Globalization

North American Free Trade Agreement (NAFTA)

Source: Encyclopedia of Earth

The Trade-Environment Junction in North America

In the fall of 1992, the fate of the proposed North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States of America (United States) was uncertain. Most significantly, there were indications that NAFTA might not be approved by the United States Congress. Labor unions and environmental groups were uniformly opposed to the treaty and it looked increasingly like NAFTA's proponents did not have the needed votes. Into the midst of this political turmoil stepped Bill Clinton, elected United States President in November 1992.

First as a candidate, and then as President, Clinton announced that he would not endorse NAFTA unless there were companion side agreements to provide protection for labor rights and the environment. With this position staked out, Clinton began to seek support from unions and environmental groups for his "NAFTA-plus" agenda. Clinton's efforts led to the negotiation of two side agreements in the summer of 1993—the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). Although Clinton made little headway with the NAALC in terms of garnering labor support for NAFTA, the NAAEC did persuade some environmental groups to withdraw their previous opposition to the trade pact so long as the NAAEC was made part of it. This concession by certain factions within the United States environmental community proved critical in tilting the political balance. In late 1993, NAFTA was narrowly approved by the United States Congress; soon thereafter, Canadian and Mexican approval of the treaty followed.

This is the historical context for evaluating the environmental performance of the North American environmental regime established jointly by NAFTA and the NAAEC. A comprehensive review of this regime is beyond the scope of this article, which instead will offer a more limited assessment of two of the more prominent aspects of this regime: the citizen submission process established under Articles 14 and 15 of the NAAEC, and the investment expropriation claims procedure established under Chapter 11 of NAFTA.

Citizens Submissions Under Article 14 of the North American Agreement on Environmental Cooperation

The institutional centerpiece of the NAAEC is the North American Commission for Environmental Cooperation (CEC), headquartered in Montreal, Quebec. The CEC consists of three sub-entities: the Council of Ministers (CEC Council) composed of the environmental ministers of Canada, Mexico and the United States; the Secretariat (CEC Secretariat), the administrative body of the CEC with an Executive Director appointed by the CEC Council; and the Joint Public Advisory Committee (JPAC), a 15-person consultative body composed of five nongovernmental representatives from each of the three NAAEC nations.

During the NAFTA negotiations, the parties were unable to agree on new substantive environmental protection standards. The parties were able to reach consensus, however, on provisions calling for effective enforcement of existing environmental protection standards in each nation regardless of what these standards might be from a substantive standpoint. To provide a means to help ensure effective enforcement of environmental laws, Articles 14 and 15 of the NAAEC created a citizen submission procedure.

The NAAEC citizen submission procedure provides that "the [CEC] Secretariat may consider a submission from any non-governmental organization or person asserting that a Party is failing to effectively enforce its environmental laws." Upon receipt of an Article 14 submission, the CEC Secretariat must then determine whether or not the submission merits a response from the Party alleged to be in violation of the NAAEC. If the CEC Secretariat determines that a response to a submission is merited, the Party alleged to be in violation of the NAAEC has 60 days to prepare and submit a response. If the CEC Secretariat, after review of the response, determines that additional investigation is warranted, Article 15 provides that the CEC Secretariat may request that the CEC Council approve, by a two-thirds vote, the CEC Secretariat's preparation of a "factual record" of the dispute. If authorized by the CEC Council, this factual record will evaluate the factual and legal basis for the Article 14 petition. The final version of the CEC Secretariat's factual record must be approved by a two-thirds vote of the CEC Council.

More than 60 citizen submissions have been filed with the CEC since NAAEC went into effect in 1995; more than 10 factual records have been released. Below are examples of some of the environmental enforcement issues involved in these citizen submissions and factual records:

  • In 1996, Mexican environmental groups filed a citizen submission against Mexico concerning the construction and operation of a proposed cruise ship pier on the island of Cozumel. The submitter alleged that the cruise ship pier would significantly damage nearby coral reefs, and that Mexico had refused to require compliance with the national ecology law before approving the pier. The submission resulted in the preparation of a factual record (released in 1997) that set forth evidence confirming much of the submitter's allegations, but the factual record did not reach any conclusions regarding the failure to enforce nor did it make any recommendations. During the period the factual record was prepared, construction of the pier continued and was completed.
  • In 1997, Canadian and United States environmental groups filed a citizen submission alleging a failure to enforce the Canadian Fisheries Act in connection with the operation of hydroelectric dams in British Columbia. In connection with its preparation of a factual record, the CEC Secretariat established an Expert Group of outside fishery specialists and asked the Expert Group to provide the CEC Secretariat with an independent assessment of whether current hydroelectric dam operations complied with the Canadian Fisheries Act, and whether the federal Canadian government was effectively enforcing such compliance. The findings of the Expert Group indicated a lack of compliance and effective enforcement, and these findings were included in the factual record prepared by the CEC Secretariat and released in 2000. In the factual record, however, the CEC Secretariat stopped short of adopting the Expert Group's findings as its own.
  • On November 16, 2001, the CEC Council voted on whether to adopt the CEC Secretariat's recommendation that factual records be prepared for four separate citizen submissions. These citizen submissions focused on such alleged nonenforcement claims as the failure by Canada to enforce the Canadian Environmental Assessment Act in connection with approval of access roads in wilderness areas, the failure by the United States to enforce the Migratory Birds Treaty Act in connection with logging operations, and the failure of Canada to enforce the Canadian Fisheries Act in connection with mining operations in British Columbia. The CEC Council approved the preparation of factual records for all four of these submissions. Its approval, however, was accompanied by an order requiring the preparation of factual records that were far more limited than what had been recommended by the CEC Secretariat. This marked the first time that the CEC Council used the approval process to seek to narrow the substantive scope of factual records.
  • In September 2005, the State of North Dakota began diverting water out of Devils Lake into the Sheyenne River, from which it then flows into the Red River and across the border into Lake Winnipeg in the Manitoba Province of Canada. Devils Lake contains four species of blue-green algae (that thrive in phosphorus-high waters) and three species of fish parasites that are not presently found in Lake Winnipeg. In March 2006 environmentalists filed an Article 14 citizen submission with the CEC. This submission alleged: “The construction of the artificial outlet from Devils Lake is an unlawful cause of transboundary pollution, contrary to [1909 Boundary Waters] Treaty obligations. Both the United States and Canadian governments have a duty to resolve the dispute at the International Joint Commission (IJC)…Both governments have failed to meet their respective [Boundary Waters] Treaty obligations, constituting a failure to effectively enforce their environmental laws.” In August 2006, the CEC issued a determination terminating the Devils Lake citizen submission, holding: “The Boundary Waters Treaty does not mandate referral to the IJC whenever a government has reason to believe that transboundary pollution is occurring. Instead, unilateral referral is mandated ‘from time to time’ only if a government decides that a question or matter of difference regarding rights or obligations under the treaty exists and also that it wishes to seek a referral to the ICJ as opposed to employing other means to resolve the dispute…the dispute resolution mechanism [established under the Boundary Waters Treaty]…does not create an obligation whose enforcement can be reviewed under the NAAEC…”

Within the North American environmental community, there is wide range of views concerning the performance of the NAAEC citizen submission process. Some have praised the process for providing a useful "spotlight" on enforcement issues, while others have expressed frustration at the absence of conclusions and recommendations in factual records as well as the CEC Council's attempts to restrict what enforcement issues the CEC Secretariat may consider in its preparation of factual records. Moreover, even when a factual record reveals a failure to effectively enforce environmental laws, Articles 14 and 15 of the NAAEC do not provide any mechanisms or sanctions to address such failure.

Investment Expropriation Claims Under Chapter 11 of the North American Free Trade Agreement

Chapter 11 of NAFTA establishes protections for foreign investors in each of the three signatory nations. Although previous multilateral investment treaties protect against direct appropriation by the government, NAFTA's Chapter 11 investment protection provisions went further to establish a new right for private foreign investors to claim compensation for government acts that are "tantamount" to direct appropriation. Chapter 11 did not receive much attention at the time of the NAFTA negotiations, but it has since become increasingly controversial as implementation has proceeded because private business interests have used Chapter 11 to seek payment from foreign national governments for the enforcement of policies designed to protect public health, natural resources and the environment. Below are examples of some of the Chapter 11 claims brought to date:

  • Metcalclad, a California-based corporation intended to open a toxic waste landfill in Mexico. Metalclad had secured the required Mexican state and federal permits, but was unable to secure a local municipal construction permit. The local permit was withheld because of local residents concerns about contamination to groundwater and streams from the proposed landfill. In August 2000, a NAFTA Chapter 11 tribunal awarded Metalclad $16 million (United States) on the basis that the denial of the local construction permit constituted an indirect appropriation of private property.
  • Methanex is a Canadian corporation, and a producer and marketer of methanol. Methanol is the key ingredient in methyl tertiary butyl ether (MTBE), a gasoline oxygenate designed to reduce harmful airborne automobile emissions. Methanex does not manufacture MTBE. In 1999, the State of California (in the United States) announced a phase-out of MTBE by 2002, due to its widespread contamination of groundwater aquifers from underground petroleum storage tanks. In its Chapter 11 claim against the United States, Methanex claimed that the California-phase out of MTBE violated NAFTA's guarantee of fair treatment for foreign investors. In an August 2002 decision, a NAFTA tribunal rejected this claim for compensation on the grounds that the Methanex Corporation did not constitute an "investor" for Chapter 11 purposes because there was an insufficient link between California's ban on MTBE and Methanex Corporation's investments in the production of methanol.
  • In August 2004, farming interests from Texas filed a claim against Mexico seeking nearly $700,00,000 (United States) in connection with the alleged failure of Mexico to deliver certain quantities of Rio Grande water pursuant to the terms of the 1944 Rivers Treaty between Mexico and the United States. Mexico has responded that it was entitled to temporarily reduce releases of Rio Grande water under the drought provisions of the 1944 Rivers Treaty, and that the 1944 Rivers Treaty provides that any "debt" incurred in connection with drought conditions is to be paid back through additional deliveries of water rather than liability for damages. In the summer of 2006, there was briefing on the question of whether the dispute resolution procedures set forth in the 1944 Rivers Treaty (involving the International Boundary and Water Commission) preclude the jurisdiction of the NAFTA Chapter 11 tribunal in this instance.

Chapter 11 has proven controversial and been subject to widespread criticism due to concerns over its broad definition of investment, its broad definition of appropriation, its dispute resolution mechanisms, and its impact on domestic regulation. In recent years, an extensive body of scholarly legal work has been undertaken in connection with the impacts of Chapter 11 on environmental protection policies, much of which calls into question whether the substantive and procedural rules set forth in Chapter 11 are appropriate for resolving complex disputes involving the adoption and enforcement of public health and natural resource conservation matters.

Further Reading

 
Citation
Kibel, Paul Stanton (Lead Author); Sidney Draggan (Topic Editor). 2007. "North American Free Trade Agreement (NAFTA)." In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment). [First published in the Encyclopedia of Earth March 7, 2007; Last revised March 13, 2007; Retrieved September 17, 2008]. <http://www.eoearth.org/article/North_American_Free_Trade_Agreement_(NAFTA)>
Glossary

Citation

(2007). North American Free Trade Agreement (NAFTA). Retrieved from http://communities.earthportal.org/EPCommunity/view/article/134930

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