NAFTA PACT JEOPARDIZED BY COURT

DISTRICT JUDGE ORDERS ENVIRONMENTAL STUDY

U.S. District Judge Charles R. Richey threw the fate of the North American Free Trade Agreement into doubt yesterday with a ruling that created new legal and political complications for the pact.

Administration officials said they would quickly appeal the decision and press ahead with the agreement between the United States, Mexico and Canada despite Richey's ruling in a case brought by environmental and consumer groups that the Clinton administration must analyze in detail its likely effects on the environment.

"We believe that the court's decision is not in the public interest," U.S. Trade Representative Mickey Kantor told reporters at the White House late yesterday. Kantor said the ruling "interferes with the president's ability to negotiate international agreements."

The decision could set the stage for a lengthy -- and potentially fatal -- delay in congressional consideration of the trade pact.

"If it stands it will kill the agreement," said Julius Katz, former deputy U.S. trade representative and chief U.S. NAFTA negotiator during the Bush administration.

Richey did not set a deadline for completion of the environmental analysis and did not require that it be completed before NAFTA is sent to Congress. But if the decision is upheld by appeals courts, the assessment could take at least six to nine months to complete.

That delay could sap congressional support for NAFTA just as it is coming under increasing pressure from labor and environmental groups.

And if the ruling is upheld, it also would likely intensify the environmental debate over the trade pact, making its passage even tougher. Mexico holds a presidential election next year and a new round of U.S. demands for stronger Mexican environmental action could create a political backlash there against the treaty, according to analysts.

The decision cheered environmental and consumer groups opposed to NAFTA while dismaying its supporters.

"This means trade agreements can never be negotiated again without a conscious consideration of the environment," said J. Michael McCloskey, chairman of the Sierra Club, one of the groups that brought the suit.

"It's going to throw a big monkey wrench into this agreement," said Rep. Ron Wyden (D-Ore.), a NAFTA backer. "These kinds of agreements are going to be extraordinarily difficult to get in the future" if the ruling stands, he said.

News of the court ruling sent stock prices tumbling in Mexico City. On U.S. markets, prices of Mexican securities dropped sharply, too, although some traders said the reaction was probably temporary until the decision's long-term impact is clear.

A free-trade agreement with the United States would be the capstone to the widespread economic reforms adopted by Mexican President Carlos Salinas de Gortari. Wall Street and Mexican financial analysts have warned that NAFTA's defeat could cause a financial crisis in Mexico.

Richey ruled in favor of three environmental and consumer action groups -- Public Citizen, the Sierra Club and Friends of the Earth -- that have been among NAFTA's sharpest critics.

In their suit, the three groups said a 1970 law requiring environmental impact studies of major federal actions should apply to trade agreements too. The Bush administration, which negotiated NAFTA last year, argued that the law did not apply to presidential trade decisions.

An impact statement is an exhaustive review of potential environmental consequences of a federal project on human health and welfare, wildlife and natural resources. For projects such as the Alaskan Pipeline or the Panama Canal Treaty, statements can fill hundreds of pages.

The groups contended that the Bush administration had given scant attention to the environmental problems that could be caused by increased trade between the United States and Mexico, particularly along their highly polluted common border.

NAFTA supporters said their intent was to defeat the pact, a charge the plaintiffs denied.

"We're not trying to derail this," said Joan Claybrook, president of Public Citizen. "We're not against free trade."

The next step is up to the U.S. Court of Appeals, which could review the decision within a few days on an emergency basis, if the administration makes that request and the court agreed, said attorneys in the case. Otherwise, the review could extend well into next year.

NAFTA would eliminate virtually all tariffs and barriers to trade between the three countries over 10 to 15 years, creating the world's largest free-trade zone.

President Clinton, while supporting NAFTA, has insisted that Mexico and Canada agree to additional conditions designed to ensure enforcement of environmental and worker health and safety laws in the three countries.

Negotiators for the three countries are currently deadlocked over U.S. insistence that each country be permitted to impose trade sanctions as a last resort if other countries persistently violate environmental or labor regulations. Clinton said he will not send NAFTA to Congress for approval until side agreements on these two issues are settled.

NAFTA is supported by a broad array of business groups that argue that by giving a strong boost to cross-border trade with Mexico, several hundred thousand new jobs in U.S. export industries will be created.

The pact's opponents in organized labor, backed by maverick Texas billionaire Ross Perot, contend that these gains will be snowed under by job losses as more U.S. companies shift production to Mexico to take advantage of its lower wage rates.

The environmental community has been split by NAFTA. The Sierra Club and Friends of the Earth have attacked its failure to ensure an environmental cleanup along the U.S.-Mexican border and do not trust Mexico to enforce its environmental rules. But seven other groups, including the National Wildlife Federation, the World Wildlife Fund and the National Audubon Society, are prepared to support NAFTA if the side agreements are reached.

"The status quo {in Mexico} is intolerable," said Rodrigo Prudencio, trade specialist with the National Wildlife Federation. NAFTA would be an improvement, he said.

Staff writers Stuart Auerbach and Joan Biskupic contributed to this report.

Articles appear as they were originally printed in The Washington Post and may not include subsequent corrections.