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