Should the United States reassess its current trade policies? The democratic presidential candidates, Senators Clinton and Obama, would like to review current trade agreements and examine labor and environmental standards. Senator Clinton wants to institute 5-year assessments on existing trade agreements, including NAFTA, and calls for a “time-out” on future trade agreements. Senator Obama wants to make sure that trade agreements benefit all Americans, not only lobbyists and their constituents. On the other side of the spectrum, Senator McCain supports NAFTA, the Columbia Free Trade Agreement and believes issues such as labor and the environment can be addressed through monitoring mechanisms and should not be the main reason for opposing trade agreements. 

The purpose of trade agreements are to lower trade barriers, such as tariffs, subsidies, quotas, and other measures that protect domestic industries, amongst participating countries. It is believed that trade agreements help consumers in participating countries by providing them with cheaper products, since companies do not have to pay tariffs (etc.). Trade agreements are often seen by exporters as positive because the agreements give them access to new markets for their products. Often trade agreements are signed to reward countries for positive behaviors, for example, the Bush administration would like to reward Colombia for its efforts to combat narco-trafficking by signing a trade agreement that would help Colombian industries grow through access to the U.S. market. 

Labor unions and workers in participating countries often oppose free trade agreements because their factories might not be able to compete with the low cost imports, which sometimes lead to job loss and factories moving overseas. Other concerns include the inability of domestic industries to compete with lower labor and environmental standards in the participating countries. Human rights abuses are also of concern. (Both Clinton and Obama disapprove the Colombian free trade agreement for labor and human rights concerns). Participating countries also fear further environmental degradation if new industries moves into their country and no new infrastructure is put in place.

Would free trade work better if better mechanisms were in place to protect environmental and labor standards?  At the time of its signing, NAFTA was considered to be a model free trade agreement; although there was always those who did not want to pass the agreement. This news analysis examines the environmental and labor impacts of NAFTA on the U.S., Mexico, and Canada and the institutions that were put in place to handle these concerns.

NAFTA and the Environment
NAFTA addresses environmental concerns in both the main agreement and in a side agreement dedicated to the environment. Specifically the environment is addressed in Chapter 7, which discusses phytosanitary rules; in Chapter 9, which discusses technical barriers to environmental protection; and in Chapter 11, which deals with investment protection for foreign firms and making sure that foreign firms do not pollute Mexico. There have been eight cases dealing with the environment filed under Chapter 11’s dispute mechanism. Chapter 11 decisions are often decided by tribunals, which are not public and only available to foreign investors, a controversial aspect of the agreement.

In addition to the NAFTA provisions, environment concerns are addressed by the North American Agreement on Environmental Cooperation, a side agreement on the environment that facilitates cooperation between Mexico, Canada, and the U.S. on conservation, protection, and enhancement of the environment. The NAACE is implemented by the Commission on Environmental Cooperation. The Border Environmental Cooperation Commission (BECC) and the North American Development Bank (NADB), formed by the both under the US-Mexico Border Environmental Cooperation Agreement (BECA), also play important roles in financing and monitoring activities along the US-Mexican borders.

A 2001 speech given by Institute for International Economics Scholar Gary Hufbauer highlights the challenges of NAFTA’s environmental policies. He recommends increasing transparency for the Chapter 11 arbitrations, increasing the CEC annual budget (currently it is only $9 million), an NADB and BECA border assessment and the development of environmental assessment districts along the US-Mexican border that would be funded by environmental fees in industries and housing districts on the border.¹ 

Mr. Hufbauer also lists strengths of weaknesses of the NAFTA environmental provisions, as noted in the box below:²

Strengths	Weaknesses
Increased cooperation between NAFTA governments	Inadequate support of governments to NAFTA institutions
New trinational and binational environmental institutions	Poor funding and management of institutions
Specific projects for environmental improvement	Too many initiatives to be effective
Incentive for better environmental protection in Mexico	Increased trade puts pressure on existing infrastructure
Greater interaction between NGOs	Inefficiencies discourage NGO use of institutions
Economic integration increases harmonization effect	Investor-State disputes could chill environmental regulation
Improved access to environmental information	Overload of information and descriptive reports
Citizens have access to a complaint mechanism	Complaints take too long & do not assure corrective measures
Dispute settlement for persistent non-enforcement	Dispute mechanism design makes unlikely its use
Specific initiatives for the US-Mexico border	Insufficient to cope with environmental border problems

Concerns about the environmental impacts of NAFTA are not new and many articles have been written about the topic since NAFTA was first implemented.  A 2004 analysis by Tufts entitled “Free Trade and the Environment: Mexico, NAFTA, and Beyond” examines a well known theory that states that environmental degradation increases with increased economic development, until a turning point is reached and then environmental degradation decreases, due to shifts to service industries, awareness of the costs of environmental damage, and subsequent stringent environmental standard, as demanded by the middle class. The Tufts study notes that despite Mexico’s GDP increase, the environment worsened, even when it reached a predicted turning point. During the first five years of NAFTA, soil erosion, municipal solid waste, and urban air and water pollution all worsened.³ 

Despite the increased environmental degradation, the study notes that dirty industry increased more in the U.S. than in Mexico, since the industries that moved to Mexico were less pollution-intensive. A Work Bank study of 200 firms in Mexico revealed that foreign firms were no more likely than domestic firms to comply with Mexico’s environmental law. Degradation is taking place because Mexico did not implement laws to manage sustainable development. From1994- 2004, real spending on environmental protection decreased by $200 million or 45 percent. The article recommends Mexico implement better laws and better monitoring mechanisms.⁴

As of 2008, many of the environmental concerns mentioned in earlier analyses remain. The NADB, the CEC, and the BEC are still underfunded. The Mexican government still does not have in place a system for municipalities to collect taxes to fund local sewage systems, sanitation services, and to manage other environmental infrastructure issues.⁵ These environmental concerns do have a forum where they can be addressed, but enforcement is weak. Is a new trade agreement the place to voice and answer these concerns or is another forum better or more appropriate? These questions will be tackled in the next U.S administration.

NAFTA and Labor
NAFTA addresses labor concerns in a side agreement, the North American Agreement on Labor Cooperation (NAALC). Signatories are required to have “high labor standards” and access to fair labor tribunals. The NAALC does not incorporate international labor norms; instead it calls on signatories to abide by domestic labor laws, while working with the International Labor Organization (ILO).  NAFTA cannot prevent countries from lowering their labor standards and governments cannot be charged with persistent failure to enforce.⁶ 

The NAALC requires enforcement on 11 labor principles addressed in national labor laws, including: freedom of association, right to organize, right to bargain collectively, the right to strike, prohibition of forced labor, compensation in case of occupational injury and illness, protection of migrant labor, elimination of employment discrimination, equal pay for men and women, labor protection for children, minimum employment standards (including minimum wage), and prevention of occupational injuries and illness.

The NAALC is administered by the Commission for Labor Cooperation and by three National Administrative Offices (NAOs), located in the appropriate government ministries or departments. NAOs were developed to address non-compliance issues, but labor ministries in each country were not given standards to use to develop programs to address non-compliance. The NAALC dispute resolution mechanism will not resolve specific cases of labor rights; however, it deals with larger violations with a persistent pattern of failure, such as fixing enforcement laws that protect the freedom of association.⁷ 

NGOs and individuals are supposed inform government’s NAOs when labor obligations have not been met. Then the NAOs meet, eventually if warranted a Ministerial consultation takes place; then an Evaluation Committee of Experts (ECE) report can be issued. The ECE will not rule on issues of freedom of association, the right to organize, the right to bargain collectively, and the right to strike. An arbitration panel can also be convened to issue a second report. This process can take at least four years to resolve.

There is no independent oversight body, which means that when countries want to address labor violations of another country, bilateral ties are also taken into consideration, leading to less use of the agreement. Most of the proceedings are not public and the reports are not always made available to the public as well. Some petitioners’ cases have been ignored by the government and governments have addressed labor issues in bilateral talks, but have not developed mechanisms to remedy the problems.⁸  

Human Rights Watch released a report in 2001 “Trading Away Rights: The Unfulfilled Promise of NAFTA's Labor Side Agreement" that analyzed 23 cases that were filed under the accord that were brought between 1994 and 2001. Workers rights violations were filed in all three countries: 14 cases in Mexico, seven in the United States, and two in Canada. Companies cited in these cases include: General Electric, Honeywell, Sony, General Motors, McDonald's, Sprint, and the Washington State apple industry.

The complaints included favoritism for employer-controlled unions, firings for workers’ organizing efforts, denial of collective bargain rights, forced pregnancy testing, mistreatment of migrant workers, and life-threatening, health and safety violations. None of the complaints resulted in sanctions for the employers. Human Rights Watch calls for the use of sanctions to punish companies for violating workers right, the inclusion of labor rights in the main text of trade agreements (not in side agreements), and more aggressive oversight bodies that help decide the appropriate government response to violations.⁹ 

One of the key NAFTA labor issues in Mexico is the maquila system, which was implemented in the 1960’s, before NAFTA, but still remains a major issue. Maquiladoras are Mexican factories that are allowed to import duty-free raw materials, equipment, and replacement parts, as long as the final products are exported again.These exports mainly benefit the international companies who build the factories; Mexico only gains from the wages given to the local workers. Maquiladoras have been declining since the 1980’s since the US has invested more in Asian countries and will invest more in African countries, where wages are cheaper. The NAALC has not protected workers rights in maquiladoras, by letting workers organize independent unions or work under safe and healthy conditions.¹⁰

A ten-year study of NAFTA noted that in those ten years, no illegally fired Mexican workers were reinstated and no work hazards have been corrected, despite NAALC proceedings. The report does note that NGOs have helped bring greater awareness of occupational safety and health in Mexican workplaces since NAALC was implemented. Nonetheless, there has been a lack of political will to enforce the agreement and/or go to the dispute resolution mechanism.¹¹

In the future, the report recommends using the ILO standards as a basis for improving workers’ rights beyond those minimum levels of protection. Provisions must include a complaint mechanism and enforceable sanctions that would apply to governments as well as corporations that do not enforce those standards.  Civil society groups and NGOs also need a seat at the table in helping decide the rights and the enforcement mechanisms.¹² 

Conclusion
In addition to labor and environmental concerns, there are other problematic aspects with NAFTA. The agreement does not address energy investment in Mexico, rules on subsidies and dumping, migration, security concerns and electronic commerce.¹³  NAFTA has not addressed three major trade disputes: a trucking dispute about the Mexican trucks traveling from Mexico to the US, a softwood lumber dispute between the U.S. and Canada, and sugar disputes.¹⁴ 

Many believe that the economic impact of NAFTA is quite small and that efforts to reform the agreement would be better spent on competitiveness or new agreements. There are real labor and environmental concerns though which need to be clarified. Both Clinton and Obama point to the Peru Free Trade Agreement as a model for environmental and labor standards. While this call many only be political, it worthwhile to look at the model further. Many realize that if the agreements are opened up to re-negotiation than other issues, such as U.S. access to Canadian energy resources, would have to be re-negotiated as well. Is this a reason not to address labor and environmental problems stemming from enforcement and unclear language in the agreement?