“Push” and “Pull” Impacts of NAFTA on Environmental Responsiveness and Performance in Mexican Industry

Abstract * One of the debates surrounding the implementation of the North American Free Trade Agreement (NAFTA) in January 1994 was the disparity in environmental standards between the US, Canada, and Mexico. The US environmental community successfully pushed for NAFTA to include environmental side agreements designed to strengthen environmental regulation in Mexico. One goal of these side agreements was to improve environmental performance in Mexico through increased regulatory pressures on manufacturing firms operating in Mexico. * One would expect that increased regulatory pressures would "push" companies to improve industrial performance. However, we propose that NAFTA also impacts industrial environmental performance through increased trade opportunities. We expect that Mexican firms selling to U.S. and Canadian customers would manage environmental performance more aggressively than those firms only selling within Mexico, as the stronger environmental cultures of the U.S. and Canada create a "pull" effect on Mexican companies. Key Results * Using data from 221 Mexican manufacturing sites, we provide evidence that both the "push" effect of regulatory influence and the "pull" effect of market pressures were significantly associated with industrial environmental responsiveness, and that degree of environmental responsiveness is positively and significantly associated with environmental performance outcomes. We therefore conclude that NAFTA has exerted a positive influence on industrial environmental performance in Mexico. * Furthermore, we contribute evidence of the relative influence of regulatory and market pressure. The data analysis demonstrates that market forces were significantly more influential than regulatory influences, and had a significantly stronger effect on environmental responsiveness. This finding contributes new evidence of the potential impact of trade agreements. Introduction The North American Free Trade Agreement (NAFTA), implemented between the US, Canada, and Mexico effective January 1994, was a leading impetus for change in the world of Mexican business (Case 1999). The NAFTA agreement created the world's largest free-trade area, and since its implementation trade between the US, Canada, and Mexico has increased substantially. Mexican imports to the US and Canada almost tripled between 1993 and 1999, from $44,658 million in 1993 to $123,114 million in 1999 (ENEGI 2002). NAFTA also represented "the most environmentally-conscious trade pact" (Hufbauer et al. 2000, p. 5) in the world. The NAFTA environmental framework, commonly referred to as the NAFTA side agreement, was created through NAFTA provisions and the North American Agreement on Environmental Cooperation (NAAEC). The intent of the NAFTA environmental framework was to harmonize health and safety regulations, environmental standards and enforcement of environmental laws between the US, Mexico and Canada. Prior to NAFTA, the environmental regulatory climates in the US and Canada were strong compared to that of Mexico. Therefore, the greatest impact of these agreements on environmental management practices and performance would be exerted on Mexican companies. By agreeing to NAFTA, the Mexican government caused Mexican firms to face additional pressures related to environmental management practices and performance. The purpose of this study is to analyze the NAFTA impact on Mexican environmental management responsiveness and performance at the level of the manufacturing facility. Our conceptual model (Exhibit 1) proposes that the environmental provisions contained in the NAFTA and NAAEC exerted both a "push" pressure and a "pull" pressure on Mexican firms' environmental responsiveness. The "push" pressure was exerted through NAFTA's influence on Mexican environmental regulation. As a consequence of NAFTA participation, environmental management priorities were heightened in the Mexican government. …