Free trade agreements are designed to eliminate trade barriers between participating countries and provide more equal market access. Because the member countries of NAFTA differ considerably, the NAFTA environmental and labor side accords were developed to provide tri-national institutions upon which to build a more equal playing field. The first chapter in this section found the composition of the various institutional arrangements created by the NAFTA environmental side accord to be favorable for the environment, but that the lack of implementation of rules and procedures within those institutions prevented them from functioning properly. The second chapter provided evidence of the continued lax enforcement of environmental regulations in the border region between the U.S. and Mexico, despite specific commitments within the NAFTA side accords to deal with this problem. This chapter will provide a more detailed look at the dispute resolution processes within both the environment and labor side accords, to demonstrate, once again, that the capacity for oversight and enforcement of environmental standards is lacking and this shortcoming seriously impedes the accord 's ability to accomplish its designed goals.
The NAFTA contains two separate side accords intended to insure the enforcement of each countries' own labor and environmental regulations, as well as to monitor the effects of increased trade on labor and the environment. Solid enforcement of domestic regulations insure that the cost of externalities associated with production are born by the producers. Without regulations, freer trade has the tendency to pass these costs off to a secondary party resulting in an "implicit subsidy" for the producer. (1) Unfair labor practices and environmental degradation, resulting from lax enforcement of regulations, are implicit subsidies. These subsidies result in unfair competition amongst participating trade agreement countries by allowing companies to externalize costs that are internalized by companies operating in enforcing countries. Therefore, to prevent the externalizing of costs from those of production and the resulting subsidies, enforcement of regulations becomes an important issue. The NAFTA side accords were designed to support and enhance the free trade union with regulation enforcement, dispute resolution and information.
The official name of the labor and environmental side accords, respectively, are the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). Dispute resolution bodies, created within each side accord, exist to encourage each country to enforce its domestic labor and environmental laws and provide a forum for conflict resolution. Labor complaints are submitted to the appropriate National Administrative Organization (NAO) created in each country. Environmental complaints are sent to the Committee for Environmental Cooperation, however, "there is no independent mechanism under NAFTA by which an employer may be penalized for wrongful acts or sued for labor (or environmental) practices." (2) Ultimately, the largest stick the NAO or CEC can wield is bad publicity, but both accords have a wide range of tools for fostering better environmental and labor practices. As a result, it is important to examine and assess the NAFTA interpretations and their impact on environmental practices.
First, several environmental and labor related complaints filed with the dispute resolution entities created by the side accords will be examined. From these cases and other sources, we will identify the general approaches that has developed within the NAFTA for handling disputes, and will argue that though the side accords emphasize cooperation, to be effective they require greater enforcement power.
Regulations aid free trade by requiring the inclusion of externalities in the cost of production and preventing companies from competing unfairly. Since increased production cost is reflected in the cost presented to the consumer, regulations reflect the value that consumers place on labor rights and the environment. All three countries joined NAFTA with similar labor and environmental regulations.
In the NAFTA, the second agreement objective, of Article 102, is to "promote conditions of fair competition in the free trade area." (3) This notion of fair competition is the essence of free trade. Peter Morici points out that "lax . . . enforcement in otherwise responsible jurisdictions creates effects similar to those of subsidies - it attracts production and jobs, distorts trade, and creates unemployment." (4) In other words these implicit subsidies create an uneven playing field by distorting the market; thus making the trade less free and less fair.
Externalities can be both positive and negative. We are concerned with the negative externalities and the resulting subsidies. A pared down definition of a negative externality is an "external cost imposed on non-consenting secondary parties." (5) Externalities are evident when businesses externalize infrastructure costs which often results in environmental degradation and poor working conditions. One example of an externality results from companies restricting unions and the health and welfare benefits associated with them. Basic worker rights including the expectation of a healthy environment are granted to workers in all three countries. If unfair labor practices and disregard for the environmental lead to a comparative advantage for companies operating in the country allowing the abuses, workers in the other countries may be competitively disadvantaged because of the ability of the offending businesses to skirt environmental and labor regulations. Another potential externality is that of wage suppression stemming from either non-existent environmental rules or lack of environmental enforcement. The real life application of this can be found in the recent labor cases brought up in Mexico. Due to continual disregard of workers rights and many charges of union busting, companies in Mexico are allowed to compete unfairly.
When a country does not enforce environmental standards they are in a sense "subsidizing" those companies by allowing them to externalize costs. These externalities can range anywhere from the cost of pollution clean up to the more abstract cost of the destruction of wildlife. Parties affected may be within the confines of the country in question or, as is the case with transboundary pollution, may be beyond the borders of that county. The benefit for a company doing business in a country that does not enforce regulations is an unfair comparative advantage over competitors in countries where regulations are abided.
Specifically, if all three countries, through their national laws or treaty commitments, have articulated quite similar and specific values for workplace safety and the internalization of environmental costs, then lax enforcement in one jurisdiction can create domestic social costs that are not reflected in the monetary cost of production. These hidden costs result in a continental misallocation of resources and lower living standards in all three countries. Here living standards are defined to include both monetary income and the health and aesthetic benefits of safer and cleaner working and living environments. (6)
Enforcement of regulations forces companies to internalize negative external costs. Dispute resolution bodies within NAFTA are intended to encourage cooperation with these regulations, but greater emphasis on enforcement is needed.
The supplemental labor and environmental agreements almost didn't make it into the NAFTA agreement. Despite the accords' importance, they passed both the House and the Senate with a very close vote. The side agreements do not create international standards, but rather are an "example of intergovernmental regulations," with the aim to ensure that each country 's respective labor and environmental laws are heeded. (7) Since all three countries have similar regulations, on paper these accords seem to address the problem of negative externalities. Labor and environmental practices in each country, in theory, should be equal. However, the problem lies in whether or not these similar regulations are implemented.
Each side accord has a dispute resolution entity that determines whether or not there has been proper compliance with national regulations within the countries. Dispute resolution within the NAAEC, managed by the Commission for Environmental Cooperation (CEC). The mission of the CEC is to facilitate:
cooperation and public participation to foster conservation, protection and enhancement of the North American environment for the benefit of present and future generations, in the context of increasing economic, trade and social links among Canada, Mexico and the United States. (8)
Within the CEC, the Public Advisory Committee reviews the initial complaint and if it is found to conform to the requirements laid out in article 14 of the NAAEC, it makes non-binding recommendations to the council.
The counterpart of the CEC within the NAACC is the National Administrative Office (NAO). Article 3, of the NAALC states, "Each party shall promote compliance with and effectively enforce its labor law through appropriate government action." The body that receives the complaints, regarding another country's failure to enforce its domestic labor laws, is the NAO. In accordance with the NAALC, one office is established by each country, within each country. Each office is expected to consult with the other two offices. If the "NAO finds that a country failed to enforce its own labor laws, it recommends consultations" at the next level, the ministerial level. (9) This is where the review process ends if the complaint deals with a collective-bargaining issue. These complaints cannot go to arbitration. The "remedy for finding that a country failed to enforce its basic labor-relations laws is limited to recommendations for improvement." (10)
This non-binding advisory role, held by both the CEC and the NAO, signifies that it is not in the scope of either office to compel enforcement. Both offices have tools which are aimed at motivating observance of higher standards. A review of cases shows that "encouragement" from these entities, in the form of fact-finding reports and advisory statements, is only partially effective. What these offices need are greater enforcement tools in order to end the unfair competition resulting from implicit subsidies.
Of the 13 complaints formally reviewed by the CEC, two remain pending, and only "one has resulted in an actual investigation." (11) According to Greg Brock, director of the CEC, their objective "is to clarify the state of the facts, not to enforce compliance." (12) The CEC 's acknowledgment that it does not have the role of enforcer, emphasizes that there is no body in existence to ensure that each country respects the environmental regulations needed to keep externalities in check. As a result even when complaints go beyond discussion and a report is made, there are still no enforcement corrections.
Article 14 of the NAAEC lays out the requirements a complaint must meet to be considered by the Secretariat. It allows the "Secretariat to consider a submission from any non governmental organization or person asserting that a Party to the Agreement is failing to effectively enforce its environmental law." (13) After a response is provided by the Party, "the Secretariat may recommend to the Council that a factual record be prepared in accordance with Article 15(1). The cases which did not reach the report stage (as of January 1, 1998) were terminated at various points of the requirement process.
The single complaint that has made it through the entire dispute resolution process deals with the construction of a cruise ship pier in Cozumel, Mexico. The charge was that the project damaged prized offshore coral reefs. One of the questions that arose during the case was whether the NAAEC was being applied retroactively. Permission to build on the site was given prior to the signing of the agreement, and construction began afterwards. The case went as far as it could, culminating in a fifty-six page report that determined the Mexican Government had failed to follow environmental law in authorizing the construction of the pier ship terminal. (14) However, the CEC was hamstrung in enforcing its ruling and "the Mexican government has continued with pier construction at the Paradise Reef in Cozumel." Construction of the pier was allowed despite a ruling by the CEC against the Mexican government.
When the environmental damage is not alleged to be the result of negligent enforcement, under the NAAEC, a request may be made under Article 13 for the creation of an Article 15 factual record. An Article 13 submission differs from the previous Article 14 submission in that it does not accuse a Party of any wrongdoing. Instead it asks for the creation of a report regarding a certain environmental incident. Environmentalists in the Silva Reservoir petition hoped to have more success with an Article 13 filing because it is less confrontational. The petitioners in this case "requested that the CEC Secretariat prepare a factual record explaining the death of forty thousand migratory birds in the Silva Reservoir, two hundred miles northwest of Mexico City." (15) The petition was accepted and the Mexican government was cooperative. In the end a panel of scientists made recommendations for a sewage treatment facility to prevent future similar incidents. For some environmental groups, this case "demonstrated to environmentalists that their fears that the CEC would be meaningless were unfounded." (16) For others, the outcome of the case was evidence that the CEC was toothless.
The Mexican government was relieved by the outcome of the Silva Reservoir case because "they feared complaints from environmentalists would ruthlessly attack the Mexican government's lack of enforcement." This example illustrated the difficulty faced by a trilateral dispute resolution body in applying procedures and rules to a case which involves a complex mix of government, NGO, and business interests. The case also reveals the CEC 's inability to fully use its proper procedures and protocols when dispute resolution seems to be needed.
The CEC 's study in the Cozumel case "was regarded as a spotlight, to help make larger some of the issues that are brought to our attention" about Mexico 's handling of environmental matters. (17) Many environmental groups view this function of the CEC as too weak, even a mockery of the original intent of the NAFTA side agreements. "They whimper, they don 't even bark," says Sierra Club lobbyist Daniel Seligman of the CEC. "What environmentalists got is a well-endowed think tank. And they do a lot of thinking." (18) Enforcement is neglected because a fact finding report is the full extent of the CEC 's power in dispute resolutions.
A final question that arises when considering the dispute resolution process of the NAAEC comes from examining a case that was rejected for review by the CEC. The very first case filed with the CEC alleged that the United States was "failing to effectively enforce" its Endangered Species Act. (19) The accusation was based on an act of congress which suspended the "enforcement of the listing provisions of the ESA" and the petitioners argument was that this was a violation of the side agreement. The petition was terminated under Article 14(2) because the CEC asserted that each government has the right to alter its laws, and stated that the suspension of the law was part of this right.
Unfortunately the rejection of this case highlights a loophole for getting around environmental standards. In a sense the NAAEC is rendered ineffective because it takes the pressure off of governments by making it possible for them to alter and even environmental laws to get around the enforcement provisions of the CEC. In the interest of improved environmental protection and further integration of trade and environmental matters, a needed remedy to this loophole is a set of standards which governments could not alter or suspend to evade CEC jurisdiction.
The results for cases brought before the NAO have been similar. Sidney Weintraub and Jan Gilbreath assess the difference in labor enforcement practices between the US and Mexico as one of "voluntary compliance" versus "cooperative arrangements", respectively. (20) In the United States the ratio of inspectors to companies is much higher than in Mexico and they also conduct more "extensive workplace inspections to deter violations." (21) In contrast, Mexico 's cooperation is based less on inspections and more on committees formed from both labor and management, intended to "negotiate workplace solutions to problems." (22) This is reflected in the complaints filed with NAO 's, the majority coming from Mexico. The core complaint within these cases is union-busting. For those involved with filing the complaints, progress has been disappointing.
Technically speaking in all cases we won, ' says worker-rights advocate Terry Collingsworth, council for the International Labor Rights Fund, which litigated the five Mexican cases before the NAO. . . . "But in all of these cases workers are left with a piece of paper that says 'you were right.' Not a single worker was ever reinstated, not a single employer was sanctioned, no union was ever recognized. (23)
The first two complaints stemming from this lax enforcement were submitted on February 14, 1994. The claims were against the Mexican government with charges of union-busting at Honeywell, Inc. and General Electric, the most pertinent allegations being the dismissal of workers who were involved with union organizing. These complaints suffered similar fates within the NAO. They were both accepted for review because "they raised issues relevant to labor law matters in Mexico and a review would further the objectives of the NAALC." (24) The objectives of the reviews "was to gather information to assist the NAO to better understand and publicly report on the Government of Mexico 's promotion of compliance with, and effective enforcement of, its labor laws through appropriate government action." (25) Next, the NAO held a public hearing on the two complaints.
At the outset of the hearing, the NAO Secretary made it clear that the hearing was being conducted to gather information to assist the NAO in preparing its public report, that the purpose was not to adjudicate individual rights, and that it was not an adversarial proceeding. (26)
The result of the hearing was a dismissal of the cases because workers received severance pay, preventing Mexican authorities from determining whether or not "the dismissals were for cause or in retribution for union organizing." (27) The union 's interpretation of the issue was that "more than 100 Mexican workers were fired a year ago by G.E. and Honeywell for attempting to organize unions - - a gross violation of Mexican law. The U.S. and Mexican governments did nothing to censure the companies" and it took the NAO "eight months to decide that the workers had no case." The decision of an NAO is final and cannot be appealed.
A similar case was brought against the Mexican government in August 1994 involving Sony. Again, it was accepted for review and public hearings, which were held by the U.S. NAO. This time, however, the NAO secretary found in favor of the workers and requested "ministerial consultation between the countries on the union registration process in Mexico, cooperative programs on union elections, and an NAO independent study on the handling of the dismissal cases." (28) Ministerial consultation is the strongest possible ruling from the NAO. However Millman says the "NAO 's findings were ambiguous." (29) A report was released that recommended ministerial-level consultations on the issue of union registration. This amounted to "essentially advising the U.S. and Mexico 's labor ministries to meet and discuss the Sony case," but the results were less then satisfactory for the workers wrongfully dismissed, none of whom were reinstated. (30)
It is not only Mexico 's government that has been brought to trial due to lax labor enforcement. In February 1995, the Telephone workers Union of the Republic of Mexico filed suit with the Mexican NAO against Sprint, a U.S. corporation. They were charged was firing more than 200 Hispanic workers from their jobs one week before a vote was to take place on forming a union. The NAO MEX felt the case was worthy of consultation at the ministerial level. Following investigation by the United States an administrative judge found that Sprint was not in violation of the law and that there had been economic reasons for the termination of workers positions. As a result, these workers as well received no compensation.
The response from the NAO MEX, case number 9501 against Sprint, concluded that "the law that governs freedom of association and the right to organize, is based on the premise that it is necessary to guarantee these fundamental rights of workers so as not to affect trade." (31) The wording in the NAO 's finding highlights part of the problem faced by union interests in their lawsuits: Instead of viewing the degree to which these fundamental rights are an inherent part of trade and the manner that their neglect affect the total cost equation, these rights are professed to be fundamental so long as they don 't "affect trade." (32) In contrast to this assertion, is the view that lax enforcement causes externalities that have serious ramifications for trade. The most recent complaints submitted to the NAO were dismissed before any hearings took place.
While it is true that these dispute resolution bodies review complaints concerning lack of enforcement of labor and environmental regulations, they do not serve in any way as a means to enforce the regulations. These regulations are valuable and protect basic rights. They also maintain a level playing field, an important aspect of freer trade. Enforcement is needed to prevent companies from externalizing costs paid by competitors in other countries. "Inadequate enforcement of environmental and workplace standards in Mexico places US and Canadian communities and workers at cost disadvantages when compared to their Mexican counterparts." (33)
The Honeywell and GE cases reflect the difficulty of receiving a positive advisory. Yet even in a case when the ministerial level finds in the complainants ' favor, the results are the same. The Sprint case highlights an interesting opportunity to utilize the courts within the company at question 's home country. Although the workers in the case were not given a favorable ruling, the potential is there for future cases. Environmental cases find themselves in a similar bind. Although the Cozumel Reef case was thoroughly investigated, no action was taken to remedy the situation.
The NAOs and the CEC are the only bodies existing to examine labor and environmental regulation enforcement issues and yet they currently rely heavily on a "rhetorical approach to achieving compliance." (34) The framers of the accords have "set up strict regulations, but due to poor resources, a lack of political will and (in the case of Mexico) fear of damaging a fragile economy, the government has made . . . compliance largely voluntary." (35) Voluntary cooperation has achieved certain environmental goals, but when their is unwillingness to comply, the CEC lacks vital authority.
The most clear cut improvement needed is for the commissions to have greater authority. According to Stoub, after the complaints have been weeded through and studied in the current manner, both the NAOs and the CEC need to have the "power to hand down binding judgments rather then mere advisory opinions. In short, the current dispute mechanisms. . . require greater enforcement tools in order to have a substantial impact on (labor and) environmental protection among the member nations." (36) Currently, even the acknowledgment that their has been the abuse of a regulation still results in neglect and the unfair externalization of costs for some parties. Reiterating the findings from previous chapters, it is clear that the institutions of the NAFTA side accords require further strengthening and support in order to fully realize their intentions.
One manner of adding strength to the NAAEC would be the development of minimal standards. Without these standards a country may suspend environmental laws and there is no body currently available to hear these cases. With minimal standards there would be some protection because the suspension of the law would be tantamount to a violation of the accord. If a violation was determined, trade sanctions would be a possibility although unlikely. A benefit that would result at the very minimum is enough media attention to muster up public support to pressure the abusing country into compliance. Currently this is the hope for the rulings found by the CEC and the NAO. What would further aid in the generating of support around these issues is for members of the CEC and the NAO to be more forceful when raising questions. Currently one of the strongest tools that the CEC and the NAO have lies in increasing the level of public interest surrounding the complaints. They are in a position to politicize the issues raised by the complaints and should be encouraged to do so, in order to take utmost advantage of the level of interest raised surrounding petitions.
In the concluding chapter, Brenda Thompson will examine the potential advantages of extending NAFTA to Chile prior to stabilizing and improving the existing components of the agreement. This argument differs somewhat from those espoused in the previous chapters. It provides an illuminating example of how a country with few environmental protections could, with the addition of NAFTA 's environmental framework, generate interest, publicity and intergovernmental linkages needed to further reform NAFTA 's side accord and ultimately bring Chile under the constraints of supranational environmental regulations.