May 28, 2015
Environmental Provisions in Free Trade Agreements (FTAs)
Overview
specific exceptions to its provisions—including exceptions
for natural resources and protection of public health—to
Linkages between trade and environmental protection have
allow for environmental policy measures. Since its
long been a concern to some U.S. policymakers and
establishment in 1995, the World Trade Organization
stakeholders. The central question is whether trade
(WTO)--the successor to GATT--has addressed
liberalization (i.e., the removal of barriers on the free
environmental issues through its dispute settlement system
exchange of goods and services between nations) advances
and through Doha Round negotiations concerning the
shared economic and environmental goals. Some observers
relationship between existing WTO rules and international
argue that economic expansion brought on by trade
environmental treaties, known as “multilateral
liberalization adversely impacts the environment. Among
environmental agreements” (MEAs). While there has been
other concerns, they contend that for developing countries,
much focus on the GATT and WTO dispute settlement
international competition may lead them to adopt less
systems, they have heard only nine Article XX cases during
stringent environmental standards or to engage in more
their existence.
polluting activities. Thus, they claim that environmental
provisions are necessary in trade agreements to help raise or
In addition to the WTO’s Doha Round, a plurilateral group
maintain international standards and protect U.S. businesses
of WTO members is negotiating the elimination of tariffs
and workers from perceived unfair competition. Other
on environmental goods such as wind turbines or solar
policy makers and stakeholders believe that trade
panels. Further, the reduction and elimination of fishing
liberalization and environmental protection are mutually
subsidies and fossil fuel subsidies are being negotiated in
supportive. They argue that while economic growth may
the WTO, G-20 and other fora.
adversely impact the environment during the initial stages
of industrialization, it can also provide resources to mitigate
Current Key Environmental Provisions in U.S. FTAs.
such effects as countries develop. They also argue that trade
A party shall:
liberalization can support U.S. environmental goals through
the elimination of tariffs on environmental goods, and the
•
Not fail to effectively enforce its environmental laws in a
reduction of trade-distorting subsidies.
manner affecting trade and investment.
•
Not waive or derogate environmental laws to promote
Trade-related environmental provisions in U.S. FTAs were
trade or investment.
first introduced in the North American Free Trade
•
Fulfill obligations under referenced multilateral
Agreement of 1994 (NAFTA). Through the years, they
environmental agreements (MEAs).
have moved from side agreements to integral chapters
•
Develop mechanisms to enhance environmental
within FTA texts, and increasingly have incorporated
performance.
cooperation and dispute settlement (DS) mechanisms. By
executive order in 1999, President Clinton required trade
•
Retain the right to exercise the “reasonable, articulable,
agreements to undergo environmental assessments. In the
bona fide” exercise of discretion in enforcement.
Trade Act of 2002 (P.L. 107-210), Congress included
Other provisions include:
environmental provisions as a principal negotiating
objective in renewing the President’s Trade Promotion
•
Enforceable dispute settlement and consultations
Authority (TPA) (previously known as fast-track)
•
Cooperative and trade capacity building.
legislation. Since then, the United States has been at the
•
Environmental Affairs Council.
forefront of using trade agreements to promote core
environmental protections. The structure and use of
Source: CRS analysis based on KORUS FTA.
environmental provisions is currently under debate in the
Environmental Provisions in U.S. FTAs
Trans-Pacific Partnership (TPP), the Transatlantic Trade
and Investment Partnership (TTIP), and in Congress’
consideration of TPA renewal legislation.
Although the WTO has played an important role in global
environmental discussions, bilateral and regional FTAs
The GATT and the WTO
have also impacted environmental policies. FTAs
commonly include more detailed provisions than the WTO
on trade-related issues such as the environment. A brief
Mechanisms to address environmental protection have been
evolution of these provisions is outlined below.
a part of international trade agreements since the General
Agreement on Tariffs and Trade (GATT) was signed in
The North American Free Trade Agreement (NAFTA).
1947. While the GATT does not contain affirmative
The first U.S. bilateral FTAs—with Israel (1985) and
environmental commitments, Article XX lays out a number
Canada (1988)—did not contain environmental provisions.
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Environmental Provisions in Free Trade Agreements (FTAs)
NAFTA (1994, with Canada and Mexico), however,
support for provisions of recent FTAs—including the May
included a list of MEAs whose provisions generally would
10 Agreement provisions—the objectives also include new
supersede NAFTA’s in the event of conflict. President
provisions to address wildlife trafficking, illegal logging,
Clinton, fulfilling a campaign promise, further negotiated
and illegal fishing subsidies.
an environmental side agreement to NAFTA. The North
Investment Provisions
American Agreement on Environmental Cooperation
contained 10 objectives on environmental cooperation in
In addition to environmental chapters, the United States
matters affecting trade, technical assistance, and capacity
also negotiates investment chapters in U.S. FTAs, as well as
building, and included a dispute settlement arrangement
separate bilateral investment treaties (BITs). The FTA
distinct from NAFTA that could levy a monetary
commitment not to derogate from environmental laws to
assessment, with the suspension of trade benefits as a last
attract investment (see above) first appeared in the
resort. Since NAFTA, all U.S. FTAs have included
investment chapter in NAFTA. U.S. FTAs recognize a
environmental provisions. The U.S. FTA with Jordan
government’s right to adopt or maintain measures to ensure
(2001) contained the first environmental provisions
investment activities to protect legitimate public welfare
incorporated directly into the agreement, but with less
objectives, including the environment, and indirect
rigorous dispute settlement provisions.
expropriation is defined to exclude such regulatory activity.
Nonetheless, some stakeholders believe that the investor-
FTAs under the 2002 Trade Promotion Authority. The
state dispute settlement (ISDS) provision contained in the
G.W. Bush administration negotiated 11 FTAs with 16
investment chapter allows investors to seek compensation
countries under the five-year TPA put in place by the Trade
for environmental laws and administration contrary to their
Act of 2002. The environmental provisions in these
interests, and they may create a chilling effect on the future
agreements went beyond the U.S.-Jordan FTA in terms of
use of regulatory authority in environmental matters. The
scope, but they included only one enforceable provision: a
USTR maintains that ISDS provides a neutral and
party shall not fail to effectively enforce its environmental
transparent venue for the adjudication of basic rights and
laws “in a manner affecting trade between the parties.”
protections already afforded to investors under U.S. law.
Procedures for environmental disputes capped limits on
monetary penalties at $15 million, with suspension of
Issues for Congress
benefits as a last recourse. Other provisions include: (a)
In considering future TPA legislation or future trade
commitments not to derogate from one’s own
agreement negotiations, Congress may examine the use and
environmental laws to encourage trade; (b) extensive
application of environmental provisions in FTAs. This
provisions for cooperation and capacity building; and (c)
debate could include inquiry into
the creation of an Environment Affairs Council.
• The impacts of increased trade and economic growth on
May 10, 2007 Agreement. Following the 2006 elections,
both the domestic and international environment.
the House sought changes in the labor, environmental and
• The effectiveness of including environmental provisions
other provisions of the four then-pending FTAs: Columbia,
in FTAs as a means of protecting U.S. businesses and
Panama, Peru, and South Korea (KORUS). A bipartisan
workers from perceived unfair competition.
agreement between the Bush administration and the House
leadership was reached on May 10, 2007. Concerning
• The appropriateness of using FTAs as a vehicle for
environmental provisions, the agreement
improving environmental practices in other countries.
• Required the incorporation of seven referenced MEAs.
• The appropriateness of using FTAs as a means of
enforcing independently negotiated international
• Altered the non-derogation obligation for environmental
environmental treaties (i.e., MEAs).
laws from a “strive to” to a “shall” obligation.
• The ability of the United States to achieve
• Called for all FTA environmental obligations to be
environmental objectives among widely divergent
enforced under the same dispute settlement procedures
countries in regional FTAs, such as the TPP.
as other provisions in the agreement.
• The effectiveness of the Environment Affairs Councils
The May 10 provisions are reflected in the “Bipartisan
in FTAs to provide technical assistance and capacity
Congressional Trade Priorities and Accountability Act of
building, and to resolve or prevent disputes without
2015 (H.R. 1890/S. 995), which was introduced by Senators
recourse to dispute settlement.
Hatch and Wyden and Representative Ryan on April 16,
• The effectiveness of dispute settlement provisions as
2015. TPA-2015 was reported from the Senate Finance
they are applied to environment issues.
Committee on April 22, 2015, and from the House Ways
and Means Committee on April 23. This TPA, as
The extent to which investment provisions, including
incorporated into H.R. 1314 by substitute amendment,
investor-state dispute settlement (ISDS), preserve a
passed the Senate on May 22 by a vote of 62-37.
country’s right to regulate in its national interest.
Trans-Pacific Partnership (TPP). The U.S. Trade
Representative (USTR) has outlined its negotiating
Richard K. Lattanzio, rlattanzio@crs.loc.gov, 7-1754
objectives for the TPP with respect to environmental issues
Ian F. Fergusson, ifergusson@crs.loc.gov, 7-4997
in a policy statement, “USTR Green Paper on Conservation

and the Trans-Pacific Partnership.” In addition to continued
IF10166
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