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Environmental Effects of Free Trade

Monday, April 22, 2002 at 1:59 PM

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When the North American Free Trade Agreement was passed by Congress, many environmentalists predicted disaster. They foresaw a pollution nightmare, as industries moved across international borders to take advantage of differences in local environmental law and enforcement. But eight years later, many say the most significant challenges to environmental protection have been made under Chapter 11. That's the clause that allows foreign investors to sue local governments if they believe their trade rights have been violated. Opponents charge these cases have allowed private companies to overturn environmental laws, effectively reducing governments' ability to protect the public good. But NAFTA supporters say closer scrutiny reveals that many challenges were actually brought against trade protectionist measures disguised as environmental law. Both sides will square off next month as Congress debates new fast track legislation that includes similar investor protections. 90.3 WCPN's Karen Schaefer has this report.

Karen Schaefer: When NAFTA was passed in 1994, environmentalists feared catastrophic results. Polluting industries would move to Mexico, where environmental protections hadn’t caught up with those in the U.S. and Canada. Air pollution would increase as more goods were shipped across international borders. And shared resources like the Great Lakes might lose their protected status and become commodities subject to trade. Supporters of NAFTA argued that increased prosperity would lead to improved pollution technology and a strengthening of environmental protections. But eight years later, the effects of NAFTA on the environment appear to be mixed. In the Great Lakes region, the sharpest impact may have been to air quality.

Jannine Ferretti: Increased freight transportation linked to NAFTA has led to significant air pollution at both borders…

KS: At a recent U.S./Canada law conference held in Cleveland by Case Western Reserve University, government officials, policymakers, and trade lawyers laid out their latest findings. Jannine Ferretti heads the North American Commission on Environmental Cooperation, an international agency established to address environmental concerns under NAFTA. She admits that as yet, there’s been only limited assessment of those impacts. But she says what data there is, shows it’s not all bad news.

JF: The Mexico steel, because of NAFTA’s investment provisions, it actually enabled Mexico steel to upgrade its technology, making the sector actually in some ways cleaner than that of the U.S. and Canada. But what about the effects of trade rules on environmental policy? And this is where we go to NAFTA’s Chapter 11.

Frank Loy: Chapter 11 is a chapter designed to protect investors from one NAFTA country that invested in another NAFTA country and it has led to a number of cases that have worried the environmental community…

KS: Frank Loy served as Under Secretary of State for Global Affairs under the Clinton administration. He says under Chapter 11, a number of private investors have successfully sued foreign governments for millions of dollars, contending that meeting local environmental regulations violated their rights under free trade laws.

FL: I would say the cases worry me a lot. My guess is there already is a regulatory chill, a timidity on the part of governments to take certain actions for fear of subjecting the state to liabilities.

KS: One of the sharpest criticisms of Chapter 11 is that the cases are heard and decided by a closed-door, three-person tribunal, with no mandate to hear testimony from third parties. In one of the first challenges under the provision, U.S.-based Ethyl Corporation won nearly $20 million in damages from the Canadian government for its ban on a gasoline additive called MMT. Canada has since dropped the ban. Another case involved an Ohio company, S.D. Meyers, that treats the toxin known as PCB’s. James McIlroy, a trade lawyer from Toronto, says the company wanted to import the waste from Canada, despite a Canadian prohibition.

James McIlroy: The government of Canada said we are prohibiting this for environmental reasons. But the real reason, when you really looked at it hard, the real reason was there was a PCB plant in Alberta in western Canada that the government of Canada wanted to promote.

KS: McIlroy is not alone when he says a number of Chapter 11 cases apparently based on environmental protection have proved on closer scrutiny to be a cover-up for government trade protection. While he doesn’t dismiss the environmental issues, he does caution against blowing them out of proportion.

JM: I think it’s fair to say, whether the cases are valid or not, there haven’t been a whole lot of them. And therefore this is not this huge, massive problem that people are talking about. And this has been around since, what, 1994, and you can still count the number of cases on both hands.

Sherrod Brown: Their arguments are specious. Perhaps in the opinion of trade lawyers, these challenges have served as a cloak for protectionism. But to trade lawyers, everything’s seen as a cloak for protectionism.

KS: Ohio Democrat Congressman Sherrod Brown voted against NAFTA. He says while companies began making use of Chapter 11 only about four years ago, there have been plenty of other trade challenges to environmental laws.

SB: Time after time after time, both in NAFTA and in every public health challenge under the WTO, 33 straight times, public health laws, environmental laws, and food safety laws, every single time they’ve been struck down. That’s wrong, whenever a trade law can be used to undercut or repeal a democratically-attained rule or regulation.

KS: Nonetheless, both opponents and supporters agree it’s unlikely NAFTA will be revised anytime soon. Arguments on both sides of the issue will undoubtedly be aired again as Congress takes up approval of new fast track trade legislation with similar investor protections this spring. Environmental groups believe equitable settlement of future trade challenges may have to rely on the strength of public opinion to sway government decisions. In Cleveland, Karen Schaefer, 90.3 WCPN News.

Additional Information

* North American Commission for Environmental Cooperation - The Environmental Effects of Free Trade
* Public Citizen - NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy

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