Free trade, environmental regulations, and offshore manufacturing relocation

¶ … free trade and whether it is good or bad for the environment. The writer examines the exodus of American companies that are finding it financially advantageous to move their operations overseas. The writer looks at why they are doing it, what the advantages and disadvantages are and how it will ultimately impact the environment. The writer also looks at possible legislation issues that will protect the environment from such actions. There were 20 sources used to complete this paper.

Free Trade and Its Impact on U.S. Overseas Operations and the Environment

An examination of U.S. operations being moved overseas and whether it is because of less stringent environmental regulations and how this will ultimately impact the environment.

Flow of Information

Introduction

Statement of the Problem

Examination of why companies are moving overseas

Putting it all together

Some legislative possibilities to protect the environment

Conclusion

STATEMENT of the PROBLEM

In 1999 the World Trade Organization faced multiple protests across the nation by environmentalists who believed the organization promoted the ignoring of environmental regulations. Free trade for the most part is a good idea according to experts, but when it comes to environmental issues it opens the door for trouble according to environmentalists who are against free trade without regulations.

A year ago, environmentalists, human rights groups and trade union members were in Seattle denouncing the World Trade Organization. The same groups waged campaigns against NAFTA, the North American Free Trade Agreement, and normalizing trade with China. In all these battles, AFL-CIO president John Sweeney and the Clinton administration have been on opposite sides."

Jarman, Janet. Cleaning up free trade. (analisis sobre las desventajas del Tratado de Libre Comercio)(TA: analysis of the disadvantages of the North American Free Trade Agreement)

In 1993, opponents of the proposed North American Free Trade Agreement (Nafta) felt certain that its implementation would increase pollution and further degrade environmental conditions along the Mexico-United States border. Already, decades of economic integration had caused rapid industrial and subsequent population growth. Former agricultural towns were transformed into industrial centers too quickly for local governments to accommodate growth with adequate infrastructure.

In addition, the number of maquiladoras, or export plants, in Mexico increased from 12 in 1965 to over 2,000 in 1993, contributing to serious air and water pollution on both sides of the border. During the Nafta debate, estimates for cleaning up the region ranged from the $6 billion predicted by the Clinton administration to a $20 billion estimate by the Sierra Club.

Congress appeased the masses by creating an agreement about environmental issues on the side that mandated mechanisms to resolve disputes about possible environmental issues.

Mexico is already feeling the brunt of the free trade act and what it has done to the environment in that area.

Matamoros Mayor Ramon Antonio Sampayo blames free trade for the proliferation of colonias and their strain on his nominal city budget ($16 million). If he had his choice, he would construct a whole new city. "It's cheaper to do that than repair what we have," he laments. Since this approach is not an option, Sampayo and officials with the Matamoros Water & Sewage Board have sought assistance from BECC. Before any project can receive certification, however, the water utility must prove it is self-sufficient and capable of repaying a NADBank loan, generally through user fees. This will prove difficult, since only half the city's water subscribers pay their bills on time, 20% pay late and 30% pay nothing at all. "

For several years, U.S. companies that have moved their operations overseas have avoided the environmental regulations that have been so costly for them here in the states.

The companies escape paying pollution abatement fees as well as penalties if they pollute beyond the federal government standards.

The companies that choose to move do so to lower costs and are not volunteering to take care of environmental issues once they are in the new country. The companies often choose to move to underdeveloped nations where people will work for pennies on the U.S. dollar, and they are not advanced enough to worry about environmental regulations and other things that the U.S. deals with every day.

For a long time the companies were safe in developed nations as well. America is well-known for being one of the most stringent nations in the world when it comes to things like environmental issues and manufacturing. Any nation a company chose would still be more lenient than the United States is when it comes to polluting the air, water and land.

Recently however, the more developed nations of the world, seeing the shift by U.S. companies to move overseas where they can pollute without scrutiny, have begun to adopt regulations to stop it.

The acceptance of environmental standard ISO 14000 varies throughout the world. This standard is a requirement throughout Germany but only two U.S. companies have received certification. Developing countries are utilizing the measure as a way to implement stronger environmental protection laws. The standard may be used as a way for companies to increase their internal efficiencies.

U.S. companies generally regard the voluntary international environment standard ISO 14000 as they might an alien spaceship, says one federal regulator. Is it friendly? Or will it wreak havoc on those who get too close? Worldwide, however, the degree of acceptance of international environmental standards runs the gamut from a virtual requirement, as in Germany, to a cost-effective tool for bolstering environmental protection laws, as in some developing countries."

The ISO agreement is a voluntary agreement and certification process, by which companies comply with certain environmentally friendly standards and become certified. U.S. companies that are overseas are not lining up to become certified. They moved overseas to escape having to maintain the environment while they continue to manufacture and the idea of pulling back and regulating themselves is not met with open arms.

While environmentalists are staunch in their stand against large manufacturing companies have suffered financially due to the environmental regulations. Early in the 1990's the U.S. census established that for every dollar spent on environmental regulatory mandates, more than three dollars are lost.

By training, economists have a special interest in seeing to it that resources are used effectively, whether the purpose is ecological, political, or economic. While no environmental programs are created with the express mission to depress the economy and raise the unemployment rate, many have that effect. The barriers to economic growth imposed by regulatory agencies are numerous and expanding steadily. In 1993, the Census Bureau -- hardly a citadel of right-wing ideology -- issued a technical report on the effect of environmental regulation on productivity. Their conclusion: a $1 increase in compliance costs reduces productivity by $3-4."

While there are obvious and definite long-term benefits to environmental protections one cannot deny the financial impact that those regulations have on large companies. Paying out for abatement costs can go into the billions of dollars, and the company has to recoup that lost somewhere. The decision becomes whether to pass that cost on to the customer, and if so how much will the customer be willing to pay for that to happen?

Not surprisingly, the business community generally talks more about the costs of regulation than the benefits, while the proponents of regulation stress the benefits and downplay the costs. After all, from the viewpoint of the average company, for each box on its organizational chart, there are one or more government agencies that are counterparts to that box, such as the Environmental Protection Agency (EPA), Occupational and Safety Health Administration (OSHA), and Equal Economic Opportunity Commission (EEOC). Each is involved heavily in the company's internal decision-making. "

Experts that side with the companies advise that the governmental rules and regulations make it cost prohibitive and at some times impossible for the companies to perform their duties and allow them to manufacture and produce products. This causes a shortage of American made products and creates an open market for foreign trade to send their products to American store shelves.

The expense of complying with environmental regulations amounted to about $130,000,000,000 in 1993. That is not a static figure. When they reach their stride, the Clean Air Act Amendments of 1990 will add new costs amounting to at least $25,000,000,000 annually. When the expense of meeting the rules promulgated by dozens of other regulatory agencies -- ranging from OSHA to the National Highway Traffic Safety Administration -- are added in, the aggregate hidden tax of regulatory costs comes to $200-300,000,000,000 a year. That is $2-3,000 per household in the form of higher prices for the items purchased. Some analysts come up with even greater numbers."

When one looks past the simple production issues with government regulations one sees other issues, including research and design restrictions and development problems. All of these factors help drive the companies to look across the ocean and decide to move their operation overseas.

Regulation has reduced the flow of innovation and production of new and better goods because so many government regulatory agencies have the power -- which they frequently exercise -- to decide whether or not a new product will go on the market at all."

Exporting a problem: is the U.S. exporting an environmental problem when it ships electronics scrap overseas?

The environment however, cannot take the pollution that was being heaped upon it so the regulations were needed and have begun to slow the destruction of the planet's resources. Companies in this country are looking to avoid shouldering the burden of the environmental issues that occur with manufacturing so the free trade act allows and encourages the companies to look elsewhere. Across the ocean allows them to pay low wages and more importantly not have to go through the federal regulation paperwork when it comes to environmental issues. They can speed their research they can speed their development of new products and they can mass produce, which in turn allows them to stock the nation's shelves with the products.

Inter-Press Service English News Wire; 11/1/1999; STAFF

STAFF Inter-Press Service English News Wire)

United States environmental regulations do not apply to U.S. companies overseas. They are not faced with clean up costs, or preventive costs. The problem first cropped up on the United States military bases overseas.

Pentagon has no overall budget for cleaning up its foreign bases. What little has been spent on the problem overseas -- about $300 million over the past five years -- has come out of individual facilities' operations and maintenance accounts. The problem is staggering, according to Saul Bloom of Arc Ecology, a group works on base clean-ups primarily in the United States. "We are leaving behind an enormous legacy of toxic waste on our bases abroad," he said."

The lessons learned from these experiences have taught the American private sector that they could go overseas and not have to deal with the responsibility of environmental issues.

When the free trade agreements began it opened the doors for companies to close their U.S. doors, pack up and go to areas of the world where they would not have to deal with the regulations at all.

Chevron oil has been moving its drilling operations overseas for quite awhile. Oil companies have a vested interest in escaping environmental regulations because they are among the worst offenders when it comes to pollution. Free trade allows them to move to countries where the environment can be destroyed without penalty to the company.

Overseas oil production is driving the growth of this company," said Chevron Overseas President Richard Matzke. "It's where we're going in the future."

At the San Ramon center, Chevron engineers are using the latest computer modeling techniques to pinpoint underground oil deposits halfway around the world. Procurement experts are negotiating contracts to deliver the latest oil drilling equipment from the central mountains of Papua New Guinea to the wind-swept deserts of Kazakhstan.

Economic analysts keep a close eye on the world price of oil to determine when to pump more oil from overseas wells and when to cut back. Accountants analyze budgets from COPI operations on five continents and 23 countries.

All this activity is critical to the future of San Francisco-based Chevron, which is steadily cutting back on its investment in U.S. oil drilling because of tight environmental regulations and because easy-to-reach domestic oil is disappearing."

The drop in spending in the United States is significant according to reports over the past ten years. "The company is boosting international spending as it slashes its oil development budget in the United States. The company spent nearly $1.6 billion looking for oil and pumping it out of the ground overseas in 1993 while its domestic spending dropped from $1.1 billion in 1991 to $763 million last year. Over the past three years, COPI has added 1,000 workers to a worldwide staff that now numbers 6,000 to help carry out its ambitious agenda."

Free trade has encouraged the movement. China and Vietnam are both nations that used to be closed to foreign investment but are now asking the United States to help them produce revenue from their oil supplies. It is a request, happily responded to by the companies looking to avoid environmental regulations by moving overseas.

Chevron began its global push in 1984 when it acquired fields in Nigeria,

Angola and Zaire through its merger with Gulf Oil. Since then, the company has developed its own fields in Indonesia, Papua New Guinea, Australia and the South China Sea through joint ventures with other oil companies and foreign governments.

It began its joint venture with the Republic of Kazakhstan to develop the giant Tengiz oil fields northeast of the Caspian Sea last year. The partnership plans to spend $1.5 billion to quadruple production at the giant field by the end of the decade."

The push for clean air draws protests from companies who have to bear the cost of that air and water. However, those who advocate for overseas regulations allege it does not cost enough to uphold regulations for them to move overseas. According to some experts the cost of environmental regulations is not enough to pay for the goods being made and shipped back here from overseas.

Protecting the environment while meeting the worldwide demand for economic growth will in many instances require joint efforts among nations. The process of building these joint efforts will itself affect and perhaps strengthen national concerns with the global, long-run elements of environmental protection. Nevertheless, efforts to build cooperation must also deal with, and therefore require an understanding of, global economic rivalry and its impact on domestic and international politics."

Product regulation and process regulation are also different items with different regulations.

There is a larger potential conflict between free trade and process regulations according to experts. Producers in countries that have more strict policies will incur much higher costs in the process of their business, than producers who handle the process of their product in nations that have less stringent regulations.

Nations with more stringent process standards might seek to exclude or impose special duties on products imported from nations with less stringent process standards. Such measures, however, are probably illegal under international trade law,(20) and cannot insulate domestic producers from the competitive disadvantage they face in the world market. Nor can nations with more stringent standards prevent multinationals from moving operations to nations with laxer environmental requirements.

Nations with more stringent process standards could seek to remove their competitive disadvantage by securing international agreement on common standards."

There have been many debates concerning the free trade acts and its impact on companies moving overseas and avoiding the environmental regulations of the U.S.

During the last ten years there has been growing concern in the U.S. about the interplay between trade, environmental regulation, and international competitiveness.(22) Some of the concern has focused on product regulation.(23) While environmentalists have worried that harmonization would result in a weakening of relatively stringent U.S. standards, industry has generally supported international harmonization of product regulatory standards.(23) Most of the attention, however, has been directed at process regulation. The U.S. has the most expansive liability rules for environmental pollution and among the most stringent environmental regulatory requirements in the world.(25) as a result, many fear, the competitiveness of U.S. firms has been impaired; the nation's ability to attract and retain industry has been seriously undermined.(26) Industry has repeatedly invoked the specter of international competitive disadvantage in opposing stricter environmental standards."

Nations that have slower running rivers such as Britain will have different environmental concerns than nations with fast rivers, such as France or Germany.

Nations with soils that are low in buffering capacity suffer greater damage from acid deposition than those with high buffering capacity. A large, sparsely-populated country will suffer fewer adverse health and environmental effects from a given level of pollution emissions than will a small, densely populated country.

Nations also differ in their existing levels of pollution and other forms of environmental resource use. For example, those with lower levels, other things being equal, will be better able to accommodate additional pollution than nations that already have high levels of pollution. This conclusion must, however, be qualified by noting that nations with relatively pristine environments may have a strong interest in preserving them; in such a nation, the marginal harm of an additional increment of pollution may be greater than in a nation already moderately polluted."

Conclusion

Free trade agreements have created an exodus of American companies to move overseas where they can produce using dirty technology and not have to pay for it. America has stringent environmental concerns which include abatement fees and penalties for destroying the environment with manufacturing or other processes.

Free trade has opened the door for companies to move overseas and escape all of the regulations and then ship their products back to the states for profit.

Free trade, which has been good for the general welfare of America, has created a problem where environmental concerns come into play.

It is time for the nations of the free trade acts to get together and design a uniform policy that protects the environment worldwide from any company destroying resources.