The NAFTA Side Agreements and Governance in Mexico

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    The NAFTA side agreements and governance in Mexico

    Mark AspinwallDepartment of Politics and International Relations

    University of EdinburghGeorge Square

    Edinburgh, EH8 9LDScotland

    44 (0) 131-651-1730mark.aspinwall@ed.ac.uk

    In this chapter I examine the NAFTA side agreements as mechanisms of the NAFTATransnational Integration Regime (TIR), linking Mexico to its northern neighbors andbringing pressures on Mexico to adapt its systems of governance in limited areas. TIRsare institutionalized arrangements involving public and private actors from two or morecountries in creating and governing the rules of economic interactions in specific areas(Bruszt and McDermott 2011: 2). Formally known as the North American Agreement onEnvironmental Cooperation (NAAEC) and the North American Agreement on LaborCooperation (NAALC), the side agreements principal purpose was to addresscompliance weaknesses by creating mechanisms of oversight and complaint, and bycreating opportunities to build capacity. They were created because of the fear thatincreased trade and investment opportunities in Mexico would give firms there an unfairadvantage against US-based firms unless Mexico was required to enforce its own rules.

    The key issue is how well do these side agreements work as mechanisms of governance-improvement? Did Mexican governance (rule of law, accountability, participation, etc)improve because a mechanism was established whereby partner states and private actorscan scrutinize behavior and complain? I argue that small but important steps were takento improve the culture of rule of law and build capacity, and that they can be traced to theenvironment and labor side agreements. The scrutiny and oversight institutionalizedthrough the side agreements reinforced capacity-building among civil servants and civilsociety in Mexico as individuals engaged in the complaint process and in the agenda-setting and work programs of the side agreement institutions. A dense web of cross-border communication was created by the side agreements, and social views werefacilitated through it. Moreover, the domestic reforms underway in Mexico, includingstrengthened regulatory and judicial institutions, policy reforms, and others, werebuttressed by the external pressures of the NAAEC and NAALC.

    Improvements to governance include stronger domestic institutions, better capacity inthese institutions and among agency officials, and healthier NGOs. Greatercommunication, professionalization, transparency, and information have led toimprovements in expectations and attitudes regarding rule of law. NAAEC is more

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    independent of member state control, provides institutionalized access for civil society,and built capacity in civil servants and civil society. Environmental officials movingbetween NGOs, federal agencies and the NAAEC institutions facilitated communicationand normative transfer. Domestic environmental institutions were expanding and morepermeable to new norms. In comparison to the EU, NAFTA is a low-cost but effectivemeans of exerting external pressure on its developing partner.

    Yet there are important differences between the side agreements too. Environmentalactivists and civil servants have become more capable of using scientific and legalrationales, whereas this capability is rarer among labor unions and civil servants. Further,the environmental side agreement provided for NGOs to make complaints and engage inagenda-setting within the institution, and allowed for independent factual reports to bepublished by the side agreement agency (the Commission for EnvironmentalCooperation). Labor activists could complain too, but only to the labor ministry of

    another member state, whose subsequent investigations were tainted by accusations ofviolation of sovereignty and ideological bias (under the Bush Administration).

    Thus, both external variables(the structure of the side agreement institutions) andinternal variables(the professionalization of actors, their mobility, etc) made a differenceto the propensity for agencies to adapt. I spell out the effect of these variables below. Ialso show how thickening cross-border communication among technocratic agencyofficials, civil society groups (lawyers, NGOs, and others) built capacity among theactors themselves. That is, transnational institutions which were structured in such a wayas to encourage cross-border dialogue also led to higher levels of professionalizationamong civil society actors and bureaucrats in Mexico. Engagement in the side agreement

    institutions helped upgrade skills.

    The advantage of comparing the two side agreements is that a number of potentiallyimportant variables are held constant. The agreements were concluded at the same time,for the same reasons (a fear in the US that lower standards in Mexico would undermineits competitiveness and draw investment away), with the same member states. Both hadas their central purpose the requirement that member states enforce their existing laws,and both provide for sanctions in the event of non-compliance. Mexico did not have an aprioripreference for either side agreement, and had faced pre-existing pressures forreform, both domestically and from organizations such as the ILO and the OECD.

    In the following sections I briefly review the TIR approach to understanding adjustmentin developing states, then look at the Mexican experience under the labor andenvironmental side agreements. I describe how the effectiveness of TIRs varies accordingto differences in their design, and how differences in domestic capacities and processesaffect regulatory integration.

    Regulatory adjustment and integration

    I work with the TIR approach to show how the side agreement mechanisms createdincentives to improve governance (especially rule of law) in the sectors in which they hadcompetence. Bruszt and McDermott (2011) set out a model for understanding how TIRs

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    affect regulatory change in developing countries. TIRs vary in their scopeand depth: theycover more or less sectors of the economy, and provide for deeper or shallower change todomestic administrative capacity. They also vary in the extent to which they provideassistance, in terms of financial, informational, or organizational resources, and also intheir level of monitoringof the developing state.

    I focus on assistance and monitoring activities. The side agreements are narrow in scopeand shallow in depth compared to the EU, and they are also more static. There are noinstitutional processes outside intergovernmental negotiations in which new policy areasmay be subject to rule-governing cooperation or old policy areas subject to deeper formsof governance. Everything was negotiated at the outset. NAFTA operates a Cassis deDijon model of regulatory integration, whereby the regulations of each member state arerecognized as valid by other member states. Convergence, harmonization, andstandardization of regulations are not the objective, and little of it occurs. The objective is

    to ensure consistent application of the rule of law in each of the member states alongsidea liberalized trade and investment regime. Therefore, the aim of this chapter is todetermine how differences in monitoring and assistance affect member state regulatoryobligations.

    The labor and environmental side agreements had the same underlying purpose. Thegoals and means are to ensure proper enforcement and to build capacity through transferof best practice and some resources. The norm of rule of law had a strong countervailingnorm though, namely a developmental pro-jobs norm that tolerated rule-bending andbreaking to facilitate investment, development, and employment (see Figure 1). Limitedstandard-setting may occur in trade areas, and also there are efforts to standardize

    reporting of data; but there is no simultaneous drive to harmonize environmental or laborlaws or regulations. The side agreements provide slightly different forms of assistanceand monitoring. Assistance and monitoring are both stronger in the environmental sideagreement. In addition, key differences at national level helped determine the success ofassistance and monitoring.

    Figure 1. Jobs or rule of law? Two logics of appropriateness.

    Jobs Rule of lawEnvironment Permitting process for

    development projects

    does not respectenvironmental impactassessmentrequirements.

    Permitting process fordevelopment projects

    respects impactassessmentrequirements, andresults are fully openand transparent.

    Labor Anti-labor practicessuch phantom tradeunions, open ballotingfor union leaders,failure to report openlyare tolerated to keepthe labor peace, andprevent labor costs

    Trade unions and firmsare required to respectlegal requirements intheir labor practices.

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    rising.

    External variablesInternational institutions (such as TIRs) provide an opportunity structure in whichdomestic NGOs can pressure states (Keck and Sikkink 1998; Risse and Sikkink 1999;Keohane et al 2000; Kay 2011; Graubart 2005). When NGOs are taken seriously by aninternational institution, it increases their legitimacy and credibility back home (Reimann2006; Kay 2011). It becomes harder for states to backtrack on commitments. Moreover,when TIR institutions have the power to accept petitions by NGOs, it has an importantsignalling effect in the home polity: it indicates that the complaint has merit, and itinitiates a discussion over legal principles. The accused member state must justify itspr