FREE TRADE AND THE ENVIRONMENT:
DOING BUSINESS IN THE AMERICAS AFTER
THE U.S. - CHILE FREE TRADE AGREEMENT

Santiago, Chile

January 19-20, 2004

 

CONFERENCE SUMMARY AND REMARKS

by GONZALO BIGGS*

 

 

MR. BIGGS: I would like to thank Robert Falk for inviting me and organizing this Conference and I also echo the applause for Elissa Lichtenstein, who has been working for many months in preparing and making possible this program. I will make a brief reference to the presentations of the participants and then comment on some specific aspects of the U.S.-Chile Free Trade Agreement or FTA.

 

* Partner, Figueroa & Valenzuela
Moneda 970, Piso 5
Santiago - Chile
gbiggs@fivalabogados.cl
Phone: 56-2-696-0171
Fax: 56-2-696-3859

 

A. Conference Presentations

First, I will mention Susan Cronin's presentation. As Chief of the Negotiating Delegation of the US-Chile FTA, she said that transparency was the most important element of this agreement. Many others echoed this belief, which I also share. Susan also highlighted the rule of law as one of the reasons Chile signed this agreement, and that the FTA was not just about the elimination of tariffs but also included other important components, such as intellectual property, investments and dispute settlement, among others.

This same point was ratified by Osvaldo Rosales, Chile´s Chief Negotiator, when he stated that the agreement includes intangible assets which transcend commercial commitments. Mr. Rosales also referred to recent comments of Professor Stieglitz, the Nobel Prize winner, on the commercial components of a free trade agreement. However, according to Mr. Rosales, Mr. Stieglitz was referring to NAFTA – and even though he has a Nobel Prize in economics, he has ignored the investment components of the Chile-U.S. FTA. He, then, mentioned its importance as a strategy for future exports within the framework of the Free Trade Area of the Americas (FTAA) and also referred to the danger of treating these agreements as a framework, or a unique model, or only model. Each country has a different set of circumstances, and what is acceptable for Chile is not going to be, necessarily, acceptable to Central America. Such is particularly the case with, for example, the institutional aspects.

Senator Foxley referred to how this agreement in some ways mirrors what has happened in the relationship between Spain and the European Union, and to its relevance in maintaining a balance with its environmental and labor components. He highlighted its importance in connection with the different interests that will arise when the WTO Doha Round of multilateral trade negotiations is back on track.

Ambassador John O'Leary referred to his experience during the period of the negotiations and to the decisive personal interventions of the Presidents of Chile and of the United States when critical decisions had to be made concerning the environmental and labor components of the FTA. He made a brief and enlightened summary of the various challenges the negotiators had to overcome before the final agreement was adopted.

Professor Daniel Esty gave a complete comparative evaluation of the different free trade agreements: NAFTA, Canada-Chile, the Doha Round, and Chile-U.S., and treatment of their respective environmental components.

Patricio Leyton offered a summary of NAFTA jurisprudence on expropriation and its relevance to the FTA issues under NAFTA. He discussed the differences between the terminology used in the Chile-US and NAFTA agreements on expropriations, and the importance of each change in terminology in the treatment of this extremely controversial subject. He also referred in detail to the jurisprudence coming out of the [U.S.] Supreme Court with respect to this issue, and highlighted the importance of the new and broader definition of investment used in the FTA.

Marianne Schaper from UN/ECLAC talked about the relationship of the environment and economic development and the importance of integrating the environmental component into the process of sustainable development. She noted the differences in priorities in countries with different levels of development and the need to harmonize sustainable development policies. She mentioned manufactures and how the environmental expenses of raw materials are not necessarily reflected in the market prices of these products.

Jaime Irarrázabal gave a complete summary of the investment chapter of the FTA and highlighted some of its innovations. He pointed to the issue of preliminary questions which is a critical issue in claims before ICSID. He gave an example of the claim of Mr. Pey, concerning the expropriation of the newspaper Clarin, against the Republic of Chile. In this case, resolution of the issue of admissibility of the claim before the ICSID Arbitration Panel has taken more than three years and remains pending. The FTA signifies an important innovation in this respect. Mr. Irarrázabal also mentioned the elimination of preliminary measures in terms of transparency and the binding power of interpretation given to the organs of the Free Trade Agreement, which is an important contribution of this agreement.

Jean Kalicki discussed the jurisprudence that has arisen from NAFTA and other arbitration entities and to how the FTA provisions on investment have captured and expanded this development. In her view, international principles of state responsibility apply to measures taken directly by national governments and, also, by state and local bodies, including municipalities. She also explained the significance of the national treatment (article 10.2, annex 10-A) and expropriation (article 10.9 and Annexes 10-A and 10.D) provisions of the FTA.

Andrés Culagovski referred to the minimum standard of treatment, its historical background and the practical application and justification of this innovation in the agreement. At the same time, he mentioned its limitations.

Richard Ballhorn discussed the treatment of environmental issues within NAFTA and the Chile-Canada agreement. He mentioned the difficulties that exist in the dialogue between environment and trade. He also noted that, contrary to what one could think, environmental issues do not appear to be covered with great frequency within the framework of the parallel side agreements, but, rather, in the Chapter on controversies between investors and the state.

Pablo Ruiz-Tagle referred to Chile's experience in the administration of environmental controversies within the framework of the Chile-Canada agreement, and mentioned some of the cases that have been resolved by its bilateral Committee. He mentioned as positive the experiences reached by this agreement in regulatory matters, institutional support and environmental impact assessment.

Gustavo Alanis-Ortega gave a complete summary of the Mexican jurisprudence with NAFTA, mentioning the progress attained by Mexico, for example, in the Environmental Attorney's Office – an area in which Mexico and Chile have had serious limitations in the enforcement of their environmental laws. He referred to public participation and enumerated the weaknesses that he found in NAFTA and in its enforcement. He found the language is too lax, and gave several examples of this. He also objected to the linkage of trade and the environment within a bilateral framework because he considered it a multilateral issue. He also mentioned conflicts of interest in the make-up and functioning of environmental committees.

Fernando Dougnac discussed the evolution of the Chilean environmental policy and legislation from 1981 through 1987. This was a period in which environmental activity was dominated by the action of the Judiciary, and in which interpretation of the Constitution permitted citizens to exercise public actions that led to the creation and development of environmental policy through the courts. This might be a unique experience in the world, where the courts of justice interpreted provisions of our Constitution and managed to secure progress in environmental protection in an extraordinary way. According to the speaker, this process concluded in 1997, with a Supreme Court ruling which established that, with the creation of CONAMA, these issues from now on should be addressed by CONAMA. He commented on the importance of international agreements that permit progress in correcting the deficiencies of the Supreme Court’s rulings. He referred to the differences between the individual actions recognized in the Canada agreement and their treatment in the FTA. He also mentioned the protection of the citizenry, and that on this subject the Government of Chile had been highly acquiescent with the United States.

Gianni López, in his keynote address, made an exhaustive listing of the various actions and policies undertaken by CONAMA. He referred to advances in Chile´s environmental policies from 1990 to this date and mentioned, specifically, the reduction of air pollution in Santiago; institution-building; recycling and treatment of sewerage wastes; and consolidation of the use of environmental impact assessments in development projects. He listed as future key areas: the strategy for biodiversity protection; protection of ecosystems; enactment of the Native Forestry Statute; regulation of wild species in private areas; and formation of a marine protection area in Magallanes. Concerning public transportation in Santiago, he mentioned implementation of a complete new program that will link the metro system with bus transportation.

Kathy Barclay referred to the importance of the provisions of the U.S. Congress in adopting the TPA which set the terms of reference under which the agreement between Chile and the U.S. were negotiated. She observed that Chile is the first country to include the treatment of environmental and labor matters within the body of a trade agreement. Her remarks were followed by a presentation by Judith Ayres, who summarized the status of U.S. negotiations with Central American countries (Panama, the Andean countries, Colombia, Peru, Bolivia, Ecuador), with an emphasis on the principles under which these negotiations are being carried forward – the rule of law and the role of governments in treating labor and environmental issues. She also mentioned that the American policy is in the process of revising these agreements in order to create public awareness on the decision making process.

Leslie Carothers referred to the Central American negotiations and evaluated the relationship between free trade agreements and labor and environmental issues. She mentioned the satisfaction she felt in hearing from Mr. López that the same type of problems which exist in Chile, exist in the U.S. in terms of policy execution. She also referred to the politics of the Escondida and TomboGrande mines in Chile and Peru respectively, and how, in one case, the correct environmental policy had been applied while in the latter it was not.

Finally, Claudio Grossman, Dean of the American University/Washington College of Law, referred to the political and juridical framework of the Inter-American system and how the political and legal systems now in force in Chile and in the U.S. relate to the FTA. He also referred to the importance of governance, the situation of women, journalists, and ethnic minorities.

B. Dispute Settlement Under Chapter 19

I will now refer to the settlement of environmental disputes under Chapter 19 and how it compares with the equivalent provisions of the Chile-Canada Free Trade Agreement.

What must first be noted is that disputes relating to the interpretation and application of the FTA are ruled by the general provisions of Chapter 22. These provisions supplement the special rules on environmental disputes of Chapter 19. In addition, under NAFTA and the Chile-Canada Free Trade Agreement, environmental and labor matters are not an integral part of the respective agreements – as is the case of the FTA - but are treated in separate parallel agreements.

Under the Canada agreement, the initiation of a dispute by one party must be based on the existence of a persistent pattern of failure by the other Party to effectively enforce its environmental law (article 22). By contrast, the FTA is considerably more strict. A Party may only start dispute proceedings if the other Party has effectively failed to enforce its environmental legislation through a sustained or recurrent course of actions or non-actions, in a manner that affects trade between the parties (article 19.2 (a)). This last requirement – that trade between the parties be affected – makes it highly improbable that environmental controversies may actually arise. Moreover, this restriction is reinforced by the prohibition to resort to the general dispute settlement procedure of Chapter 22 for matters arising under Chapter 19 on a basis different from that described in above article 19.2(a).

The preamble of the agreement with Canada recognizes and reaffirms various international principles and environmental declarations. Concretely, it reaffirms the declarations of Stockholm (1972) and Rio (1992) on environment and development. Some of these principles have already been incorporated into international customary law. Such is the case of the “polluter pays” principle, intergenerational environmental liability, and citizen participation, among others. The Chile-U.S. FTA does not mention these principles. At the same time, the environmental objectives of the Chile-Canada agreement are broader than those of the FTA and include the following which do not appear in the FTA: (a) the improvement of the environment for the well-being of present and future generations, (b) pollution prevention policies, (c) public participation, and (d) protection of flora and fauna.

The Chile-Canada agreement lists six general obligations with which the parties must comply in their entirety and which do not appear in the FTA (article 2). These obligations refer, among others, to the preparation and/or publication of regular reports on the state of the environment, the development and review of measures for emergency preparedness, education on the environment, including of environmental law, scientific research and technology development in environmental matters, and assessments, as appropriate, of environmental impacts.

Another important provision of the Chile-Canada agreement that is not included in the FTA refers to the importation of pesticides or toxic substances whose use has been prohibited in the territory of the exporting party. The Chile-Canada agreement compels a party that adopts a measure prohibiting the use of pesticides to notify the other party about this measure, whether it be directly or through an appropriate international organization. This is an important issue, because it is known that various toxic materials and pesticides that are forbidden or severely restricted in other countries currently are sold and used in Chile. The FTA, however, does not include a similar provision to that of the Chile-Canada agreement (article 2(3)).

C. Transparency

Article 12 of the FTA states that its objectives will be developed applying different principles and rules, including transparency. In this, the FTA does not differ from NAFTA or the Chile-Canada agreement. But the FTA has a complete chapter on transparency, which is applied to "any matter included in the treaty” (article 20.1). In addition, the FTA’S Chapters and Annexes on transparency apply to the most varied subjects. Among them are the administrative procedures of the Chilean public sector, which should greatly improve the transparency of Chilean public proceedings. Since the FTA is a special law, its provisions should prevail over those of Chilean law. Chilean legislation ensures the right of citizens to obtain from all state agencies the information for which those agencies are responsible. However, the law establishes so many exceptions that, in practice, citizen access to such information is absolutely discretionary. In some cases, courts have required release of information, but rarely with success. The significance of the FTA is that it establishes the principle of transparency without exceptions.

Another deficiency of the Chilean administration is the lack of prior consultation regarding decisions or resolutions on public matters that may affect the citizenry as a whole. Irreversible decisions on matters affecting society are a frequent practice. The FTA also makes an important contribution in this area. As the subjects encompassed by the FTA are so broad its rules should have a significant influence on Chilean public practices and procedures as a whole. Thus, the legal innovations introduced by the FTA are highly positive. These innovations also include rules designed to promote citizen participation in public affairs, which is an issue that has not been satisfactorily addressed by the Chilean political system. Chapter 20 of the FTA lists the obligations the parties will have to fulfill relating to transparency. For instance, they must publish in advance any measure to be adopted. In addition, the FTA confers a broad scope to the word "measure," which includes, "any act, regulation, procedure, requirement or practice." (article 2.1)

Another obligation is to provide the interested parties a reasonable opportunity to comment on the proposed measures and then to finally establish or maintain judicial tribunals, courts, procedures or administrative procedures for an effective revision and correction of definitive administrative measures related to matters under the FTA.

For the Conference Brochure, click here.

For Spanish Language Version of the Conference Brochure, click here.