Source: Carnegie
John Audley, Senior Associate and Director
Project on Trade, Equity, and Development
Testimony Before the Senate Committee on Finance, May 13, 2003
Click for the Full Testimony in PDF
My name is John Audley, and I am Senior Associate and Trade, Equity, and Development Project Director at the Carnegie Endowment for International Peace. Founded in 1910 by Andrew Carnegie, the Endowment is a private, nonpartisan, nonprofit organization dedicated to advancing cooperation between nations and promoting active international engagement by the United States. The Trade, Equity, and Development Project seeks innovative, workable solutions to the tensions between trade liberalization, and environment, development, and labor policies.
In the September 2002 National Security Strategy of the United States, President George W. Bush states: "As we wage war today to keep the world safe from terror, we must also work to make the world a better place for all its citizens [1]." The National Security Strategy argues that trade liberalization should help poor countries develop healthy economies that protect the environment and promote greater respect for worker rights [2]. To achieve this goal, the United States must work very hard to find common ground among the 34 nations in the Free Trade Area of the Americas (FTAA) on the difficult subjects of labor and the environment. My testimony focuses on the environment side of that challenge.
Bold Steps Taken by Congress
Last August, congressional leaders took an unprecedented step by making environmental policy goals a principal negotiating objective for U.S. trade policy. In the Trade Act of 2002, Congress for the first time outlines binding negotiating objectives on the environment, which obligate trade agreements to [3]:
· Ensure that U.S. trading partners do not fail to effectively enforce their own environmental laws to gain an unfair trading advantage;
· Promote the sale of U.S. green products and services;
· Strengthen the capacity of U.S. trading partners to protect the environment;
· Reduce or eliminate government practices or policies that unduly threaten sustainable development;
· Establish consultative mechanisms to strengthen the capacity of U.S. trading partners to develop and implement environment and human health protection standards;
· Conduct environmental reviews, consistent with the policy and procedures established during the Clinton administration under Executive Order 13141; and
· Promote consideration of multilateral environmental agreements (MEAs) in negotiations on the relationship between MEAs and trade rules, especially as they relate to GATT Article XX exceptions for the protection of human health and natural resource conservation [4].
A Growing Trend in Trade Policy
U.S. efforts to ensure that trade rules promote a healthy environment are part of a global trend to reconcile trade and the environment policies. In the November 2001 World Trade Organization Doha Ministerial Declaration, trade ministers agreed to negotiate key aspects of the trade and environment policy intersection [5]. Two recently concluded bilateral trade agreements-the U.S.-Singapore and U.S.-Chile Free Trade Agreements-include chapters on the environment and transparency and include parallel commitments to develop and implement a common agenda [6]. Along with the U.S.-Jordan Free Trade Agreement, the United States has successfully negotiated environment into three free trade agreements (FTAs). Regional negotiations with five Central American governments and the Southern African Customs Union and bilateral negotiations with Australia and Morocco are expected to follow this same pattern. Finally, Canada negotiated bilateral trade agreements containing environmental provisions with Chile and Costa Rica and is engaged in ongoing negotiations with four Central American nations [7].
One of the important lessons to learn from trade and environment linkages is that integrating environment into trade agreements is not a "one size fits all" task. Each negotiation involves countries at different levels of development and requires individually tailored responses. Trade Promotion Authority (TPA) provides U.S. negotiators with the flexibility necessary to adhere to congressional instructions while tailoring each negotiation to its unique circumstances. Therefore, the challenge before FTAA negotiators is not whether, but how.
A Rough Road Ahead
FTAA negotiations began in 1994, a time when the United States was still engaged in a bitter domestic argument over trade and environment linkages. From the very beginning, Latin American governments were very suspicious of U.S. efforts to link environment to trade, fearing that "green protectionism" would deny them market access. By deferring to solutions that might be found in World Trade Organization (WTO) trade negotiations, FTAA ministers effectively excluded environment [8]. Now, nearly half way through negotiations, the United States is faced with the daunting task of re-integrating environment into trade.
I remain hopeful that empowered with TPA instructions and drawing from other examples where environment is linked to trade, U.S. negotiators can still bring home a trade agreement that successfully integrates environment into trade. The balance of this testimony uses TPA instructions as a benchmark to evaluate the FTAA.
Transparency and Public Participation
Though not nearly as transparent as the WTO, over the course of seven years the FTAA process has been dragged kicking and screaming toward transparency. Unfortunately, trade negotiators' resistance to a more open negotiating process has left deep scars that now threaten public support for the agreement. For example, using the Internet search engine "Google," I found that fourteen of the first twenty web sites listed for FTAA are opposed to negotiations.
Business community involvement in the FTAA dates back to the first Denver Ministerial in 1995, but during the 1996 FTAA Cartegena Ministerial the Government of Colombia asked the business community to meet before negotiations began to share their comments directly with trade negotiators. That decision fostered what has become known as the Americas Business Forum (ABF), which is now responsible for hosting the ministerial meetings [9].
Although nongovernmental organizations (NGOs) have not been granted the same level of access to negotiators as has the business community, they have struggled to keep apace by hosting parallel meetings at each FTAA ministerial. However, preferred access to negotiations for business groups fostered a great deal of resentment among NGOs, who felt that trade negotiators did not consider their interests. NGO misgivings regarding negotiations were exacerbated by the lack of negotiating transparency; texts were not made public, and a 1998 effort by the United States and Costa Rica to establish a formal avenue for public comments was rendered useless by Latin American negotiators [10].
The first real step toward greater public involvement in the FTAA took place during the 2001 Quebec City Summit of the Americas. Building on their shared commitment to strengthen democracies, the heads of state instructed trade negotiators to strengthen their ties to the public [11]. During the Argentina FTAA Ministerial held immediately after the Summit, trade ministers agreed to release the draft negotiating text, improve information dissemination through the official FTAA web site, and instruct the Committee of Government Representatives on Civil Society (CGR) to develop a list of options designed to strengthen the ties between negotiators and interested citizens [12]. In response to these instructions, North American government officials hosted a regional FTAA public meeting in July 2002, where negotiators discussed specific subjects with civil society representatives [13]. During the November 2002 Quito FTAA Ministerial, negotiators failed to make further progress toward transparency, but the Government of Ecuador took the initiative to invite civil society representatives to report directly to the trade ministers, a first for NGOs at an FTAA ministerial [14]. While making little progress on substantive negotiations, vice ministers attending the April 2003 Trade Negotiation Committee (TNC) meeting in Puebla, Mexico, made considerable progress in the area of greater transparency. They instructed the CGR to organize a series of issue-specific public meetings, develop a list of "best practices" with regard to civil society outreach, and explore the possibility of creating a civil society committee to be incorporated into the institutional architecture of the FTAA [15]. The steps taken in Puebla are due largely to efforts by the Government of Chile, who first proposed these ideas during the November 2002 Quito Ministerial.
Given the improvements in access to information and negotiations, civil society groups are wrong to say that the FTAA negotiations remain secretive. The formal steps taken by trade negotiators to improve relations with civil society are important but by themselves are incapable of erasing the mistrust that has built up between governments and civil society groups. Congress has an excellent opportunity to assist U.S. negotiators in several ways as they try to earn the public trust:
· Encourage more frequent release of the text: It is difficult for anybody to offer negotiators useful comments using a draft text that is more than nine months old. As negotiations approach the critical stage, civil society groups should be allowed access to more recent versions of the draft text. The TNC, composed of FTAA "vice ministers," normally meets three times each year; the draft texts used during these meetings should be released shortly thereafter.
· Fund civil society participation at regional issue meetings: The real challenge to building trust between negotiators and civil society is in Latin America, where travel costs, even within a host country, are expensive for most citizens. The U.S. Agency for International Development (USAID) should be instructed to provide resources to enable Latin Americans to travel to the regional issue meetings. If USAID earmarked $25,000 in travel costs per meeting, the money would enable a minimum of 250 Latin Americans to attend each meeting.
· Provide USTR with guidance regarding the proposed FTAA civil society group: For example, the United States could propose an approach based upon the tripartite governing structures of the North American Agreement on Environmental Cooperation and the International Labor Organization. Such a structure would enable governments, civil society groups, and the business sector to work together to provide guidance to the anticipated FTAA secretariat charged with administering the agreement [16].
· Ensure effective public participation during the 2003 Miami Ministerial: The United States will host the 2003 FTAA Ministerial in Miami, Florida. On behalf of civil society groups, over the past few months the Miami-based North/South Centre has been negotiating with the Americas Business Forum organizers to ensure adequate space for civil society discussions. The Office of the U.S. Trade Representative (USTR) is actively engaged in these discussions, and has encouraged the Business Forum to work cooperatively with NGOs. It has also guaranteed civil society groups an opportunity to meet with trade ministers to discuss their comments. Congress should monitor these discussions to ensure adequate opportunities for civil society at the ministerial.
Transparency begins at home, and there are a number of steps that the USTR can take to improve its relationship with civil society. Recently I assisted members of the Trade and Environment Policy Advisory Committee (TEPAC) in the development of a report to U.S. Trade Representative Robert Zoellick regarding civil society relations. The suggestions raised during that public meeting included:
· Post public register testimony and comments on USTR's web site;
· Provide the public with a clear explanation about how trade decisions are made;
· Publish the names and e-mail addresses of USTR and interagency personnel involved in U.S. trade policymaking; and
· Balance representation of civil society groups on USTR private advisory committees.
In a related matter, USTR's response to a federal court ruling issued late last year sends a mixed message regarding transparency to civil society groups. In December 2002 the U.S. District Court for the District of Columbia largely ruled in favor of a case brought by environmental groups who pushed for the release of U.S. negotiating positions related to the U.S.-Chile Free Trade Agreement negotiations. To protect future documents from access under the Freedom of Information Act, the USTR routinely formally classifies negotiating texts and related documents [17]. Presented with an opportunity to demonstrate to other trade negotiators that total secrecy is not essential to successful negotiations, the USTR instead chose to put more distance between itself and the interested public. The standard for transparency has already been set by USTR, when it immediately made public and placed on-line its March 31st, 2003 initial commitments on services liberalization submitted to the WTO Special Session of the General Agreement on Trade in Services.
Environment in the FTAA
Environmental issues are simply not part of the draft FTAA text. Today, environment is not a recognized component of the negotiations, and most Latin American governments have fought repeated efforts by the United States and Canada to propose environmental language. Their opposition to the inclusion of the environment jeopardizes the USTR's ability to meet TPA's instructions, thereby reducing the FTAA's chances of winning support in Congress.
The U.S.-Chile FTA includes many examples that demonstrate how TPA environmental instructions can be met in the FTAA. In a separate chapter on the environment, the parties commit to ensuring that its laws provide for high levels of environmental protection, and that the parties will not fail to effectively enforce trade-related environmental laws to encourage trade or investment activity. This commitment is subject to dispute settlement, and any fines resulting from violations will be targeted at addressing the underlying problems preventing enforcement [18]. Disputes involving environmental policy will include panelists with expertise in environmental policy matters [19].
The U.S.-Chile FTA environment chapter also establishes a variety of means to ensure public involvement in the administration of the agreement. Parties are required to establish and maintain opportunities for public discussion regarding implementation of the environment terms of the agreement. In addition to regular dialogue, an Environment Affairs Council will be created, which will meet regularly to discuss issues of common interest and engage the public in developing agendas for council meetings, including the use of fines assessed for violations of this chapter [20].
Finally, both parties have agreed to an ambitious agenda for environmental cooperation on issues such as pollutant release and transfer register, reducing mining pollution, and improving agricultural practices [21].
The United States was fortunate to have Chile as a negotiating partner, as it shares the same strong commitment to trade liberalization, high standards for environmental protection, and public involvement. The U.S.-Chile FTA breaks new ground on trade and the environment by taking the best from the North American and U.S.-Jordan FTAs and building a chapter that reflects both countries' commitment to strong economies, protected environment, and healthy public dialogue. While not perfect, it clearly meets congressional benchmarks for integrating environment into U.S. trade agreements [22].
That said, the FTAA is an entirely different kind of trade negotiation, involving many more countries, each with its own history and differing levels of development. Although it is important to build on the U.S.-Chile FTA, given the stark differences between these two negotiating environments, it is not appropriate to adopt its environment provisions as a model for the FTAA. FTAA negotiations need to differ in several important ways:
· First, given the different commitments to democratic processes, U.S. positions in
FTAA negotiations should emphasize the important role citizen involvement plays in the administration of a trade agreement. The United States should propose concrete approaches to incorporating citizens into the administration of the FTAA-such as the joint public advisory committee in the North American Agreement for Environmental Cooperation. A related model of national reporting is the Trade Policy Review Mechanism of the WTO: this could be a basis for examining environmental capacity and progress in the FTAA context.
· Second, given the poor capacity of most Latin American governments to protect the environment, the U.S. should propose that the UN Environment Program (UNEP) initiate annual reviews of the ability of our FTAA partners to implement their own environmental laws. This practice is already common practice among the Organization for Economic and Cooperation Countries, who are regularly subject to independent reviews of their environmental laws.
· Independent reviews of environmental enforcement by a responsible intergovernmental organization would accomplish three things. First, a UNEP-led study would help governments improve the quality of their environmental laws. Second, by identifying weaknesses in protection capacity or enforcement, the report would help target foreign assistance or private investment opportunities to build and operate key components of environmental infrastructure. Finally, as most environmental damage is caused by domestic consumption, building the capacity of poor governments to mitigate trade-related environmental damage would also help to address community wide environmental infrastructure needs.
· Finally, Congress should become aware of the changes in U.S. trade-related negotiating responsibilities. By executive order, the U.S. Department of State is now responsible for negotiating and implementing environmental agreements that run parallel to trade negotiations. Overall, this is a positive step; the State Department's Bureau of Oceans and International Environmental and Scientific Affairs has greater competence in the area of international environmental protection and is thus better able to negotiate and administer the agreement. It may also have the added benefit of freeing up badly needed human resources at USTR for other trade negotiations. That said, dividing trade negotiation-related responsibilities between agencies may complicate policy development. Congress should be aware of this new interagency procedure and ensure that it receives the support from other federal agencies necessary to be effective.
Dispute Settlement
The November FTAA draft contains bracketed language that directly conflicts with TPA guidelines. For example, there is not yet a certain, meaningful mechanism for public participation. Several provisions would call for non-state experts to join dispute panels or provide technical support to governments, but the nature of this input would appear to be limited [24]. Outside experts would in essence serve as government consultants, not public liaisons or community voices. While the experts would bring their experience and training to the table, they would not be acting in a true nongovernmental capacity. Their freedom to take positions at odds with their governmental counterparts or to act in any representative capacity of a segment of civil society would presumably be very constrained.
There is a bracketed provision that would require public notice when a dispute resolution panel is established, but competing provisions make it unclear whether proceedings thereafter would be open or closed to the public [25]. Later in the draft, another bracketed paragraph under the heading "Public Participation" would provide notice to the public within a week after a dispute panel is chosen to allow "members of the public to submit views on legal or factual issues to the neutral panel [26]." This is a very promising proposal because it could result in an amicus curiae (friend of court) process that would give non-state actors a direct voice in disputes. But a competing bracketed provision would resolve the matter in precisely the opposite manner. It states unequivocally "non-governmental participation in the dispute settlement system in the Chapter shall not be permitted [27]." The resolution of this issue is unclear, but it may be a critical turning point for public accountability and access to justice under the FTAA.
Finally, there is a proposed requirement that information filed in connection with a dispute be made public [28] -but again this is bracketed and constrained by provisions for the protection of "confidential information" whose scope is yet unclear [29].
The U.S.-Chile FTA once again provides an example of how civil society can be effectively integrated into a dispute settlement procedure without compromising the need to withhold sensitive information from the public. As mentioned earlier, it stipulates that panels that hear environment and trade disputes will have expertise in environmental policy matters, allow for amicus curiae submissions, allow panels to independently seek information and technical advice from experts, and ensure that reports will be made public in a timely fashion. Congress should instruct the USTR to duplicate the public participation, financial penalty, and panel roster portions of the U.S.-Chile Dispute Settlement Understanding in the FTAA agreement.
Investment
In their reports on the U.S.-Chile and U.S.-Singapore FTAs, a majority of the Trade and Environment Policy and Intergovernmental Policy Advisory Committees felt that both agreements comply with TPA instructions [30]. That said, a sizeable minority of TEPAC members, as well as the Intergovernmental Advisory Committee (IGPAC), expressed concern over language in the dispute settlement chapter that they believe gives foreign investors rights of action not available to domestic investors [31].
During the TPA debates, Congress became aware of the controversy surrounding legal terms such as "tantamount to," "fair and equitable treatment," and "customary international law," all of which are contained in the bracketed chapter text [32]. While I do not entirely share the view of those who feel that this language undermines national and subnational regulatory authority, when coupled with a dispute settlement system that is not transparent, or whose decisions are not subject to appeal, it creates opportunities for the private sector to employ a new source of political pressure on domestic regulations.
Given the level of concern surrounding investment, I urge members of Congress to be especially vigilant with regard to the FTAA's investment chapter. One way to shed greater light on this issue would be to hold hearings immediately after the release of the next draft text and allow the various parties to discuss their different opinions of the FTAA investment language.
It is also particularly important to ensure that the dispute settlement proceedings meet the minimum test for openness and accountability, as set forward in TPA. Here again, the U.S.-Chile FTA serves as a useful model.
Technical Assistance and Capacity Building
President Bush's National Security Strategy wisely links trade liberalization with development assistance designed to actually make a difference in the lives of the world's poor [33]. The Bush administration's 2003 foreign assistance budget proposal tries to make good on this commitment; for example, it includes $47 million in technical assistance and capacity building for Central American nations-a 74 percent increase over the 2002 budget. U.S. leadership in preparations for the 2002 Quito FTAA Ministerial led to the announcement of a new technical assistance and development plan designed to encourage our trading partners to identify technical assistance and capacity-building needs. The Hemispheric Cooperation Program (HCP) is a positive step toward providing technical assistance and capacity building as outlined by Congress in TPA [34].
As part of the Central American Free Trade Agreement (CAFTA) negotiations, Central Americans accelerated the development of their "national plans of action," giving us a chance to learn from this first experience. First, while the USAID trade program strategy explicitly references environment, Central American governments did not include references to the environmental infrastructure (i.e, solid waste management, wastewater treatment, air quality monitoring) necessary to mitigate the negative effects of expanded economic activity [35]. Beyond the obvious suspicions regarding environment and trade felt by Latin American governments, there are three additional explanations for this omission. First, reports prepared for the Inter-American Development Bank indicate that, outside the United States and Canada, there is very little interaction between ministries responsible for trade policymaking and their environment or development ministries [37]. If environment and development ministries are not part of trade policy development, then their views will not become part of a government proposal. Second, despite USTR web site information that emphasizes all aspects of trade capacity building, it appears that U.S. foreign service officers are not fully aware of all aspects of U.S. policy. During a recent USAID training session on technical assistance and capacity building, Central American field officers asked for additional background on the subject of trade and environment to enable them to explain the connections more plainly to their counterparts [37]. In addition, USAID's trade-related capacity-building strategy gives top priority to projects that help generate local support for trade reforms and emphasizes participation in trade negotiations, implementation of trade agreements, and economic responsiveness to opportunities for trade. Trade and environment is given "specific consideration" as important for long-term "economic responsiveness" - i.e. building capacity to promote sustainable economic growth and reduce poverty [38]. However, to date environmental concerns have been largely neglected in terms of trade capacity building for negotiations and implementation, despite requirements set forth in the Trade Act of 2002 that U.S. trade agreements will include commitments in this area. Finally, given the lack of public involvement in negotiations to date, Latin American governments may not feel the urgency to include environment and other development priorities as part of trade negotiations. This is unfortunate, because the Quito civil society declaration shared with ministers clearly demonstrates public support for linkages between trade and environment policies [39].
To its credit, USTR and USAID are encouraging their Central American counterparts to engage in more active public outreach. One U.S. contractor, the Carana Corporation, recently reported that, after initial misgivings expressed by government officials, most Central American government officials support the public outreach process. Unfortunately, a few weeks of outreach to communities that have suffered decades of government repression will not overcome citizens' mistrust of government officials.
Finally, there is a problem of coordinating resources. USAID development plans begin in regional offices and are timed to provide Washington headquarters information necessary to prepare budget proposals that coincide with the congressional budget cycle. Trade negotiations operate at their own speed, so technical assistance and capacity-building proposals that arise from trade negotiations may not be covered in a federal agencies funding requests to Congress. The resulting misconnection between promises and resources is evident. Technical cooperation pledges made in the U.S.-Jordan "side letter" on environment have yet to be realized, due in part to inadequate funding. And neither the U.S.-Chile nor U.S.-Singapore environmental accords are linked in any way to U.S. government support.
Ensuring that the United States meets its commitments to help build strong trading partners through appropriate technical assistance and capacity building should be a high priority for the U.S. Congress. I recommend that Congress take the following steps:
· Ask USAID to testify before Congress and explain fully its approach to trade-related technical assistance and capacity building. In particular, Congress should explore how federal agencies link financial resource allocation with technical assistance proposals that arise from trade negotiations.
· Encourage USAID to better use its web site to post information about USAID contractors involved in trade-related capacity building. A recently launched internal USAID Trade and Investment home page takes an important step in this direction, and should be expanded. But, while the web page can be accessed by members
