DARK CLOUDS, SILVER LININGS OVER THE TRAIL TO MEXICO

BUSINESS EXECUTIVES SHOCKED BY DECISION

While environmental and consumer activists cheered, business executives reacted with shock and dismay yesterday to a federal court decision ordering the Clinton administration to analyze the environmental impact of the North American Free Trade Agreement with Canada and Mexico.

"The impact of the ruling is disastrous," said R.K. "Judge" Morris, senior policy director for international trade of the National Association of Manufacturers, which along with other major business groups strongly supports the trade accord known as NAFTA.

"It strikes me as crazy that a judge can preemptively decide something that hasn't even been debated by Congress. I don't think the {environmental} law applies to foreign agreements," said William Archey, vice president for policy of the U.S. Chamber of Commerce.

American businesses have been looking at the trade pact to lock in the restructuring of Mexico's economy that has occurred by regulation over the past five years. With those changes, U.S. exports to Mexico have grown dramatically and U.S. companies have invested in new factories south of the border. Without NAFTA, the friendly economic environment could evaporate, U.S. business fears.

Morris argued that slowing congressional ratification of the trade pact will both hurt economic growth and kill "the best hope we have to improve the environment in northern Mexico and the Southwest region of the United States."

He said a free-trade agreement would allow factories to shift to the center of Mexico instead of concentrating near the U.S. border, where they have spawned vast areas of air and water pollution.

"NAFTA gets rid of border crunch," Morris said.

The environmental and consumer groups, which along with organized labor have fought NAFTA in Congress and the courts, disagreed with the business complaints. Brent Blackwelder of Friends of the Earth, one of the groups that brought the suit, said an environmental impact statement, as required in the federal court decision by Judge Charles R. Richey, "will reveal the extent to which the current agreement, as negotiated by the Bush administration, will cause major environmental problems."

"This is a historic decision," added J. Michael McCloskey, chairman of the Sierra Club, another of the plaintiffs. "For three years, we have been talking about the relationship between trade and the environment. ... The Bush administration turned a deaf ear. But the time has come to hear us loud and clear. Environment is a critical element of any trade agreement."

With the Clinton White House more receptive to environmental concerns, the environmental and consumer groups that brought the suit were careful not to go too far yesterday in their attacks on NAFTA.

"The Clinton administration should view this as helpful to garnering public understanding and support for their trade policies," said Joan Claybrook, president of Public Citizen, the third group that brought the suit.

Julius Katz, former deputy U.S. trade representative who was chief negotiator for NAFTA, said the Bush administration in 1990 had debated whether to prepare an environmental impact statement for the accord.

At the time, no one in the administration believed that the National Environmental Policy Act, which requires such studies on major federal initiatives, applied to NAFTA, Katz said, "But some said, 'Let's do it anyway.' "

The administration decided against it, he recalled, out of concerns that "we would put ourselves in the position of being litigated to death on the environmental impact statement," even though they believed the suits would have had no basis.

Nonetheless, Katz asserted that Congress had the opportunity to force such a study when the administration sought authority to negotiate the trade pact and to gain its speedy ratification under special fast-track provisions that permit neither amendment nor filibusters. Since it didn't, Richey should not have intervened, Katz said.

Brink Lindsey, director of regulatory studies for the free-market Cato Institute, called Richey's decision "an outrageous application of the law" that if carried out fully would mean that any other program -- for example, Clinton's economic plan -- would need an environmental impact statement if "it encourages growth and therefore will create more environmental degradation."

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