Labour and environment sidebars are not protectionist, says Jeffrey Schott.
Fifteen years ago, then presidential candidate Bill Clinton campaigned to block the North American Free Trade Agreement (Nafta) until the pact included obligations on labour and the environment. The subsequent negotiation of ‘side accords’ at the start of his first administration smoothed the path for Nafta’s ratification.
From the start, many observers saw the side accords as protectionist vehicles. The experience of the past decade, however, belies such fears and suggests that better labour and environment rules can support trade and development.
When implemented, the modest provisions added to Nafta satisfied neither labour or environmental non-governmental organisations (NGOs). Union officials complained that the new labour provisions were too weak and exempt from Nafta’s dispute mechanism, while environmental NGOs attacked the pact’s investor-state dispute provisions for opening a new legal channel for investors to contest environmental policies. Business groups grudgingly accepted the side accords but vigorously opposed subsequent proposals to strengthen them, for fear that current US policies could be challenged in trade disputes.
NGO warning
Over the past decade, NGOs have warned that developing countries will be unable to enforce obligations on labour and the environment due to financial constraints or corruption, and thus need to be coerced into treaty compliance by the threat of trade penalties. However, the real pressure on developing countries to comply with trade obligations comes not from the threat of trade retaliation, but from the potential loss of foreign investment. In the internet age, no multinational can afford such association.
To be sure, trade pacts alone cannot remedy labour and environmental problems that have been decades in the making. However, the new provisions in US trade pacts have had a modest but beneficial impact, primarily by highlighting areas or issues that require urgent action and directing new funds to them. Regulatory protections have been challenged but not weakened by trade litigation. Most overblown claims in investor-state disputes have been rebuffed.
Much ado about nothing? Hardly. The harsh rhetoric on labour and environmental issues has eroded support for trade agreements. Trade politics has become more divisive and negotiations more difficult. Nafta and global trade talks in the WTO have become lightning rods for anti-globalisation activists. As a consequence, US ‘fast-track’ negotiating authority lapsed in 1994 and was not revived until after 9/11, only to expire again in June 2007. Meanwhile, protests mar most WTO meetings.
The protectionist undertones of the US debate also precipitated an international backlash and developing countries rejected US demands to include most labour and environmental issues on the WTO agenda.
Sad ending to the trade story? Perhaps not. In May 2007 the Bush administration agreed to revise US trade pacts awaiting congressional ratification to accommodate expanded labour and environmental obligations demanded by the new Democratic majority in Congress. Interestingly, the US’s trading partners readily accepted the additional provisions, since they reflected principles already adopted by the International Labour Organisation and largely incorporated in their own laws.
After 15 years of acrimony, the new trade provisions on labour and the environment basically satisfied the demands of NGOs and mollified the worries of US business lobbies. This is important for the world trading system. First, it should help revive public interest and support for trade pacts by rebutting charges that trade pacts are good for business and bad for workers. Second, it should underscore the need to confront current trade and environmental issues – particularly those related to global warming – that will likely pose sharp conflicts with the current world trade rules.
National programmes threaten to run roughshod over WTO disciplines on subsidies (think ethanol and corn subsidies) and on border tax adjustments (carbon taxes to penalise imports from countries not abiding by Kyoto standards). The global trading system could well wither from this heated debate unless officials find a way to meld their conflicting global trade and environmental objectives.
Jeffrey Schott is a senior fellow at the Peterson Institute for International Economics.
