President Donald Trump has taken many positive steps to address the excessive regulation that exists in the U.S., including environmental regulation. One of his first actions was issuing an executive order on “Reducing Regulation and Controlling Regulatory Costs.” He issued an executive order directing the Environmental Protection Agency and the U.S. Army Corps of Engineers to rescind or revise the Obama Administration’s controversial “Waters of the U.S.” rule. He also pulled the United States out of the Paris Climate Accord.
But more recently, his Administration released environmental objectives for the renegotiation of the North American Free Trade Agreement (NAFTA) that are counterproductive to his regulatory reform agenda, and which would exacerbate a major problem with NAFTA: Environmental provisions were associated with a free trade agreement for the first time.
President Ronald Reagan proposed the idea of a North American free trade area. NAFTA was later negotiated and signed by President George H. W. Bush. President Bill Clinton worked with Congress on NAFTA’s implementing legislation and he signed the legislation into law, but he added an environmental side agreement known as the North American Agreement on Environmental Cooperation along with another side agreement on labor policy.
These controversial side deals set a bad precedent by including non-trade-related environmental and labor provisions with trade agreements, and have led to post-NAFTA trade agreements incorporating increasingly comprehensive environmental and labor provisions, including within the agreements themselves (that is, not just through side agreements).
Unfortunately, the Trump Administration’s NAFTA renegotiation objectives propose to “bring the environment provisions into the core of the Agreement rather than in a side agreement,” and to subject environmental provisions to the same dispute-settlement process that exists for other enforceable obligations of NAFTA.
Further, these objectives go beyond merely incorporating the existing side agreement into the main text of NAFTA. They also include other measures that could lead to boxing the U.S. into a corner when it comes to trying to address the sweeping regulatory overreach that already exists in the U.S. One of these objectives is to “establish strong and enforceable environment obligations.” While the specifics of this objective may be vague, the intent of having strong and enforceable environmental obligations for Canada, Mexico, and the United States is very clear.
Trade Agreements Should Be About Trade
Trade agreements exist to promote trade and therefore should be focused on trade, not unrelated matters, such as the environment. Except for labor provisions, which were also included in a NAFTA side agreement, NAFTA generally focuses on matters directly connected to the exchange of goods and services between the U.S., Canada, and Mexico.
The environmental provisions in the side agreement, and those in free trade agreements in general, are not concerned directly with trade but are primarily focused on ensuring that the parties to the agreement properly develop and enforce their own environmental laws. Even provisions to prohibit nations from weakening environmental laws in order to attract trade and investment are really about preserving environmental protection instead of promoting trade.
Trade helps nations in a variety of ways. It can increase export opportunities for domestic industries providing those industries with new customers for their goods and services. Trade can lead to more jobs and economic growth. It can also provide consumers a greater choice of goods and services. It can allow for a more efficient use of resources.
Trade can help developing countries achieve the standard of living that developed countries currently enjoy; for some of these countries, trade can mean the chance of moving many citizens out of dire poverty. Bringing in unrelated issues, such as the environment, to trade agreements undermines the opportunity to fully achieve the benefits of trade. Instead of focusing solely on promoting trade objectives, the U.S. and other nations have to simultaneously negotiate environmental objectives that likely will require having to make trade-offs that are counter to reducing barriers to mutually beneficial trade.
Trade Helps the Environment
Many proponents of including environmental provisions in trade agreements assert that trade can hurt the environment. There seems to be an underlying assumption that, without proper protections, economic growth causes environmental problems. However, the best way to improve the environment is to promote economic growth, including through trade. Data in The Heritage Foundation’s Index of Economic Freedom show that countries with low trade barriers score better on Yale University’s Environmental Performance Index, for instance.
Further, this anti-growth mindset would deny Americans the many benefits of trade. For developing countries in which trade can help get many citizens out of poverty, vague environmental objectives could take precedence over the trade benefits of helping these citizens meet even basic needs, such as having clean water and getting enough food to eat.
Economic growth and trade are critical in helping to reduce poverty in developing countries. As a recent World Bank and Word Trade Organization report explained, “Strong growth in developing countries will be needed to achieve the end of poverty, and trade is a critical enabler of growth, opening up opportunities for new and better work for the poor.” Central to economic growth and reducing poverty is greater economic freedom. As the global economy has moved toward greater economic freedom over the past two decades, the global poverty rate has been cut in half.
NAFTA Should Not Contribute to Expanding Environmental Regulation
The U.S. already has far too many onerous environmental regulations, and the Trump Administration appears to recognize this problem. Therefore, it is particularly confusing why the Administration would push to expand the environmental reach of NAFTA. It could not only make it more difficult to address environmental overreach, but it could also allow Canada and Mexico to have influence over U.S. environmental laws, specifically by giving them the means to challenge how the U.S. is addressing its domestic environmental issues.
It is not merely harmful U.S. environmental objectives that are a concern. Canada and Mexico could very well be able to put pressure on the U.S. to maintain or even adopt certain environmental policies. In fact, Canadian Foreign Affairs Minister Chrystia Freeland recently explained that Canada wants to make NAFTA more “progressive,” including by creating a new chapter on the environment, and to have a trade agreement “that fully supports efforts to address climate change.”
- The Trump Administration should limit NAFTA negotiations to provisions directly related to North American trade and investment. All other extraneous measures should be addressed through other vehicles, if at all.
- If Canada and Mexico insist that NAFTA should include environmental provisions, those issues should be kept in the side agreement and not incorporated into the main agreement.
- Environmental measures should not expand the existing scope of NAFTA, especially in ways that could make it more difficult for the United States to change its environmental laws and regulations.
- Continued efforts should be made to increase economic freedom by reducing trade barriers, subsidies, and other measures that limit the ability of people in Canada, Mexico, and the United States to better address their environmental challenges.
One of the primary ways the Trump Administration can improve NAFTA and help reshape future free trade agreements is to move away from sidetracking trade agreements with environmental provisions. The Administration should set a clear precedent, requiring future trade agreements to exclude unrelated issues, such as environmental provisions. NAFTA set the U.S. down the wrong path with the environmental side agreement; President Trump can now guide the nation back in the right direction.
—Daren Bakst is Research Fellow in Agricultural Policy, and Bryan Riley is Jay Van Andel Senior Policy Analyst in Trade Policy, in the Center for Free Markets and Regulatory Reform, of the Institute for Economic Freedom, at The Heritage Foundation.