what Gitli and Murillo (1998) identified as one of the main reasons for this outcome: the widespread distrust of the U.S. environmental intentions in the trade negotiations. Many trade officials perceive the environmental safeguards as a potential source of non-tariff barriers to 12 More info about this agreement is: The bilateral Canada-Chile Free Trade Agreement which came into force on July 5, 1997 The agreement which covers trade in goods and services, investment and dispute settlement mechanism, was intended to serve as a bridge to Chile's eventual accession to the NAFTA. 13 An assessment of the BECC/NADBank Institutions is presented in Spalding and Audley (1997). For contrast purposes see Public Citizen (1996) s document offering a very extreme critique of NAFTA and how the agreement "betrayed the border". 14 During the governmental discussions about the content of the San José Declaration in 1998, the U.S. proposed the creation of an FTAA Study Group on Trade and Environment. This proposal was only supported by the Government of Canada. 15 During the governmental discussions about the content of the San José Declaration in 1998, the U.S. proposed the creation of an FTAA Study Group on Trade and Environment.This proposal was only supported by the Government of Canada.

11 11 hemispheric trade. The main argument used is that environmental concerns have to be addressed but elsewhere, and definitively not with the FTAA framework. Given that Mexico is a member of both the Latin American community and the NAFTA and its environmental model, it was in a unique position to play an intermediary role in the FTAA reducing the gap between the U.S. and Canadian "pro-trade-and-environment" position and the "no-trade-and-environment position" from the rest of the countries. Mexico never played such an intermediary role. To the opposite, it has played a significant role enlarging the divide between the pro-trade and environment position and the anti-trade and environment one. It has actively opposed any effort to include environmental considerations in the trade agenda. In the FTAA process, in particular, by not promoting NAFTA's environmental model, the Mexican NAAEC experience has implicitly the connotation of having been a "big mistake" that should not be repeated. Consequently, any effort to reproduce or, at least, to adapt the NAAEC model to the FTAA context has being discouraged. Assessing whether extrapolations from the NAFTA experience are possible remains an unexplored topic. Since Mexico is a key player in the FTAA, and its views in terms of trade and environment are rather influential, the following section addresses those views and possible reasons that underlie them. 3.1 Mexican Skepticism Environment in a Trade Agenda = Protectionism Environmental discussions in a trade context are perceived by trade officials to be dangerous because they fear they could open the doors to trade protectionism from the developed nations. As pointed out by Mexico's Under-Secretary for International Trade Negotiations at the Secretariat of Trade and Industrial Promotion (known as SECOFI), Mexico follows the increasing debate trade and environment with "concern". Including environmental concerns and needs into the trade agenda is a mistake (Luis De la Calle at the WTO High Level Symposium on Trade and Environment, March 15, 1999). 16 The Mexican official position on trade and environment is based on the assumption that such debate is more about trade protectionism than 16 This speech can be heard at

12 12 about legitimate environmental goals is also confirmed in a study from the Mexican Center for Environmental Law and Policy (González 1999a). As the study remarks, and is confirmed during the research conducted during this study, it is difficult to find specific statements, policy papers or official perspectives with the Mexican position with respect to trade and environment. The strategy used has to deny any linkage and to avoid the establishment of any trade and environment precedents. However, the speech of De la Calle -mentioned above- is very useful for the purpose of this paper, as it clearly spells out the anti-trade and environment perspective prevailing within SECOFI. His speech openly denied the legitimacy of addressing environmental concerns within the trade agenda by arguing that defenders of the environmental protection, promoting noble goals, have found "strange bed fellows", the protectionist groups, creating a what he called a new kind of alliance. From this perspective, environmentalists can easily become the prey of rentseeking economic interests, (which obviously gives environmental leaders little credit). Even when both interests groups do not share the same objectives, they coincide in the perception of a need for imposing new restrictions to international trade. He argued that Mexican businesses and workers have suffered from this alliance and used the U.S. tuna embargo as an example of protectionism, which has harmed Mexico and benefited the U.S. Another two areas used to justify Mexico's rejection to including environmental concerns in the trade agenda were: a) the illegitimate need of harmonization of environmental standards, and b) the misleading assumption that trade harms the environment. With regard to the first area, it was suggested that harmonization of standards will recreate the North and South divide by increasing the developing countries dominance. Uniform environmental standards will be created in the develop countries and this could place developing countries out of business. De la Calle, stated in a rather straightforward way, that the developed world, unhappy about the increasing participation of the developing world in trade, seeks to impose higher costs to producers by creating new barriers in order to have access to their markets. With respect to the second area -the relation between trade and environmental degradation- the argument was that the worst enemy to the environment is poverty, not trade liberalization, as many environmental advocates have assumed. Countries like Mexico need to

13 13 trade in order to obtain financial resources to allocate to environmental protection goals. As he concluded, inserting environmental considerations in a trade agenda threatens decades of progress in market opening which is critical for developing countries to achieve their development needs, which one resolved, would reduce the pressure over the environment. Positions of this kind have analytical support from some international trade experts who argue that the environmental considerations should be left dealt with outside the trade process (Bhagwati, 1993). In fact, this was the prevailing wisdom within the trade community for a long time and, therefore, it is not a position coming exclusively from Mexico. Opposing trade and environment linkages is in fact the position in the vast majority of developing countries, especially in the WTO context, as shown in the statement from the Indian Minister, quoted in Section 2. A mainstream developing country position is that higher environmental standards will in fact affect market access and, therefore, benefit protectionist interests by excluding otherwise competitive developing countries goods. 17 Prior to the III WTO Ministerial Meeting in Seattle a Group of 15 key developing countries (G-15) clearly laid out this position after a Ministerial Meeting in August 1999 in India. 18 The G-15, and Mexico as part of this forum, has defended a status-quo position: the "environment is ab initio a non trade issue, [ ] and all legitimate environmental concerns can be accommodated within the existing WTO provisions, including Article XX of GATT 1994" (Bridges Weekly Trade News Digest, 23 August 1999, 1) The imposition of U.S. environmental values When side issues (environment and labor) under the Bush administration became central under Clinton s, Mexico felt that the U.S. values were forced in the trilateral trade agenda. Since those values were not an immediate priority in the Mexican context, they felt they were forced to accept them since not accepting them would risk finalizing the whole trade agreement. 17 In the Third World Intellectuals and NGOs' Statement Against linkage "Enough is enough" many Asian analysts warned that "if the WTO continues to take on extraneous issues that pressure groups desire, then it would also be lobbied by other organizations to take into account their issues under consideration. Such protectionist barriers are likely to deny the transfer of benefits of trade liberalization to the poor in the South". Their main argument is that environmental issues should be addressed in an independent forum (available at 18 The members of the Group of Fifteen are Algeria, Argentina, Brazil, Chile, Egypt, India, Indonesia, Kenya, Jamaica, Malaysia, Mexico, Nigeria, Peru, Senegal, Sri Lanka, Venezuela and Zimbabwe. (Bridges Weekly Trade News Digest, 23 August 1999, 1). This position was the reaction to other countries attempts to insert more environmental concerns in the multilateral trade agenda. For earlier papers from these governments presented at the WTO: WT/GC/W/265 (Switzerland); WT/GC/W/304 (U.S.); WT/GC/W/176 (Norway) and WT/GC/W/194 (European Union). These documents are available at

14 14 The fact that these issues were dealt with unexpected supplemental negotiations also increased the discomfort. There is a sense that the inclusion of environmental considerations in NAFTA occurred as a response to domestic pressure about environmental protection, not because there was a trade argument to do it. In other words, the Mexicans perceived that such environmental dimension was created because of political convenience, and not based on analytical arguments, which justified expanding the scope of the negotiations. Despite their efforts to oppose the environmental agreement, Mexican negotiators were willing to sign the side agreement because the NAFTA was an essential component of the economic strategy under the Salinas Administration (González 1999a) Empirical data According to the Mexican Secretary of Trade and Industrial Promotion Herminio Blanco, environmental protection is an issue (together with labor) that can obstruct and delay trade liberalization processes (quoted in González 1999a). Has that been the case in the Mexican economy? Where is the harm caused by environmental protection efforts -undertaken by the CEC- on the Mexican trade liberalization process? Under the NAAEC countries must comply with their own environmental laws, if compliance becomes difficult to accomplish, why would this be a problem caused by NAFTA? The environmental laws were enacted within a national context, by national legislators and therefore NAFTA could not be blame for the internal consequences of its provisions. An anti-trade and environment argument on behalf of Mexico's trade authorities should be supported on empirical data in order to become more compelling. SECOFI has clearly influenced, I suggest in a biased way, the trade and environment debate in Latin America by promoting the idea that linking both areas is a "mistake". Given the increasing number of non-governmental actors which demand more environmental protection and the need for empirical-based discussions about trade and environmental linkages, Mexican authorities will need to engage in case studies of sectors in order to present a more unbiased case against any linkage. This is not necessarily an easy task. Undoubtedly, trade and environment linkages are difficult to assess and explain. There is a lack of empirical studies on the effects of environmental measures on trade flows. Even pure trade effects of NAFTA on the Mexican economy are

15 15 difficult to isolate and assess. The overall conclusion reached in an assessment conducted by Weintraub (1997) was that NAFTA is performing as expected, since two-way trade is up, the rise is continuing and the type of industrial specialization that is required to augment the competitiveness of companies is in fact taking place. Other studies suggest that North American trade has increased 44 percent since NAFTA was signed (Robinson, 1997). One could preliminary argue, based on these empirical results, that having an parallel environmental agreement to NAFTA has not stopped the trade agreement from accomplishing its original goals. But this reasoning is probably as preliminary and weak as Mexico's arguments. The impact of the NAAEC provisions on Mexico's trade would need to be assessed in other to arrive at definitive conclusions. Since Mexico's lack of support of NAAEC is not based on empirical data, no claims of harm, until demonstrated, should be accepted as valid. In other words, the lack of empirical evidence weakens Mexico's claims of protectionism as the main driving force of the trade and environment debate. It is fair to recognize the protectionist interests do exist, but the vis-à-vis the lack of empirical studies NAFTA s environmental experience cannot be used as an evidence of it. It also dismisses the key role that some North American environmental organizations played in the pre-nafta trade and environment debate, which helped indeed to "green" the NAFTA negotiations. In the absence of an empirically-based argument, the next question should be are there other reasons affecting Mexico's assessment of the NAFTA s "environmental package" in particular and its trade and environment position in general? In the next section I suggest various reasons that could help explain its views Other Reasons for Skepticism Among the possible reasons that explain why Mexico does not support trade and environmental linkages and does not promote the NAFTA s environmental model in the FTAA context are: Historical-Political tensions: Mexico and the U.S. share a border of 3,200 kilometers and deep historic ties. Their bilateral relation has been complex and non-harmonious. In his study about Mexico, Smith (1999:225) accurately describes this relation, "It is intense, in view of

16 16 proximity and interdependence; it is asymmetric, in view of the preponderance of the U.S. power; and it has been fraught with misunderstanding, in view of cultural and developmental differences". There have been many political tensions that are not trade-related. Smith identifies three key issues of their bilateral relationship in the post-war era: a) illicit drugs, b) illegal immigration 19 and c) environmental protection (Smith 1999). Being neighbors makes their interaction more complex, and places Mexico in a different position than the other developing nations. In fact, the author suggests that their bilateral relationship is likely to become more difficult to manage, more resistant to control, more subject to unpredictability. There are long term Mexican resentments with respect to the U.S. Restrictive immigration policies have also increased the Mexican perception that they are regarded a source of bothersome problems. This is just an example. My broad suggestion is that because of these historical and political tensions, reaching agreements between the two nations is not likely to be easy. Therefore, agreeing in how to address environmental concerns in a NAFTA context, which was controversial from the start, was not going to be the exception. Probably, even if Mexico were an advocate of environmental considerations in trade agreements, their approach would have differed from the one proposed in the U.S. North and South divide: The differences between a developed and a developing country have also played a role in Mexico's position. There is a wide perception that the U.S. international approach on environmental issues is not as proactive as the domestic one. As many other developing countries, Mexico perceives a weak commitment and leadership regarding international environmental efforts. There is perception that developed countries are not committed to the environment as they claim. Three arguments are the U.S. consumption rates, non-ratification of international environment agreements (on concrete example is the United Nations Convention on Biological Diversity) and the lack of real commitment in advancing the Rio 92 process to assigning the financial resources. The North and South divide creates erodes the credibility of the actors involved: the developed countries distrust the developing countries real commitment to the development of their nations, and the developing nations distrust the environmental intentions of the developed world. This divide which has been increasingly evident in both the multilateral trade fora (i.e. the lack of consensus in Seattle) 19 For example, illegal immigration from Mexico accounts from 55 to 60 percent of unauthorized residents in the United States (Smith 1990).

17 17 and the environmental discussions (i.e. the stalemate situation in the climate change negotiations). In the Mexico-US context this tensions are always present, especially because of the known economic muscle the U.S. has in Latin America. Gonzalez (1999) points out the in Mexico even environmental NGOs condemned the mechanism under NAFTA, that allowed the U.S. imposing trade sanctions for environmental reasons. The tuna-dolphin case: This case has been one of the most critical elements of the Mexican position against trade and environment linkages. Eight years later, this case is still being used as evidence of a) the problems caused by the use of trade measures to address environmental concerns, and b) the threat of green protectionism as stated by De la Calle in his aforementioned speech to the WTO in March They considered their first trade and environment experience to be traumatic. According to the Secretary for the Environment in Mexico (SEMARNAP) the harms of the tuna embargo, which ended until October 1999, have been severe: a) reduction of the national fishing fleet; b) reduction of the rates of tuna fishing; c) Tuna exports have been reduced (in 1988 they were 80,000 metric tons (Mt.) in 1993 they went down to 20,000 Mt., d) lost annual value for not selling in the U.S. market $50 millions and from 1991 to 1997 the lost value, due to the embargo, was $300 millions; and e) lost of jobs caused by the reduction of the tuna fishing fleet (SEMARNAP 1998 quoted by González 1999a). This tuna embargo is widely perceived in Mexico, and the rest of Latin America, as a quite unfair and drastic trade measure. Despite the original noble environmental intention to protect the dolphins by US environmental groups 20 the U.S. government has negatively affected the trade and environment debate by not dealing with the issue in a more constructive 21 and by not finding an alternative and non-unilateral policy prescription to save the dolphins. An almost decadelong embargo, has given Mexico and the trade and environment skepticals the perfect example to argue that trade and environment links is economically harmful. I also think that despite the harm Mexico had to encounter, it is time to move on the tuna-dolphin case and stop using it (and abusing it ) as the core argument in any trade and environment discussion. 20 The initial claim in 1988 that the US Marine Mammal Protection Act (PL , 86 Stat. 1027) was being violated came from the Earth Island Institute, a Californian environmental organization. They sued to enforce the congressional mandate to curtail the incidental killing of marine mammals, in this case the dolphins, of commercial fishermen (OMC 1998). 21 The US failed to reckon that the US law was structurally defective setting Mexico s dolphin kill limit retroactively based on the number of dolphins killed by US tuna fishermen (Esty 1994).

18 18 The negotiating dynamic of NAFTA: As Clinton became president supplemental negotiations started. This process was not part of the original schedule and took Mexican trade officials by surprise, since the terms agreed upon in September 1992 were altered. The re-negotiation that started in March 1993 was considered a second "traumatic" trade and environment experience. Not only because of the pressure they received from the U.S. to agree but also because it was the first time they negotiated environmental and labor topics. There was no previous experience in that field (Hogenboom 1998 quoted in Gonzalez 1999a). The fact that the chief Mexican NAFTA negotiator, Herminio Blanco, is the present Mexican Minister of Trade has also played a role in their firm opposition to environmental linkages (Gonzalez 1999). Even when they signed the environmental side agreement they were not convinced it was appropriate to include issues such as environmental protection or labor in the negotiations themselves. Therefore, they do not consider themselves to be advocates of the trade and environment linkage either in the context of the FTAA nor in that of the WTO. In fact, they perceive this is a linkage that, in deed, "preoccupies" the Mexican Government (De la Calle in his aforementioned 1999 speech). Future leverage: Another reason explaining the Mexican opposition to environmental linkages is the potential use of this topic in the negotiations to obtain something in exchange. In this case, they could reject any inclusion of environmental concerns in the early stages of the FTAA negotiation in order to extract future concessions in other fields at a later stage (i.e. agriculture, special treatment). In other words, this rejection could be the result of strategic thinking vis-à-vis the U.S. After the NAFTA experience, Mexico is fully aware that the US, and probably Canada as well 22, cannot go back home with a trade agreement that lacks environmental provisions. Hurt "national ego": This is a sensitive subject. My suggestion, however, is that the Mexican position in the FTAA is becoming a means to "evening the score" since they felt, they as a country, were forced to sign the NAAEC in the NAFTA negotiation to please U.S. environmental constituencies. For Mexico, the whole trade and environment debate may be reinforcing a sense of another lost battle with the U.S: in one hand, the imposition of what 22 This domestic political needs were confirmed by David Runnals comments as chairman a the session at the Workshop on Openness and Sustainability in the FTAA, Ottawa, October, 15, 1999

19 19 they perceive as an unfair tuna embargo, and b) the imposition of an environmental agreement. It is understandable that imposed agendas and sanctions do not make countries happier. Mexico has a strong sense of national ego, which had to develop as a result of the interactions with such a powerful neighbor, the U.S. Their inflexible and anti-environmental biased position in the FTAA context seems to be a signal that they are not willing to risk losing another environmental battle (or at least for now) in the trade context. Therefore, excluding the whole issue from the hemispheric trade agenda seems to be the strategy that would make the most sense to their "environmental" resentments. 4. LESSONS FROM THE NAFTA EXPERIENCE From a trade and environment perspective, what lessons from the NAFTA experience are relevant for the FTAA? I suggest classifying the lessons in four categories: 4.1. Formal and substantive approaches Addressing the environment mainly, although not exclusively, through a "parallel approach" offers a good degree of flexibility because while admitting the linkage between trade and environment, it does recognize the differences in trade and environmental goals and provides specialized institutions to administer the two agreements. This approach leaves enough room for countries to decide their own level of environmental protection and how to accomplish them. Complying with their own domestic environmental legislation could be appropriate for the FTAA members given the wide mistrust of the U.S. environmental intentions in trade processes and the fear of unilateral imposition of environmental standards. In a hemispheric context, considerable practical difficulties would arise regarding a supranational institution equivalent to the CEC. Another advantage of the NAFTA model is that it has an ex-ante approach in the sense that it addresses environmental concerns before the agreement enters into force. To have predefined institutional responses to potential and unexpected environmental consequences of free trade agreement is worth considering in the FTAA context since this would add legitimacy to the whole process. The fact that the CEC is developing a methodology for the environmental assessments of trade initiatives can be useful to carry out an environmental review of the FTAA