Friends of the Earth Testimony on NAFTA


			  TESTIMONY OF

		  ANDREA DURBIN, POLICY ANALYST

		      FRIENDS OF THE EARTH


			     BEFORE

		    THE HOUSE WAYS AND MEANS

		      SUBCOMMITTEE ON TRADE

		       SEPTEMBER 21, 1993


			       ON

	THE NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

	      AND THE ENVIRONMENTAL SIDE AGREEMENT


Mr. Chairman and members of the Subcommittee:

     Good Morning.  I am Andrea Durbin, Policy Analyst with
Friends of the Earth.  Friends of the Earth is a national,
nonprofit environmental organization with 50,000 members and
supporters.  We have affiliated organizations in 51 countries and
work on a wide range of national and international environmental
issues.

     We appreciate this opportunity to share our views on the
North American Free Trade Agreement (NAFTA).  After long and
careful review of the text of the NAFTA, as well as the text of
the Side Agreement on Environment, we have concluded that the
NAFTA, as currently written, is not in the environmental interest
of the three countries that are parties to the agreement.

     We believe that it is possible to structure a trade agreement
that will directly link economic growth and the improved social
and environmental conditions of the three countries, but this
agreement does not achieve these ends.  We urge the members of the
Subcommittee to vote against this agreement and put your full
energies behind its renegotiation.

     Since we last spoke before the full Committee, the
Administration has concluded a side agreement on the environment.
We want to acknowledge the Administration's efforts in this
undertaking and recognize the advancements of environmental issues
in the trade arena over the last few years.  Trade and the
environment will be intricately linked from now on.  However, the
environmental side agreement does little to address the
fundamental environmental questions raised by NAFTA.

     Friends of the Earth believes that NAFTA's potential to
create environmental problems and its lack of regard to existing
problems is serious enough that it should be rejected, in spite of
what was negotiated in the side agreement.  We agree with the
Federal District Court which ruled that "NAFTA, by its very terms,
sets forth criteria that may form a basis for challenging various
domestic health and environmental laws"... and that "a state law
that conflicts with the NAFTA is preempted".

     We believe that rejection of this agreement, and commitments
to negotiate another, is better than approving this agreement in
its flawed form, particularly since the NAFTA will serve as a
model for future integration with the rest of Latin America.

     We do not subscribe to the idea that increasing economic
growth will automatically lead to improved environmental
protection.  We believe that economic growth enables a country to
better protect the environment, but it will not necessarily follow
without some guarantees and explicit commitments within the
agreement.

     In our testimony today we will:

     1) summarize some of the issues that have not been addressed
     in the environmental side agreement;

     2) analyze the contents of the side agreement;

     3) explore how the side agreement would address existing
     situations.

I. ANALYSIS OF THE ENVIRONMENTAL SIDE AGREEMENT


     Many crucial environmental issues are not addressed at all in
     the side agreement.

     For example, the agreement:

     1.  does not ensure that NAFTA will not be used by our
     trading partners to weaken federal or state environmental,
     health and safety laws that may impact trade.

     2.  does not make the basic dispute resolution process of
     NAFTA more open or democratic by allowing for public
     participation or requiring a more representative process.

     3.  does not create a comprehensive border clean-up plan,
     based on the polluter-pays principle.

     4.  does not deter companies from relocating to countries
     with weaker or non- enforced environmental standards.

     5.  does not address the serious impacts of NAFTA on the
     conservation of natural resources -- mining, timber and
     agricultural impacts.

     6.  does not safeguard laws which protect us against products
     produced in an environmentally destructive manner.

     7.  does nothing to solve the ongoing problem of U.S. owned
     companies failing to return toxic wastes to the U.S. for
     proper treatment.

   A Tri-National Commission: A Lot of Talk, But No Real Teeth

     The side agreement is limited and weak, consisting only of
(1) the establishment a tri-national Commission for Environmental
Cooperation (CEC), (2) an exhaustive mechanism to bring disputes
between countries regarding lax enforcement of domestic
environmental laws and (3) an announcement that the United States
and Mexico will continue discussion about a proposed border
institution to leverage bonds that would build infrastructure
along the border region.

     Because of the limited authority of this commission, we have
to conclude that this new institution will have little power to
protect the environment from the impacts of NAFTA.  In fact, it
could be negative for the environment because it will redirect
resources that could otherwise be used for border clean-up and
building community infrastructure.

     A major function of the Commission is to gather information
     in response to complaints.  However, the Commission cannot
conduct its own investigations, but must rely on information
provided by the governments, not companies.  It cannot investigate
a workplace or company directly.  If a government finds an
information request excessive or unduly burdensome, the government
may deny the request for information.

     The Commission can draw attention to environmental problems
and it can make recommendations.  Beyond that it can go no
further.  In short it is little more than a forum for discussion.

	  A Long and Exhaustive Process for Enforcement

     The centerpiece of the Commission is its ability to review
whether or not each Party is enforcing its own domestic
environmental laws.  Unfortunately, this power is so circumscribed
that it is effectively meaningless.

     First, the definition of environmental law in the agreement
is narrow and explicitly excludes laws regulating the exploitation
of natural resources from the enforcement provisions.  The
Commission can only consider laws related to the prevention or
control of pollutants, hazardous substances, and the protection of
wild flora and fauna, including endangered species.  By narrowly
defining environmental laws in this way, laws such as food safety
regulations or public health measures are excluded.

     In addition, only the repeated failure to enforce an existing
law is reviewable by the Commission.  Environmental problems that
are caused because of a lack of regulation are not subject to
review because there is no law to review.  This kind of backward
criteria leads to a downward pressure against establishing an
environmental regulatory structure.

     For those narrow laws that are covered by the agreement,
there are other criteria that must be met to determine whether or
not a government can be penalized for not enforcing its
environmental laws.  The agreement allows for a Party to not
enforce its environmental laws if it "reflects a reasonable
exercise of the agency's or the official's discretion" or if it
"results from a bona fide decision to allocate enforcement
resources to violations determined to have higher priorities"
(annex II), creating a gigantic loophole for governments to argue
their way out of a complaint.

     Finally, in order to be reviewable, there must be a
"persistent pattern of nonenforcement", which is defined as "a
sustained or recurring course of action or inaction" (annex IV).
This definition is extremely vague as to the length of time such a
behavior must be sustained before a complaint can be brought.
Without a more specific definition, the determination of
persistent pattern of non-enforcement is left subjective and
undetermined:  it could be one year or five years of
nonenforcement.

	Enforcement: Punishing Governments, Not Polluters

     The Administration has argued that the "real teeth" in this
     agreement is the ability
to penalize a government for nonenforcement through sanctions.
The compromise struck between the three countries would allow
sanctions to be levied against the United States and Mexico, and
fines against Canada, enforced through the Canadian courts.

     Much of the debate has focused on Mexico's record of
enforcing environmental laws, rather than on the behavior of
industries and whether or not they are complying with the law.  We
continue to believe that the industries themselves must be held
responsible and accountable for their own behavior.  But this
agreement punishes governments for not enforcing, not industries
for not complying.

     If, after a long and exhaustive process, the Commission
decides that sanctions or fines can be levied, the agreement
limits the amount of the penalty to no more than $20 million the
first year, and .007% of the three-way trade between countries
thereafter (which is roughly $20 million this year).  Although $20
million appears to be a significant amount, when it is a fine
against governments, it is relatively insignificant.  Despite what
the Administration has argued, it is unlikely that the government
will pass on that cost to the offending industry.  Structuring the
agreement this way puts the burden on governments, rather than
encouraging companies to comply with the law.

	      Resolving Disputes in the Commission

     Like the NAFTA itself, the side agreement establishes a
dispute resolution process to allow Parties to bring complaints
about non-enforcement.  Only nonenforcement cases will be resolved
by this mechanism.  All other environmental cases will be heard in
NAFTA's dispute resolution mechanism, which still remains closed
to the public, and unrepresentative of environmental interests.

     To see the disparity between the side agreement and the
NAFTA, one only needs to look at the dispute resolution process.
In order for a Party to establish a panel in the Commission, it
must gain the support of two-thirds of the Parties.  Compare that
requirement to the NAFTA dispute resolution which requires that
only one Party needs to approve in order to form a panel.  The
criteria in the environmental side agreement are consistently more
difficult to meet than in the NAFTA.

     Only governments, not citizens, can request a panel.
Although citizens can bring a complaint to the Commission, citizen
complaints do not lead to the formation of a panel.  If a citizen
meets the regimented criteria that the Commission requires to be a
legitimate consideration, the most the Commission can do in
response to that complaint is issue a report, which requires the
approval of two-thirds of the Parties.  Still the governments can
refuse to answer a citizen's request, or scale back the request.


     The negotiators have made progress in the dispute process of
the Commission, when compared to NAFTA's dispute resolution.  It
will set up a roster of panelists that include panelists that have
environmental expertise.  However, this does not extend to NAFTA's
dispute panel where environmental experts are not mentioned or
required.  This difference is crucial because any challenges to
U.S. environmental, health or safety laws will be resolved in the
NAFTA dispute process.

II.  CARBON II: A HYPOTHETICAL CASE

     In recent weeks there have been a number of press reports
about the Carbon II coal fired power plant facility under
construction in Mexico near the U.S. border town of Eagle Pass,
Texas, 140 miles southeast of Big Bend National Park.  The coal
fired plants may be exporting energy to the United States.

     Carbon II will lack scrubbers and pollution control devices
for sulfur dioxide that would be standard equipment on a newly
constructed power plant in the U.S.  Environmentalists are
concerned that its emissions will cause air pollution problems on
the U.S. side of the border and impact Big Bend National Park.
Attached to our testimony is a recent Wall Street Journal article
about the plant.

     We would like to imagine how this situation would be
addressed by the environmental side agreement.

     First, let's assume that a citizen's group like Friends of
the Earth wishes to take action to try to stop transboundary
pollution.  It could lodge a complaint with the Commission, which
can be denied.  If it is accepted, the Commission could undertake
a report.  It could not conduct its own independent analyses of
air quality or subpoena plant managers or directors.  It could
only ask the Mexican and US governments to provide existing
information.  The governments can then simply refuse, saying the
demand is burdensome.  If the governments provide information, the
Commission can write a report and make recommendations.  If two of
the three countries agree, the report can be made public,
otherwise it remains confidential.

     It would be impossible for an individual or an organization
like Friends of the Earth to initiate the process which might
eventually lead to formal sanctions.  Such actions can only come
at the request of governments, and with the support of two-third's
of the parties.

     If the U.S. Government decided to bring a formal complaint
about Carbon II it would have to prove that the pollution is being
caused by Mexico's lax enforcement of an existing law, not for the
failure to set regulatory standards.  According to the Wall Street
Journal, the Mexican embassy has already said that the plant
"meets or exceeds all applicable national and international
pollution standards".  If that is true, the Commission can do
nothing.

     Second, the U.S. would have to prove that the violation is
part of a 'persistent pattern' of non-enforcement.  While the
meaning of this term is unclear and will likely be resolved
through precedent, the U.S. will have to wait until the plant is
operating and will have to show that the violations of
environmental laws have been persistent.  It may also need to
prove not just that this plant is in violation but that the whole
Mexican power sector is in violation.

     If these difficult points were proven, Mexico could then
simply claim that enforcing pollution control on coal-fired plants
is not a priority and the lack of attention "results from a bona
fide decision to allocate enforcement resources to violations
determined to have higher priorities" such as air pollution in
Mexico city.

     If the U.S. were able to surmount these difficulties and
succeed in levying sanctions, the most it could collect is $20
million dollars.  According to the U.S. EPA the costs of
installing scrubbers to meet U.S. air emission standards would be
around $300 million simply to control sulfur dioxide, not to
mention nitrogen oxide.  Given such costs, at the end of the day,
paying the fine would be a bargain for Mexico.

	III. CASE STUDY OF RE-EXPORTING HAZARDOUS WASTES

     Annex III of the 1983 La Paz Agreement and the 1988 Mexican
     Law of General
Equilibrium require Maquiladora industries to export their
hazardous waste to the country of origin for treatment and
disposal.  The thinking behind this agreement is that Mexico lacks
facilities to treat these wastes in a manner equivalent to the
treatment they would receive in the U.S.

     The U.S.-owned Maquiladoras widely flaunt this law.  The
Environmental Protection Agency estimates that only about
one-third of the hazardous waste generated in the Maquiladoras is
returned to the U.S., leaving somewhere around 20,000 tons in
Mexico.

     This situation is not in the Mexican or the U.S. interest.
The improperly dumped toxic wastes can lead to public health
problems and huge long-term clean-up costs for Mexico.  Industries
may relocate to Mexico to take advantage of the situation and
avoid the costs of proper disposal in the U.S.  The problem is not
isolated to Mexico, since the toxics can cross back into the U.S.
through the air, water, or groundwater.

     This whole topic is not addressed in the NAFTA, despite being
one of the clearest, current, trade and environment problems
between the U.S. and Mexico.  We had hoped that the side
agreements would address the problem, but, as with Carbon II, we
see them doing little more than providing an opportunity to
discuss the issue.  In fact the agreement could provide political
cover to allow this problem to persist into the next century.

     If this issue were brought before the Commission, the
politics would be somewhat different from Carbon II, since in the
case of the failure to re-export hazardous wastes both the U.S.
and the Mexican Governments are failing to meet treaty
obligations.  Since the approval of two NAFTA country governments
is required to initiate a formal enforcement proceedings, it is
unlikely this situation would ever be considered.  Furthermore, if
the issue were considered, the U.S. and Mexico could quickly
announce that they had reached an agreement on the issue --
whether or not any real action would ultimately take place.

     We therefore believe that the Side Agreements will deflect
action on this crucial area for the immediate future.
Furthermore, since NAFTA gradually phases out the Maquiladora
program as it phases out tariffs, the effect is to provide cover
for these corporate violations until the NAFTA itself steps in and
makes the dumping of hazardous wastes legal.  In short,
desperately needed control and prevention of industrial toxics
will not take place.

			 IV. CONCLUSION

     The environmental side agreement did not serve to resolve
some key conflicts between increased trade and environmental
protection.  Instead, it creates yet another international
institution that, given its weak powers, will be ineffective, and
given the requirements for sanctions to be invoked, it is unlikely
that they will be applied.

       We still believe that a framework for integration is
necessary within North America, but that framework needs to be
dramatically recast to incorporate the goals of sustainable
development, democratic participation and responsible corporate
behavior.