NAFTA and the Environment: A Trade-Friendly Approach

Northwestern Journal of International Law & Business, Dec 1994

Although the North American Free Trade Agreement, (NAFTA), contains more detailed environmental provisions than any previous trade agreement,

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NAFTA and the Environment: A Trade-Friendly Approach

NAFTA and the Environment NAFTA and the Environment: A Trade-Friendly Approach Bradly J. Condon 0 0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons - NAFTA and the Environment: A Trade-Friendly Approach I. INTRODUCTION Although the North American Free Trade Agreement, (NAFTA), contains more detailed environmental provisions than any previous trade agreement,' only some of them are mandatory. These mandatory NAFTA environmental rules purport to prevent the use of environmental policy instruments as disguised barriers to trade. Since most human activities have some impact on the environment, a vast array of government regulation could potentially be characterized as relating to the environment. This fact increases the risk that domestic industries will exploit political discretion over environmental policy implementation to put foreign competitors at a disadvantage by raising non-tariff barriers to trade. It is important to distinguish between the selection of environmental policies and their implementation; that is, between means and ends. The NAFTA preserves political discretion to determine policy goals themselves and favours political solutions to conflicts that arise between trade and environmental policy. However, it restricts the use of trade restrictions to implement environmental policies. Environmental policy instruments must be chosen for their effectiveness in achieving environmental goals, not their effectiveness as a means by which to restrict trade or to protect domestic industry. * The author holds the position of Director for North American Business Studies, Faculty of Business Administration at Simon Fraser University at Harbour Centre. This article was presented at a conference on Sustainable Development in Calgary, Alberta, at the University of Calgary (Mar. 26, 1994). 1 Canada, NAFTA - Environment, in CANADA AND THE NORTH AMERICAN FREE TRADE AGREEMENT, Issue Series (1992) (on fie with author). THE PRINCIPLE OF NoNDISCRIMINATION The principle of nondiscrimination requires standards and regulations to treat the products of all Parties equally.2 Trade rules are concerned primarily with preventing discrimination by limiting the extent to which countries may discriminate between domestic products and imports, between imports from different countries, and between goods sold in the domestic market and those exported.3 If environmental policies are not implemented so as to discriminate between countries or between domestic and imported goods, they are unlikely to violate the trade rules.4 In short, the principle prohibits favouratism, not environmental protection. The environmental provisions are exceptions to the general rule of nondiscrimination. 5 Thus, the first step in any analysis of whether an environmental standard violates a trade agreement requires a determination of whether it violates the principle of nondiscrimination. 6 If the environmental standard does not discriminate, then that is the end of the matter, and there is no need to determine whether it meets the conditions set out in the provisions that deal specifically with environmental standards.7 On the other hand, if the standard is found to be discriminatory, the issue then becomes whether it is nevertheless permitted under an exception to the general rules. An environmental standard that violates the rules against discrimination may nevertheless be allowed to stand if it meets the conditions set out in the environmental provisions. 2 North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., arts. 301, 1202 and 904(3), 32 I.L.M. 296, and 32 I.L.M. 612, [hereinafter NAFIA]. 3 TRADE AND THE ENVIRONMENT, GATT 7 (1992) (on file with author). 4 Id. 5 "Environmental provisions" refers to GATT Articles XX(b) and (g) and the equivalent provisions in the FTA and the NAFTA. These provisions prohibit "arbitrary or unjustifiable discrimination", implying that discrimination may be justified in certain circumstances. See generally NAFTA, supra note 2, art. 2101(2). 6 While there may be specific provisions that do not flow from the principle of non-discrimination, it is beyond the scope of this paper to explore them. For the purposes of this discussion, I will assume that there are no such rules. 7 In Lobsterfrom Canada,1990 WL 299945 (May 25, 1990), (U.S.-Can.-F.T.A. Binational Panel) an FTA panel ruled that once a measure that deals with both foreign and domestic products is found to be consistent with the national treatment obligation of Article I1,not only is there no need to consider the environmental exceptions, but there is no need to consider any other obligations either, in this case, those prohibiting import and export restrictions under Article XI. See also Ted McDorman, Dissectingthe FreeTradeAgreement Lobster PanelDecision 18 CAN. Bus. Li. 445, 453 (1991). III. TH CONCEPT OF LEGITIMATE OBJECTIVES The NAFTA prohibits standards that create unnecessary obstacles to trade.8 If a party demonstrates that the purpose of a standard is to achieve "a legitimate objective" and that it does not exclude the products of another Party that meet that objective, the standard is presumed to not create an unnecessary obstacle to trade. The definition of "legitimate objective" includes environmental protection, but excludes protection of domestic industry.9 The inclusion of environmental protection in the definition of "legitimate objective" appears at first glance to grant national governments unrestricted access to the vast array of measures that can be characterized as having an environmental objective. But the apparent freedom to pursue environmental protection at any cost is tempered by the prohibition against protectionist actions, which restricts access to trade-restrictive environmental policy instruments. Thus, not all forms of environmental protection can be characterized as pursuing a legitimate objective. There is an important difference between the concept of "legitimate objective" in Article 904(4) of the NAFTA and the equivalent provision in the Canada-UnitedStates Free TradeAgreement, (FTA).10 FTA Article 603 uses the term "legitimate domestic objective". The deletion of the word "domestic" implies that the NAFTA Parties may employ trade-restrictive measures to implement not just domestic environmental policies, but extraterritorial environmental policies as well. Provided the measure has the aim and effect of achieving a legitimate environmental goal, NAFTA Article 904(4) would permit each Party to use trade-restrictive measures to protect the environment both within and without its national territory. However, the unrestricted use of such measures could undermine both the sovereignty of each Party and the free movement of goods between them. Moreover, they could be subject to protectionist abuse. Therefore, the NAFTA subjects the right to pursue environmental objectives via the use of trade restrictions to several conditions regarding their use. 8 NAFTA, supra note 2, art. 904(4). 9 NAFrA, supra note 2, art. 915. 10 Canada-UnitedStates Free Trade Agreement, Dec. 22, 1987-Jan. 2, 1988, Can.-U.S., 27 I.L.M. 281 [hereinafter FTA]. MEASURES RELATING TO ENVIRONMENTAL PROTECTION In order to prevent protectionist abuses of environmental regulation, the NAFTA subjects trade-restrictive environmental standards" to a three-stage test, which asks: 1. Does the standard relate to environmental protection?' 2 For example, is the trade restrictive standard directly connected with an environmental programme and primarily aimed at achieving an integral aspect of that programme? 2. If so, does the standard create an unnecessary obstacle to trade? For example, is a trade restriction necessary to achieve the environmen13 tal goal? 3. If a trade restriction is necessary, has the least-trade-restrictive measure been chosen? For example, is the degree to which trade is impeded essential to achieve the environmental goal in question?' 4 The first test asks whether the purpose of a standard is to protect the environment, or whether its true purpose is to protect domestic industry from competition. It flows from the requirement that traderestricting standards must "relate to" one of the categories of environmental protection if they are to be exempted from the strict application of the principle of nondiscrimination. The requirement that a measure "relate to" environmental protection refers to the trade measure requiring justification, not to the environmental policy of which it forms a part. This first stage of the analysis exempts a broad array of measures from the strict application of the principle of nondiscrimination.15 In Article 904(1), the requirement that a measure "relate to" environmental protection is a threshold test that must be met before 11 If a standard does not restrict trade, Chapter Nine of the NAFTA does not limit its use, since the Chapter applies only to standards that "directly or indirectly affect trade." See NAFTA, supra note 2, art. 901(1). 12 See NAFTA, supra note 2, art. 904(1). NAFTA Article 2101 uses the same test in respect of environmental measures relating to the conservation of exhaustible natural resources. 13 See NAFTA, supra note 2, art. 904(4). NAFTA Article 2101 uses the same test in respect of environmental measures necessary to protect human, animal or plant life or health. 14 The least-trade-restrictive test is implicit in NAFTA, Articles 904(4) and 2101. See discussion infra part VII. 15 In contrast, an FTA panel interpreted the words "relating to" in GATT Article XX(g) to mean that a measure cannot qualify as relating to conservation unless it is the least trade-restrictive means of achieving the conservation goal. See In the Matter of Canada'sLanding Requirement for Pacific CoastSalmon and Herring,1989 WL 250302 (Oct. 16, 1989) (U.S.-Can. F.T.A. Binational Panel) [herienafter, Canada's Landing Requirment]; see also, Jean Anderson & Jonathan T. Fried, The Canada-U.S.Free TradeAgreement in Operation, 17 CAN.-U.S. LJ. 397, 403 (1991) [hereinafter, Anderson & Fried]. In the NAFTA context, this interpretation of the words "relating to" is not supportable, since the least trade-restrictive test is implied in Article 904(4), not in Article 904(1). moving on to the other tests that scrutinize the legitimacy of trade restricting environmental measures. General Agreement on Tariffs and Trade, (GATT) and FTA panels on Canadian regulations respecting Pacific Coast salmon and herring 6 have developed a "primarily aimed at" test interpreting the words "relating to" under GATT Article XX(g), which is incorporated into the NAFTA by Article 2101. This test characterizes the purpose of a measure by comparing its effect on the environment to its effect on trade. If the measure is not an effective means of environmental protection, but is an effective trade barrier, then the measure does not "relate to" environmental protection and is treated as a simple trade barrier and not as an environmental measure. In Article 904(1), the phrase "relating to protection of the environment" refers to measures that are a part of the framework of environmental policies of the nation imposing the measure. Its purpose is merely to identify such measures, not to evaluate whether their effect on trade is necessary nor to consider the availability of alternative means of achieving those environmental policy goals. It is intended to guard against the imposition of protectionist measures under the guise of environmental protection. If a trade restriction is not related to an environmental protection programme, or some other legitimate objective, the implication is that its purpose is to protect domestic industry from competition, and it will be ruled inconsistent with the NAFTA. On the other hand, if the restriction is related to environmental protection, the analysis then proceeds to the second test. V. NECESSARY RESTRIcTIONS ON TRADE The second test asks whether the obstacles to trade, created by a standard that relates to environmental protection, are really necessary to achieve the environmental goal in question. It flows from the requirement that standards not create "unnecessary obstacles to trade."' 7 Interpretations of the term "necessary" in GAT Articles XX(b) and (d) may provide some guidance to NAFTA dispute panels regarding the application of this test. GATT Article XX(b) is incorporated into the NAFTA by Article 2101. Under the GATF, to demonstrate that a trade restriction is necessary to achieve compliance with domestic environmental standards, 16 Report ofthe GA7T Panel Canada-Measures Affecting Exports of UnprocessedHerring and Salmon, 4.6, GAIT Doc. L/6268 (March 22, 1988), BISD, 35th Supp. 98, 114. See Canada's Landing Requirement,supra note 15. 17 NAFrA, supra note 2, art. 904(4). an importing nation must prove several things. First, and most obviously, compliance with the standard must be possible. 8 Second, there should be international consensus that trade restrictions are the most effective means available to achieve the standard's environmental goal. At the very least, there should be no international consensus that the trade restrictions are unnecessary. If that were the case, it would be extremely difficult to overcome the burden of proving the trade restrictions necessary.' 9 Third, the importing nation must prove there are no equally effective and reasonably available means of achieving the environmental goal without restricting trade2 0 For example, it must prove that genuine efforts to resolve the problem through bilateral or multilateral negotiations have failed.21 Fourth, the standard must be necessary to address an environmental problem inside the territory of the country enacting the measure. Thus, a standard will not qualify as necessary if it addresses a problem that only occurs outside the importing nation." Nor will it be necessary if it purports to address a domestic problem, but does nothing to restrict domestic activities that are a cause of the problem.3 The analysis of whether a trade barrier is necessary under the NAFTA is similar to that under the GATT. However, the NAFTA analysis differs in one important respect. The concept of legitimate objective in the NAFTA permits the use of trade restrictions to protect the environment outside the importing country when the NAFTA Parties have agreed, under Article 104, that such restrictions are nec14:528 (1994) essary.2 4 Otherwise, the analysis is largely the same. If a trade restriction is unnecessary to achieve a particular environmental goal, the trade restriction must be replaced with a policy instrument that achieves the goal without restricting trade. However, if restrictions on trade are necessary to achieve the environmental policy goal, the issue then becomes whether the importing nation has chosen the leasttrade-restrictive means of doing so. VI. THE LEAST-TRADE-RESTRICrIVE MEASURES The third test asks whether a standard that must create obstacles to trade to effectively achieve its environmental goals has chosen the least-trade-restrictive alternative available. That is, is the degree to which it restricts trade really necessary?' This third test may be considered to flow implicitly from the second. The drafting history of Article 904(4), when considered in conjunction with Articles 102(1)(a),26 2101,27 and 104,28 indicates that its drafters intended that this test be employed in determining whether a trade restriction was necessary, but considered it unnecessary to expressly include the words "least-trade-restrictive" in the final draft. The February 21, 1992 draft of the NAFTA contains two versions of Article 1203(2).29 The Canadian and Mexican version provides that "... each Party shall ensure that standards-related measures.. .are the least restrictive to trade." The United States version similarly provides "technical regulations shall not be more trade-restrictive than necessary to fulfill a legitimate objective."30 It could also be inferred that, having turned their minds to it, the drafters decided to eliminate the test. However, the mere deletion of 24 NAFrA, Article 104 is discussed in more detail, infra Sec. VII. 25 This test is more explicit in NAFTA, Article 104, regarding the use of trade restrictions in international environmental agreements. See NAFTA, supra note 2, art. 104(1). 26 NAFrA Article 102(1)(a) provides that, "The objectives of this Agreement... are to: (a) eliminate barriers to trade in, and facilitate the cross border movement of, goods and services between the territories of the Parties." 27 NAFTA, Article 2101 incorporates GATIT Articles XX(b) and (g), and applies to the entire NAFTA and to environmental protection and resource conservation. Both articles have been interpreted to implicitly apply the least-trade-restrictive test. Regarding the interpretation of Article XX(g), see Canada'sLanding Requirement,supra note 15. For an interpretation of Article XX(b) see Thailand - Restrictions on Importation,supra note 19; GAT: U.S. Restrictions on Tuna, supra note 18. 28 NAFTA, Article 104 sets out the circumstances in which the trade obligations of environmental and conservation agreements take precedence over the NAFTA. See discussion infrasec. VII. 29 Available from the Action Canada Network, Ottawa, Ontario (on file with author). 30 Id art. 1203(2.2) (on file with author). the explicit statement of the least-trade-restrictive test from Article 904(4) would be insufficient to eliminate it, because Article 2101 incorporates GATT Articles XX(b) and (g) and applies them to the NAFTA as a whole, including Chapter Nine. There is no doubt that the least trade-restrictive test is implicit in Articles XX(b) and (g), given the GATT and FTA panel reports to that effect. Moreover, the test is consistent with the primary objective of the NAFTA to eliminate barriers to trade." If the drafters had intended that the leasttrade-restrictive test not apply to domestic standards, they would have had to make that intention explicit in order to override past interpretations of Article XX and to counter the interpretive effect of Article 102(1)(a). Finally, the implicit inclusion of the test in Article 904(4) is consistent with the equivalent provision under the new GATT Standards Code being negotiated under the Uruguay Round. 2 If the importing nation has chosen the least-trade-restrictive method of implementing its environmental policy, then the measure has succeeded in complying with the requirements of the NAFTA. However, if there is a less restrictive method of achieving the goal, that method must replace the one that was challenged. This is precisely what occurred in a case under the FTA respecting Canada's requirement that all salmon and herring caught off the British Columbia coast be landed at British Columbia fish stations. The United States challenged this measure as an export restriction that was designed to favour Canadian fish-processing plants. Canada said the measure was necessary to ensure accurate data collection for the purpose of managing the resource. The FTA panel ruled that, while it was necessary to land eighty to ninety percent of the catch in Canada to ensure proper data collection, it was not necessary to land one hundred percent in Canada. Canada and the United States subsequently agreed to allow twenty to twenty-five percent of the catch to be landed outside Canada, subject to a further review regarding the effect on data collection.3 31 See NAFTA supra note 2, art. 102(1)(a). 32 The proposed Agreement on Technical Barriersto Trade being negotiated under the auspices of the GATT Uruguay Round of trade negotiations similarly introduces criteria and procedures for determining whether product and process standards are "more trade-restrictive than necessary to fulfill a legitimate objective." See E.U. Petersmann, Trade Policy, Environmental policy and the GA77 Why Trade Rules and EnvironmentalRules Should Be Mutually Consistent, AussENwiRTscnAFr 197, 218 (1991). 33 See Canada'sLanding Requirement,supra note 20, Anderson & Fried, supra note 15. TRADE RESTRICTIONS AIMED AT EXTRATERRITORIAL ENVIRONMENTAL PROTEMCION According to the GATIT panel report in the Mexican Tina case, the GATI does not permit the unilateral use of trade restrictions to protect the environment outside the territory of the importing nation. 4 One may extract the following principle from this case: [M]easures taken against environmentally-friendly products (tuna) because they were produced in an environmentally-unfriendly manner (unacceptable taking of dolphin) are inconsistent with the GATT. Countries cannot look behind a good to determine if the production or manufacturing process was environmentally-friendly.3 5 If the product itself if environmentally-unfrien3d6ly, then a country could utilize trade measures against the product. Like the GATT, the NAFTA focuses on product, not process, standards.3 As a result, the NAFTA does not permit a state to unilaterally impose trade restrictions to equalize perceived competitive disadvantages flowing from differences in process standards. This is reflected in Article 1114, which discourages each party from relaxing process standards in order to gain or maintain competitive advantages that might result. Article 1114 provides no mandatory obligation regarding the selection of process standards.3 8 The focus on product standards and the lack of legal obligations with respect to process standards in Article 1114 reflect the goal of the NAFTA to preserve the discretion of each Party to determine its own domestic environmental policies. However, Article 104 provides express permission to employ trade restrictions to achieve international environmental goals pursu34 GATT. U.S. Restrictions on Tuna, supra note 18. 35 Ted McDorman, The 1991 U.S.-Mexico GATT PanelReport on Tuna and Dolphin:Implicationsfor Trade and Environment Conflicts, 17 N.C. J.INT'L L. & COM. REG. 461, 473 (1992). 36 Id. at 473 n.79. 37 The requirement to accord equal treatment to "like products" prohibits product differentiation based on environmental standards observed in the production of the products concerned. See NAFTA, supra note 2, arts. 301 and 904(3), which incorporate GATT Article III. The GATT term, "like products", and the NAFTA term, "like goods," refer to the nature and properties of two competing although not identical products. But the expression "like product" may have different meanings according to the context in which the term is used. Hence, product differentiations based on production processes (e.g. health standards) may be GATT-inconsistent if they are "applied to imported or domestic products so as to afford protection to domestic production" (Article 111: 1,2,5), to discriminate in favour of certain supplier countries (Article I), or to unduly interfere in foreign regulatory systems by making most-favoured-nation treatment subject to conditions (Article I). But they may be consistent with GATT rules (Article III) if they are applied as nondiscriminatory production or consumption standards with a view to protecting health and environmental resources in the importing country. 38 See NAFrA, supra note 2, art. 1114(2). ant to specific international conservation and environmental agreements.3 9 Where there is a conflict between the trade obligations in those agreements and those of the NAFTA, those agreements prevail to the extent of the inconsistency. Article 104 implies that, where there is a conflict between trade obligations under the NAFTA and environmental obligations under other agreements, the NAFTA obligations prevail unless the competing agreement is listed in Article 104 or Annex 104.1. The anticipated inclusion of further bilateral and multilateral environmental agreements in Article 104, via Annex 104.1, implies further that efforts to conclude such agreements between the NAFTA Parties are to precede, and indeed replace, any resort to unilateral trade actions. The principle of Article 104 is that international environmental considerations cannot justify restrictive trade practices, except where these are introduced in terms of specific provisions in an environmental convention that is accepted by all of the Parties. With the incorporation of this principle, the NAFTA affirms the sovereign right of each country to determine its own environmental policies while at the same time recognizing the reality of environmental and economic interdependence. In effect, Article 104 deems trade measures taken under the listed international environmental agreements to be measures relating to legitimate environmental objectives and deems them necessary. It thus exempts them from the application of the first and second stages of the three-stage test. However, the least-trade-restrictive test also applies to the use of trade restrictions under Article 104. It is implicit in the Article 104 requirement that "where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement."' In order for a measure to be the least inconsistent with the other provisions of the NAFTA, it would have to be the least inconsistent with the free movement of goods and services between the Parties; that is, the leasttrade-restrictive. VIII. THE STATUS OF INTERNATIONAL ENVIRONMENTAL AGREEMENTS BEFORE NAFTA All of the listed agreements were signed long after the GATT was. This raises the issue of whether these agreements would have prevailed over the GATT in any event, as a matter of international law as between the parties to both. Neither the GAIT nor any GAIT panel decision has clearly set out whether Articles XX(b) or (g) prevail over subsequent international agreements as between parties to both. The prevailing view of public international law is that the later law supersedes the earlier, and that the specific supersedes the general. The specific trade obligations in the agreements listed in Article 104 would supersede the GAIT provisions on both grounds under international law. Moreover, the GATT (and the FTA), as interpreted, apply the same "least-trade-restrictive" test as NAFTA Article 104(1) to the implementation of environmental policies. Insofar as the GAIT is concerned, Article 104 thus represents a codification of existing law rather than a change in the status quo. When one compares the FTA to the NAFTA in this regard, the first thing to note is that FTA Article 103 applies only to existing agreements to which both the UnitedStates and Canadaare parties - a confirmation of the principle that the later supersedes the earlier law. Thus, it does not apply to the Basel Convention or the amendments to the MontrealProtocol,neither of which existed when the FTA entered into force, nor to the La Paz Agreement, to which Canada is not a party. We are thus left with the following issues, the answers to which will determine whether the NAFTA alters the status quo vis-a-vis the FTA. The first issue is whether the provisions of the Basel Convention supersede the provisions of the prior bilateral agreement on hazardous waste between the United States and Canada in any event. If so, 40 See NAFrA, supra note 2, art. 104(1). the fact that the bilateral agreement is given priority under the NAFTA would become irrelevant. The Canada-United States treaty is far shorter than the Basel Convention. Its two key provisions are Articles 3 and 6. 1 Article 3 requires the country of export to notify the other country of proposed shipments. The country of import then has thirty days in which to consent to, object to, or place conditions upon the shipments. Article 6 requires the country of export to readmit any shipment that is returned. The Basel Convention has more detailed provisions. Article 6, like Article 3 of the bilateral treaty, requires the exporting country to provide notice of shipments. However, the importing country has sixty, not thirty, days to respond - not a significant change in terms of environmental protection or trade issues.42 Like the bilateral treaty's Article 6, the Basel Convention in Article 8 imposes a duty to readmit returned shipments. Thus, except for the notice period, the Basel Convention imposes the same obligations as the bilateral treaty and would supersede it. The net effect is that Article 104 does nothing to alter the precedence of trade obligations dealing with hazardous waste as between the NAFTA Parties. In addition, the Basel Convention, in Article 4(3), classifies illegal traffic in hazardous waste as a criminal offense. While it is unlikely that the FTA and the bilateral treaty on hazardous waste would have been inconsistent, the FTA would certainly not be interpreted as liberalizing criminal trading activities, and would have been consistent with the Basel Convention on this point in any event. In short, Article 104(1)(c) does nothing to alter the status quo vis-a-vis the FTA. The second issue is whether the FTA would have "liberalized" trade in endangered species, given the fact that trade in endangered species was already illegal in both the United States and Canada. If 41 It is worth noting as well the Preamble, which reaffirms principle 21 of the 1972 Stockholm Declaration, in accordance with the Charter of the United Nations and principles of international law, that states have "the sovereign right to exploit their own resources pursuant to their own environmental policies and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other states or of areas beyond the limits of national jurisdiction." It is likely this principle would apply to the interpretation of the NAFTA, pursuant to Article 102(2), as the bilateral agreement in which it is found prevails over the NAFTA. Moreover, the NAFIA approach to trade and the environment is consistent with this principle in that it maintains each Party's sovereign right to determine its own domestic policies, making its rules mandatory only in respect of the implementation of those policies, particularly in ways that infringe upon the sovereign right of the other Parties to set domestic policies. 42 Moreover, this is a logical change, given that communication of notice between the United States and Canada is faster and easier than between the Parties to the Basel Convention, who span the globe. not, again the fact that the Convention on the International Trade in Endangered Species of Wild Fauna and Flora, (CITES), is given priority under the NAFTA would become irrelevant. Article VIII of CITES requires the parties to penalize trade in specimens in violation of the Convention. Such a specific provisions would prevail over the FTA's more general trade obligations under international law. Moreover, the FTA would not be interpreted to support an illegal activity. Thus, Article 104(1)(a) also maintains the status quo. The MontrealProtocolentered into force in Canada on January 1, 1989 - the same date as the FITA. Since it has more specific provisions than the FTA, it would prevail over the FTA provisions. Article 104(1)(b) thus also maintains the status quo, both with respect to the GATT and the FTA. MAINTAINING THE LEGAL STATUS Quo The environmental provisions of the NAFTA regarding domestic measures may be classified as falling under two categories: binding legal obligations and non-binding political commitments. Those that fall under the first category all confirm and adopt the GAIT and the FTA rules on the use of trade restrictions to implement domestic environmental policies. The objectives that govern the interpretation of the NAFTA are the same as those of the FTA. The environmental exceptions in Article 2101 are the same as those of the GAIT and the ETA. Article 904(4) imposes the same discipline on the use of traderestrictive standards as did the Standards Code and the FTA. Article 904(1) merely imposes a preliminary test, an insignificant change that will not affect the key "least-trade-restrictive" test implicit in Article 904(4). Article 905's obligation to set levels of standards with reference to international standards duplicates the same requirement in the Standards Code and the FTA. The final provision in this category, Article 2101, incorporates the GAIT Article XX exceptions without any substantive modifications, like the FTA. What all these binding provisions have in common is the fact that they maintain the status quo. All of the new environmental provisions governing domestic environmental policies in the NAFTA fall into the second category. The Preamble, Article 1114 and Article 907 all set out non-binding political commitments, confirming the freedom of each Party to choose the substance of its domestic environmental policies without jeopardizing its trade privileges under the NAFTA. The Preamble merely sets out vague political principles to follow in the formulation of environmental policies. Article 1114 permits the use of political pressure to seek changes in the environmental practices of other Parties, but not trade sanctions. Article 907 sets out risk assessment guidelines without making risk assessment mandatory. Finally, Articles 904(2) and 905(3) confirm the freedom of each Party to choose its own level of environmental protection, making harmonization obligatory only where it is politically feasible. In short, none of the new provisions that deal with domestic environmental protection are legally binding. Article 104, the only provision dealing with international environmental protection, is new. It, like the domestic policy provisions, may be divided into two categories. Article 104(1) is binding, while 104(2) is not. The first paragraph sets out legal obligations, while the second sets out a political commitment. Article 104(2) may thus be grouped together with the non-binding domestic provisions. Article 104(1), while a new and useful provision to include in international trade agreements, does not change the legal reality that existed prior to the NAFTA. In that it merely codifies and clarifies existing public international legal principles as they apply to trade law, Article 104(1), like Articles 2101 and 904(4), maintains the legal status quo in the area of international law where environmental and trade issues intersect. X. THE NORTH AMERICAN AGREEMENT ON ENVIRONMENTAL COOPERATION The North American Agreement on Environmental Cooperation,43 (NAAEC), is the so-called "parallel environmental accord" that the Mulroney, Bush and Salinas administrations promised in response to environmental opposition to the NAFTA. The Clinton administration supported this side agreement as a means to address perceived deficiencies in the environmental provisions of the NAFTA, particularly the non-binding nature of Article 1114." However, negotiators had to seek to address these environmental concerns in a manner that would (1) be fully consistent with the NAFTA, (2) not supply new tools for disguised protectionism, and (3) respect the sovereignty of each nation.4" The NAAEC that was signed September 13, 1993 found innovative ways to enhance continental environmental protection without creating new non-tariff barriers to trade. Its key achievements are that it sets up a dispute settlement mechanism through which complaints may be lodged against any NAFTA country that persistently fails to enforce its domestic environmental laws. However, each country remains free to set its own environmental policies and laws without interference from the others. The NAAEC focuses on enforcement of laws rather than their formulation. The NAAEC contains two major weaknesses that will be of concern to North American environmentalists, and Canadians in particular. First, the management or exploitation of natural resources is excluded from the NAAEC, removing a major set of environmental issues from its scope.4 6 This is, however, consistent with international legal principles that affirm each nation's sovereign right to exploit its own natural resources as it sees fit.47 The second, and more fundamental, weakness is that the NAAEC is not binding on any Canadian province that does not agree to abide by it, and Canada cannot enforce the Agreement against Mexico or the United States unless the environmental law in question would fall under federal jurisdiction in Canada or, if not, a majority of the provinces have signed on to the Agreement." Most of the provisions of the NAAEC consist of non-binding political commitments that set out a framework for voluntary, trilateral cooperation on environmental protection. The creation of accompanying institutional structures enhances the likelihood that the three NAFTA countries will follow through on these commitments. However, the progress that is made will depend in large part on the political will of the governments in power, which in turn will depend on the priority the citizens of each country assign to environmental issues. 46 Art. 45.2(b) provides that "the term 'environmental law' does not include any statute or regulation ... the primary purpose of which is managing the commercial harvest or exploitation of, or subsistence or aboriginal harvesting, of natural resources." NAAEC, supra note 43, art. 45.2(b). 47 See, for example, the Stockholm Declarationon the Human Environmentof 1972, which is reaffirmed in the NAAEC Preamble (copy on file with author). 48 NAAEC, supranote 43, at annex 41. If a matter would fall under provincial jurisdiction in Canada, Canada cannot take action unless provinces accounting for at least 55 percent of Canada's GDP have signed on and, where the matter concerns a specific industry or sector, at least 55 percent of total Canadian production takes place in the provinces that have signed on. British Columbia and Ontario, which together account for about half of Canada's GDP, could therefore prevent Canada from playing any significant role under the NAAEC. The NAAEC establishes a Commission for Environmental Cooperation, comprised of a Council, a Secretariat and a Joint Public Advisory Committee.49 The Council is charged with developing recommendations on a wide range of environmental issues, providing a forum for their discussion, and promoting trilateral environmental protection. 50 However, implementation of the Council's recommendations is not mandatory. Rather, the recommendations are to be made public, which will then give citizens an opportunity to put pressure on their governments to implement them. The Secretariat, which will be located in Canada, will receive complaints that a NAFTA Party is failing to enforce its environmental laws. Notably, the Secretariat will receive submissions from persons or non-governmental organizations from all three countries, providing environmentalists from all three countries with a new forum in which to be heard.51 This is particularly significant for Mexican environmentalists, who have complained that they do not have adequate access to their own government in such matters. Under Part 5 of the NAAEC, where a Party alleges that another Party has persistently failed to effectively enforce its environmental laws in sectors of its economy that produce goods or services traded between the Parties, or that compete with the goods or services of another Party, the Council administers a consultation and dispute resolution system to resolve the matter. 52 The process begins with consultations between governments. If the matter is not resolved within sixty days, then other dispute resolution methods are employed until the matter is resolved. First, the matter proceeds to an investigation, then to conciliation or mediation, and finally to arbitration before a panel of five experts in environmental law and international dispute resolution.53 The Panel hears arguments and issues a report determining whether there has been a persistent pattern of failure to enforce the environmental law.54 If such is the case, the Panel recommends an action plan sufficient to remedy the pattern of non-enforcement. If the Party fails to fully implement the action plan, or another plan that is agreed to by the NAFTA Parties, the Panel may impose a fine of up 49 NAAEC, supra,note 43, art. 8. 50 NAAEC, supra note 43, art. 10. 51 NAAEC, supra note 43, art. 14. 52 NAAEC, supra note 43, arts. 22, 23, and 24. 53 NAAEC, supra note 43, arts. 22-30. 54 NAAEC, supra note 43, arts. 31-33. to twenty million dollars (U.S.).55 In the case of Canada, Panel determinations will be enforced as orders of the Federal Court of Canada.56 In the case of Mexico or the United States, failure to pay the fine may result in the re-imposition of tariffs sufficient to collect the fine.57 Fines are paid into a fund that is then used to enhance the environment, or for environmental law enforcement in the Party complained against, in a manner consistent with its domestic law. 8 SUSTAINABLE DEVELOPMENT Commitments to the pursuit of sustainable development are found in both the NAFrA and the NAAEC. 9 However, "sustainable development" is not defined in either treaty. It is a vague concept that means different things to different people.' While it is beyond the scope of this paper to provide an in-depth analysis of sustainable development, it is important to examine the meaning of the term as it is used in the NAFrA context and as it is reflected in several NAFrA provisions. In the NAFTA, it has implicit status as a fundamental principle that underlies the agreement as a whole. 61 Arguably, the concept of sustainable development has been evolving into a principle of international law since its adoption by the World Commission on Environment and Development,6' (WCED), as the unifying concept underlying international economic and environmental policy. In the trade arena, the WCED called for the inclusion of sustainable development in the mandates of international trade organizations, meaning that "their activities should reflect concern with the impacts of trading patterns on the environment and the need for more effective instruments to integrate environment and development concerns into international trading arrangements".63 There are essentially two sides to the trade-environment issue, both of which are implicit in the WCED comments regarding trade and sustainable development. The WCED implies that international trade agreements are a necessary part of the sustainable development equation - the trade perspective on the trade-environment connection. However, such agreements need to be accompanied by environmental arrangements designed to ensure that the increased economic activity generated by liberalized trade is sustainable 64 - the environmental perspective on the trade-environment connection. From an environmental perspective, the central issue is how to make trade environmentally friendly. In North America, the environmental perspective is being addressed under the NAAEC, in which continental institutions, such as the North American Commission for Environmental Cooperation, will monitor the environmental protection efforts of Canada, the United States, and Mexico and seek ways to minimize the environmental impact of increasing international trade. 5 Insofar as binding legal obligations are concerned, the text of the NAFTA concentrates solely on the trade perspective. The CanadianEnvironmentalReview of the NAFTA adopts the WCED definition of sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."' 66 Similarly, Canada's Green Plan defines sustainable development as "integrating the demands of our economy with the ability of our environment to sustain us today and for future generations." 67 In the area of environmental regulation, it advocates "the balanced use of strong and effective envi63 Id. at 84. The removal of industrial nations' trade barriers to developing countries' exports was identified by the WCED as a necessary element of sustainable development. WCED, infra, note 74 at 83. 64 See WCED, supra note 62 This view was adopted by the Clinton administration, which required that the NAFrA be accompanied by a parallel environmental accord. See also S. HUDSON AND R. PRUDENCIO, THE NORTH AMERICAN COMMISSION ON ENVIRONMENT AND OTHER SUPPLEMENTAL ENVIRONMENTAL AoREMENTS: PART Two OF THE NAFTA PACKAGE (1993). 65 See discussion in Part X, supra.For an overview of the issues considered in the parallel negotiations, see Hudson and Prudencio, supra note 64. 66 WCED supra note 61, at 43; NAFTA: CanadianEnvironmentalReview, supra note 60, at 12. 67 CANADA, CANADA'S GREEN PLAN IN BRIEF 2 (1990). This is consistent with the view taken by 2 CANADA, REPORT OF THE ROYAL COMMISSION ON THE ECONOMIC UNION AND DEVELOPMENT PROSPECTS IN CANADA, 509 (1985) "It will be essential in the decades ahead to integrate environmental decisions and economic decisions, for there is... no ultimate conflict ronmental laws, with market-based approaches for environmental protection. '6 Underlying all of these definitions is the notion that the concept of sustainable development, when applied to environmental regulation, calls for the imposition of economic discipline on environmental regulators. These definitions of sustainable development imply further that it is the task of trade agreements to provide rules requiring environmental regulators to choose instruments that minimize the adverse impacts of environmental policy implementation on international economic relations. The integration of economic and environmental decision-making cuts both ways; economic policy must be sensitive to environmental concerns and environmental policy must be sensitive to economic concerns. The parallel environmental accord and the NACE will focus on the former. The NAFTA, like the GAIT and the Canada-United States FTA, focuses on the latter. The GAT adopts the following view of sustainable development: Although that term means different things to different people, most definitions encompass two basic notions. First, there is a need to place much greater emphasis on assigning values or prices to environmental resources, with a view to identifying and valuing the environmental effects of economic activity. Second is the idea that each generation should pass on to the next at least as much capital - environmental and manmade - as it inherited. Neither aspect of sustainable development is intrinsically linked to international trade. A failure to place a value on environmental resources would undermine sustainable development even in a completely closed economy. Trade is seen, rather, as a "magnifier." If the policies necessary for sustainable development are in place, trade promotes development that is sustainable.69 In short, the concept of sustainable development requires no change in the fundamental goals of trade agreements. Rather, viewed from a trade perspective, the concept of sustainable development requires renewed efforts to eliminate trade barriers and stricter limits on the range of trade-restrictive policy instruments that may be employed by governments to achieve environmental goals. Moreover, it implies that trade agreements themselves need to be concerned with the environmental perspective only to the extent that they ensure that they do not undermine sustainable development policies. As long as the ability of each trading partner to formulate sustainable development policies is not impaired, then the trade agreement fulfills its part in the between economic development and the preservation and enhancement of a healthy environment and a sustainable resource base." 68 See CANADA'S GREEN PLAN IN BRIEF, supra note 67, at 27. 69 See TRADE AND T=E ENVIRONmENTr supra note 3, at 3. sustainable development equation, leaving the development and implementation of those policies to other agreements and institutions such as the environmental and conservation agreements that are listed in the NAFTA Article 104 and the NAAEC. In seeking to promote both trade and sustainable development, the NAFTA implicitly takes the view that free trade, like free markets, provides a system through which protection of the environment can be achieved.70 Regardless of what "sustainable development" means, in the NAFTA context, and from a trade perspective in general, sustainable development means that governments must minimize the adverse economic impact of environmental regulations by avoiding their use as instruments of trade protectionism. 71 In the trade context, the principle of sustainable development requires "the fullest protection of the environment with the least possible harm to trade."72 The concept of sustainable development requires a marriage of economic and environmental decision making. In the NAFTA, the concept makes the elimination of unnecessary trade barriers a primary consideration in the choice of trade-related environmental policy instruments by precluding the use of environmental standards for the "protection of domestic production. ' 73 Both the WCED and the GATI' consider protectionism to be an obstacle to sustainable development.74 By incorporating the concept of sustainable development, the NAFTA, whose goal is to prevent protectionism, implicitly adopts the same view. 70 See McSlarrow, supra note 60, at 10,597. He sees this point of view as a necessary prerequisite to achieving complementary trade and environment policies. 71 It is beyond the scope of this paper to fully explore the meaning of "sustainable development." The purpose of the discussion of this concept is to attempt to determine how that term is used in the NAFTA, without attempting to determine whether the NAFIA usage is in accordance with other views of what the concept means. However, it is important to note that the concept of sustainable development can be used to demand that environmental policy reflect economic imperatives. See, David S. Cohen, The Regulation of Green Advertising, 25 U.B.C. LAw REv. 225, 228 note 10 (1991). 72 McSlarrow, supra note 60, at 10,597. 73 NAFTA, supra note 2, art. 915. 74 The WCED stated: The increase in protectionism in industrial countries stifles export growth and prevents diversification from traditional exports. The success of some Far Eastern developing countries in increasing exports of labour-intensive manufactured goods shows the development potential of such trade. However, other countries - especially low-income Asian and Latin American nations - seeking to follow the same route have found themselves severely handicapped by growing trade barriers, particularly in textiles and clothing. If developing countries are to reconcile a need for rapid export growth with a need to conserve the resource base, it is imperative that they enjoy access to industrial country markets for non-traditional exports where they enjoy a comparative advantage. WCED, supra note 62, at 83. XII. CONCLUSION Rather than limit political discretion with respect to the formulation of environmental policy, the NAFTA seeks to limit political discretion regarding its implementation, by subjecting environmental standards and regulations to the general principle of nondiscrimination, and to three legal tests aimed specifically at environmental measures. These rules are not concerned with what environmental policies should be but rather how they are to be achieved. Trade restrictions may only be used to achieve environmental goals where they are the most effective means of doing so. These binding provisions impose the same obligations on the NAFTA parties as did the GATT and the FTA. Even NAFJTA Article 104 maintains the legal status quo by codifying, rather than altering, the pre-existing relationship between trade agreements and environmental agreements. However, Article 104 does provide a legal mechanism whereby future environmental accords may be incorporated into the NAFTA to ensure that the trade rules do not undermine efforts to address common environmental concerns. The NAFTA thus does nothing to weaken environmental laws. It does nothing to strengthen them either. The legal effect of the trade rules on environmental law is essentially neutral. However, the NAAEC provides a framework within which the three parties may cooperate in the development of continental environmental protection that compliments continental economic development. At the same time, it requires continental environmental protection schemes to respect the sovereignty of each nation and to avoid protectionism disguised as environmentalism. However, it does permit the imposition of tariffs as a last resort should other methods of enhancing the enforcement of environmental laws in Mexico or the United States prove inadequate. In the end, the amount of effort North Americans and their governments put into achieving sustainable development will determine the economic and environmental future of the continent, not the words we find in our treaties. 18 In GeneralAgreement on Tariffsand Trade: DisputeSettlement PanelReport on the United States Restrictions on Imports of Tuna , 30 I.L.M. 1594 (August 16 , 191) [hereinafter GATT U.S. Restrictions on Tuna], the United States required foreign fishermen to kill no more than 1.25 times as many dolphins as American fishermen in the course of catching tuna. If they did not meet this condition, their tuna was banned from the American market. However, the foreign fishermen had no way of knowing in advance how many dolphins their American counterparts would kill in each year and thus could not know whether they had complied with the condition until after the fact . 19 Report of the GATT Panel, Thailand- Restrictions on Importation of and Internal Taxes on Cigarettes, GATT Doc. DS10/R (November 7 , 1990 ), BISD, 37th Supp. 200 , [hereinafter, Thailand- Restrictionson Importation]. Thailand tried to reduce consumption of imported cigarettes with trade barriers and discriminatory taxes, without trying to reduce consumption of domestic cigarettes. The GATr panel accepted evidence from the World Health Organization that non-discriminatory measures, such as labeling, advertising bans, and non-discriminatory taxes, provided effective means with which to achieve Thailand's health goals without restricting trade . 20 See Thailand - Restrictions on Importation, supra note 19 . See also Report of the GATT Panel UnitedStates - Section337 of the TariffAct of . 1930 , 5 .26, GATT Doc . IJ6439 (November 7 , 1989 ), BISD 36th Supp . 345 , 392 . 21 See GATT: U.S. Restrictionson Tuna , supra note 18. 22 See GATT: U.S. Restrictionson Tuna , supra note 18. 23 Thailand- Restrictionson Importation ,supra note 19. 43 North American Agreement on Environmental Cooperation between the Government of Canada, the Government of the United Mexican States and the Government of the United States of America, 13 September 1993 , Can .- Mex .-U.S., available from the Canadian Government. [hereinafter NAAEC]. 44 See discussion of Article 1114, supra note 37 and accompanying text. 45 Mexican Secretary of International Trade, Jaime Serra, Address to the Vancouver Board of rade ( June 1993 ). 55 NAAEC, supra note 43, art. 34 . 56 NAAEC, supra note 43, annex 36A . 57 NAAEC, supra note 43, art. 36 . 58 NAAEC, supra note 43, annex 34. 59 NAFrA, supra note 2. NAAEC, supra note 43, at 915, and the NAAEC Preamble and art . 1. 60 For example, there are two diametrically opposed views regarding the effect of trade on the environment. One is that the growth of trade leads to environmental degradation. See, eg ., P. BARKLEY & D. SErCKLER , ECONOMIC GROWTH AND ENVIRONMENTAL DECAY ( 1972 ); D. MEADOWS ET AL, THE LIMITS TO GROWTH ( 1983 ). The other is that growth through trade offers the best opportunity to ensure that the environment is protected . See, e.g., WORLD BANK, WORLD DEVELOPMENT REPORT 1992: DEVELOPMENT AND THE ENVIRONMENT ( 1992 ). See also Kyle E. McSlarrow, InternationalTrade and the Environment"Buildinga Frameworkfor Conflict Resolution , 21 ENVTL.L. REP. 10 , 589 , 10 , 590 ( 1991 ). It is highly unlikely either side would be able to agree on a common definition of sustainable development. The NAFTA implicitly adopts the view that trade liberalization and environmental protection can be pursued in a mutually supportive way. This point is discussed further in the text . 61 NAFrA supra note 2 , at Preamble. See also, NAFrA Environmental Review Committee, North American Free Trade Agreement: Canadian Environmental Review 13 ( 1992 ). 62 See World Commission on Environment and Development , ( 1987 ) [hereinafter WCED] .


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Bradly J. Condon. NAFTA and the Environment: A Trade-Friendly Approach, Northwestern Journal of International Law & Business, 1994,