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In our June 27, 2008 column on arbitration awards under Chapter 11 of the North American Free Trade Agreement (NAFTA), we reviewed recent claims that Mexico’s or Canada’s environmental regulations amounted to compensable takings of foreign investors’ property. We noted that this Chapter 11 remedy for discriminating or excessively zealous environmental enforcement by the NAFTA parties tended to undermine the role of NAFTA’s North American Commission for Environmental Cooperation (CEC) in seeking to strengthen environmental enforcement. (See “ NAFTA’s Chapter 11 and U.S. Trade Agreements,” NYLJ, June 27, 2008, at 3.) This column updates our previous assessment of the CEC’s own performance in acting on citizen complaints of inadequate enforcement of environmental laws by the NAFTA parties and in issuing timely public reports (called “Factual Records”) on those allegations. (See “NAFTA’s CEC: First Lessons for the Americas,” NYLJ, Oct. 22, 1999.) We also briefly review the performance of the third component of NAFTA’s environmental architecture, the Border Environment Cooperation Commission (BECC) established by the United States and Mexico and its companion institution, the North American Development Bank (NADBank). As explained in our June 27 column, NAFTA Chapter 11 has proved, in practice, to be less of a threat to environmental enforcement than originally feared (though important procedural reforms are still necessary to reduce that risk in the future). However, the CEC, the BECC, and the NADBank have all proved to be far less effective than hoped in assuring affirmative enforcement and in implementing critical environmental programs to improve water and air quality along the United States -Mexico border. While some useful procedural reforms have been put in place at all three institutions, far more rigorous action is required if the CEC, the BECC, and the NADBank are to fulfill their mandates and serve as models for similar institutions in other multilateral (or bilateral) trade agreements. CEC’s ‘Lessons Learned’ In June 2001, the CEC’s Joint Public Advisory Committee, made up of 15 private citizens from Mexico, Canada, and the United States, issued a comprehensive report (“ Lessons Learned: Citizen Submissions under Articles 14 and 15 of the North American Agreement on Environmental Cooperation“) setting forth detailed recommendations to improve the credibility and effectiveness of the CEC process. Chief among these recommendations were proposals for expediting both the CEC’s review of citizen complaints of failure to enforce environmental laws and the public release of the Factual Records prepared by the CEC’s secretariat. The Lessons Learned report also noted the absence of any procedure to monitor a NAFTA party’s compliance with its environmental laws following publication of a Factual Record showing clear noncompliance and urged the CEC to consider ways to facilitate public awareness of post-record actions by the relevant party. Unfortunately, despite some modest procedural reforms, the citizen submissions process has not significantly improved. The Lessons Learned report had urged the CEC to reduce to a maximum of two years the total time required to review submissions, prepare Factual Records, and authorize their release. (The CEC had previously averaged three years for these actions.) In the last three years, however, the CEC released five new Factual Records that averaged nearly five years to complete, a time period that effectively vitiates any impact from the exposure of a government’s failure to enforce its environmental laws. The new Factual Records involved citizen complaints against Canada and Mexico, as described below. In addition, in 2008 the CEC authorized the preparation of a Factual Record on the failure of the United States to enforce its Clean Air Act against coal-fired power plants. 1. Canadian Paper Mill Regulation: On May 8, 2002, the Sierra Legal Defence Fund of Canada filed a submission on behalf of environmental organizations that documented over 2,400 violations of the Pulp and Paper Effluent Regulations at paper mills in central and eastern Canada from 1995 to 2000. Despite the large number of violations, very few were prosecuted, even though the Canadian Fisheries Act makes it illegal to “deposit or permit the deposit of a deleterious substance in water frequented by fish.” A violation of the act occurs when mill discharges exceed daily or monthly limits or fail lethality tests, or when required testing is not conducted. Although couched in equivocal language, the Factual Record showed that the effluent coming from specific mills was so toxic that it killed fish and that Canadian authorities never prosecuted any of those mills. The CEC secretariat completed this Factual Record in late June 2006, but, in the face of Canadian opposition, the CEC Council did not make the record publicly available until January 2007, nearly five years after the citizens’ complaint was filed. 2. Tarahumara Logging: On June 9, 2000, the Commission for Solidarity and the Defense of Human Rights, a Mexican nonprofit organization, submitted a claim on behalf of residents of the Sierra Tarahumara in Mexico alleging that Mexico was failing to process complaints from indigenous communities concerning illegal logging and other resource extraction activities. Mexico’s General Law on Ecological Balance and Environmental Protection (LGEEPA) permits citizens to report violations of environmental laws, or activities that disrupt the ecological balance, to the Federal Attorney for Environmental Protection (Profepa), which has 10 days to acknowledge receipt of a complaint and either begin processing or turn it over to a government agency with appropriate jurisdiction. If Profepa decides to proceed with an investigation, it must investigate the facts and explain its decision within 42 working days. Profepa may also initiate administrative proceedings for inspection and surveillance. The subject of the CEC submission was 28 complaints dealing with illegal logging. Of the complaints in question, 17 resulted in administrative proceedings, with 16 of those issuing fines and corrective measures. However, none of the orders required reforestation, and in only nine cases were the corrective measures actually carried out. The CEC Factual Record noted that underlying the citizens’ complaint process were poor relations between indigenous communities and government authorities. No government offices were located in the Sierra Tarahumara, making investigations and monitoring difficult, an obstacle compounded by language and other cultural barriers. The secretariat completed its Factual Record in July 2005, but once again the council took five months to approve its public release in January 2006. 3. Ontario Logging and Migratory Bird Regulations: On Feb. 6, 2002, the Sierra Legal Defence Fund of Canada filed submissions on behalf of several environmental groups alleging that Canada was failing to enforce its Migratory Bird Regulations (MBR) against the logging industry in Ontario. Under §6(a) of the MBR, it is an offence “to disturb, destroy or to take a nest or egg of a migratory bird without a permit.” The submitters claimed that logging activity had illegally destroyed over 85,000 migratory bird nests in Ontario and that no action had been taken against logging companies, logging contractors, or independent contractors. Environment Canada (the federal environmental authority) denied any relationship between the population of migratory birds and logging practices. In a statement to the CEC, the agency claimed that “the availability of information demonstrating a connection between logging and a downward trend in migratory bird populations is not determinative of whether or not an enforcement action will be taken.” It appeared that Ontario was not monitoring migratory bird populations, while simultaneously claiming that logging had no effect on those populations. The secretariat completed its Factual Record in June 2006. The council did not decide to make the record public until January 2007, five years after the citizens’ submission. 4. Alca-Iztapalapa: Hazardous Waste Management: On June 17, 2003, Angel Lara Garcia, an individual, filed a submission with the secretariat, alleging that the Mexican government was failing to enforce its environmental laws in connection with a latex plant operated by ALCA. Specifically, Mr. Garcia asserted that a footwear materials factory in his neighborhood was generating pollution affecting his health and that of his family. He was concerned that the intense odors emitted from the factory were a nuisance and a health hazard and that factory was failing to comply with hazardous waste management regulations under LGEEPA. Profepa conducted inspections, imposed fines, and required several partial closings. Eventually, Profepa referred the case to the Federal Public Prosecutor, which undertook several prosecutions, which the Mexican courts dismissed after Profepa declined to authorize further investigations. The secretariat completed the factual record in November 2007, but again the CEC Council did not vote to make it publicly available until May 2008. 5. Montreal Technoparc Fisheries Dispute: Most recently, in 2008 the CEC released its Factual Record in a dispute involving Montreal Technoparc, a former waste disposal site now owned by the city of Montreal. Several environmental organizations filed a submission in August 2003 alleging that Canada was failing to enforce the Fisheries Act in relation to alleged chemical deposits in the St. Lawrence River from the Montreal Technoparc Site. Despite the presence of exceedingly high levels of contaminants originating from the Technoparc site, few corrective actions had been taken. Inspections and testing revealed that the layer of waste and backfill in some areas was over 4 meters deep, there were over 4 million liters of diesel fuel mixed with other substances in the water, and toxicity levels exceeded the lethal limits for fish. While it was clear that waste of this magnitude exceeded any legal limits, uncertainties surrounding ownership made it difficult to trace the source and impose corrective measures, particularly given the mix of municipal, federal, and private ownership of the site. The Factual Record nevertheless took almost five years to prepare and release. As noted above, the citizen submission process is intended to shed light on systematic failures to enforce domestic environmental laws by the three NAFTA parties. These recent Factual Records highlight several broad problems, including interagency enforcement authority disputes, failure to enforce environmental laws against major industries, and failure to take citizen complaints seriously. An independent CEC review process, timely Factual Records that assign responsibility for demonstrated failures to enforce domestic laws, and subsequent monitoring and public reporting by the CEC could help rectify some of these problems. But the CEC’s current practices are undermining this potentially important contribution and eroding the credibility of the citizen submission process. Unless the Lessons Learned recommendations of 2001 are implemented more vigorously by all three NAFTA parties, this important experiment in reconciling free trade and environmental protection may be written off as simply a politically convenient mask for NAFTA’s approval by the U.S. Congress. BECC-NADBank Paralysis As originally conceived, BECC and the NADBank were to be separate but symbiotic entities. The BECC, located in Ciudad Juarez, Mexico, would review proposed border environment improvement projects and certify those with merit. The NADBank, located in San Antonio, Texas, would make loans to finance projects certified by the BECC. The agreement limited the scope of the BECC/NADBank’s mission to certifying and financing water supply, wastewater treatment, and solid waste management projects within 100 kilometers of the United States/Mexico border. The drafters particularly hoped that these activities would help to address the environmental problems of the colonias, high-density unincorporated communities located on both sides of the United States/Mexico border that typically lack basic municipal services such as potable water supplies and wastewater treatment systems. The United States and Mexican governments established the NADBank with $405 million in initial capital, a first step towards the bank’s stated lending capacity of $2.7 billion. However, as of 2002, eight years after NAFTA took effect, the bank had approved only $23.5 million in loans and disbursed only $11 million. Several factors contributed to this underwhelming performance. First, Congress funded the NADBank on the condition that the bank would make loans only at market interest rates. Second, the BECC/NADBank financing application process was cumbersome and costly for applicant communities. Despite their highly related functions, the two organizations had separate boards of directors and imposed duplicative burdens on applicants. Moreover, the BECC review process overlapped awkwardly with state environmental review processes. Applicant communities, who needed financing from the BECC/NADBank because of their impoverished circumstances, found these burdens difficult to bear. Third, many border communities lacked the financial means to repay loans at all. In an effort to address these problems, the U.S. and Mexican governments made a series of changes to the BECC/NADBank structure in the early 2000s. To make financing more available to impoverished communities, NADBank gained authority to make up to $100 million in subsidized loans to needy communities, as well as grants from its paid-in capital. The governments also merged the boards of directors of the BECC and the NADBank to improve efficiency and make it easier and cheaper for would-be borrowers to interact with the organizations. The BECC/NADBank can also offer assistance to Mexican communities within 300 kilometers of the border; on the U.S. side of the border the limit is still 100 kilometers. While drinking water, wastewater treatment, and solid waster projects are still the BECC/NADBank’s first priority, they now can also fund other infrastructure projects related to air quality, public transportation, and clean energy. Realistic Funding Needed Partly as a result of these changes, by March 31, 2008, the BECC had certified 137 environmental infrastructure projects (75 in the United States and 62 in Mexico), and NADBank has committed to participate in the financing for 118 of those projects. The recent improvements to the BECC/NADBank structure likely played a large role in this enhanced level of activity. Nevertheless, the lengthy delays and, thus far, paltry results of the BECC/NADBank program demonstrate the need for more realistic funding of such programs at the outset and for clearly identified border (or other) projects designed to bring the benefits of enhanced trade to the communities most directly threatened by the adverse impacts of trade. Stephen L. Kass and Jean M. McCarroll, together with Clifford P. Case and Michael C. Davis, direct the environmental practice group at Carter Ledyard & Milburn. Christopher Rizzo, an associate at the firm, Chloe D. Caraballo, a third-year student at Brooklyn Law School, and Bryan J. Hall, a third-year student at Cornell Law School, assisted in the preparation of this column.

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