The conclusion of a new paper in Berkeley's Global Economy Journal, "Trade Agreements and the Environment," seems straightforward. The authors find that "the incentive to invest in countries with weak environmental regulations is greater under a trade agreement such as NAFTA."
There you have it: Free trade agreements result in the creation of so-called pollution havens -- environmental black holes that suck up foreign investment and turn it into noxious fumes. It's long been one of the primary criticisms leveled at NAFTA by critics: The desire by U.S. corporations to escape stringent environmental regulation would result in a migration of polluting industries south of the border.
There's just one strange thing. When you start looking at the data presented in the paper, you find that in the case of Mexico, "the trade agreement appears to mitigate the pollution-haven effect." But the effect is positive for Canada. In other words, the data assembled indicate that Canada has become a pollution haven for dirty U.S. corporations since the passage of NAFTA, but not Mexico.
There is no explanation proffered as to why Canada might be more of a pollution haven than Mexico as a result of NAFTA. Are Canada's environmental regulations that much weaker than the U.S.'s? Is it industry specific -- perhaps a result of investment in Alberta's oil sands industry? Don't know. But there it is. Canada: pollution haven. Mexico: not so much.
Bizarrely, a footnote to the paper directing readers to the Global Development and Environment Institute at Tufts University for "a vocal critic of trade agreements and their impact on the environment," led to a much more comprehensible paper by Tufts professor Kevin Gallagher that cast serious doubt on the whole pollution haven thesis -- at least so far as it pertains to Mexico and NAFTA.
Just as peer-reviewed environmental economics studies over the past 10 years have undermined the thesis that economic growth automatically leads to a better environment, so too have a bevy of studies found that there are no clear linkages between weak environmental regulations and the migration of polluting industries, writes Gallagher. One reason is that the cost of environmental compliance is actually a relatively small bottom-line consideration. Another is that the kind of industry that does migrate tends to be seeking cheaper labor, and labor-intensive industries are "on average, less pollution intensive than more capital-laden manufacturing activities such as cement, pulp and paper, and base metals production."
Make no mistake, the environment is getting worse in Mexico. It just doesn't seem to be because of NAFTA.