The North American Free Trade Agreement: An ecological-economic synthesis for the United States and Mexico

Abstract

The prospect of a North American Free Trade Agreement (NAFTA) has alarmed environmentally concerned professionals and citizens because of potential for exacerbated environmental destruction in each country. The concern in the trade and business community is that provisions for environmental protection would hobble the trade agreement and could effectively negate the positive economic benefits. The purpose of this paper is to consider the various environmental and economic implications of NAFTA and suggest policies that should allow for both a functional NAFTA and environmental protection. This paper summarizes the various potential environmental impacts along with existing free-trade mechanisms for environmental protection. It evaluates the rationale for a transition from current free-trade doctrines to those of sustainable free trade. Also recommended are several suggestions including the creation of a companion North American Environmental Protection Treaty(NAEPT). This treaty would contain trade-related policies beneficial to the environment, but inappropriate to a trade agreement. It would include short-term expansion of GATT articles for protection of the environment, and longer-term transformation of GATT into a General Agreement on Trade and the Environment (GATE). A form of countervailing duties called recompensing duties, and a form of Pigovian tax called a retributive environmental impact (REI) tax designed to ease adverse social, economic and environmental impacts during the transitional period of upward harmonization of standards are proposed. Specific recommendations for NAFTA, NAEPT and GATE are provided.