On August 27, President Trump tweeted that both Canada and Mexico were being "very difficult" during the ongoing renegotiations of the North American Free Trade Agreement ("NAFTA"). Without question the three countries' trade representatives have a lot areas to cover in the negotiations, but environmental and labour standards are two areas that have been taking a back seat. This begs the question – what changes can we expect see in NAFTA 2 on environmental and labour standards?
The information we have to go by is limited so far. On July 17, the US Trade Representative released an 18 page document entitled "Summary of Objectives for the NAFTA Renegotiation". This document sets out the goals of the United States for revisions to NAFTA (the "US Objectives"). Mexico reportedly released its objectives document on August 1 (the "Mexican Objectives"). Canada has arguably provided the least public information as to its objectives – on August 14, Foreign Affairs Minister Chrystina Freeland delivered a speech on the modernization of NAFTA and posted the text online (the "Canadian Objectives").
Based the three countries' objectives statements, the most likely change to environmental and labour standards will be the inclusion of two side agreements into the text of NAFTA 2 itself – the North American Agreement on Environmental Cooperation ("NAAEC") and the North American Agreement on Labour Cooperation ("NAALC"). Over the past two decades, World Trade Organization nations have made it standard practice to include separate chapters for environmental and labour provisions. The US Objectives explicitly propose that both environmental and labor provisions be brought "into the core of the Agreement rather than in a side agreement". These agreements and changes made to them will have to be reconciled with existing Chapter 11 on investments (see, in particular, articles 1106 and 1114).
What is less certain will be how these two new chapters are amended. The US is most likely to draw directly from Trans-Pacific Partnership ("TPP"), an agreement it pulled out of shortly after Trump took office, whereas Canada is more likely to draw from the recently adopted Canada-European Union Comprehensive Economic and Trade Agreement ("CETA"). TPP has weaker protections for workers and the environment, but for the protections it does include the enforcement mechanisms are likely strong. Conversely, CETA has much stronger worker and environmental protections (including initiatives to combat climate change), but is quite weak on enforcement.
The strength of environmental and labour provisions that are adopted will largely be determined by the investor-state dispute settlement system that the parties adopt. You can read more on dispute resolution under NAFTA on our International Arbitration Blog, but pressure has been steadily increasing for greater transparency and public access to dispute settlement under NAFTA 2.
For more details regarding the NAFTA Renegotiations beyond environmental and labour standards, see our recent publications Canada Begins NAFTA Consultations and The Art of Trade: Knowing the US Position in NAFTA Negotiations.
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