During the final Democratic candidates' debate in Ohio, Ms. Clinton said she would demand new environmental and labour provisions in NAFTA, as well as a new dispute resolution mechanism. In addition, she stated that she would eliminate the right of foreign firms to sue Washington for enacting measures to protect its workers. She further indicated that, if elected, as President, she would opt out of the NAFTA within six months of winning the White House. Senator Obama agreed without reservation that the United States would force their closest trading partners under the longest-standing free trade agreement to which the United States is a party to renegotiate in four key areas:
- environmental provisions;
- labour provisions;
- investment provisions; and
- dispute settlement.
We must ask the question whether Senators Clinton and Obama had actually reviewed NAFTA and its side agreements before making their statements in Ohio. If they had looked at NAFTA and its side agreements they would have seen that they did not have to threaten to opt out of it. In fact, the mechanisms to make trade improvements in these areas are already in NAFTA.
Senators Clinton and Obama may have missed the key environmental and labour provisions because they are not all contained within the text of NAFTA, but in its side agreements. The key provisions are found in the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
Section 48 of the NAAEC and Section 52 of the NAALC allow the Parties to make amendments to their environmental and labour agreements without having to opt out of the NAFTA or its side agreements. Therefore, the mechanism for positive change already exists. Section 48 of the NAAEC and Section 52 of the NAALC provide:
- The Parties may agree on any modification of or addition to this Agreement.
- When so agreed, and approved in accordance with the applicable legal procedures of each Party, a modification or addition shall constitute and integral part of this Agreement."
Why opt out of the NAFTA when the environmental side agreement allows the United States to discuss the topic of potential additions in friendly and reasonable terms? The environment ministers of Canada, Mexico and the United States meet on a regular basis under the NAAEC to discuss environmental concerns. Similarly, the labour ministers of Canada, Mexico and the United States meet on a regular basis under the NAALC to discuss labour concerns. The NAFTA's side agreements allow for positive evolution if it is considered to be necessary. This is a discussion that must be had before a good trading relationship is harmed, or even worse, destroyed.
The irony is that the NAAEC and the NAALC contain more extensive provisions that provide greater protection to U.S. manufacturing interests than the short environmental and labour provisions that have been inserted by the United States in more recent free trade agreements with Korea, Peru, Columbia, Panama and the Central American countries.
In addition, there is no need for establishing a new dispute settlement mechanism. The NAAEC and the NAALC both contain dispute settlement mechanisms. Section 6 of the NAAEC establishes a dispute settlement procedure for private parties to bring claims against Canada and Mexico (and the United States) relating to alleged breaches of domestic environmental laws and regulations. Section 4 of the NAALC requires that the parties "ensure that persons with a legally recognized interest under its law in a particular matter have access to administrative, quasi-judicial, judicial or labor tribunals for the enforcement of the Party's labor laws."
The Commission for Environmental Cooperation is an international organization created by Canada, Mexico and the United States under the NAAEC to address regional environmental concerns, help prevent potential trade and environmental conflicts, and to promote the effective enforcement of environmental law. There have been many cases (called "Citizen Submissions on Enforcement Matters") brought by interested parties (often non-governmental organizations and environmental watchdogs) under Section 6 of the NAAEC where private parties have felt it warranted to raise economic concerns. This process has created a forum that has been in existence for over 14 years.
The Commission for Labor Cooperation is an international organization created by Canada, Mexico and the United States under the NAALC to address regional labour concerns, help prevent potential trade and labour conflicts, and to promote the effective enforcement of labour laws. As of March 2004, there have been two cases (called "public consultations") brought under the NAALC against Canada, both of which were filed by the United States, 10 cases against the United States, two filed by Canada and the rest by Mexico, and 17 cases filed against Mexico, two filed by Canada and the rest by the United States.
As a result, any problems that arose in the past could have been dealt with by the interested parties. It is entirely possible that some specific concerns in specific situations were remedied using existing dispute settlement provisions. It is interesting that Senators Clinton and Obama would indicate the need to change dispute settlement procedures when the existing dispute settlement procedures in the NAAEC and the NAALC have not been widely criticised by the usual stakeholders.
With respect to any concerns Senators Clinton and Obama have regarding the investments provisions, history again tells us that there is no need to opt out of NAFTA. Chapter 11 of NAFTA deals with issues concerning investment and contains an investor-to-state dispute settlement mechanism that allows investors to sue a NAFTA Party if they do not live up to certain obligations under NAFTA Chapter 11. There have been occasions in the past where clarifications have been required and the Ministers of International Trade from Canada and the United States Trade Representative have jointly worked on statements to clarify the rules under Chapter 11 of NAFTA. For example, in July 2001, the Ministers of the NAFTA Parties issued a joint statement clarifying the meaning of the concept "fair and equitable treatment". That clarification has been used by the United States as a precedent in its new investment chapters in free trade agreements and trade preference agreements. The investment chapter is one chapter in NAFTA that has permitted and continues to permit positive dialogue to enhance governments' protection against frivolous lawsuits for alleged regulatory takings. Again, there is no need to opt out of NAFTA to address the concerns voiced by Senators Clinton and Obama in Ohio.
Finally, if the underlying concern is the loss of manufacturing jobs, the complaint of Senators Clinton and Obama must be the elimination of tariffs on goods. It cannot be the NAFTA's rules of origin or customs procedures because those rules have been used as the precedent in subsequent free trade agreements and trade preference agreements that the United States has entered. If one reads the NAFTA provisions carefully, one would have to conclude that the tariff reductions on goods traded between Canada and the United States were eliminated under the Canada-United States Free Trade Agreement (CUSFTA) and not the NAFTA. Therefore, opting out of the NAFTA would not change (increase) the tariffs on goods traded between Canada and the United States.
The NAFTA contains many improvements over the CUSFTA and the WTO Uruguay Round Agreements. If the United States opted out of NAFTA, they would reduce their protections and market access opportunities for U.S. manufacturers, service providers and/or investors under NAFTA's provisions relating to technical barriers to trade, sanitary and phyto-sanitary, government procurement, investment, services, financial services, telecommunications, and intellectual property provisions, which extend beyond both Canada and Mexico's WTO obligations.
If Senators Clinton and Obama really want to protect U.S. manufacturers, they could withdraw from the World Trade Organization (WTO), which would allow them to increase tariffs on the import of goods from all WTO members, including Canada, Mexico, Japan, China, India and others. The only problem with this option is that U.S. manufacturers would face the excessive tariffs that the foreign markets would be able to impose against U.S. manufactured goods.
Extreme forms of protectionism are not such a good option. Also, it would be very unfortunate if the United States sets a precedent and, thereby, sends the message to all of its treaty partners that a change in administration in the United States (and even a return to the ruling party who promoted, negotiations, signed and ratified the treaty) would be an acceptable basis for the renegotiation of its international obligations.