The political implications of the enforcement provisions of the NAFTA environmental side agreement: the CEC as a model for future accords.

• Author: Raustiala, Kal
• Position: Commission for Environmental Cooperation

1. INTRODUCTION

   One of the most novel aspects of the North American Free Trade Agreement (NAFTA)(1) is the major role played in the negotiations by environmental interest groups and by ecological issues in general.(2) The environmental community in the United States, and to a lesser degree in Canada and Mexico, seized upon the NAFTA negotiating process to test their political power in a new arena, where the implications for the environment were growing increasingly clear. One result of this political action is the environmental side agreement to NAFTA, the North American Agreement on Environmental Cooperation,(3) which was drafted specifically to address fears that the passage of NAFTA would increase environmental degradation. Among other effects, this agreement creates formal mechanisms by which private parties may initiate investigatory actions against member states believed to be persistently failing to enforce their own environmental laws.(4) Such investigations would be carried out by the trilateral Commission for Environmental Cooperation (CEC).(5) If such actions are pursued further by the member governments themselves, the agreement allows for the creation of an independent arbitral panel of experts with the authority to determine whether environmental legislation is being enforced appropriately. The end result of this process can be trade sanctions and/or fines(6) assessed to a nation found in violation. However, the likelihood of such sanctions occurring as the CEC now stands is remote.

   This paper examines the enforcement provisions of the environmental side agreement to NAFTA as well as the principles of law, enforcement, and compliance implicit in the accord. It asks, what would be the consequences if the CEC were truly effective? What are the probable static and dynamic effects of powerful multinational bodies with sanctioning authority? How would environmental legislation and regulation be effected? Is the mode of enforcement embodied in the CEC approach a sound one, and therefore a good model for future accords? These questions are not merely of theoretical interest; with the possibility of NAFTA being extended to Chile or other Latin American states, the CEC's creation represents a powerful precedent.

   The side agreement sets up procedures which, if used successfully and effectively, have the potential to influence and alter current regulatory practice in the United States.(7) In particular, a stronger trilateral body (which many U.S. environmentalists had sought) would enhance this potential and yield predictable effects on the shape and scope of future American environmental law. Environmental legislation in the United States is frequently both ambitious and ambiguous, and fundamentally incapable of being faithfully implemented as written. Executive agencies must often attempt to discern legislative intent from confusing and contradictory language. As a result, an essential role of the American judiciary is that of statutory interpreter, and environmental regulation is in fact a process of interaction between Congress, the implementing executive agencies, the courts, and various private interests, rather than a product purely of the legislature codified in formal law. Through this interaction, a rough equilibrium is reached that is politically satisfactory to multiple interests.(8) For most executive agencies, "[s]tatutes do not and cannot fully guide their behavior."(9) Enforcement and lawmaking are not wholly separate.

   The NAFTA side agreement, by empowering a panel of international experts to make determinations about patterns of enforcement, mistakenly separates lawmaking from enforcement. Democratic accountability, which is preserved to some extent through the interactive process described above, is diminished. In addition, legislation can be expected to change in response to such enforcement measures. Specifically, the level of enforcement the CEC proposes would result in less expansive environmental legislation, decreased use of technology- and agency-forcing statutes, and broader delegation to agencies of standard- and deadline-setting powers.

   This first section has introduced the main themes of this paper. Section Two discusses the North American Agreement on Environmental Cooperation and summarizes the history of the side agreement negotiations. Section Three provides an overview of the agreement's terms, focusing on enforcement provisions. Section Four discusses the process of environmental regulation in the United States, demonstrating that regulation is in fact an interactive process involving many actors, not merely a product of the legislature codified in the original statutes. Section Five applies these concepts to the enforcement approach embodied in the CEC, generating hypotheses about the likely results of rulings and sanctions.

2. THE ENVIRONMENTAL SIDE AGREEMENT TO NAFTA

   The NAFTA environmental side agreement is a direct result of the pressure of U.S. environmental groups.(10) For the first time, environmental organizations recognized the ecological threat posed by liberalized trade and sought to ensure that the extension of free trade did not roll back the regulatory gains of the last twenty-five years. In the late 1960s and '70s there was a vast increase in environmental regulation in the United States, highlighted by the passage of the National Environmental Protection Act (NEPA)(11) and the Clean Air Act(12) in 1970. Moreover, this groundswell of federal regulation was driven by the belief that industry must be tightly controlled, lest it pollute at will. The regulatory approach chosen was one of strict demands, formal and generally inflexible standards and deadlines, and adversarial procedures.(13) This belief that an adversarial and prosecutorial style of environmental regulation works best was extended to the newfound "green" issue of trade liberalization. By engaging in extensive lobbying efforts, ecology and conservation groups were able to force the U.S. government to successfully seek a special environmental side agreement, creating a trinational body with powers of review and enforcement. Two concerns drove this process.

   First, environmental groups fear that increased trade will lead to greater concentrations of pollution along the borders, especially the U.S.-Mexico border.(14) In recent years the creation of special "export processing zones" just south of the border has led to a large increase in American-owned, but Mexican-staffed, production facilities. These plants are the controversial "maquiladoras." In the maquiladora areas, enforcement of Mexican environmental laws has been exceedingly lax. In addition to creating often horrific conditions on the Mexican side, the pollution generated in the zones frequently finds its way into the United States. Some environmental groups expect NAFTA's implementation to accelerate this trend.

   Second, and more importantly, environmental groups fear that NAFTA will create incentives for corporations to move environmentally-sensitive production to the least restrictive and least regulated areas available. Given an avenue of escape from tight and often costly environmental and safety regulations, corporations will move production south to Mexico, where environmental laws, though formally strong, are rarely enforced. In essence, a pollution haven will be created,(15) with access to the U.S. market guaranteed by NAFTA's provisions. More perniciously, the rise of pollution havens may create further incentives for states and nations to relax environmental standards, as they compete to retain production--and its attendant jobs--on local soil.(16) The results could disrupt U.S. environmental regulation and, at a minimum, hamper efforts to obtain more stringent environmentally-based restrictions in the future.

   Both of these fears, increased border pollution and the creation of pollution havens leading to weaker regulatory standards, are clearly focused on Mexico. There is currently a wide gulf in the actual regulatory environment once the border is crossed. While Mexican environmental law is often formally as strict as American or Canadian law, it has historically been flouted with little worry by Mexican industry. Government inspectors are few, and their salaries and morale low. While the agreement's provisions provide no explicit focus on Mexico, most observers understand that concern over Mexico's poor history of enforcement is the chief impetus for the agreement. The creation of a powerful CEC, accessible to private groups and empowered to levy fines and trade sanctions, is viewed by some observers as the best way to ensure that Mexico enforces its environmental laws to the fullest extent possible and that the impact on the North American environment by the NAFTA-induced growth in free trade is minimized.

   1. History of the Environmental Side Agreement

      From the outset, environmental concerns plagued the NAFTA negotiations. In response to early congressional concern about the level and thoroughness of Mexican environmental regulation, the U.S. General Accounting Office conducted a survey of Mexican environmental law.(17) The survey concluded, surprisingly, that Mexican environmental regulations were formally as strong as U.S. regulations in nearly all areas.(18) This finding, however, did not assuage the worries of American environmental groups; rather, it refocused their attention on issues of enforcement and monitoring. Recognizing that formal Mexican law, though strict, was ineffective by itself, environmental groups sought to ensure compliance with those laws through a powerful and responsive supranational body to which they had access.(19) This body was to be created in a side agreement devoted solely to environmental issues.

      The first official statement mentioning the possibility of such an environmental side agreement appeared in May 1991 when the Bush Administration attempted to address growing...