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Published in Fall 2005
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Symposium an opportunity to reflect on trade-environment relationship
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By William V. Kennedy
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Ongoing assessment of the environmental impacts of the North American Free Trade Agreement (NAFTA) is a unique mandate of the CEC.
Measuring the environmental impact of free trade is a complex and dynamic exercise. Changing trade relations, such as reducing or eliminating tariffs, opening up the investment and services sectors, means changes in economic activity as new industries arise, old ones change production methods or location, and more resources, goods and services are moved—any or all of which may affect our shared, continental environment.
It’s worth noting that NAFTA, when it was signed, constituted the world’s largest free-trade area. Today it represents a combined Gross Domestic Product of more than US$12 trillion. And, since 1994, when NAFTA took effect, Canada, Mexico, and the United States have seen trade double and investment triple.
To fulfill its mandate, the CEC asks three broad questions: First, does economic and trade growth, with economic and financial restructuring, lead to an overall deterioration, improvement, or no real change in domestic environmental quality? Second, how does NAFTA affect domestic environmental regulations? Third, when looking at the region as a whole, is NAFTA leading to better North American environmental quality and better environmental policies?
To answer these questions, the CEC has conducted an ongoing series of studies to analyze various aspects of the trade-environment relationship. Most notably, we have hosted two symposia assessing the environmental effects of trade. The first was held in Washington in 2000, the second in Mexico City in 2003, and the third will soon occur in Montreal on 30 November and 1 December 2005.
What do we know so far?
To start, we have seen no evidence of an environmental race to the bottom. Although no widespread pollution havens have been detected, regulatory gaps can, in some instances, be traced to local impacts. At the most general level, given the complexity of trading relations and other economic factors, national-level analyses will consistently find only marginal environmental impacts. Thus, environmental effects of free trade in North America need to be examined at regional, media, and sector-specific levels, where they may be more discernable.
Let’s take agriculture, for example. Following NAFTA’s ratification and Mexico’s domestic policy response to trade liberalization, this sector was hit by a combination of factors: corn prices fell more than 40 percent and the farm sector became polarized. At one end of the divide were millions of small-scale producers unable to capture the economies of scale necessary to face decreasing market prices and subsidies. On the other end, land and water resources became more concentrated in the hands of a much smaller number of larger farm operations.
One result is that irrigated areas planted to corn have shrunk 40 percent since 1994, yet the maize-growing area remains constant at 8.7 million hectares, due to expansion in marginal, rain-fed areas. So on the one hand we see a decline in water-intensive production and associated agro-chemical use, yet at the same time we see deforestation and biodiversity loss as subsistence-level growers expand agricultural activity into marginalized areas to make up for lost income.
In the northern, developed states of Mexico, the fruit and horticultural sector has emerged as a clear winner since NAFTA came into force. Once again, however, the environmental consequences are perhaps not what we might expect. For instance, technological innovation has doubled tomato yields in the state of Sinaloa and lowered the total area of production by 15 percent, offsetting most negative impacts of higher production. And while US tomato imports have declined, Mexican tomato exports to the US have increased by 75 percent. Given that tomato production uses more water in the US than any other crop and that some production may have been relocated to Mexico, some reduction of water and chemical use in Florida, where sensitive ecosystems such as the Everglades are found, can thus be attributed to NAFTA.
Our third North American Symposium on Assessing the Environmental Effects of Trade continues this focused assessment. Topics to be discussed include the maquiladora electronics industry; opportunities for renewable energy development; harmonization of environmental standards, with Mexico’s automobile manufacturing sector as an example; business environmental decisions in the context of the free trade agreement, and environmental policy implications of NAFTA’s Chapter 11.
It’s an impressive agenda, with many distinguished and international experts. I welcome you to join us in Montreal, or access the proceedings at <www.cec.org/symposium>.
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