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NAFTA and environmental infrastructure projects.

In the final days before the U.S. House of Representatives took up the debate on the North American Free Trade Agreement (NAFTA), the governments of Mexico and the United States agreed on arrangements to assist communities on both sides of the border in coordinating and carrying out environmental infrastructure projects. The agreement establishes mechanisms for implementing NAFTA's environmental protection provisions.

The governments will establish two institutions:

1) a North American Development Bank (NADBank), capitalized in equal shares by the United States and Mexico, that will provide some $2 billion or more in new financing to supplement existing sources of funds and foster the expanded participation of private capital; and

2) a Border Environment Cooperation Commission (BECC) to assist local communities in developing and implementing environmental infrastructure projects and to certify projects for NADBank financing.

The two new institutions will help marshall resources from all sources, both public and private, to solve the environmental problems of the border region.


The Border Environment Cooperation Commission will work with the affected states and local communities and nongovernmental organizations in developing effective solutions to environmental problems in the border region. It will provide technical and financial planning assistance for environmental infrastructure to enhance the environment in the border region. The BECC will not itself develop or manage projects. Rather, it will assist states and localities and private investors proposing environmental infrastructure projects in:

* coordinating, developing and implementing projects;

* assessing their technical and financial feasibility;

* evaluating social and economic benefits; and

* arranging public and private financing for projects.

The BECC may certify to NADBank any project that meets the technical, environmental and financial criteria applied by it. To be eligible for certification, projects shall observe the environmental laws for the place where the project is to be located or carried out.

For a project with significant transboundary effects, an environmental assessment shall be presented and the BECC shall determine, in consultation with affected states and localities, that the project meets the necessary conditions to achieve a high level of environmental protection for the affected area. Each country will have five members on the BECC Board of Directors with environmental, engineering, economic or financial expertise, as follows:

* the senior environmental official (the Administrator of the Environmental Protection Agency for the United States and the Secretario de Desarollo Social for Mexico);

* the commissioner of the International Boundary and Water Commission;

* a representative from a border state;

* a representative from a locality in the border region;

* a member of the public who resides in the border region.

The commission will be required to consult with an advisory council of 18 members--nine from each country--that will include representatives of state or local governments or community groups from each of the border states, and members of the public, including nongovernmental organizations. The commission will establish procedures for public participation, including written notice and opportunity to comment on general guidelines and on applications for certification of projects.

The BECC can mobilize sources of financing for environmental infrastructure projects from NADBank; direct government support, such as grants, loans, and guarantees from federal, state and local governments; or the private sector. It will seek to mobilize private capital to the maximum extent possible in order to leverage government financing. Arrangements for servicing the debt will encourage reliance on fees paid by those causing pollution and those benefiting from the improved environment.

North American Development Bank

NADBank, capitalized and governed by the two countries, will evaluate the financial feasibility of projects certified by the BECC and provide financing as appropriate. Based on its capitalization, it is envisioned that the bank will be able to make some $2 billion or more in loans and guarantees, with an upper limit of $3 billion. Initial capital paid in will be $450 million, with callable capital of $2.55 billion. The bank will be governed by a six-member board having an equal number of representatives from each country.

The bank will use its own capital (contributed equally by the United States and Mexico), funds raised by it in the financial markets and other available resources to:

1) finance public and private investment in environmental infrastructure projects and

2) encourage and supplement private investment in environmental infrastructure projects.

The United States and Mexico also have agreed that up to 10 percent of the resources of the bank will be made available, on an equal basis, for community adjustment and investment programs in support of NAFTA in both countries, which need not be in the border region. Each government will develop criteria and procedures for directing these resources through existing government programs. The NADBank is intended to supplement existing sources of financing by supporting, not impairing, the ability of governments and investors to seek financing from other institutions.


The creation of the two institutions for financing environmental infrastructure in the border area grew out of negotiations for a supplemental agreement to the NAFTA that would deal with 1) improving environmental conditions throughout North America and 2) improving national enforcement of each country's laws relating to environmental protection. Called the North American Agreement on Environmental Cooperation, that supplemental agreement establishes a framework for United States, Mexican and Canadian cooperation on a long agenda of common environmental matters, including effective enforcement of their environmental laws and monitoring of the environmental effects of NAFTA.
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Author:Weiss, Barbara
Publication:Government Finance Review
Date:Feb 1, 1994
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