NAFTA – Lessons LearnedNAFTA – Lessons Learned

Joseph FreedmanJoseph FreedmanSenior AttorneySenior Attorney

Office of General CounselOffice of General CounselU.S. Environmental Protection U.S. Environmental Protection

Agency*Agency*

Any opinions expressed herein are the presenter’s only, and do nAny opinions expressed herein are the presenter’s only, and do not necessarily represent the views of ot necessarily represent the views of EPAEPA

SPHERES OF CONCERNSPHERES OF CONCERN

Affirmative (“offensive”) concernsAffirmative (“offensive”) concernsPrevention of “pollution havens” Prevention of “pollution havens” Protection of North American environmentProtection of North American environment

Defensive concerns Defensive concerns ---- legal effect of legal effect of NAFTA disciplines on domestic regulationNAFTA disciplines on domestic regulation

GATTZILLAGATTZILLA

Or … a Dog that Did not Bark?Or … a Dog that Did not Bark?

WTO JurisprudenceWTO Jurisprudence

1. United States 1. United States –– Tuna/Dolphin(brought Tuna/Dolphin(brought under GATT 1947)under GATT 1947)2. United States 2. United States –– Shrimp/TurtleShrimp/Turtle3. [But see France 3. [But see France –– Asbestos] Asbestos]

NAFTA Implementation ActNAFTA Implementation Act

Sec. 102(a) “U.S. law to prevail in conflict Sec. 102(a) “U.S. law to prevail in conflict ––No provision of the agreement, nor the No provision of the agreement, nor the application of any such provision … which application of any such provision … which is inconsistent with any law of the U.S. shall is inconsistent with any law of the U.S. shall have effect.”have effect.”Nothing in this Act shall be construed to Nothing in this Act shall be construed to amend or modify any US law, including amend or modify any US law, including protection of the environment, worker protection of the environment, worker safetysafety

INVESTMENT (Chapter 11)INVESTMENT (Chapter 11)

Investor may file claim for damages arising Investor may file claim for damages arising from a breach of Chapter 11from a breach of Chapter 11Claim is heard before an international panel Claim is heard before an international panel of arbitratorsof arbitratorsNo appealNo appealLimited scope for setLimited scope for set--aside proceedingsaside proceedings

Investment DisciplinesInvestment Disciplines

National Treatment/MFNNational Treatment/MFN“Fair and equitable treatment”“Fair and equitable treatment”ExpropriationExpropriation

NAFTA Arbitration ResultsNAFTA Arbitration Results

S.D. Myers v. Canada (2002) S.D. Myers v. Canada (2002) Canada ban on export of PCB wastes found to discriminate againstCanada ban on export of PCB wastes found to discriminate againstU.S. investor; denial of national treatmentU.S. investor; denial of national treatment

Mexican trucking Mexican trucking (2001)* (Services case with investment (2001)* (Services case with investment component)component)

NAFTA Annex I: Specific U.S. NAFTA Annex I: Specific U.S. Reservation Reservation re re Mexican trucks, to expire in 2000.Mexican trucks, to expire in 2000.Panel: Env./safety exception requires that measure be no more Panel: Env./safety exception requires that measure be no more trade restrictive than necessary. U.S. failed to demonstrate thtrade restrictive than necessary. U.S. failed to demonstrate that at there are no alternative means of achieving U.S. safety goals ththere are no alternative means of achieving U.S. safety goals that at are more consistent with NAFTA.are more consistent with NAFTA.

Arbitration Results (c’td)Arbitration Results (c’td)

Metalclad v. Mexico Metalclad v. Mexico (1999) (1999) Denial of permit for hazardous waste landfillDenial of permit for hazardous waste landfillwas an EXPROPRIATION and denied Fair & was an EXPROPRIATION and denied Fair & Equitable treatmentEquitable treatmentLack of transparencyLack of transparency““Lack of orderly process and timely disposition.Lack of orderly process and timely disposition.””Lack of legal authority under Mexican lawLack of legal authority under Mexican law

Reasoning set aside by the British Columbia Reasoning set aside by the British Columbia Supreme CourtSupreme Court

Methanex v. United States (2005)Methanex v. United States (2005)

Claim by Canadian mfr. of methanol, based Claim by Canadian mfr. of methanol, based on Calif. ban on the fuel oxygenate, MTBEon Calif. ban on the fuel oxygenate, MTBE

Leaking USTs and other sources have Leaking USTs and other sources have contaminated drinking watercontaminated drinking waterMTBE not potable at 2 ppb, but evidence on MTBE not potable at 2 ppb, but evidence on health effects was inconclusivehealth effects was inconclusive

Methanex – DecisionMethanex – DecisionMTBE ban did not “relate” to MethanexMTBE ban did not “relate” to Methanex

No proof that measure was aimed at Meth.No proof that measure was aimed at Meth.

No No EExproxpro: : A nonA non--discriminatory regulation for a discriminatory regulation for a public purpose, enacted in accordance with due process public purpose, enacted in accordance with due process and which affects, inter alios, a foreign investor or and which affects, inter alios, a foreign investor or investment is not expropriatoryinvestment is not expropriatory

Unless Unless specific commitments were given by the specific commitments were given by the government to the wouldgovernment to the would--be investor that the be investor that the government would refrain from such regulation.government would refrain from such regulation.

The Trail of DreamsThe Trail of Dreams

GLAMIS v. United States GLAMIS v. United States Glamis: Glamis: claim by a Canadian mining co.claim by a Canadian mining co.

DOI denied approval for mining plan (2000), but DOI denied approval for mining plan (2000), but disapproval was rescinded, w/ new interpretation of disapproval was rescinded, w/ new interpretation of “unnecessary and undue degradation” (2002)“unnecessary and undue degradation” (2002)Cal. enacted stringent reCal. enacted stringent re--grading law for mines grading law for mines within 1 mile of Native American sacred sites in within 1 mile of Native American sacred sites in certain areascertain areas“Gov. Davis candidly proclaimed Cal’s intent “Gov. Davis candidly proclaimed Cal’s intent [when] he stated that ‘the bill essentially stops the [when] he stated that ‘the bill essentially stops the Glamis Gold Mine proposal in Imperial County.’Glamis Gold Mine proposal in Imperial County.’

Has the Dog been Muzzled?Has the Dog been Muzzled?

THE AFFIRMATIVE AGENDA THE AFFIRMATIVE AGENDA

NAFTA provisions on environmentNAFTA provisions on environmentEnvironmental Side Agreement Environmental Side Agreement (NAAEC)(NAAEC)Institutions for infrastructure Institutions for infrastructure improvements (BECC/NADBank)improvements (BECC/NADBank)

NAFTA Environmental ProvisionsNAFTA Environmental Provisions

U.S. Trade Rep.: U.S. Trade Rep.: ““Provisions of the NAFTA Provisions of the NAFTA itself ensure that the United States can itself ensure that the United States can maintain and enforce its existing federal and maintain and enforce its existing federal and state health, safety, and environmental state health, safety, and environmental standards, as well as U.S. international standards, as well as U.S. international treaty obligations to limit trade in controlled treaty obligations to limit trade in controlled products such as endangered species.products such as endangered species.””

NAFTA ENVIRONMENTAL PROVISIONS -- PreambleNAFTA ENVIRONMENTAL PROVISIONS -- PreambleParties are resolved to: * * *Parties are resolved to: * * *

““UNDERTAKE UNDERTAKE each of the preceding each of the preceding [objectives] in a manner consistent with [objectives] in a manner consistent with environmental protection and conservationenvironmental protection and conservation””““STRENGTHEN STRENGTHEN the development and the development and enforcement of environmental laws and enforcement of environmental laws and regulationsregulations””

Savings Clause (Art. 104)Savings Clause (Art. 104)In the event of an inconsistency, these intIn the event of an inconsistency, these int’’l l

environmental agreements take precedence environmental agreements take precedence over NAFTA:over NAFTA:CITES CITES Montreal ProtocolMontreal ProtocolBasel ConventionBasel ConventionU.S.U.S.--Canada Agreement on Transboundary Canada Agreement on Transboundary Movement of Hazardous WasteMovement of Hazardous WasteU.S.U.S.--Mexico Agreement on Cooperation for Mexico Agreement on Cooperation for the Protection and Improvement of the the Protection and Improvement of the EnvEnv’’t in the Border Area (La Paz, 1983).t in the Border Area (La Paz, 1983).

SPS and TBT Provisions Similar to WTO AgreementsSPS and TBT Provisions Similar to WTO Agreements

Sanitary, Phytosanitary (SPS) (crop, food safety) Sanitary, Phytosanitary (SPS) (crop, food safety) Measures Measures Technical Barriers to Trade (TBT) Technical Barriers to Trade (TBT) Each Party has the right to establish its own levels of Each Party has the right to establish its own levels of protection, and to achieve them through measures based on protection, and to achieve them through measures based on scientific principles and in accordance with a risk scientific principles and in accordance with a risk assessmentassessment

Can prohibit imports. Can prohibit imports. Where scientific evidence is insufficient, a provisional Where scientific evidence is insufficient, a provisional regulations may be adopted.regulations may be adopted.

NAFTA ENVIRONMENTAL EXCEPTIONSNAFTA ENVIRONMENTAL EXCEPTIONS

Incorporates GATT (WTO) exceptionsIncorporates GATT (WTO) exceptionslife and health, with the understanding that it life and health, with the understanding that it

includes environmental measures. includes environmental measures. measures to conserve exhaustible natural measures to conserve exhaustible natural

resources.resources.

Lesser protection for measures affecting Lesser protection for measures affecting trade in services and telecommunications. trade in services and telecommunications. Exceptions do not apply to investment Exceptions do not apply to investment chapterchapter

SUPPLEMENTARY (“SIDE”) AGREEMENTSSUPPLEMENTARY (“SIDE”) AGREEMENTS

North American Agreement on North American Agreement on Environmental Cooperation (NAAEC)Environmental Cooperation (NAAEC)(Labor side agreement)(Labor side agreement)Agreement establishing Border Env’tal Agreement establishing Border Env’tal Cooperation Comm’n (BECC)Cooperation Comm’n (BECC)NADBankNADBank

NAAEC (Env. Side Agreement)NAAEC (Env. Side Agreement)““*** *** each Party each Party shall ensureshall ensure that its laws that its laws and regulations provide for high levels of and regulations provide for high levels of environmental protection and shall strive environmental protection and shall strive to continue to improve those laws and to continue to improve those laws and regulations.regulations.”” (NAAEC, Art. 3)(NAAEC, Art. 3)

NAAEC –Commission for Environmental CooperationNAAEC –Commission for Environmental Cooperation

Council of MinistersCouncil of MinistersJoint Public Advisory Committee Joint Public Advisory Committee (JPAC)(JPAC)SecretariatSecretariat

NAAEC – Key ProvisionsNAAEC – Key Provisions

Environmental cooperation Environmental cooperation Process for submissions from public on Process for submissions from public on alleged failures of Parties to effectively alleged failures of Parties to effectively enforce environmental laws (Art. 14enforce environmental laws (Art. 14--15) 15) Dispute resolution process regarding Dispute resolution process regarding ““a a persistent pattern of failure by that other persistent pattern of failure by that other Party to effectively enforce its Party to effectively enforce its environmental law.environmental law.””

Ten Year Review and Assessment Committee ReportTen Year Review and Assessment Committee Report

TRAC Report TRAC Report http://www.cec.org/pubs_docs/documents/ihttp://www.cec.org/pubs_docs/documents/index.cfm?varlan=english&ID=1522ndex.cfm?varlan=english&ID=1522Race to the bottom did not occurRace to the bottom did not occur

Polluting industries did not move to Mexico Polluting industries did not move to Mexico because of a weaker env. regimebecause of a weaker env. regimeMexico strengthened env. protection effortsMexico strengthened env. protection effortsNo shift in Mexico toward polluting industriesNo shift in Mexico toward polluting industries

Part V – Mandatory Dispute ResolutionPart V – Mandatory Dispute Resolution

Not yet used; no model rulesNot yet used; no model rulesTRAC: “The punitive approach embedded TRAC: “The punitive approach embedded in Part V is not consistent with the value of in Part V is not consistent with the value of env. cooperation that dominates the spirit of env. cooperation that dominates the spirit of NAAEC as a whole.”NAAEC as a whole.”

NAAEC -- Citizen Submission Process (Articles 14 & 15)NAAEC -- Citizen Submission Process (Articles 14 & 15)

Submission that a Party is failing to Submission that a Party is failing to effectively enforce its environmental laweffectively enforce its environmental lawSecretariat evaluates and may recommend Secretariat evaluates and may recommend preparation of a “factual record”.preparation of a “factual record”.Council 2/3 vote requiredCouncil 2/3 vote requiredPublication of Factual Record requires Publication of Factual Record requires subsequent 2/3 votesubsequent 2/3 voteNonNon--adversarial intentadversarial intent

Citizen Submission Process Citizen Submission Process

63 submissions since 1995 (as of 11/23/07)63 submissions since 1995 (as of 11/23/07)Mexico 31; Canada 22; U.S. 10Mexico 31; Canada 22; U.S. 10

13 Factual records13 Factual recordsMexico 6; Canada 6; U.S. 1Mexico 6; Canada 6; U.S. 1

U.S.: Migratory Birds, CoalU.S.: Migratory Birds, Coal--fired power fired power plants (recommended)plants (recommended)

Intervention by PartiesIntervention by Parties

Specificity of factual records Specificity of factual records Ad hoc Council decisions restricted scope of Ad hoc Council decisions restricted scope of some factual records (e.g., MBTA)some factual records (e.g., MBTA)

Does this upset the “careful balance”?Does this upset the “careful balance”?

Effectiveness of Submission Process (per TRAC) – “modest but positive env. impact”

Effectiveness of Submission Process (per TRAC) – “modest but positive env. impact”

Cozumel: development downsized; Cozumel: development downsized; mitigation measures adopted; reform of mitigation measures adopted; reform of Mexican EIA lawMexican EIA lawBC Hydro: improvement of provincial BC Hydro: improvement of provincial Water Use Planning Process and Federal No Water Use Planning Process and Federal No Net Loss policyNet Loss policyBC mining: cited by Env. Canada in BC mining: cited by Env. Canada in rejecting less costly treatment method rejecting less costly treatment method

Effectiveness of Submission ProcessEffectiveness of Submission Process

Aquanova (Mexican shrimp farm) Aquanova (Mexican shrimp farm) Encouraged negotiations among submitters, Encouraged negotiations among submitters, local and fed. authorities and developers local and fed. authorities and developers Mitigation measures on wastewater discharge Mitigation measures on wastewater discharge and mangrove replanting programand mangrove replanting program

An NGO’s CritiqueAn NGO’s Critique

Council's decisions concerning the process Council's decisions concerning the process have have ‘‘eeroded public confidenceroded public confidence’’::

Reduced the independence of the CEC Reduced the independence of the CEC Secretariat.Secretariat.‘‘IIgnoredgnored’’ the criticisms and advice of JPAC and the criticisms and advice of JPAC and National Advisory Committees National Advisory Committees Treat process as an adversarial rather than Treat process as an adversarial rather than cooperative one.cooperative one.

TRAC: Successful Record of CooperationTRAC: Successful Record of Cooperation

Sound mgmt of chemicals Sound mgmt of chemicals Conservation of biodiversityConservation of biodiversityEnforcement of env regulationsEnforcement of env regulationsGreen trade (shadeGreen trade (shade--grown coffee)grown coffee)N. Am. Pollutant Release and Transfer RegisterN. Am. Pollutant Release and Transfer RegisterCapacity Building for Pollution PreventionCapacity Building for Pollution PreventionChildren's Health and the Environment in N. Am.Children's Health and the Environment in N. Am.

Other TRAC Conclusions on CECOther TRAC Conclusions on CEC

Advanced understanding of envAdvanced understanding of env--trade trade linkageslinkagesPromoted citizen engagement on env. issues Promoted citizen engagement on env. issues and increased governmental accountabilityand increased governmental accountability

Subsequent FTAsSubsequent FTAs

Environmental provisions in textEnvironmental provisions in textHigh standardsHigh standardsFailure to effectively enforceFailure to effectively enforceEnvironmental cooperation agreementsEnvironmental cooperation agreements

ConclusionsConclusions

No race to the bottomNo race to the bottomPublic submissions process is catalyst for Public submissions process is catalyst for transparencytransparency

Helped build institutional capacityHelped build institutional capacity

Trilateral cooperative efforts Trilateral cooperative efforts CEC: A unique institutionCEC: A unique institution