Unrealized, Unforeseen Environmental Results Of NAFTA

When the U.S., Canadian, and Mexican governments were negotiating the North American Free Trade Agreement back in the 1990s, environmentalists warned that it would create a race to the bottom: Countries would compete to gut environmental rules to attract businesses. But by and large, those fears were not realized. Still, the trade deal had other unforeseen environmental consequences.

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Twenty years ago today, Bill Clinton signed the North American Free Trade Agreement, meaning that folks under 30 may not remember that nationwide debate over breaking down trade barriers between the U.S., Canada and Mexico. Vice President Al Gore, on the pro-NAFTA side, trounced Ross Perot in a debate on "Larry King Live." The bill ended up passing with massive bipartisan support. This month, NPR will be investigating the impact of NAFTA. Today, we have a look at the effect on the environment.

In the 1990s, environmentalists warned that lowering trade barriers would create a race to the bottom. Businesses would move to the country with the weakest pollution rules: Mexico. By and large, those fears were not realized. But as NPR's Elizabeth Shogren reports, the trade deal had other environmental consequences that activists never dreamed of.

ELIZABETH SHOGREN, BYLINE: Twenty years ago, a young environmental lawyer named Bill Snape was busy protesting NAFTA. Now, he says he and other activists ignored the provision that turned out to cause the worst environmental effects.

BILL SNAPE: It played out in ways, I think, much more differently than most would have anticipated in 1992, '93, '94.

SHOGREN: He's talking about something called Chapter 11. How it works is if a new environmental rule or law hurts a foreign company's business, it can sue the host country.

SNAPE: This Chapter 11 provision says if a company loses potential profits - this isn't even something that they have, it's something that they think they're going to have.

SHOGREN: Many cases have not prevailed. But some have, like one involving a U.S. company called Ethyl that made a gasoline additive, MMT. Canada banned imports of MMT because of air pollution concerns. Ethyl fought back with a NAFTA Chapter 11 claim against Canada.

Gus Van Harten is an associate law professor at Canada's York University.

GUS VAN HARTEN: What happened under NAFTA is the government settled the NAFTA claim.

SHOGREN: Canada had to lift the ban, give the company $13 million and formally apologize for damaging Ethyl's reputation.

HARTEN: It really gives profoundly special rights and privileges to foreign investors that no one else has.

SHOGREN: And that's how it should be, says Canadian lawyer Milos Barutciski.

MILOS BARUTCISKI: For the simple reason that they are foreign investors, they don't have the right to vote.

SHOGREN: So Chapter 11 gives them a way to influence the foreign government. Barutciski represents a U.S. company that lost its permit to drill for oil and gas under the St. Lawrence River when the province of Quebec banned drilling there. The company, Lone Pine Resources, is demanding $250 million from Canada. Other companies lost their permits to drill beneath the river, too, but those are Canadian companies. So, Barutciski says, they have no grounds to sue.

BARUTCISKI: It's only because of NAFTA that the company has a legal claim whatsoever.

SHOGREN: This case has gotten attention all the way in Mexico where economist Claudia Schatan has long analyzed NAFTA's impacts.

CLAUDIA SCHATAN: Although this is not a Mexican case really, but it's a threat to the Mexican situation right now.

SHOGREN: Mexico also has oil and gas reserves in shale deposits deep underground. It hasn't yet developed them, or regulations to make sure it's done safely. So Schatan fears that Mexico could end up in the same kind of jeopardy that Canada is in. The only NAFTA country that has largely escaped the sting of Chapter 11 is the United States. It's won all its Chapter 11 challenges, partly because the U.S. government has put so much money into winning.

Retired Environmental Protection Agency lawyer Joseph Freedman worked on several of those cases. He says there was a fear that EPA officials would shrink from tough decisions to avoid Chapter 11 claims. He never saw that happen.

JOSEPH FREEDMAN: So that the fact that the U.S. won all cases made it, I think, difficult to say that agencies needed to be scared about potential exposure under NAFTA.

SHOGREN: The U.S. is now negotiating a much larger free trade pact with a dozen countries called the Trans-Pacific Partnership. Protections for foreign investors like in Chapter 11 are being considered. This time, environmentalists are vigorously opposing them. Elizabeth Shogren, NPR News, Washington.

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