North American Free Trade Agreement: Impacts and Implementation
(Testimony, 09/11/97, GAO/T-NSIAD-97-256).

GAO discussed the impact and implementation of the North American Free
Trade Agreement (NAFTA), focusing on: (1) its review of three major
studies of NAFTA's economic impacts and a brief overview of NAFTA's
adjustment programs; (2) the implementation of NAFTA's mechanisms to
both avoid and resolve disputes among the parties; and (3) the
implementation of NAFTA's supplemental agreements on environmental and
labor cooperation.

GAO noted that: (1) it is difficult to evaluate the impacts of NAFTA
since the agreement's provisions are generally being phased in over a
10-15 year period, and it is hard to isolate the impact of the agreement
from other trends and events; (2) while recent studies by the
International Trade Commission, the President, and the Economic Policy
Institute offer valuable insights into the initial effects of NAFTA, in
reviewing the studies GAO encountered methodological issues that need to
be kept in perspective; (3) based on GAO's review of these studies and
other work: (a) while NAFTA is not yet fully implemented, U.S. trade
with NAFTA members has accelerated; (b) at the sectoral level, there are
diverse impacts from NAFTA; (c) estimates of the agreement's impact on
aggregate employment are widely divergent, ranging from gains of 160,000
jobs to losses of 420,000 jobs, but GAO believes that neither of these
are reliable estimates of actual labor effects due to methodological
limitations; and (d) while there is wide conceptual agreement on the
contribution of trade liberalization to improvement in the standard of
living through increased productivity and lower prices, estimating the
extent to which NAFTA specifically furthers these goals presents a major
empirical challenge that may never be overcome; (4) Mexico's response to
its financial crisis of 1994-95 and the recent agreement to accelerate
tariff reductions suggest that Mexico has been committed to meeting its
NAFTA obligations; (5) while data on the use of the NAFTA Transitional
Adjustment Assistance Program (NAFTA TAA) provides sectoral and
geographic information on potential job dislocations, NAFTA-TAA
certifications should not be used as a proxy for the number of jobs
lost; (6) NAFTA's system for avoiding and settling disputes among the
member countries is a critical element of the agreement; (7) according
to government and private sector officials, these mechanisms have helped
the governments resolve important trade issues and have kept the number
of formal dispute settlement cases relatively low; (8) U.S., Mexican,
and Canadian government officials with whom GAO met were generally
supportive of NAFTA's dispute settlement process over the past 3 years,
noting especially the professionalism and lack of national bias of the
panelists reviewing the cases; (9) it is too early to determine what
definitive effect the supplemental agreements will have on the North
American environment and labor; and (10) U.S., Canadian, and Mexican
government officials have also expressed some concerns about the
agreements' implementation.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-97-256
     TITLE:  North American Free Trade Agreement: Impacts and 
             Implementation
      DATE:  09/11/97
   SUBJECT:  International economic relations
             Foreign trade agreements
             International trade
             Economic analysis
             Labor force
             Productivity
             Trade policies
             Administrative remedies
             Environmental policies
             Quality of life
IDENTIFIER:  NAFTA
             North American Free Trade Agreement
             DOL NAFTA Transitional Adjustment Assistance Program
             Mexico
             Canada
             U.S. Community Adjustment and Investment Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Trade, Committee on Ways and Means, House
of Representatives

For Release on Delivery
Expected at
10:00 a.m., EDT
Thursday,
September 11, 1997

NORTH AMERICAN FREE TRADE
AGREEMENT - IMPACTS AND
IMPLEMENTATION

Statement of JayEtta Z.  Hecker, Associate Director, International
Relations and Trade Issues, National Security and International
Affairs Division

GAO/T-NSIAD-97-256

GAO/NSIAD-97-256T

North American Free Trade Agreement

(711250)


Abbreviations
=============================================================== ABBREV

  EPA - Environmental Protection Agency
  EPI - Economic Policy Institute
  GATT - General Agreement on Tariffs and Trade
  GDP - gross domestic product
  GPA -
  ITC - International Trade Commission
  NAFTA-TAA -
  NAFTA - North American Free Trade Agreement
  TAA - Transitional Adjustment Assistance
  WTO - World Trade Organization

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to testify on the impact and
implementation of the North American Free Trade Agreement, or NAFTA. 
My testimony today will focus on (1) our review of three major
studies of NAFTA's economic impacts and a brief overview of NAFTA's
adjustment programs, (2) the implementation of NAFTA's mechanisms to
both avoid and resolve disputes among the parties, and (3) the
implementation of NAFTA's supplemental agreements on environmental
and labor cooperation. 

My testimony is based on our past work on NAFTA issues\1 and work we
recently conducted at your request.  In addition to assessing a wide
range of studies on the economic effects of NAFTA, we interviewed
pertinent trade ministry officials in the United States, Canada, and
Mexico, as well as the heads of the NAFTA Secretariat and the
National Administrative Offices in each country.  We obtained the
views of representatives from business, labor, and environment
interests in the three countries. 


--------------------
\1 See North American Free Trade Agreement:  Assessment of Major
Issues (GAO/GGD-93-137, Sept.  9, 1993).  Also, see attached list of
other related GAO products. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

NAFTA, which went into effect on January 1, 1994, was intended to
facilitate trade and investment throughout North America.  It
incorporates features such as the elimination of tariff and nontariff
barriers.  NAFTA also supports the objective of locking in Mexico's
self-initiated, market-oriented reforms.  By removing barriers to the
efficient allocation of economic resources, NAFTA was projected to
generate overall, long-run economic gains for member
countries--modest for the United States and Canada, and greater for
Mexico.\2

For the United States, this is due to the relatively small size of
Mexico's economy and because many Mexican exports to the United
States were already subject to low or no duties.  Under NAFTA,
intra-industry trade and coproduction of goods across the borders
were expected to increase, enhancing specialization and raising
productivity.  Although a substantial majority of economic studies
concluded that only modest economic and employment effects were
likely, NAFTA generated a heated public debate before the agreement's
passage by Congress in 1993.  NAFTA critics asserted that up to 1
million U.S.  jobs would be lost, while the President projected that
the agreement would generate 200,000 U.S.  jobs. 

NAFTA also included procedures first to avoid, and then to resolve,
disputes between parties to the agreement.  Separately, the three
NAFTA countries negotiated and entered into two supplemental
agreements designed to facilitate cooperation on environment and
labor matters among the three countries. 

Before I get into the specifics of these topics, I will summarize our
main points. 


--------------------
\2 A 1993 International Trade Commission (ITC) synopsis of 12
economic studies of NAFTA found that the likely long-term effect of
NAFTA would be an increase in U.S.  real gross domestic product by
between 0.02 and 0.5 percent, U.S.  net aggregate employment between
0.03 and 0.08 percent or by 35,063 to 93,502 jobs, and real average
wages by 0.1 to 0.3 percent or by $0.01 to $0.03 per hour.  For
Mexico, ITC reported that the likely long-term effect of NAFTA would
be an increase in Mexico's real GDP by between 0.1 and 11.4 percent,
net aggregate employment between 0.1 and 6.6 percent, and real
average wages between 0.7 and 16.2 percent.  See Potential Impact on
the U.S.  Economy and Selected Industries of the North American Free
Trade Agreement, USITC Publication 2596 (Washington, D.C.:  U.S. 
International Trade Commission, Jan.  1993). 


   SUMMARY
---------------------------------------------------------- Chapter 0:2

Assessment of NAFTA's effects is a complex undertaking.  It is
difficult to evaluate the impacts of NAFTA since the agreement's
provisions are generally being phased in over a 10- to 15-year
period, and it is hard to isolate the impact of the agreement from
other trends and events.  While recent studies by the International
Trade Commission (ITC), the President, and the Economic Policy
Institute offer valuable insights into the initial effects of NAFTA,
in reviewing the studies we encountered methodological issues that
need to be kept in perspective.  Based on our review of these studies
and other work, we have the following summary observations on NAFTA's
impacts and implementation to date: 

  -- While NAFTA is not yet fully implemented, U.S.  trade with NAFTA
     members has accelerated.  Estimates of changes in total trade
     among the member countries due to NAFTA are generally consistent
     with pre-NAFTA expectations.  The current estimates of its
     impact on gross domestic product range from no discernable
     effect to modest gains for the United States, also consistent
     with pre-NAFTA long-run projections described by ITC. 

  -- At the sectoral level, there are diverse impacts from NAFTA. 
     Within sectors, these may include increases or decreases in
     trade flows, hourly earnings, and employment.  Economic
     efficiency may improve from this reallocation of resources, but
     it creates costs for certain sectors of the economy and labor
     force, including job dislocation. 

  -- Estimates of the agreement's impact on aggregate employment are
     widely divergent, ranging from gains of 160,000 jobs to losses
     of 420,000 jobs.  We believe neither of these are reliable
     estimates of actual labor effects due to methodological
     limitations.  In general, NAFTA, or broader trade policies,
     cannot be expected to substantially alter overall U.S. 
     employment levels, which are determined largely by demographic
     conditions and macroeconomic factors such as monetary policy. 

  -- While there is wide conceptual agreement on the contribution of
     trade liberalization to improvement in the standard of living
     through increased productivity and lower prices, estimating the
     extent to which NAFTA specifically furthers these goals presents
     a major empirical challenge that may never be overcome.  For
     example, there are no estimates of NAFTA's direct impact on
     productivity.  However, growth in shared production activity and
     two-way trade suggests that increases in sector specialization,
     a mechanism through which productivity may be improved, have
     occurred. 

One of NAFTA's objectives was to lock in Mexico's market reforms and
provide long-term economic growth in Mexico, with benefits to the
United States through a more stable border.  Mexico's response to its
financial crisis of 1994-95 and the recent agreement to accelerate
tariff reductions suggest that Mexico has been committed to meeting
its NAFTA obligations.  The effectiveness of NAFTA in locking in
Mexico's long-term commitment to market reforms and promoting Mexican
economic growth, however, is not yet clear. 

While data on the use of the NAFTA Transitional Adjustment Assistance
program (NAFTA-TAA) provides sectoral and geographic information on
potential job dislocations, NAFTA-TAA certifications should not be
used as a proxy for the number of jobs lost.  This is because
certifications are likely to either underrepresent or overrepresent
the actual number of jobs affected.  For example, under NAFTA-TAA,
potential job losses are not required to be linked directly to NAFTA,
thus overstating the total.  In addition, not all potentially
affected sectors are covered by the program, thus understating the
total. 

NAFTA's system for avoiding and settling disputes among the member
countries is a critical element of the agreement.  The agreement
includes mechanisms such as the establishment of committees and
working groups and an early consultation process to help the parties
avoid disputes.  According to government and private sector
officials, these mechanisms have helped the governments resolve
important trade issues and have kept the number of formal dispute
settlement cases relatively low.  Under NAFTA's formal dispute
settlement mechanisms, as of August 1997 there have been 32 requests
for binational panel reviews of countries' alleged unfair trade
practices, 2 requests for panel reviews of NAFTA's application, and 2
complaints regarding investment. 

U.S., Mexican, and Canadian government officials with whom we met
were generally supportive of NAFTA's dispute settlement process over
the past 3 years, noting especially the professionalism and lack of
national bias of the panelists reviewing the cases.  According to
these officials, changes to NAFTA members' trade laws agreed to under
NAFTA, in particular in Mexico and Canada, have also helped improve
the transparency (openness) of their antidumping and countervailing
duty administrative processes, thus reducing the potential for
arbitrariness in their application.  Despite their generally positive
views of NAFTA's dispute settlement process, officials and legal
commentators in the three countries have expressed some concerns
about delays in NAFTA's panel selection process and in the speed and
cost involved in pursuing a dispute.  Further, some U.S. 
organizations have challenged the constitutionality of the provision
allowing for binational panel review of countries' unfair trade
determinations. 

It is too early to determine what definitive effect the supplemental
agreements will have on the North American environment and labor. 
However, the two commissions created to implement the agreements have
been acknowledged by some government and private sector officials for
several positive achievements to date.  Government officials in each
of the three NAFTA countries we spoke with generally believe the
respective agreements have positively affected their country's
understanding of and cooperation on labor and environmental issues. 
In addition, the commissions' efforts to encourage the enforcement of
domestic environmental and labor laws through the processes allowing
for submissions by interested parties have been recognized.  These
processes are being tested with the filing, to date, of 11 public
submissions on the environment and 8 on labor alleging lack of
countries' effective enforcement of their environment and labor laws. 

U.S., Canadian, and Mexican government officials and experts have
also expressed some concerns about the agreements' implementation. 
For example, some government and private sector officials have cited
the need for greater transparency in the Commission for Environmental
Cooperation's procedures.  In addition, a number of observers noted
the significant difference in the levels of support for the two
commissions.  While the environment commission is funded at $9
million annually, the Commission for Labor Cooperation's annual
budget is $1.8 million, which reportedly has contributed to problems
at the labor commission in hiring and retaining staff. 


   REVIEWS OF NAFTA'S IMPACTS
---------------------------------------------------------- Chapter 0:3

The impact of NAFTA on the U.S.  economy cannot be directly
ascertained since changes in trade and investment also reflect other
influencing factors.  The results of economic analyses of NAFTA's
impact on U.S.  gross domestic product (GDP) are consistent with the
pre-NAFTA long-run projections described by the ITC.  In contrast,
estimates of the agreement's impact on aggregate employment are
widely divergent.  Differences in the studies' assumptions and
methodologies account for this divergence. 

Since NAFTA's first round of tariff reductions went into effect in
1994,\3 total U.S.  merchandise trade (exports plus imports) with
Canada and Mexico has increased from an annual average of $269
billion (1991-93) to an annual average of $384 billion (1994-96). 
(See apps.  I-III.) A significant factor influencing trade was the
severe 1994-95 Mexican financial crisis.\4 This growth in total trade
has been accompanied by an increase in the U.S.  merchandise trade
deficit with its NAFTA partners, from $8.6 billion to $34 billion, as
import growth outpaced export growth.  U.S.  investment in Mexico has
grown since NAFTA's implementation.  From 1994 to 1996, the United
States had an annual average of $3.1 billion in foreign direct
investment to Mexico, compared to $2 billion from 1991 to 1993. 


--------------------
\3 At the meeting of the NAFTA Commission in March 1997, the NAFTA
trade ministers announced the successful conclusion of a set of
accelerated tariff reductions.  Also, based on private sector
interest, they agreed to initiate negotiations on additional
reductions to be concluded by year's end. 

\4 In December 1994, nearly a year after the implementation of NAFTA,
Mexico was forced to devalue its currency leading to a serious
economic crisis characterized by high unemployment, declining income
and consumption, and a sharp reduction of Mexico's imports, including
those from the United States.  In Mexico's Financial Crisis: 
Origins, Awareness, Assistance, and Initial Efforts to Recover
(GAO/GGD-96-56, Feb.  23, 1996), we examined the causes of this
crisis and concluded that it originated in the growing inconsistency
between monetary, fiscal, and exchange rate policies pursued by
Mexican authorities in 1994. 


      RECENT STUDIES OF NAFTA'S
      ECONOMIC IMPACT
-------------------------------------------------------- Chapter 0:3.1

Mr.  Chairman, let me now summarize the findings from three major
reports on NAFTA's impact:  (1) the in-depth June 1997 ITC study of
NAFTA;\5 (2) the President's July 1997 report on the operations and
effect of NAFTA;\6 and (3) a June 1997 study by some of the major
critics of NAFTA.\7


--------------------
\5 The Impact of the North American Free Trade Agreement on the U.S. 
Economy and Industries:  A Three-Year Review, USITC Publication 3045
(Washington, D.C.:  U.S.  International Trade Commission, June 1997). 

\6 Study on the Operation and Effects of the North American Free
Trade Agreement, U.S.  President's report to the Congress of the
United States (Washington, D.C.:  The White House, July 1997). 

\7 The Failed Experiment - NAFTA at Three Years (Washington, D.C.: 
Economic Policy Institute, Institute for Policy Studies,
International Labor Rights Fund, Public Citizen's Global Trade Watch,
Sierra Club, and U.S.  Business and Industrial Council Educational
Foundation, June 26, 1997). 


         THE ITC 3-YEAR ASSESSMENT
------------------------------------------------------ Chapter 0:3.1.1

The June 1997 ITC assessment of NAFTA impacts represents the most
comprehensive research effort we identified to date.  Using an
econometric approach, ITC sought to separate other trade-influencing
factors, particularly Mexico's financial crisis, from NAFTA's impact
on the U.S.  economy as a whole, and on nearly 200 industrial sectors
of the U.S.  economy.  In addition, the ITC assessment included a
qualitative review of 68 aggregated sectors. 

Based on all of its analysis, ITC concluded that NAFTA had a modest
positive effect on the U.S.  economy during its first 3 years of
operation.  ITC was unable to quantify a discernible effect on U.S. 
GDP, aggregate investment, or aggregate employment that can be
attributed to NAFTA during its first
3 years.  ITC concluded that NAFTA has significantly affected the
aggregate levels of U.S.  trade with Mexico, but not with Canada. 

In its sectoral analyses, ITC found changes in trade, employment, and
earnings that were due to NAFTA in a limited number of sectors. 
Among the nearly 200 sectors whose trade ITC modeled, U.S.  exports
to Mexico increased significantly in 13 sectors due to NAFTA, while
no sector showed decreased exports to Mexico due to NAFTA.  U.S. 
imports from Mexico increased significantly in 16 sectors after the
effects of other influencing factors were taken into account, while
U.S.  imports from Mexico decreased significantly in 7 sectors due to
NAFTA.  In an econometric analysis of 120 industrial sectors, ITC
found that 29 industries had changes in hourly earnings and
employment levels.  Among these 29 sectors, hours worked most often
increased due to NAFTA, while hourly earnings were more often found
to decrease.  In their qualitative sectoral analysis, ITC industry
experts found that employment declined due to NAFTA in 2 out of 68
sectors:  the apparel and women's non-athletic footwear sectors. 
While some effort was made to address productivity impacts, ITC was
unable to evaluate the direct impact of NAFTA on labor productivity
in the various sectors due to data constraints.  However, the
indirect evidence examined by ITC suggested a positive impact on U.S. 
productivity in certain industries. 


         THE PRESIDENT'S REPORT
------------------------------------------------------ Chapter 0:3.1.2

The President's report on NAFTA presents the findings of recent
studies that estimate the agreement's impact.  These include a
commissioned DRI analysis and research published by the Federal
Reserve Bank of Dallas.\8 Both studies isolate the effect of the
Mexican financial crisis from NAFTA's effect on bilateral U.S.-Mexico
trade flows.\9 In contrast to the ITC effort that modeled the
employment impact of NAFTA, the President's report uses a simple
job-multiplier analysis that assumes about 13,000 jobs are supported
for every $1 billion in increased exports. 

The Federal Reserve study modeled the impact of NAFTA on U.S. 
bilateral trade with Mexico.  They found that NAFTA has on average
boosted export growth by about 7 percentage points each year since
implementation, for a cumulative expansion of exports of about $5
billion through 1995.  U.S.  import growth from Mexico on average has
been about 2 percentage points greater each year, for a cumulative
impact of about $1.8 billion in additional imports.\10 The DRI
assessment found larger trade effects than the Federal Reserve study. 
The DRI study used a model of the Mexican economy to evaluate NAFTA's
impact on bilateral trade with the United States, but excluded the
petroleum sector.  It found that in 1996, NAFTA increased U.S. 
exports to Mexico by $12 billion and imports from Mexico by $5
billion.  The estimated trade impacts were then applied to a DRI
macroeconomic model of the U.S.  economy to simulate their impact on
U.S.  GDP and investment.  According to the President's report, DRI
estimates that NAFTA contributed $13 billion to U.S.  real income and
$5 billion to business investment in 1996, controlling for the impact
of Mexico's financial crisis.\11

The President's report uses the export estimates from the two studies
to compute NAFTA's impact on job creation.  The President's report
estimates that NAFTA export expansion supported between 90,000 and
160,000 jobs in 1996.\12 The President's report did not compute any
employment impact from increased imports from Mexico. 


--------------------
\8 The commissioned DRI analysis drew on a previous report--The
Impact of NAFTA on Mexican Trade:  An Empirical Study (Lexington, MA: 
DRI/McGraw-Hill, Apr.  1997).  David M.  Gould, "Distinguishing NAFTA
from the Peso Crisis," Southwest Economy, Federal Reserve Bank of
Dallas (Sept./Oct.  1996). 

\9 Neither study makes an assessment of the extent to which changes
in U.S.-Mexico bilateral trade reflect trade diversion away from
other trading partners. 

\10 The Federal Reserve study reports that its estimates of the
effects of NAFTA on exports and imports are not statistically
significant. 

\11 The DRI data that is reported in the President's report differ
from the data DRI submitted to the President's Council of Economic
Advisers on July 1, 1997.  That submission shows that NAFTA
contributed $21.2 billion to U.S.  real income and $4.2 billion to
nonresidential fixed investment in 1996. 

\12 The lower estimate uses an extrapolation of the Federal Reserve
assessment that U.S.  exports expanded by about $5 billion through
1995, while the higher estimate reflects DRI's assessment that NAFTA
expanded U.S.  exports by $12 billion. 


         CONSOLIDATED NAFTA
         CRITIQUE
------------------------------------------------------ Chapter 0:3.1.3

The Economic Policy Institute (EPI) prepared an assessment of NAFTA
that also used a job-multiplier analysis.  This assessment was
included in the consolidated critique of NAFTA.  However, the EPI
analysis differed from the President's report in several notable
respects.  First, EPI did not separate the impact of Mexico's
financial crisis from NAFTA's effects on trade flows.\13 Secondly, to
compute job losses from NAFTA, EPI applied the export job multiplier
to the increase in imports rather than just to exports as done in the
President's report.  Also, EPI included changes in U.S.-Canadian
bilateral trade in its assessment of NAFTA. 

The critique concluded that the increased U.S.  trade deficit with
Mexico and Canada on balance has cost the United States 420,208 jobs
since 1993.  It states that the move to a $16.2 billion U.S. 
bilateral trade deficit with Mexico in 1996 from a bilateral surplus
of $1.7 billion in 1993 cost the United States 250,710 of these
jobs.\14 The critique also notes that the real wages of U.S. 
blue-collar workers has declined for almost 2 decades and suggests
that imports from low-wage countries such as Mexico are an especially
important cause of increasing wage inequality. 


--------------------
\13 EPI reports that the overvalued peso was related to NAFTA as it
artificially reduced the price of Mexican imports from the United
States, and helped win U.S.  passage of NAFTA in 1993.  The United
States had a trade surplus with Mexico from 1991 to 1993, giving
credence to that idea.  DRI argues that the process leading to the
start of NAFTA complicated stabilization policy in Mexico, and was in
that sense a contributing factor to the financial crisis.  The Impact
of NAFTA on the North American Economy (Lexington, MA: 
DRI/McGraw-Hill, Jan.  1997). 

\14 EPI estimates that from 1993 to 1996 the increased trade deficit
with Canada on balance cost the United States 169,498 jobs. 


      NAFTA ADJUSTMENT PROGRAMS
-------------------------------------------------------- Chapter 0:3.2

The benefits of trade agreements are widely dispersed, and the costs
or dislocation effects are more concentrated.  In recognition of the
anticipated dislocation of some workers, the NAFTA Implementation Act
established the NAFTA-TAA program in 1994.  The program was designed
to assist workers in companies affected by U.S.  imports from Mexico
or Canada or by shifts in U.S.  production to either of those
countries.  The program is authorized to continue until September 30,
1998.\15 NAFTA-TAA benefits include basic readjustment services;
employment services; training; job search allowances; relocation
allowances; and the feature that most distinguishes the program from
basic unemployment insurance, income support for up to 52 weeks after
exhaustion of unemployment insurance when enrolled in training. 

As of September 4, 1997, NAFTA-TAA certifications (verification of
potential job losses since NAFTA's implementation) have been issued
for 1,206 worker groups in firms located in 48 states.\16 Department
of Labor statistics indicate that 142,884 workers have been certified
as eligible for NAFTA-TAA benefits due to (1) increased imports from
Canada or Mexico or (2) a shift in U.S.  production to Canada or
Mexico.  Of these certifications, 623 were based on a shift of
production to Canada or Mexico, 380 were based on increased customer
imports, 167 were based on increased company imports, and 36 were
based on high and rising aggregate imports from Canada or Mexico.  As
shown in table 1, the top five sectors in terms of worker group
certifications and the number of workers covered were apparel,
electrical and electronic equipment, lumber and wood products,
fabricated metal products, and industrial/commercial machinery, and
computer equipment.  The top 10 states with NAFTA-TAA workers covered
by certifications were Texas (12,797), Pennsylvania (12,788), North
Carolina (12,001), New York (11,924), California (7,773), Georgia
(6,556), Indiana (6,077), Tennessee (5,786), Arkansas (5,397), and
New Jersey (4,788). 



                                Table 1
                
                 Number of NAFTA-TAA Certifications by
                  Sector, January 1, 1994-September 4,
                                  1997

                                              Number of
                                           worker group      Number of
                                          certification        workers
Sector                                                s        covered
----------------------------------------  -------------  -------------
Apparel                                             433         42,140
Electrical and electronic equipment                 246         29,730
 (except computing equipment)
Lumber and wood products (except                    158          8,280
 furniture)
Fabricated metal products                           103         12,750
Industrial/commercial machinery and                 103         11,005
 computer equipment
Other sectors                                       163         38,979
======================================================================
Total                                             1,206        142,884
----------------------------------------------------------------------
Source:  Department of Labor. 

Because of the intense interest in NAFTA's impact on U.S.  labor and
the difficulty in calculating such impact, analysts have used
NAFTA-TAA data as a proxy for job dislocations attributable to NAFTA. 
NAFTA-TAA certifications are not an accurate measure of jobs lost due
to NAFTA, however, because certifications are likely to either
underrepresent or overrepresent the actual number of jobs affected. 
On the one hand, NAFTA-TAA certifications are not required to be
caused by, or linked to, NAFTA--they can be due to general trade
effects between the United States and Canada or Mexico.  In addition,
NAFTA certifications represent potential job losses, not the actual
number of jobs lost.  These factors could potentially lead to the
NAFTA-TAA figures being overstated.  On the other hand, not all
categories of workers potentially affected are covered by the program
(for example, some services workers).  Additionally, some researchers
have questioned whether employees of small, nonunionized firms are
fully aware of program benefits and are thus not being served by the
program.  Further, workers may opt to apply for other programs,
particularly given the strict training requirement for NAFTA-TAA. 
These factors could potentially lead to understatement.\17 While
NAFTA-TAA is fully operational, little evaluation has been done of
how effectively the program serves to provide retraining and
adjustment assistance to affected workers. 

The NAFTA implementing legislation established an additional program
to deal with job dislocation effects from NAFTA:  the U.S.  Community
Adjustment and Investment Program under the North American
Development Bank.  The program was designed to provide loans and loan
guarantees (up to $22.5 million, according to authorizing
legislation) to businesses seeking to locate or expand existing
operations in communities with job losses caused by NAFTA.  It was to
be implemented by a program office in Los Angeles, two advisory
committees, and an ombudsman appointed by the President.  However,
during the first 3-1/2 years of NAFTA, no loans were approved under
the program.  The Treasury Department issued its first designation of
qualifying communities on August 1, 1997.  That announcement declared
35 communities in 19 states eligible for business loans and loan
guarantees. 


--------------------
\15 The United States has two other major programs to aid adjustment
of workers who have lost their jobs:  the Trade Adjustment Assistance
and the Economic Dislocation and Worker Adjustment Assistance
programs.  GAO reviews of these programs as well as the NAFTA-TAA
found confusion about eligibility, inadequate tailoring of services,
and delays in delivery.  GAO has recommended that the programs be
improved and consolidated.  See Multiple Employment Training
Programs:  Major Overhaul Is Needed to Create a More Efficient,
Customer-Driven System (GAO/T-HEHS-95-70, Feb.  6, 1995); and
Dislocated Workers:  An Early Look at the NAFTA Transitional
Adjustment Assistance Program (GAO/HEHS-95-31, Nov.  18, 1994). 

\16 NAFTA-TAA petitions, which can be filed by a group of three or
more workers, are first reviewed by the Governor of the state where
the worker's company is located.  The U.S.  Department of Labor makes
the final determination whether to approve or deny these petitions,
and issues certifications for approved petitions. 

\17 GAO is currently reviewing the scope and coverage of the
NAFTA-TAA program. 


      COMMENTS ON METHODOLOGY
-------------------------------------------------------- Chapter 0:3.3

It is very difficult to evaluate the impact of NAFTA since the
agreement's provisions are generally being phased in over a 10- to
15-year period, and it is hard to isolate the impact of the agreement
from contemporaneous economic trends and other unique events.  While
recent studies offer valuable insights into the initial effects of
NAFTA, in reviewing the studies we encountered methodological issues
that need to be kept in perspective. 

The estimates of NAFTA's impact on GDP derived from econometric
analyses are consistent with expectations of NAFTA's long-term
impact.  The ITC reports that NAFTA had no discernable impact on GDP
after 3 years.  The President's report finds that the short-term,
transitory GDP gain from NAFTA was $13 billion in 1996, which
represents less than 0.2 percent of U.S.  GDP.  Both estimates can be
considered consistent with pre-NAFTA projections that the likely
long-term impact of NAFTA would be a modest, positive increase in
GDP--between 0.02 and 0.5 percent. 

Several of the reports include conclusions about NAFTA's impact on
U.S.  aggregate employment.  However, there is widespread consensus
among many economists that aggregate employment is primarily
determined by demographic conditions and macroeconomic factors such
as monetary policy or interest rates.  These economists would argue
that trade agreements, such as NAFTA, primarily impact labor markets
by shifting the composition of employment, potentially altering wages
and income distribution, rather than affecting the overall level of
employment in the country. 

The President's report as well as the EPI study rely on the
job-multiplier approach to estimate the potential job impact of
changes in the nation's trade balance.  This approach is questioned
by many economists for computing the employment impacts of trade. 
Furthermore, as an application of this methodology, the President's
and EPI's analyses both exaggerate their estimates of NAFTA's job
impact.  For example, the President's report did not calculate any
job losses associated with increased U.S.  imports from Mexico due to
NAFTA.\18 Likewise, the job losses estimated by EPI are exaggerated,
since some of the increase in U.S.  imports from Mexico displaces
imports from other nations rather than U.S.  production. 

The impact of NAFTA on wages, low-skill workers, and income
inequality is a controversial issue related to NAFTA's impact on the
economy.  ITC analyzed the impact of NAFTA on sectoral wages but did
not attempt to determine the impact on low-skill workers or income
inequality.  The President's report largely recapped the ITC
analysis.  While the critique associated trade expansion with two
decades of declining real wages, it did not analyze NAFTA's specific
impact. 

An important methodological issue in analyzing NAFTA is how Mexico's
1994-95 financial crisis is treated.  Estimates of NAFTA's impacts
over its first 3 years differ greatly based on how the crisis is
considered in the analysis.  ITC's and the President's reports
explicitly excluded its effects in their analysis, while the EPI
study did not.  While separating the crisis' impact from that of
NAFTA has merit, events in Mexico leading to the financial crisis and
the response to the crisis are intertwined with NAFTA.  The financial
crisis tested whether NAFTA succeeded in locking in Mexico's
market-opening reforms.  Mexican government officials noted that they
met their NAFTA obligations rather than institute immediate tariff
increases on U.S.  products, as had occurred during a previous crisis
in 1982.  Furthermore, they undertook additional market-opening
measures such as privatizing government-owned ports and railroads,
according to Mexico's Trade and Commerce ministry. 


--------------------
\18 The report argues that imports do not necessarily displace U.S. 
production and that because the "mainstream economic community has
not developed any broadly agreed upon methodology" to estimate the
displacement effect, the export job-multiplier computation should not
be used to calculate employment level changes due to imports. 


   MECHANISMS FOR AVOIDING AND
   SETTLING DISPUTES
---------------------------------------------------------- Chapter 0:4

NAFTA contains mechanisms to help avoid trade disputes and settle
them effectively when they do arise.  In an effort to head off
disputes, NAFTA established a number of committees and working groups
on key trade-related issues to provide a channel for discussion of
member countries' ongoing concerns.  In addition, NAFTA's dispute
settlement process includes a consultation mechanism that encourages
members to make every effort to resolve differences in meetings and
discussions before requesting a review.  Further, the agreement's
formal dispute settlement mechanisms address member countries'
potential use of unfair trade practices, the interpretation and
application of NAFTA, and the protection of investor rights. 
Finally, changes in NAFTA member countries' trade laws were required
by the agreement to increase the level of transparency in countries'
trade remedies determinations. 

U.S., Mexican, and Canadian private sector and government officials
with whom we spoke were generally supportive of NAFTA's dispute
settlement process over the past 3 years.  For example, they cited
increased transparency in member countries' administration of trade
remedy laws required by the agreement.  However, some U.S.  and
Canadian officials were concerned about the timeliness of NAFTA's
panel selection process.  In addition, Mexican officials acknowledged
that Mexico's pool of potential panelists is somewhat limited because
Mexican attorneys are still developing expertise in trade dispute
matters.  Furthermore, questions have arisen regarding the
constitutionality of NAFTA's dispute settlement provisions dealing
with countries' determinations of alleged unfair trade practices. 


      DISPUTE AVOIDANCE
-------------------------------------------------------- Chapter 0:4.1

NAFTA established a number of committees and working groups on
significant trade-related issues to enable member countries to
discuss their concerns.  In addition, NAFTA committees and working
groups provide forums for consultation on comprehensive trade-related
subjects, such as rules of origin, agricultural subsidies, financial
services, standards-related measures, trade and competition, and
temporary entry by business persons.  They are composed of trade and
other relevant officials from the three governments. 

Canadian, Mexican, and U.S.  trade officials told us that, in
general, NAFTA committees and working groups have helped all three
countries to address important trade issues.  They believe that these
groups have prevented many issues from being elevated to the trade
minister level and thus have minimized their politicization.  One
Canadian trade official commented that the working groups allowed
government officials to settle their differences informally.  U.S. 
embassy officials told us that Mexico and the United States are
participating in NAFTA working groups to reduce delays that U.S. 
exporters encounter in meeting Mexican product standards.  For
example, to facilitate U.S.  tire exports, Mexican officials told us
they agreed to accept test data from U.S.  tire manufacturers for the
first time.  A Canadian trade official cited a committee's work on
accelerating the elimination of tariffs on certain products.  Other
examples of committee and working group efforts mentioned by
government officials included harmonizing labeling requirements on
apparel among NAFTA countries and resolving disagreements on
classifying goods to meet NAFTA rules of origin. 

NAFTA has also built into its dispute settlement process
opportunities for disputing parties to participate in consultations,
or face-to-face meetings, to resolve their differences.  These
consultations are meant to allow parties to air their concerns and
seek mutually agreeable solutions before pursuing more formal
institutional review under NAFTA.  If the parties resolve their
differences through consultations, they do not need to go any further
in NAFTA's dispute settlement process.  If differences are not
resolved, the parties can request dispute settlement panel review. 
For example, seven such prepanel consultations are currently ongoing,
one of which recently ended in a mutually acceptable resolution. 


      ENFORCEMENT
-------------------------------------------------------- Chapter 0:4.2

The three major dispute settlement provisions of NAFTA are set forth
in chapters 19, 20, and 11.  These chapters provide mechanisms for
dealing with the three primary areas in which disputes can arise,
that is, unfair trade practices (chapter 19), the interpretation and
application of NAFTA (chapter 20), and the protection of investor
rights (chapter 11).  NAFTA's chapter 20 also promotes the use of
arbitration and other forms of alternative dispute resolution for
international commercial disputes between private parties in the free
trade area, although it does not prescribe or establish arbitration
procedures. 

There have been 32 chapter 19 requests for binational panel review as
of July 1997, including 14 completed cases with final panel
decisions, 9 cases still active, and 9 cases terminated without a
decision (see app.  IV for more information on completed cases.)
There were no requests for Extraordinary Challenge Committee\19
review under NAFTA.  Officials from all three countries with whom we
spoke considered the chapter 19 process to be working very well. 
They believed that the final panel decisions made thus far had been
balanced and fair and completed in a timely manner.\20 They observed
that in their view, concerns about panels voting along national lines
or the nature of the panel majority influencing its final outcome
have proved to be unfounded.  In fact, of the 14 completed panel
decisions, 11 (79 percent) were unanimous.  Chapter 19 binational
panels took 457 days on average to complete cases and issue a final
decision.  Chapter 19 establishes a 315-day guideline to issue a
final decision from the date a panel was requested.\21

Two requests for chapter 20 panel reviews have been made under NAFTA. 
In one case, a final panel decision has been issued, and in the other
case oral argument has been held.  A decision is due by the end of
the year.  A total of seven prepanel consultations are ongoing,
including two in which the United States is the petitioner, and five
in which the United States is the respondent.  Officials with whom we
spoke believed that the chapter 20 prepanel consultation process
helped parties avoid formal disputes by allowing them to resolve
their differences before requesting a chapter 20 panel.  However,
Mexican government officials and a member of a U.S.  business
association operating in Mexico expressed concern that, in their
opinion, some of the prepanel consultations under chapter 20, were
taking too long.  NAFTA provides for no time limits on consultations
other than those agreed to by the consulting parties. 

Two U.S.  firms have filed complaints under the NAFTA chapter 11
investor arbitration clause.  In one case a panel convened in July
1997, and in the other case, a panel is still being formed. 

Appendix IV further describes the chapters 19, 20, and 11 provisions
and provides information on the dispute cases initiated since NAFTA's
implementation. 


--------------------
\19 While a chapter 19 decision cannot be appealed in domestic
courts, involved parties may request a review by an Extraordinary
Challenge Committee composed of three judges or former judges
selected by the parties. 

\20 Our 1995 work on chapter 19 found some participants had concerns
about the panel process, certain panel decisions and how they were
arrived at.  See U.S.-Canada Free Trade Agreement:  Factors
Contributing to Controversy in Appeals of Trade Remedy Cases to
Binational Panels (GAO/GGD-95-175BR, June 16, 1995). 

\21 According to the NAFTA U.S.  Section Secretary, the 315-day
guideline does not include the time when the panels are temporarily
suspended.  Panels can be suspended when a panelist becomes unable to
fulfill panel duties or is disqualified due, for example, to a change
in circumstances causing the appearance of conflict of interest. 


      IMPLEMENTATION PROGRESS
-------------------------------------------------------- Chapter 0:4.3

According to U.S., Mexican, and Canadian government officials,
changes in NAFTA member countries' trade laws precipitated by the
agreement have increased the level of transparency in countries'
trade remedy determinations, particularly in Mexico.  While
government officials were generally pleased with the operation of
NAFTA's dispute settlement process to date, they expressed some
concerns about the panel selection process.  In addition, a
constitutional challenge to the chapter 19 process is pending in U.S. 
federal court. 


         CHANGES IN SIGNATORY
         TRADE LAWS TO CONFORM TO
         NAFTA REQUIREMENTS
------------------------------------------------------ Chapter 0:4.3.1

All three signatories agreed to make changes in their trade remedy
laws to comply with NAFTA provisions.  For example, NAFTA obligated
Mexico to make 21 procedural amendments to its laws.  They were
intended to reduce the potential for arbitrary antidumping and
countervailing duty administrative determinations by increasing the
level of transparency in the administrative process.  The amendments
Mexico was obligated to make to its law included allowing interested
parties to fully participate in the administrative process, including
the right to administrative and judicial review of final
determinations, elimination of the possibility of imposing
provisional duties before the issuance of a preliminary
determination, and explicit timetables for determining the competent
investigating authority and for parties to submit evidence and
comments.  The United States and Canada included changes required by
NAFTA in their implementing legislation, while Mexico amended its new
Foreign Trade Law shortly before NAFTA became effective. 

In accordance with the NAFTA Implementation Act, the President
reported to Congress on December 27, 1993, that Mexico implemented
the statutory changes necessary to bring it into compliance with its
obligations under NAFTA.  In addition, Mexican officials stated that
Mexico also amended its foreign investment, telecommunications, and
intellectual property laws at that time.  Mexico's first trade
remedies law, including antidumping and countervailing duty measures,
was enacted in 1986 when Mexico joined the General Agreement on
Tariffs and Trade (GATT).  According to Mexican officials and the
U.S.  Section NAFTA Secretariat, the law, now in its fourth revision,
has dramatically increased the levels of transparency and public
participation in Mexico's trade remedy determinations.  However,
these officials admitted that Mexico's system for finding redress to
unfair trade practices was still slow and costly to petitioners. 

Canadian officials told us that both U.S.-Canadian Free Trade
Agreement and NAFTA provisions on unfair trade practices have
encouraged more thorough review and documentation of original
antidumping and countervailing duty cases by Revenue Canada, an
agency that administers Canadian trade laws.  Prior to these
agreements, these same officials said that Revenue Canada's review
processes of these cases had been less documented and less subject to
outside scrutiny. 


         QUALITY OF THE OPERATION
         OF DISPUTE SETTLEMENT
------------------------------------------------------ Chapter 0:4.3.2

In general, U.S., Mexican, and Canadian government officials with
whom we spoke were favorably impressed with the operation of the
NAFTA dispute settlement process over the past 3-1/2 years.  They
considered the panelists reviewing the cases brought forward to date
to be of high quality, professional, neutral, and unbiased. 
Panelists, we were told, went out of their way to hear all of the
arguments relevant to each case.  In addition, they were pleased that
panel reviews and decisions were conducted with little attention from
the media.  Officials observed that the cases that did attract media
attention tended to be those concerning issues that had been
sensitive long before NAFTA.  They further noted that the controversy
over these cases concerned the substance of the issues rather than
the dispute settlement process itself. 

U.S., Canadian, and Mexican business groups we spoke with believed
that the dispute settlement framework has provided an orderly, fair,
and predictable mechanism with which to resolve differences.  One
U.S.  business association member explained that such a mechanism
provided certainty and reduced risk to all participants, thereby
facilitating trade among the three countries.  Another businessperson
noted that the outcome of the panel decisions was not as important as
the certainty that the dispute settlement system was unbiased and
based upon the rule of law. 

Considering the increased trade among the United States, Canada, and
Mexico since NAFTA's implementation, many of the private sector and
government officials with whom we spoke regarded the number of
dispute settlement cases over the past 3-1/2 years to be remarkably
low.  They attributed this to opportunities to work out differences
through the NAFTA working groups and the consultation process built
into the dispute settlement process. 


         PANEL SELECTION
------------------------------------------------------ Chapter 0:4.3.3

Notwithstanding the support expressed by many business and government
representatives for the agreement's dispute settlement process, some
participants in the dispute settlement process expressed concern
about the timeliness of the panel selection process. 

NAFTA's chapter 19 provides that involved parties agree on their
selection of panel members within 55 days of the request for a panel. 
The average delay over and above the required 55 days for panel
selection under NAFTA chapter 19 had been 53 days.  Participants
attributed this delay to the logistics of finding qualified potential
panelists, in particular panelists who meet the NAFTA code of conduct
that requires that panelists meet certain criteria, including lack of
a conflict of interest.  One participant cautioned that such delays
could potentially cause problems since NAFTA requires the respondent
to respond to the complainant's brief within 60 days of the request
for a panel.  In fact, thus far nine panels have been temporarily
suspended to deal with such situations. 

In addition, a Canadian official responsible for monitoring NAFTA
issues believed that the two cases involving requests for chapter 20
panels had been delayed due to the absence of a chapter 20 roster. 
Under NAFTA, the chapter 20 panel members are normally to be chosen
from a roster agreed upon by all three signatories.  Without a
roster, panelists in the two cases had to be selected from a general
population of potentially eligible panelists.  According to a U.S. 
Trade Representative official, the chapter 20 roster has not yet been
formed because the parties could not agree on its composition. 

Mexican officials admitted that Mexico's pool of potential panelists
was rather limited because Mexican attorneys are still developing
expertise in trade dispute matters.  Moreover, the limited number of
Mexican trade attorneys increases the potential that panelists might
represent clients in the industries subject to panel review, a
situation not allowed under NAFTA's conflict of interest provisions. 
Mexican officials explained that their government is making every
effort to train more professionals in the area of trade law.  For
example, the Mexican government is currently sponsoring seminars on
trade law and requiring that Mexican universities provide classes in
antidumping and countervailing duty law as well as in NAFTA dispute
settlement. 


         CHALLENGE TO
         CONSTITUTIONALITY OF
         BINATIONAL PANEL SYSTEM
------------------------------------------------------ Chapter 0:4.3.4

Critics have questioned whether the chapter 19 binational panel
review system, by replacing federal court review with binational
panel review, violates article III of the U.S.  Constitution that
provides that judicial power be exercised by U.S.  federal courts. 
They also question whether the chapter 19 system may violate the
appointments clause of article II of the U.S.  Constitution, which
requires that judicial officials be appointed by the President with
the advice and consent of the Senate, since chapter 19 panelists are
not nominated by the President and confirmed by the Senate.  In
January of this year, the American Coalition for Competitive Trade\22
filed a lawsuit in the U.S.  Court of Appeals for the District of
Columbia Circuit charging that chapter 19 violates articles II and
III of the U.S.  Constitution. 

In view of these developments, it is possible that questions
concerning the constitutionality of the chapter 19 binational panel
review system may be resolved by the federal courts.  However, if and
when the courts will ultimately decide these issues is uncertain. 


--------------------
\22 The American Coalition for Competitive Trade, a nonprofit
organization incorporated under Virginia law, is a coalition of 21
organizations and corporations organized for the purpose of
protecting the industrial and agricultural capacity, tax base, and
economic well being of the United States. 


   IMPLEMENTATION OF ENVIRONMENT
   AND LABOR AGREEMENTS
---------------------------------------------------------- Chapter 0:5

During the NAFTA negotiation process, parallel negotiations were
undertaken to address environment and labor issues.  The two
resulting agreements emphasized cooperation to improve environment
and labor conditions in North America; they also created mechanisms
to address enforcement of environment and labor laws in each of the
three countries.  After 3-1/2 years of implementation, it is too
early to say what definitive effect these side agreements will have
on the environment and labor.  The commissions set up to implement
the two agreements have been acknowledged for their efforts to date
to further cooperation in their respective areas, but observers also
have concerns about various aspects of the agreements'
implementation. 


      COVERAGE AND RESULTS OF THE
      ENVIRONMENTAL AGREEMENT
-------------------------------------------------------- Chapter 0:5.1

The North American Agreement on Environmental Cooperation signed by
Canada, Mexico, and the United States in September 1993, went into
effect along with the NAFTA on January 1, 1994.\23 The environmental
agreement aims to protect, conserve, and improve the environment
through increased cooperation and transparency among the three
governments and greater public participation.  In addition, the
agreement provides citizens and governments an opportunity to file
complaints regarding a country's failure to enforce its environmental
laws. 

The environmental agreement established the Commission for
Environmental Cooperation in Montreal to help the three signatory
countries achieve the objectives set forth in the agreement.  Its
organizational structure consists of a Council, a Secretariat, and a
Joint Public Advisory Committee.  Since 1995, this commission has
been funded at approximately $9 million per year, with equal
contributions from each member country.  In 1996, the commission
created a fund for community-based projects in Canada, Mexico, and
the United States that promotes the commission's goals and
objectives.  In 1997, $1.6 million of the annual budget was used for
this fund. 


--------------------
\23 NAFTA was also accompanied by a bilateral agreement between the
United States and Mexico that established the North American
Development Bank and the Border Environment Cooperation Commission. 
The primary goal of these two institutions is to provide seed money
for environmental infrastructure and community development projects
along the U.S.-Mexico border and to review proposals for such
funding.  A discussion about the implementation of the North American
Development Bank and the Border Environment Cooperation Commission is
beyond the scope of this testimony.  For a detailed analysis of these
two agreements, see International Environment:  Environmental
Infrastructure Needs in the U.S.-Mexican Border Region Remain Unmet
(GAO/RCED-96-179, July 22, 1996). 


         COOPERATIVE EFFORTS
------------------------------------------------------ Chapter 0:5.1.1

Since its first full year of operation in 1995, the environmental
commission has undertaken a work program designed to improve
environmental cooperation.  Work program areas and examples of
projects undertaken by the commission are outlined in table 2. 



                                Table 2
                
                      Commission for Environmental
                   Cooperation's Regional Cooperation
                                Projects

Work program area   Examples
------------------  --------------------------------------------------
Conservation        ï¿½Developing plans to conserve and protect North
                    American birds and monarch butterflies
                    ï¿½Developed plans to establish a North American
                    Biodiversity Information Network
                    ï¿½Developed plans to implement strategies to
                    protect regional marine life

Protecting          ï¿½Coordinated the development of regional action
human               plans for PCBs, DDT, chlordane, and mercury
health and the      ï¿½Coordinate the completion of transboundary
environment         environmental impact assessment procedures by
                    April 1998

Environment,        ï¿½Fund and facilitate the creation of an
trade, and the      information clearinghouse on environmental
economy             technology and services
                    ï¿½"NAFTA Effects" projects:
                    ï¿½Completed NAFTA intergovernmental institutions
                    study in 1997
                    ï¿½Refine the general framework for assessing
                    NAFTA's environmental impacts by completing a
                    study on the environmental effects of the
                    deregulation of the energy and agriculture sectors
                    (expected in 1997)

Enforcement         ï¿½Groups established under this program have met
cooperation         and exchanged information, strategies, and
                    expertise on enforcement, compliance, and legal
                    trends

Information and     ï¿½Complete enhancements to the commission's website
public              that will provide regional information on the
outreach            environmental dimensions of physical,
                    socioeconomic, and ecological variables (expected
                    in 1997)
----------------------------------------------------------------------
Legend

PCB = Polychlorinated Biphenyle
DDT = Dichloro-diphenyl Trichloro-ethane


         ENFORCEMENT
------------------------------------------------------ Chapter 0:5.1.2

The environmental supplemental agreement provides two separate
mechanisms regarding a government's failure to enforce its
environmental laws:  (1) articles 14 and 15 provide for citizen
submissions on enforcement matters and (2) part V provides for
government-to-government consultation and resolution of disputes. 
Environmental officials from Canada and the United States generally
believe that the citizen submission process is working well.  They
believe the submissions are being fairly reviewed by the Secretariat. 
In Canada, one official commented that this process has even helped
the provincial and national environmental agencies harmonize their
responsibilities. 

Citizen submission process.  Under the citizen submission process, a
citizen or citizen group may submit a claim to the environment
commission's Secretariat that a party to the agreement is failing to
effectively enforce its environmental laws.  If two out of the three
countries agree that the submission has merit, the commission will
prepare a factual record (that is, an investigation of the matter)
that could lead to public pressure to improve enforcement.  Unlike
part V of the agreement for resolving government-to-government
environment disputes, the citizens submissions process does not
provide this commission with the ability to impose sanctions. 

Since the citizen submission process came into effect, 11 submissions
have been filed.\24 Of these 11, 3 cases were submitted alleging that
the United States had failed to enforce its environmental laws.  Of
these three submissions, two were terminated because they dealt with
legislative changes or new environmental laws rather than
nonenforcement,\25 and the third was withdrawn.  In this third
instance, the submitter alleged that the Department of Defense's
expansion of Fort Huachuca, Arizona, would drain the local water
supply and destroy the ecosystem that is dependent upon it.  In its
response, the U.S.  government contended it was not failing to
enforce environmental law and that the citizen submission did not
warrant an inquiry to gather factual information.  In July 1997, the
submitter withdrew the filing, and the process was terminated. 

The remaining cases were against Canada and Mexico, with six being
filed against Canada and two against Mexico.  The case that has
proceeded the furthest involves a submission filed by three Mexican
nongovernmental organizations in 1996, alleging that the Mexican
government failed to effectively enforce its environmental laws
regarding the construction and operation of a public harbor terminal
in Cozumel.  The Secretariat recommended, and the Council approved,
that a factual record be prepared in this case.  The Secretariat
transmitted the final factual record to the Council on July 25, 1997. 
The Council may, upon a two-thirds vote, make the final record a
public document. 

Government-to-government disputes.  Although a process for consulting
on and resolving government-to-government disputes regarding a
"persistent pattern of failure to effectively enforce its
environmental laws" is called for under the agreement, no rules of
procedure for implementing this segment--part V--of the agreement
have been established to date.\26 Unlike the citizen submission
process identified in articles 14 and 15 of the environmental
agreement, part V allows an arbitration panel reviewing the case to
impose monetary sanctions or to withdraw NAFTA benefits if it
determines that the government against which a complaint was filed
persistently failed to enforce its environmental laws.  Without rules
of procedure, no NAFTA member country can raise a complaint under
this section of the environmental agreement, which was designed to
help resolve disputes arising between governments. 


--------------------
\24 For a listing of all submissions--the country affected, the
submitter, and the status--see appendix V. 

\25 For example, the case submitted by the Sierra Club and other
organizations in August 1995 alleging that the Fiscal Year 1995
Supplemental Appropriations, Disaster Assistance and Rescissions Act
contained a rider suspending enforcement of U.S.  environmental laws
for a logging program was terminated on December 8, 1995, because the
Secretariat determined that the case was not a nonenforcement case. 
The Secretariat's assessment was that these organizations submitted
the case as a means of seeking an alternate forum for disputing a
U.S.  legislative decision. 

\26 According to a U.S.  Environmental Protection Agency official,
the NAFTA members expect to complete these rules by the end of 1997. 


         IMPLEMENTATION PROGRESS
         AND ISSUES
------------------------------------------------------ Chapter 0:5.1.3

The environmental commission is credited with making some progress in
implementing the environmental agreement.  However, implementation
issues involving the focus of the commission's cooperative work
programs, transparency of the enforcement mechanisms, and the
governments' commitment to the agreement remain. 

Progress on cooperation and participation.  Officials we spoke with
at the U.S.  and Canadian environmental agencies, as well as at a
Mexican nongovernmental organization, were generally pleased with
implementation of NAFTA's environmental agreement.  According to
these officials, the agreement and its commission provide the three
countries an opportunity to examine broader, regional environmental
objectives and to develop cooperative action plans on agreed-upon
priorities.  Actions taken by the commission in implementing the
environmental agreement are listed in table 2. 

Environmental officials in all three NAFTA countries also commented
on the increased level of public participation achieved through the
agreement.  This is especially true in Mexico, according to a Mexican
expert we spoke with, who told us that the agreement has given the
Mexican government the political will to strengthen its environmental
laws and include citizen input.  Another Mexican environmental expert
has stated that the commission has been an important catalyst for
developing a more transparent regulatory process and ensuring a more
consistent application of environmental laws in Mexico. 

Similar reactions were also expressed by some other environmental
experts reviewing implementation of the environmental agreement.  In
a letter sent to the Council, an independent panel of experts\27 said
that the environmental agreement and the commission have done much to
develop as an important focus for environmental cooperation and
dialogue in North America. 

Concerns about work programs and studies.  Despite the achievements
acknowledged by government officials and experts, some observers have
raised concerns about the work undertaken by the commission.  For
example, Mexican trade officials stressed their concerns about both
the process and content of the work program.  According to these
officials, the commission needs more transparent criteria for its
selection and funding of projects, and the Mexican government should
have much more input into the funding of projects earlier on in the
process.  Furthermore, they believe that the commission is funding
several environmental projects that are duplicative of some ongoing
efforts to improve conditions along the U.S.-Mexico border.  The U.S. 
Environmental Protection Agency (EPA) has raised other concerns about
the process used to determine the studies undertaken by the
commission.  Specifically, an agency official told us that the
process used to determine whether or not to prepare a study needs to
be more transparent.  Canadian trade and environment officials did
not express any concerns about the commission's work programs or
studies. 

Concerns about the citizen submission process.  Questions regarding
the consistency with which the citizen submission process has been
applied, the transparency of this process, and the guidelines
developed to implement it were raised by officials we spoke with. 

  -- Mexican officials believe the environment commission has been
     inconsistent in its handling of the cases filed under the
     citizen submission process, showing more flexibility towards
     some governments involved in cases than others.  Specifically,
     they are dissatisfied with the application of the process in the
     Cozumel public harbor case alleging Mexico's failure to
     effectively enforce its environmental law. 

  -- Mexican environmental experts believe the environment commission
     needs to increase the transparency of the submission process. 
     For example, they believe the submitter should be allowed to
     review a draft of the factual record prepared by the
     secretariat, as the government is allowed to do, before it is
     finalized. 

  -- U.S.  environmental officials are concerned that the citizen
     submission guidelines currently allow the submitter to withdraw
     a filing at will.  Once the Secretariat receives notification of
     the withdrawal, it is required to halt the process of
     investigation.  According to an official at the EPA, it was a
     mistake to include such a provision in the guidelines because
     the process may be halted at any stage regardless of the level
     of resources the commission and the governments may have put
     into processing and responding to the allegation.  The official
     told us these guidelines are currently being revised. 

Concerns about an independent commission.  A panel of experts and
officials at the environmental commission we spoke with stressed the
importance of improving the commission's independence and its ability
to autonomously decide to undertake a study or a work program. 
Problems associated with this issue arose during the annual program
and budget review process in which Mexican government officials
withheld their support and approval for a project to study the
environmental effects of NAFTA in certain sectors.  Officials from
Mexico objected to the project because they believed the commission
had not adequately consulted them in the identification of the
sectors--energy and agriculture--to be studied.  While support for
the project, referred to as the second phase of the NAFTA
Environmental Effects project, was eventually granted for the
remainder of 1997, its continuation beyond that was made contingent
upon a group of trade and environment officials from each country
recommending the terms of reference for future work in this area. 

Concerns about national commitment to the environmental agreement. 
Experts, some government officials, and officials at the commission's
secretariat were concerned about what they regard as a low level of
national commitment to the environmental agreement.  A commission
official we spoke with commented that agencies responsible for
implementation of the NAFTA environmental agreement in both the
United States and Mexico have been constantly understaffed, which has
had an adverse impact on the agreement's implementation.  For
example, Canadian officials told us that without an adequate level of
staff to implement the agreement in each country, marketing of the
agreement's strengths, its cooperative work efforts, and its
enforcement mechanisms suffer.  Furthermore, officials we spoke with
said that it was surprising that, compared to Canada and Mexico, the
United States has consistently had the least number of
staff--one--assigned to oversee implementation. 


--------------------
\27 The Commission for Environmental Cooperation Secretariat convened
a panel of experts in March 1997 to help it prepare for a mandated
internal evaluation.  The trinational panel included a U.S. 
Congressman and was chaired by the United Nations' chief advisor on
environmental issues. 


      COVERAGE AND RESULTS OF THE
      LABOR AGREEMENT
-------------------------------------------------------- Chapter 0:5.2

The North American Agreement on Labor Cooperation signed by Canada,
Mexico, and the United States in September 1993, went into effect on
January 1, 1994, along with NAFTA.  The agreement aims to improve
working conditions and living standards in each country, encourage
exchange of information on and foster transparency in the
administration of labor law, and pursue cooperative labor-related
activities among the three countries.  The three governments have
also committed themselves to promote compliance with and effectively
enforce (subject to domestic law) 11 labor principles, including the
freedom of association and protection of the right to organize; the
right to bargain collectively and strike; minimum employment
standards; elimination of employment discrimination; equal pay for
women and men; and protection of migrant workers. 

The labor agreement established the Commission for Labor Cooperation
in Dallas as a trinational organization responsible for fostering
cooperative labor-related activities and performing independent
evaluations.  The commission was funded in equal parts by the three
countries at $1.8 million in 1996.  In addition, the labor agreement
permits the parties to develop a consultative system to address
domestic labor-related issues.  This includes a dispute settlement
mechanism to address lack of enforcement by a party of certain labor
law standards. 


         COOPERATIVE EFFORTS
------------------------------------------------------ Chapter 0:5.2.1

The commission, in order to meet its obligations to pursue
cooperative labor-related activities, has completed a number of
efforts since it went into operation in September 1995.  Examples
include those listed in table 3. 



                                Table 3
                
                   Commission for Labor Cooperation's
                          Cooperative Efforts

Selected areas of cooperation       Recent examples
----------------------------------  ----------------------------------
Occupational safety and health      ï¿½North American Occupational
                                    Safety and Health Week, held June
                                    1997 simultaneously in each
                                    country
                                    ï¿½ Completion of "Petrochemical
                                    Study Tour" on prevention of
                                    catastrophic explosions (October
                                    1996)

Human resource development          ï¿½Workshop on Continuous Learning
                                    and Development in the Workplace
                                    (April 1996)

Labor-management relations          ï¿½Tripartite conference on
                                    "Industrial Relations for the 21st
                                    Century" (March 1996)

Productivity improvement            ï¿½North American seminar on incomes
                                    and productivity

Labor statistics                    ï¿½Report profiling North American
                                    labor markets (June 1997)
----------------------------------------------------------------------

         ENFORCEMENT
------------------------------------------------------ Chapter 0:5.2.2

The labor agreement provides for a series of processes to ensure the
enforcement of each country's labor laws, emphasizing cooperation and
consultation throughout the various steps.  If a person or group
wishes to allege that one country has failed to effectively enforce
its labor laws, it may file a submission with the National
Administrative Office of another country.  The National
Administrative Office receiving the submission may then investigate
the allegation, including holding public hearings to gather
information.  Consultation with other National Administrative Offices
follows if the submission is accepted.  The Secretary of the National
Administrative Office receiving the submission may then recommend
that ministerial consultations take place on the subject.  Depending
on the nature of the allegation, additional steps in the process
could include the formation of an evaluation committee of experts if
ministerial consultations have not resolved the issue, as well as
other cooperative and consultative steps. 

If cooperative efforts to resolve problems fail, the labor agreement
provides a dispute settlement mechanism in three instances where a
submission involves an allegation of a persistent pattern of failure
to effectively enforce labor rights:  occupational safety and health,
child labor, and minimum wage technical labor standards.  In such a
case, an arbitration panel may be formed to review the matter and
make recommendations for corrective action.  Failure of one of the
parties to fully implement the panel's recommendations could
ultimately lead to a monetary sanction to be placed in a fund to be
used to improve or enhance labor law enforcement in the
non-conforming country.\28 Failure to pay the monetary sanction could
result in suspension of NAFTA benefits. 

Eight cases have been submitted since the establishment of the
National Administrative Offices.  Seven have been submitted to the
U.S.  National Administrative Office against Mexico, and one has been
submitted to Mexico's National Administrative Office against the
United States; none have involved Canada.  None of the cases
submitted so far has fallen in a category of labor principles that
could ultimately qualify for dispute settlement and sanctions.\29 A
more detailed description of the submissions can be found in appendix
VI. 


--------------------
\28 The North American Agreement on Labor Cooperation provided for a
maximum monetary enforcement assessment of $20 million in 1994.  In
subsequent years, this assessment can be no greater than 0.007
percent of the total trade in goods between the parties during the
most recent year for which data are available. 

\29 The first seven cases all dealt with the labor principle of
freedom of association and the right to organize.  Under the North
America Agreement on Labor Cooperation, cases of this sort are not
eligible for independent evaluation or arbitration.  The most recent
case involves the labor principle of the elimination of employment
discrimination, which is eligible for independent evaluation, but not
arbitration. 


         IMPLEMENTATION PROGRESS
         AND ISSUES
------------------------------------------------------ Chapter 0:5.2.3

The labor agreement is the first international agreement to link
labor issues to an international trade pact.  Recent efforts to link
trade agreements and labor issues, building on NAFTA, have proven to
be very controversial.  For example, at the first ministerial meeting
of the World Trade Organization (WTO) at Singapore in December 1996,
WTO members rejected a U.S.  proposal to create a working group to
study the relationship between trade and labor standards.  Thus,
while the labor agreement is limited in its scope, according to some
critics, it remains a visible experiment in the linkage of labor
standards to international trade agreements. 

Labor officials knowledgeable about the labor agreement in each
country told us that they believe that the agreement has had a
positive effect on increasing the level of understanding about labor
issues in North America--one of its major objectives.  Many of the
activities associated with the agreement have been focused on
improving the level of understanding of each country's labor system
because, according to one National Administrative Office Secretary,
such understanding has been woefully lacking in the past. 

Personnel issues.  Difficulty in hiring and retaining staff has been
identified as an impediment to the implementation of the labor
agreement.  The National Administrative Offices in each country went
into operation in January 1994 at the same time that NAFTA went into
effect.  At the first meeting of the commission's Council in March
1994, labor ministers from each country indicated they planned to
hire an Executive Director by
June 1, 1994.  However, the position was not filled until April 1995
due to difficulties in hiring a Canadian Executive Director,
according to commission officials.  Because of this delay, the
commission's opening did not occur until September 1995, almost 2
years after the labor agreement went into effect.  In addition,
turnover at both Mexico's National Administrative Office and at the
labor commission has disturbed the continuity of operations,
according to U.S.  and Canadian officials.  Finally, disparate
national treatment in the application of personal taxes for employees
at the commission has resulted in different net salaries for each
nationality, and has negatively affected both recruiting efforts and
morale, according to commission officials. 

Budgetary issues.  Funding levels for the commission have also been
raised as a concern related to the effectiveness of the commission. 
The NAFTA Implementation Act authorized a U.S.  contribution to the
commission of $2 million for each of fiscal years 1994 and 1995. 
Since the burden of funding the commission must be borne equally by
each country, this indicated a potential annual commission funding
level of $6 million.  However, the actual annual commission budget
for the past several years has been $1.8 million (U.S.  contribution
totalling $600,000).  A commission official explained that by the
time the commission was ready to be funded, Mexico had entered into
its financial crisis and requested a temporary funding limit on the
commission of $600,000 per country. 

The funding limitations are causing concern on the part of some
observers that the commission does not have adequate resources to
meet its obligations.  The Director of the Mexico National
Administrative Office told us that while the commission has requested
a budget raise from its Secretariat, the Mexican government has
decided not to authorize an increase until it has had an opportunity
to examine the commission's annual work plan.  Commission officials
told us that the Canadian government has already appropriated $1
million for its share of the budget and is diverting 40 percent of it
to support NAFTA environment efforts to remain in compliance with
labor agreement provisions that no country contribute more than any
other to support the commission. 


-------------------------------------------------------- Chapter 0:5.3

Thank you Mr.  Chairman, this concludes my prepared remarks.  We will
be happy to answer any questions you or Members of the Subcommittee
may have. 


SELECTED STATISTICS ON NAFTA
MEMBER COUNTRIES
=========================================================== Appendix I

                                            United
                                            States    Canada    Mexico
----------------------------------------  --------  --------  --------
Population (1995, in millions)                 263        30        92
Per capita GNP (1995, PPP dollars)\a       $26,980   $21,130    $6,400
Average annual growth rate of real per         1.4       0.4       0.1
 capita GNP, 1985-95 (percent)
Average annual inflation rate, 1985-95         3.2       2.9      36.7
 (percent)
Investment as a percent of GDP, 1995            16        19        15
Exports to U.S. as a percent of total           NA        80        84
 exports, 1995
Total trade as a percent of GDP, 1995\b         24        71        48
----------------------------------------------------------------------
Legend

GDP = gross domestic product
GNP = gross national product
PPP = purchasing power parity
NA = Not applicable

\a Purchasing power parity is defined as the number of units of a
country's currency required to buy the same amount of goods and
services in the domestic market as U.S.  dollar would buy in the
United States. 

\b Total trade share in GDP equals exports and imports of goods and
services as a percentage of GDP. 

Source:  World Bank Atlas, 1997. 


MERCHANDISE TRADE RELATIONSHIPS
BETWEEN NAFTA MEMBERS, 1991-93 AND
1994-96
========================================================== Appendix II

                         (Dollars in billions)

                                                      Annual average
                                                       growth rate
                                  Annual average        (percent)
                                ------------------  ------------------
                                 1991-93   1994-96   1991-93   1994-96
------------------------------  --------  --------  --------  --------
U.S. exports to
----------------------------------------------------------------------
Canada                             $91.8    $124.3       6.5       9.8
Mexico                              38.5      51.0      13.9      12.1
Canada and Mexico                  130.3     175.3       8.4      10.2
World--excluding Canada and        314.5     397.3       4.7      10.4
 Mexico

U.S. imports from
----------------------------------------------------------------------
Canada                            $102.9    $146.7       6.7      12.1
Mexico                              36.2      62.4       9.9      22.1
Canada and Mexico                  139.1     209.1       7.5      14.9
World--excluding Canada and        414.9     550.3       4.4       9.5
 Mexico

U.S. total trade with
----------------------------------------------------------------------
Canada                            $194.7    $271.0       6.6      11.0
Mexico                              74.7     113.4      11.7      16.9
Canada and Mexico                  269.4     384.4       7.9      12.7
World--excluding Canada and        729.4     947.6       4.5       9.8
 Mexico
----------------------------------------------------------------------
Source:  International Monetary Fund, Direction of Trade Statistics,
1997. 


U.S.  MERCHANDISE TRADE WITH
MEXICO, 1990-96
========================================================= Appendix III



   (See figure in printed
   edition.)

Source:  International Monetary Fund, Direction of Trade Statistics,
1997. 


NAFTA DISPUTE CASES
========================================================== Appendix IV

NAFTA chapters 19, 20, and 11, respectively, deal with the three
primary areas in which disputes can arise--unfair trade practices,
the interpretation and application of NAFTA, and the protection of
investor rights.  In the 3-1/2 years since NAFTA's implementation,
dispute cases have arisen in all three areas.  A brief description of
the three chapters' provisions and information about the dispute
cases initiated to date are provided in the following tables. 


   CHAPTER 19
-------------------------------------------------------- Appendix IV:1

Chapter 19 lays out the system for the review of antidumping and
countervailing duty final determinations made by the domestic agency
of the importing country in the dispute.\1 Chapter 19 replaces
domestic judicial review of those final administrative determinations
with binational\2 panel review.  Five-member binational panels of
experts chosen from rosters developed by each of the three
signatories review the determinations and issue final decisions. 
Panels apply the law of the country whose agency is under review. 
These panels usually consist of lawyers, sitting or retired judges,
former government officials, noted academics, and others who
specialize in trade dispute settlement and international affairs. 
Panels may either uphold a determination or remand\3 it to the
investigating authority.  The panel's decision on the case is final
and binding and cannot be appealed in the domestic courts.  In
certain extraordinary circumstances, such as the gross misconduct of
a panel member, a party involved in a chapter 19 dispute can request
that a final panel decision be reviewed by an Extraordinary Challenge
Committee.  Table IV.1 provides information on the chapter 19 NAFTA
dispute settlement cases for which there were final panel decisions. 



                                                                      Table IV.1
                                                       
                                                                   Completed NAFTA
                                                         Chapter 19 Binational Panel Reviews
                                                                 Through August 1997

Case                                    Type of                                                  Total number
identification (in                      determination by    Nationality of                       of days to      Unanimous       Results of panel
descending order)   Commodity           domestic agency     appealing parties    Panel majority  complete\a      decisions?      decisions
------------------  ------------------  ------------------  -------------------  --------------  --------------  --------------  --------------------
USA-95-1904-05      Fresh cut flowers   Dumping             Mexican              Mex.            505             Yes             Reduced duties for
                    from Mexico                                                                                                  3 producers from
                                                                                                                                 39.95% to 18.20%

USA-95-1904-04      Oil country         Dumping             Mexican & U.S.       U.S.            511             Yes             Reduced duties for
                    tubular goods from                                                                                           all producers from
                    Mexico                                                                                                       23.79% to 21.70%

USA-95-1904-03      Color picture       Dumping             Canadian             Can.            326             Yes             Affirmed domestic
                    tubes from Canada                                                                                            agency determination

USA-95-1904-02      Gray Portland       Dumping             Mexican              U.S.            467             Yes             Affirmed domestic
                    cement & cement                                                                                              agency determination
                    clinker from
                    Mexico

USA-95-1904-01      Porcelain-on-       Dumping             Mexican & U.S.       U.S.            541             Yes             Agency instructed to
                    steel cookingware                                                                                            adjust methodology
                    from Mexico                                                                                                  for determining
                                                                                                                                 rebated or
                                                                                                                                 uncollected value-
                                                                                                                                 added tax

USA-94-1904-02      Leather wearing     Countervailing      Mexican              Mex.            400             Yes             Duty lowered from
                    apparel from        duties (CVD)                                                                             13.35% ad valorem to
                    Mexico                                                                                                       none for
                                                                                                                                 2 producers

USA-94-1904-01      Live swine from     Countervailing      Canadian             U.S.            560             Yes             Reinstated the sows
                    Canada              duties                                                                                   and boars subclass
                                                                                                                                 and set a separate
                                                                                                                                 CVD rate for it

MEX-94-1904-03      Crystal and solid   Dumping             U.S.                 Mex.            654             No              Affirmed domestic
                    polystyrene from                                                                                             agency determination
                    U.S.

MEX-94-1904-02      Cut-to-length       Dumping             U.S.                 U.S.            436             No              Domestic agency
                    plate                                                                                                        determination
                    products from U.S.                                                                                           declared null and
                                                                                                                                 void and duties
                                                                                                                                 revoked.

CDA-95-1904-04      Refined sugar from  Dumping             U.S.                 U.S.            451             Yes             Panel's remand did
                    U.S.                                                                                                         not result in any
                                                                                                                                 change in the
                                                                                                                                 domestic agency's
                                                                                                                                 determination

CDA-95-1904-01      Certain malt        Injury              Canadian             Can.            327             Yes             Affirmed domestic
                    beverages from                                                                                               agency determination
                    U.S.

CDA-94-1904-04      Certain corrosion-  Injury              U.S.                 Can.            324             Yes             Affirmed domestic
                    resistant steel                                                                                              agency determination
                    sheet products
                    from U.S.

CDA-94-1904-03      Certain corrosion-  Dumping             U.S.                 U.S.            459             No              Duty for one
                    resistant steel                                                                                              importer decreased
                    sheet products                                                                                               from 13.2 percent to
                    from U.S.                                                                                                    13.1 percent; duty
                                                                                                                                 for another importer
                                                                                                                                 increased from 8.4
                                                                                                                                 percent to 8.5
                                                                                                                                 percent

CDA-94-1904-02      Synthetic baler     Injury              Canadian & U.S.      U.S.            439             Yes             Panel's remand did
                    twine from U.S.                                                                                              not result in any
                                                                                                                                 change in the
                                                                                                                                 domestic agency's
                                                                                                                                 injury determination
-----------------------------------------------------------------------------------------------------------------------------------------------------
Note:  Cases terminated, with no panel decisions, are not included in
this table. 

\a Actual calendar days from the date on which a request for panel
was made to the date of notice of final panel action. 

Sources:  U.S.  Section NAFTA Secretariat; text of final panel
decisions; and Federal Register notices. 


--------------------
\1 Antidumping and countervailing duty laws in the United States are
administered jointly by the U.S.  International Trade Commission and
the U.S.  Department of Commerce, and in Canada and Mexico
respectively by Revenue Canada and SECOFI (Subsecretaria de
Negociaciones Comerciales Internacionales).

Dumping is the sale of commodities in a foreign market at a price
that is lower than the price or value of comparable commodities in
the country of origin.  A countervailing duty is a U.S.  government
fee on goods imported into the United States in an amount equal to
any subsidy provided with respect to manufacture, production, or
export of those goods by a government of another country. 

\2 Panels are binational because they are comprised of members from
the country of the petitioning party and the responding party in the
case. 

\3 A remand is a court or panel decision returning a determination to
an agency for further action.  Remands can request that agencies
explain determinations, provide more information, or make
corrections. 


   CHAPTER 20
-------------------------------------------------------- Appendix IV:2

Chapter 20 establishes NAFTA's procedures for settling disputes
between the signatory governments regarding NAFTA's interpretation
and application.  Chapter 20's dispute settlement provides for (1)
consultations between disputing parties to resolve their disagreement
and, if that fails, referral of the dispute to the Free Trade
Commission; (2) referral of the dispute to a panel of independent
experts; (3) dissemination of panel findings and recommendations; (4)
resolution of the dispute through nonimplementation or removal of the
nonconforming measure; and (5) suspension of application of benefits
by the complaining party if agreement on resolution to the dispute
cannot be reached.  Chapter 20 panels are chosen from a roster of
experts agreed upon by the three signatories.  Table IV.2 provides
information on the chapter 20 disputes initiated under NAFTA. 



                                    Table IV.2
                     
                      NAFTA Chapter 20 Dispute Cases Through
                                   August 1997

Petitioner   Respondent   Subject of dispute          Status
-----------  -----------  --------------------------  --------------------------
United       Canada       Tariffs applied by Canada   Final panel decision to
States                    to certain U.S.-origin      maintain Canadian tariffs,
                          agricultural goods          issued December 2, 1997

United       Mexico       Retaliatory action in       Prepanel consultations
States                    response to U.S. safeguard  ongoing
                          action on broomcorn brooms

United       Mexico       Small parcel delivery       Prepanel consultations
States                    (UPS)                       ongoing

Mexico       United       U.S. Customs                Prepanel consultations
             States       classifications of limes    ongoing
                          imported from Mexico

Mexico       United       Requests for designation    Prepanel consultations
             States       of Mexicali valley as       deferred pending
                          disease-free area           discussions with USDA

Canada       United       The U.S. Sugar Containing   Prepanel consultations
             States       Products Re-export Program  ongoing

Mexico       United       U.S. International Trade    Chapter 20
             States       Commission serious injury   panel established on
                          determination on broomcorn  January 14, 1997, and is
                          brooms                      in the process of reaching
                                                      a decision

Mexico and   United       Titles III and IV of the    Prepanel consultations in
Canada       States       Helms-Burton Act            April/May 1996 under NAFTA
                                                      chapter 20. WTO (World
                                                      Trade Organization)
                                                      dispute settlement panel
                                                      established through
                                                      European Union (EU)
                                                      protest in November 1996.
                                                      EU/U.S. agreement in April
                                                      1997 to suspend WTO panel
                                                      until October 15, 1997.
                                                      EU/U.S. talks ongoing

Mexico       United       Implementation of NAFTA     Prepanel consultations
             States       provisions on trucking      ongoing
--------------------------------------------------------------------------------
Legend

USDA = U.S.  Department of Agriculture

Source:  Office of the United States Trade Representative. 


   CHAPTER 11
-------------------------------------------------------- Appendix IV:3

NAFTA is unique among trade agreements because, under chapter 11, it
contains a comprehensive regime for settling disputes between foreign
investors and host governments.  International trade agreements have
generally concentrated on removing government barriers to trade in
goods and services and not on resolving disputes between private
parties or regarding investment issues.  Chapter 11 makes
investor-state disputes subject to binding arbitration for monetary
compensation.  If a dispute is not resolved through consultations,
the investor may seek arbitration through a World Bank facility or
through ad hoc proceedings under United Nations arbitration rules. 
Table IV.3 shows the status of the chapter 11 cases brought forward
under NAFTA. 



                               Table IV.3
                
                 Complaints Filed under NAFTA's Chapter
                  11 Investor-State Arbitration Clause
                          Through August 1997

                                          Subject of
Petitioner                 Respondent     dispute        Status
-------------------------  -------------  -------------  -------------
Metalclad Corporation      Mexican        Mexico's       Three-member
(U.S. company)             government     expropriation  arbitration
                                          of             panel formed
                                          Metalclad's    and convened
                                          hazardous
                                          waste
                                          landfill in
                                          the community
                                          of
                                          Guadalcazar,
                                          Mexico, in
                                          the state of
                                          San Luis
                                          Potosi

Desechos Solidos de        Mexican        Mexico's       A panel is
Naucalpan                  government     nullification  being formed
(U.S. company)                            of an
                                          agreement to
                                          manage solid
                                          waste in the
                                          state of
                                          Mexico
----------------------------------------------------------------------
Source:  Office of the United States Trade Representative. 


CITIZEN SUBMISSIONS UNDER THE
NORTH AMERICAN AGREEMENT ON
ENVIRONMENTAL COOPERATION
=========================================================== Appendix V

                              Submitter(s)
Case no.       Country        and year filed   Complaint        Status
-------------  -------------  ---------------  ---------------  ----------------
1              United States  Biodiversity     Provisions of a  Process
                              Legal            U.S.             terminated--
                              Foundation, et   rescissions act  Secretariat
                              al. (1995)       have resulted    determined
                                               in a failure to  government
                                               effectively      response not
                                               enforce some     merited
                                               provisions of
                                               the Endangered
                                               Species Act

2              United States  Sierra Club, et  Legislation      Process
                              al. in the       passed by the    terminated--
                              U.S., and        U.S. Congress    Secretariat
                              Canadian and     is alleged to    determined
                              Mexican          include a rider  submission
                              environmental    that suspends    criteria not met
                              groups (1995)    enforcement of
                                               environmental
                                               laws for a
                                               logging program
                                               on U.S. public
                                               lands

3              Mexico         Comitï¿½ para la   A public harbor  Factual record
                              Protecciï¿½n de    terminal for     prepared.
                              los Recursos     tourist cruises  Council will
                              Naturales,       on the island    determine
                              A.C., et al.     of Cozumel was   whether to make
                              (1996)           initiated        public
                                               without a
                                               declaration of
                                               environmental
                                               impact

4              Canada         Mr. Aage         Failure to       Process
                              Tottrup, P. Eng  enforce          terminated--
                              (1996)           Canadian and     Secretariat
                                               Alberta          determined
                                               environmental    government
                                               laws resulting   response not
                                               in the           merited
                                               pollution of
                                               wetlands
                                               impacting fish
                                               and migratory
                                               bird habitats

5              Canada         Friends of the   Failure to       Process
                              Old Man River    enforce habitat  terminated--
                              (1996)           protection       Secretariat
                                               sections of the  determined
                                               Canadian         factual record
                                               Fisheries Act    not warranted
                                               and the
                                               Canadian
                                               Environmental
                                               Assessment Act
                                               and charges
                                               that there has
                                               been a de facto
                                               abdication of
                                               legal
                                               responsibility
                                               by the Canadian
                                               and provincial
                                               governments

6              United States  The Southwest    Fort Huachuca    Process
                              Center for       (AZ) base        terminated--
                              Biological       expansion will   Submitter
                              Diversity, et    drain local      withdrew after
                              al. (1996)       water supply     Secretariat
                                               and destroy      reviewed U.S.
                                               ecosystem        government
                                               dependent on it  response
                                               (San Pedro
                                               Reservoir)

7              Canada         British          Failure to       Secretariat
                              Columbia         enforce the      reviewing
                              Aboriginal       Canadian         submission in
                              Fisheries        Fisheries Act    light of
                              Commission, et   and failure to   Canadian
                              al (1997)        protect fish     response
                                               and fish
                                               habitat in
                                               British
                                               Columbia from
                                               hydro-electric
                                               dam

8              Mexico         Comitï¿½ pro       Failure to       Secretariat
                              Limpieza del     enforce Mexican  reviewing
                              Rio Magdalena    environmental
                              (1997)           legislation
                                               governing the
                                               disposal of
                                               wastewater into
                                               the Magdalena
                                               River in the
                                               state of Sonora

9              Canada         Centre           Failure to       Secretariat
                              Quebecois du     enforce          requested and is
                              Droit de         environmental    awaiting
                              L'environement,  standards        Canadian
                              et al. (1997)    related to       response
                                               agriculture,
                                               especially hog
                                               farms

10             Canada         Canadian         Failure to       Secretariat
                              Environmental    conduct an       determined
                              Defense Fund     environmental    submission
                              (1997)           assessment of    criteria not
                                               "The Atlantic    met; submitter
                                               Groundfish       has 30 days to
                                               Strategy"        resubmit filing
                                               jeopardizes the
                                               future of
                                               Canadian East
                                               Coast fisheries

11             Canada         Animal Alliance  Canada has yet   Secretariat
                              of Canada, et    to fulfill one   reviewing
                              al. (1997)       of its main
                                               requirements
                                               under the
                                               Biodiversity
                                               Convention--to
                                               pass endangered
                                               species
                                               legislation or
                                               regulations
--------------------------------------------------------------------------------

LABOR SUBMISSIONS UNDER THE NORTH
AMERICAN AGREEMENT ON LABOR
COOPERATION
========================================================== Appendix VI

Case no.   Submitted by           Issue                  Status
---------  ---------------------  ---------------------  -----------------------
1          International          In late 1993,          The U.S. National
           Brotherhood of         Honeywell              Administrative Office
           Teamsters              Manufacturas de        concluded that the
2                                 Chihuahua allegedly    information in both
           United Electrical,     fired about 20         submissions was
           Radio and Machine      employees involved in  insufficient to
           Workers of America     union organization.    establish that the
                                  Management allegedly   government of Mexico
                                  pressured these        failed to enforce its
                                  workers into signing   labor laws. The
                                  resignation forms,     Secretary of Labor
                                  accepting the          proposed to the
                                  statutory severance    governments of Mexico
                                  pay, and               and Canada the
                                  relinquishing claims   development of a
                                  for reinstatement      comprehensive
                                                         cooperative program to
                                                         address these issues

3          International Labor    Workers at a plant of  After holding a public
           Rights Education and   Sony Corporation       hearing, the U.S.
           Research Fund,         (Magneticos de         National Administrative
           National Association   Mexico) in Nuevo       Office recommended
           of Democratic Lawyers  Laredo, Tamaulipas,    ministerial
           of Mexico, Coalition   Mexico, were           consultations, which
           for Justice in the     allegedly              resulted in a series of
           Maquiladoras, and the  intimidated,           seminars and other
           American Friends       pressured, and         activities designed to
           Service Committee      dismissed by the       address the issue of
                                  company when they      union registration in
                                  attempted to organize  Mexico. A followup
                                  a union                review conducted by the
                                                         National Administrative
                                                         Office was issued in
                                                         December 1996

4          United Electrical,     The case concerned     The union withdrew the
           Radio and Machine      the alleged violation  submission prior to the
           Workers of America     of freedom of          completion of the
                                  association and the    review process
                                  right to organize by
                                  a General Electric
                                  Company subsidiary in
                                  Mexico

5          Telephone Workers      The submission         Mexico's National
           Union of the Republic  concerned the closure  Administrative Office
           of Mexico              of a Sprint            requested ministerial
                                  Corporation            consultations. These
                                  subsidiary in San      led to a public forum
                                  Francisco prior to a   and a report on the
                                  scheduled election on  effects of sudden plant
                                  union representation   closings on freedom of
                                                         association in each
                                                         country, issued by the
                                                         Commission for Labor
                                                         Cooperation in June
                                                         1997

6          Human Rights Watch/    When employees of the  After holding a
           Americas,              Mexican federal        hearing, the U.S.
           International Labor    government's Single    National Administrative
           Rights Fund, and the   Trade Union of         Office recommended
           National Association   Workers of the         ministerial
           of Democratic Lawyers  Fishing Ministry       consultations on the
           of Mexico              attempted to receive   relationship between
                                  recognition for their  international treaties,
                                  union, the Mexican     constitutional
                                  government allegedly   provisions, and
                                  violated their         domestic law protecting
                                  freedom of             freedom of association.
                                  association and the    On September 3, 1997,
                                  right to organize      the three labor
                                                         ministers agreed to
                                                         conduct a formal
                                                         exchange of information
                                                         and hold a public
                                                         conference on issues
                                                         raised by the case

7          Communications         When workers at Maxi-  Before the scheduled
           Workers of America,    Switch in Cananea,     hearing, the submitters
           Union of Telephone     Sonora, Mexico,        withdrew the submission
           Workers of Mexico,     organized a union,     after resolving the
           and the Federation of  the company's          dispute to their
           Unions of Goods and    management allegedly   satisfaction
           Services Companies of  threatened and
           Mexico                 intimidated them,
                                  creating a
                                  nonexistent "phantom
                                  union" in order to
                                  avoid bargaining with
                                  the workers' union

8          Human Rights Watch/    The submission         The U.S. National
           American,              contains allegations   Administrative Office
           International Labor    about discrimination   has accepted the
           Rights Fund and the    against female         submission for review
           National Association   employees in Mexico's  and is gathering
           of Democratic Lawyers  export processing      information on the case
           of Mexico              (maquiladora) sector,  before determining if
                                  including mistreating  ministerial
                                  or discharging         consultations should be
                                  pregnant employees in  requested
                                  order to avoid paying
                                  maternity benefits
--------------------------------------------------------------------------------
RELATED GAO PRODUCTS

Trade Liberalization:  Western Hemisphere Trade Issues Confronting
the United States (GAO/NSIAD-97-119, July 21, 1997). 

Commercial Trucking:  Safety Concerns About Mexican Trucks Remain
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1997). 

International Environment:  Environmental Infrastructure Needs in the
U.S.-Mexican Border Region Remain Unmet (GAO/RCED-96-179, July 22,
1996). 

Commercial Trucking:  Safety and Infrastructure Issues Under the
North American Free Trade Agreement (GAO/RCED-96-61, Feb.  29, 1996). 

Mexico's Financial Crisis:  Origins, Awareness, Assistance, and
Efforts to Recover (GAO/GGD-96-56, Feb.  23, 1996). 

U.S.-Canada Free Trade Agreement:  Factors Contributing to
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(GAO/GGD-95-175BR, June 16, 1995). 

Dislocated Workers:  An Early Look at the NAFTA Transitional
Adjustment Assistance Program (GAO/HEHS-95-31, Nov.  18, 1994). 

NAFTA:  Structure and Status of Implementing Organizations
(GAO/GGD-95-10BR, Oct.  7, 1994). 

Dislocated Workers:  Proposed Re-employment Assistance Program
(GAO/HRD-94-61, Nov.  12, 1993). 

Dislocated Workers:  Trade Adjustment Assistance Program Flawed
(GAO/T-HRD-94-4, Oct.  19, 1993). 

North American Free Trade Agreement:  Assessment of Major Issues
(GAO/GGD-93-137, Sept.  9, 1993, 2 vols.). 

U.S.-Mexico Trade:  The Maquiladora Industry and U.S.  Employment
(GAO/GGD-93-129, July 20, 1993). 

NAFTA:  Issues Related to Textile/Apparel and Auto and Auto Parts
Industries (GAO/T-GGD-93-27, May 5, 1993). 

U.S.  Trade Data:  Limitations of U.S.  Statistics on Trade with
Mexico (GAO/GGD-93-25, Apr.  28, 1993). 

CFTA/NAFTA:  Agricultural Safeguards (GAO/GGD-93-14R, Mar.  18,
1993). 

Pesticides:  U.S.  and Mexican Fruit and Vegetable Pesticide Programs
Differ (GAO-T-RCED-93-9, Feb.  18, 1993). 

U.S.-Canada Trade (GAO-GGD-93-10R, Dec.  12, 1992). 

Dislocated Workers:  Improvements Needed in Trade Adjustment
Assistance Certification Process (GAO/HRD-93-36, Oct.  19, 1992). 

International Trade:  Implementation of the U.S.-Canada Free Trade
Agreement (GAO/GGD-93-21, Oct.  10, 1992). 

North American Free Trade Agreement:  U.S.-Mexican Trade and
Investment Data (GAO/GGD-92-131, Sept.  25, 1992). 

Dislocated Workers:  Comparison of Assistance Programs
(GAO/HRD-92-153BR, Sept.  10, 1992). 

U.S.-Mexico Trade:  Assessment of Mexico's Environmental Controls for
New Companies (GAO/GGD-92-113, Aug.  3, 1992). 

Pesticides:  Comparison of U.S.  and Mexican Pesticide Standards and
Enforcement (GAO/RCED-92-140, June 17, 1992). 

Mexican Oil:  Issues Affecting Potential U.S.  Trade and Investment
(GAO/NSIAD-92-169, Mar.  18, 1992). 

*** End of document. ***