NEWS ANALYSIS : Court Ruling Puts Heat on NAFTA Talks : Trade: Negotiators must show that the pact will not encourage companies to cross borders in search of looser environmental and labor standards.

Negotiators meeting today to work out side deals to the North American Free Trade Agreement are under intense pressure to show that the talks can resolve concerns highlighted in a recent U.S. court decision that threatens to delay approval of the pact indefinitely.

Meeting through Saturday at the Oaxtepec mountain resort southwest of here, the negotiators for Mexico, the United States and Canada will attempt to resolve differences over how best to ensure that implementation of NAFTA will not encourage companies to cross borders in search of less restrictive labor and environmental standards.

The federal court ruling, requiring an environmental impact statement before NAFTA is submitted to the U.S. Congress, reflects longstanding concerns among environmentalists and some American legislators that NAFTA would, in particular, encourage U.S. companies to move to Mexico, where enforcement of environmental protection standards is weak.

If negotiators can fashion a strong side agreement on environmental protection, it could help President Clinton persuade Congress to bypass the court decision, said Michael Owen, a Los Angeles attorney familiar with the legal aspects of NAFTA. The legislation implementing NAFTA could be amended to exempt the agreement from an environmental impact report, he said.

Indeed, Clinton’s decision to press forward with approval of NAFTA--a pact negotiated under the Bush Administration to eliminate trade barriers among the North American nations--was conditioned on side agreements.

“Any chance to get such an amendment (to bypass the court ruling) adopted would depend on what transpires with the side agreements,” Owen said. “It could influence the vote on the amendment as well as the agreement as a whole. They are going to need every vote they can get. . . . This is a significant issue for a number of congressmen.”

Backers of the trade pact desperately need a successful conclusion to the side agreement negotiations to resuscitate the pact, which appeared close to death after the court handed down its decision in Washington last Thursday.

The Clinton Administration is appealing the ruling, but chances are fading that NAFTA can take effect Jan. 1 as planned.

“All three countries are trying to meet a timetable,” Owen said. “That makes it imperative that the side agreement negotiations continue.”

Winning over more members of Congress is critical in what is expected to be a close contest for approval of NAFTA, said Mexico City economist Jonathon Heath. “In the margin, these agreements will help to get a few more votes.”

Still, conclusion of the side agreements face several hurdles.

The countries have agreed to set up three-nation commissions on each issue. Those commissions would monitor compliance with the existing laws in each country, without attempting to move toward uniform laws or wage levels.

However, negotiators are divided over how much enforcement power the commissions should have and how their authority should be exercised.

U.S. negotiators are pressing for the power to fine or impose import taxes on violators, in a system similar to the provisions of current U.S. anti-dumping regulations. The Canadians and Mexicans are concerned that such powers would violate their sovereignty.

To complicate matters, some U.S. representatives share those concerns. As Owen pointed out: “The Mexican government could use those provisions against us. It’s a two-edged sword.”

The pressure of the court decision may be exactly the incentive negotiators need to work out their differences, said Mauro Leos, vice president of CIMEX-WEFA, a Philadelphia-based think tank.

“The negotiators could be more flexible on the side agreements,” he said. “That could send a signal that things are starting to move, that they are willing to compromise.”