U.S. measures to reduce teenage smoking deemed WTO violation

U.S. measures to reduce teenage smoking violate World Trade Organization (WTO) rules, according to a panel ruling released late last week. Indonesia successfully argued that the U.S. Family Smoking Prevention and Tobacco Control Act (FSPTCA) of 2009 violated WTO rules. The ruling opens the door to more teenage tobacco addiction, while further imperiling the legitimacy of a WTO that rules against environmental, health and other national policies 90 percent of the time.

The FSPTCA took a series of unprecedented and bold measures to combat teenage smoking, including the banning of many forms of flavored cigarettes. There is substantial evidence that tobacco companies produce and market these cigarettes as "starter" or "trainer" cigarettes in order to hook teenagers into a lifetime of nicotine addiction.

However, as the U.S. noted in its defense in the WTO case, the U.S. did not ban all types of cigarettes. In particular, regular tobacco and menthol cigarettes were excluded from the ban. The justification for these exclusions was that, unlike candy flavored or clove cigarettes, large numbers of adults are also hooked on regular and menthol cigarettes. To abruptly pull these products out of the market could cause a strain on the U.S. healthcare system (as lifetime addicts would instantly seek medical treatment for wrenching withdrawal symptoms) and might lead to a rise in illicit black market sales and associated crime. Nonetheless, various studies were ordered on the feasibility of banning menthol cigarettes in the future.

The FSPTCA banned candy and clove cigarettes regardless of where they were produced or who produced them. But Indonesia successfully argued that, since its exporters are the primary providers of clove cigarettes to the U.S. market, the FSPTCA constituted de facto discrimination, in violation of WTO rules under the Agreement on Technical Barriers to Trade (TBT). The WTO panel accepted this argument, despite the fact that the FSPTCA was totally non-discriminatory and many U.S. cigarette makers (such as those that make cola-flavored cigarettes) were also blocked from making these harmful products.

This severe blow to consumer protection comes on the heels of two other WTO rulings against America's dolphin-safe tuna and beef country-of-origin labels, and are likely to put a significant damper on the Obama administration's efforts to pass trade deals with South Korea, Colombia and Panama that contain similar anti-consumer rules.

More on the details of the case after the jump.

This trio of cases have been the first real "road testing" of the TBT, which has only been the subject of a few previous (and much less controversial) completed WTO cases. Prior to the creation of the WTO in 1995, there was a fairly limited basis under international trade rules for challenging labeling measures. For the last 15 years, the implications of TBT rules have been uncertain, but governments and corporations have invoked TBT requirements as a reason to not implement or to water down consumer protection policies. This happened several years ago, for instance, when the Bush administration pushed back on Maryland's tough proposed toy safety rules, out of concerns that China might push a WTO case. (See, for instance, page 12 of this report.)

But this trio of cases helps fill in the blanks as to why the TBT rules are so dangerous. Here are just a few of the problematic conclusions and implications:

Rare progressive achievement overturned. The FSPTCA was one of the top achievements of the Obama administration and 111th Congress. Indeed, it was one of the few accomplishments that hasn't been whittled away by preemptive caving in, selective implementation of statute, industry pressure, regulatory capture, non-implementation of regulatory recommendations, U.S. court challenge or GOP pressure. Tobacco companies would have been hard-pressed to beat the FSPTCA in the domestic context, both because they have few political allies and probably no legal basis for doing so. The WTO did the dirty work for them, and the U.S. will have to water down the teenage smoking measure or face trade sanctions.

Legitimate consumer safety policy deemed WTO-illegal.The WTO panel noted approvingly many aspects of the U.S. policy, but still ruled against it. The panel:

• acknowledged that the FSPTCA was "legitimate" (para 7.286);
• approvingly cited scientific studies that concluded that "the clove cigarette is nearly ideal in design as a 'trainer' cigarette for capturing young people as smokers" (para 7.403);
• concluded that the ban on clove cigarettes reflected "at least the majority view, and potentially the unanimous view" among scientists (para 7.401);
• determined that Indonesia had failed to prove that there were a "less-trade restrictive alternative" measure "that would make an equivalent contribution to the achievement of the [public health objective] sought by the United States" (para 7.421);
• found that alternatives suggested by Indonesia apperared to be riskier for public health (para 7.424); and finally
• noted that the U.S. executive branch and Congress went out of their way over many years to take Indonesia's views into account when designing the FSPTCA (para 7.645). Nonetheless, the panel ruled that the FSPTCA violated WTO rules. (The fact that the U.S. government even engaged in these consultations with Indonesia before protecting Americans' health would likely outrage many citizens: the fact that this wasn't even enough to avoid a WTO challenge calls into serious question the usefulness of having done so in the first place.) 

The fact that a policy could still be ruled WTO-illegal despite being so reasonable is likely to turn even more of the public against the WTO.

Despite major differences between clove and menthol cigarettes, the WTO rules that these are "like products." Indonesia brought its major successful claim against the U.S. under TBT Article 2.1, which states that

"Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country."

As the WTO panel stated, three elements are traditionally required for such a claim to prevail:

"The Panel considers that the essential elements of an inconsistency with Article 2.1 of the TBT Agreement are, as a minimum, that the measure at issue is a 'technical regulation'; that the imported and domestic products at issue are 'like products' within the meaning of that provision; and that the imported products are accorded 'less favourable' treatment than that accorded to like domestic products."(para 7.77)

Likeness is typically established by reference to:

(a)    the properties, nature and quality of the products; 
(b)    the end-uses of the products; 
(c)    consumers' tastes and habits – more comprehensively termed consumers' perceptions and behaviour – in respect of the products;  and
(d)    the tariff classification  of the products.

The WTO panel ruled that menthol and clove cigarettes are "like", even though:

• clove and menthol cigarettes have different additives present in substantially different quantities (para 7.180);
• clove cigarettes may have higher toxicity levels (para 7.184);
• different types of consumers may have different patterns of consumption of each type of flavored cigarette (para 7.232); and
• the U.S. has classified cloves separately from other cigarettes in its tariff schedule (para 7.235).

Indeed, a key part of the U.S. argument was that menthol cigarettes (because so many adults smoke them) are fundamentally different from clove cigarettes, and a sudden ban on the former may not be practical or wise. This does not appear to have been given any weight by the WTO panel for the purposes of its likeness analysis.

Similarly, the U.S. noted that U.S. companies that manufacture candy-flavored and clove-flavored cigarettes were also impacted by the ban. Despite this fact, the WTO panel arbitrarily determined that it would compare U.S. menthol to Indonesian clove cigarettes (para 7.274), rather than U.S. candy to Indonesian clove cigarettes. If it had done the latter, the panel would have been much less likely to have found a violation.

Indeed, the WTO panel utilized any interpretive flexibility it had in order to find that the TBT had been violated (see paras 7.104 and 7.187), rather than deferring to consumer protection. This, despite the ritual nod to national sovereignty (para 7.2) that is increasingly without much meaning.

The WTO, not the U.S. Congress, gets to decide how to balance competing interests. The U.S. had a reasonable and logical reason for not banning menthol cigarettes, and Congress had over many years weighed the pros and cons of banning all cigarettes, or just those that presented unique challenges to reducing teenage smoking. Banning menthol cigarettes was deemed to come with significant costs. The panel determined that the U.S. should have gone ahead and incurred that cost (including all the health emergencies and black market threats), rather than impact Indonesian exporters in any way. (para 7.289-7.291). Again, the only way to come to this conclusion is to willfully ignore that candy cigarettes produced in the U.S. were also banned.

Obama administration does not use all defenses available to it. As with the tuna-dolphin case, the Obama administration did not invoke all of the defenses available to it. The WTO panel seemed prepared, for instance, to determine whether the flavored cigarette ban were "necessary to protect human... health" under GATT Article XX, but the U.S. didn't even utilize that defense. (See para 7.296) This is a worrying pattern. It suggests that the Obama administration is overly concerned with avoiding the precedent of environmental and health defenses being invoked when the tables are turned and the U.S. is the complainant country, rather than defending U.S. interests. Members of Congress will take note of this omission the next time that an administration official cites a so-called "exception" provision in a trade deal.

++

In sum, this latest WTO ruling shows yet again that current trade agreements systematically put the corporate interest before that of consumers. Democracy, public health, science and logic better get out of the way. These anti-consumer provisions should be amended at the first possible opportunity, and stripped from the pending trade deals.

Mr. WAXMAN. Mr. Chairman, I thank the gentleman for yielding time to me.
Mr. Chairman, I also urge a `no' vote on NAFTA.
•   
•    Mr. Chairman, this vote puts Members in a very difficult and in a very unfortunate position. I agree with the fundamental goals of NAFTA. I am in favor of lowering tariffs and allowing free trade between the United States, Mexico, and Canada.
•    It is important to remember that just 1 year ago, every Member of this House voted for a resolution that directed the President not to negotiate any trade agreement that jeopardizes health, safety, labor, and environmental laws. The resolution also stated that the House would not approve NAFTA if it jeopardizes those laws.
•    I have carefully evaluated this agreement to determine whether it meets the standard established by the resolution. In order to clarify the meaning of the agreement, I have exchanged numerous letters with the U.S. Trade Representative to determine whether NAFTA meets the test of the House resolution, and I ask that these letters be placed in the record.
•    It is my view that the agreement represents a step backward in terms of environmental laws; it represents a step toward uncertainty in terms of food safety laws; and it represents a lost opportunity in terms of protecting American workers. Therefore, I have no choice but to vote against the agreement.
•    We don't have to approve this NAFTA. I am convinced that we can do better. We can have a NAFTA that accomplishes the important goal of free trade without adversely impacting health, safety, and environmental laws, as well as American workers. I urge my colleagues to vote against this NAFTA and to support a renegotiated agreement that protects our laws and our workers.

SUBCOMMITTEE ON HEALTH
and the Environment,
Washington, DC, June 23, 1993.
Hon. Mickey Kantor,
U.S. Trade Representative, Washington, DC.
Dear Mickey: I am writing this letter to follow up our recent meeting in which we discussed the potential impact of the North American Free Trade Agreement on U.S. environmental, health and safety laws. While the meeting and subsequent discussions between our staffs have been useful in clarifying a number of issues, it would be extremely helpful to receive your written response to the following questions:
1. NAFTA requires that regulatory standards pertaining to food be based on `risk assessment, as appropriate to the circumstances.' Article 712, para. 3. As you are aware, for food additives, color additives and animal drugs, the Delaney clauses in U.S. law prohibit the addition of any substance to foods if the substance is an animal carcinogen. 21 U.S.C. 348(c)(3)(A), 376(b)(5)(B) and 512(d)(1)(H). Under the Delaney clauses, a traditional risk assessment is irrelevant. Public Citizen v. Young, 831 F.2d 1108 (D.C. Cir. 1987). I would like your evaluation of whether the NAFTA agreement in any way jeopardizes the Delaney clauses in U.S. law. Specifically, how does the Delaney clauses' statement that the theoretical risk to humans is irrelevant square with the requirement in Article 712, para. 3 that U.S. laws be based on a risk assessment?
2. NAFTA declares that each party may adopt food safety regulation `only to the extent necessary to achieve its appropriate level of protection, taking into account technical and economical feasibility.' Article 712, para. 5. What provisions in NAFTA would prevent Canada or Mexico from successfully challenging U.S. laws as NAFTA inconsistent, including the Delaney clauses and laws relating to pesticide residues in foods, on the grounds that they are most stringent than `necessary' to achieve the appropriate level of protection chosen by the U.S.?
3. I want to ensure that the U.S. has not ceded its authority to restrict trade in order to promote protection of our global commons. Please explain whether the language in NAFTA would prevent the U.S. or other signatories from restricting trade in order to protect an extraterritorial resource, assuming that such a restriction is applied in a way that is non-discriminatory. For example, would NAFTA preclude the U.S. from prohibiting the sale or import of specific varieties of seal pelts with the objective of protecting seal populations that are not listed as endangered under the Convention of International Trade in Endangered Species? Would nondiscriminatory restrictions on the sale or import of products producing greenhouse emissions for the purpose of protecting the global climate be consistent with NAFTA?
4. I also want assurances that NAFTA will not prohibit the use of trade restrictions as a sanction for the failure to comply with future international environmental accords not listed in NAFTA Article 104, especially on the issue of global climate protection. Please explain whether NAFTA would discourage the adoption in any new multilateral agreement on global climate of provisions imposing trade sanctions on non-complying nations, analogous to the trade sanction provisions which have proven so effective in the Montreal Protocol for Protection of the Stratospheric Ozone Layer.
[Page: H9959]
5. Section 105 of NAFTA provides that the parties are to insure `all necessary measures are taken in order to give effect to [its] provisions * * *, including their observance * * * by state and provincial governments.' Does this require the U.S. to preempt any state and local laws, and does the Administration intend to include any preemption provisions in its implementing legislation?
I appreciate your response to these questions in the hope that we can resolve these important issues. Since Congress may be considering these issues in the near future, I request that you provide response by July 16, 1993. Please have your staff contact Bill Schultz or Greg Wetstone of my staff at 226-7620 if you have any questions.
With every good wish, I am
Sincerely,
Henry A. Waxman,
Chairman.
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THE U.S. TRADE REPRESENTATIVE,
Executive Office of the President,
Washington, DC, September 7, 1993.
Hon. Henry A. Waxman,
Chairman, Subcommittee on Health and the Environment, Committee on Energy and Commerce, Washington, DC.
Dear Congressman Waxman: Thank you for your letter of June 23, 1993, in which you raise a number of questions concerning the interpretation and application of the provisions of the North American Free Trade Agreement (NAFTA) in connection with several environmental concerns.
The NAFTA will establish the largest market in the world, create jobs in America, and enhance the region's competitiveness. The NAFTA, together with the supplemental Agreement on Environmental Cooperation concluded last week, provides a number of strong steps to promote environmental protection. The NAFTA itself begins with the Parties' commitment to `promote sustainable development; strengthen the development and enforcement of environmental laws and regulations' and undertake the NAFTA commitments `in a manner consistent with environmental protection and conservation.'
These commitments are reflected in the provisions of the NAFTA that follow, including explicit recognition of the rights of governments to maintain measures to protect human, animal or plant life or health, the environment and consumers; recognition of the rights to establish the level of protection governments consider appropriate; a commitment to work jointly to enhance the level of safety and of protection of human, animal and plant life and health, the environment and consumers; and renouncing the relaxing of health, safety or environmental measures to encourage investment.
The Agreement on Environmental Cooperation will ensure that economic growth is consistent with goals of sustainable development. The Agreement on Environmental Cooperation further promotes environmental protection, including by ensuring that laws and standards continue to provide high levels of environmental protection and that those laws are effectively enforced.
I will respond to each of the specific questions in your letter in turn.
Question 1: NAFTA requires that regulatory standards pertaining to food safety be based on `risk assessment, as appropriate to the circumstances.' Article 712, para. 3. As you are aware, for food additives, color additives and animal drugs, the Delaney clauses in U.S. law prohibit the addition of any substance to foods if the substance is an animal carcinogen. 21 U.S.C. 348(c)(3)(A), 376(b)(5)(B) and 512(d)(1)(H). Under the Delaney clauses, a traditional risk assessment is irrelevant. Public Citizen v. Young, 831 F.2d 1108 (D.C. Cir. 1987). I would like your evaluation of whether the NAFTA agreement in any way jeopardizes the Delaney clauses in U.S. law. Specifically, how does the Delaney clauses' statement that the theoretical risk to humans is irrelevant square with the requirement in Article 712, para. 3 that U.S. laws be based on a risk assessment?
Response: The NAFTA was carefully drafted, with the Delaney clauses and other provisions of U.S. law firmly in mind, to safeguard the ability of governments to ensure food safety. To understand how the NAFTA applies to these and other `sanitary and phytosanitary measures' (covered in Section B of Chapter 7), it is important to distinguish between two key concepts--the level of protection that a government chooses and the measure that the government uses to achieve that level of protection.
The NAFTA makes explicit that each government may establish those levels of protection for human, animal or plant life or health that the government considers to be appropriate (Article 712(2)). A government's choice of the level of protection of human health need not be based on a scientific rationale or on a `risk assessment.' The NAFTA implicitly recognizes that such choices are based on societal, not scientific, values.
The Delaney clauses, in the first instance, establish a level of protection. They reflect a decision by the Congress that there should be no risk of cancer to humans from the substances those clauses cover. That decision is fully protected under the NAFTA.
The NAFTA does require governments to meet certain elementary requirements when applying laws and regulations to achieve their chosen level of protection in order to safeguard against blatant trade protectionism in the guise of a health regulation. Our trading partners have repeatedly sought to exclude perfectly safe U.S. products from their markets by citing false `health' pretexts.
For example, the NAFTA requires that the sanitary or phytonsanitary measure used have a scientific basis and be based on a risk assessment appropriate to the circumstances.
It makes sense to require governments to meet these tests since legitimate health laws and regulations would have a scientific basis and are the product of a risk assessment. For example, a determination that a particular food additive poses a health risk is made on scientific grounds. Similarly, legitimate food additive regulations are based on `risk assessments' of the type required in the NAFTA. The term `risk assessment' is defined in the NAFTA in relevant part as an evaluation of the potential for adverse effects on human life or health arising from the presence of an additive, contaminant, toxin or disease-causing organism in a food, beverage, or feedstuff. Importantly, `risk assessment' as used in the NAFTA is not limited to quantitative risk assessment, which is a particular type of risk assessment used to evaluate the potential for carcinogenesis.
The Delaney clauses are entirely consistent with the NAFTA's requirements in this regard. The determination that a particular substance poses a risk of cancer is a scientific determination, based on an evaluation of the potential for carcinogenic effect. Based on scientific principles, the United States has determined that if a substance induces cancer in animals, it poses some risk of human carcinogenesis. And since the level of protection under Delaney requires that there be zero risk of carcinogenesis, we prohibit the substance.
The Public Citizen case dealt with the question of whether there was a de minimis exception under the color additives Delaney clause, not whether it was appropriate to evaluate whether a particular substance is an animal carcinogen and thus such substance poses a risk of carcinogenesis. The court's determination that there was no de minimis exception under the Delaney clauses does not change the fact that all three Delaney clauses are themselves based on a risk assessment and are consistent with the NAFTA requirements.
Question 2: NAFTA declares that each party may adopt food safety regulation `only to the extent necessary to achieve its appropriate level of protection, taking into account technical and economic feasibility.' Article 712, para. 5. What provisions in NAFTA would prevent Canada or Mexico from successfully challenging U.S. laws as NAFTA inconsistent, including the Delaney clauses and laws relating to pesticide residues in foods, on the ground that they are more stringent than `necessary' to achieve the appropriate level of protection chosen by the U.S.?
Response: Article 712(5) of the NAFTA provides as follows: `Each Party shall ensure that any sanitary or phytosanitary measure that it adopts, maintains or applies is applied only to the extent necessary to achieve its appropriate level of protection, taking into account technical and economic feasibility.' (Emphasis added.)
This provision addresses how a health law or regulation that is in place is applied. It does not address the validity of the underlying health law or regulation itself, or the level of protection afforded by those laws.
Article 712(5) provides no basis for challenging the levels of protection that the Congress has established in the Delaney clauses or laws relating to pesticide residues in food. The fact that those chosen levels of protection reflect a more conservative approach than other countries toward the level of protection that we desire in setting specific standards does not render these laws subject to question under Article 712(5).
This provision is meant to ensure that governments do not enforce or apply their health laws or regulations in a way calculated to provide a special advantage to domestic producers. For example, this provision is designed to guard against a country imposing a two year quarantine on imported cattle (and not coincidentally protecting the domestic industry) when a 10 day quarantine would be sufficient to guarantee the cattle are not diseased.
Article 712(5) does not require governments to avoid taking any action that has trade restrictive effects. And it recognizes that governments may legitimately take economic and technical factors into account in the manner that they apply their health regulations to imported goods. Finally, the provision is drafted so that a government will always be able to apply its health measures in a manner that fully achieves the country's chosen level of protection.
Question 3: I want to ensure that the U.S. has not ceded its authority to restrict trade in order to promote protection of our global commons. Please explain whether the language in NAFTA would prevent the U.S. or other signatories from restricting trade in order to protect an extraterritorial resource, assuming that such a restriction is applied in a way that is nondiscriminatory. For example, would NAFTA preclude the U.S. from prohibiting the sale or import of specific varieties of seal pelts with the objective of protecting seal populations that are not listed as endangered under the Convention on International Trade in Endangered Species? Would nondiscriminatory
restrictions on the sale or import of products producing greenhouse emissions for the purpose of protecting the global climate be consistent with NAFTA?
Response: This Administration is committed to taking effective action to protect global environmental resources, including the global commons. Far from ceding our authorities in this area in the NAFTA, the agreement itself and the supplemental Agreement on Environmental Cooperation affirm the commitment of all three countries to protection of the environment and the promotion of sustainable development. In a provision that has no precedent in trade agreements, NAFTA Article 104 expressly provides that the obligations of the NAFTA parties under international environmental agreements shall prevail over any inconsistent obligations undertaken in the NAFTA.
The NAFTA does not change U.S. obligations concerning the use of trade sanctions to protect a particular resource outside the United States. The NAFTA will not impair the ability of the United States to impose the kinds of non-discriminatory trade restrictions cited in your examples. Thus, a nondiscriminatory prohibition on the sale of all domestically- and foreign-produced seal pelts in the United States would generally be consistent with the NAFTA. Similarly, a ban on the sale of all domestic and foreign-made goods producing greenhouse gas emissions would generally be consistent with NAFTA requirements.
As you may know, the broader question of the use of trade measures to protect resources outside a particular country's jurisdiction is currently under discussion in a number of international fora, including the Working Group on Environmental Measures and International Trade under the General Agreement on Tariffs and Trade (GATT), and in the Organization for Economic Cooperation and Development (OECD).
This issue arises most clearly in connection with the `general exceptions' to the GATT, a number of which have been included as general exceptions to the NAFTA as well. The exceptions most directly applicable to environmental protection are GATT Article XX(b) (protection of human, animal and plant life or health) and Article XX(g) (conservation of exhaustible natural resources). Some GATT countries, and an earlier, unadopted GATT panel report, have asserted that those exceptions are not available for measures to conserve or protect a resource outside the jurisdiction of the country taking the measure. The scope of those articles are the subject of on-going dispute settlement proceedings before a GATT panel concerning a challenge by the European Communities and the Netherlands to U.S. import restrictions on tuna in order to protect dolphins.
In those GATT dispute settlement proceedings, we have made clear that Article XX fully guarantees the ability of the United States to take measures to protect resources outside its jurisdiction. The inclusion of these Article XX provisions in the NAFTA does nothing to jeopardize the U.S. position on this question.
Question 4: I also want assurances that NAFTA will not prohibit the use of trade restrictions as a sanction for the failure to comply with future international environmental accords not listed in NAFTA Article 104, especially on the issue of global climate protection. Please explain whether NAFTA would discourage the adoption in any new multilateral agreement on global climate of provisions imposing trade sanctions on non-complying nations, analogous to the trade sanction provisions which have proven so effective in the Montreal Protocol for Protection of the Stratospheric Ozone Layer.
Response: The NAFTA is intentionally designed to be flexible enough to accommodate additional international environmental or conservation agreements that contain trade obligations. Article 104 of the NAFTA gives precedence over the NAFTA to the trade obligations contained in a list of international environmental agreements. That list includes the Montreal Protocol on Substances that Deplete the Ozone Layer.
Article 104 explicitly contemplates adding new environmental or conservation agreements to the list as the NAFTA countries may agree. If a new multilateral agreement on climate change contains trade obligations, it could be added to the list in accordance with Article 104.
Question 5: Section 105 of NAFTA provides that the parties are to insure `all necessary measures are taken in order to give effect to [its] provisions . . ., including their observance . . . by state and provincial governments.' Does this require the U.S. to preempt any state and local laws, and does the Administration intend to include any preemption provisions in its implementing legislation?
Response: Article 105 is intended to ensure that the federal government in each of the three NAFTA countries is fully accountable for any state or provincial measures covered by the agreement. This provision is drawn virtually verbatim from the United States-Canada Free-Trade Agreement (CFTA).
Article 105 does not establish or require federal preemption of state or provincial measures. It does mean that the federal government will be held accountable if it cannot secure state or provincial compliance with NAFTA obligations.
The precise legal relationship between the NAFTA and a country's domestic law is a matter for each participating government to decide. For example, we understand that Mexico intends to adopt NAFTA into its domestic law, thus superseding any pre-existing, inconsistent Mexican federal or state law.
In the United States, this issue will be addressed in the NAFTA implementing bill. The Administration will be working with the Congress to develop the NAFTA implementing legislation, including any provisions necessary or appropriate to implement Article 105.
It is important to note that where a question arises concerning the consistency of a state law with U.S. international trade obligations, the Executive Branch works with the state through cooperation and consultations. We ensure that our states are fully briefed on any discussions with other governments concerning state laws and are kept involved in any dispute settlement proceedings that may be initiated. In the case of the NAFTA--as we have done in connection with the CFTA--we would expect state representatives to be full participants in any panel proceedings concerning their laws.
In the one instance where state measures were successfully challenged before a GATT panel, we have not had recourse to preemption or lawsuits. Rather, we have worked with the state involved to see what, if any, solutions to the question can be found that would fully protect state interests in the matter. We expect our practice of consultations and cooperation to continue under the NAFTA.
We would note that there is no preemption under the NAFTA in another sense, which is that state and local laws are free to differ from federal regulations and still be consistent with the NAFTA. In fact, there is nothing in the NAFTA that refers to federal standards as any point of reference for state standards. Instead, the same NAFTA requirements that guard against standards being used to provide a special advantage to domestic producers are applied to federal standards and to state standards.
Thank you for this opportunity to clarify these issues. I look forward to continuing to work with you in preparing for the implementation of the NAFTA.
Sincerely,
Michael Kantor.
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SUBCOMMITTEE ON HEALTH
and the Environment,
Washington, DC, September 16, 1993.
Hon. Mickey Kantor,
U.S. Trade Representative, Washington, DC.
[Page: H9960]
Dear Mickey: As we discussed last Thursday, I have attached below a summary of my concerns regarding environmental aspects of the North American Free Trade Agreement. It remains my hope that we can work together to address each of these important issues.
Process Standards: It appears that U.S. laws that restrict market access to products that are produced in a way that harms the environment or human health could be subject to challenge under NAFTA as non-tariff trade barriers, even if we apply these laws equally to domestic and imported products. For example, although drift-net fishing is known to be extremely destructive of aquatic life in our oceans, a ban on sales of fish caught by drift-net fishing could be found to violate NAFTA. The same problem, of course, arises in the context of the U.S. law restricting the import of tuna caught in a fashion that kills dolphin. It appears that such restrictions would not be `standards related measures' or `technical regulations' under Chapter 9 of the Agreement and could therefore be found to be barriers to trade.
International Agreements: The list of international agreements in Article 104 of NAFTA is not sufficiently inclusive, and may present an obstacle to the inclusion of trade sanctions in future multilateral environmental agreements. In fact, it appears that trade restrictions in future international agreements to address global environmental problems such as global climate change might well be found to be violative of NAFTA. Although future multilateral agreements could be added to the list in Article 104, such action requires approval of all parties. A recalcitrant North American nation could therefore use NAFTA to undermine the key forcing mechanism of trade sanctions. This problem would, of course, be exacerbated if NAFTA were expanded to include other nations of central or South America.
Border Air Pollution: Major new pollution sources are being constructed on the Mexican side of the U.S., Mexico border without air pollution controls. The most troubling example is the Carbon II power plant now under construction in Piedra Negras. This massive new facility will not include the stringent controls required for all new facilities in the U.S. and is expected to release hundreds of thousands of tons of sulfur dioxide pollution into our common air supply--dramatically reducing visibility in Big Bend National Park, and perhaps in other national parks as well. Failure to require controls on new facilities not only subjects large areas of the Southwest U.S. to additional air pollution, it also provides an unfair competitive advantage to Mexico--allowing that country to lure new facilities with reduced environmental costs.
Food Safety: Your letter of September 7, 1993 partially addresses my concerns about the impact of NAFTA on U.S. food safety laws. You have indicated that Article 712(3)(c), which requires that sanitary and phytosanitary measures must be `based on risk assessment, as appropriate to the circumstances,' does not require that food safety laws be based on a conventional risk assessment because Article 712(2) states that each country may establish its `appropriate levels of protection,' including a level of protection that does not rely on conventional risk assessment. Can you give me similar assurances with respect to sections 712(3)(a), 712(3)(b) and 715(3)(b)?
It has also been suggested that section 715(3)(b), which states that each party must `avoid arbitrary or unjustifiable distinctions in [its appropriate level of protection] in different circumstances,' could be the basis for a successful challenge to the Delaney clauses. Can you assure me that this provision does not jeopardize the Delaney clauses?
Your September 7 letter also responded to my concern regarding NAFTA language providing that each party may adopt food safety regulation `only to the extent necessary to achieve its appropriate level of protection, taking into account technical and economic feasibility.' Article 712(5). You state that this language applies to how a law or regulation or law is enforced and not to the content of the law or regulation. I would like assurances that your statement applies to any administrative regulation or order and would not allow challenges to the choices made in setting regulatory standards under such regulations or orders. For example, am I correct that this provision could not be a basis for a challenge to an agency decision to ban a pesticide rather than to reduce its use; to ban export of pesticides rather than to use import inspections to guard against import of foods with unapproved pesticides; or to require batch-by-batch testing of infant formula rather than periodic testing?
Most importantly, please provide statements from Canada and Mexico indicating that they agree with your interpretation of the provisions in the Agreement that raise questions with regard to food safety. This statement should be in a form that would bind future signatories of the NAFTA.
Preemption: I am concerned about the preemptive effect of implementing legislation and would like the opportunity to review your legislative language to insure that it does not unnecessarily interfere with state and local laws.
Thank you for your cooperation in addressing these important matters.
With every good wish, I am
Sincerely,
Henry A. Waxman,
Chairman.
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THE U.S. TRADE REPRESENTATIVE,
Executive Office of the President,
Washington, DC, October 26, 1993.
Hon. Henry A. Waxman,
Chairman, Subcommittee on Health and the Environment, Washington, DC.
[Page: H9961]
Dear Henry: Thank you for your letter of September 16, 1993 summarizing your concerns regarding environmental aspects of the North American Free Trade Agreement (NAFTA). That letter raised concerns regarding: process standards, international agreements, border air pollution, food safety, and preemption.
Let me note at the outset that the case for the NAFTA comes down to two compelling points: the NAFTA will increase economic growth and jobs in the United States, and the NAFTA will help us resolve problems that trouble Americans in our current relationship with Mexico. Prominent among those problems are issues related to environmental protection and our citizens' health and safety that I know are of particular interest to you.
The combination of the provisions of the NAFTA and the NAFTA side agreement on the environment (the North American Agreement on Environmental Cooperation) constitute truly path-breaking advances in the area of trade and the environment. The NAFTA and the side agreements of the NAFTA show heightened sensitivity to safeguarding our rights to protect the environment, health and safety. They also contain provisions aimed at seeing that the benefits of increased trade and economic growth are accompanied by measures to improve standards and enforcement of laws affording these protections.
Let me address each of your specific concerns in turn.
PROCESS STANDARDS
In your letter, you state that U.S. laws that restrict market access to products that are produced in a way that harms the environment or human health would not be `standards-related measures' or `technical regulations' under Chapter Nine of the NAFTA and could therefore be found to be inconsistent with the NAFTA.
As an initial matter, it is incorrect to state that Chapter Nine of the NAFTA (Standards-Related Measures) prohibits measures that are not `standards related measures' or `technical regulations.' Chapter Nine provides for a series of disciplines on standards-related measures, as defined in that chapter, and applies only to `standards-related measures of a Party, other than those covered by Section B of Chapter Seven [of the NAFTA] (Sanitary and Phytosanitary Measures), that may, directly or indirectly, affect trade in goods or services between the Parties, and to measures of the Parties relating to such measures.' (Article 901)
If a measure is not a standards-related measure, then Chapter Nine does not apply to it. (A technical regulation is one type of a standards-related measure, as defined in Article 915.) Any measure of the type described in your letter would need to be analyzed on a case by case basis.
We disagree that such measures would generally be inconsistent with the NAFTA. For example, as you know, the question of U.S. embargoes under the Marine Mammal Protection Act of 1972 (MMPA) on imports of yellowfin tuna in order to protect and conserve dolphin is currently the subject of a dispute settlement proceeding under the General Agreement on Tariffs and Trade (GATT). In that proceeding, the United States has maintained that the U.S. embargoes are consistent with the GATT by virtue of GATT Articles XX(g), (b) and, in the case of the intermediary nation embargoes under the MMPA, Article XX(d) as well.
Those GATT articles are incorporated into the NAFTA through Article 2101 and would be available if U.S. measures were challenged under the NAFTA.
From our perspective, consideration of the issue of `processes and production methods' or PPMs is a high priority element of the workplan for the Council under the North American Agreement on Environmental Cooperation. This involves the very complex, and often sensitive, questions of how to address any environmental effects of products due to the processes or production methods associated with them. Questions like: how was the product harvested?, how was it processed?, what effects will its consumption have on say, the environment?
These questions are of a global nature, not limited just to North America. Therefore, while the Administration is committed to taking them up with our North American neighbors in the context of the NAFTA and the supplemental agreement on environmental cooperation, we are also seeking a broader dialogue. Indeed, preparatory discussions are already under way in the Organization for Economic Cooperation and Development
(OECD) to develop a sound analysis of PPMs. We are actively involved in those discussions.
Another important step from our perspective will be to engage the GATT, beginning with a post-Uruguay Round workprogram on the environment, which we hope will be launched at the conclusion of the Uruguay Round. This work would of necessity have to include a thorough examination of the adequacy of the GATT's substantive rules as they relate to PPMs. Broadly, our objective is to ensure that countries are able to effectively address environmental objectives while not providing a means for arbitrary limit on trade. Easier said than done. This project will take time--but we will take it on in good faith, multilaterally and in the North American context.
INTERNATIONAL AGREEMENTS
You expressed concern that the list of agreements in Article 104 and its Annex is not sufficiently inclusive. The agreements listed in article 104 and its Annex had been identified as the agreements where there was particular concern that the relationship to the NAFTA should be made explicit. We did not list a number of other international environmental agreements. The NAFTA, in article 2101, incorporates the general exceptions to the General agreement on Tariffs and Trade (GATT). These exceptions generally provide for environmental measures to protect human, animal or plant life or health as well as for measures relating to the conservation of living and non-living exhaustible natural resources. This could include measures to implement international environmental agreements.
We recognize that trade measures under international environmental agreements can play an important role in the implementation of those agreements. For example, the trade obligations of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) have been vital to ensuring the preservation of endangered species. Article 104 affirms the importance of these measures.
For greater clarity, I have recently received agreement from the government of Canada and Mexico that we will modify Annex 104.1 of the NAFTA to include the following additional agreements:
(a) The Convention Between the United States of America and the United Mexican States for the Protection of Migratory Birds and Game Mammals, done at Mexico, February 7, 1936; and
(b) The Convention on the Protection of Migratory Birds, done at Washington, August 16, 1916.
We are currently studying which additional agreements it may be appropriate to include on the list, and I look forward to continuing to work with you on this issue.
BORDER AIR POLLUTION
Your letter expressed concern that major new pollution sources are being constructed on the Mexican side of the U.S.-Mexico border without air pollution controls, and cited as the most troubling example the Carbon II power plant now under construction in Piedras Negras.
The Carbon II power plant will use state-of-the-art electrostatic precipitators to control particulate pollution. Since the sulfur content of the coal to be used by the plant is very low (one percent or less), no controls are currently planned for SO2 emissions from the plant. As was true in the U.S. until recently, no such controls are required by Mexican standards in this circumstance.
With respect to visibility in Big Bend National Park, we understand that technical studies are being undertaken to better estimate the magnitude of the effect from SO2 emissions from the plant. Consultations involving the Department of State, the Department of the Interior, the Environmental Protection Agency, and the Mexican government are continuing on this issue.
We also understand that the local air quality effects of emissions from the plant are not a significant issue. U.S. as well as Mexican health and welfare-based ambient air quality standards for sulfur dioxide will be met.
The way the Carbon II situation is being managed through cooperative work between our two governments shows how the closer ties between the United States and Mexico fostered by the NAFTA and the Supplemental Agreements greatly improve our ability to work out issues that may arise between us as neighbors. The Mexican government has given us assurances that they will work with us to reach a resolution of the issue. Indeed, officials of the Departments of State and the Interior and of the Environmental Protection Agency met with Mexican officials at least twice in the past few weeks on this topic and will meet with them again next week.
Mexico began building the Carbon I and II power plants--the only coal-fired power plants in Mexico--several years ago to meet its growing needs for electricity. The power is strictly for domestic use in Mexico. The project will continue, with or
without NAFTA. What NAFTA and the Supplemental Agreements provide is closer ties among the North American countries and an environmental commission that will give us a better way to deal with such situations as they arise--or even before they arise--in the future.
More to the point, the North American Agreement on Environmental Cooperation contains explicit commitments to work together toward higher environmental standards. This will help reduce existing differences between U.S. and Mexican standards by bringing their standards up, not by lowering ours.
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FOOD SAFETY
Your letter also sought assurances with respect to additional questions on the interpretation of the sanitary and phytosanitary provisions of the NAFTA not raised in our earlier correspondence on this issue. You sought an assurance that Articles 712(3) (a) and (b) and 715(3)(b) do not require that a NAFTA country base its level of protection for food safety on a risk assessment. As we stated in response to a similar question with respect to Article 712(3)(c), each NAFTA country is free to establish its appropriate level of protection for food safety, including a level that does not rely on a risk assessment.
Article 715(3)(b) obligates each NAFTA party, in establishing its appropriate level of protection, to avoid arbitrary or unjustifiable distinctions in its appropriate levels of protection in different circumstances, where such distinctions result in arbitrary or unjustifiable discrimination against a good of another party or constitute a disguised restriction on trade between the parties. As noted in my September 7 response to your earlier letter, the NAFTA was carefully drafted, with the Delaney clauses and other provisions of U.S. law firmly in mind, to safeguard the ability of governments to ensure food safety.
The Delaney clauses, in the first instance, establish a level of protection. They reflect a decision by the Congress that there should be no risk of cancer to humans from the substances those clauses cover. As I also noted in my letter of September 7, 1993, that decision is fully protected under he NAFTA.
We do not view the level of protection established by the Delaney clauses as arbitrary or unjustifiable distinctions in U.S. appropriate levels of protection in different circumstances, nor do the Delaney clauses result in arbitrary or unjustifiable discrimination against a good of another party or constitute a disguised restriction on trade between the parties. The measures applied under the Delaney clauses apply equally to goods whatever their origin.
With respect to Article 712(5), measures that are adopted, maintained or applied are to be applied only to the extent necessary to achieve the government's appropriate level of protection. However, each government retains the right to establish the level of protection that it considers appropriate. Your letter proposed several examples, including an example in which an agency, in applying an administrative order or regulation that it has adopted or maintains, decided to require batch-by-batch testing of infant formula rather than periodic testing. In that example, the question under Article 712(5) would be whether, taking into account technical and economic feasibility, applying batch-by-batch testing was applying a measure beyond the extent necessary to achieve the agency's appropriate level of protection, and would periodic testing achieve that level of protection. A similar analysis would apply to the other examples cited in your letter.
The discipline provided by Article 712(5) is reasonable and is not burdensome. Since the government established the level of protection it considered appropriate in the first place, it would be surprising for the government to seek then to apply a measure to achieve a level of protection beyond the level that government considered to be appropriate.
Your letter also requested that we provide statements from Canada and Mexico, in a form that would bind future signatories of the NAFTA, that they agree with the interpretation we have provided of the NAFTA provisions applicable to measures to ensure food safety. The best assurance of the meaning and application of these provisions is the test of the NAFTA itself, which has already been agreed to by the governments of Mexico and Canada and which would bind future signatories of the NAFTA. My letter of September 7, 1993 was based on the plain language of the NAFTA. We also intend to make sure that the Statement of Administrative Action reflects the explanation of the NAFTA provisions I provided earlier. As you know, the Statement of Administrative Action is the single, contemporaneous compilation of the Administration's statements of what is in the NAFTA (its terms, how it will work, what it means for the United States) and is approved by the Congress.
I will consider your request for statements for Canada and Mexico. However, assurances of the type requested raise some potential difficulties--they would actually be additional international agreements, requiring that we enter into negotiations with the governments of Mexico and Canada. These negotiations could invite those governments to re-visit the NAFTA provisions. We have received numerous other requests for further agreements with the governments of Mexico and Canada on various provisions of the NAFTA, and I assume those governments have also received similar requests.
PREEMPTION
Your letter expressed your desire for an opportunity to review the language of the draft NAFTA implementing bill to insure it does not unnecessarily interfere with state and local laws. I share your concern that the implementing bill not unnecessarily interfere with state and local laws. As you may know, we are currently engaged in a process of extensive consultations and review with the Congress of draft implementing legislative language. I look forward to working with you as we move forward in that process.
Thank you for this opportunity to address your concerns. The NAFTA and the side agreements contain both provisions to ensure that trade liberalization does not come at the expense of environmental protection and provisions to help improve environmental protection.
Sincerely,
Michael Kantor.
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House of Representatives,
Washington, DC, November 12, 1993.
Hon. William J. Clinton,
The President, The White House, Washington, DC.
Dear Mr. President: I appreciate your taking the time to meet with me last week about the North American Free-Trade Agreement (NAFTA). Your personal effort to ensure congressional approval of this pact has been extraordinary.
As you know, I have a longstanding interest in the effects of trade agreements on our health, safety, and environmental laws. Last year, I sponsored a resolution, adopted by the House of Representatives, that declared that Congress would not approve the NAFTA if it jeopardize these laws. Since June, I have been working with the Office of the U.S. Trade Representative (USTR) to understand fully how the NAFTA would affect our domestic laws. In a series of letters that I have exchanged with the USTR, some points have been clarified. Serious concerns remain, however.
After considering this issue as carefully as I can, I want to urge you to withdraw the NAFTA enabling legislation from Congress and initiative negotiations on a new agreement with Mexico and Canada. Although I strongly support the liberalization of trade laws and have consistently opposed protectionist legislation, I reluctantly have to oppose the Agreement as it is now written.
This issue transcends the traditional `for or against' free trade debate. For many of us, the current NAFTA creates a conflict between our support for increased international competition and our commitment to progressive environmental, health, and safety laws. I have struggled with this choice and concluded that under your leadership we can--and must--do better than the NAFTA before Congress.
Despite what some have said, the NAFTA would allow another country to challenge our health and safety standards. Mexico could for the first time challenge a U.S. law that protects our food supply on the ground that it `arbitrarily or unjustifiably discriminate[s]' against imports, or creates a `disguised restriction on trade.' Article 712(4), 712(6). These provisions open the door to challenges to many statutes, including laws that establish standards for infant formula, carcinogens in foods, pesticides, and Proposition 65, California's law that requires labeling of certain carcinogens in foods. Even key provisions of the Clean Air Act, such as requirements to reformulate gasoline, could be challenged as an `unnecessary obstacle to trade.' Article 904.4(b).
Although our laws should be expected to meet these tests, disputes would be decided by a process that is repugnant to basic concepts of due process and openness that are so fundamental to our democracy. The NAFTA expressly requires that the entire dispute resolution process be shrouded in secrecy. Article 2012(1)(b). The briefs are secret, oral arguments are closed to the public, and the NAFTA even prohibits disclosure of any dissent to a panel's decision. Article 2012(1)(b).
In addition, only countries can be parties. Article 2008. Citizens and State governments (which may wish to defend challenges to State laws) are not allowed to participate, even if a future President refuses to defend one of our laws. And, as I understand the Agreement, most decisionmakers would be trade experts with little understanding of health and environmental laws.
These concerns became all too real last year when an international trade panel held that provisions of our Marine Mammal Protection Act designed to prevent the slaughter of dolphins violate the General Agreement on Tariffs and Trade (GATT). If endorsed, that decision would undermine one of the most important tools we have used to address global environmental problems: the use of restrictions that apply equally to imported and domestic products to promote environmentally responsible behavior.
The NAFTA would have the same effect. It would discourage the use of trade sanctions in new international environmental accords. Although an exception to the NAFTA's limitations on trade restrictions is specifically included for the Montreal Protocol on Substances That Deplete the Stratospheric Ozone Layer and a small number of other listed accords, new environmental agreements would be similarly protected only after the unanimous approval of all NAFTA parties. Article 104. Trade restrictions in important new accords--including a likely pact for climate change--could be found to violate the NAFTA and be effectively precluded. Without trade restrictions, however, a climate change agreement would likely be ineffective.
In addition, the NAFTA appears to retain the prohibition on trade restrictions against products produced in environmentally damaging ways established in last year's GATT panel ruling. Although the U.S. has formally challenged the panel ruling, the NAFTA includes by reference the GATT language interpreted to prohibit such `process-based' trade restrictions. Article 2101(1). Current or future U.S. laws barring import of, for example, fish caught in ways that kill dolphin, or fish caught with destructive draftnets, would therefore be subject to challenge under this Agreement.
I know you share my concerns in these areas and have worked hard for constructive solutions. But while the current NAFTA's language recognizes the potential for problems, it lacks the specific provisions that guarantee a cure. As a result, Congress is faced with a choice between efforts to promote trade and potential threat to the integrity of our laws, some of which I have battled against industry for years to enact. The unfortunate reality is that a future Administration opposed to our environmental and safety laws could undermine these important statutes simply by mounting a weak defense when these laws are challenged.
I am also concerned that the NAFTA lacks specificity regarding economic reform in Mexico. I am especially disappointed that the Agreement does not guarantee that Mexican average wages and working conditions will rise with productivity. This is an essential component for progress. Without such clear and enforceable provisions, adoption of the NAFTA would be a lost opportunity for millions of people both in Mexico and the United States.
Finally, I recognize that the environmental side agreement that you negotiated would establish a forum for focusing attention on border and other environmental problems. However, the agreement does not address the concerns that I have raised above. I was also disappointed by the decision not to bind the environmental side agreement to the NAFTA. As a result, a future President could withdraw from the side agreement while retaining the NAFTA, without having to obtain approval from Congress.
During these past weeks, many advocates for the NAFTA have told me that my concerns are legitimate but not central to this issue. I disagree. I believe they are to fundamental to be ignored. Yet, under the `Fast Track' procedure, which I voted against, these concerns cannot be resolved by Congress. The only way to improve the Agreement is to defeat it and begin renegotiation.
I realize, of course, that you are concerned that defeating the NAFTA will eliminate any opportunity to reach an agreement with Mexico and send a dangerous signal to the international community. Those of us with concerns about the NAFTA have a special responsibility to ensure that a different message is sent. Accordingly, I want to make it absolutely clear that I unequivocally support a free trade agreement with Mexico and Canada, and stand ready to immediately begin working with you on a new agreement that successfully reconciles both our commercial and non-economic values.
Again, this is a difficult decision, but I urge you to withdraw the NAFTA from the Congress. With your tremendous commitment to this issue, I am confident we could reach a much better agreement in the future.
Sincerely,
Henry A. Waxman,
Member of Congress.
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THE U.S. TRADE REPRESENTATIVE,
Executive Office of the President,
Washington, DC, November 16, 1993.
Hon. Henry A. Waxman,
U.S. House of Representatives,
Washington, DC.
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Dear Congressman Waxman: The President has asked me to respond to your letter to him regarding your decision to oppose the North American Free Trade Agreement (NAFTA). I was surprised by your decision, particularly because the reasons you give are primarily related to concerns about the environment.
I believe your opposition to the NAFTA package submitted by the President would be a grievous mistake. Approval of the NAFTA and the accompanying package of environmental and labor measures will advance the cause of environmental protection in the United States and the rest of North America. By contrast, rejecting it would be a setback for our country, our economy and our efforts to enhance protection of human health and the environment throughout our continent.
I have enclosed more detailed comments on the particular points you raise in your letter, because it seems that your criticisms are based on misconceptions of the NAFTA and the supplemental agreements, and of their effect on our existing relationship with Mexico. Certain points, however, warrant particular emphasis.
First, the NAFTA and the side agreements mark a major step forward in showing that the economic growth and development we seek for the United States and our neighbors by opening markets and expanding trade can be accompanied by enhanced environmental protection and cooperation. The NAFTA itself is the most environmentally sensitive trade agreement ever negotiated, including protection not only for our own environmental laws, but also for major international environmental agreements, as well as commitments to greater transparency and to refrain from relaxing environmental laws to attract investment. We have gone further in the environmental side agreement and in the bilateral agreement on border funding. Those agreements will encourage improved environmental laws and enforcement of those laws, lay a strong base for continued cooperation on the many transborder issues, and bring needed financial resources to improving the health and environment of the border. As the Natural Resources Defense Council said in announcing its support, `The Clinton Administration has successfully linked strong environmental measures, for the first time, to international trade and economic integration.'
Second, rejecting NAFTA would not immunize our laws protecting health and the environment from trade challenge, as your letter seems to suppose, but rather will leave all such measures subject to challenge under the rules and processes of the GATT. The NAFTA's rules and dispute settlement processes are more environmentally sensitive than those of the GATT, owing largely to the significant role of environmental groups in advising U.S. negotiators of the NAFTA. At the suggestion of environmentalists, the United States insisted on the right to force any GATT challenge by Mexico or Canada about U.S. standards to be heard instead in the NAFTA.
Finally, it is a tempting but dangerous illusion to think that rejection of this NAFTA package will soon be followed by a replacement agreement which somehow keeps the virtues of the present accord while adding additional advantages in the different ways various critics see NAFTA as falling short of their respective ideals. The NAFTA package is the product of more than three years of tough negotiations under two U.S. Presidents. It is easy to forget that Mexico which has its own history of mistrust of the United States, has committed to moving an enormous distance and in unprecedented ways in these negotiations.
The sometimes acrimonious debate in the United States, in which criticism has too often had more vehemence than logic or consistency, could hardly serve to encourage Mexico to quickly re-engage in negotiations with the United States. Even if there were such a disposition (and President Salinas has said there is not), we face a crowded domestic and international agenda, and Mexico will quickly be embroiled in the campaign to choose President Salinas's successor. In short there is neither time nor disposition to remake the NAFTA package, let along to remake it in a way that keeps its virtues for the United States while satisfying all of the diverse and even conflicting critics.
This NAFTA package represents a once in a generation opportunity. It would be a tragic loss to reject this excellent deal because it falls short of the ideal, when the alternative will be to leave us with an unhappy or even deteriorating status quo.
Environmentalists from six major environmental groups, representing a majority of environmentalists in this country, understand that. As Kathryn Fuller of the World Wildlife Fund said on September 15 when endorsing NAFTA, `our support of the NAFTA and the Agreement on Environmental Cooperation boils down to this: ultimately, the environment of North America will be better with the passage of NAFTA than without it.'
I know and respect you as an individual deeply committed to the environment. For that very reason, I hope you will consider carefully the points raised in this letter and its attachment before casting your vote on Wednesday. I am convinced that a yes vote is the right vote for our country's future, including sustainable economic growth, enhanced environmental protection, and more and better jobs for our workers.
Sincerely,
Michael Kantor.
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Point-by-Point Response
Assertion: NAFTA opens the door to challenge to our health and safety standards.
Fact: This assertion misreads the NAFTA and its effect on the status quo in two ways: First, it appears to confuse the ability to challenge a U.S. law with the ability to in such a challenge. Second, NAFTA does not `open the door' to trade challenge. Those laws could be challenged now under the rules of GATT. Under NAFTA those U.S. laws are less likely to be challenged and a challenge is even less likely to succeed.
U.S. laws, such as the Clean Air Act, set requirements that are legitimate protections of the environment and food safety. They are not disguised restrictions on trade nor do they arbitrarily or unjustifiably discriminate against another country's goods and products. Because our laws are based on science and legitimate efforts to protect health and safety, they would not be successfully challenged under NAFTA.
The Consumers Union, which publishes Consumer Reports and has taken no position on the NAFTA, recently wrote to Reps. Matsui and Wyden saying `We have examined NAFTA's likely impact on food safety, and believe that the agreement offers adequate protection in this area.'
NAFTA is intended to prevent a country from erecting protectionist barriers under the guise of the health and safety standards. The fact is, some of our trading partners resort to this tactic. For example, one country prohibits imports of U.S. walnuts, purportedly because of coddling moths. However, there is no scientific basis for this barrier to U.S. exports since our shelled walnuts are not a host for coddling moth. Similarly, another of our trading partners has banned the importation of some of our wheat, claiming it contained prohibited pesticide residues, even though thorough evaluations by FDA scientists and six other scientific institutions in three countries unequivocally concluded it did not.
Many of the provisons cited as problematic are obligations the United States has lived under for years, both under the General Agreement on Tariffs and Trade (GATT) (in force since 1948) and the Standards Code (in force since 1980).
So, it is incorrect to say that `Mexico could for the first time challenge a U.S. law.' Mexico or Canada can challenge a U.S. health standard right now under the GATT. Again, that does not mean they would win.
Assertion: NAFTA expressly requires the entire dispute settlement process to be shrouded in secrecy.
Fact: The NAFTA's dispute settlement procedures are not like a U.S. court case. The NAFTA dispute settlement mechanism is designed to help the NAFTA parties resolve their differences amicably, first through consultations and negotiations. Although panel hearings, like those of the GATT and our free trade agreement with Canada, are confidential, the Administration will follow its normal procedures of consultation with relevant Congressional committees and interested private parties during the course of such discussions, soliciting their views and keeping them fully abreast of developments.
If consultations fail, the NAFTA provides for non-binding arbitration. The panel of arbitrators is made up of private citizens, not judges, who will have expertise in international trade matters or matters particularly germane to the case at hand. These panels have no authority to make `rulings,' bind the parties, or order changes in the domestic law. The most they can do is recommend. Once those recommendations are tabled, it is up to the parties to decide--through further negotiations and consultations--what is to be done.
Although Canada and Mexico will have the right to maintain the secrecy of their own briefs, the United States has taken a commitment to make copies of its own submissions to international trade dispute settlement panels available to the public. This practice will continue under the NAFTA. Furthermore, the Administration has committed in its Statement of Administrative Action to the fullest possible participation of state government representatives in all aspects of dispute settlement proceedings affecting their interests, including state government participation in panel hearings themselves.
In preparing briefs, the United States will continue its practice under the GATT and the U.S.-Canada Free Trade Agreement to give public notice of the dispute, receive comments on the dispute from interested parties, and solicit advice and input from relevant private groups in preparing U.S. briefs and oral arguments to dispute settlement panels. States or local governments whose laws are challenged will be part of the U.S. team defending the measures.
The NAFTA explicitly calls for the publication of panel reports (Article 2017) and explicitly provides for dissenting opinions (Article 2017(1) & (2)).
Finally, as EPA Administrator Browner testified last week, the Administration is fully committed to transparent dispute settlement procedures under the environmental supplemental agreement.
Assertion: Most decision-makers would have little understanding of health or environmental laws.
Fact: NAFTA dispute settlement panelists cannot be characterized as `decision-makers'. As noted above, panelists are private citizens whose role is to make non-binding findings and recommendations to the participating governments. Panelists have no power to `decide' anything for the parties or to compel any behavior.
Furthermore, the NAFTA does not require or favor the selection of panelists with trade as opposed to environmental or health expertise. In fact, the NAFTA explicitly states that NAFTA panelists may have expertise in `* * * law, international trade, or other matters covered by the Agreement * * *' Article 2009. Those matters obviously include health and environmental laws.
The Administration has specifically committed under section 106(c) of the NAFTA implementing bill and in the Statement of Administrative Action to encourage the appointment of environmental experts in any panel convened to consider a U.S. environmental law. In addition, the NAFTA creates a unique mechanism, the `scientific review board,' to assist panels in any case in which they need help in addressing environmental or other scientific issues.
The fact is that NAFTA, the implementing bill, and the environmental supplemental agreement contain numerous pro-environmental safeguards and procedures. The NAFTA package represents a true advance for environmental protection in an international trade context.
As the National Wildlife Federation has said, `NAFTA and the environmental side agreements clearly represent our best hope for coming to grips with trade and environmental issues in North America.'
Assertion: the NAFTA enshrines GATT panel decisions that are unfavorable to the environment.
Fact: This assertion is based on the flawed assumption that GATT panels make `decisions' that are `enforced' and further assumes that the United States has agreed, or will agree, with the panel report on `tuna-dolphin.'
It is disconcerting to see the flawed reasoning of the panel report in the tuna-dolphin dispute with Mexico portrayed as fact. That report has not been adopted by the GATT, much less put into effect in the United States. Indeed, this whole issue is currently being re-visited by another panel where the United States has refuted in detail the previous panel's reasoning. To imply that adverse GATT panel findings on this subject have somehow been carried into the NAFTA appears to pre-judge the outcome of the second proceeding.
If there are problems with the GATT panel reports, they must be fixed in the GATT. The NAFTA, which only applies among three countries, cannot fix the GATT rules or reports, which apply to over 100 countries. Our ability to accomplish reform of the GATT rules, either during the coming weeks in the Uruguay Round or in more substantive reforms in the coming years, will be seriously undermined if the Congress turns its back on the NAFTA. Our trading partners are watching closely; they will work with us if they know that our country is seriously committed to both trade liberalization and environmental protection.
To charge that the NAFTA somehow places at risk U.S. laws against the use of destructive driftnets is not accurate. Neither Canada nor Mexico use driftnets in their fisheries and thus would have no incentive to challenge U.S. laws against their use. Furthermore, Mexico has significantly improved its efforts to protect dolphins so that its dolphin protection is now roughly equivalent to, or in some cases even better than, that for the U.S. fleet.
Assertion: The NAFTA will not allow the United States to use trade sanctions under international environmental agreements.
Fact: The NAFTA is the first international trade agreement to protect precisely that right.
The NAFTA specifically exempts from trade rules the use of trade measures under the Montreal Protocol and other major international environmental accords. Making these agreements take precedence over NAFTA's trade rules--and over the GATT--is a major, precedent setting step forward in the effort to link environmental protection and trade. Furthermore, the NAFTA specifically provides for including additional agreements, including future agreements, in this list. In fact, we recently reached agreement with Mexico and Canada to add our treaties on migratory birds to the list.
The United States is committed to pursuing vigorous international environmental agreements. As later-in-time agreements, future environmental agreements that include NAFTA countries would prevail over the NAFTA in the event of any conflict. Moreover, as noted in the Statement of Administrative Action submitted to the Congress, we do not foresee any conflict between the requirements of the NAFTA and the trade obligations imposed by the environmental agreements listed in Article 104 or by other agreements not currently listed.
Assertion: Even if the NAFTA has some good environmental provisions, future Administrations might not defend U.S. environmental laws as vigorously as this one.
Fact: This is an argument for abandoning all international trade agreements, since this one is by far the most pro-environment in history.
The NAFTA contains important, ground-breaking, specific provisions to protect the environment. The NAFTA is not a choice between promoting trade and threatening the integrity of U.S. environmental laws; it is just the opposite. The NAFTA itself begins with a commitment to promoting trade in a manner consistent with environmental protection and conservation and with the commitment of the NAFTA countries to promoting sustainable development. And the new institutions created under the supplemental agreements will help solidify U.S. commitments to environmentally sensitive trading regimes.
No one can guarantee what a future Administration, or a future Congress, will do. But this is no reason for abandoning the progress we have made in the NAFTA and leaving us solely with trade agreements that do not adequately take the environment into account. Taken to its logical conclusion, such an argument would suggest that we should abandon the world trading system that has contributed so greatly to this county's prosperity over the past 45 years.
Assertion: The NAFTA does not guarantee an increase in Mexican minimum wages.
Fact: While it is correct that the NAFTA does not guarantee that average Mexican wages will rise with productivity, the labor supplemental agreement fully addresses such concerns. The very day in mid-August that we initialed the supplemental agreements, President Salinas announced that increases in productivity will result in proportional increases in the Mexican minimum wage. This measure was subsequently adopted by Mexico's Wage and Price Board and is now binding law in Mexico. Moreover, increases in the minimum wage, linked to productivity, will echo throughout the Mexican economy because, unlike in the United States, many Mexican labor contracts and wages are expressed in terms of multiples of the minimum wage.
The supplemental agreement on labor cooperation obligates countries to enforce their own laws, including laws and regulations related to minimum wage. In the event that Mexico persistently failed to abide by this minimum wage policy, the United States would be ale to pursue dispute settlement procedures--including the possibility of trade sanctions--under the agreement. In short, the Mexican commitment is a genuine commitment, and the U.S. has recourse to dispute settlement should Mexico fail to take it seriously.
The vast economic development generated by trade since 1945 increased wage rates wherever trade has been the greatest. It is well to remember that Japan and Germany were denounced only a few years ago as unfairly low-wage producers. No one makes that argument any more and yet those two countries continue to account for a very substantial amount of our trade deficit. Mexico, by contrast, is a net importer of U.S. products.
Assertion: The Administration did not bind the supplemental environment agreement to the NAFTA.
Fact: This statement is simply wrong.
We note at the outset that there is more than a little incongruity between an assertion that the supplemental agreement is inadequate and a complaint that the Administration did not do enough to make sure that it remains in force.
Section 101(b)(2) of the implementing bill provides that the NAFTA will not enter into force for the United States with respect to either Canada or Mexico unless that country has provided for the entry into force of the supplemental agreements on the environment and labor.
Furthermore, in the Statement of Administrative Action submitted to the Congress, the Administration specifically committed that if Canada or Mexico withdraws from a supplemental agreement on a non-consensual basis the United States will cease to apply the NAFTA to that country. With respect to the United States, if a future President were to terminate a supplemental agreement, Congress has more than sufficient authority to ensure that the United States could no longer apply the NAFTA as well. If NAFTA is rejected, the precedent-shattering environmental supplemental agreement will never even have a chance to prove its value.
--
--

SUBCOMMITTEE ON HEALTH
and the Environment,
Washington, DC, November 17, 1993.
Hon. Michael Kantor,
U.S. Trade Representative, Executive Office of the President, Washington, DC.
[Page: H9965]
Dear Ambassador Kantor: I am writing in reference to your letter of November 16, 1993. While I appreciate your prompt response, I remain convinced that the NAFTA in its current form would undermine crucial health, safety and environmental laws.
Although it would serve little purpose to provide a complete point-by-point rebuttal to your letter, there are some observations that I want to share with you. I believe that it is useful to clarify where we agree and where we differ on important aspects of the NAFTA. In this regard, I find it significant that you do not dispute the accuracy of my interpretation of crucial provisions of the NAFTA.
First, you do not dispute that under the NAFTA another country could challenge our health and safety standards, including laws that establish standards for pesticides, infant formula and certain requirements in the Clean Air Act. Instead, you argue that countries already have ability to challenge our laws under the existing GATT agreement. While this is technically true, it is not significant. Under GATT, unlike the NAFTA, panel decisions are unenforceable: they can be blocked by any country that is a member of GATT, including the country whose laws are being challenged. The availability of a GATT challenge is therefore hardly comparable to challenges authorized under the NAFTA, which can lead directly to trade sanctions.
Second, you do not contest my statement that the NAFTA dispute resolution process is shrouded in secrecy. For this reason, it is hard to understand your statement that the NAFTA embodies commitments to `greater transparency.' In particular, your statement that U.S. briefs will be released is directly contrary to section 2012(1)(b) of the NAFTA which mandates that `all written submissions to and communications with the panel shall be confidential.'
You also state that the panel has `no authority to * * * bind the parties.' However, Article 2019 of the NAFTA expressly provides that if a panel has declared a U.S. law to be inconsistent with the NAFTA, the country challenging our law can impose unilateral trade sanctions on the U.S.
Third, you do not dispute my concern that the NAFTA incorporates the GATT language that was the basis for the GATT panel decision holding that the U.S. Marine Mammal Protection Act violates GATT, or that there are a number of other laws that could be challenged on the same legal theory. Unfortunately, in light of the adverse panel decision, the U.S. position that the GATT panel decision interpreting this same language is incorrect has little significance.
Finally, you do not appear to dispute my concern that the NAFTA would make it more difficult in the future to enter into treaties such as the Montreal Protocol to protect the ozone. You are correct that future agreements that include all the NAFTA countries could prevail over the NAFTA, but this aspect of the agreement effectively gives a single NAFTA country the ability to block the United States' ability to apply a future agreement to that country. The long term problem is even more serious because other Central and South American nations are granted similar veto power as they join the agreement.
My decision to oppose the NAFTA was particularly difficult because I strongly support the goals of NAFTA, and none of the provisions that concern me is a necessary component of the NAFTA. A NAFTA which accomplishes everything that the Administration wants to accomplish could have been negotiated without jeopardizing our health, safety and environmental laws.
It is my hope that in future trade agreements the Administration will address the legitimate concerns that I have raised in correspondence and discussions with you on this important matter.
Sincerely,
Henry A. Waxman
Member of Congress.

Comments

[Todd Tucker]

What I think is particularly noteworthy is that all three of these challenged measures represent very Cass Sunstein / Freakonomics / University of Chicago - esque types of regulation.

None of them are New Deal-inspired, command-and-control, across-the-board bans or harsh regulation.

Their architects would likely say that all are carefully calibrated to minimize the regulatory burden as much as possible, some public health folks might say to the detriment of their impact on health or consumer information.

We've known for a long time that the kinds of "heavy handed" measures that Public Citizen favors in the domestic context might run afoul of WTO rules. Now, we know that very free-market, neoliberal ways of regulating also do.

This is unlikely to build the WTO system many new allies...

[frobn]

"In sum, this latest WTO ruling shows yet again that current trade agreements systematically put the corporate interest before that of consumers. Democracy, public health, science and logic better get out of the way. These anti-consumer provisions should be amended at the first possible opportunity, and stripped from the pending trade deals."

We all--perhaps not all but a majority-- bought into consumerism for a better life. Complaining about the better life we bargained for sounds like sour grapes.

[Navjot]

This is ridiculous! This is why the WTO is messed up-it consistently puts the need of corporations ahead of the safety of consumers!

[Ancaeus]

"These anti-consumer provisions should be amended at the first possible opportunity, and stripped from the pending trade deals."

WRONG! We should pitch the entire WTO,along with NAFTA. The harm that these agreements do far outweighs their meager benefits.

[Todd Tucker]

good point, ancaeus. shrink or sink the wto and other unfair trade deals, that is the rallying cry.

[Call to Bangladesh]

None of them are New Deal-inspired, command-and-control, across-the-board bans or harsh regulation.

We've known for a long time that the kinds of "heavy handed" measures that Public Citizen favors in the domestic context might run afoul of WTO rules. Now, we know that very free-market, neoliberal ways of regulating also do.

This is ridiculous! This is why the WTO is messed up-it consistently puts the need of corporations ahead of the safety of consumers!

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