RESEARCH PAPER NUMBER: X20
RESEARCH PAPER MNEMONIC: XNAFTA20
RESEARCH PAPER NAME: NAFTA and the Environment
DRAFT AUTHOR: Steve Fox
I. AbstractThe end of the Cold War has also allowed many of the other problems facing the world to come into focus. One of the more serious dilemmas facing the world now and in the near future is how to deal with global pollution. The unseen nature of pollution and the inability to quantify the scope of the problem has led to reactive, somewhat hesitant environmental policies by the United States and the international community for much of this century. The transboundary nature of pollution has in the past made it nearly impossible to point the finger at a specific business or country and blame them for a certain level of pollution. As several case studies in this analysis will show, often the level of the pollution is not discovered until after the fact. At that point it is too late to assess blame. The harm has been done and in most cases there is no chance to go back and undo the damage. Preventing or controlling the level of pollution beforehand is what is needed. This analysis examines the history of pollution problems and the changing philosophies that need to be undertaken by both goverments and big business. Only when governments pursue pro-active policies will corporations begin to rethink the idea that environmental costs must be internalized as normal operating costs. This analysis provides some ideas on policies that governments can pursue to prompt this profound change in philosophy.
II. Issue Background
Free traders and environmentalists view the world in vastly different ways. As Daniel C. Esty writes, trade negotiators tend to be "focused on concluding trade agreements and promoting free trade" and in general, they have a tendency toward secrecy. Historically, free trade advociates have feared that environmental controls would stifle competition.
Environmentalists, however, tend to be a little more altruistic and are "concerned about public participation in policy making" and are more committed to decisions being made out in the open. The main fear of environmentalists rests on the idea that companies seeking to reduce production costs may move their operations to countries with weak environmental laws or those that minimally enforce the laws.
In a world where the nuclear threat has substantially diminished with the end of the Cold War, trade and the environment are increasingly being viewed by government officials and academics as national security issues. Increasingly, the morality of exploiting the cheap labor provided by poor countries is coming under scrutiny, as well as how costs should be allocated in the international arena, to protect the environment.
There are a number of international trade agreements and institutions currently in place. They include the: General Agreement on Tariffs and Trade (GATT); Organization For Economic Cooperation and Development (OECD); United Nations Conference on Trade and Development (UNCTAD); and the European Community. For the most part, the environmental report card on these agreements has been poor. The GATT does contain language allowing a country to restrict imports if it is "necessary to protect human, animal or plant life or health" or relates to "the conservation of exhaustible resources." Yet, for the most part, GATT officials have strived to avoid linking trade and the environment. That is expected to change during the next round when environmental issues are slated as the top priority.
Trade and environment issues were finally brought together during negotiations of the North American Free Trade Agreement (NAFTA). The agreement was an ambitious one in that for the first time in history, the economies of a major industrial country (the United States) and a developing country (Mexico) were brought together, along with Canada, to create a major free trading zone. Debate during NAFTA deliberations was extensive in the US. Both environmentalists and labor officials worried that the NAFTA would lead to multinational corporations pursuing a "pollution haven" strategy in Mexico. In the end, environmental issues were addressed in side agreements to the act itself. The Clinton administration promised $8 billion over 10 years to be spent on cleanup activities. The Commission for Environmental Cleanup (CEC) was set up to look at problems and so far 47 cleanup proposals have been reviewed. While seven have been approved, no funding has yet been allocated for any cleanup.
While NAFTA has been in place for just two years, the initial concerns of environmentalists appear to have been well-founded. Multinational companies have fled to the the Maquiladora zone that runs along the US border just inside Mexico. During the first two years of NAFTA, the number of maquiladora indutries has grown by more than 20 percent. Today, more than 3,000 maquiladora operations are currently in operation along the 2,000 mile border that stretches from California to Texas. These duty-free industrial plants focus on using cheap domestic labor (the average worker is paid 75 cents an hour) to assemble mostly foreign components in a number of different industries. Concentrated industrial development along the border and some lax enforcement by the Mexican government has led to a host of serious environmental problems.
One of the more dramatic cases of disregard for the environment involved RSR Corporation, one of the largest automobile recycling firms in the United States. In 1981, the company contracted with Alco Pacific to handle the salvaging process for its plant located near the impoverished town of El Florido. In March of 1992, RSR was found to have dumped 80,000 tons of lead sulfate produced at the facility into open fields near a local dairy. Discarded battery acid was also dumped on the grounds of the plant, causing an underground fire. El Florido residents complained of dust particle emissions, respiratory irritations and cattle deaths caused by their proximity to the plant.
A coordinated effort between law enforcement officials on both sides of the border resulted in the RSR Corporation agreeing to pay $2.5 million in environmental fines. Additionally, the two companies were charged with three misdemeanor counts of illegally transporting hazardous materials. RSR pleaded no contest and agreed to pay the full amount in fines, while the chief executive officer of Alco Pacifice was sentenced to 16 months in prison on three felony counts of unlawful transportation of hazardous wastes.
The pollution in the overdeveloped border area between San Diego shows that more cooperation is needed between the two countries in dealing with environmental issues. Raw sewage amounting to nearly 15 million gallons per day was being dumped near San Diego in the early 1990s. The situation became so bad in 1993, that a health quarantine was put into effect at Imperial Beach in California for more than three months. Financial losses for the city as a result of the incident were estimated at $100 million.
The difference sewage was mostly of residential origin, leading both countries to agree on building a $200 million sewage treatment facility by 1995. Despite all the publicity surrounding the pollution of the San Diego area, delays have moved the completion date until at least 1998 and funding problems could further delay the project.
Pollution along the US-Mexico (see BORDER Case) is not a new development. The land border between the two countries makes it difficult to assess blame and determine the origins of air and water pollution. Yet, Mexico is a poorer country and many of its cities and towns lack adequate municipal wastewater collection and treatment systems. Many Mexican companies, and maquiladora industries, have no on site treatment facilities so that industrial wastes, including toxic substances, are often dumped into river systems. A dual effort by both governments is needed to strictly enforce environmental regulations so that residents on both sides of the border can live with the knowledge that their environment is a healthy one.
III. Relevant
TED Cases
While the idea that San Diego's beautiful beaches are being rendered unusable by raw sewage is depressing, there is also reason for hope. There are a number of international environmental treaties in place, including the Montreal Protocol and the Convention on International Trade in Endangered Species of Wild Fauna and Flora. Increasingly, these treaties are using trade sanction to ensure compliance.
The first several case studies here look at some moderately succesful attempts at cooperation on environmental issues between the US and Mexico. The remainder of the cases studies selected look at the scope of the problem and point to other possible solutions.
The first global attempt to regulate and monitor the international transport of hazardous wastes was marked by the signing of the Basel Convention in 1987. The Convention went into force in May 1992 with 116 countries signing the agreement. While the effort was long overdue, many countries debated over the limited scope of the Convention, leading to delays during negotiations. The classic arguments broke down to industrialized countries that were secure in their economies seeking regulation against the smaller developed nations, who said they had a right to develop economically without restrictions. The primary objective of the Convention was to protect countries from uncontrolled dumping of toxic wastes within their borders which originate from other countries.
The transboundary nature of the problems between the US and Mexico is an ongoing issue in which a number of solutions have been tried. The Basel Convention was one attempt to deal with some of the hazardous dumping problems generated by the maquiladora industries along the US-Mexican border. Included in those efforts is an attempt to redefine national sovereignty in terms of environmental interests -- a key distinction if there is to be any international agreements on the environment. The US Environmental Protection Agency is supposed to track down the wastes by creating new environmental laws to be used in the Mexican region. This case examines how the United Nations attempted to use the Basel Convention to help the US stop illegal dumping coming into the US from Mexico's city of Cuernavaca.
This case looks at one of the more successful attempts at cooperation between the United States and Mexico with regards to water use. The 1944 United States-Mexico Treaty for Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande allots to Mexico a guaranteed annual quantity of water from these sources. While this transboundary treaty did not initially deal with water quality, the countries arrived at solutions to salinity problems and continue to abide by the agreement today.
This case provides an historical overview of the North American Free Trade Agreement, which came into force on Jan. 1, 1994 after ratification by each country's legislature. At the time, NAFTA was considered historic because it represented the most comprehensive free trade agreement ever agreed to between regional trading partners. It also marked the first time an industrialized country and a developing one were involved in a reciprocal trade agreement and it offered the unique opportunity to integrate environmental protection across a continent with a free trade pact. Concerns then about the potential for Mexico's weaker environmental and enforcement standards to undermine tougher U.S. environmental standards seem to have been well-founded.
The serious and continuing problem of sewage and industrial wastes being dumped into rivers that flow between Mexico and the United States is examined in this case study. The biggest offenders are US factories which relocate to the border maquiladora zone and produce enormous amounts of toxic waste and pollution. Both countries have failed in their efforts to control the pollution. Although Mexican environmental regulations require hazardous waste generated in Mexico by maquiladora industries to be returned to the originating country, not much is being done about it. Officials in both countries have failed to track the sources, are unable to determine the level of pollution occurring, nor have they been able to find where the contaminated waters end up.
This case represents a successful effort by Mexico and the United States to make a company liable for illegally dumping toxic waste. In 1993, RSR Corporation, one of the top lead recycling firms, agreed to pay $2.5 million in fines for the illegal dumping of toxic wastes near Tijuana, Mexico. Mexico's environmental protection agency was prompted to conduct an investigation after the discovery of hazardous emissions by RSR, as well as the open dumping of toxic by-products near the community. That investigation led to a disposition from the Los Angeles County against the RSR Corporation.
This case study examines the specific problems and proposed solutions surrounding the water pollution of the Tijuana River Valley and the waters around San Diego. In recent years, the rate of residential sewage originating in Mexico and draining on the US side of the border near San Diego has been measured at about 13-15 million gallons per day. The pollution became so bad in 1993 that a health quarantine was put into force at Imperial Beach, California, for more than three months, with average annual losses for the city estimated at approximately $100 million.
Another facet of the Tijuana pollution problem is examined in this case study. The argument is made that pollution from the maquiladora industries has a direct impact on trade. The most obvious description of this is the affect on the tourist industry on areas such as San Diego, where people go to enjoy the water and the beaches. The maquiladora industries have in the past and continue to directly and indirectly generate waste and sewage. The question is raised as to whether a free trade agreement will encourage Mexico to work to clean up the environment or whether environmental conditions will worsen.
The following case study does a good job of outlining the dilemma facing many of the international organizations over how and whether to assess blame over pollution.
This case study examines the transnational nature of air pollution as well as the many contributing factors that lead to pollution. One of the problems in assessing blame is that pollution created in one country can affect a country thousands of miles away. In the end, sovereign states are concerned with their own self-interests and what may benefit one country may be detrimental to another. Yet, another issue is the right of poorer countries to better themselves. While industrialized nations may argue for tighter pollution controls, developing nations are not willing to relinquish the benefits of quick development and solutions end up being stymied.
Levelling fines or penalties seems to be the most effective way to take action against polluters, as seen in several of these cases. The main issue, as cited in the Basel and Mexico case is deciding where to assess responsibility. The Basel Convention was one effort to deal with the uncontrolled international movement of hazardous wastes. Yet it's apparent that the final goal of ending such practices will involve not only government regulation but self-regulation by companies as well. One positive outgrowth of the Basel Convention was the development of a measurement system by the US Environmental Protection Agency (EPA). The EPA has developed a computerized system, that while limited, is able to match specific waste streams with individual maquiladora operations, pinpoint the improperly identified wastes, haulers or disposal facilities, and can identify waste-generating plants that rarely make documented shipments.
Another avenue the EPA has pursued with relative success is in fining companies found in violation of EPA standards. The Basel case mentions an EPA proposal of $180,000 in civil penalties against four maquiladora industries based in the US while the Florido case gives some hope to bilateral enforcement of environmental regulations.
Overall, the issue of enforcement seems to be something that occurs after the fact. In the cases cited, law enforcement and environment officials pursued action against companies after it was discoverd that the companies had been acting in violation for a period of time. In order for any real change to occur, a pro- active approach to enforcement is needed. EPA officials need to receive the financial support of their governments on both sides of the border in order that regular site visits can be made to make sure of compliance.
There were 28 TED Case categories identified in the case studies compared here. The
following four categories
have been compared in an attempt to shed some light on the similarities involved in these cases.
The four categories are: the legal standing of the case, its discourse and status, the type of
measure taken and the effect of that measure on the
environment.
The two cases involving direct effects on the environment -- Florido and Border -- are particularly distubring because of the evidence the revelations of toxic dumping. Companies must know that the actions they take degrades the quality of life for people in the area. The Border case notes that illegal dump sites can have an effect on human health and the environment since contaminants migrate through the soil and into the ground water. Illegal dumping of toxic waste has resulted in fires, contamination of ground water and the spreading of toxic vapors. Items such as ordinary metals, isotopes, acids and solvents are just a handful of substances that have been proven to cause leukemia, cancer and diseases of the heart, liver and nervous system.
The Florido case raises the ethical question of the obligatioins of a company's plant to its surrounding neighbors. There is a basic human right to live in freedom. RSR and Alcoa jeopardized those basic human rights when they dumped toxic substances into fields near El Florido. The priority must be the health and welfare of a government's citizens and in this case, Mexico and the United States sent that message loud and clear.
IV. Policy
Implications
Since the turn of the century, business has looked at the environment as a constantly renewable resource. It is not. The idea that protection of the environment must be factored into business costs has not yet made it into the teachings of economics and business courses. Still, corporations need to bring their thinking more in line with public opinion and concerns over the future of the environment. One way to to this would be to embrace the idea of sustainable development. The World Commission on Environment and Development defines sustainable development as "development that meets the needs of the future without compromising the ability of future generations to meet their own needs."
This profound change in philosophy will not come easily. As mentioned earlier, both
governments need to work in cooperation with each other on enforcement issues. More
importantly, however, the US government must pursue a set of policies that will eventually lead
US corporations to internlize environmental cleanup costs into their normal operating costs.
Several policies that should be pursued are:
1. The Polluter Pays Principle -- Whoever does the damage must pay for the
cleanup.
2. The Precautionary Principle -- Requires immediate cost-effective measures to
prevent environmental damage when there is evidence of a substantial environmental threat.
3. Prevention as a Priority -- Pursue and support measures aimed at prevention rather
than being forced to take punitive action after-the-fact.
This last suggestion is a critical one. A more pro-active approach needs to be taken by both the US and Mexican government when dealing with environmental issues. The Environmental Protection Agencies on both sides of the border need to be beefed up and supported financially. Governments need to view these agencies as the Defense Departments of the post-Cold War.
There is a growing body of literature that views the global environment as a national security issue for the United States. This idea needs to take root in all three branches of the US government and given a high priority. NAFTA was the perfect opportunity for the government to take a stand and issue environmental standards that had to be strictly followed. The initial report environmental report card on NAFTA has not been positive but that can be turned around.
One positive sign for change comes from the Texas Natural Resource Conservation Commission and its Office of Pollution Prevention and Recycling (OPPR). Over the past several years, the OPPR has "developed and implemented innovative US/Mexico border environmental initiatives to address the wastes repatriated to the US." The goal of the commission is to reduce hazardous waste along the US/Mexico border by 50 percent in the next four years.
Seven site assistance visits to maquiladora operations during the past two years has resulted in: a source-reduction of 19.030 gallons of hazardous materials annually; an annual reduction of 13,200 pounds of hazardous waste; and implementation of a process change that conserves 356,000 gallons of water annually. Efforts like these are a step in the right direction
A priority for both governments will be in coming up with a uniform set of definitions. On a larger scale, the GATT will be faced with the same dilemma if it follows through and confronts environmental issues during the next round. One of the problems with the Basel Convention was that it allowed for multiple definitions of hazardous waste. The final version of the Convention allowed for hazardous waste definitions to come from provisions written into the national laws of the individual countries, thereby creating a more watered-down document.
Another problem lies in enforcement. Currently, the only real method of enforcement that can be used by the World Trade Organization lies in threatened retaliation. Once again, it will be the responsibility of all parties to NAFTA to give its econonmic provisions some teeth. The issues of whether US law enforcement agencies have jurisdiction in Mexico is a sticky one and could be addressed through some sort of joint agreement.
The United Nations is another forum to look to for solutions. It's clear that cooperation between multiple arenas will be needed in the fight against global pollution. In 1987, the UN Environment Programme (UNEP) took the first step toward a solution to the world's waste disposal problems. It adopted the Cairo Guidelines and Principles for the Environmentally Sound Management of Hazardous Waste. The Cairo Guidelines required the exporter ensure that the hazardous waste disposal site met specified requirements for safety.
Finally, bilateral agreements between border countries can make the biggest difference in the battle against pollution. The temptation to point fingers must be avoided. The Florido and San Diego cases demonstrated what can happen when nations work together to combat a common enemy. One promising plan proposed by the Clinton administration in 1993 shows the type of action that needs to be taken. The proposed border-bond plan proposed creating a joint U.S.-Mexican agency that would issue around $8 billion worth of bonds to pay for border cleanups. Sewage and water fees from local residents on both sides of the border would be used to repay the bonds. One way to have companies held accountable would be for those operating in the maquiladora zone pay into the same cleanup found by issuing some sort of pollution license. The US and Mexican governments should come up with some sort of a licensing system that would spread the costs of cleanup to the polluters as well as those who are being polluted.
V.
A. Bibliography Arden-Clarke, Charles. "An Action Agenda for Trade Policy Reform to Support Sustainable Development: A United Nations Conference on Environment and Development Follow-Up," in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
Cohen, Stephen D. The Making of United States International Economic Policy: Praeger, Fourth Edition, 1994.
Destler, I.M. American Trade Politics: Institute for International Economics and the Twentieth Century Fund, Third Edition, April, 1995.
Esty, Daniel C. "Integrating Trade and Environment Policy Making: First Steps in the North American Free Trade Agreement" in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
Moss, Jr., Ambler H., "Free Trade and Environmental Enhancement: Are They Compatible in the Americas," in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
Pearson, Charles S. "The Trade and Environment Nexus: What is New Since 72?" in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
Public Citizen. Executive Summary from "NAFTA's Broken Promises: The Border Betrayed." Jan. 2, 1996. Internet: http://www.essential.org/orgs/public_citizen/pctrade/borderexc.html
Wathen, Tom. "A Guide to Trade and the Environment," in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
Wirth, David A. "The International Trade Regime and the Municipal Law of Federal States: How Close a Fit?" in Trade and the Environment, eds., Durwood Zaelke, Paul Orbuch and Robert F. Housman: Center for International Environmental Law, 1993.
B.. Web Sites
1. US Environmental Protection Agency Home Page. http://www.epa.gov/
2. Commission for Environmental Cooperation Home Page. http://www.cec.org/english/index.html
3. Border Environment Cooperation Commission Home Page. http://cocef.interjuarez.com