Environmental Provisions in Free Trade Agreements (FTAs)

Environmental Provisions in Free Trade Agreements (FTAs)

Updated September 1, 2023
Environmental Provisions in Free Trade Agreements (FTAs)
Linkages between trade and environmental protection have
1947. While the GATT does not contain affirmative
long been a concern to some U.S. policymakers and
environmental commitments, its Article XX lays out a
stakeholders. The central question is whether trade
number of general exceptions to its provisions—including
liberalization (i.e., the removal of barriers on the exchange
exceptions for natural resources and protection of human,
of goods and services between nations) advances shared
animal, or plant life, and public health—that could allow
economic and environmental goals. Some observers argue
for environmental policy measures. The agreements
that economic expansion brought on by trade liberalization
establishing the World Trade Organization (WTO) in 1995
adversely affects the environment. Among other concerns,
maintained these exceptions, which have been the subject
they contend that international competition may lead
of several disputes resolved by the WTO’s dispute
developing countries to adopt less stringent environmental
settlement system.
standards to encourage producers to relocate from
The WTO has hosted a variety of multilateral and
jurisdictions with more stringent environmental standards.
plurilateral negotiations. The Doha round of multilateral
Thus, some observers argue that environmental provisions
negotiations were supposed to, among other things, clarify
are necessary in trade agreements to help raise international
the relationship between existing WTO rules and
environmental standards and protect U.S. businesses and
multilateral environmental agreements. A plurilateral group
workers.
of WTO members is also engaged in negotiations to
Other policymakers and stakeholders believe that trade
eliminate tariffs on environmental goods, such as wind
liberalization and environmental protection can be mutually
turbines or solar panels. However, both these negotiations
supportive. They argue that while economic growth may
have stalled. In 2022, WTO Members finalized a limited
adversely affect the environment during the initial stages of
agreement that prohibits subsidies to certain fisheries in
industrialization, it can also provide resources to mitigate
order to reduce overfishing. The agreement would enter
such effects as countries develop. They also argue that trade
into force if it is ratified by two-thirds of WTO members
liberalization can support U.S. environmental goals through
the elimination of tariffs on environmental goods, and the
Environmental Provisions in U.S. FTAs
reduction of trade-distorting subsidies, among other actions.
Although the WTO has played an important role in global
environmental discussions, bilateral and regional FTAs
Trade-related environmental provisions in U.S. FTAs were
have also addressed environmental policies. FTAs
first introduced in a side agreement to the North American
commonly include more detailed provisions than the WTO
Free Trade Agreement of 1994 (NAFTA). Through the
on trade-related issues, such as the environment. A brief
years, they have moved from side agreements to integral
evolution of these provisions is outlined below.
chapters within U.S. FTA texts, and increasingly have
incorporated cooperation and dispute settlement (DS)
Current Key Environmental Provisions in U.S. FTAs
mechanisms. In 1992, President George H.W. Bush
instituted the practice of conducting an environmental
A party shall:
assessment of trade agreements in conjunction with the
•
Not fail to effectively enforce its environmental laws in a
consideration of NAFTA, and President Clinton formalized
manner affecting trade and investment.
the practice by executive order in 1999. In the Trade Act of
•
Not waive or derogate from environmental laws to
2002 (P.L. 107-210), Congress included environmental
promote trade or investment.
provisions as a principal trade negotiating objective in
renewing the President’s Trade Promotion Authority (TPA)
•
Adhere to certain multilateral environmental agreements
legislation. Since then, the United States has been at the
(MEAs).
forefront of using trade agreements to promote core
•
Develop mechanisms to enhance environmental
environmental protections. Additional negotiating
performance.
objectives were incorporated into the Bipartisan
•
Retain the right to exercise the “reasonable “or “bona fide”
Comprehensive Trade Priorities Act (TPA) (P.L. 114-26),
exercise of discretion in enforcement.
enacted into law on June 29, 2015. Environmental
provisions in the United States-Mexico-Canada Agreement
Other provisions include
(USMCA) were, in part, based on these negotiating
•
Enforceable dispute settlement and consultations.
objectives.
•
Cooperation and trade capacity building.
The GATT and the WTO
•
Environmental Affairs Council.
Mechanisms to address environmental protection have been
Source: CRS.
a part of international trade agreements since the General
Agreement on Tariffs and Trade (GATT) was signed in
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Environmental Provisions in Free Trade Agreements (FTAs)
The North American Free Trade Agreement (NAFTA).
2020 (P.L. 116-113). USMCA replaced NAFTA on July 1,
The first U.S. bilateral FTAs—with Israel (1985) and
2020. See CRS Report R44981, The United States-Mexico-
Canada (1988)—did not contain environmental provisions.
Canada Agreement (USMCA).
NAFTA (1994, with Canada and Mexico), however,
included a list of MEAs whose provisions generally would
USMCA, in addition to the provisions in the text box
supersede NAFTA in the event of conflict. President
above, includes
Clinton, fulfilling a campaign promise, further negotiated
• A presumption that an environmental dispute affects
an environmental side agreement to NAFTA. The North
trade and investment unless a respondent party can
American Agreement on Environmental Cooperation
prove otherwise;
contained 10 objectives on environmental cooperation in
• Obligations to address illegal trade in flora and fauna;
matters affecting trade, technical assistance, and capacity
•
building. It also included a dispute settlement arrangement
Prohibitions on the “most harmful” fisheries subsidies;
distinct from NAFTA that could levy a monetary
• Commitments on sustainable use of biodiversity,
assessment, with the suspension of trade benefits as a last
conservation, alien species, and management of forests
resort. Since NAFTA, all U.S. FTAs have included
and fisheries;
environmental provisions. The U.S. FTA with Jordan
• Provisions on air quality and marine litter; and
(2001) contained the first environmental provisions
• Promotion of trade in environmental goods and services.
incorporated directly into the main text of the agreement,
but with less rigorous dispute settlement provisions than
Investment and ISDS
more recent agreements.
Investor-state dispute settlement (ISDS) provisions have
FTAs Under the 2002 Trade Promotion Authority. The
long been a part of U.S. trade agreements. Such provisions
G.W. Bush Administration negotiated 11 FTAs with 16
provide a mechanism for investors to challenge policies that
countries under the five-year TPA put in place by the Trade
may violate the terms of a trade agreement. Many U.S.
Act of 2002. The environmental provisions in these
businesses and other stakeholders maintain that ISDS
agreements went beyond the U.S.-Jordan FTA in terms of
provides a neutral venue for the adjudication of basic rights
scope, and included one enforceable provision: a party shall
and protections already afforded to investors under U.S.
not fail to effectively enforce its environmental laws “in a
law. Other stakeholders argue that ISDS enables investors
manner affecting trade between the parties.” Procedures for
to target environmental laws and creates a chilling effect on
environmental disputes capped limits on monetary penalties
the future use of environmental regulation. USMCA, in a
at $15 million, with suspension of benefits as a last
major revision to NAFTA and a break with practice under
recourse. Other provisions included (a) commitments not to
past U.S. FTAs, eliminated ISDS provisions between the
derogate from one’s own environmental laws to encourage
United States and Canada, and limited its use between the
trade and investment; (b) extensive provisions for
United States and Mexico.
cooperation and capacity building; and (c) the creation of
Issues for Congress
an Environment Affairs Council.
In considering future TPA legislation or future trade
TPA-2015. TPA-2015 enhanced U.S. trade negotiating
agreements, Congress may examine the use and application
objectives on the environment from the 2002 TPA in
of environmental provisions in FTAs. Issues could include
several ways. It
• The impacts of increased trade and economic growth on
• Mandated adherence to seven referenced MEAs and
both the national and the global environment;
other MEAs to which both the United States and one or
• The effectiveness of including environmental provisions
more other parties to the negotiations are full parties and
in FTAs as a means of protecting U.S. businesses and
agree to be included.
workers from perceived unfair competition;
• Altered the non-derogation obligation for environmental
• Whether USMCA is a template for future environment
laws from a “strive to” to a “shall” obligation.
chapters in U.S. FTAs;
• Required enforcement of all FTA environmental
• The appropriateness of using FTAs as a vehicle for
obligations under the same dispute settlement
improving environmental practices in other countries or
procedures as other provisions in the agreement.
enforcing independently negotiated MEAs;
TPA-2015 also prohibited the negotiation of obligations
• The effectiveness of Environment Affairs Councils (and
related to greenhouse gas emissions in FTAs. TPA-2015
the Environmental Cooperation Agreement in USMCA)
expired on July 1, 2021.
to provide technical assistance and capacity building,
and to resolve or prevent disputes without recourse to
USMCA. The USMCA largely incorporated the trade
dispute settlement; and
negotiating objectives of TPA-15. USMCA was signed on
• The effectiveness of dispute settlement provisions to
November 30, 2018, after the Trump Administration
launched negotiations in the spring of that year. Subsequent
enforce environmental provisions in FTAs.
negotiations between Members of Congress and the

Administration resulted in changes to the environmental
Richard K. Lattanzio, Specialist in Environmental Policy
and other provisions of the agreement and were added as a
Christopher A. Casey, Analyst in International Trade and
Protocol of Amendment (PA) to USMCA, which was
Finance
signed by the three countries on December 10, 2019.
Implementing legislation subsequently was enacted by
IF10166
Congress and signed by President Trump on January 29,
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Environmental Provisions in Free Trade Agreements (FTAs)

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