Under NAFTA, Mexico No Safe Haven For
Polluters
Publication:
New Jersey Law Journal
As a result of the attention focused on the proposed North American Free Trade Agreement (NAFTA)
establishing a free trade area among Canada, Mexico and the United States, many companies are exploring the
possibilities of investing in and even locating operations in Mexico.
Historically perceived as a "pollution haven" where compliance costs could be avoided, Mexico's environmental
climate appears to be changing. What should the practitioner know about the environmental aspects of NAFTA
and conducting business in Mexico in order to properly advise clients about opportunities there?
There is certainly no lack of evidence to support the perception of Mexico as a "pollution haven." For years,
American companies wishing to avoid strict U.S. environmental compliance laws have been attracted by Mexico's
liberal regulations and lax enforcement policies. The most notorious offenders are the Maquiladora industries,
located primarily along the U.S. -Mexican border, where assembly plants process raw materials from the U.S. into
finished products for re-export to the U.S.
According to Ralph Nader's Public Citizen's Congress Watch, these facilities have been dumping dangerous toxic
chemicals into the air and the waterways of Mexico at levels thousands of times greater than that which is allowed
in the U.S. Birth defects, cancer rates and other illnesses on both sides of the border exceed the national average.
The burden of the cleanup cost, projected to be at least $5 billion, will be borne largely by taxpayers, not by
industry. Additionally, a random survey conducted by the General Accounting Office in August 1992 revealed that
out of 12 companies recently relocating to Mexico, not one had complied with the Mexican requirement to file an
Environmental Impact Assessment.
'Greener' Future
Nonetheless, there is reason to believe that Mexico's future will be "greener." President Carlos Salinas de Gortari
has said is committed to increasing funding and manpower to protect the environment. The General Law of
Ecological Equilibrium and Environmental Protection, enacted in 1988, provides the legal foundation for
environmental protection in Mexico. Largely as a result of the General Law, Mexico is now said to have laws and
regulations comparable to those of the U.S. and other industrialized nations. SEDESOL, the Secretariat of Social
Development, was established in May 1992 to oversee environmental policy formulation and enforcement.
Since taking office in 1988, President Salinas has increased the environmental enforcement budget from $6.6 million
to $77 million and the number of border inspectors from 50 to 200. The government has conducted over 7,700
environmental inspections during the past six years, resulting in the temporary closure of nearly 2,000 facilities for
noncompliance and the permanent closure of more than 100 businesses. In recognition of his efforts, the United
Nations and the Nobel Family awarded the 1992 Earth Prize for outstanding environmental statesmanship to Salinas.
In February 1992, Mexico and the U.S. committed to a comprehensive, integrated environmental plan to clean up
their 2,000 mile common border over the next decade. A combined total of over $700 million has been pledged
over the next three years for initiatives in pollution control, hazardous waste disposal, stronger enforcement and
increased effort in planning, training and education. Mexico also intends to negotiate a World Bank loan to expand
and upgrade its enforcement capability.
In advising clients with regard to relocation, it should be kept in mind that even in a climate of strict environmental
protection and enforcement, the cost of environmental compliance is a relatively minor portion of total operating
expenditures for most industries. According to the office of the U.S. Trade Representative, 86 per cent of U.S.
industries have abatement costs amounting to two per cent or less of their total production costs.
Environmental 'Trickle Down'
What effect will NAFTA have on efforts to promote a cleaner environment in Mexico and elsewhere? Proponents
of the treaty espouse the environmental "trickle down theory." They contend that the free trade agreement will
lead to increased economic growth and prosperity, providing the resources necessary for environmental protection
and enforcement. Supporting this position, the World Bank's World Development Report, 1992, indicates that
emissions levels generally decrease as national income levels increase.
In a statement released on Aug. 12, 1992, William K. Reilly. EPA Administrator under former President Bush. called
NAFTA the "greenest" trade agreement ever negotiated. This statement is correct in that, historically, most trade
agreements have virtually ignored environmental issues, while this accord contains several environmental provisions.
The preamble to the document affirms the parties' commitment to "the expansion of trade and investment
opportunities ... in a manner that protects the environment," and NAFTA's advocates maintain that its key
environmental provisions further demonstrate this philosophy.
Under the terms of NAFTA, no country is to lower its environmental standards for the purpose of attracting
investment. Each party may maintain and adopt standards at its own chosen level of protection, and the agreement
encourages the harmonization of standards upward to strengthen environmental and health protection.
The parties maintain the right to enforce international environmental treaty obligations such as the Montreal
Protocol (1987), limiting trade in ozone-depleting substances, the Convention on International Trade in Endangered
Species of Wild Fauna and Flora (1973), the Basel Convention on the Control of Transboundary Movements of
Hazardous Wastes and Their Disposal (1989) and any other environmental or conservation agreement which all
three NAFTA countries agree to include.
The countries may impose stringent environmental standards on new investments and may require potential public
and private investors to submit Environmental Impact Statements as long as the requirements apply equally to
domestic and foreign investors.
In the dispute settlement process, the complaining country bears the burden of proof that another country's
environmental measure is an unfair restraint of trade in violation of NAFTA. Further, scientific experts may be
called upon for environmental information on factual issues. However, participation of scientific review boards may
take place only at the consent of both disputing parties.
Dispute Resolution Process
It is on this dispute resolution process that some of the strongest criticism and concern about NAFTA is
concentrated. Despite assurances that each country is free to adopt and maintain its own standards, it is feared that
strict standards relative to pesticides, food additives, consumer health and safety and production methods may not
prevail if challenged. In order to survive, these sanitary and phytosanitary standards must be demonstrated to be
based on risk assessment and science, consistent in their level of protection with other national standards,
"necessary" to achieving a NAFTA-allowed goal, and the "least trade-restrictive measure possible."
Additionally, prior to adopting or modifying such a measure, a country must first give notice to the other parties and
provide them with an opportunity to comment. Additionally, NAFTA permits countries to establish standards that
could have the effect of limiting trade only if those laws do not extend beyond their geographic borders.
There is well-founded concern that, given these limitations, many of the United States' current standards would be
struck down before a pro-trade, resolution dispute panel. Frequently cited is the fate of the U.S. embargo of tuna
imports from Mexico, enacted in accordance with the U.S. Marine Mammal Protection Act of 1972, barring the sale
of tuna caught in dolphin-killing nets. In September 1991, the embargo was successfully challenged under the
dispute resolution process of the General Agreement on Tariffs and Trade (GATT).
In one of its major arguments against the tuna embargo, Mexico contended successfully that the maximum kill-ratio
was not based on scientific evidence but on a political compromise reached during comprehensive negotiations of
the act. Mexico also successfully advanced the argument that the act was "extra-territorial." While NAFTA is
purported to be more pro-environmental than GATT, opponents fear similar results under NAFTA's dispute
resolution procedures.
The requirement for consistency in levels of protection would be utilized to attack standards such as that of the
Delaney Clause of the Federal Food and Drug Act, prohibiting placement of carcinogenic additives in foods and
carcinogenic pesticide residues in processed foods. This standard is inconsistently high when compared to that for
fresh foods.
Allowing only the least trade-restrictive measures possible rules out political or other factors, as noted above, which
a nation might take into consideration in establishing standards. For example, the political compromise between
loggers and environmentalists in the Pacific Northwest, enacted to avoid either a total logging ban or unrestricted
destruction of old growth forests, is a measure that conceivably may not survive a NAFTA challenge. Critics also
object to the highly secretive nature of the dispute resolution process, contending there should be provisions for
public comment and citizen oversight. Under the terms of NAFTA, dispute settlement proceedings take place in
private and their results may be made known only to the disputing parties.
The issue of states' rights has also been raised by detractors of NAFTA. Although supporters maintain there is no
limitation of states' rights to enact and enforce environmental laws and regulations even stricter than those of the
federal government. In the United States, single states have often enacted standards more stringent than those of
the federal governments. As in the case of California's fuel emissions standards, state initiatives frequently pave the
way for subsequent adoption of similar measures by other states and the federal government. Yet, if a state law
does not rest on scientific principles or conform to all other NAFTA requirements, it could be challenged by the
federal government or by Mexico or Canada.
Opponents of NAFTA feel that a major opportunity to link trade and environmental issues has been missed. They
consider the environmental provisions as drafted to be no more than vague assurances, lacking necessary
enforcement and funding components, and would like the U.S. to be able to impose countervailing tariffs on goods
manufactured in countries with weaker anti-pollution regulations or lax enforcement policies. Other suggestions
have included a cross-border tax to pay for cleanup and access to the courts of the country of investors to sue for
environmental damages. Environmentalists also express fear that accelerated investment in Mexico, along with
concomitant increased industrialization, population growth and the absence of necessary infrastructure to handle
the growing demands for services, will result in further damage to the environment. There is no "polluter pays" or
other funding provision in the agreement to provide for cleanup, oversight, enforcement and other environmental
programs.
Trilateral Commission
Partly as a result of these concerns and at the urging of numerous environmental and consumer organizations, the
three NAFTA nations have agreed to the formation of a Trilateral Environmental Commission, consisting of the
USEPA administrator and her Canadian and Mexican counterparts. One of its major functions will be to address
any environmental problems arising as a result of NAFTA, while promoting and establishing a process for long-term
environmental cooperation. The Trilateral Commission is currently the only entity charged with the responsibility of
tracking NAFTA's impact on the environment, although it lacks any enforcement authority in its proposed form.
Some of the commission's additional functions include the dissemination of information on the environmental
protection activities of the three countries, the establishment of rules of procedure and provision of environmental
expertise to NAFTA dispute settlement panels upon request, and the sharing of technical expertise to address
common environmental concerns. Annual meetings, including sessions open to the public, are to be held and
channels of public input will be established. Any of the three parties can request additional meetings to address a
particular environmental issue.
On Dec. 17, 1992, former President Bush and his Canadian and Mexican counterparts signed NAFTA. It now must
go before the legislatures of each of the signatory nations. As negotiated, the agreement is to take effect on ian. 1,
1994, but ratification of the treaty may face obsta des in the United States Congress. Organized labor, in particular,
as well as health and environmental groups, are expected to lobby against passage of NAFTA in its current form.
House Majority Leader Richard Gebhardt, D-Mo., has stated "... we must reject the current agreement as not good
enough."
President Clinton has endorsed the accord, but has indicated he wants the United States and Mexico to negotiate
additional measures to safeguard the environment and American workforce before sending NAFTA to Congress
for approval. These supplemental provisions could be incorporated in side agreements, in supplemental NAFTA
text or in the implementation legislation. Under the fast-track process, Congress is required to approve or
disapprove of implementation legislation without amending the NAFTA itself. The implementation legislation could
contain provisions, however, which would have the effect of modifying the original agreement. Last month in
Washington, officials from the three party nations began discussing parallel agreements, a process that is expected
to go on for several months.
Outcome Uncertain
Since NAFTA has yet to complete the ratification process, it is far too early to attempt to determine the effects of
its implementation. It is also premature to assess the effectiveness of Mexico's new enforcement policies.
Should President Salinas' pro-environmental efforts prevail, there will be increased opportunity for U.S.
environmental firms able to fill the demand in Mexico for environmental technology, services and expertise.
Although U.S. attorneys may not "practice" before Mexican courts, they are permitted to register as "legal
consultants" and to establish offices there for the purpose of advising clients.
To the extent that Mexican environmental laws are now or will become similar to U.S. laws, opportunity exists for
American environmental counsel to provide expertise, both to Mexican and American companies, based on their
significant experience with regard to environmental compliance issues. NAFTA's dispute resolution process also
undoubtedly will present another area of practice for environmental counsel. Practitioners would be well advised to
prepare for the possibilities NAFTA will present.
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Dennis Krumholz gratefully acknowledges the assistance of Hedy Bernard, paralegal at the firm, in the preparation of this
article.
Attorney:
Dennis J. Krumholz
Practice:
Environmental Law
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