I. Identification

1. The Issue

The United States-Jordan Free Trade Agreement (“hereinafter US-JO FTA”) is the “first” FTA in two ways. It is the first FTA to be ever concluded with an Arab country. It is also the first FTA to include labor and environment within the text of the FTA itself rather than in a side agreement. This article provides analysis of some elements of the environmental provisions of the US-JO FTA and assesses the extent to which the FTA provides a viable “model” to future FTAs. It will navigate through the rhetoric over the environmental section of the US-JO FTA and concludes by arguing that if measured on A-F scale it would receive C-.   

2. Description

In 1994, in the aftermath of the peace treaty between Israel and Jordan, the U.S, Israel, and Jordan began to explore economic ways to support the peace treaty that otherwise may not hold water.[1] These efforts culminated first by the establishment of qualifying industrial zones (“QIZs”) generally along the Israeli-Jordanian borders.[2] Moreover, the U.S and Jordan signed a trade and investment framework in 1999, which is usually a precursor for FTA. In the context of this atmosphere, King Abdullah II and then-president Clinton, on June 6, 2000, declared that the U.S and Jordan would launch negotiations for a free trade agreement.[3] The US-JO FTA was signed in a record time, after several rounds of negotiations, on October 24, 2000. Based on economic merits, a study conducted by the Office of Economics and the Office of Industries of the USITC, found that “Jordan’s exports to the U.S would not have a measurable impact on U.S industries, U.S employment, and production”.[4] Therefore, the FTA would qualify based on non-economic factors including those related to labor and environment.

Proponents of including environment and labor in an FTA present their discussion along the following lines: domestic labor markets and environmental standards are relevant to trade and competition within a nation and competition and trade between nations. Including environmental and labor provisions in an FTA provides the U.S with a sensible and balanced approach to addressing blue (labor) and green (environment) issues in trade agreements, discouraging a race to the bottom by countries seeking to attract investment and lure jobs.[5] Others expressed concerns in including items unrelated to trade such as labor and environment standards in the base text of trade agreements. They argued that economic growth is the best way to deal with environment and labor.[6]

While the US-JO FTA did include some specific environmental provisions, the main language was in article 5. For example, pursuant to article 4.18 of the FTA, either party may exclude from patentability certain inventions to avoid prejudice to the environment. In addition, article 12.1 of the FTA incorporates by reference article XX of GATT 1994 including environmental measures necessary to protect human, animal or plant life or health and measures relating to the conservation of “living and non-living” exhaustible natural resources.

 

Article 5 of the US-JO FTA is considered by some as the greenest provision ever compared with North American Agreement on Environmental Cooperation (“NAAEC”).[7] However, as it will be discussed later, it suffers from several shortcomings. Thus, article 5 turns out to be brown rather than green.

3. Related Cases

Dwaine Priestly, NAFTA Trade Treaty and Environmental Aspects, Vol. 2:1 TED Case Studies 49 (Jan. 1993).  

Amanda Marx, Cozumel (Mexico) Pier, Tourism and Coral Reef Damage NAFTA Case, Vol. 7:2 TED Case Studies 407 (June 1997).  

Tarik Obeidi, Aqaba, Environment, and Tourism, Vol. 7:1 TED Case Studies 380 (Jan. 1997).

Shari Berke, Dead Sea Canal, Water and Trade, Vol. 8:1 TED Case Studies 429 (Jan. 1998).  

4. Author and Date:

Bashar H. Malkawi, January 2005

LL.B. 1999, Yarmouk University, Jordan, LL.M in International Trade Law. 2001, University of Arizona, S.J.D in International Trade Law. May 2005, American University, Washington College of Law.

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II. Legal Clusters

Article 5 of the US-JO FTA kicks off by considering lower environmental protection as unfair trade. It states “The Parties recognize that it is inappropriate to encourage trade by relaxing domestic environmental laws”.[8] Accordingly, the U.S and Jordan “shall strive” not to waive or derogate from such environmental laws as an encouragement of trade with each other. The purpose of this subparagraph is to prevent race to the bottom.[9] In other words, in the presumably US-JO FTA “race-to-the-bottom” the U.S would relax its environmental laws and their enforcement in order to compete for trade that might otherwise be distorted with Jordan that has lax environmental laws and enforcement efforts. However, the language is non-binding since each party shall “try very hard” not to do so. It uses a hortatory language of “shall strive”.

The FTA permits each country to determine its own substantive environmental law(s), but requires each country to provide “high levels of environmental protection” in the domestic environmental laws it enacts.[10] In other words, the U.S and Jordan have the exclusive right to determine their environmental laws, policies, and priorities as long as these laws move upward. There is neither requirement for harmonization of environmental laws nor minimum environmental standard that sets a floor below which party standards cannot fall. Clearly, this provision assumes that if either party adopts or modifies its environment laws, it can do so keeping in mind higher standards. The U.S environmental policies and regulations will stand, and thus its strict standards of environmental protection will not be compromised.[11] Thus, article 5.2 of the FTA may impose an additional obstacle on those Jordanians seeking to export their goods to the U.S market where specific standards must be met.

The U.S and Jordan are required to “effectively enforce” their environmental laws after the FTA enters into force.[12] However, the FTA does not determine how each party shall enforce its environmental laws effectively. It leaves to each party the choice of measure of enforcement. It demonstrates that the FTA’s concern was with lax enforcement of environmental laws, rather than with setting standards.

To measure whether either party has failed to “effectively enforce” its environmental laws, the FTA provides a test. This test is “sustained or recurring” course of action or inaction in a manner affecting trade between the parties. The FTA does not define key terms such as “sustained or recurring”. Although, one can agree that “sustained or recurring” implies something happens more than one time, the matter is not resolved easily. It remains to be seen how a dispute panel established under the FTA would interpret such terms. Also, according to article 5.3 of the FTA, only sustained action or inaction that “affects” trade is actionable. One could interpret this language as if saying “you can do whatever you want with your environment, who cares, as long as this does not transfer into negative effect on your exports to our market”. This kind of interpretation has self-interest flavor with less genuine environmental concern.

Article 5.3 (b) of the FTA is concerned over the right of each party to exercise discretion in investigation, prosecution, regulation, and compliance for environmental matters that have higher priorities. According to article 5.3 (b) of the FTA, a party is not in violation of its obligation to “effectively enforce” its environmental laws if it exercises reasonable discretion or bona fide decision to allocate resources. In these cases failure to effectively enforce environmental laws is not subject to the dispute settlement mechanism of the FTA. Thus, this paragraph provides a leeway to avoid enforcement of environmental laws. Every time, a party to the FTA can argue that it exercised reasonable discretion in allocating resources to environmental matter claimed to be of high priority which may not be necessarily true.

 

III. Geographic Clusters

9. Geographic Locations

a. Geographic Domain: Middle East

b. Geographic Site: Middle East and North Africa

c. Geographic Impact: Jordan

IV. Trade Clusters

Again, according to study conducted by the Office of Economics and the Office of Industries of the USITC, found that “Jordan’s exports to the U.S would not have a measurable impact on U.S industries, U.S employment, and production”. At the time the US-JO FTA entered into force in 2001, Jordan had a trade deficit with the U.S. In 2001, U.S total exports to Jordan were $ 339.0 while its total imports from Jordan were $ 229.2. Thus, the U.S has trade surplus amounting to $ 109.8.  As of 2003, Jordan ran trade surplus with the U.S. It exported $ 673.4 worth of goods while importing $ 491.9. Thus, Jordan has trade surplus amounting to $ 181.5. These numbers ought to be scrutinized to judge the cost/benefit of the FTA. Data is not available regarding trade in services between the U.S and Jordan under the FTA, though it is important. One should not lose sight concerning the contribution of other special U.S programs such as generalized System of Preferences (“GSP”) and Qualifying Industrial Zones (“QIZs”) in the empirical literature on their share of export growth of Jordan. For example, in 2003, the combined value of shipments under all special/non-special U.S programs from Jordan was $ 673,466,552. Of this total, $ 42,892 under the agreement on trade in pharmaceutical products, $ 35,010,918 under the GSP scheme, $ 27,919,294 under the US-JO FTA, and $ 563,928,229 under QIZs.[13]

The drastic shift in trade balance with the U.S has been in mainly in the textiles and apparel sector, a traditional labor-intensive industry. Top apparel exports to the U.S. include some basic apparel articles such as men’s shirts, women’s trousers, sweaters, ladies’ outfits and blouses, and sportswear. Because the WTO Agreement on Textiles and Clothing (“ATC”) will be phased out until the end of 2004 this could mean that unless Jordan moves to other sectors, it might be displaced (complete or near wipeout) by more efficient producers of textiles and apparel products from India, Pakistan, and China.[14] Other items exported from Jordan to the U.S include jewelry, air conditioning, and beauty & skin care preparation.   

TRADE WITH JORDAN IN 2003 (numbers are in millions of U.S dollars)

Month	Exports	Imports	Balance
January 2003	35.0	43.5	-8.5
February 2003	20.7	40.5	-19.8
March 2003	91.0	48.6	42.4
April 2003	18.5	47.0	-28.5
May 2003	37.2	41.0	-3.8
June 2003	25.9	45.3	-19.4
July 2003	36.7	64.2	-27.5
August 2003	32.8	69.8	-37.0
September 2003	47.8	82.7	-34.9
October 2003	50.5	66.8	-16.3
November 2003	39.9	57.1	-17.2
December 2003	55.9	66.9	-11.0
TOTAL	491.9	673.4	-181.5

Source: The U.S Census Bureau     

V. Environment Clusters

Public Citizen, a collective Environmental activist organization, attempted to require an environmental impact assessment be conducted before NAFTA submitted to U.S. Congress by the President.[15] In 1999, then President Clinton issued executive order committing the U.S. government for the first time to conduct environmental reviews of trade agreements.[16] In the light of this, the USTR prepared its first draft review on the environmental effects of the US-JO FTA.[17] The review provides a general description of the environmental impact of the FTA on the U.S in 7 environmental sectors without sufficient details. If the U.S is sincerely concerned with the impact of the FTA on environment it would conduct an in depth analysis that might run in hundreds of pages. However, the review drafters excused themselves with “This draft review was conducted under an atypical set of circumstances. These included a compressed negotiating timetable due to foreign policy objectives, minimal economic impacts in the United States, and the need to conduct the review before the finalization of the guidelines for implementing Executive Order 13141”. The Implementing Guidelines were adopted in Dec. 2000.[18] It is interesting to note that U.S draft review was released late by the USTR in Sep. 2000 when the FTA negotiations were about to close one month later in Oct. 2000. It is seems that the environmental review is a political game to get the FTA through the Congress. Like the U.S environmental impact assessment, Jordan conducted environmental review, which was developed in close cooperation with the U.S. Agency for International Development [perhaps it means U.S Agency for International Development will fund and technically draft the review], as the U.S review states. This indicates that Jordan had neither the financial resources nor manpower to conduct the environmental review by itself.

The U.S and Jordan environmental reviews of the environmental impact of the US-JO FTA resemble the WTO trade policy review mechanism. These environmental reviews should be considered only “reviews” and should not be the basis for identifying environmental violations in Jordan so the U.S would use the review to mandate on Jordan what to do about its environmental problems with trade sanctions up in the air. They are neither for court nor for tribunal purposes. They are stockpile exercises. Jordan’s environmental review of the FTA can be criticized as limited in scope, utilizing a basic econometric assessment of domestic environmental impact. Further, the review did not assess the environmental dimensions of commercial or trade policies, and how those policies could be improved.

The US-JO FTA created a one-tiered system in the sense that the dispute settlement process that applies for intellectual property applies also to violations of article 5. There is no different dispute settlement procedure for each article of the FTA. In other words, there are no separate dispute proceedings for intellectual property, labor, or environment matters.

Any non-governmental organization or person may submit to the NAAEC secretariat that a party is failing to effectively enforce its environmental laws.[19] The NAAEC worked well by adopting a scheme of reporting and submission.[20] Therefore, reports of NAAEC do not render the agreement “toothless”. The NAAEC submission scheme allows for a greater role to non-state persons coupled with accreditation system. The US-JO FTA did not adopt such a model. Article 5 of the US-JO FTA does not address some of the powerful provisions that were also addressed in NAAEC itself. Non-governmental organizations and persons will not be able to claim that either party has failed to effectively enforce its environmental laws. Participation is limited to state-to-state relationship.

The US-JO FTA fails to address the distinction between standards regulating the final product as such and standards regulating the process of production of that product.[21] This will prevent discrimination between products on the basis of their production methods that are otherwise like products.[22] To the dismay of environmentalists’ camp, this failure would restrict the ability of the U.S to exclude products produced in Jordan in a manner damaging to the environment.

VI. Other Factors

25. Culture: No

There are implications of greater ties with the U.S, the strongest economic powerhouse on earth. As a result of opening of trade in services with the U.S, Jordan should expect increase of products that contain an American culture. For example, there would be increase in American magazines, movies, and American T.V programs. This is the case even though Jordan, in the service sector of the FTA, imposed restrictions on sub-sectors that have cultural content through ownership and other rules. It seems that Jordan, and its low-budget Jordanian film industry, in response to Hollywood’s pressure opened it production, distribution, sale or exhibition of film or video products, music recordings, and radio and T.V services.[23] This is likely to widen the audiovisual trade imbalance between the U.S and Jordan where almost all theaters in Jordan show U.S-made movies while no U.S theaters or T.V networks, except in rare instances, show Arabic or Jordanian movies including ones of cultural history.

With regard to consumer perception, some Arab industry/professional associations and other anti-normalization lobbies for a long period actively discouraged consumers from purchasing Israeli or American products. The Iraq war, coupled with anti-American sentiment and media publicity, could strain trade and investment between Arab countries and the U.S. These factors combined have the potential of possible backlash affecting the sale of U.S products in Arab countries. This war is yet another area of friction between the two sides.

26. Trans-Boundary Issues: No

The forming of the US-JO FTA envies, encourages, or pits one Middle Eastern country against the other to join to form new FTAs motivated by economic pressure.[24] If the U.S concludes FTAs with other Arab countries, Jordan may lose it advantage as the gateway to the U.S market. Other Arab countries may want to avoid being left out. This happens be affecting trade flows with non-members of the FTA especially that those non-members and FTA members may have a relatively small trade. Perhaps, more importantly, non-members may fear that FDI and firms will locate to Jordan.

 

1/2001