GOVERNANCE IN THE NAFTA, OR LACK THEREOF?
Lack thereof?
One of the most important, and persistent, critiques of the NAFTA, which has already been touched on several times, is that it lacks a robust institutional structure. However, the NAFTA is not without governance institutions. Indeed, the NAFTA as a whole can be considered a set of institutions, since the rules it establishes, the trade it frees through tariff liberalization and the affirmation of concepts such as national treatment around a host of issue areas are by definition forms of governance.
In fact, until it was recently rediscovered and popularized as behavioural economics, the niche discipline of institutional economics focused on the impact of the “scaffolding” of both formal and informal rules in structuring the behaviour of economic decision-makers. This analytical approach to the study of institutions has included everything from the theory of the firm (its organizational structure) to how legal institutions structure the long-term macroeco-nomic performance of countries and regions (Coase 1937; Williamson 1998; de Soto 2001). As Douglass North writes,
Institutions are the humanly devised constraints that structure political, economic and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights) … Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline.
(North 1991: 97)
Under these terms, the NAFTA certainly qualifies as a set of institutions. However, when critics of the NAFTA argue that the agreement lacks enough of an institutional structure, they are, first, talking about the design of “formal” institutions and, second, whether they pool enough sovereignty within them to act as the arbiters of disputes around a broader set of rules. The domestic rule of law is, of course, enforceable via the state’s monopoly over the exercise of coercive power. This volume has already noted in several places the ways in which enforcement power between states is less readily found, among them the discussion of foreign direct investment and the historical absence of the rule of law governing flows. Hence, the critique of the NAFTA as lacking institutions is not that the agreement is devoid of governance structures. It is that those governance structures have too few coordination or enforcement mechanisms to act as arbiters of disagreement over the application of those rules.
Hence, one of Robert Pastor’s most pointed and enduring critiques of the NAFTA comes through his comparison with the governance structures in the European Union. In Pastor’s view,
The agreement did not envisage any unified approach to extract NAFTA’s promise, nor did it contemplate any common response to new threats … [T]he [1994] peso crisis was also a metaphor for both the success and the inadequacy of NAFTA. The success was reflected in the expansion of trade and capital flows; the inadequacy was manifest in the lack of institutional capacity among the three governments to monitor, anticipate, plan for, or even respond to such a serious problem. NAFTA, in brief, was defined too narrowly, and the three governments paid a price for that myopia …
(Pastor 2001: 2, 5)
The NAFTA is hardly devoid of the kinds of formal institutions described by North and others; the agreement’s entire structure is a set of “institutions”. However, in those places where more formalized arbiters of governance disputes were put in place, the NAFTA has an uneven legacy that some, such as Pastor, argue has left North America with an unfortunate mix of the benefits of integration without the necessary governance structures to manage it.
Asymmetries of power
There are at least two important points often missed by analysts of the NAFTA who compare the relative absence of pooled sovereignty in North America to more extensive experimentation with pooling seen in Europe: the European project has been more than half a century in the making and remains uneven; and Europe is comprised of states of more equal size and power than are found in North America.
Table 6.1 NAFTA asymmetries (US$ billions), 1975–2015
Source: World Bank.
It is this second point that some scholarly analyses would point to as explaining the relative absence of pooled sovereignty in North America. Table 6.1 depicts a stable set of two highly asymmetrical bilateral relationships in North America, anchored by the United States. Not only does the United States alone account for more than 80 per cent of North American GDP, but Canada and Mexico are much more heavily dependent on an open global economy for their GDP (exports + imports as a % of GDP), with the United States alone accounting for large proportions of it (Table 6.2). Europe certainly has its asymmetries – Germany’s US$3 trillion GDP versus Malta’s $10 billion GDP, for example – but none is quite as stark as those in North America.
Gulliver and the neoclassical state
Wherever we look in the political economy of trade and finance, we see significant variance in degrees of integration and pooled sovereignty. For example, no two free trade areas are exactly alike in terms of the depth of tariff liberalization or institutionalization. However, with each stage of integration discussed in Chapter 2 of this volume, the institutional constraints on policy for the state multiply. Therein resides a kind of “Gulliver” effect for states of varying size and power in the international trading system. For small states (Lilliputians), engaging larger trading powers (Gulliver) in ever deeper forms of integration can restrict, or at least curb, the arbitrary application of policy by larger powers. Increasing levels of institutionalization in economic relations breed interdependence between states, but also facilitate a more predictable application of domestic law within the confines of the agreement; in short, international economic cooperation yields institutionalization, positive-sum gains and self-interested peace. This line of argument broadly reflects the postwar rationale for the integration of Europe and parallels a significant body of scholarly literature in international relations anchored in liberal theory (Moravcsik 1997; Keohane & Nye 1977). By contrast, large states are less dependent on small states for their economic prosperity and tend to resist encumbering institutionalization both in form and in practice.
Table 6.2 NAFTA export partners (rank order and percentage of total), 2015
Source: CIA World Factbook.
What in all of this can help us understand patterns of regional integration in the context of neoclassical theory? The arguments of liberal scholars focused on the salutary effects of interdependence are in tension with arguments put forward by realists, who assume that state action is driven by the pursuit of the national interest. Stephen Krasner, for example, argues that the international trading regime has been constructed with the pursuit of these interests squarely in mind. The regime does so by facilitating the pursuit of aggregate national income, social stability, political power and economic growth (Krasner 1976: 318).
However, Krasner argues that there are very different incentives for states of varying size within the international trade regime and that large powerful states have had a significant advantage in both setting the structure of the regime and reaping the benefits from it. Krasner maintains that small states actually reaped the largest country-specific gains from an open trading regime, but the regime’s construction and underwriting by the large state accumulates important marginal political gains. Specifically, Krasner argues that “the utility costs [of openness] will be less for large states because they generally have a smaller proportion of their economy engaged in the international economic system … Hence, a state that is relatively large and more developed will find its political power enhanced by an open system because its opportunity costs of closure are less” (ibid.: 320–2).
Small states, Krasner argues, are likely to opt for an open regime, even one undergirded by hegemonic power, because the benefits of openness for small economies are so large and the opportunity costs of closure significant (ibid.). The result is the accumulation of national power by the hegemonic state at the margins while small states weigh the significant costs of remaining outside the trade regime’s structure. Contrary to depictions of the international trade regime suggesting that interdependence was softening the use of power, Krasner persuasively argues that it is in the design and operation of the system itself that we see hegemonic power being wielded (see also Wallerstein 1979).1
The implication is that small states tend to look to the rules-based regime as a means of bringing additional predictability to their economic relations with larger states, but the reality, according to this view, is that the many Lilliputians (small states) engaged with Gulliver (the big state) have little impact on the underlying utility of power within the regime.
Importantly, the incentives for large states to institutionalize that regime in a way that restricts the exercise of power are limited. In North America, this is exactly what has happened: Canada and Mexico seeking to enmesh and bind the United States in a system of rules and binding institutions, the United States steadfastly refusing them except in their most limited form.
NAFTA chapter 11: investment
The investment provisions of the NAFTA merit additional discussion in this context because of their important qualities as governance institutions. Observers of the NAFTA who complain about the shallowness of the agreement’s institutions frequently overlook just how powerful the investor–state dispute settlement mechanisms of chapter 11 have proved to be. Part of the reason is that none of the negotiators believed chapter 11 would end up being wielded against Canada or the United States. However, when the terms of the US Model Bilateral Investment Treaty were incorporated as the backbone of chapter 11, negotiators incorporated within its structure the NAFTA’s only binding, independent arbitration process.
It turned out to be far more powerful than envisaged, in part because ISDS had historically been applied to developed/developing country dyads in which investment mostly flowed in one direction: developed state to developing state. Hence, ISDS arbitration was typically invoked only when the developing state expropriated or nationalized the property of a developed-state firm. Within the NAFTA, there was substantial capital flowing among all three, but particularly between Canada and the United States. It was only after a surprising number of chapter 11 cases were launched against Canada and the United States that civil society groups raised the alarm and the three governments realized what had been created.
Investor–state dispute settlement has become controversial outside North America as well, prompting many governments to propose significant reforms limiting the terms of arbitration. For a short time after 2011 Australia’s solution was to refuse to enter into agreements containing ISDS provisions, but now it enters such agreements on a case-by-case basis.2
Interestingly, in the renegotiated NAFTA, the USMCA, investor–state dispute settlement has been eliminated altogether in the Canada–US context, but remains in place for selected sectors (mostly oil and gas) for the United States and Mexico. The “break-up” of investment within the new USMCA also involves the absence of language covering the relationship between Canada and Mexico, although both are parties to the revived Trans-Pacific Partnership (TPP-11), in which ISDS remains in place.
North America’s governance around investment became a governance patchwork after 1994, as each NAFTA member signed agreements with non-NAFTA parties. The new USMCA promises to add to that patchwork by undercutting the consistency of the rules to be applied in North America.
NAFTA chapter 19: trade remedy laws
A similar story of patchwork governance can now be described for so-called trade remedy laws under the new USMCA. Trade remedy laws are a set of legal measures available to domestic producers in virtually all countries enabling them to seek protection from import competition underwritten by dumping or subsidy. In other words, if a foreign producer is attempting to sell in the domestic market at prices below the cost of production, or that production is unfairly subsidized by a foreign government, domestic producers can petition their governments for “temporary” protection via trade remedy laws.
The World Trade Organization has managed to bring some discipline to the use of antidumping and countervailing duties (anti-subsidy measures), but only some. Many disputes have been heard under the WTO’s dispute settlement mechanisms, arguing that the imposition of domestic trade remedy laws violates either the antidumping agreement (Agreement on Implementation of Article VI of the GATT) or the Agreement on Subsidies and Countervailing Measures.3 One of the most intractable disputes involving trade remedy laws has been the nearly five-decade-long softwood lumber dispute between the United States and Canada, wherein the United States accuses Canada of subsidizing the harvest and export of housing lumber (Anderson 2006).
The utility of trade remedy laws is partly in the eye of the beholder. For exporters whose products are subjected to restrictions in important markets, trade remedy laws are costly and punitive, feel arbitrary and are frequently invoked by healthy industries doing nothing more than trying to limit import penetration. From the point of view of domestic industries, trade remedy laws can act as a life-saver from stiff, sometimes unfair, import competition. Others see a utility in trade remedy laws for “purchasing” additional trade liberalization, since such laws act as an insurance policy for domestic producers worried about unfair foreign competition resulting from liberalization (Voon 2010; Hathaway et al. 2003). Yet it is also the case that trade remedy laws the world over have varying degrees of transparency and standards of application and are mostly written with strong presumptions in favour of domestic industries (Horlick & Vermulst 2005: 67). And, finally, what place do domestic trade remedy laws have in the context of an integrated, increasingly singular marketplace for goods, services and capital such as North America?
The application of trade remedy laws has long been a point of contention in Canada–US relations. Indeed, the intensity of cross-border trade, currently valued at more than US$1.7 billion per day, inherently subjects a considerable amount of trade to potential trade remedy action. When Canada and the United States entered free trade talks in 1985, disciplining the application of American trade remedy laws to Canadian goods was one of Ottawa’s highest negotiating priorities (Hart, Dymond & Robertson 1994: 54–86, 372–85). Canada’s initial position on trade remedy laws was to seek their complete elimination in what were already two of the world’s most deeply entwined economies.
However, negotiations over trade remedy laws were among the most contentious in those bilateral talks, with Canadian negotiators walking away late in the talks over American unwillingness to make concessions. Only in late October 1987, faced with a US legislative deadline to conclude the negotiations, did American negotiators make some concessions. The result was chapter 19 of the Canada–US Free Trade Agreement, including a dispute settlement mechanism.
Chapter 19’s dispute settlement mechanism has periodically been hailed as a major breakthrough in disciplining the application of trade remedy laws. However, the mechanism is much more limited than the immunity from trade remedy laws Canada has always sought. Even so, chapter 19 broke new ground, by creating a binational review process that, for the first time, introduced a quasi-judicial review of trade remedy investigations, which had previously been the exclusive purview of domestic administrative agencies.
Indeed, it was not long before domestic stakeholders went to court alleging that the NAFTA had broadly circumvented the article I treaty ratification process of the US constitution,4 and, more narrowly, that chapter 19 was an unconstitutional circumvention of the right to judicial review.5
The controversy over chapter 19 is odd, since, by comparison to most institutional arrangements at different stages of integration, these particular dispute settlement mechanisms are remarkably limited. Indeed, the binational panel system originally enshrined in CUFTA was given no supranational authority to arbitrate or rule on the fairness of domestic trade remedy actions. In fact, the standard of review for chapter 19 panels is limited to whether domestic administrative agencies correctly apply the law as it was written and intended by legislators. Since trade remedy laws are invariably written with the protection of domestic industry squarely in view, such a standard for dispute resolution could never confer the immunity sought by Canadian negotiators (Anderson 2006). In practice, chapter 19 rulings alleging the misapplication of domestic law are “remanded” (sent back) to the domestic agency, which then embarks on additional investigation of dumping or subsidy allegations to bring the original ruling into “compliance” with domestic law. Meanwhile, critics of the weakness of chapter 19 allege, disruptions to normal market signals in the sector concerned continue, with the most acute impact being felt on the foreign firms whose products were the subject of investigation in the first place.
The United States was never willing to cede much sovereignty over legislation aimed at protecting domestic producers. Hence, Canada did not get the immunity from US trade remedy laws it sought in the CUFTA negotiations. However, after Ottawa had staged public walk-outs and threatened to call off the CUFTA talks altogether, the United States gave a bit more than it initially wanted in the form of chapter 19’s limited binational panel system. When the NAFTA negotiations began in February 1991, Mexico, not surprisingly, put immunity from US trade remedy laws high on its agenda as well (Cameron & Tomlin 2000: 88).
Having just been through difficult negotiations with Washington, Canadian negotiators knew Mexican goals would be difficult to achieve. Canada was sceptical, but supported Mexican efforts – perhaps defensively, hoping to have as much of the CUFTA’s provisions enshrined in the NAFTA as possible (ibid.).6 That is exactly what happened. Chapter 19 was trilateralized in the NAFTA with the exact same mechanisms, no pooled institutionalization and the same standards of review. As of January 2019 there had been 76 chapter 19 cases, only a few of which, such as softwood lumber from Canada, proved to be intractable. Chapter 19 has to be given credit for smoothing the disruptive application of trade remedy law in one of the world’s largest free trade zones. Indeed, merely having an ad hoc review of the application of domestic law as a way of checking administrative action has, in all but a few cases, had a salutary effect on the incidence and resolution of disputes.
But it has also remained controversial. In spite of chapter 19’s relatively limited scope, it has been a useful tool for ensuring additional transparency and consistency in the application of a set of laws inherently designed to protect domestic industry (Macrory 2002; Pan 1999). Of course, the perception, if not the reality, of chapter 19’s scope and power to force domestic administrative action of any kind has also made this form of dispute settlement a significant component of broader critiques of the NAFTA.
Returning to the idea that institutions and governance mechanisms within trade agreements such as the NAFTA can be viewed, especially in the context of start asymmetries of power, as strictures on the arbitrary exercise of power, chapter 19 has to be scored as a partial success. Canada and Mexico, as Lilliputians, were marginally successful in restraining the United States, as Gulliver, in its use of trade remedy laws against them.
USMCA and chapter 19
All this made chapter 19 an obvious focal point for negotiators when President Trump demanded the renegotiation of the NAFTA in the spring of 2017. In July that year, after a compressed public comment period, the United States Trade Representative released its NAFTA negotiating objectives. On trade remedy laws, Washington could not have been clearer:
• Preserve the ability of the United States to enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws.
• Eliminate the Chapter 19 dispute settlement mechanism.
(United States Trade Representative 2017)
By contrast, Canada again stuck its heels in the ground and insisted dispute settlement mechanisms be included in any renegotiated NAFTA (Globe and Mail 2017). Throughout the late summer of 2017 to the completion of USMCA negotiations late in 2018, Canada insisted on the inclusion of chapter-19-like dispute settlement mechanisms and was prepared to walk away from the talks without them. In August 2017 Mexico similarly released its negotiating objectives, also insisting on the incorporation of chapter-19-like mechanisms (Stargardter 2017).
The text of the USMCA resulted in a bizarre split between these competing objectives: Canada and the United States to retain chapter 19, largely as it was written under the NAFTA; Mexico and the United States to eliminate the bilateral application of chapter 19. It is as if half the Lilliputians attempting to restrain the arbitrary use of Gulliver’s considerable power suddenly abandoned the effort. Instead of a trilateral set of governance mechanisms covering the application of trade remedy laws, we now have in the USMCA just one set of bilateral mechanisms. Although Canada and Mexico are not as frequently litigants in trade remedy disputes (just three during the life of the NAFTA), the two countries have set up no bilateral mechanisms of their own within the USMCA, nor are there dispute settlement mechanisms covering trade remedy laws within the text of the Trans-Pacific Partnership, to which Canada and Mexico remain parties.
Chapter 20: useful, to a point
The most important thing about chapter 20’s governance mechanisms was the establishment of the Free Trade Commission (article 2001). Indeed, the FTC was arguably the single most important institutional arrangement in the entire agreement. First, article 2001 mandated that the FTC be comprised of Cabinet-level representatives charged explicitly with supervising the implementation, operation and revision of the NAFTA. Significantly, article 2001(5) mandated that the FTC meet each and every year.
The importance of having regularized, Cabinet-level attention dedicated to the NAFTA was significant, and indicative. On the one hand, the significance of the NAFTA, along with the agreement’s built-in agenda, for all three countries necessitated high-level political guidance. Moreover, the FTC was unique in terms of trilateral governance. Never before had there been a single institution with regularized meetings created for North America.
However, the fact that the FTC was limited to Cabinet-level membership and the NAFTA did not mandate any regular meetings of presidents and prime ministers was also reflective of a relatively shallow set of ambitions for North America (Pastor 2011: 23–8, 149–56). Indeed, although the FTC had plenty to monitor, implement and interpret with respect to the NAFTA itself, the adoption of a more ambitious agenda for North America – perhaps advancing towards deeper stages of integration – would probably have necessitated the participation of presidents and prime ministers.
The second important institutional arrangement created by chapter 20 was the NAFTA Secretariat (article 2002). Yet it too was simultaneously a manifestation of the heightened importance of North America flowing from the NAFTA’s creation and its relatively limited ambitions. The term “secretariat” suggests an administrative function. Indeed, that is exactly what the NAFTA Secretariat is: the agreement’s administrative arm. However, it is an arm that exists only in cyberspace. The secretariat maintains a website wherein the text of the agreement can be found, filings for some dispute settlement actions and any announcements made by the FTC.7 However, there is no office complex at which someone could visit the secretariat, no administrative office staff, no centralized record-keeping around trilateral activity.8 Indeed, the secretariat is comprised of the part of each country’s bureaucracy charged with trade policy: in Washington, the Office of the United States Trade Representative; in Ottawa, Global Affairs Canada; and, in Mexico City, Secretaría de Economía.
Whether one sees this institutional arrangement as a model of efficiency – why create a new bureaucracy when you can use existing ones? – or a by-product of reluctance on the part of the United States, in particular, to take any steps down the road towards pooling sovereignty in trilateral institutions depends heavily on whether one sees the NAFTA as either overly or insufficiently ambitious. Yet the design and operation of chapter 20’s dispute settlement mechanisms suggest that the United States’ reluctance to pool sovereignty loomed large over all of chapter 20.
In connection with the Cabinet-level political direction for the NAFTA, chapter 20 also established a formal dispute settlement mechanism formalizing the adjudication of disputes not covered by other parts of the agreement – chapter 19, for example – or were significant and broad enough as to require political decision-making (article 2004). Indeed, section B of chapter 20 lays out an elaborate set of consultation rules (articles 2006 to 2012), procedures, timelines for reporting, third-party participation requirements (article 2013), the terms for the use of experts (article 2014) and review boards (article 2015) and the process for implementing final reports (article 2018).
Interestingly, the brand of state-to-state dispute settlement has increasingly been favoured by civil society because of the associated perception of public accountability connected to officials using “Good offices, conciliation, and mediation” (article 2007) as the primary means of adjudication. It is a form of dispute resolution that relies heavily on diplomacy and accommodation instead of independent arbitral panels (NAFTA chapters 11 and 19) perceived as distant, technocratic and unaccountable to voters. Indeed, the new USMCA (chapter 31) re-enshrines the preference for state-to-state mechanisms. However, if the experience with NAFTA chapter 20 is any indication, the utility of state-to-state dispute settlement may be limited. In the more than two decades of the NAFTA’s operation there have been just three chapter 20 (article 2008) dispute settlement procedures initiated. One in particular, concerning cross-border trucking services from Mexico, was initiated in 1998 but did not contribute much to the resolution of the dispute, which continues to this day (Kitroeff 2018; Cazamias 1998; Arnett 2002).9
However, one problem with state-to-state mechanisms is the potential for disputes handled within it to revert to the arbitrary self-interested application of power such institutions are, theoretically, designed to mitigate. As Peter Cazamias notes of the US–Mexican trucking dispute:
National governments are not inclined to resort to dispute resolution procedures when they stand to gain more through political posturing. NAFTA assumes that a party will fulfill its obligations out of self-interest or because of the threat of another party’s recourse to Chapter 20. But when both parties’ governments benefit by staying outside the dispute settlement process, Chapter 20 encourages the kind of political bargaining in which the US and Mexican governments are currently engaged.
(Cazamias 1998: 361)
State-to-state dispute settlement mechanisms may give the feel-good appearance of greater accountability, transparency and diplomatic negotiation, but they also reintroduce asymmetrical power in ways other forms of dispute settlement, such as NAFTA chapter 11’s arbitration proceedings, do not. Specifically, although private interests affected by state action can initiate independent adjudication under chapter 11, the state-to-state provisions of chapter 20 can be initiated only by the state. In other words, individual interests impacted by arbitrary state action cannot, under chapter 20, compel the initiation of a resolution process. Finally, as the Mexican trucking services case highlights, there is nothing in chapter 20 to compel a complete resolution of the dispute wherein a party meets its obligations under the agreement. Chapter 20 may compel political bargaining, but – as the case history indicates – does not also compel resolution.
The built-in agenda and the failure to launch
Shallow and, in some areas, inadequate though the NAFTA has seemed in retrospect, its ambition in the early 1990s was a significant leap forward for North America. Part of the perception of inadequacy has been rooted in the complex set of circumstances repeatedly thwarting efforts to build upon what had been started with the original text. The original text broke new ground in a number of domains that would grow in prominence within the global trading agenda; areas such as telecommunications, services, subsidies and competition policy have subsequently become core to regional and global trading agendas.
Much though the NAFTA did to break new ground, doing so inherently left much undone. Few commentators ever note the significant built-in agenda negotiators embedded within the NAFTA text: nearly 30 committees and working groups. Table 6.3 lists the many working groups and committees created by the NAFTA’s provisions. These committees and working groups entailed a diverse membership – some composed of government officials, others of private citizens – with an equally diverse set of mandates – some mostly about the NAFTA’s implementation, others looking ahead to “next steps” – and, it turned out, varying degrees of longevity.
Yet the built-in agenda did not net very much. Many committees and working groups ceased to meet shortly after they were created. Others continued their work, but seldom saw much of it implemented. A good example of the sputtering of the built-in agenda comes from chapter 20, and the Advisory Committee on Private Commercial Disputes (article 2022(4)). The NAFTA’s negotiators assumed that growing levels of trade and investment had the potential to generate more and unforeseen conflicts. The mandate of the committee was to explore the viability of alternative dispute resolution (ADR) modes.
Table 6.3 NAFTA committees and working groups
Committees |
Working groups |
Committee on Trade in Goods (article 316) Committee on Trade in Worn Clothing (annex 300-B, section 9.1) Committee on Agricultural Trade (article 706) Advisory Committee on Private Commercial Disputes regarding Agriculture Goods (article 707) Committee on Sanitary and Phytosanitary Measures (article 722) Subcommittee on Pesticides (proposed under article 722) Committee on Standards-Related Measures (article 913) Land Transportation Standards Subcommittee (article 913(5) and annex 913.5.a-1) Telecommunications Standards Subcommittee (article 913(5) and annex 913.5.a-2) Automotive Standards Council (article 913(5) and annex 913.5.1-3) Subcommittee on Labeling of Textile and Apparel Goods (article 913(5) and annex 913.5.1-4) Committee on Small Business (article 1021) Financial Services Committee (article 1412) Advisory Committee on Private Commercial Disputes (article 2022(4)) |
Working Group on Rules of Origin (article 513) Customs Subgroup (article 513(6)) Working Group on Agricultural Subsidies (article 705(6)) Bilateral Working Group on Agricultural Grading and Marketing Standards (US–Mexico) (annex 703.2(A)(25)) Working Group on Trade and Competition Policy (article 1504) Temporary Entry Working Group (article 1605) Working Group on Emergency Action (established by the Supplemental Agreement on Import Surges under article 2001(2)(d)) Working Group on Government Procurement (established by the NAFTA trade ministers 14 January 1994) Working Group on Chapter 19 Working Group on Services and Investment (established by the NAFTA trade ministers 14 January 1994) Supplemental Agreement on Environmental Cooperation Council on Environmental Cooperation Joint Public Advisory Committee North American Air Working Group |
If the measure of success for the 2022 Committee is education and outreach, it might receive a passing grade. The 2022 Committee has held nearly one formal meeting per year since 1994, including its most recent in Mexico City in 2018, in an effort to seek input from, spread awareness about and recommend best practices in ADR to the Free Trade Commission, ostensibly with the aim of having the three governments implement them.
Yet, as the committee’s 2009 15-year retrospective report notes, “the work of the Committee has also evolved over time”; initially consistent with the original mandate, but shifting mostly to outreach and training as the prospects for substantive implementation of ADR ran into legislative obstacles in all three NAFTA countries (Lussenburg & Lutz 2009). Moreover, resource constraints on the 2022 Committee’s activities had constrained its effectiveness (ibid.: 44). Minutes of the June 2017 meeting of the 2022 Committee in Montreal noted the impending renegotiation of the NAFTA was about to begin, that the Committee had not communicated with the Free Trade Commission in several years and that the FTC needed to be made aware of the volumes of work the 2022 Committee had undertaken (NAFTA 2022 Committee 2017: 7).
Work on the NAFTA’s built-in agenda mirrored the broader decline in enthusiasm for the agreement as a whole through the end of the 1990s, as the public backlash against trade liberalization and integration routinely – and violently – spilled into the streets of Seattle, Washington, Quebec City and Genoa. The work of the built-in agenda gained little traction until after September 2001, when parts of that work were cobbled together, first in the two “smart border” accords among the three countries and, second, in the equally ill-fated North American Security and Prosperity Partnership ( Anderson & Sands 2007; Ackleson & Kastner 2006). For a brief time, roughly March 2005 through August 2009, there was a positive alteration to North America’s governance architecture, with the instituting for the first time of annual trilateral summits among the presidents and prime ministers: the North American Leaders’ Summit (NALS). However, after the originators of the NALS left office, the NALS quickly faded from view, as did the SPP itself. Indeed, a lack of political interest, an SPP agenda that looked more ambitious than it was and, importantly, an absence of institutional mechanisms constructed to facilitate implementation all combined to scuttle the initiative.
The NAFTA’s unexpected governance
When the NAFTA negotiations began in June 1990, labour and the environment were not among the topics on which the three countries were hoping to break new ground. That changed in the autumn of 1992, at the height of the US presidential election campaign, when President Bush challenged Arkansas governor Bill Clinton to make his support or opposition to the nearly completed NAFTA negotiations clear.
In what some have argued became a signature of his governance style as president (Greenstein 1998), then Governor Clinton hedged, saying in a public speech at North Carolina State University that he supported the NAFTA subject to appropriate protections for labour and the environment (Clinton 1992). These protections came in the form of side agreements to the main NAFTA text, negotiated in the spring and summer of 1993. The NAFTA side agreements receive a lengthier treatment in the next chapter of this volume, but their specific governance mechanisms are important in the context of the NAFTA’s overall governance.
Like the majority of the NAFTA’s other institutional mechanisms, the side agreements on labour and the environment were never designed to have strong enforcement teeth. Indeed, although Bill Clinton’s eleventh-hour endorsement of the NAFTA was subject to additional negotiations with Mexico City and Ottawa over protections for labour and the environment, he was not thinking in terms of trilateral management of either policy area. In fact, Clinton was quite explicit about the limited scope of what he had in mind: “I will negotiate an agreement among the three parties that permits citizens of each county to bring suit in their own courts when they believe their domestic environmental protections and worker standards aren’t being enforced” (Clinton 1992, emphasis added).
Since citizens of each country could already launch legal actions in their domestic court settings over these issues, the need for a trilateral agreement was perplexing.
Nevertheless, Clinton’s efforts resulted in the creation of two entities, one each for labour and the environment: the North American Commission for Labor Cooperation and the Commission for Environmental Cooperation. Of the two, only the CEC remains active. Indeed, it became far more active than President Clinton, or any of the negotiators, intended. Although the CEC was arguably marginalized by being situated outside the NAFTA itself and was never given enforcement powers to compel states or polluters to action, it has become an important trilateral body for the exchange of scientific information, civil society engagement and public submission around a host of regional environmental issues.
When the Trump administration compelled the renegotiation of the NAFTA in the spring of 2017, many assumed provisions connected to the environment would be on the administration’s target list for elimination. In fact, one of the main administration negotiating objectives was to “bring the environment provisions into the core of the Agreement rather than in a side agreement”, suggesting to some the elimination of the CEC (United States Trade Representative 2017). Instead, chapter 24 of the new USMCA underwrites the CEC’s importance in several different ways. First, the USMCA augments the CEC’s relevance by making it the institutional location for the coordination and review of trilateral activities under a new Agreement on Environmental Cooperation (AEC) (USMCA article 24.25(3)). Moreover, article 2 of the new AEC – a kind of side agreement to the USMCA – reaffirms that all three countries will continue to participate in the activities of the CEC.10 Finally, the CEC will also serve as the administrative portal for public submissions on environmental enforcement under the new USMCA (article 24.27).
1. It is worth acknowledging that these events spawned a competing interpretation by scholars known as dependency theory, wherein weaker states are drawn into a hegemonic orbit that perpetuates dependence on the large state rather than facilitating a path towards higher stages of development.
2. Department of Foreign Affairs and Trade, “About foreign investment”: https://dfat.gov.au/trade/investment/Pages/investor-state-dispute-settlement.aspx (accessed 20 June 2019).
3. See World Trade Organization, “Legal texts: the WTO agreements”: www.wto.org/english/docs_e/legal_e/ursum_e.htm#fAgreement (accessed 10 June 2019).
4. See General Accounting Office (1995); see also Made in the USA, United Steel Workers of America et al. vs. United States of America, US 11th Circuit Court of Appeals, DC Docket no. 98-01794-CV-PT-M, 27 February 2001.
5. See Coalition for Fair Lumber Imports vs. United States of America, United States Court of Appeals, no. 05-1366, decided 12 December 2006.
6. Cameron and Tomlin argue that one point of leverage Mexico enjoyed with Washington in at least arguing for chapter 19 to be enshrined in the NAFTA was the weak state of Mexico’s legal regime for administering its own trade remedy laws. Chapter 19, Mexico argued, would effectively compel Mexico towards a series of domestic reforms.
7. See NAFTA Secretariat, “Welcome!”: www.nafta-sec-alena.org/Home/Welcome (accessed 20 June 2019).
8. Indeed, although chapter 19 dispute settlement filings can be found on the secretariat website, filings for chapter 11 investment disputes are “housed” in several different locations: the United Nations, the World Bank and the national ministries in charge of adjudicating them.
9. NAFTA, “In the matter of cross-border trucking services”, USA-MEX-1998-2008-01, 24 July 2008.
10. See US Environmental Protection Agency, “Agreement on Environmental Cooperation among the governments of the United States of America, the United Mexican States, and Canada”: www.epa.gov/sites/production/files/2018-11/documents/us-mxca_eca_-_final_english.2.pdf (accessed 22 July 2019).