November 29, 2022

Volume XII, Number 333


November 28, 2022

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The USMCA, Trade, and the Environment

The United States-Mexico-Canada Agreement (USMCA), a trilateral trade agreement between the three counties, entered into force on July 1, 2020 replacing the North American Free Trade Agreement (NAFTA).

The focus of the USMCA is diverse, ranging from intellectual property to labor, to financial services. New provisions create incentives to manufacture cars in North American and open new markets for US agricultural products. The expectation is that it will take time for companies to understand and comply with the new requirements in the USMCA, in particular during a global pandemic and economic recession. The US Customs and Border Protection has released guidance to assist in the short-term with implementation of the USCMA.

The USMCA includes a separate chapter on environmental protection (i.e.Chapter 24). NAFTA was the first trade agreement with explicit provisions related to the environment and the USMCA expands on that foundation. Chapter 24 of the USMCA includes, for example, obligations for the three countries to maintain levels of environmental protection and governance, including an agreement to enforce environmental laws and promote transparency and public participation. There are also provisions related to fisheries, invasive alien species, and sustainable forestry, among other environmental issues. This blog post outlines a few of the most notable environmental-related provisions in the USMCA.

  • The USMCA requires each country to “adopt, maintain, and implement laws, regulations, and all other measures necessary to fulfill its respective obligations” under identified multilateral environmental agreements (MEAs). These MEAs include, for example, the Montreal Protocol, which addresses the production and consumption of ozone-depleting substances; the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which focuses on the protection of endangered plants and animals; and the United Nations Convention on the Law of the Sea, which focuses on the protection of the oceans and seas. Notably, in the event of a conflict between the USMCA and a specific MEA, the terms of the MEA would prevail.

  • Absent from the list of MEAs is the United Nations Framework Convention on Climate Change or the Paris Agreement. Chapter 24 does not include any explicit provisions related to climate change or renewable energy. This approach contrasts with the 2019 EU-Mercosur Trade Pact between the European Union and Argentina, Brazil Paraguay and Uruguay, which includes provisions related to “domestic and international carbon markets” and “energy-efficient, low-emission technology, and renewable energy.” The USMCA does include language related to carbon storage, in the context of sustainable forest management, and clean technology in a non-binding section on environmental good.

  • The USMCA includes a requirement to conduct an “environmental impact assessment” for proposed projects that are “subject to an action by that [country’s] central level of government that may cause significant effects on the environment with a view to avoiding, minimizing, or mitigating adverse effects.” The country “shall ensure that such procedures provide for the disclosure of information to the public and, in accordance with its law, allow for public participation.” In the US, the expectation is that this requirement would be satisfied through compliance with the National Environmental Policy Act.

  • Provisions are included in the treaty that promote the trending concept of corporate social responsibility (CSR). Recognizing the importance of promoting responsible business conduct, the USMCA provides that each country “shall encourage enterprises organized or constituted under its laws, or operating in its territory, to adopt and implement voluntary best practices of corporate social responsibility that are related to the environment, such as those in internationally recognized standards and guidelines that have been endorsed or are supported by that [country].” The “voluntary best practices” could include, for example, the Equator Principles (EPs), which is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence and monitoring to support responsible risk decision-making. The EPs were recently updated (i.e.EP4), though the effective date was pushed from July 1 to October 1, 2020, due to the global pandemic. Notably, for the US and Canada, EP4 eliminated the ability of a project to comply with host-country environmental laws and comply with EPs. The inclusion of CSR provisions in the USMCA is consistent with the trend of multinational corporations incorporating CSR principles and third party standards into corporate risk management.

  • The treaty includes obligations to take action to prevent and reduce marine litter, which includes plastic litter and microplastics, including, for example, addressing land and sea-based pollution, and promoting waste management infrastructure. It is unclear how these provisions in the USMCA may affect, for example, the establishment of “trash” total maximum daily loads under the federal Clean Water Act (CWA), the US EPA and State implementation of the CWA nonpoint source program, the implementation of the Coastal Zone Management Act or State counterparts, such as the California Coastal Act, or ongoing state court tort litigation against manufacturers of plastic products based on allegations of contribution to plastics entering waters.

  • Under the USMCA, the countries agree to resolve environmental disputes that arise under the treaty through the same dispute settlement system applicable to all USMCA commitments. For example, one country could seek to impose proportional trade measures against an alleged violating party in the same manner authorized for other non-environmental-based alleged violations of the USMCA. However, such disputes can be brought only if a country’s action or inaction creates a trade or investment advantage for that country (i.e., the violation is done in a manner that affects trade). The purpose of this limitation is to avoid actions under the treaty that would be considered an intrusion into the domestic matters.

  • In 2018, the three countries agreed to the Environmental Cooperation Agreement (ECA), which would take effect upon entry into force of the USMCA. Therefore, in addition to Chapter 24, the ECA is now effective. Notably, the ECA retained the Commission for Environmental Cooperation (CEC), which was first established as part of NAFTA. The CEC focuses on environmental matters and it will play a critical role in the implementation of Chapter 24 of the USMCA.

  • The USMCA authorizes persons from each country to file a submission to the CEC alleging a country is failing to enforce its environmental laws. This provision, like citizen suits in US federal environmental laws, allows the public a role in the implementation of Chapter 24. There are interesting procedural requirements associated with a submission, including the requirement that the CEC must find that the submission “appears to be aimed at promoting enforcement rather than at harassing industry.” In deciding whether to ask a country to provide a response to a submission the CEC must consider whether “private remedies available under the [country’s] law have been pursued,” which would appear to include citizen suits under federal environmental statutes. In addition, the CEC should consider whether the “submission is . . . drawn exclusively from mass media reports.”

As the practical implementation of the USMCA becomes clearer over the coming months, companies operating in North America will need to navigate this new playing field, including the new environmental provisions under Chapter 24.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 184

About this Author

Samuel L. Brown Environmental Practice Hunton Andrews Kurth San Francisco, CA

A former US EPA lawyer, Sam brings deep knowledge and practical experience to his clients’ environmental and natural resource concerns, helping them navigate the demands of regulatory agencies, ensure facility and corporate compliance, respond to government investigations and defend against enforcement actions.

Sam is experienced in domestic and international environmental and natural resource matters that impact client business and operations. His clients primarily include public and private sector manufacturing, mining, electric utility, oil and gas, municipal drinking water and...