NAFTA Supplemental Agreements: Four Year Review
by Jacqueline McFadyen
© Institute for International Economics
In an October 1992 speech, then-Presidential candidate Bill Clinton announced his support for the North American Free Trade Agreement (NAFTA), but stressed the need for supplemental agreements on environmental and labor issues. Clinton's inauguration in January 1993 propelled new negotiations among the NAFTA partners in this direction. Three agreements were concluded in August 1993: the North American Agreement on Environmental Cooperation (NAAEC), the North American Agreement on Labor Cooperation (NAALC), and the North American Agreement on Import Surges. The Congress then authorized US participation in these pacts on December 1, 1993 as part of the implementing legislation for the NAFTA.
This paper examines the objectives and accomplishments to date of the NAAEC and the NAALC.1 It also includes a discussion of the US-Mexico Border Environmental Cooperation Agreement (BECA) which was designed to address environmental infrastructure problems in the US-Mexican border region.
In his October 1992 campaign address, Clinton set out US negotiating objectives for the labor and environment side agreements. Clinton argued that the environment side agreement should create an environmental protection commission to clean up and prevent water pollution and to encourage the enforcement of each country's domestic environmental laws through education, training, and a commitment of resources. Similarly, Clinton stated that the labor side agreement should create a labor commission to encourage high worker standards and safety and to educate, train and develop minimum standards for the region. In addition, Clinton argued that the side agreements should require each country to enforce its own environmental and labor standards and provide forums for hearing disputes regarding lax administration or enforcement of national laws. Such forums would recommend remedies, including fines, in cases of noncompliance.2
Not surprisingly, the negotiated agreements did not achieve all the US objectives. In particular, enforcement mechanisms are based on cooperation and consultation and authorize retaliation (e.g., trade sanctions) only after a lengthy dispute settlement process.
The environment and labor side agreements have two main objectives: (1) to improve environment and labor conditions in North America through cooperative initiatives and (2) to mediate environment and labor disputes. The side agreements create trinational environment and labor commissions to carry out these objectives. The main goals and achievements of each agreement is examined in turn below.
The North American Agreement on Environmental Cooperation
The negotiation of the NAFTA provoked numerous concerns about the impact of increased trade and investment on environmental conditions in the region. The most widely-cited problems raised by the environmental community in the United States involved: (1) worries that US environmental protection standards would be driven down in NAFTA member countries by businesses moving or threatening to move production to countries with lower environmental standards in order to gain a cost advantage; (2) that lax Mexican environmental enforcement could result in a "pollution haven" in Mexico which would threaten the competitiveness of manufacturing facilities in the United States; (3) and that pollution "spillover" into the United States would rise as Mexican production, especially in the US-Mexico border region, increased.3 The NAAEC was created to respond to environmental concerns related to the NAFTA.4
The NAAEC has two broad goals: (1) to encourage improvement of environmental conditions in North America, through cooperative initiatives, and (2) to provide a mechanism for mediating environmental disputes. The NAAEC provides an institutional structure—the Commission for Environmental Cooperation (CEC)—to implement these environmental objectives. The CEC consists of an independent Secretariat located in Montreal, a Council of cabinet level representatives from each NAFTA country, and a Joint Public Advisory Committee (JPAC) composed of fifteen citizens, five from each member country. The Secretariat carries out the day-to-day activities of the CEC, while the Council meets annually and holds special sessions at the request of any NAFTA member.5 The JPAC provides a channel for public input on Council deliberations and Secretariat activities.
Goal 1: Cooperation Agenda
The CEC has established a tripartite work program to promote improvement of environmental conditions in North America. The 1997 CEC total budget was US$9.9 million: US$3 million from each member country and US$0.9 million from other sources.6 Of the total budget, US$2.7 million was used for direct program expenses.7
The CEC has given priority to the protection of human health and the environment. (In 1997 the CEC spent 40 percent of direct program costs on initiatives in this area.) In that area, the Commission agreed at the regular session of the CEC Council on October 13, 1995 to create regional plans for reducing or phasing out selected persistent organic pollutants. Regional plans have been developed for PCBs, chlordane, DDT, and mercury. Other initiatives related to human health and environment include programs on limiting adverse climate change effects and a program to develop a North American pollutant release inventory (NAPRI).8
A significant portion of CEC cooperative program resources (24 percent of total direct project costs in 1997) have been devoted to programs related to habitat and species. Initiatives in this area include the creation of a set of North American ecosystem maps, the development of a Network of Important Bird Areas and an agreement to increase protection of Marine and Coastal Area Ecosystems. Programs have also been created to enhance existing conservation efforts for migratory songbirds and the Monarch Butterfly.
The remaining cooperative program resources have been spent on a variety of programs: Environment, Trade and Economy,9 and Information and Public Outreach (20 percent of total direct project costs in 1997) and Enforcement Cooperation and Law (16 percent of total direct project costs in 1997).
A Working Group on Environment Enforcement and Compliance was created to develop new strategies, including programs to track illegal transborder movement of hazardous substances and waste, and to enforce anti-smuggling laws on trade in endangered animals.
Goal 2: Dispute Settlement
The NAAEC contains three provisions to resolve environmental disputes: (1) investigations of controversial issues initiated by the Secretariat under Article 13, (2) submissions by non-governmental organizations (NGOs) and individuals under Article 14, and (3) government initiated consultations under Part V regarding enforcement.
The Secretariat has the authority under Article 13 of the NAAEC to investigate and develop recommendations on controversial environmental matters that are of broad importance to the region. However, Article 13 studies cannot address issues involving whether a Party has failed to enforce its environmental laws and regulations. As of May 1, 1998, the CEC has studied three environmental issues under Article 13.
First, in response to a June 6, 1995 petition from two NGOs (the National Audubon Society and the Centro Mexicano de Derecho Ambiental), the Secretariat undertook an investigation of the causes of the mass mortality of migratory waterbirds at the Silva Reservoir in Guanajuato, Mexico. The Secretariat convened a scientific panel to study the problem and report to the Secretariat. The results of the investigation were documented in CEC Secretariat Report on the Death of Migratory Birds at the Silva Reservoir (1994-95). The report concluded that the main cause of the bird deaths was botulism from high levels of chromium, lead, and mercury as well as untreated sewage flows in the reservoir. The study recommended that Mexico undertake a major environmental program (the Turbio River Basin Initiative), develop a national program in partnership with the United States and Canada for investigating wildlife health and carry out cooperative initiatives with the United States and Canada to address the incident. In August 1996, the CEC Council established a group of experts on migratory waterfowl to develop a rapid response system for dealing with future outbreaks of waterfowl epidemic disease. Canada and the United States also agreed to assist the Mexican government in seeking funds from various international organizations for the Turbio River Basin Initiative and related projects.
Second, the Secretariat initiated a study in 1996 under Article 13 aimed at improving air quality. The results were documented in a report, published in September 1997, entitled Continuing Pollutant Pathways: An Agenda for Cooperation to Address Long Range Transport of Air Pollutants in North America. The report recommended, inter alia, that the NAFTA governments establish targets and timetables for reducing air pollution throughout the continent, and increase funds for cross-border pollution research and air pollutant monitoring and modeling.
Third, a Secretariat report was initiated in May 1997 under Article 13 in response to public concerns over water supply problems in the San Pedro River Basin along the Arizona-Mexico Border. The CEC has convened a panel of experts to investigate sustainable use of water in the river basin and the potential effects on migratory birds.
Under Article 14, NGOs or individuals can petition the CEC if they believe that a NAFTA country is not effectively enforcing its environmental law. If the dispute is deemed valid by the Secretariat and Council, it will then proceed through a two-stage process: (1) response from the accused country and (2) development of a factual record. A factual record does not reach legal determinations, but rather clarifies facts related to the case. Article 14 disputes end with development of a factual record. (See appendix A for a detailed description of the Article 14 dispute resolution process.)
As of May 1 1998, fourteen submissions had been registered under Article 14 (see table 1). Of the three submissions against the United States, the first two were terminated and the third was withdrawn. The first submission, alleging that the Rescissions Act of 1995 results in failure to enforce some provisions of the US Endangered Species Act of 1973, was determined by the Secretariat to be inappropriate for consideration under Article 14:
The enactment of legislation which specifically alters the operation of pre-existing environmental law in essence becomes a part of the greater body of environmental laws and statutes on the books. This is true even if pre-existing law is not amended or rescinded and the new legislation is limited in time. The Secretariat therefore cannot characterize the application of a new legal regime as a failure to enforce an old one.10
The second submission, alleging that the "Logging Rider" clause of the Rescissions Act of 1995 results in failure to effectively enforce US environmental laws governing logging on federal land, was also terminated for the same reason. Moreover, the Secretariat noted that the submission lacked a factual basis supporting the assertion.
The third submission, alleging failure to effectively enforce the National Policy Act with respect to the US Army's operation at Fort Huachuca, Arizona was withdrawn by the submitters, the Southwest Center for Biological Diversity and Dr. Robin Silver. Specifically, the submitters alleged that the US Army was expanding its operations at the fort without conducting an appropriate assessment of the base expansion on the San Pedro River Basin. However, after the withdrawal of the enforcement case, the Secretariat initiated a study of water supply problems in the river basin under Article 13.
Of the six Article 14 submissions against Canada, two were terminated and four are in various stages of the review process. The first submission against Canada, alleging failure to enforce Canadian environmental laws resulting in pollution of specified wetland areas, was terminated because it is subject to ongoing proceedings in Canadian courts. The CEC cannot investigate issues in the NAFTA countries that are "the subject of pending judicial or administrative proceedings."11 Once the domestic judicial process is concluded, the claim may be resubmitted to the CEC Secretariat.
In another case, the CEC Secretariat rejected allegations that Canada failed to enforce the law requiring environmental assessment of federal initiatives, policies, and programs for lack of evidence. Specifically, the submitters alleged that the Canadian Government failed to conduct an environmental assessment of the Atlantic Groundfish Strategy, as required by Canadian law. The CEC Secretariat found that there was a significant delay between the time of the alleged failure to enforce and the filing of the submission, and that there was no indication that the alleged failure was continuing. Moreover, the Secretariat reported that the relevant law had been changed and was no longer in force, and that there was no indication that the submitters had diligently pursued local remedies as required under Article 13:3(b)(ii).
Of the remaining four submissions filed against Canada under Article 14, one was initially terminated because similar legal proceedings are currently pending before a Canadian Court of Law. The submission alleged failure to effectively enforce the habitat protection sections of the Canadian Fisheries Act and provisions of the Canadian Environmental Assessment Act. The submission was re-filed on October 4, 1997 after the Canadian Court process was concluded. The submission is currently being reviewed by the Secretariat.
Two submissions against Canada have been responded to by the Canadian Government. In both cases, the Secretariat is currently reviewing the Canadian Government's response to determine if a factual record should be developed.
One of these submissions alleges failure to enforce the Fisheries Act and failure to use the government's powers pursuant to the National Energy Board Act to ensure the protection of fish and fish habitat in British Columbia rivers from ongoing and repeated environmental damage caused by hydro-electric dams. The other submission responded to by the Canadian government alleges failure to enforce several environmental standards related to agriculture pollution originating from animal production facilities in Quebec.
The most recent submission against Canada, alleging failure to pass endangered species legislation or regulations as required by the Biodiversity Convention to which Canada is a signatory, is currently being reviewed by the Secretariat. In January 1998, this complaint became the first trinational environmental NAFTA submission when US and Mexican environmental organizations (Northwest Ecosystem Alliance and Centro Mexicano de Derecho Ambiental, respectively) joined the original Canadian submitters in pursuing the complaint.
In contrast to the US and Canadian cases, the first dispute involving Mexico progressed to require the development of a factual record. The submission alleged failure to effectively enforce Mexican environmental laws during the evaluation process of a project involving construction and operation of a port terminal and related works in Cozumel. The factual record was released in October 1997.
The four remaining submissions against Mexico have been under Secretariat review. The first submission alleges failure to enforce Mexican environmental laws governing disposal of wastewater. The second alleges failure to carry out the formalities required and the administrative procedures provided by the Ecological Balance and Environmental Protection Act (LGEEPA) of 1988 in the case of a citizens' complaint on the Hydrological Basin of the Lerma Santiago River-Lake Chapala. The third submission alleges failure to enforce the LGEEPA in relation to the April 22, 1992 sewer explosions in the city of Guadalajara caused by gasoline leaks from an underground pipeline operated by Mexico's state-owned oil company, PEMEX. The most recent submission against Mexico, filed on February 25, 1998, alleges failure to enforce the applicable environmental laws in response to a citizen's complaint regarding lumbering operations at the "El Taray" site in the state of Jalisco.
Part V of the NAAEC also deals with enforcement disputes. Under Part V, a NAFTA member government can initiate consultations with another NAFTA member if the government lodging the dispute believes the other member country has shown a persistent pattern of failure to effectively enforce its environmental law. As of December 1997, no disputes have been filed under Part V. (See appendix A for a detailed description of the NAAEC Part V dispute settlement process.)
The Border Environmental Cooperation Agreement
Concern about the potential increase in pollution "spillover" due to NAFTA prompted new efforts to strengthen US-Mexico cooperation on border environmental issues. In February 1992, the Bush Administration released the Integrated Environmental Plan for the US-Mexican Border Area ("Border Plan"). The "Border Plan" committed the United States and Mexico to pursue specific environmental cooperative objectives such as strengthening the enforcement of domestic environmental laws and reducing pollution through joint initiatives.
To gain congressional support for NAFTA from US states along the Mexican border, the Clinton Administration, supplemented the "Border Plan" in 1993 with a broader and more concrete agreement—the Border Environmental Cooperation Agreement (BECA). The BECA builds on the 1983 La Paz Agreement between the United States and Mexico, which established a framework for cooperation between the USEPA and its Mexican equivalent, SEDUE (now called SEDSOL12). The primary concern addressed by the BECA was that increased production in the US-Mexico border region would strain already limited resources for dealing with environmental problems in the border region and the pact seeks to facilitate funding for US-Mexico border infrastructure projects. A July 1996 US General Accounting Office report stated that approximately US$8 billion would be needed over the next 10 years to meet the environmental infrastructure needs of the US-Mexico border region.13
Two new institutions were created under the BECA—the Border Environmental Cooperation Commission (BECC) and the North American Development Bank (NADBank). The BECC has two main functions: it evaluates and certifies environmental projects for potential funding from the NADBank and other sources, and it provides technical assistance and grants to help strengthen project proposals. The NADBank reviews BECC-certified projects for funding through loans and loan guarantees at market interest rates, and it provides grants and technical assistance to help local utilities improve their financial performance and capabilities. Both institutions are also active in helping projects find funding from other private and public sources.
Authorized capital for the NADBank is US$3 billion.14 Ninety percent of the NADBank funds are allocated for US-Mexico border infrastructure projects. Initially, funds are only available for wastewater, water treatment and solid waste projects.
Ten percent of NADBank Funds have been slated to finance community adjustment and investment projects "in support of the purpose of the North American Free Trade Agreement"15 and are not limited to the border area. This provision was added to reinforce congressional support for the NADBank. The US NADBank office in charge of the Community Adjustment and Investment Program (CAIP) was established in 1996. As of December 1997, 48 US communities have been designated as eligible for CAIP loans or loan guarantees. Funding eligibility is based on three criteria: the evidence of a significant job loss connected to the passage of NAFTA; the project seeking funds must create new private sector jobs; and the project must lack access to private sector lending on reasonable terms and conditions. Mexico has not established a program to take advantage of these funds. As of December 1997, the Finance Committee for the CAIP has approved 38 loans.16
As of April 22, 1998, the BECC had certified 21 projects, with a combined estimated cost of approximately US$471.2 million (see table 2). Of these projects, four projects (worth US$31.0 million) met NADBank lending criteria and received US$3.6 million in direct loans or loan guarantees. To date, NADBank funding has been disbursed for two projects—a water treatment plant in Brawley, California (the NADBank purchased US$1.0 million in bonds) and a Water Supply and Sewage Collection project in Mercedes, Texas (the NADBank lent US$1.87 million). A loan guarantee of US$0.55 was approved for a Wastewater Treatment Plant in Matamoros, Tamaulipas, Mexico. Loan closing is pending resolution of contractual issues. Funding for a Water Supply and Wastewater Treatment project in Naco, Sonora, Mexico (US$0.18 million) is also pending resolution of contractual issues. Of the remaining certified projects, thirteen projects are still pending NADBank funding approval; while four projects are not seeking NADBank financing.
Certification and disbursement of funds are but two of the services provided by the BECC/NADBank. Both organizations assist projects in acquiring funding from other sources, both public and private. They also provide advisory services—the BECC to aid project development and the NADBank to enhance performance and operational capacities of projects. Moreover, NADBank loans play an important role by instilling discipline on projects. Regardless of loan size, a project must maintain specific operating and financial requirements to receive the loan. Most NADBank supported projects receive a combination of grant and loan.
The main criticism of the BECC/NADBank is that the lending criteria can be burdensome, especially the requirement that projects "generate sufficient revenues, by user fees or otherwise, to be self-sustaining, or that funds will be available from other sources to meet debt servicing obligations."17 The application process has also been criticized for being cumbersome and difficult, especially for many small towns unaccustomed to planning large-scale infrastructure projects. The BECC/NADBank has also been criticized for not having sufficient resources allocated for helping project managers develop basic business skills which they are often lacking.
To deal with the above shortcomings, three initiatives were introduced by the BECC/NADBank. First, in April 1997 the NADBank entered into a cooperative agreement with the United States EPA, under which the EPA agreed to contribute US$170 million over five years to the Border Environment Infrastructure Fund (BEIF) for water and wastewater projects. The fund administers grant aid for project operation and maintenance, or subsidies to lower project interest rates. In January 1998, the NADBank agreed to disburse US$37 million of the BEIF funds to four projects.18
Second, the BECC created a Technical Assistance Program to provide technical and project development support for wastewater, water treatment and solid waste infrastructure projects. As of June 1997, the BECC has provided more than US$800,000 for technical assistance.19 In June 1997, the BECC received a US$10 million grant from the EPA to enhance its Technical Assistance Program in the area of water and wastewater projects.
Third, the NADBank assists local utilities to enhance their financial performance and operational capabilities, before and after BECC certification, through its Institutional Development Cooperation Program (IDP). The IDP program was created in December 1996 and has become a core function of the NADBank. Originally, US$2 million was earmarked for the IDP fund but the program's success led to an increase in IDP funds to US$4 million in June 1997. Financing for the US$4 million fund comes from NADBank earnings. As of January 1998, the NADBank has committed IDP funds to 27 projects. IDP funding for nine other projects is either being reviewed or is under final formulation.20
The North American Agreement on Labor Cooperation
The NAALC was developed to mitigate concerns that NAFTA would distort labor markets in both the United States and Mexico. The two main labor concerns were that Mexico has poorer working conditions and labor standards, and that low Mexican wages and poor enforcement of Mexican labor standards would attract investment to Mexico, depriving US workers of jobs and driving down US wages.
The NAALC has two broad goals: (1) to encourage the improvement of labor conditions in North America through cooperative activities, including the promotion of a set of eleven labor principles;21 and (2) to provide a mechanism for mediating labor disputes. To fulfill these objectives, the NAALC created the Commission for Labor Cooperation (CLC), composed of a Council of cabinet-level ministers from the three NAFTA countries and a Secretariat with an annual budget of US$1.8 million in 1996. The NAALC also requires that each government establish a National Administrative Office (NAO) within its Labor Ministry. The NAOs serve as a point of contact between the domestic government agencies, the NAOs of the other NAFTA countries, and the Secretariat. They are charged with responding to public requests regarding labor law matters in the other NAFTA countries and helping the Commission carry out its cooperative activities.
Goal 1: Cooperation Agenda
The Secretariat, in coordination with the NAOs, carries out tripartite programs to promote the improvement of labor conditions in North America. Cooperative programs include working sessions between labor officials of the three NAFTA countries, exchanges of information, technical assistance and training, and conferences and seminars. As of April 1998, the main focus of these activities has been on Occupational Safety and Health, Employment and Job Training, and Labor Law/Workers Rights. Occupational Safety and Health related activities have included tripartite training seminars on hazard recognition for industrial hygienists and study tours of safety methods in the electronics and petrochemical industries. Employment and Job Training cooperative activities have included a workshop on equality issues and a trinational government workshop on income security programs.
Activities related to Labor Law/Worker Rights were undertaken to provide a better understanding of the labor relations systems in the three NAFTA countries. Worker rights and labor laws have been the main focus of the NAFTA labor disputes to date. The NAALC has sponsored conferences on labor law and industrial relations, and trinational government workshops on the right to organize and freedom of association. Tripartite initiatives have also been carried out in the areas of Productivity and Quality, and Child Labor and Gender Initiatives.
The CLC also undertakes research and analysis on labor issues to promote understanding and assessment of regional labor markets, standards and laws. In 1995, the CLC began preparing three reports: a North American comparative labor market study, a three-volume comparative labor law study, and a best practices study of the North American garment industry.22 The comparative labor market study was released in 1997.23 The study compares labor market data of the NAFTA countries from 1984-95, including labor force demographics, changing employment structures and non-standard work patterns, unemployment and underemployment, and earnings and productivity. In December 1997, the CLC also released a collection of papers from the CLC's 1997 North American Seminar on Incomes and Productivity.24 A study of women in the North American Labor Force is forthcoming.
The Secretariat conducted one special study at the request of the Council entitled "Plant Closings and Labor Rights". This study was initiated as part of an action plan developed during ministerial consultations that were requested by Mexico in 1995. All three NAFTA countries were directed to undertake a study on the effects of sudden plant closing or threat of plant closing on the right of workers to organize. The study was prompted by the closing of a Sprint Corporation plant in San Francisco—employing mainly Hispanic workers—immediately before a union election. (Main findings of the report on US practices are summarized in appendix B).
Goal 2: Dispute Settlement
The NAALC provides a four level dispute resolution process to promote compliance with national labor laws: (1) NAO review and consultations, (2) ministerial consultations, (3) evaluation by a committee of experts, and (4) review by a dispute resolution panel. The dispute resolution process may be initiated in two ways. An NAO can independently request consultations with another NAO regarding any matter within the scope of the NAALC. Alternatively, individuals or organizations can make submissions to their domestic NAO if they believe a member country is not effectively enforcing its domestic labor laws. The NAO reviews these disputes and determines whether to proceed with the resolution process. (See appendix A for a detailed description of the NAALC dispute resolution process.)
As of April 10, 1998, no disputes had been initiated by an NAO, while ten submissions had been made by NGOs and individuals (see tables 3 and 4). Nine submissions were filed with the US NAO and one with the Mexican NAO. As of May 1, 1998, no submissions have been filed with the Canadian NAO. Canadian provinces, which have jurisdiction over most Canadian labor laws, have been slow to ratify the Canadian Intergovernmental Agreement Regarding the North American Agreement on Labour Cooperation—the agreement which binds signatory provinces to the NAALC.25 This has precluded any submissions being submitted to the Canadian NAO except in the narrow area encompassed within the Canadian federal labor jurisdiction.
Two submissions filed with the US NAO were terminated at the NAO review stage due to insufficient evidence. These submissions were filed by the International Brotherhood of Teamsters and the United Electrical, Radio and Machine Workers of America, alleging that Honeywell Corporation and General Electric Corporation in Mexico deprived workers of their freedom of association and their right to organize into unions of their choice.26 The submitters alleged, among other assertions, that workers were fired in order to impede the formation of a union. In both cases, since workers for personal financial reasons accepted severance, Mexican authorities were unable to establish whether the dismissals were for cause or in retribution for union organizing. Therefore, the NAO was not able to find the Government of Mexico guilty of failure to enforce the relevant labor laws. Nonetheless, the NAO recommended that the NAFTA countries develop cooperative initiatives to address the issues raised in the submissions.
Two submissions filed with the US NAO were withdrawn during the NAO review process. The United Electrical, Radio & Machine Workers (UE) filed a second submission alleging that General Electric Corporation in Mexico denied workers freedom of association and the right to organize.27 This submission was withdrawn by the UE who claimed that the investigation would be a "whitewash".28 The other submission, filed by the Communications Workers of America and others alleging that Maxi-Switch in Mexico denied workers freedom of association and the right to organize, was withdrawn after Mexican federal authorities agreed to recognize the independent union formed at Maxi-Switch in Mexico.29 The Mexican federal government instructed the local government to sign a document agreeing to recognize the union and reinstate the dismissed workers. The signature of three local government officials was required for the document to become legal. One of the officials refused to sign and the independent union has subsequently taken the case to the Mexican courts. The government-affiliated union has applied again for certification.
Three submissions filed with the US NAO led to ministerial consultations. One submission was filed by the International Labor Rights Fund Corporation and others, alleging that the Sony Corporation in Mexico deprived workers of their freedom of association and their right to organize.30 Specifically, the submission asserted that Mexico was not promoting compliance with its labor laws regarding dismissals, union elections, work stoppage, and union registration. After reviewing the submission, the US NAO issued a report concluding that the submission raised serious questions about the workers' ability to form an independent union under Mexico's current union registration procedures. The US NAO recommended ministerial consultations to address union registration and certification in all three countries. The conduct of the ministerial consultations resulted in a two-year program of activities which included seminars, workshops, meetings and studies. The US NAO also recommended various cooperative activities to address the other issues raised in the submission.
In March 1996, the submitters requested that ministerial consultations be reopened, charging that the problems raised in the original submission persisted. The US NAO denied the request, stating that the objectives of ministerial consultations—full examination of the matters—had been accomplished. The US Secretary of Labor, however, directed the NAO to monitor whether Mexico has made any improvements in its labor laws and to prepare a follow-up report. The report, published in December 1996, documented new legislative proposals and Supreme Court decisions in Mexico that could potentially ease the restrictions on registration of independent labor unions in Mexico.
The second submission which led to ministerial consultations was filed by the International Labor Rights Fund and others alleging that Mexican federal workers were denied freedom of association and their right to organize. The submission alleged, inter alia, that Mexico failed to comply with its labor laws by restricting to one the number of unions that could represent the federal workers.31 To support their allegations, the submitters cited Mexico's ratification of International Labor Organization (ILO) Convention 87 and a decision by the Mexican Supreme Court that found provisions of two state statutes barring employees from forming more than one union per work place unconstitutional. The US NAO reviewed the submission and issued a report noting that the freedom of association issues raised in the submission were currently the subject of review and interpretation by the ILO and that various opinions exist regarding the legal status of international treaties under Mexican law. As a result, the US NAO requested ministerial consultations in January 1997 on the status of international treaties and constitutional provisions protecting freedom of association. Ministerial consultations resulted in the labor departments of Canada, Mexico and the United States agreeing to exchange publicly available information to permit a full examination of the issues raised in the submission. A seminar, open to the public, was also held on these issues in Baltimore on December 4, 1997. On December 3, 1997 the submitters requested that the submission be reopened on grounds that some of the issues raised in the original submission were not adequately addressed. The US NAO is currently considering the request.
The third submission was filed by Human Rights Watch, et al., alleging that the Mexican government is failing to enforce its labor law prohibitions on discrimination against pregnant women and that the Mexican government denies victims of sex discrimination access to impartial tribunals.32 Specifically, the submitters allege that companies in Mexico's export processing (Maquiladora) sector regularly require prospective female employees to verify their pregnancy status as a condition for employment and deny employment to pregnant women. The submitters further allege that some Maquiladora companies mistreat, and sometimes dismiss, pregnant employees in order to avoid payment of maternity benefits. In January 1998, the US NAO recommended ministerial consultations to determine the effectiveness of Mexican laws and law enforcement in protecting against pregnancy-based gender discrimination.
Two submissions filed with the US NAO are currently being reviewed. The first submission being reviewed was filed by the Support Committee for Maquiladora Workers, et al., alleging that the Han Young factory in Mexico denied workers freedom of association and the right to organize. The submission also alleged that the Mexican Government has failed to enforce its laws on safety and health, dismissal from employment, and profit sharing.33 The submitters asserted that the company used threats and firings to keep workers from forming an independent union and that union organizations associated with the government colluded with the local government to defeat the union organizing effort. The submitters further alleged that the responsible Mexican labor tribunal overturned the results of an election held on October 15, 1997 which was won by an independent union.
President Clinton raised the Han Young issue when Mexican President Ernesto Zedillo visited Washington in November 1997; Zedillo subsequently sent a federal representative to the factory to help mediate the dispute. The union was certified by local authorities following a second election which was held on December 12, 1997. However, after the election, Han Young refused to negotiate with the independent union, in part claiming that the Mexican Labor Board never officially notified the company to request that they negotiate with the union. The responsible labor tribunal has permitted third election at the plant to challenge the independent union. On February 19, 1998, the Mexican government levied a US$9,000 fine against Han Young plant for health and safety violations. The fine was levied the day after the US Labor Department launched an investigation on worker safety at the factory.34
The second submission under review was filed by Echlin Workers Alliance, et al., alleging that the ITAPSA export processing plant in Mexico denied workers freedom of association and the right to organize.35 Specifically, the submitters allege that the company used threats and firings to keep workers from forming a union and that the representation election held following the organizing drive was flawed and plagued by irregularities that occurred at the instigation of management and the existing union. The submitters allege that though it was aware of the situation, the Mexican government took no remedial action.
The submission filed with the Mexican NAO by the Mexican Telephone Workers Union alleged that Sprint Corporation in the United States deprived workers of their freedom of association and the right to organize by closing its subsidiary in San Francisco shortly before a union representation election.36 The submission led to ministerial consultations. Among the results of the ministerial consultations, a public forum was held in San Francisco to discuss the issue and the Secretariat was charged with conducting the special study, entitled "Plant Closings and Labor Rights". The Communications Workers of America (CWA) filed an unfair labor practice case against Sprint with the National Labor Relations Board (NLRB). In December 1996, the NLRB ruled that Sprint wrongfully closed its San Francisco subsidiary and ordered Sprint to reinstate the workers and to award them back pay. Sprint filed an appeal in US federal court challenging the NLRB ruling. In November 1997, the US federal court reversed the earlier ruling, stating that there was overwhelming evidence that Sprint closed the plant because it was losing money, not because the company wanted to thwart the union organizing campaign.
The environment and labor side agreements of the NAFTA have advanced cooperation on environment and labor issues by creating a new channel for communication and cooperation on regional environmental and labor issues. The side agreements created trinational commissions charged with developing cooperative initiatives and providing a mechanism to deal with regional environment and labor disputes. US labor and environment groups wanted the commissions to have stronger powers to enforce labor and environmental laws, including rapid authorization for members to resort to trade retaliation or monetary fines in cases of noncompliance. However, such measures can be imposed only in limited cases, in which countries do not effectively enforce their own laws. Instead, the pacts rely heavily on the glare of publicity—putting a spotlight on labor and environmental abuses—to prompt countries to fully enforce their domestic laws. Though many environment and labor groups are disappointed with the limited powers given to the commissions, the side agreements have been able to improve trinational communication and cooperation on regional environment and labor issues.
The NAAEC has been modestly successful at accomplishing its first goal—carrying out a program of cooperative initiatives to improve regional environmental conditions. Though the effectiveness of the work programs can be questioned, some concrete results have been achieved. The NAFTA countries have agreed, inter alia, to phase out four persistent organic pollutants, to develop or expand new programs for the conservation of species including monarch butterflies and migratory songbirds, and to create a network of important bird areas.
The NAAEC has shown mixed results with regard to its second goal of providing a mechanism for mediating disputes. The three reviews under Article 13 have drawn public attention to growing problems which probably would not have been examined as expeditiously in the absence of the CEC. Cases brought under Article 14, by contrast, have generally not been well substantiated, although one—the Cozumel port terminal project—resulted in development of a factual record, and eight are in various stages of review (see table 1). The Part V dispute settlement mechanism has yet to be used, probably in part due to the difficulty of demonstrating a "persistent pattern" of failure to enforce environmental laws. US pressure to negotiate the NAAEC focused primarily on concerns over Mexican environmental law enforcement. However, the Article 14 dispute settlement mechanism of the NAAEC was initially used more often to review Canadian and US environmental practices, rather than Mexican problems. Concerns about Mexican practices have recently increased: four of the eight disputes currently under Secretariat review concern Mexican enforcement of its environmental laws.
The NAAEC has been very successful at increasing public input on regional environmental issues. Public consultations are held regarding most activities of the CEC such as environmental disputes that have been submitted to the CEC and the agenda for the CEC annual work program. Public input has also been solicited for a review of the NAAEC.
The BECC/NADBank have been very slow to disburse funds but have begun to take an important step forward with regard to fulfilling the infrastructure needs of the US-Mexico border region. The value of their work goes beyond their direct mandate to certify projects and to provide loans. Both institutions also actively seek funds for projects from various other sources and provide advisory services to help formulate and develop efficient infrastructure projects. However, the infrastructure needs of the US-Mexico border region are immense (approximately US$8 billion over the next ten years) and further direct funding, whether disbursed through the NADBank/BECC or through other initiatives, will be necessary to deal with current border infrastructure inadequacies.
With regard to the NAALC's first goal—to encourage the improvement of labor conditions in North America through cooperative initiatives—there has been less concrete results than for the NAAEC. CLC tripartite work programs helped to increase awareness and disseminate information on important labor issues such as freedom of association and the right to organize and worker safety. Documenting and understanding the differences in labor laws and practices in the three NAFTA countries has also been successfully undertaken by the CLC. But, whether these programs have translated into improved labor laws and practices is unclear.
The NAALC has had mixed results with regard to its second goal—to provide a mechanism for mediating labor disputes. Nine of the ten disputes as of April 10, 1998 have primarily involved freedom of association; four of these reached the level of ministerial consultations. Ministerial consultations put a spotlight on the contentious labor matters, pressuring governments and corporations to resolve the issue. The NAALC does not allow disputes concerning freedom of association to progress past the ministerial consultation level.
Two other labor issues have been raised in submissions. One dispute concerns gender-based discrimination, which can proceed to the level of ECE review, while one submission involving freedom of association also raises health and safety issues, which can potentially reach the level of trade sanctions.
The CLC dispute resolution process initially appeared to have been a factor in the changing of contested labor practices in three of the ten NAFTA labor disputes as of April 10, 1997—Sprint, Maxi-Switch, and Han Young (see tables 3 and 4). However, in the Sprint case, the decision was reversed following an appeal filed by the company, and in the other two cases, the companies and/or local governments have refused to recognize the independent union. In the Han Young dispute, however, the Mexican government levied fines against the company for health and safety violations.
The NAAEC and NAALC have provided a new channel-trilateral environment and labor commissions-for the member countries to bring forward and tackle national and regional environment and labor concerns. Though there are areas where the agreements can be improved, they have taken a small step forward in dealing with the environment and labor problems which inevitably arise with increased economic integration.
Appendix A: Dispute Resolution Procedures Under the NAAEC and NAALC
NAAEC Article 14 Dispute Resolution
NGOs or individuals can petition the CEC if they believe that a NAFTA country is not effectively enforcing its environmental law. The Secretariat reviews the submission to determine if a response from the accused country is warranted. The Secretariat then decides whether a factual record should be developed and informs the Council. A factual record is prepared if the Council agrees by a two-thirds vote. A factual record does not reach legal determinations, but rather clarifies facts related to the case. The factual record can be made public if the Council agrees by a two-thirds vote. Article 14 disputes end with development of a factual record.
NAAEC Part V Dispute Resolution 37
A NAFTA member government can initiate consultations with another NAFTA member if the government lodging the dispute believes the other country has shown a persistent pattern of failure to effectively enforce its environmental law. If the disputing parties fail to reach agreement within 60 days of the request for consultations, either party may request a special session of the Council. The Council must convene within twenty days of the request and will try to mediate the dispute. The Council may call upon technical advisors or create working groups. If the Council is unable to resolve the dispute within sixty days, an arbitral panel may be convened at the request of either party and by a two-third vote of the Council.38
The panel examines whether there has been a persistent pattern of failure to effectively enforce environmental law. The disputants are allowed to make initial and rebuttal written submissions and are entitled to at least one hearing before the panel. The panel may seek advice from experts (provided that the disputing parties agree). Within 180 days after the first panelist is selected, the panel must submit an initial report containing its findings. If the country was found to demonstrate a persistent pattern of failure to enforce its environmental laws, the report will make recommendations, normally in the form of an action plan. The disputants have 30 days to submit written comments on the report and the panel must issue a final report to the disputants within 60 days of the release of the initial report. The disputing parties must give the report to the Council within 15 days after it is presented to them. The final report will be published five days after it is submitted to the Council.
The disputing parties will then agree on an action plan which "normally shall conform with the determinations and recommendations of the panel".39 If an agreement can't be reached on an action plan, a complaining party may request that the panel be reconvened, though no earlier than 60 days or later than 120 days after the date of the panel's final report. The panel will either approve an action plan proposed by the party complained against, create an action plan or impose a monetary fine of up to 0.007 percent of total trade in goods between the disputing parties during the most recent year. In the case that an action plan is not agreed upon and a panel has not been requested within the required time frame, the last action plan submitted by the offending party will be used.
If the complainant believes that the offending country is not fully implementing the agreed upon action plan, they may request that the environmental panel be reconvened, though no earlier than 180 days after the action plan was decided upon. The panel shall determine within 60 of being reconvened whether the action plan is being fully implemented. If the panel determines that the action plan is not being fully implemented, a monetary fine may be imposed of up to 0.007 percent of total trade in goods between the disputing parties during the most recent year for which data is available. If the complaining party believes that the offending party is still not complying with the determinations after 180 days, they may request that the panel be reconvened. The panel must determine whether the party is complying or not within 60 days of being convened. In the case of the United States and Mexico, if the panel determines that there is still no compliance, the country filing the complaint may impose tariffs equal to the monetary fine. Trade sanctions cannot be imposed against Canada. Instead, Canada has agreed to make the panel's determination legally binding under the Canadian courts-an "order of the court".
NAALC Dispute Resolution 40
A NAFTA member government NAO can initiate consultations with another NAFTA member NAO concerning the other member's labor law, its labor law administration, or its labor market conditions. Alternatively, NGOs or individuals can make submissions to their domestic NAOs if they believe a member country is not effectively enforcing its labor laws. The NAO reviews the submission. If the domestic NAO determines that the public submission has merit, it consults with the foreign NAO, pursuant to article 21 of the NAALC.
Next, a ministerial consultation may be requested. If the matter is still unresolved, an Evaluation Committee of Experts (ECE) may be requested but only under specified conditions.41 That is, the dispute must relate to occupational safety and health or "other technical labor standards",42 and must be trade-related and be covered by mutually recognized labor laws.
The ECE analyzes patterns of enforcement by each NAFTA member for the matter in question. The ECE may invite written submissions from the disputants and the public. The ECE may also consider information from a number of sources, including the Secretariat, the NAO of each Party, relevant organizations, and the public. The disputants must be given "reasonable opportunity" to review and comment on any information that the ECE receives regarding the case and to make written submissions. Within 120 days of being established, the ECE issues an evaluation draft report, containing a comparative assessment of the matter, conclusions and any practical recommendations. The parties may submit written views to the ECE on the draft report. A final report is presented to the Council 60 days after the draft is issued and is made public within 30 days of being presented to the Council. Within 90 days of the report's publication, the disputing parties submit to each other and the Secretariat responses to the recommendations in the report.
For matters that remain unsettled and relate to occupational safety and health, child labor, or minimum wages, any party may request consultations with the other disputing party regarding the subject matter addressed in the report. If the disputing parties are unable to reach a mutually satisfactory agreement within 60 days, either party may request a special session of the Council. The NAALC dispute settlement processes then follows the same process as the NAAEC Part V dispute settlement process stated above.
Appendix B: Analysis of Bronfenbrenner Study
The US NAO commissioned Kate Bronfenbrenner, Director of Labor Education Research at Cornell University, to study plant closings in the United States as part of a trinational study investigating plant closings in all three NAFTA countries.43 Bronfenbrenner concluded that plant closing threats and plant closings, combined with other anti-union tactics by employers, undermine union organizing efforts in the United States. Specifically, her report finds that plant closing threats were reported to have occurred in over half of the sampled union organizing campaigns and that respondents filed unfair labor practice charges in one-third of the reported cases of threats. Bronfenbrenner recommended "significant reform to US labor laws and . . . amendments to the North American Agreement on Labor Cooperation."44
The CLC agreed with Bronfenbrenner's findings that half of the sampled union organizers experienced what they "believed to be" plant closing threats but had significant methodological concerns regarding the study. First, the Bronfenbrenner study does not make a distinction between perceived threats and unlawful threats. The CLC report notes that:
the finding in the (Bronfenbrenner) survey that plant closing threats reportedly occurred in half of the organizing campaigns in the sample cannot be seen as conclusive evidence that employers make unlawful threats in half of all union organizing campaigns. Union representatives reported what they perceived as threats, whether they were lawful or unlawful, in half of the campaigns in the sample, and accordingly took action to withdraw their petition or proceed to an election, with the results indicated . . . Unions and employers both have myriad reasons for not filing unfair labor practice charges or for settling cases without a final decision by an adjudicator" 45
The CLC report remarks further on the issue of perceived threats, stating that "(s)ome academic researchers have discussed a phenomenon of localized business cultures where there exists a widespread sentiment among workers that their employer would close a plant rather than accept a union . . . But examining a culture of anti-unionism in which workers have internalized a fear of plant closing would have to be undertaken in another study that would range far beyond the terms of reference of this report."
The CLC report concludes that with respect to determining violations and ordering remedies US labor laws effectively protect against the use of plant closures or threats of plant closures to prevent union organization. The report further notes, however, that many incidences of plant closings and plant closing threats occur that never reach this final stage and that "perceived plant closing threats were the largest single factor identified by respondents who decided to withdraw an election petition".46
Despite the methodological problems with Bronfenbrenner's study, the results indicate that US union organizing campaigns are negatively effected by perceived plant closing threats. The further study suggested by the CLC would be useful in identifying needed changes, if any, to US labor laws.
Go to TABLES
1. The side agreement on import surges is not dealt with in this paper. The agreement established a mechanism to monitor trade so that the NAFTA members can anticipate rapid and harmful import growth, but it has received little attention to date.
2. From a presentation given by then-Governor Bill Clinton at North Carolina State University on October 5, 1992, entitled "Expanding Trade and Creating American Jobs."
3. From Dan Esty, "Making Trade and Environmental Policies Work Together: Lessons from NAFTA", Aussenwirtschaft, 49, 1994, p. 61.
4. In addition to the NAAEC, environmental concerns were addressed in the Border Environmental Cooperation agreement (BECA) and in the NAFTA. The BECA addresses concern over pollution in the US-Mexico border region, while the NAFTA text contains, inter alia, a "pollution haven" provision (Article 1114) which states that it is inappropriate for any NAFTA party to lower environmental standards or enforcement to encourage investments.
5. At the regular sessions, the Council reviews the CEC annual work program and budget, determines whether submissions on enforcement should proceed to the next stage of mediation and implements new initiatives.
6. These sources include a carryover of funds from 1996, a CEC levy and interest on short-term investments.
7. The remaining US$7.2 million was used for expenses including salaries (US$2.9 million), the North American Fund for Environmental Cooperation (US$1.6 million), publications and reports (US$0.4 million), public outreach (US$0.3 million) and technical editing (US$0.2 million).
8. The first NAPRI report, entitled Taking Stock: North American Pollutant Releases and Transfers, was published in July 1997.
9. The Environment Trade and Economy Programs consist of an assessment of the environmental impact of NAFTA and initiatives on environmental technology cooperation.
10. CEC, Registry of Submissions on Enforcement Matters, http://www.cec.org/templates/RegistryFront.cfm?format=1&varlan=English.
11. North American Agreement on Environmental Cooperation, Article 14:3(a).
12. SEDSOL is the Mexican Secretariat for Social Development.
13. US General Accounting Office, International Environment: Environmental Infrastructure Needs in the US-Mexico Border Region Remain Unmet, July 1996, p. 1. Other estimates of funding needs range from US$4 billion to US$12 billion over a 5- to 10- year period. See Gary Hufbauer and Jeffrey Schott, NAFTA: An Assessment (revised edition, 1993), p.167.
14. The United States and Mexico agreed to contribute US$1.5 billion in equal installments over four years starting in 1994. US$450 million is paid-in capital, while US$2.55 billion is callable. The callable portion cannot be called for making loans or loan guarantees. Rather, it can only be used as a guarantee for the Bank's outstanding indebtedness.
15. See NADBank. 1997. NADBank Annual Report 1996, Community Adjustment and Investment. (May). http://www.nadbank.org
16. Dollar amount of loans is confidential.
17. The NADBank Charter, Chapter II: North American Development Bank, Article 3, Section 6:2(2).
18. The four projects which received funds are: Water and Wastewater Treatment project in Naco, Sonora, Mexico (US$420,000 grant); Parallel Conveyance System and Rehabilitation of San Antonio de los Vuenos Plant in Tijuana, Baja California, Mexico (US$16 million grant); Wastewater Treatment Plants and Supplemental Wastewater Collection Projects in Cuidad Juarez, Chihuahua (US$11.08 million grant); and Expansion of the Jonathan Rogers Water Treatment Plant in El Paso, Texas (US$9.54 million grant).
19. BECC News, June 1997. http://cocef.interjuarez.com/jun97.htm.
20. North American Development Bank, "Institutional Development Cooperation Program Status Report, January-December 1997." http://www.nadbank.org/english/issue8.html In NADBank News, vol. II, no. 2, January 28, 1998 .
21. The eleven labor principles are: freedom of association and protection of the right to organize; the right to bargain collectively; the right to strike; prohibition of forced labor; labor protections for children and young persons; minimum employment standards; elimination of employment discrimination; equal pay for men and women; prevention of occupational injuries and illnesses; compensation in cases of occupational injuries and illnesses; and protection of migrant workers. See North American Agreement on Labor Cooperation, Annex 1.
22. A preliminary comparative labor law study was released in December 1996, entitled "Labor and Industrial Relations Law in Canada, the United States and Mexico".
23. The exact title is North American Labor Markets: a Comparative Profile.
24. The exact title is Incomes and Productivity in North America: Papers of the 1997 Seminar.
25. Currently, three provinces-Alberta, Manitoba, and Quebec-have ratified the agreement.
26. Submissions 940001 and 940002.
27. Submission 940004.
28. For discussion of why the submission was withdrawn, see "Electrical Workers Drops GE Petition, Calling NAO Mexico Probe a "Whitewash." International Trade Reporter (BNA), vol. 12, 1995, p. 272.
29. Submission 9602.
30. Submission 940003. The submission also alleged that workers were deprived of minimum employment standards relating to hours of work and holiday work. These allegations were not accepted for review because appropriate measures had not been taken under the Mexican legal system.
31. Submission 9601. The submission also questioned the impartiality of the Mexican labor tribunals responsible for labor relations decisions in the federal sector. The NAO found these allegations ungrounded.
32. Submission 9701.
33. Submission 9702.
34. The Han Young case is the first labor dispute brought before the CLC that involves worker safety concerns. Worker safety violations can lead to monetary fines of up to 0.007% of trade (US$50 million for US disputes against Mexico as of February 1998).
35. Submission 9703.
36. Submission 9501.
37. Required time periods may be changed if agreed upon by the disputing parties.
38. A panel consists of five members, normally selected from a roster of 45 individuals who have expertise in environmental law or its enforcement, dispute resolution for international agreements or other related scientific, technical or professional areas. Roster members are appointed by consensus of the Council for three-year terms.
39. Article 33 of the NAAEC.
40. Required time periods may be changed is if agreed upon by the disputing parties.
41. Unless the Council decides otherwise, an ECE consists of three members, normally selected from a roster of 45 individuals who have expertise in labor matters or other appropriate disciplines. The roster is selected by the Council in consultation with the International Labor Organization (ILO).
42. NAALC, Article 23:2. Of the eleven labor law principles advocated by the NAALC, freedom of association, collective bargaining, and the right to strike are not considered "technical labor standards".
43. The study was initiated during ministerial consultations requested by Mexico in 1995 regarding the closure of a Sprint factory immediately before a union election.
44. Kate Bronfenbrenner, "Plant Closings and Labor Rights", p. 34.
45. CLC, "Plant Closings and Labor Rights" http:www.naalc.org/english/bookstore/part3.htm, Part three: Review of Administrative and Judicial Data, .