LABOUR AND THE ENVIRONMENT
The liberalization of international trade has always been associated with social, political and economic disruption. Indeed, such disruptions are the very source of much popular opposition to liberalization. The moment humans began trading with one another, anxieties were provoked about the impact of exotic foreign wares on everything, from local culture and politics to, of course, economic activity (Irwin 1996:11–15). These anxieties have periodically, but regularly, spilled over into the kind of populist, anti-trade xenophobia infecting modern debates about trade. This chapter begins with a short discussion of how embedded the politically, economically and socially disruptive qualities of trade liberalization actually are. In part, this chapter will argue, there has always been a connection between trade and both labour and the environment. However, it was the NAFTA that permanently situated labour and environmental issues as meriting consideration in the governance of regional and global trade.
Yet having labour and the environment on the agenda has produced uneven results. The NAFTA’s side agreements on labour and the environment may have started it all, but these same agreements are also emblematic of the uneven treatment and impact of labour and the environment on global trade. Indeed, the NAFTA side agreements were initially afterthoughts, born of the politics of the day and – much to the mutual chagrin of people on different sides of the debate around the nexus of trade, labour and the environment – designed more for show than substance. The result was that the labour half of the side agreements quickly went dormant while the environmental half survived and become more robust than their authors intended. In other words, few were entirely happy with the side agreements. Finally, this chapter will note the significant, but also surprising, degree to which the importance of labour and the environment was affirmed in the NAFTA’s successor, the United States–Mexico–Canada Agreement.
Winners, losers and spillovers
There are few certainties in life, but there are two that students of international trade can commit to memory: (a) trade liberalization creates “winners” and “losers”; and (b) the “winners” are broadly distributed and the “losers” are highly concentrated. This basic reality is also the source of most of the populist politics swirling around trade liberalization. The case in favour of trade liberalization is compelling in its simplicity. Yet, strangely, it has also seemingly befuddled politicians for centuries.
The problem for politicians is often not that they fail to understand free trade. It is that free trade frequently puts politicians in a difficult bind, captured by the fact that liberalization inherently creates broadly based “winners” but also concentrated “losers”. Put simply, it is mostly the losers in front of whom politicians have to stand and defend the decision to liberalize. The diffuse beneficiaries of trade liberalization – consumers or export interests – rarely spill into the streets to voice their support for more liberalization.
When Adam Smith advanced the case for free trade, in 1776, his target was the inefficiency and monopoly power of mercantilism as enforced by the British Crown. International trade effectively extended his ideas around the efficiencies to be gained through the division of labour; why not produce a lot of what you make most efficiently and exchange it for those products others produce most efficiently? Yet it was David Ricardo’s articulation of the case for free trade anchored in comparative advantage, in 1817, that made the source of both discombobulated politicians and angry, concentrated “losers” become most clear.
Smith’s case for free trade was mainly premised on relative labour costs, effectively assuming labour was the only important input in the production process. Ricardo built on this by asking why countries would trade with each other at all if they could simply produce everything they needed. Ricardo’s argument was rooted in the opportunity costs of production: could Britain produce one extra unit of product X while drawing fewer resources away from Y production than could be done in France? If so, Ricardo argued, Britain ought to specialize in the production of X, move away from Y production and simply export X to France in exchange for Y.
This bit of elegant reasoning in favour of the efficient allocation of resources in production and trade has given politicians fits ever since. Why? The elegance of Ricardo’s reasoning also involved an adjustment process that, in his view, was temporary. As Britain ceded the inefficient production of Y to France and both specialized and expanded the production of X, some of which would go to France, Y workers in Britain would be “released” into the labour force. Ricardo assumed workers released from Y production would quickly be absorbed into the newly expanded production of X. However, in practice, X and Y production do not necessarily entail the use of the same skill sets, so there is a delay in that transition from being “released” to being re-employed (see, generally, Irwin 1996: esp. chs 5 & 6).
Indeed, in modern economies, the skill sets required for one industry are seldom readily transferable to another; it takes a long time to retrain textile workers to manufacture semiconductors. Some of these challenges arise from normal product cycles, in which mature manufacturing techniques are easily replicated elsewhere. There is also considerable labour market adjustment because of technological change, something economists have long pointed to as a greater source of domestic job loss than international trade (Freeman 2004; Goos & Manning 2007; Goos, Manning & Salomons 2014; Autor, Levy & Murnane 2003; Autor, Katz & Kearney 2008; Autor & Dorn 2013).
However, because the job loss from trade liberalization is more directly the by-product of government policy than modernity, and is an outcome of that policy as predicted by economic theory, politicians are inevitably confronted with the cleavages that flow from creating broadly based “winners” and concentrated “losers”. Satisfied “winners” seldom tie their “winnings” to the effects of trade liberalization, and even less frequently coalesce politically in support of more. However, organized groups of concentrated “losers” can often be found confronting politicians about their plight in the adjustment process, while the politicians themselves fumble around for arguments more politically compelling than the nuances of “comparative advantage”.
One further bit of economic theory that inherently complicates the politics of trade liberalization is something known as “factor price equalization”. According to this theory, the liberalization of trade between countries tends to start a process of convergence of prices for the inputs into those goods that are being traded, including labour costs (Samuelson 1948). Trade becomes a kind of vehicle for harmonizing price differentials between markets. Factor price equalization suggests that, as trade between Mexico and the United States opened under the terms of the NAFTA, high US wage rates would begin to converge with much lower Mexican wage rates in manufacturing. For some, this meant long-sought improvement in Mexican labour standards. For others, high-wage US manufacturing would increasingly come under downward pressure.
Hence, the same economic theory that outlines the efficiency gains to be had from international trade simultaneously makes the difficult politics of trade obvious. In fact, with the benefits of trade come important challenges. As noted in the earlier discussion of governance within the NAFTA, labour and the environment were eleventh-hour additions insisted upon by the then Arkansas governor, Bill Clinton, during the 1992 US presidential election campaign. The resulting labour and environmental side agreements to the NAFTA were an effort to respond to the politics of international trade flowing from the inherent creation of winners and losers in the midst of the adjustment process. The side agreements were also an important response to a different set of concerns regarding the impact expanded manufacturing and trade would have on the environment. As Mexico, for example, took advantage of the NAFTA’s preferential access to the US and Canadian markets, long-standing issues regarding the environmental impact of maquiladora industrial zones were of heightened concern (Williams 1995; Voigt 1993; Friedman 1992).
Labour
The NAFTA attempted to address labour issues in three basic ways. First, the debate over the NAFTA implicitly acknowledged there would be an adjustment process flowing from trade liberalization and, in the United States at least, would require enhancing mechanisms to assist labour with that adjustment. Second, although the NAFTA did not include provisions for labour mobility generally, the NAFTA broke important new ground with respect to the mobility of North America’s professional classes. Finally, the NAFTA side agreement on labour, the North American Agreement on Labor Cooperation (NAALC), tried to address many of the concerns about wage rates and labour rights connected to the exposure of high-wage, highly regulated labour markets in Canada and the United States to low-wage, weakly regulated competition from Mexico.
Trade adjustment assistance
The basic ideas behind trade adjustment assistance are relatively straightforward, since they flow directly from the adjustment costs predicted by economic theory: offer up some compensation or pathways to retraining for those workers who find themselves employed in a sector at a comparative disadvantage as a result of trade liberalization. In practice, trade adjustment assistance is a challenge, as it is seldom obvious which firms or sets of workers have been displaced specifically by trade liberalization. Is trade liberalization the culprit, or is it some combination of product cycles, outsourcing elsewhere and technological change that drives that displacement (David 2015; Irwin 2016)?
In part because it is complicated, each NAFTA country has a slightly different approach to softening the impact of trade liberalization on labour markets. Such measures can sometimes be construed to include any part of the welfare state’s social safety net: measures directly targeting employment, such as unemployment benefits, to indirect parts of the broader social safety net, such as healthcare. As one might expect for a developing country, of the three NAFTA states it is Mexico that has the least well-developed set of social safety nets for labour: no unemployment benefits, relatively weak labour rights laws and no broad-based social safety net of the type one finds in social democracies such as Canada. Canada also lacks a specific set of programmes focused on the adjustment of labour to trade liberalization (Lysenko, Mills & Schwartz 2017). However, Canada does have relatively generous unemployment benefits, part of which includes access to significant retraining opportunities, as well as a single-payer healthcare system, all of which provides an important set of supports to labour affected by trade.
By contrast, the United States has explicitly chosen to direct funds towards adjustment assistance. America’s social safety net is more robust than Mexico’s but less so than Canada’s, particularly in terms of the provision of healthcare, for which the United States maintains a mixed private/public system that still leaves many without coverage. Trade adjustment assistance in the United States grew out of congressional frustration with the impact that successive rounds of multilateral negotiations under the GATT were perceived to be having on some domestic industries. In 1974 the US Congress put in place funding and retraining mechanisms for workers displaced by trade liberalization, in essence seeking to purchase additional political space for liberalization through the creation of the Trade Adjustment Assistance programme (see Anderson 2012; Department of Labor, Employment and Training Administration 2017).
The Trade Adjustment Assistance programme was enhanced and reaffirmed in the 1993 legislation passed by Congress to implement the NAFTA (United States House of Representatives, 103rd Congress, First Session, HR 3450, North American Free Trade Agreement Implementation Act). However, since its inception few have been entirely satisfied with it. The obvious critique is that the funding allocated to such programming is seldom enough; indeed, the NAFTA’s Transitional Adjustment Assistance programme was given an annual disbursement cap of just US$30 million (ibid.: SEC. 250, (d)(2)). Job loss directly related to trade liberalization is difficult to discern. However, even when it is possible to directly tie job loss to the adjustment from trade, compensation is frequently inadequate to the task of transitioning workers, often because entirely new skill sets are required; jobs in the sector being rationalized through free trade are disappearing (Kapstein 1998; Decker & Corson 1995).
Chapter 16: temporary entry
One of the underlying themes of this volume has been just how limited the NAFTA really was. As a relatively shallow preferences arrangement, the NAFTA never envisaged the kind of supranational governance institutions present at deeper stages of integration. Although the NAFTA did much to integrate the three countries into a single marketplace for trade in goods, services and investment, the agreement never envisaged a single market for labour. Indeed, although the liberalization of trade linked labour in all three countries to one another through tradables (factor price equalization), the physical mobility of labour itself has remained segmented into three distinct markets.
The one exception to this within the NAFTA was the provision for the temporary entry of business professionals in chapter 16. The NAFTA, in effect, created a whole new category of visa, the TN (Trade NAFTA) visa, for a select group of professionals (NAFTA, chapter 16, appendix 1603.D.1). However, several problems with chapter 16 emerged almost immediately. First, the NAFTA specified a “positive” list of roughly 60 specifically defined professions that would be eligible for expedited processing and elongated stays in member countries. Rapid changes to the global economy quickly made that static list obsolete. For example, the years that followed implementation of the NAFTA saw an explosion of technology jobs, for which the NAFTA’s prescribed list of professionals was inadequate. Indeed, “computer systems analyst” was the one category under which nearly all the exploding range of information technology professional had to be admitted. Moreover, the list of eligible professions proved stubbornly difficult to amend, with state and provincial professional associations frequently resistant to the mutual recognition of credentials, which could destabilize the supply and demand for professions in localized markets. The limitations of the NAFTA experience saw subsequent trade agreements define professions mostly in terms of more flexible educational achievement standards.
The second major problem with the NAFTA’s temporary entry provisions is the variability in the procedures for obtaining a TN visa. The disparity in the number of TN visas issued to Canadians and Mexicans is starkly depicted in the US Department of Homeland Security entry data presented in Table 7.1 for the period 2000 to 2017. Part of the explanation is undoubtedly due to the more onerous administrative procedures Mexicans must go through to obtain a TN visa. Remarkably, because Canadians are on the “visa-exempt” list for travel to the United States, business professionals can apply for a TN visa at a port of entry on the day of travel to take up work in the country. By contrast, Mexicans must apply for, and obtain, a TN visa prior to planned travel. In practice, this has meant going through the normal (slow) visa application process at US consular outlets in Mexico.1
Table 7.1 Admissions under TN visa (2000–2017)
Source: Department of Homeland Security.
After 2004 Mexico was no longer subject to numerical caps on TN visas (previously 5,000), facilitating growth in the number of applicants. However, Mexican TN visa numbers remain significantly below those issued to Canadians, because Mexicans are not “visa-exempt”, meaning they have to apply through consular offices, not at ports of entry. A further change was made by US authorities in 2008, when the duration of TN visa validity was extended from one year renewable to three years renewable. This might account for the significant spike in Canadian applications for TN visas after 2009, as the three-year duration made firms more willing to take on prospective workers.2
The use of TN visas by professionals, particularly from Canada, has clearly grown. However, the variability in access and the limitations in the positive list of professions itself remain important problems, around which there have been calls for reform. Some of the limitations made obvious by the NAFTA experience, especially those flowing from the “positive” list of defined professions, prompted the adoption of the more general standard of educational attainment in other agreements, such as the Trans-Pacific Partnership.3
One of the first acts of the Trump administration in early days of 2017, of course, was to formally announce the United States’ withdrawal from the TPP. When the administration’s threat to scrap the NAFTA in the spring of 2017 turned into a renegotiation, chapter 16 and the TN visa were thought to be high on the list of targets for outright elimination. The xenophobia of the 2016 presidential campaign, coupled with the animus towards the NAFTA itself as “the worst deal ever negotiated”, signalled that fixing the limitations of chapter 16 was not on the table. Almost inexplicably, the text of the USMCA, released in the fall of 2018, left chapter 16 entirely unchanged. There were no fixes, but there was also no deterioration in the status quo. Indeed, there is no evidence chapter 16 was even an important topic for negotiation among the parties.
North American Agreement on Labor Cooperation
The third way in which the NAFTA attempted to deal with labour issues was through the side agreements, specifically the North American Commission for Labor Cooperation. This part of the NAFTA was the most tangible response to a growing list of concerns on the part of labour rights advocates about the impact advances in the global economy were having on labour rights and labour conditions. Indeed, these concerns were at the forefront of Governor Bill Clinton’s conditional support of the NAFTA in October 1992 at the height of the US presidential election campaign (Clinton 1992).
Nearly a year later the three NAFTA signatories had concluded a side agreement capturing these concerns and establishing mechanisms to build trilateral cooperation in addressing them. Linkages between the expanded economic activity flowing from trade liberalization and its impact on labour had been brewing for some time. Labour advocates in developed states worried about downward pressure on worker protections and salaries in the face of increased pressure from low-wage, lightly regulated labour forces in other jurisdictions. Some of those same labour advocates worried that agreements such as the NAFTA would do little to raise working conditions in developing countries, as some promised, and instead actually undercut existing standards as pressures for efficiency and output grew under a liberalized trading regime.
In many respects, the labour side agreement, like its environmental counterpart, formalized the growing links between these issues and trade. Indeed, the preamble to the labour side agreement notes the NAFTA’s intent to expand markets, competitiveness and employment opportunities. It also claims the NAFTA’s intent is to “protect, enhance, and enforce basic workers’ rights”, seeking to “complement” the economic opportunities created by the NAFTA with “human resource development, labor–management cooperation”, “continuous human resource development” and the “promotion of employment security and career opportunities for all workers” (Government of Canada 1993).
It was an ambitious set of objectives for labour cooperation that would never be realized. Improving standards for workers throughout North America is reiterated throughout the NAALC. In fact, the very first objective stated in article 1 is to “improve working conditions and living standards in each Party’s territory” (article 1).
Unfortunately, the NAALC and the Commission for Labor Cooperation it established were never given the institutional design to achieve such lofty objectives. In brief, the NAALC set up a state-to-state system of accountability and cooperation anchored principally in each NAFTA party’s labour ministries. The NACLC was composed of each NAFTA party’s Cabinet minister or secretary responsible for labour issues (article 9). A small secretariat was also created (article 8(2)), based initially in Dallas, Texas, but reportedly moved to Washington, DC (Hufbauer & Schott 2005: 124). However, as of 2019 there is no physical address or website for the Secretariat.
The NACLC owes its real failure to the shallowness of its institutional design (Dombois, Hornberger & Winter 2003; Hufbauer & Schott 2005: 119–32; Clarkson 2008: 104–6). The NACLC was empowered to receive citizen complaints about a host of labour issues, but there was never a binding institutional mechanism designed to actually facilitate a rise in labour standards in any of the three countries. The dispute settlement mechanisms were entirely state to state in nature, and the standard for action revolved around whether states were enforcing their existing labour laws – not whether laws were being improved or standards being raised. In other words, much like the shallowness of the NAFTA itself, the labour side agreement was institutionally weak, designed to preserve the sovereignty of each state, and never structured to significantly alter conditions in any of the three parties.
Critiques of the NAFTA side agreements are not dissimilar to those levied at the NAFTA proper: proponents over-promised, critics over-criticized. There is a large body of literature trying to sort out whether the NAFTA (text proper and side agreements) did much to improve wages, labour conditions or labour rights. A full examination of that literature is well beyond the scope of this volume. However, one reasonable conclusion to be drawn from it all is that the results for labour have been a mixed bag (Hufbauer & Schott 2005: 38–54; Weisbrot, Lefebvre & Sammut 2014). Isolating the predicted “winners” from “losers” in North America resulting from the NAFTA has been the source of a hot political debate that will continue to rage through the USMCA ratification debate and beyond.
Particularly interesting is the new minimum wage requirement embedded in the USMCA’s rules of origin. The renegotiation of the NAFTA in 2017/18 resulted in an increased North American content requirement to qualify for tariff-free treatment (62.5 per cent under the NAFTA to 75 per cent under the USMCA). But the renegotiated NAFTA couples these content rules with a number of significant new labour provisions, primarily aimed at Mexico. Specifically, the new rules of origin content requirements mandate that between 40 per cent and 45 per cent of that content be manufactured with labour earning at least US$16 per hour.
Unfortunately, the purpose and intent of this new wage requirement are fraught with mixed motives. For some, the new content rules enshrine within the USMCA something the NAFTA promised but never delivered: wage rates and bargaining rights for Mexican labour unrealized since the 1994 peso crisis (see Chapter 1 of this volume). However, others see in the new requirements a nakedly protectionist ploy to impose a wage bill burden on Mexican manufacturing that will make parts of it less competitive relative to American manufacturing. However, critics point out that the NAFTA’s rules of origin were already too burdensome (Fruend 2017a). Making them tougher could actually backfire (see Fruend 2017b).
Whatever the weaknesses of the NAFTA’s labour side agreement, it nevertheless broke new ground in planting labour issues firmly on the global trading agenda. Interestingly, the only references to labour in the main NAFTA text are found in the preamble: vague commitments to “improve working conditions and living standards” and “protect, enhance, and enforce basic workers’ rights”. Yet, while there has never been another side-agreement-style arrangement by NAFTA countries in subsequent negotiations with non-NAFTA countries, labour is now front and centre in the main text of nearly all their agreements.
The Trans-Pacific Partnership (TPP-12, 2016), for example, contains an entire chapter (chapter 19) devoted to labour issues, the language, institutions and commitments of which owe much of their lineage to the NAFTA side agreement. The TPP includes commitments to cooperation (TPP article 19.10), creates a labour council (article 19.12) and has provision for citizen submissions (article 19.9) and effective enforcement of domestic labour laws (article 19.5); much like the NAFTA side agreement on labour. However, the TPP goes further in enshrining standards for conduct among members adopted from the International Labour Organization (ILO) (TPP articles 19.1, 19.2 and 19.3) and explicitly prohibits the weakening or lax enforcement of labour laws for the purposes of trade (articles 19.4 and 19.5).
Whereas the NAFTA had little language around labour rights, the USMCA now contains an entire chapter (chapter 23) devoted to labour, in addition to the wage thresholds in the rules of origin. However, what is surprising is the lack of evolution in the labour provisions within the USMCA when compared to other recent agreements. Given the vitriol directed at the NAFTA by the Trump administration around its failure to advance the cause of labour, one might have expected more significant, perhaps interventionist, language around labour in the USMCA. Instead, chapter 23 of the USMCA inserted verbatim the labour provisions of chapter 19 of the TPP-12, an agreement the Trump administration withdrew from in its first week in office in 2017.
Like the NAFTA’s side agreements, contemporary labour provisions in trade agreements such as the USMCA or TPP-12 text maintain a strong deference to sovereignty over labour issues. There are still no institutional mechanisms in these arrangements to meaningfully compel the enforcement of existing labour standards or rights, and certainly none that would bring about a broad raising of standards among members. For some, that may symbolize a continuing failure of global trading rules. After all, it has been nearly 30 years since the NAFTA permanently implanted labour issues on the global trading agenda.
However, and somewhat confusingly, the new USMCA also contains a lengthy annex compelling Mexico to make significant changes to its domestic labour laws, mostly around rights to collective bargaining. Indeed, annex 23-A committed the new Mexican administration of Lopez Obrador (which assumed office in December 2018) to introduce labour legislation by 1 January 2019, on penalty of delaying implementation of the broader USMCA in all three countries (USMCA annex 23-A-1). The Mexican Congress approved new legislation in May 2019, but Democrats in the United States have already signalled that they want further protections enshrined either in the USMCA or in Mexican law (Villegas 2019; Leonard & Cattan 2019).
The insertion of annex 23-A was at the behest of the Trump administration, mostly as a carrot to US labour, but also to Democrats in hopes of winning their support. However, the provisions further highlight the deeply asymmetrical nature of North America. Mexico arguably had little choice but to acquiesce to US demands on collective bargaining rights. The Trump administration’s threat to simply withdraw from the NAFTA, coupled with Mexico’s relative dependence on the United States as a primary export market, conferred considerable US leverage over Mexico to improve labour rights.
This is an important change from the NAFTA, which sought to “lock in” important economic and political reforms undertaken by Mexico (and Canada) in the years leading to the agreement. Indeed, the NAFTA represented an opportunity for each of the parties to indirectly consolidate domestic reform efforts through trade liberalization. Whereas the NAFTA consolidated reforms autonomously undertaken by each of the three parties, on both wage rates and labour rights, the USMCA represents a more strongly interventionist approach by using the trade agreement itself to compel change domestically. Progressive critics of trade liberalization can undoubtedly cheer the advent of higher wages and improved bargaining rights. Still others might be uncomfortable with the precedent set by the exercise of power within the USMCA negotiations to force these changes.
However, the USMCA’s annex 23-A is a one-off requirement over which the main body of the USMCA has no enforcement power. Hence, even if Mexico changes its laws in accordance with annex 23-A, there is nothing in the labour provisions of chapter 23 to enhance enforcement or engage in cooperative activities to further enhance labour rights in all three countries.
The environment
The wedding of the environment to the global trading regime came about at almost the exact same time as labour. It was, in many ways, the NAFTA that formalized for the environment what it also did for labour through the side agreements. However, although labour and the environment seemed to share the stage in midst of the NAFTA debate, and the NAFTA side agreements share some similarities, there are also important differences.
First, the global trade regime had already been accumulating some important experiences with the environment prior to the NAFTA (Esty 1994; 2003; see also Weinstein & Charnovitz 2001). Indeed, the nexus of trade and the environment had arguably matured further than labour by the time the NAFTA was completed. Second, and partly a by-product of pre-existing experience, the North American Agreement on Environmental Cooperation (NAAEC) institutionalized cooperation and governance over the environment in ways the labour side agreement did not. The result has been a longevity and effectiveness, albeit modest, for the institutionalization of environmental cooperation in North America that none of the negotiators could have predicted at the time. Interestingly, and perhaps surprisingly given the Trump administration’s general orientation towards environmental stewardship, as well as concerns about the erosion of sovereignty, the NAAEC’s institutional structure has been re-enshrined within the environmental provisions of the USMCA.
Market failure
Whereas economic theory has always predicted the generation of “winners” and “losers” in labour markets flowing directly from trade liberalization, economic activity and the environment have always been more problematic, because of things such as “spillovers” and “market failures”. Intuitively, the environmental impact of economic activity is often borne collectively, and economists and public officials have struggled to come up with ways to deal with it. When environmental impacts have been directly attributable to a single firm or sector, the “polluter pays” principle has been perhaps the most common approach. However, public policy has had a much more difficult time grappling with the broader impacts of economic activity associated with the “global commons” – in other words, the collective contributions to poor air or water quality, and, of course, climate change.
Global trade up to the task?
A major question confronting the modern trading regime is whether its rules are capable of dealing with the environmental aspects of increased trade and production flowing from liberalization. For example, if there are differentials in the labour and environmental standards among members of the World Trade Organization and those with lower standards expand their productive capacities for export on the basis of those standards, how can the WTO’s rules be adapted to deal with these effects? Should those rules be revised to prohibit the exploitation of a lax environmental and labour regulatory regime for the purposes of trade? Could the dispute settlement mechanisms, for example, be used to account for the production of “dirty goods” as a form of subsidy – in other words, goods produced via environmentally unsustainable processes (Hufbauer, Charnovitz & Kim 2009; Weinstein & Charnovitz 2001; Charnovitz 2002)? Moreover, could global trading rules be used in the context of the production of goods with a high carbon footprint as a means of combating climate change?
To date, the multilateral trading regime has adopted a distinction between “product” and “process” in the adjudication of trade disputes. In short, there are multiple mechanisms within the multilateral system by which a country can limit or prohibit trade for reasons that can generally be categorized as “product safety”. However, the WTO system has generally prohibited trade restrictions because of the “process” by which products are produced (Esty 1994).
In the late 1980s the predecessor to the WTO, the General Agreement on Tariffs and Trade, began accumulating some experience with the tension between “product” and “process” within the dispute settlement mechanisms that existed at the time. In the early 1970s the United States Congress passed the Marine Mammal Protection Act, part of which permitted the imposition of bans on products harvested with technologies resulting in the excessive incidental deaths of other marine wildlife. In the fall of 1990 the United States imposed an import ban on tuna harvested in the eastern Pacific with “purse-seine” netting, because it ensnared too many dolphins in the process.
Mexico objected, arguing before the GATT that the ban unfairly targeted “process” rather than the “product” itself. The timing of the GATT ruling supporting Mexico’s complaint generated some political discomfort when it came in mid-1991, right in the middle of the NAFTA negotiations. The sensitivity of the report resulted in a kind of “settlement” (the report was “not adopted”) between the two countries as the NAFTA negotiations continued. Environmentalists were livid that GATT rules could be used to undermine US laws meant to protect sensitive marine species. The next year the European Community put the issue back on the table with its own case before the GATT over the same US tuna import ban, once again raising the profile of environmental issues in the midst of the US presidential election campaign and as the NAFTA negotiations were nearing their completion.
NAFTA and the CEC
When Governor Bill Clinton finally made his support for the NAFTA clear just weeks prior to the 1992 presidential election, he did so, of course, with labour and the environment on his mind. In many ways, the NAAEC was a lot like its labour side agreement counterpart. It was institutionally weaker than environmental advocates had hoped, was focused narrowly on ensuring domestic environmental laws were being enforced (article 2) but had no real enforcement teeth to independently police anything apart from state-to-state consultation and dispute settlement procedures (articles 2, 37, and articles 22–36). In other words, the NAAEC was not designed to challenge the state’s sovereign supremacy on the environment. A case in point here was the reservations Canada enshrined in the NAAEC with respect to its provinces, in which constitutional power over natural resources resides within its federal system. Specifically, annex 41 spells out a long list of caveats and exceptions to the application of the NAAEC to Canada, including clause (7), which states: “Canada shall use its best efforts to make this Agreement applicable to as many of its provinces as possible.”
The NAAEC established the Commission on Environmental Cooperation (CEC) (article 8), which, at first blush, seems to resemble the Commission on Labor Cooperation. A council led by the environment ministers for each of the three countries is complimented by a secretariat and a joint public advisory committee (article 8.2). However, a major difference between the two side agreements is the formalization of the Secretariat independently of the three parties’ environment ministries (section B). Indeed, the NAAEC spells out in considerable detail the organizational structure and function of the CEC (article 11.1–8) and mandates annual reporting (article 12) and the process by which the Secretariat will facilitate the creation of factual records around enforcement matters (articles 13–15). Moreover, the NAAEC specifies that the three parties will make equal financial contributions to the CEC’s staff and operations (article 43).
The establishment of the Secretariat as a bricks and mortar institution (headquartered in Montreal, Canada) was significant, permitting the CEC to become more important and influential than the negotiators imagined when the side agreements were completed in the fall of 1993. Specifically, the Secretariat’s reporting mandate (article 12), information-gathering functions (article 13), ability to receive citizen submissions (article 14) and capacity to establish a factual record (article 15) of any violations gives the Secretariat a function and purpose independent of the CEC, headed by the three countries’ environment ministers. Although the intent of the entire NAAEC was limited to a focus on the enforcement of domestic environmental laws as embodied by the state-to-state dispute settlement mechanisms, the relative independence and function of the Secretariat allowed the institution to evolve into something more robust.
Specifically, the Secretariat has become an important focal point for epistemic communities in sharing scientific information about a range of domestic and trans-border environmental issues (VanNijnatten & Craik 2015). Moreover, the citizen submissions, the annual reports and the repository of factual records have maintained a focus on the environment in North America that might not otherwise have existed.
The side agreements, free trade and the USMCA
Perhaps most important of all, the NAAEC did for the nexus of environment and trade much as the NAALC did for labour and trade: they both firmly planted the issue on the global trade agenda. The global trading regime, including virtually every regional arrangement subsequent to the NAFTA, began incorporating text on the environment directly into the agreements. Although the institutional design of many of these agreements may leave much to be desired where independent enforcement or binding dispute settlement are concerned, contemporary texts are much more elaborate and embedded into the heart of such agreements.
The text of the Trans-Pacific Partnership (TPP-12) is, once again, comparatively instructive. In addition to explicitly stating the inappropriateness of manipulating or weakly enforcing environmental statues for the purposes of trade (TPP article 20.2.3 and 20.3.4), the TPP-12 text lays down a long list of markers of norms the agreement hoped to establish among the parties. Indeed, new norms of practice were spelled out around protection of the ozone layer (article 20.5), protecting the maritime environment from ship pollution (article 20.6), corporate social responsibility (article 20.10), trade and biodiversity (article 20.13), invasive species (article 20.14), the transition to a low-carbon economy (article 20.15) and conservation (article 20.17).
Interestingly, in the cases of both labour and the environment, the text of the TPP-12, from which the Trump administration withdrew, has been directly incorporated into the new USMCA. In fact, the environmental provisions of the new USMCA are indistinguishable from the TPP-12 text, which is ironic given the rhetoric from the administration about the TPP-12, the NAFTA and matters related to climate change. The institutional mechanisms of chapter 24 of the USMCA remain strongly statist: disputes will be handled through state-to-state diplomacy (USMCA article 24.26).
However, the most fascinating part of the USMCA’s environment chapter – and a major difference with the TPP-12 text – is the formal insertion of the CEC and Secretariat directly into the text (USMCA article 24.25 and 24.27). In essence, the form and function of the CEC and Secretariat around information gathering, citizen submission and the formulation of a factual records as evolved from the NAAEC will now be a part of the USMCA.
The CEC and Secretariat were unique by-products of the NAFTA, never replicated under any agreement concluded by any of the three NAFTA parties – until the USMCA. The USMCA perpetuates a degree of institutional weakness also established by the NAFTA: it has no supranational institutions or enforcement power to independently enforce or raise environmental standards. However, the NAFTA established a precedent formally connecting labour, the environment and trade. Compared with the NAALC, the NAAEC has become the more robust of the two in terms of longevity and impact – particularly given the centrality of the CEC in the USMCA. Yet the NAFTA side agreements both left an important legacy foundation upon which norms around labour and the environment are being advanced, perhaps at some point towards some form of supranational governance of labour and environmental issues in the context of the rules of international trade.
1. See Department of State, Bureau of Consular Affairs, “Visas for Canadian and Mexican NAFTA Professional Workers”: https://travel.state.gov/content/travel/en/us-visas/employment/visas-canadian-mexican-nafta-professional-workers.html (accessed 5 March 2019).
2. The US Department of State’s current “Reciprocity” guidelines for the TN visa state, for Canadian nationals, that they are “issued for multiple entries for a period of 36 months, or for the duration of the principal alien’s visa and/or authorized period of stay”. No such language covers Mexican nationals. See https://travel.state.gov/content/travel/en/us-visas/Visa-Reciprocity-and-Civil-Documents-by-Country/Mexico.html (accessed 6 March 2019). Indeed, despite the 2009 change, anecdotal evidence suggests some Mexican TN visa holders were being approved for one-year stays; see Law Office of Brian D. Zuccaro (2010) (accessed 6 March 2019).
3. Chapter 12 of the Trans-Pacific Partnership (for the full text, see https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text; accessed 8 March 2019), for example, defined professionals and technicians in terms either of their years of experience or background commensurate with an expertise in their fields.