United States General Accounting Office

GAO Testimony

Before the Subcommittee on Trade, Committee on Ways

and Means, House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EDT

Thursday,

September 11, 1997

NORTH AMERICAN FREE

TRADE AGREEMENT

Impacts and

Implementation

Statement of JayEtta Z. Hecker, Associate Director,

International Relations and Trade Issues, National

Security and International Affairs Division

GAO/T-NSIAD-97-256

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to testify on the impact and

implementation of the North American Free Trade Agreement, or NAFTA.

My testimony today will focus on (1) our review of three major studies of

NAFTA’s economic impacts and a brief overview of NAFTA’s adjustment

programs, (2) the implementation of NAFTA’s mechanisms to both avoid

and resolve disputes among the parties, and (3) the implementation of

NAFTA’s supplemental agreements on environmental and labor cooperation.

My testimony is based on our past work on NAFTA issues1

 and work we

recently conducted at your request. In addition to assessing a wide range

of studies on the economic effects of NAFTA, we interviewed pertinent

trade ministry officials in the United States, Canada, and Mexico, as well

as the heads of the NAFTA Secretariat and the National Administrative

Offices in each country. We obtained the views of representatives from

business, labor, and environment interests in the three countries.

Background NAFTA, which went into effect on January 1, 1994, was intended to facilitate

trade and investment throughout North America. It incorporates features

such as the elimination of tariff and nontariff barriers. NAFTA also supports

the objective of locking in Mexico’s self-initiated, market-oriented reforms.

By removing barriers to the efficient allocation of economic resources,

NAFTA was projected to generate overall, long-run economic gains for

member countries—modest for the United States and Canada, and greater

for Mexico.2

 For the United States, this is due to the relatively small size of

Mexico’s economy and because many Mexican exports to the United

States were already subject to low or no duties. Under NAFTA,

intra-industry trade and coproduction of goods across the borders were

expected to increase, enhancing specialization and raising productivity.

Although a substantial majority of economic studies concluded that only

modest economic and employment effects were likely, NAFTA generated a

1

See North American Free Trade Agreement: Assessment of Major Issues (GAO/GGD-93-137, Sept. 9,

1993). Also, see attached list of other related GAO products.

2

A 1993 International Trade Commission (ITC) synopsis of 12 economic studies of NAFTA found that

the likely long-term effect of NAFTA would be an increase in U.S. real gross domestic product by

between 0.02 and 0.5 percent, U.S. net aggregate employment between 0.03 and 0.08 percent or by

35,063 to 93,502 jobs, and real average wages by 0.1 to 0.3 percent or by $0.01 to $0.03 per hour. For

Mexico, ITC reported that the likely long-term effect of NAFTA would be an increase in Mexico’s real

GDP by between 0.1 and 11.4 percent, net aggregate employment between 0.1 and 6.6 percent, and real

average wages between 0.7 and 16.2 percent. See Potential Impact on the U.S. Economy and Selected

Industries of the North American Free Trade Agreement, USITC Publication 2596 (Washington, D.C.:

U.S. International Trade Commission, Jan. 1993).

Page 1 GAO/T-NSIAD-97-256 North American Free Trade Agreement
heated public debate before the agreement’s passage by Congress in 1993.

NAFTA critics asserted that up to 1 million U.S. jobs would be lost, while the

President projected that the agreement would generate 200,000 U.S. jobs.

NAFTA also included procedures first to avoid, and then to resolve, disputes

between parties to the agreement. Separately, the three NAFTA countries

negotiated and entered into two supplemental agreements designed to

facilitate cooperation on environment and labor matters among the three

countries.

Before I get into the specifics of these topics, I will summarize our main

points.

Summary Assessment of NAFTA’s effects is a complex undertaking. It is difficult to

evaluate the impacts of NAFTA since the agreement’s provisions are

generally being phased in over a 10- to 15-year period, and it is hard to

isolate the impact of the agreement from other trends and events. While

recent studies by the International Trade Commission (ITC), the President,

and the Economic Policy Institute offer valuable insights into the initial

effects of NAFTA, in reviewing the studies we encountered methodological

issues that need to be kept in perspective. Based on our review of these

studies and other work, we have the following summary observations on

NAFTA’s impacts and implementation to date:

• While NAFTA is not yet fully implemented, U.S. trade with NAFTA members

has accelerated. Estimates of changes in total trade among the member

countries due to NAFTA are generally consistent with pre-NAFTA

expectations. The current estimates of its impact on gross domestic

product range from no discernable effect to modest gains for the United

States, also consistent with pre-NAFTA long-run projections described by

ITC.

• At the sectoral level, there are diverse impacts from NAFTA. Within sectors,

these may include increases or decreases in trade flows, hourly earnings,

and employment. Economic efficiency may improve from this reallocation

of resources, but it creates costs for certain sectors of the economy and

labor force, including job dislocation.

• Estimates of the agreement’s impact on aggregate employment are widely

divergent, ranging from gains of 160,000 jobs to losses of 420,000 jobs. We

believe neither of these are reliable estimates of actual labor effects due to

methodological limitations. In general, NAFTA, or broader trade policies,

cannot be expected to substantially alter overall U.S. employment levels,

Page 2 GAO/T-NSIAD-97-256 North American Free Trade Agreement
which are determined largely by demographic conditions and

macroeconomic factors such as monetary policy.

• While there is wide conceptual agreement on the contribution of trade

liberalization to improvement in the standard of living through increased

productivity and lower prices, estimating the extent to which NAFTA

specifically furthers these goals presents a major empirical challenge that

may never be overcome. For example, there are no estimates of NAFTA’s

direct impact on productivity. However, growth in shared production

activity and two-way trade suggests that increases in sector specialization,

a mechanism through which productivity may be improved, have

occurred.

One of NAFTA’s objectives was to lock in Mexico’s market reforms and

provide long-term economic growth in Mexico, with benefits to the United

States through a more stable border. Mexico’s response to its financial

crisis of 1994-95 and the recent agreement to accelerate tariff reductions

suggest that Mexico has been committed to meeting its NAFTA obligations.

The effectiveness of NAFTA in locking in Mexico’s long-term commitment to

market reforms and promoting Mexican economic growth, however, is not

yet clear.

While data on the use of the NAFTA Transitional Adjustment Assistance

program (NAFTA-TAA) provides sectoral and geographic information on

potential job dislocations, NAFTA-TAA certifications should not be used as a

proxy for the number of jobs lost. This is because certifications are likely

to either underrepresent or overrepresent the actual number of jobs

affected. For example, under NAFTA-TAA, potential job losses are not

required to be linked directly to NAFTA, thus overstating the total. In

addition, not all potentially affected sectors are covered by the program,

thus understating the total.

NAFTA’s system for avoiding and settling disputes among the member

countries is a critical element of the agreement. The agreement includes

mechanisms such as the establishment of committees and working groups

and an early consultation process to help the parties avoid disputes.

According to government and private sector officials, these mechanisms

have helped the governments resolve important trade issues and have kept

the number of formal dispute settlement cases relatively low. Under

NAFTA’s formal dispute settlement mechanisms, as of August 1997 there

have been 32 requests for binational panel reviews of countries’ alleged

unfair trade practices, 2 requests for panel reviews of NAFTA’s application,

and 2 complaints regarding investment.

Page 3 GAO/T-NSIAD-97-256 North American Free Trade Agreement
U.S., Mexican, and Canadian government officials with whom we met

were generally supportive of NAFTA’s dispute settlement process over the

past 3 years, noting especially the professionalism and lack of national

bias of the panelists reviewing the cases. According to these officials,

changes to NAFTA members’ trade laws agreed to under NAFTA, in particular

in Mexico and Canada, have also helped improve the transparency

(openness) of their antidumping and countervailing duty administrative

processes, thus reducing the potential for arbitrariness in their application.

Despite their generally positive views of NAFTA’s dispute settlement

process, officials and legal commentators in the three countries have

expressed some concerns about delays in NAFTA’s panel selection process

and in the speed and cost involved in pursuing a dispute. Further, some

U.S. organizations have challenged the constitutionality of the provision

allowing for binational panel review of countries’ unfair trade

determinations.

It is too early to determine what definitive effect the supplemental

agreements will have on the North American environment and labor.

However, the two commissions created to implement the agreements have

been acknowledged by some government and private sector officials for

several positive achievements to date. Government officials in each of the

three NAFTA countries we spoke with generally believe the respective

agreements have positively affected their country’s understanding of and

cooperation on labor and environmental issues. In addition, the

commissions’ efforts to encourage the enforcement of domestic

environmental and labor laws through the processes allowing for

submissions by interested parties have been recognized. These processes

are being tested with the filing, to date, of 11 public submissions on the

environment and 8 on labor alleging lack of countries’ effective

enforcement of their environment and labor laws.

U.S., Canadian, and Mexican government officials and experts have also

expressed some concerns about the agreements’ implementation. For

example, some government and private sector officials have cited the need

for greater transparency in the Commission for Environmental

Cooperation’s procedures. In addition, a number of observers noted the

significant difference in the levels of support for the two commissions.

While the environment commission is funded at $9 million annually, the

Commission for Labor Cooperation’s annual budget is $1.8 million, which

reportedly has contributed to problems at the labor commission in hiring

and retaining staff.

Page 4 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Reviews of NAFTA’s

Impacts

The impact of NAFTA on the U.S. economy cannot be directly ascertained

since changes in trade and investment also reflect other influencing

factors. The results of economic analyses of NAFTA’s impact on U.S. gross

domestic product (GDP) are consistent with the pre-NAFTA long-run

projections described by the ITC. In contrast, estimates of the agreement’s

impact on aggregate employment are widely divergent. Differences in the

studies’ assumptions and methodologies account for this divergence.

Since NAFTA’s first round of tariff reductions went into effect in 1994,3

 total

U.S. merchandise trade (exports plus imports) with Canada and Mexico

has increased from an annual average of $269 billion (1991-93) to an

annual average of $384 billion (1994-96). (See apps. I-III.) A significant

factor influencing trade was the severe 1994-95 Mexican financial crisis.4

This growth in total trade has been accompanied by an increase in the U.S.

merchandise trade deficit with its NAFTA partners, from $8.6 billion to

$34 billion, as import growth outpaced export growth. U.S. investment in

Mexico has grown since NAFTA’s implementation. From 1994 to 1996, the

United States had an annual average of $3.1 billion in foreign direct

investment to Mexico, compared to $2 billion from 1991 to 1993.

Recent Studies of NAFTA’s

Economic Impact

Mr. Chairman, let me now summarize the findings from three major

reports on NAFTA’s impact: (1) the in-depth June 1997 ITC study of NAFTA;

5

(2) the President’s July 1997 report on the operations and effect of NAFTA;

6

and (3) a June 1997 study by some of the major critics of NAFTA.

7

3

At the meeting of the NAFTA Commission in March 1997, the NAFTA trade ministers announced the

successful conclusion of a set of accelerated tariff reductions. Also, based on private sector interest,

they agreed to initiate negotiations on additional reductions to be concluded by year’s end.

4

In December 1994, nearly a year after the implementation of NAFTA, Mexico was forced to devalue its

currency leading to a serious economic crisis characterized by high unemployment, declining income

and consumption, and a sharp reduction of Mexico’s imports, including those from the United States.

In Mexico’s Financial Crisis: Origins, Awareness, Assistance, and Initial Efforts to Recover

(GAO/GGD-96-56, Feb. 23, 1996), we examined the causes of this crisis and concluded that it originated

in the growing inconsistency between monetary, fiscal, and exchange rate policies pursued by Mexican

authorities in 1994.

5

The Impact of the North American Free Trade Agreement on the U.S. Economy and Industries: A

Three-Year Review, USITC Publication 3045 (Washington, D.C.: U.S. International Trade Commission,

June 1997).

6

Study on the Operation and Effects of the North American Free Trade Agreement, U.S. President’s

report to the Congress of the United States (Washington, D.C.: The White House, July 1997).

7

The Failed Experiment - NAFTA at Three Years (Washington, D.C.: Economic Policy Institute,

Institute for Policy Studies, International Labor Rights Fund, Public Citizen’s Global Trade Watch,

Sierra Club, and U.S. Business and Industrial Council Educational Foundation, June 26, 1997).

Page 5 GAO/T-NSIAD-97-256 North American Free Trade Agreement
The ITC 3-Year Assessment The June 1997 ITC assessment of NAFTA impacts represents the most

comprehensive research effort we identified to date. Using an econometric

approach, ITC sought to separate other trade-influencing factors,

particularly Mexico’s financial crisis, from NAFTA’s impact on the U.S.

economy as a whole, and on nearly 200 industrial sectors of the U.S.

economy. In addition, the ITC assessment included a qualitative review of

68 aggregated sectors.

Based on all of its analysis, ITC concluded that NAFTA had a modest positive

effect on the U.S. economy during its first 3 years of operation. ITC was

unable to quantify a discernible effect on U.S. GDP, aggregate investment,

or aggregate employment that can be attributed to NAFTA during its first 

3 years. ITC concluded that NAFTA has significantly affected the aggregate

levels of U.S. trade with Mexico, but not with Canada.

In its sectoral analyses, ITC found changes in trade, employment, and

earnings that were due to NAFTA in a limited number of sectors. Among the

nearly 200 sectors whose trade ITC modeled, U.S. exports to Mexico

increased significantly in 13 sectors due to NAFTA, while no sector showed

decreased exports to Mexico due to NAFTA. U.S. imports from Mexico

increased significantly in 16 sectors after the effects of other influencing

factors were taken into account, while U.S. imports from Mexico

decreased significantly in 7 sectors due to NAFTA. In an econometric

analysis of 120 industrial sectors, ITC found that 29 industries had changes

in hourly earnings and employment levels. Among these 29 sectors, hours

worked most often increased due to NAFTA, while hourly earnings were

more often found to decrease. In their qualitative sectoral analysis, ITC

industry experts found that employment declined due to NAFTA in 2 out of

68 sectors: the apparel and women’s non-athletic footwear sectors. While

some effort was made to address productivity impacts, ITC was unable to

evaluate the direct impact of NAFTA on labor productivity in the various

sectors due to data constraints. However, the indirect evidence examined

by ITC suggested a positive impact on U.S. productivity in certain

industries.

The President’s Report The President’s report on NAFTA presents the findings of recent studies that

estimate the agreement’s impact. These include a commissioned DRI

analysis and research published by the Federal Reserve Bank of Dallas.8

Both studies isolate the effect of the Mexican financial crisis from NAFTA’s

8

The commissioned DRI analysis drew on a previous report—The Impact of NAFTA on Mexican Trade:

An Empirical Study (Lexington, MA: DRI/McGraw-Hill, Apr. 1997). David M. Gould, “Distinguishing

NAFTA from the Peso Crisis,” Southwest Economy, Federal Reserve Bank of Dallas (Sept./Oct. 1996).

Page 6 GAO/T-NSIAD-97-256 North American Free Trade Agreement
effect on bilateral U.S.-Mexico trade flows.9

 In contrast to the ITC effort

that modeled the employment impact of NAFTA, the President’s report uses

a simple job-multiplier analysis that assumes about 13,000 jobs are

supported for every $1 billion in increased exports.

The Federal Reserve study modeled the impact of NAFTA on U.S. bilateral

trade with Mexico. They found that NAFTA has on average boosted export

growth by about 7 percentage points each year since implementation, for a

cumulative expansion of exports of about $5 billion through 1995. U.S.

import growth from Mexico on average has been about 2 percentage

points greater each year, for a cumulative impact of about $1.8 billion in

additional imports.10 The DRI assessment found larger trade effects than

the Federal Reserve study. The DRI study used a model of the Mexican

economy to evaluate NAFTA’s impact on bilateral trade with the United

States, but excluded the petroleum sector. It found that in 1996, NAFTA

increased U.S. exports to Mexico by $12 billion and imports from Mexico

by $5 billion. The estimated trade impacts were then applied to a DRI

macroeconomic model of the U.S. economy to simulate their impact on

U.S. GDP and investment. According to the President’s report, DRI

estimates that NAFTA contributed $13 billion to U.S. real income and

$5 billion to business investment in 1996, controlling for the impact of

Mexico’s financial crisis.11

The President’s report uses the export estimates from the two studies to

compute NAFTA’s impact on job creation. The President’s report estimates

that NAFTA export expansion supported between 90,000 and 160,000 jobs in

1996.12 The President’s report did not compute any employment impact

from increased imports from Mexico.

Consolidated NAFTA Critique The Economic Policy Institute (EPI) prepared an assessment of NAFTA that

also used a job-multiplier analysis. This assessment was included in the

consolidated critique of NAFTA. However, the EPI analysis differed from the

President’s report in several notable respects. First, EPI did not separate

9

Neither study makes an assessment of the extent to which changes in U.S.-Mexico bilateral trade

reflect trade diversion away from other trading partners.

10The Federal Reserve study reports that its estimates of the effects of NAFTA on exports and imports

are not statistically significant.

11The DRI data that is reported in the President’s report differ from the data DRI submitted to the

President’s Council of Economic Advisers on July 1, 1997. That submission shows that NAFTA

contributed $21.2 billion to U.S. real income and $4.2 billion to nonresidential fixed investment in 1996.

12The lower estimate uses an extrapolation of the Federal Reserve assessment that U.S. exports

expanded by about $5 billion through 1995, while the higher estimate reflects DRI’s assessment that

NAFTA expanded U.S. exports by $12 billion.

Page 7 GAO/T-NSIAD-97-256 North American Free Trade Agreement
the impact of Mexico’s financial crisis from NAFTA’s effects on trade flows.13

Secondly, to compute job losses from NAFTA, EPI applied the export job

multiplier to the increase in imports rather than just to exports as done in

the President’s report. Also, EPI included changes in U.S.-Canadian

bilateral trade in its assessment of NAFTA.

The critique concluded that the increased U.S. trade deficit with Mexico

and Canada on balance has cost the United States 420,208 jobs since 1993.

It states that the move to a $16.2 billion U.S. bilateral trade deficit with

Mexico in 1996 from a bilateral surplus of $1.7 billion in 1993 cost the

United States 250,710 of these jobs.14 The critique also notes that the real

wages of U.S. blue-collar workers has declined for almost 2 decades and

suggests that imports from low-wage countries such as Mexico are an

especially important cause of increasing wage inequality.

NAFTA Adjustment

Programs

The benefits of trade agreements are widely dispersed, and the costs or

dislocation effects are more concentrated. In recognition of the

anticipated dislocation of some workers, the NAFTA Implementation Act

established the NAFTA-TAA program in 1994. The program was designed to

assist workers in companies affected by U.S. imports from Mexico or

Canada or by shifts in U.S. production to either of those countries. The

program is authorized to continue until September 30, 1998.15 NAFTA-TAA

benefits include basic readjustment services; employment services;

training; job search allowances; relocation allowances; and the feature

that most distinguishes the program from basic unemployment insurance,

income support for up to 52 weeks after exhaustion of unemployment

insurance when enrolled in training.

13EPI reports that the overvalued peso was related to NAFTA as it artificially reduced the price of

Mexican imports from the United States, and helped win U.S. passage of NAFTA in 1993. The United

States had a trade surplus with Mexico from 1991 to 1993, giving credence to that idea. DRI argues that

the process leading to the start of NAFTA complicated stabilization policy in Mexico, and was in that

sense a contributing factor to the financial crisis. The Impact of NAFTA on the North American

Economy (Lexington, MA: DRI/McGraw-Hill, Jan. 1997).

14EPI estimates that from 1993 to 1996 the increased trade deficit with Canada on balance cost the

United States 169,498 jobs.

15The United States has two other major programs to aid adjustment of workers who have lost their

jobs: the Trade Adjustment Assistance and the Economic Dislocation and Worker Adjustment

Assistance programs. GAO reviews of these programs as well as the NAFTA-TAA found confusion

about eligibility, inadequate tailoring of services, and delays in delivery. GAO has recommended that

the programs be improved and consolidated. See Multiple Employment Training Programs: Major

Overhaul Is Needed to Create a More Efficient, Customer-Driven System (GAO/T-HEHS-95-70, Feb. 6,

1995); and Dislocated Workers: An Early Look at the NAFTA Transitional Adjustment Assistance

Program (GAO/HEHS-95-31, Nov. 18, 1994).

Page 8 GAO/T-NSIAD-97-256 North American Free Trade Agreement
As of September 4, 1997, NAFTA-TAA certifications (verification of potential

job losses since NAFTA’s implementation) have been issued for 1,206

worker groups in firms located in 48 states.16 Department of Labor

statistics indicate that 142,884 workers have been certified as eligible for

NAFTA-TAA benefits due to (1) increased imports from Canada or Mexico or

(2) a shift in U.S. production to Canada or Mexico. Of these certifications,

623 were based on a shift of production to Canada or Mexico, 380 were

based on increased customer imports, 167 were based on increased

company imports, and 36 were based on high and rising aggregate imports

from Canada or Mexico. As shown in table 1, the top five sectors in terms

of worker group certifications and the number of workers covered were

apparel, electrical and electronic equipment, lumber and wood products,

fabricated metal products, and industrial/commercial machinery, and

computer equipment. The top 10 states with NAFTA-TAA workers covered by

certifications were Texas (12,797), Pennsylvania (12,788), North Carolina

(12,001), New York (11,924), California (7,773), Georgia (6,556), Indiana

(6,077), Tennessee (5,786), Arkansas (5,397), and New Jersey (4,788).

Table 1: Number of NAFTA-TAA

Certifications by Sector, January 1,

1994-September 4, 1997 Sector

Number of worker

group certifications

Number of workers

covered

Apparel 433 42,140

Electrical and electronic equipment (except

computing equipment)

246 29,730

Lumber and wood products (except furniture) 158 8,280

Fabricated metal products 103 12,750

Industrial/commercial machinery and

computer equipment

103 11,005

Other sectors 163 38,979

Total 1,206 142,884

Source: Department of Labor.

Because of the intense interest in NAFTA’s impact on U.S. labor and the

difficulty in calculating such impact, analysts have used NAFTA-TAA data as

a proxy for job dislocations attributable to NAFTA. NAFTA-TAA certifications

are not an accurate measure of jobs lost due to NAFTA, however, because

certifications are likely to either underrepresent or overrepresent the

actual number of jobs affected. On the one hand, NAFTA-TAA certifications

16NAFTA-TAA petitions, which can be filed by a group of three or more workers, are first reviewed by

the Governor of the state where the worker’s company is located. The U.S. Department of Labor

makes the final determination whether to approve or deny these petitions, and issues certifications for

approved petitions.

Page 9 GAO/T-NSIAD-97-256 North American Free Trade Agreement
are not required to be caused by, or linked to, NAFTA—they can be due to

general trade effects between the United States and Canada or Mexico. In

addition, NAFTA certifications represent potential job losses, not the actual

number of jobs lost. These factors could potentially lead to the NAFTA-TAA

figures being overstated. On the other hand, not all categories of workers

potentially affected are covered by the program (for example, some

services workers). Additionally, some researchers have questioned

whether employees of small, nonunionized firms are fully aware of

program benefits and are thus not being served by the program. Further,

workers may opt to apply for other programs, particularly given the strict

training requirement for NAFTA-TAA. These factors could potentially lead to

understatement.17 While NAFTA-TAA is fully operational, little evaluation has

been done of how effectively the program serves to provide retraining and

adjustment assistance to affected workers.

The NAFTA implementing legislation established an additional program to

deal with job dislocation effects from NAFTA: the U.S. Community

Adjustment and Investment Program under the North American

Development Bank. The program was designed to provide loans and loan

guarantees (up to $22.5 million, according to authorizing legislation) to

businesses seeking to locate or expand existing operations in communities

with job losses caused by NAFTA. It was to be implemented by a program

office in Los Angeles, two advisory committees, and an ombudsman

appointed by the President. However, during the first 3-1/2 years of NAFTA,

no loans were approved under the program. The Treasury Department

issued its first designation of qualifying communities on August 1, 1997.

That announcement declared 35 communities in 19 states eligible for

business loans and loan guarantees.

Comments on

Methodology

It is very difficult to evaluate the impact of NAFTA since the agreement’s

provisions are generally being phased in over a 10- to 15-year period, and it

is hard to isolate the impact of the agreement from contemporaneous

economic trends and other unique events. While recent studies offer

valuable insights into the initial effects of NAFTA, in reviewing the studies

we encountered methodological issues that need to be kept in perspective.

The estimates of NAFTA’s impact on GDP derived from econometric analyses

are consistent with expectations of NAFTA’s long-term impact. The ITC

reports that NAFTA had no discernable impact on GDP after 3 years. The

President’s report finds that the short-term, transitory GDP gain from NAFTA

17GAO is currently reviewing the scope and coverage of the NAFTA-TAA program.

Page 10 GAO/T-NSIAD-97-256 North American Free Trade Agreement
was $13 billion in 1996, which represents less than 0.2 percent of U.S. GDP.

Both estimates can be considered consistent with pre-NAFTA projections

that the likely long-term impact of NAFTA would be a modest, positive

increase in GDP—between 0.02 and 0.5 percent.

Several of the reports include conclusions about NAFTA’s impact on U.S.

aggregate employment. However, there is widespread consensus among

many economists that aggregate employment is primarily determined by

demographic conditions and macroeconomic factors such as monetary

policy or interest rates. These economists would argue that trade

agreements, such as NAFTA, primarily impact labor markets by shifting the

composition of employment, potentially altering wages and income

distribution, rather than affecting the overall level of employment in the

country.

The President’s report as well as the EPI study rely on the job-multiplier

approach to estimate the potential job impact of changes in the nation’s

trade balance. This approach is questioned by many economists for

computing the employment impacts of trade. Furthermore, as an

application of this methodology, the President’s and EPI’s analyses both

exaggerate their estimates of NAFTA’s job impact. For example, the

President’s report did not calculate any job losses associated with

increased U.S. imports from Mexico due to NAFTA.

18 Likewise, the job

losses estimated by EPI are exaggerated, since some of the increase in U.S.

imports from Mexico displaces imports from other nations rather than U.S.

production.

The impact of NAFTA on wages, low-skill workers, and income inequality is

a controversial issue related to NAFTA’s impact on the economy. ITC

analyzed the impact of NAFTA on sectoral wages but did not attempt to

determine the impact on low-skill workers or income inequality. The

President’s report largely recapped the ITC analysis. While the critique

associated trade expansion with two decades of declining real wages, it

did not analyze NAFTA’s specific impact.

An important methodological issue in analyzing NAFTA is how Mexico’s

1994-95 financial crisis is treated. Estimates of NAFTA’s impacts over its

first 3 years differ greatly based on how the crisis is considered in the

analysis. ITC’s and the President’s reports explicitly excluded its effects in

18The report argues that imports do not necessarily displace U.S. production and that because the

“mainstream economic community has not developed any broadly agreed upon methodology” to

estimate the displacement effect, the export job-multiplier computation should not be used to

calculate employment level changes due to imports.

Page 11 GAO/T-NSIAD-97-256 North American Free Trade Agreement
their analysis, while the EPI study did not. While separating the crisis’

impact from that of NAFTA has merit, events in Mexico leading to the

financial crisis and the response to the crisis are intertwined with NAFTA.

The financial crisis tested whether NAFTA succeeded in locking in Mexico’s

market-opening reforms. Mexican government officials noted that they

met their NAFTA obligations rather than institute immediate tariff increases

on U.S. products, as had occurred during a previous crisis in 1982.

Furthermore, they undertook additional market-opening measures such as

privatizing government-owned ports and railroads, according to Mexico’s

Trade and Commerce ministry.

Mechanisms for

Avoiding and Settling

Disputes

NAFTA contains mechanisms to help avoid trade disputes and settle them

effectively when they do arise. In an effort to head off disputes, NAFTA

established a number of committees and working groups on key

trade-related issues to provide a channel for discussion of member

countries’ ongoing concerns. In addition, NAFTA’s dispute settlement

process includes a consultation mechanism that encourages members to

make every effort to resolve differences in meetings and discussions

before requesting a review. Further, the agreement’s formal dispute

settlement mechanisms address member countries’ potential use of unfair

trade practices, the interpretation and application of NAFTA, and the

protection of investor rights. Finally, changes in NAFTA member countries’

trade laws were required by the agreement to increase the level of

transparency in countries’ trade remedies determinations.

U.S., Mexican, and Canadian private sector and government officials with

whom we spoke were generally supportive of NAFTA’s dispute settlement

process over the past 3 years. For example, they cited increased

transparency in member countries’ administration of trade remedy laws

required by the agreement. However, some U.S. and Canadian officials

were concerned about the timeliness of NAFTA’s panel selection process. In

addition, Mexican officials acknowledged that Mexico’s pool of potential

panelists is somewhat limited because Mexican attorneys are still

developing expertise in trade dispute matters. Furthermore, questions

have arisen regarding the constitutionality of NAFTA’s dispute settlement

provisions dealing with countries’ determinations of alleged unfair trade

practices.

Dispute Avoidance NAFTA established a number of committees and working groups on

significant trade-related issues to enable member countries to discuss

Page 12 GAO/T-NSIAD-97-256 North American Free Trade Agreement
their concerns. In addition, NAFTA committees and working groups provide

forums for consultation on comprehensive trade-related subjects, such as

rules of origin, agricultural subsidies, financial services, standards-related

measures, trade and competition, and temporary entry by business

persons. They are composed of trade and other relevant officials from the

three governments.

Canadian, Mexican, and U.S. trade officials told us that, in general, NAFTA

committees and working groups have helped all three countries to address

important trade issues. They believe that these groups have prevented

many issues from being elevated to the trade minister level and thus have

minimized their politicization. One Canadian trade official commented that

the working groups allowed government officials to settle their differences

informally. U.S. embassy officials told us that Mexico and the United

States are participating in NAFTA working groups to reduce delays that U.S.

exporters encounter in meeting Mexican product standards. For example,

to facilitate U.S. tire exports, Mexican officials told us they agreed to

accept test data from U.S. tire manufacturers for the first time. A Canadian

trade official cited a committee’s work on accelerating the elimination of

tariffs on certain products. Other examples of committee and working

group efforts mentioned by government officials included harmonizing

labeling requirements on apparel among NAFTA countries and resolving

disagreements on classifying goods to meet NAFTA rules of origin.

NAFTA has also built into its dispute settlement process opportunities for

disputing parties to participate in consultations, or face-to-face meetings,

to resolve their differences. These consultations are meant to allow parties

to air their concerns and seek mutually agreeable solutions before

pursuing more formal institutional review under NAFTA. If the parties

resolve their differences through consultations, they do not need to go any

further in NAFTA’s dispute settlement process. If differences are not

resolved, the parties can request dispute settlement panel review. For

example, seven such prepanel consultations are currently ongoing, one of

which recently ended in a mutually acceptable resolution.

Enforcement The three major dispute settlement provisions of NAFTA are set forth in

chapters 19, 20, and 11. These chapters provide mechanisms for dealing

with the three primary areas in which disputes can arise, that is, unfair

trade practices (chapter 19), the interpretation and application of NAFTA

(chapter 20), and the protection of investor rights (chapter 11). NAFTA’s

chapter 20 also promotes the use of arbitration and other forms of

Page 13 GAO/T-NSIAD-97-256 North American Free Trade Agreement
alternative dispute resolution for international commercial disputes

between private parties in the free trade area, although it does not

prescribe or establish arbitration procedures.

There have been 32 chapter 19 requests for binational panel review as of

July 1997, including 14 completed cases with final panel decisions, 9 cases

still active, and 9 cases terminated without a decision (see app. IV for

more information on completed cases.) There were no requests for

Extraordinary Challenge Committee19 review under NAFTA. Officials from

all three countries with whom we spoke considered the chapter 19 process

to be working very well. They believed that the final panel decisions made

thus far had been balanced and fair and completed in a timely manner.20

They observed that in their view, concerns about panels voting along

national lines or the nature of the panel majority influencing its final

outcome have proved to be unfounded. In fact, of the 14 completed panel

decisions, 11 (79 percent) were unanimous. Chapter 19 binational panels

took 457 days on average to complete cases and issue a final decision.

Chapter 19 establishes a 315-day guideline to issue a final decision from

the date a panel was requested.21

Two requests for chapter 20 panel reviews have been made under NAFTA. In

one case, a final panel decision has been issued, and in the other case oral

argument has been held. A decision is due by the end of the year. A total of

seven prepanel consultations are ongoing, including two in which the

United States is the petitioner, and five in which the United States is the

respondent. Officials with whom we spoke believed that the chapter 20

prepanel consultation process helped parties avoid formal disputes by

allowing them to resolve their differences before requesting a chapter 20

panel. However, Mexican government officials and a member of a U.S.

business association operating in Mexico expressed concern that, in their

opinion, some of the prepanel consultations under chapter 20, were taking

too long. NAFTA provides for no time limits on consultations other than

those agreed to by the consulting parties.

19While a chapter 19 decision cannot be appealed in domestic courts, involved parties may request a

review by an Extraordinary Challenge Committee composed of three judges or former judges selected

by the parties.

20Our 1995 work on chapter 19 found some participants had concerns about the panel process, certain

panel decisions and how they were arrived at. See U.S.-Canada Free Trade Agreement: Factors

Contributing to Controversy in Appeals of Trade Remedy Cases to Binational Panels

(GAO/GGD-95-175BR, June 16, 1995).

21According to the NAFTA U.S. Section Secretary, the 315-day guideline does not include the time

when the panels are temporarily suspended. Panels can be suspended when a panelist becomes unable

to fulfill panel duties or is disqualified due, for example, to a change in circumstances causing the

appearance of conflict of interest.

Page 14 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Two U.S. firms have filed complaints under the NAFTA chapter 11 investor

arbitration clause. In one case a panel convened in July 1997, and in the

other case, a panel is still being formed.

Appendix IV further describes the chapters 19, 20, and 11 provisions and

provides information on the dispute cases initiated since NAFTA’s

implementation.

Implementation Progress According to U.S., Mexican, and Canadian government officials, changes

in NAFTA member countries’ trade laws precipitated by the agreement have

increased the level of transparency in countries’ trade remedy

determinations, particularly in Mexico. While government officials were

generally pleased with the operation of NAFTA’s dispute settlement process

to date, they expressed some concerns about the panel selection process.

In addition, a constitutional challenge to the chapter 19 process is pending

in U.S. federal court.

Changes in Signatory Trade

Laws to Conform to NAFTA

Requirements

All three signatories agreed to make changes in their trade remedy laws to

comply with NAFTA provisions. For example, NAFTA obligated Mexico to

make 21 procedural amendments to its laws. They were intended to

reduce the potential for arbitrary antidumping and countervailing duty

administrative determinations by increasing the level of transparency in

the administrative process. The amendments Mexico was obligated to

make to its law included allowing interested parties to fully participate in

the administrative process, including the right to administrative and

judicial review of final determinations, elimination of the possibility of

imposing provisional duties before the issuance of a preliminary

determination, and explicit timetables for determining the competent

investigating authority and for parties to submit evidence and comments.

The United States and Canada included changes required by NAFTA in their

implementing legislation, while Mexico amended its new Foreign Trade

Law shortly before NAFTA became effective.

In accordance with the NAFTA Implementation Act, the President reported

to Congress on December 27, 1993, that Mexico implemented the statutory

changes necessary to bring it into compliance with its obligations under

NAFTA. In addition, Mexican officials stated that Mexico also amended its

foreign investment, telecommunications, and intellectual property laws at

that time. Mexico’s first trade remedies law, including antidumping and

countervailing duty measures, was enacted in 1986 when Mexico joined

the General Agreement on Tariffs and Trade (GATT). According to Mexican

Page 15 GAO/T-NSIAD-97-256 North American Free Trade Agreement
officials and the U.S. Section NAFTA Secretariat, the law, now in its fourth

revision, has dramatically increased the levels of transparency and public

participation in Mexico’s trade remedy determinations. However, these

officials admitted that Mexico’s system for finding redress to unfair trade

practices was still slow and costly to petitioners.

Canadian officials told us that both U.S.-Canadian Free Trade Agreement

and NAFTA provisions on unfair trade practices have encouraged more

thorough review and documentation of original antidumping and

countervailing duty cases by Revenue Canada, an agency that administers

Canadian trade laws. Prior to these agreements, these same officials said

that Revenue Canada’s review processes of these cases had been less

documented and less subject to outside scrutiny.

Quality of the Operation of

Dispute Settlement

In general, U.S., Mexican, and Canadian government officials with whom

we spoke were favorably impressed with the operation of the NAFTA

dispute settlement process over the past 3-1/2 years. They considered the

panelists reviewing the cases brought forward to date to be of high quality,

professional, neutral, and unbiased. Panelists, we were told, went out of

their way to hear all of the arguments relevant to each case. In addition,

they were pleased that panel reviews and decisions were conducted with

little attention from the media. Officials observed that the cases that did

attract media attention tended to be those concerning issues that had been

sensitive long before NAFTA. They further noted that the controversy over

these cases concerned the substance of the issues rather than the dispute

settlement process itself.

U.S., Canadian, and Mexican business groups we spoke with believed that

the dispute settlement framework has provided an orderly, fair, and

predictable mechanism with which to resolve differences. One U.S.

business association member explained that such a mechanism provided

certainty and reduced risk to all participants, thereby facilitating trade

among the three countries. Another businessperson noted that the

outcome of the panel decisions was not as important as the certainty that

the dispute settlement system was unbiased and based upon the rule of

law.

Considering the increased trade among the United States, Canada, and

Mexico since NAFTA’s implementation, many of the private sector and

government officials with whom we spoke regarded the number of dispute

settlement cases over the past 3-1/2 years to be remarkably low. They

attributed this to opportunities to work out differences through the NAFTA

Page 16 GAO/T-NSIAD-97-256 North American Free Trade Agreement
working groups and the consultation process built into the dispute

settlement process.

Panel Selection Notwithstanding the support expressed by many business and government

representatives for the agreement’s dispute settlement process, some

participants in the dispute settlement process expressed concern about

the timeliness of the panel selection process.

NAFTA’s chapter 19 provides that involved parties agree on their selection

of panel members within 55 days of the request for a panel. The average

delay over and above the required 55 days for panel selection under NAFTA

chapter 19 had been 53 days. Participants attributed this delay to the

logistics of finding qualified potential panelists, in particular panelists who

meet the NAFTA code of conduct that requires that panelists meet certain

criteria, including lack of a conflict of interest. One participant cautioned

that such delays could potentially cause problems since NAFTA requires the

respondent to respond to the complainant’s brief within 60 days of the

request for a panel. In fact, thus far nine panels have been temporarily

suspended to deal with such situations.

In addition, a Canadian official responsible for monitoring NAFTA issues

believed that the two cases involving requests for chapter 20 panels had

been delayed due to the absence of a chapter 20 roster. Under NAFTA, the

chapter 20 panel members are normally to be chosen from a roster agreed

upon by all three signatories. Without a roster, panelists in the two cases

had to be selected from a general population of potentially eligible

panelists. According to a U.S. Trade Representative official, the chapter 20

roster has not yet been formed because the parties could not agree on its

composition.

Mexican officials admitted that Mexico’s pool of potential panelists was

rather limited because Mexican attorneys are still developing expertise in

trade dispute matters. Moreover, the limited number of Mexican trade

attorneys increases the potential that panelists might represent clients in

the industries subject to panel review, a situation not allowed under

NAFTA’s conflict of interest provisions. Mexican officials explained that

their government is making every effort to train more professionals in the

area of trade law. For example, the Mexican government is currently

sponsoring seminars on trade law and requiring that Mexican universities

provide classes in antidumping and countervailing duty law as well as in

NAFTA dispute settlement.

Page 17 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Challenge to Constitutionality

of Binational Panel System

Critics have questioned whether the chapter 19 binational panel review

system, by replacing federal court review with binational panel review,

violates article III of the U.S. Constitution that provides that judicial power

be exercised by U.S. federal courts. They also question whether the

chapter 19 system may violate the appointments clause of article II of the

U.S. Constitution, which requires that judicial officials be appointed by the

President with the advice and consent of the Senate, since chapter 19

panelists are not nominated by the President and confirmed by the Senate.

In January of this year, the American Coalition for Competitive Trade22

filed a lawsuit in the U.S. Court of Appeals for the District of Columbia

Circuit charging that chapter 19 violates articles II and III of the U.S.

Constitution.

In view of these developments, it is possible that questions concerning the

constitutionality of the chapter 19 binational panel review system may be

resolved by the federal courts. However, if and when the courts will

ultimately decide these issues is uncertain.

Implementation of

Environment and

Labor Agreements

During the NAFTA negotiation process, parallel negotiations were

undertaken to address environment and labor issues. The two resulting

agreements emphasized cooperation to improve environment and labor

conditions in North America; they also created mechanisms to address

enforcement of environment and labor laws in each of the three countries.

After 3-1/2 years of implementation, it is too early to say what definitive

effect these side agreements will have on the environment and labor. The

commissions set up to implement the two agreements have been

acknowledged for their efforts to date to further cooperation in their

respective areas, but observers also have concerns about various aspects

of the agreements’ implementation.

22The American Coalition for Competitive Trade, a nonprofit organization incorporated under Virginia

law, is a coalition of 21 organizations and corporations organized for the purpose of protecting the

industrial and agricultural capacity, tax base, and economic well being of the United States.

Page 18 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Coverage and Results of

the Environmental

Agreement

The North American Agreement on Environmental Cooperation signed by

Canada, Mexico, and the United States in September 1993, went into effect

along with the NAFTA on January 1, 1994.23 The environmental agreement

aims to protect, conserve, and improve the environment through increased

cooperation and transparency among the three governments and greater

public participation. In addition, the agreement provides citizens and

governments an opportunity to file complaints regarding a country’s

failure to enforce its environmental laws.

The environmental agreement established the Commission for

Environmental Cooperation in Montreal to help the three signatory

countries achieve the objectives set forth in the agreement. Its

organizational structure consists of a Council, a Secretariat, and a Joint

Public Advisory Committee. Since 1995, this commission has been funded

at approximately $9 million per year, with equal contributions from each

member country. In 1996, the commission created a fund for

community-based projects in Canada, Mexico, and the United States that

promotes the commission’s goals and objectives. In 1997, $1.6 million of

the annual budget was used for this fund.

Cooperative Efforts Since its first full year of operation in 1995, the environmental commission

has undertaken a work program designed to improve environmental

cooperation. Work program areas and examples of projects undertaken by

the commission are outlined in table 2.

23NAFTA was also accompanied by a bilateral agreement between the United States and Mexico that

established the North American Development Bank and the Border Environment Cooperation

Commission. The primary goal of these two institutions is to provide seed money for environmental

infrastructure and community development projects along the U.S.-Mexico border and to review

proposals for such funding. A discussion about the implementation of the North American

Development Bank and the Border Environment Cooperation Commission is beyond the scope of this

testimony. For a detailed analysis of these two agreements, see International Environment:

Environmental Infrastructure Needs in the U.S.-Mexican Border Region Remain Unmet

(GAO/RCED-96-179, July 22, 1996).

Page 19 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Table 2: Commission for

Environmental Cooperation’s Regional

Cooperation Projects

Work program area Examples

Conservation •Developing plans to conserve and protect North

American birds and monarch butterflies

•Developed plans to establish a North American

Biodiversity Information Network

•Developed plans to implement strategies to protect

regional marine life

Protecting

human

health and the

environment

•Coordinated the development of regional action plans

for PCBs, DDT, chlordane, and mercury

•Coordinate the completion of transboundary

environmental impact assessment procedures by April

1998

Environment, trade, and the

economy

•Fund and facilitate the creation of an information

clearinghouse on environmental technology and services

•”NAFTA Effects” projects:

 •Completed NAFTA intergovernmental institutions

study in 1997

 •Refine the general framework for assessing NAFTA’s

environmental impacts by completing a study on the

environmental effects of the deregulation of the energy

and agriculture sectors (expected in 1997)

Enforcement

cooperation

•Groups established under this program have met and

exchanged information, strategies, and expertise on

enforcement, compliance, and legal trends

Information and

public

outreach

•Complete enhancements to the commission’s website

that will provide regional information on the environmental

dimensions of physical, socioeconomic, and ecological

variables (expected in 1997)

Legend

PCB = Polychlorinated Biphenyle

DDT = Dichloro-diphenyl Trichloro-ethane

Enforcement The environmental supplemental agreement provides two separate

mechanisms regarding a government’s failure to enforce its environmental

laws: (1) articles 14 and 15 provide for citizen submissions on enforcement

matters and (2) part V provides for government-to-government

consultation and resolution of disputes. Environmental officials from

Canada and the United States generally believe that the citizen submission

process is working well. They believe the submissions are being fairly

reviewed by the Secretariat. In Canada, one official commented that this

process has even helped the provincial and national environmental

agencies harmonize their responsibilities.

Citizen submission process. Under the citizen submission process, a

citizen or citizen group may submit a claim to the environment

Page 20 GAO/T-NSIAD-97-256 North American Free Trade Agreement
commission’s Secretariat that a party to the agreement is failing to

effectively enforce its environmental laws. If two out of the three countries

agree that the submission has merit, the commission will prepare a factual

record (that is, an investigation of the matter) that could lead to public

pressure to improve enforcement. Unlike part V of the agreement for

resolving government-to-government environment disputes, the citizens

submissions process does not provide this commission with the ability to

impose sanctions.

Since the citizen submission process came into effect, 11 submissions

have been filed.24 Of these 11, 3 cases were submitted alleging that the

United States had failed to enforce its environmental laws. Of these three

submissions, two were terminated because they dealt with legislative

changes or new environmental laws rather than nonenforcement,25 and the

third was withdrawn. In this third instance, the submitter alleged that the

Department of Defense’s expansion of Fort Huachuca, Arizona, would

drain the local water supply and destroy the ecosystem that is dependent

upon it. In its response, the U.S. government contended it was not failing

to enforce environmental law and that the citizen submission did not

warrant an inquiry to gather factual information. In July 1997, the

submitter withdrew the filing, and the process was terminated.

The remaining cases were against Canada and Mexico, with six being filed

against Canada and two against Mexico. The case that has proceeded the

furthest involves a submission filed by three Mexican nongovernmental

organizations in 1996, alleging that the Mexican government failed to

effectively enforce its environmental laws regarding the construction and

operation of a public harbor terminal in Cozumel. The Secretariat

recommended, and the Council approved, that a factual record be

prepared in this case. The Secretariat transmitted the final factual record

to the Council on July 25, 1997. The Council may, upon a two-thirds vote,

make the final record a public document.

Government-to-government disputes. Although a process for consulting on

and resolving government-to-government disputes regarding a “persistent

pattern of failure to effectively enforce its environmental laws” is called

24For a listing of all submissions—the country affected, the submitter, and the status—see appendix V.

25For example, the case submitted by the Sierra Club and other organizations in August 1995 alleging

that the Fiscal Year 1995 Supplemental Appropriations, Disaster Assistance and Rescissions Act

contained a rider suspending enforcement of U.S. environmental laws for a logging program was

terminated on December 8, 1995, because the Secretariat determined that the case was not a

nonenforcement case. The Secretariat’s assessment was that these organizations submitted the case as

a means of seeking an alternate forum for disputing a U.S. legislative decision.

Page 21 GAO/T-NSIAD-97-256 North American Free Trade Agreement
for under the agreement, no rules of procedure for implementing this

segment—part V—of the agreement have been established to date.26

Unlike the citizen submission process identified in articles 14 and 15 of the

environmental agreement, part V allows an arbitration panel reviewing the

case to impose monetary sanctions or to withdraw NAFTA benefits if it

determines that the government against which a complaint was filed

persistently failed to enforce its environmental laws. Without rules of

procedure, no NAFTA member country can raise a complaint under this

section of the environmental agreement, which was designed to help

resolve disputes arising between governments.

Implementation Progress and

Issues

The environmental commission is credited with making some progress in

implementing the environmental agreement. However, implementation

issues involving the focus of the commission’s cooperative work

programs, transparency of the enforcement mechanisms, and the

governments’ commitment to the agreement remain.

Progress on cooperation and participation. Officials we spoke with at the

U.S. and Canadian environmental agencies, as well as at a Mexican

nongovernmental organization, were generally pleased with

implementation of NAFTA’s environmental agreement. According to these

officials, the agreement and its commission provide the three countries an

opportunity to examine broader, regional environmental objectives and to

develop cooperative action plans on agreed-upon priorities. Actions taken

by the commission in implementing the environmental agreement are

listed in table 2.

Environmental officials in all three NAFTA countries also commented on the

increased level of public participation achieved through the agreement.

This is especially true in Mexico, according to a Mexican expert we spoke

with, who told us that the agreement has given the Mexican government

the political will to strengthen its environmental laws and include citizen

input. Another Mexican environmental expert has stated that the

commission has been an important catalyst for developing a more

transparent regulatory process and ensuring a more consistent application

of environmental laws in Mexico.

Similar reactions were also expressed by some other environmental

experts reviewing implementation of the environmental agreement. In a

26According to a U.S. Environmental Protection Agency official, the NAFTA members expect to

complete these rules by the end of 1997.

Page 22 GAO/T-NSIAD-97-256 North American Free Trade Agreement
letter sent to the Council, an independent panel of experts27 said that the

environmental agreement and the commission have done much to develop

as an important focus for environmental cooperation and dialogue in

North America.

Concerns about work programs and studies. Despite the achievements

acknowledged by government officials and experts, some observers have

raised concerns about the work undertaken by the commission. For

example, Mexican trade officials stressed their concerns about both the

process and content of the work program. According to these officials, the

commission needs more transparent criteria for its selection and funding

of projects, and the Mexican government should have much more input

into the funding of projects earlier on in the process. Furthermore, they

believe that the commission is funding several environmental projects that

are duplicative of some ongoing efforts to improve conditions along the

U.S.-Mexico border. The U.S. Environmental Protection Agency (EPA) has

raised other concerns about the process used to determine the studies

undertaken by the commission. Specifically, an agency official told us that

the process used to determine whether or not to prepare a study needs to

be more transparent. Canadian trade and environment officials did not

express any concerns about the commission’s work programs or studies.

Concerns about the citizen submission process. Questions regarding the

consistency with which the citizen submission process has been applied,

the transparency of this process, and the guidelines developed to

implement it were raised by officials we spoke with.

• Mexican officials believe the environment commission has been

inconsistent in its handling of the cases filed under the citizen submission

process, showing more flexibility towards some governments involved in

cases than others. Specifically, they are dissatisfied with the application of

the process in the Cozumel public harbor case alleging Mexico’s failure to

effectively enforce its environmental law.

• Mexican environmental experts believe the environment commission

needs to increase the transparency of the submission process. For

example, they believe the submitter should be allowed to review a draft of

the factual record prepared by the secretariat, as the government is

allowed to do, before it is finalized.

• U.S. environmental officials are concerned that the citizen submission

guidelines currently allow the submitter to withdraw a filing at will. Once

27The Commission for Environmental Cooperation Secretariat convened a panel of experts in

March 1997 to help it prepare for a mandated internal evaluation. The trinational panel included a U.S.

Congressman and was chaired by the United Nations’ chief advisor on environmental issues.

Page 23 GAO/T-NSIAD-97-256 North American Free Trade Agreement
the Secretariat receives notification of the withdrawal, it is required to halt

the process of investigation. According to an official at the EPA, it was a

mistake to include such a provision in the guidelines because the process

may be halted at any stage regardless of the level of resources the

commission and the governments may have put into processing and

responding to the allegation. The official told us these guidelines are

currently being revised.

Concerns about an independent commission. A panel of experts and

officials at the environmental commission we spoke with stressed the

importance of improving the commission’s independence and its ability to

autonomously decide to undertake a study or a work program. Problems

associated with this issue arose during the annual program and budget

review process in which Mexican government officials withheld their

support and approval for a project to study the environmental effects of

NAFTA in certain sectors. Officials from Mexico objected to the project

because they believed the commission had not adequately consulted them

in the identification of the sectors—energy and agriculture—to be studied.

While support for the project, referred to as the second phase of the NAFTA

Environmental Effects project, was eventually granted for the remainder

of 1997, its continuation beyond that was made contingent upon a group of

trade and environment officials from each country recommending the

terms of reference for future work in this area.

Concerns about national commitment to the environmental agreement.

Experts, some government officials, and officials at the commission’s

secretariat were concerned about what they regard as a low level of

national commitment to the environmental agreement. A commission

official we spoke with commented that agencies responsible for

implementation of the NAFTA environmental agreement in both the United

States and Mexico have been constantly understaffed, which has had an

adverse impact on the agreement’s implementation. For example,

Canadian officials told us that without an adequate level of staff to

implement the agreement in each country, marketing of the agreement’s

strengths, its cooperative work efforts, and its enforcement mechanisms

suffer. Furthermore, officials we spoke with said that it was surprising

that, compared to Canada and Mexico, the United States has consistently

had the least number of staff—one—assigned to oversee implementation.

Coverage and Results of

the Labor Agreement

The North American Agreement on Labor Cooperation signed by Canada,

Mexico, and the United States in September 1993, went into effect on

Page 24 GAO/T-NSIAD-97-256 North American Free Trade Agreement
January 1, 1994, along with NAFTA. The agreement aims to improve working

conditions and living standards in each country, encourage exchange of

information on and foster transparency in the administration of labor law,

and pursue cooperative labor-related activities among the three countries.

The three governments have also committed themselves to promote

compliance with and effectively enforce (subject to domestic law) 11 labor

principles, including the freedom of association and protection of the right

to organize; the right to bargain collectively and strike; minimum

employment standards; elimination of employment discrimination; equal

pay for women and men; and protection of migrant workers.

The labor agreement established the Commission for Labor Cooperation in

Dallas as a trinational organization responsible for fostering cooperative

labor-related activities and performing independent evaluations. The

commission was funded in equal parts by the three countries at

$1.8 million in 1996. In addition, the labor agreement permits the parties to

develop a consultative system to address domestic labor-related issues.

This includes a dispute settlement mechanism to address lack of

enforcement by a party of certain labor law standards.

Cooperative Efforts The commission, in order to meet its obligations to pursue cooperative

labor-related activities, has completed a number of efforts since it went

into operation in September 1995. Examples include those listed in table 3.

Table 3: Commission for Labor

Cooperation’s Cooperative Efforts Selected areas of cooperation Recent examples

Occupational safety and health •North American Occupational Safety and

Health Week, held June 1997

simultaneously in each country 

• Completion of “Petrochemical Study

Tour” on prevention of catastrophic

explosions (October 1996)

Human resource development •Workshop on Continuous Learning and

Development in the Workplace (April 1996)

Labor-management relations •Tripartite conference on “Industrial

Relations for the 21st Century” (March

1996)

Productivity improvement •North American seminar on incomes and

productivity

Labor statistics •Report profiling North American labor

markets (June 1997)

Enforcement The labor agreement provides for a series of processes to ensure the

enforcement of each country’s labor laws, emphasizing cooperation and

Page 25 GAO/T-NSIAD-97-256 North American Free Trade Agreement
consultation throughout the various steps. If a person or group wishes to

allege that one country has failed to effectively enforce its labor laws, it

may file a submission with the National Administrative Office of another

country. The National Administrative Office receiving the submission may

then investigate the allegation, including holding public hearings to gather

information. Consultation with other National Administrative Offices

follows if the submission is accepted. The Secretary of the National

Administrative Office receiving the submission may then recommend that

ministerial consultations take place on the subject. Depending on the

nature of the allegation, additional steps in the process could include the

formation of an evaluation committee of experts if ministerial

consultations have not resolved the issue, as well as other cooperative and

consultative steps.

If cooperative efforts to resolve problems fail, the labor agreement

provides a dispute settlement mechanism in three instances where a

submission involves an allegation of a persistent pattern of failure to

effectively enforce labor rights: occupational safety and health, child

labor, and minimum wage technical labor standards. In such a case, an

arbitration panel may be formed to review the matter and make

recommendations for corrective action. Failure of one of the parties to

fully implement the panel’s recommendations could ultimately lead to a

monetary sanction to be placed in a fund to be used to improve or enhance

labor law enforcement in the non-conforming country.28 Failure to pay the

monetary sanction could result in suspension of NAFTA benefits.

Eight cases have been submitted since the establishment of the National

Administrative Offices. Seven have been submitted to the U.S. National

Administrative Office against Mexico, and one has been submitted to

Mexico’s National Administrative Office against the United States; none

have involved Canada. None of the cases submitted so far has fallen in a

category of labor principles that could ultimately qualify for dispute

settlement and sanctions.29 A more detailed description of the submissions

can be found in appendix VI.

28The North American Agreement on Labor Cooperation provided for a maximum monetary

enforcement assessment of $20 million in 1994. In subsequent years, this assessment can be no greater

than 0.007 percent of the total trade in goods between the parties during the most recent year for

which data are available.

29The first seven cases all dealt with the labor principle of freedom of association and the right to

organize. Under the North America Agreement on Labor Cooperation, cases of this sort are not eligible

for independent evaluation or arbitration. The most recent case involves the labor principle of the

elimination of employment discrimination, which is eligible for independent evaluation, but not

arbitration.

Page 26 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Implementation Progress and

Issues

The labor agreement is the first international agreement to link labor

issues to an international trade pact. Recent efforts to link trade

agreements and labor issues, building on NAFTA, have proven to be very

controversial. For example, at the first ministerial meeting of the World

Trade Organization (WTO) at Singapore in December 1996, WTO members

rejected a U.S. proposal to create a working group to study the

relationship between trade and labor standards. Thus, while the labor

agreement is limited in its scope, according to some critics, it remains a

visible experiment in the linkage of labor standards to international trade

agreements.

Labor officials knowledgeable about the labor agreement in each country

told us that they believe that the agreement has had a positive effect on

increasing the level of understanding about labor issues in North

America—one of its major objectives. Many of the activities associated

with the agreement have been focused on improving the level of

understanding of each country’s labor system because, according to one

National Administrative Office Secretary, such understanding has been

woefully lacking in the past.

Personnel issues. Difficulty in hiring and retaining staff has been identified

as an impediment to the implementation of the labor agreement. The

National Administrative Offices in each country went into operation in

January 1994 at the same time that NAFTA went into effect. At the first

meeting of the commission’s Council in March 1994, labor ministers from

each country indicated they planned to hire an Executive Director by 

June 1, 1994. However, the position was not filled until April 1995 due to

difficulties in hiring a Canadian Executive Director, according to

commission officials. Because of this delay, the commission’s opening did

not occur until September 1995, almost 2 years after the labor agreement

went into effect. In addition, turnover at both Mexico’s National

Administrative Office and at the labor commission has disturbed the

continuity of operations, according to U.S. and Canadian officials. Finally,

disparate national treatment in the application of personal taxes for

employees at the commission has resulted in different net salaries for each

nationality, and has negatively affected both recruiting efforts and morale,

according to commission officials.

Budgetary issues. Funding levels for the commission have also been raised

as a concern related to the effectiveness of the commission. The NAFTA

Implementation Act authorized a U.S. contribution to the commission of

$2 million for each of fiscal years 1994 and 1995. Since the burden of

Page 27 GAO/T-NSIAD-97-256 North American Free Trade Agreement
funding the commission must be borne equally by each country, this

indicated a potential annual commission funding level of $6 million.

However, the actual annual commission budget for the past several years

has been $1.8 million (U.S. contribution totalling $600,000). A commission

official explained that by the time the commission was ready to be funded,

Mexico had entered into its financial crisis and requested a temporary

funding limit on the commission of $600,000 per country.

The funding limitations are causing concern on the part of some observers

that the commission does not have adequate resources to meet its

obligations. The Director of the Mexico National Administrative Office told

us that while the commission has requested a budget raise from its

Secretariat, the Mexican government has decided not to authorize an

increase until it has had an opportunity to examine the commission’s

annual work plan. Commission officials told us that the Canadian

government has already appropriated $1 million for its share of the budget

and is diverting 40 percent of it to support NAFTA environment efforts to

remain in compliance with labor agreement provisions that no country

contribute more than any other to support the commission.

Thank you Mr. Chairman, this concludes my prepared remarks. We will be

happy to answer any questions you or Members of the Subcommittee may

have.

Page 28 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Page 29 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix I 

Selected Statistics on NAFTA Member

Countries

United

States Canada Mexico

Population (1995, in millions) 263 30 92

Per capita GNP (1995, PPP dollars)a $26,980 $21,130 $6,400

Average annual growth rate of real per

capita GNP, 1985-95 (percent)

1.4 0.4 0.1

Average annual inflation rate, 1985-95

(percent)

3.2 2.9 36.7

Investment as a percent of GDP, 1995 16 19 15

Exports to U.S. as a percent of total exports,

1995

NA 80 84

Total trade as a percent of GDP, 1995b 24 71 48

Legend

GDP = gross domestic product

GNP = gross national product

PPP = purchasing power parity

NA = Not applicable

aPurchasing power parity is defined as the number of units of a country’s currency required to

buy the same amount of goods and services in the domestic market as U.S. dollar would buy in

the United States.

bTotal trade share in GDP equals exports and imports of goods and services as a percentage of

GDP.

Source: World Bank Atlas, 1997.

Page 30 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix II 

Merchandise Trade Relationships Between

NAFTA Members, 1991-93 and 1994-96

Annual average

Annual average growth

rate (percent)

Dollars in billions

1991-93 1994-96 1991-93 1994-96

U.S. exports to

Canada $91.8 $124.3 6.5 9.8

Mexico 38.5 51.0 13.9 12.1

Canada and Mexico 130.3 175.3 8.4 10.2

World— excluding Canada

and Mexico

314.5 397.3 4.7 10.4

U.S. imports from

Canada $102.9 $146.7 6.7 12.1

Mexico 36.2 62.4 9.9 22.1

Canada and Mexico 139.1 209.1 7.5 14.9

World— excluding Canada

and Mexico

414.9 550.3 4.4 9.5

U.S. total trade with

Canada $194.7 $271.0 6.6 11.0

Mexico 74.7 113.4 11.7 16.9

Canada and Mexico 269.4 384.4 7.9 12.7

World— excluding Canada

and Mexico

729.4 947.6 4.5 9.8

Source: International Monetary Fund, Direction of Trade Statistics, 1997.

Page 31 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix III 

U.S. Merchandise Trade With Mexico,

1990-96

 

 

1990 1991 1992 1993 1994 1995 1996

20

30

40

50

60

70

80

Billions of dollars

U.S. exports to Mexico U.S. imports from Mexico

Source: International Monetary Fund, Direction of Trade Statistics, 1997.

Page 32 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

NAFTA chapters 19, 20, and 11, respectively, deal with the three primary

areas in which disputes can arise—unfair trade practices, the

interpretation and application of NAFTA, and the protection of investor

rights. In the 3-1/2 years since NAFTA’s implementation, dispute cases have

arisen in all three areas. A brief description of the three chapters’

provisions and information about the dispute cases initiated to date are

provided in the following tables.

Chapter 19 Chapter 19 lays out the system for the review of antidumping and

countervailing duty final determinations made by the domestic agency of

the importing country in the dispute.1

 Chapter 19 replaces domestic

judicial review of those final administrative determinations with binational2

 panel review. Five-member binational panels of experts chosen from

rosters developed by each of the three signatories review the

determinations and issue final decisions. Panels apply the law of the

country whose agency is under review. These panels usually consist of

lawyers, sitting or retired judges, former government officials, noted

academics, and others who specialize in trade dispute settlement and

international affairs. Panels may either uphold a determination or remand3

 it to the investigating authority. The panel’s decision on the case is final

and binding and cannot be appealed in the domestic courts. In certain

extraordinary circumstances, such as the gross misconduct of a panel

member, a party involved in a chapter 19 dispute can request that a final

panel decision be reviewed by an Extraordinary Challenge Committee.

Table IV.1 provides information on the chapter 19 NAFTA dispute settlement

cases for which there were final panel decisions.

1

Antidumping and countervailing duty laws in the United States are administered jointly by the U.S.

International Trade Commission and the U.S. Department of Commerce, and in Canada and Mexico

respectively by Revenue Canada and SECOFI (Subsecretaria de Negociaciones Comerciales

Internacionales).

Dumping is the sale of commodities in a foreign market at a price that is lower than the price or value

of comparable commodities in the country of origin. A countervailing duty is a U.S. government fee on

goods imported into the United States in an amount equal to any subsidy provided with respect to

manufacture, production, or export of those goods by a government of another country.

2

Panels are binational because they are comprised of members from the country of the petitioning

party and the responding party in the case.

3

A remand is a court or panel decision returning a determination to an agency for further action.

Remands can request that agencies explain determinations, provide more information, or make

corrections.

Page 33 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Table IV.1: Completed NAFTA 

Chapter 19 Binational Panel Reviews

Through August 1997

Case identification (in

descending order) Commodity

Type of determination by

domestic agency

USA-95-1904-05 Fresh cut flowers from

Mexico

Dumping

USA-95-1904-04 Oil country tubular goods

from Mexico

Dumping

USA-95-1904-03 Color picture tubes from

Canada

Dumping

USA-95-1904-02 Gray Portland cement &

cement clinker from

Mexico

Dumping

USA-95-1904-01 Porcelain-on-steel

cookingware from Mexico

Dumping

USA-94-1904-02 Leather wearing apparel

from Mexico

Countervailing duties (CVD)

USA-94-1904-01 Live swine from Canada Countervailing duties

MEX-94-1904-03 Crystal and solid

polystyrene from U.S.

Dumping

MEX-94-1904-02 Cut-to-length plate

products from U.S.

Dumping

CDA-95-1904-04 Refined sugar from U.S. Dumping

CDA-95-1904-01 Certain malt beverages

from U.S.

Injury

CDA-94-1904-04 Certain corrosion-resistant

steel sheet products from

U.S.

Injury

CDA-94-1904-03 Certain corrosion-resistant

steel sheet products from

U.S.

Dumping

Page 34 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Nationality of appealing

parties Panel majority

Total number of

days to completea

Unanimous

decisions? Results of panel decisions

Mexican Mex. 505 Yes Reduced duties for

3 producers from 39.95% to

18.20%

Mexican & U.S. U.S. 511 Yes Reduced duties for all

producers from 23.79% to

21.70%

Canadian Can. 326 Yes Affirmed domestic agency

determination

Mexican U.S. 467 Yes Affirmed domestic agency

determination

Mexican & U.S. U.S. 541 Yes Agency instructed to adjust

methodology for determining

rebated or uncollected

value-added tax

Mexican Mex. 400 Yes Duty lowered from 13.35% ad

valorem to none for

2 producers

Canadian U.S. 560 Yes Reinstated the sows and boars

subclass and set a separate

CVD rate for it

U.S. Mex. 654 No Affirmed domestic agency

determination

U.S. U.S. 436 No Domestic agency

determination declared null

and void and duties revoked.

U.S. U.S. 451 Yes Panel’s remand did not result

in any change in the domestic

agency’s determination

Canadian Can. 327 Yes Affirmed domestic agency

determination

U.S. Can. 324 Yes Affirmed domestic agency

determination

U.S. U.S. 459 No Duty for one importer

decreased from 13.2 percent

to 13.1 percent; duty for

another importer increased

from 8.4 percent to 8.5 percent

(continued)

Page 35 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Case identification (in

descending order) Commodity

Type of determination by

domestic agency

CDA-94-1904-02 Synthetic baler twine from

U.S.

Injury

Page 36 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Nationality of appealing

parties Panel majority

Total number of

days to completea

Unanimous

decisions? Results of panel decisions

Canadian & U.S. U.S. 439 Yes Panel’s remand did not result

in any change in the domestic

agency’s injury determination

Note: Cases terminated, with no panel decisions, are not included in this table.

aActual calendar days from the date on which a request for panel was made to the date of notice

of final panel action.

Sources: U.S. Section NAFTA Secretariat; text of final panel decisions; and Federal Register

notices.

Chapter 20 Chapter 20 establishes NAFTA’s procedures for settling disputes between

the signatory governments regarding NAFTA’s interpretation and

application. Chapter 20’s dispute settlement provides for (1) consultations

between disputing parties to resolve their disagreement and, if that fails,

referral of the dispute to the Free Trade Commission; (2) referral of the

dispute to a panel of independent experts; (3) dissemination of panel

findings and recommendations; (4) resolution of the dispute through

nonimplementation or removal of the nonconforming measure; and

(5) suspension of application of benefits by the complaining party if

agreement on resolution to the dispute cannot be reached. Chapter 20

panels are chosen from a roster of experts agreed upon by the three

signatories. Table IV.2 provides information on the chapter 20 disputes

initiated under NAFTA.

Page 37 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Table IV.2: NAFTA Chapter 20 Dispute Cases Through August 1997

Petitioner Respondent Subject of dispute Status

United States Canada Tariffs applied by Canada to certain U.S.-origin

agricultural goods

Final panel decision to maintain Canadian

tariffs, issued December 2, 1997

United States Mexico Retaliatory action in response to U.S.

safeguard action on broomcorn brooms

Prepanel consultations ongoing

United States Mexico Small parcel delivery (UPS) Prepanel consultations ongoing

Mexico United States U.S. Customs classifications of limes imported

from Mexico

Prepanel consultations ongoing

Mexico United States Requests for designation of Mexicali valley as

disease-free area

Prepanel consultations deferred pending

discussions with USDA

Canada United States The U.S. Sugar Containing Products Re-export

Program

Prepanel consultations ongoing

Mexico United States U.S. International Trade Commission serious

injury determination on broomcorn brooms

Chapter 20 

panel established on January 14, 1997, and is

in the process of reaching a decision

Mexico and

Canada

United States Titles III and IV of the Helms-Burton Act Prepanel consultations in April/May 1996

under NAFTA chapter 20. WTO (World Trade

Organization) dispute settlement panel

established through European Union (EU)

protest in November 1996. EU/U.S. agreement

in April 1997 to suspend WTO panel until

October 15, 1997. EU/U.S. talks ongoing

Mexico United States Implementation of NAFTA provisions on

trucking

Prepanel consultations ongoing

Legend

USDA = U.S. Department of Agriculture

Source: Office of the United States Trade Representative.

Chapter 11 NAFTA is unique among trade agreements because, under chapter 11, it

contains a comprehensive regime for settling disputes between foreign

investors and host governments. International trade agreements have

generally concentrated on removing government barriers to trade in goods

and services and not on resolving disputes between private parties or

regarding investment issues. Chapter 11 makes investor-state disputes

subject to binding arbitration for monetary compensation. If a dispute is

not resolved through consultations, the investor may seek arbitration

through a World Bank facility or through ad hoc proceedings under United

Nations arbitration rules. Table IV.3 shows the status of the chapter 11

cases brought forward under NAFTA.

Page 38 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix IV 

NAFTA Dispute Cases

Table IV.3: Complaints Filed Under

NAFTA’s Chapter 11 Investor-State

Arbitration Clause Through

August 1997

Petitioner Respondent Subject of dispute Status

Metalclad Corporation

(U.S. company)

Mexican

government

Mexico’s

expropriation of

Metalclad’s

hazardous waste

landfill in the

community of

Guadalcazar,

Mexico, in the state

of San Luis Potosi

Three-member

arbitration panel

formed and

convened

Desechos Solidos de

Naucalpan

(U.S. company)

Mexican

government

Mexico’s

nullification of an

agreement to

manage solid waste

in the state of

Mexico

A panel is being

formed

Source: Office of the United States Trade Representative.

Page 39 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix V 

Citizen Submissions Under the North

American Agreement on Environmental

Cooperation

Case no. Country Submitter(s) and year filed Complaint Status

1 United States Biodiversity Legal

Foundation, et al. (1995)

Provisions of a U.S.

rescissions act have

resulted in a failure to

effectively enforce some

provisions of the

Endangered Species Act

Process

terminated—Secretariat

determined government

response not merited

2 United States Sierra Club, et al. in the

U.S., and Canadian and

Mexican environmental

groups (1995)

Legislation passed by the

U.S. Congress is alleged to

include a rider that

suspends enforcement of

environmental laws for a

logging program on U.S.

public lands

Process

terminated—Secretariat

determined submission

criteria not met

3 Mexico Comité para la Protección

de los Recursos Naturales,

A.C., et al.

(1996)

A public harbor terminal for

tourist cruises on the island

of Cozumel was initiated

without a declaration of

environmental impact

Factual record prepared.

Council will determine

whether to make public

4 Canada Mr. Aage Tottrup, P. Eng

(1996)

Failure to enforce Canadian

and Alberta environmental

laws resulting in the

pollution of wetlands

impacting fish and migratory

bird habitats

Process

terminated—Secretariat

determined government

response not merited

5 Canada Friends of the Old Man River

(1996)

Failure to enforce habitat

protection sections of the

Canadian Fisheries Act and

the Canadian Environmental

Assessment Act and

charges that there has been

a de facto abdication of

legal responsibility by the

Canadian and provincial

governments

Process

terminated—Secretariat

determined factual record

not warranted

6 United States The Southwest Center for

Biological Diversity, et al.

(1996)

Fort Huachuca (AZ) base

expansion will drain local

water supply and destroy

ecosystem dependent on it

(San Pedro Reservoir)

Process

terminated—Submitter

withdrew after Secretariat

reviewed U.S. government

response

7 Canada British Columbia Aboriginal

Fisheries Commission, et al

(1997)

Failure to enforce the

Canadian Fisheries Act and

failure to protect fish and

fish habitat in British

Columbia from

hydro-electric dam

Secretariat reviewing

submission in light of

Canadian response

(continued)

Page 40 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix V 

Citizen Submissions Under the North

American Agreement on Environmental

Cooperation

Case no. Country Submitter(s) and year filed Complaint Status

8 Mexico Comité pro Limpieza del Rio

Magdalena (1997)

Failure to enforce Mexican

environmental legislation

governing the disposal of

wastewater into the

Magdalena River in the state

of Sonora

Secretariat reviewing

9 Canada Centre Quebecois du Droit

de L’environement, et al.

(1997)

Failure to enforce

environmental standards

related to agriculture,

especially hog farms

Secretariat requested and is

awaiting Canadian response

10 Canada Canadian Environmental

Defense Fund (1997)

Failure to conduct an

environmental assessment

of “The Atlantic Groundfish

Strategy” jeopardizes the

future of Canadian East

Coast fisheries

Secretariat determined

submission criteria not met;

submitter has 30 days to

resubmit filing

11 Canada Animal Alliance of Canada,

et al. (1997)

Canada has yet to fulfill one

of its main requirements

under the Biodiversity

Convention—to pass

endangered species

legislation or regulations

Secretariat reviewing

Page 41 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix VI 

Labor Submissions Under the North

American Agreement on Labor Cooperation

Case no. Submitted by Issue Status

1

2

International Brotherhood of

Teamsters

United Electrical, Radio and Machine

Workers of America

In late 1993, Honeywell Manufacturas

de Chihuahua allegedly fired about

20 employees involved in union

organization. Management allegedly

pressured these workers into signing

resignation forms, accepting the

statutory severance pay, and

relinquishing claims for reinstatement

The U.S. National Administrative

Office concluded that the information

in both submissions was insufficient

to establish that the government of

Mexico failed to enforce its labor

laws. The Secretary of Labor

proposed to the governments of

Mexico and Canada the development

of a comprehensive cooperative

program to address these issues

3 International Labor Rights Education

and Research Fund, National

Association of Democratic Lawyers of

Mexico, Coalition for Justice in the

Maquiladoras, and the American

Friends Service Committee

Workers at a plant of Sony

Corporation (Magneticos de Mexico)

in Nuevo Laredo, Tamaulipas,

Mexico, were allegedly intimidated,

pressured, and dismissed by the

company when they attempted to

organize a union

After holding a public hearing, the

U.S. National Administrative Office

recommended ministerial

consultations, which resulted in a

series of seminars and other activities

designed to address the issue of

union registration in Mexico. A

followup review conducted by the

National Administrative Office was

issued in December 1996

4 United Electrical, Radio and Machine

Workers of America

The case concerned the alleged

violation of freedom of association

and the right to organize by a General

Electric Company subsidiary in

Mexico

The union withdrew the submission

prior to the completion of the review

process

5 Telephone Workers Union of the

Republic of Mexico

The submission concerned the

closure of a Sprint Corporation

subsidiary in San Francisco prior to a

scheduled election on union

representation

Mexico’s National Administrative

Office requested ministerial

consultations. These led to a public

forum and a report on the effects of

sudden plant closings on freedom of

association in each country, issued

by the Commission for Labor

Cooperation in June 1997

6 Human Rights Watch/Americas,

International Labor Rights Fund, and

the National Association of

Democratic Lawyers of Mexico

When employees of the Mexican

federal government’s Single Trade

Union of Workers of the Fishing

Ministry attempted to receive

recognition for their union, the

Mexican government allegedly

violated their freedom of association

and the right to organize

After holding a hearing, the U.S.

National Administrative Office

recommended ministerial

consultations on the relationship

between international treaties,

constitutional provisions, and

domestic law protecting freedom of

association. On September 3, 1997,

the three labor ministers agreed to

conduct a formal exchange of

information and hold a public

conference on issues raised by the

case

(continued)

Page 42 GAO/T-NSIAD-97-256 North American Free Trade Agreement
Appendix VI 

Labor Submissions Under the North

American Agreement on Labor Cooperation

Case no. Submitted by Issue Status

7 Communications Workers of America, 

Union of Telephone Workers of

Mexico, and the Federation of Unions

of Goods and Services Companies of

Mexico

When workers at Maxi-Switch in

Cananea, Sonora, Mexico, organized

a union, the company’s management

allegedly threatened and intimidated

them, creating a nonexistent

“phantom union” in order to avoid

bargaining with the workers’ union

Before the scheduled hearing, the

submitters withdrew the submission

after resolving the dispute to their

satisfaction

8 Human Rights Watch/ American,

International Labor Rights Fund and

the National Association of

Democratic Lawyers of Mexico

The submission contains allegations

about discrimination against female

employees in Mexico’s export

processing (maquiladora) sector,

including mistreating or discharging

pregnant employees in order to avoid

paying maternity benefits

The U.S. National Administrative

Office has accepted the submission

for review and is gathering

information on the case before

determining if ministerial consultations

should be requested

Page 43 GAO/T-NSIAD-97-256 North American Free Trade Agreement
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Page 44 GAO/T-NSIAD-97-256 North American Free Trade Agreement
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(711250) Page 45 GAO/T-NSIAD-97-256 North American Free Trade Agreement
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