Letter to Amb. Robert Zoellick, United States Trade Representative, from John J. Audley, Carnegie Endowment senior associate, on "fast track" trade promotion authority.

Read the letter in Spanish.

July 10, 2001

Ambassador Robert B. Zoellick
United States Trade Representative
Executive Office of the President
Washington, D.C. 20506

DELIVERY BY FAX AND BY MAIL

Ambassador Zoellick:

As you are aware, nations around the world are struggling to understand the linkages among trade, environmental, and development policies. With this in mind, I have followed with great personal interest your efforts to secure "fast track" trade promotion authority. Based upon my experiences as a trade policy advocate and former government official, I believe that U.S. negotiators need fast track trade authority to enable them to bring home trade agreements that help build strong economies and benefit all people. To keep trade policy on this path, however, future fast track authority must contain specific provisions to protect the environment.

There are three main reasons for this need. First, evidence detailing the trade-environment nexus continues to grow in volume and improve in quality. To take just one example, there are legitimate concerns among citizens groups, as well as officials from the three NAFTA countries, that trade disputes brought under the provisions of NAFTA?s investment chapter (Chapter 11) exert too much influence over national regulatory authority. The second reason that fast track authority should include environmental objectives is that governments, including the United States, already integrate the environment into trade policy. In April 2001, the White House reiterated its support for the previous administration?s policy of conducting environmental reviews of trade agreements. Also, I believe that USTR has already committed to conducting environmental reviews of the FTAA, the WTO "built-in" agenda on agriculture and services, and the bilateral negotiations with Chile and Singapore through its expanded Office of Environment and Natural Resources. And third, to solidify support in Congress and among the general public for the President?s trade agenda, the Administration must reach out to a broad constituency, including those who believe that unfettered trade liberalization can have a harmful effect on the environment abroad and at home.

I believe very strongly that Congress can and should build upon President Bush?s proposed 2001 International Trade Agenda to produce fast track legislation that responsibly incorporates environmental priorities into trade policy. Failure to do so will result in continuous battles in Congress, bad trade policy, growing public disappointment in political leadership ? or all three. However, because long-term sustainability depends on more than just trade policy, I also recommend that the President work with Congress to develop a long-term strategy to ensure that the growing international trade and investment regimes are accompanied by strengthened capacities in developing countries to set and implement high standards for human health and environmental protection. What follows are specific policy proposals, building on the President?s trade policy vision, designed to achieve these policy goals.

Proposal 1: Include the Environment and Sustainable Development in Overall Trade Policy Objectives.

To make international trade and environment policies mutually supportive in favor of sustainable development;

To clarify the role of WTO, UNCTAD, UNEP, UNDP and other international organizations in dealing with trade, environment and development-related issues, including, where relevant, conciliation procedures and dispute settlement; to encourage international productivity and competitiveness and encourage a constructive role on the part of industry in dealing with environment and development issues;

To make WTO and other trade institution proceedings more transparent and accountable to the public worldwide.

By basing U.S. negotiating objectives on language taken from Agenda 21 commitments, the United States sends an important message to our negotiating partners that the environment will be included in trade negotiations in a manner consistent with guidelines negotiated by all countries. Developing countries are legitimately worried that environmental policies will become another condition for market access used by U.S. citizens or companies to pursue protectionist interests. Agenda 21 language also urges the United States to establish trade objectives that clarify the relationship between the WTO and other multilateral obligations. With the important exception of the United States, most countries, business interests, and NGOs support efforts to clarify the relationship between trade rights and obligations and those undertaken by parties to multilateral environmental agreements. The negotiating language proposed above is also consistent with the President?s recommendation to improve the effectiveness of United Nations? environmental programs. Finally, by including a reference to an open trading system, it validates a long-standing concern, shared by U.S. business, environmental organizations, and government officials alike, regarding the WTO?s lack of procedural transparency.

 

Proposal 2: Pursue Explicit Environment Negotiation Objectives.

Regarding trade and the environment, we should seek to develop internationally agreed-upon rules, including dispute settlement procedures, and related multilateral agreements that will:

  • Ensure that environment-related regulations or standards, including those related to health and safety standards, do not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade;
  • Ensure that trade and investment liberalization does not occur as a result of unjustifiable pattern of failure to effectively enforce environmental measures, including human health and safety measures;
  • Eliminate tariffs on environmental goods, liberalize trade in environmental services, and eliminate harmful subsidies that contribute to unsustainable natural resource use;
  • Ensure the U.S. right to safeguard the environment is preserved; and
  • Strengthen the capacity of U.S. trading partners to develop and implement high standards for environmental and human health protection.

These specific proposals remind negotiators that including the environment in trade negotiations must not result in protectionism. Using language from the U.S.-Jordan Free Trade Agreement, they instruct U.S. officials to focus on the relationship between trade and environmental policy and the elimination of tariffs and subsidies while ensuring that regulatory authority is safeguarded. They do not dictate that the administration negotiate the use of trade measures or sanctions to accomplish these objectives, nor do they rule them out. Instead, they tell negotiators to ensure that reasonable environmental and human health policies do not disadvantage U.S. companies competing in foreign markets. While this proposed fast track language breaks new grounds regarding explicit congressional support for environmental issues in trade negotiations, it follows an approach already considered by the administration and approved by Congress. Experts argue that the environmental policy guidelines established by Congress for the United States Export/Import Bank and the Overseas Private Investment Corporation are effective because they place conditions on private party behavior in exchange for receiving their products or services. If a party does not meet stated environmental objectives, both organizations are required by Congress to bring the party into compliance or ultimately withdraw benefits. If governments continue to rely upon trade negotiations to develop investment rules, a similar obligation must be negotiated to provide incentives for compliance.

One significant challenge presented by this goal is the fact that most U.S. trading partners now lack the capacity to meet such obligations, potentially leading U.S. negotiators to compel countries to undertake unrealistic obligations. In response to this challenge, and consistent with the proposed fast track language, the administration could consider a range of remedies during negotiations, not all of which involve the use of trade sanctions. For example, the U.S.-Jordan agreement allows the two countries to determine the "appropriate response," ranging from withdrawal of trade benefits to no action at all. The Canada-Chile agreement uses fines paid by the offending regulatory ministry.

A second possible category of response is to negotiate programs designed to strengthen the capacity of U.S. trading partners to develop and implement their own high standards for environmental and human health protection. Calls to address the relationship between trade and investment liberalization and the need for enhanced capacity-building as part of trade negotiation are growing in popularity. I understand that you were personally involved in the NAFTA "side agreements" on labor and environment negotiations; more recently, the United States negotiated a less-ambitious version of those agreements with the Kingdom of Jordan. Canada and Chile negotiated an environmental side agreement as part of their bilateral trade agreement, and Canada has made "parallel" environmental agreements part of its negotiation strategy for expanded economic relationships with Central America.

These responses are not mutually exclusive. As with EXIM/OPIC guidelines, responses could begin with cooperative mitigation measures that would ultimately end with a loss of benefits or the imposition of a financial penalty. But while these explicit negotiating objectives should guide U.S. trade officials, they do not specify the exact means of meeting environmental goals. Determining the appropriate solution is left to consultations involving the administration and Congress, advisory committees, negotiating partners, and the interested public.

 

Proposal 3: Secure Congressional Support for Internalizing Environmental Considerations Throughout Negotiations.

The President shall seek information and advice with respect to trade and investment agreements from the Departments of Agriculture, Commerce, Defense, Interior, Labor, State, Treasury, Energy, Health and Human Services, Justice, and Transportation, the U.S. Agency for International Development and the U.S. Environmental Protection Agency.

Consistent with Executive Order 13141 and its relevant guidelines, and in particular Section VIII(A)(6) of the Guidelines for the Implementation of Executive Order 13141, the President shall instruct all federal agencies to seek adequate resources to carry out their responsibilities in developing U.S. trade policy, especially in the preparation of the International Trade Commission/U.S. Trade Representative?s environmental report to the President.

Consistent with Executive Order 13141 and its relevant guidelines, within six months after receipt of the proposed negotiations, the Commission/USTR shall prepare a report for the President advising him or her on environmental matters raised by the proposed trade negotiation agenda.

Among other things, the report should include information pertaining to possible positive and negative environmental effects of trade negotiating objectives, and it should include mitigation measures in response to possible trade-related environmental concerns.

The report shall assist the President in making an informed judgment as to the impact such mitigation measures might have on U.S. trade negotiation objectives, as well as other domestic policy considerations.

 

The United States has extensive experience in conducting environmental reviews, but U.S. environmental review policy relies on the effectiveness of an executive order to mobilize federal agency resources and ensure congressional oversight. The proposed fast track language incorporates the process of considering environmental issues throughout negotiations by amending language currently used to describe the responsibilities of the United States International Trade Commission. By including explicit references to the role played by federal agencies in conducting an environmental review, it also builds upon the responsibilities outlined in the interagency trade policymaking process, frequently referred to as the Trade Policy Staff Committee (TPSC) and Trade Policy Review Group (TPRG) processes. In turn, it directs the environmental agencies to devote resources to trade policy rather than relying on their current "hit or miss" approach; to be successful, agencies must be willing to devote considerable human and financial resources to successfully implementing an environmental review policy. Finally, by elevating the role environmental reviews play in trade policy development, it encourages congressional oversight of the wider range of federal agency involvement in trade policy.

 

Proposal 4: Develop a Broader Strategy to Promote Environmental Protection in a Global Society

As ambitious as these proposals are, Congress, the administration, and the interested public should not expect fast track procedures ? indeed trade policies alone ? to bridge the gap between the potential benefits of trade and investment liberalization and the environmental and development challenges facing countries worldwide. Sound environmental provisions in fast track can, however, make a substantial contribution to that effort when they are accompanied by a more comprehensive strategy designed to strengthen the capacity of our trading partners to set and implement their own standards for human health and environmental protection. I propose that the administration consider taking two steps to improve its policy coordination.

First, I urge the administration to focus its attention on solutions to the trade, environment, and development nexus beyond fast track's unique legislative procedures, and to develop capacity-building and technical assistance programs that build upon the role federal agencies other than USTR play in trade policy development. As trade policy has expanded in scope and complexity, USTR policy coordination exerts a broader impact on U.S. laws and regulations than ever before. While this is appropriate to a degree, at some point USTR?s ability to effectively coordinate trade policy will be counterproductive. By taking on responsibilities beyond its mandate and competence, USTR inappropriately exerts influence over other agencies? environmental and development policies that are related to trade but not necessarily solved by negotiating language into the terms of a trade agreement itself.

One possible solution to USTR?s expanding influence is to assign the environmental and development policy coordination aspect of trade negotiations to other agencies. One proposal discussed by federal agency staff is a "trade, environment, and developing capacity building" (TEDCAB) program whose objective would be to strengthen the capacity of developing countries to establish effective environmental policies. TEDCAB would provide partnership countries with the technical assistance they need to assess the effectiveness of their own environmental policies. Once a country?s needs were assessed, the next step would be to design and implement plans to strengthen their environmental management systems as regard trade- and investment-related challenges and opportunities.

There are four key elements to the TEDCAB approach. First, policy coordination among federal agencies ? especially the Department of State, USAID, USTR, and agencies with relevant technical skills ? is necessary to promote more efficient use of U.S. foreign assistance. Second, officials should develop a general methodology for assessing the effectiveness of environmental policies in connection with trade and investment liberalization. Assessments should review such issues as environmental regulations; a trading partner?s main export sectors and areas of foreign investment; trade measures used in connection with multilateral environmental agreements; trade in environmental goods and services; enforcement of existing regulations; environmental infrastructure; and public availability of environmental information. Third, U.S. officials should ensure that partner country officials are fully involved in the program?s implementation. Without their full participation, a project like this is too easily regarded as an attempt by more powerful countries to determine development paths of other, less powerful ones, and the methodology should be flexible enough to respond to each country?s circumstances. Finally, to be effective, a program like this would require coordinated funding from a variety of government and intergovernmental sources. While U.S. foreign aid should play an important role, the United States also has many opportunities to work with other donor countries and intergovernmental organizations like the World Bank and U.N.-sponsored capacity-building programs.

The second step that Congress and the administration must take is to determine how to link trade negotiations with other policy objectives to promote trade liberalization that is more sensitive to environmental and development concerns. This step could be the most difficult because, as with NAFTA, policy linkages are most often political and are thus difficult to craft into meaningful legislation. However, without clear linkages between trade policy objectives outlined in fast track and those developed through other policy programs, important capacity-building and technical assistance programs will not be adopted because there is insufficient political capital to produce environmental and development programs on their own. Traditional trade advocates will argue against this approach, saying that only issues directly related to the trade agreement itself should become part of the politics of trade policy negotiation. Indeed, efforts to build such linkages have made poor progress, as the connections between trade liberalization and environmental quality remain difficult to quantify. However, the same can be said between trade agreements and healthy economies. Despite claims that both NAFTA and the Uruguay Round trade agreements have contributed greatly to the success of the U.S. economy, there is little direct evidence to support this "fact." We only know two things: first, trade liberalization has occurred during a period of tremendous economic prosperity, both here in the United States and elsewhere; and, second, environmental degradation continues at a incredible pace, matching the rate at which countries liberalize trade and increase consumption.

I believe that the policy suggestions offered above provide U.S. negotiators with the instructions they need to negotiate trade and investment agreements that focus on an appropriate range of trade and environmental issues, yet do not constrain them to produce predetermined (and perhaps inappropriate) solutions. They are consistent with the growing trend among countries to link trade, environment, and development policies and are based on commitments made by the United States in other trade agreements. These proposals also validate current U.S. efforts to more fully integrate the environment into trade policy development and implementation because they formally recognize the role played by regulatory agencies and give environmental reviews parity with other trade policy tools. Finally, these proposals acknowledge that, while not integral to narrow market-expansion or tariff-reduction goals, side agreements designed to build trade partner capacity to protect the environment and promote human development demonstrate U.S. commitment to ensuring that trade and investment liberalization benefits the lives of all people. All parties to the fast track debate must accept the fact that many of the long-term solutions to trade and environment tensions lie outside its authority. Therefore, to avoid dooming future fast track authority to the same public criticisms that continue to polarize public opinion over trade liberalization, I respectfully encourage you to take the time to discuss these proposals with members of Congress, and avoid a rush to secure a fast track vote before the President and Congress engage in a public debate regarding the merits of a broader environmental agenda.

Sincerely,

John J. Audley
Senior Associate
Trade, Environment, and Development Project