Trade News for State & Local Officials

Winter 2008

2008 Wrap-up, Making Way for Change

Newsletter Headlines:

  • Translating States' Efforts into Real Change
  • Minnesota Legislature Takes Action on Trade Policy
  • NCSL Urges USTR to Aggressively Defend States' Regulatory Authority
  • Doha Negotiations Stall and Sputter Through 2008, Will Obama Take New Direction?

The Stage is Set in Washington for Trade Reform, but Delivering Real Change Requires Hard Work in 2009

For the past several years, state legislators - recognizing that current trade agreements contain provisions that seriously hinder their non-trade law-making authority - have been fighting to restore the balance of powers in the way U.S. trade policy is formed and implemented.

The election of Barack Obama, a former Illinois state legislator, as president and the arrival of yet another 42 fair- trade members of Congress, provides enormous opportunities for state legislators to demand major changes to current policies and policy-making processes to address concerns about trade policy.

The challenge is that the election did not make the powerful interests who have promoted and defended the failed trade status quo go away. In fact some of them are close to the incoming administration and will be poised to do battle internally with administration's champions of change. The opportunity is that American public opinion is so strongly in favor of real trade reform, that over the past two congressional election cycles,  71 Representatives and Senators who supported NAFTA, WTO, China PNTR, CAFTA, Fast Track and other status quo policies have been replaced by fair traders - from political both parties.

The new team in Congress includes leaders in the state-level movement for trade reform! State legislators running for Congress who worked to promote fair trade at the state level fared well in this election. For instance, U.S. Representative-elect Dina Titus, from Nevada's third congressional district, not only ran paid trade ads against unfair trade practices, but was a cosponsor of groundbreaking legislation in the Nevada Senate to require more legislative oversight of the process by which Nevada commits to certain provisions of trade agreements. (ie. legislation to establish prior informed consent, opt-in rights that many states have promoted.)

In addition, this summer more than 80 legislators at the federal level showed that they share state legislators' concerns by cosponsoring the Trade Reform Accountability Development and Employment (TRADE) Act. This legislation contains provisions that would safeguard federalism in trade agreements going forward - including establishing opt-in rights for states regarding whether they will be bound by trade agreement investment, service-sector and procurement regulatory-constraint provisions. The TRADE Act was introduced in June by Sen. Sherrod Brown (D-Ohio) and Rep. Mike Michaud (D-Maine) with more than 50 diverse original sponsors.

This landmark legislation offers a path towards a new globalization policy that can harvest the benefits of trade, without undermining the principles and practice of American democracy, including our systems of federalism and checks and balances.

The TRADE Act:

•    Sets forth in detail what future trade agreements must and must not include;

•    Requires the review and remedy of our existing trade agreements;

•    Provides groundbreaking new protections for state sovereignty, recognizing that existing "trade" pacts have inappropriately encroached into states' domestic non-trade policy space;

•    Describes a new presidential trade negotiating process to replace Fast Track that dramatically improves state-federal consultations by providing states with authority to determine to which investment, service-sector and procurement regulatory terms in trade pacts states will be bound.

Get Involved!

Power cedes nothing without demand and the TRADE Act is an excellent vehicle to promote state and local officials' demands for real change. As federal legislators prepare to re-introduce the TRADE Act in 2009, this is your opportunity to weigh-in about provisions relating to state sovereignty.

Take a look at last year's TRADE Act, pay particular attention to sections 7(6), 4(14), and 8, and send us your comments. Only by taking initiative to actively push for real change can we ensure that our hopes - and years of work to get ready for the opportunities that we now exist - are translated into real reform.


Minnesota Legislature Passes Trade Agreement-State Sovereignty Protection Policy

Minnesota recently became the fourth state (joining Maryland, Hawaii, and Rhode Island) to take decisive action to ensure the state legislature is fully involved in decisions about binding the state to comply with non-trade policy constraints in trade agreements. . Minnesota legislators passed a statute requiring that the state legislature, in addition to the governor, give approval before the state may commit to any new international trade agreement's procurement provisions. In May, Minnesota adopted this change and established a Trade Policy Advisory Group to assist the governor and the legislature in understanding the impact of international trade agreements on the state.

With state legislators nationwide focused on addressing job loss and major economic setbacks that have crippled budgets from California to New York, ensuring key economic development policies - like procurement terms - are not undermined by trade pacts takes a heightened importance. States who are bound to meet trade agreement procurement rules could face challenges to policies that seek to channel into local job creation the new funds pending with the expected mega-dollar 2009 Economic Recovery plan.

Just a few procurement policies that have been used to stimulate local economic development and spur job creation that could run afoul of "trade" rules include: "Buy Local" preferences for local suppliers; anti-offshoring measures that require the use of in-state workforces; local services procurement, and even "green" procurement policies that require recycled content or renewable energy use over less eco-friendly options. Policymakers must be free to pursue these critically needed policies, without being handcuffed by the procurement rules contained in trade agreements. Passing legislation such as that now in effect in Minnesota, Maryland, Hawaii, and Rhode Island can ensure state legislatures safeguard this important policy space from international pre-emption.

States that are not taking the opportunity to consult their legislature about the procurement and other non-trade regulatory limits in trade pacts  are liable to overlook important considerations that may cost the state heavily in years to come. Once a state has agreed to be bound to a trade agreement, it becomes very difficult to rescind the offer - although taking action to withdraw from such constraints is worth consideration in 2009. However the consequences of initially getting into such obligations, both pro and con, should be thoroughly understood by state legislatures before a state is bound to comply with the terms.

During the recent campaigns, Democrats and Republicans alike offered proposals to boost economic development with new policies to create  "Green Jobs" and boost American innovation to create and build the green technologies of the future. Yet few have addressed the conflict between these economic rescue efforts and current U.S. trade rules. If we are to rebuild our state economies, we'll need all the tools and options available. Contact us for more information to ensure your state is informed about its commitments.


In Response to Growing Trade Threats Against State Health, Safety Initiatives, NCSL Urges the U.S. Trade Representative to Aggressively Defend States' Regulatory Authority

At the National Conference of State Legislatures (NCSL) Fall Forum in Atlanta in early December, a second standing committee unanimously approved Sen. Virginia Lyons' (D-VT-Chittenden County) action-calendar resolution calling on USTR to safeguard states' lawmaking authority in the midst of growing trade threats being issued against  various state public interest measures. The resolution, first approved by the Labor and Economic Development Committee this summer at NCSL's annual legislative summit, calls on USTR to at a minimum issue a statement affirming its defense of states' regulatory powers to protect human health and the environment.

Lyons introduced this action-calendar resolution in response to troubling correspondence she received at her home from the Chinese government which asked her to "revise" or "cancel" legislation she had introduced into the Vermont legislature which established a system for collecting and recycling electronic waste. Del. Jim Hubbard (D-Prince George's County) also received similar correspondence in response to his proposals to ban the sale of products containing lead and to ban the sale of children's products containing bisphenol-A and phthalates, two toxic chemical ingredients commonly found in plastics.  The U.S. Trade Representative's office had alerted U.S. trade partners to the state proposals by posting information about them to the WTO's Technical Barriers to Trade notification site

The passed action-calendar resolution is now the official NCSL position on the matter. This will be the third time the issue of state sovereignty has been raised at NCSL this year in relation to U.S. trade policy. At both the NCSL Spring Meeting and Annual Meeting earlier this year, the Labor and Economic Development Committee voted down proposed policies to support the U.S.-Colombia Free Trade Agreement, citing incompatibilities with the standing NCSL policy on Free Trade and Federalism. Each of these initiatives has served to raise awareness among state legislators about the influence of trade policy on their regulatory authority. Many legislators are increasingly joining the dialogue in hopes that their input will be considered as trade negotiations continue. The shift in NCSL position on trade has a powerful impact in Washington, where for years proponents of Fast Track, NAFTA, WTO and other policies used NCSL resolution of support to undermine those who raised concerns about the pacts' threats to state regulatory authority.


Doha Round Negotiations Stall and Sputter Through 2008; Will the Obama Administration Set a New Course?

Yet again, efforts by the Bush administration, other G-20 countries and the WTO Secretariat to complete the Doha Round of WTO expansion negotiations failed in early December. The last-ditch push involved the attempt to call an invitation-only mini-ministerial of countries who would sign-off on core aspect of the deal, locking down the current agenda and setting a path to its early completion in 2009. Given years of civil society and legislative activism against the flawed Doha Round agenda, trade Ministers remained deadlocked on many details - and more critically on the underlying goals of the Doha Round talks. To avoid the collapse of yet another WTO ministerial summit, the meeting was canceled. For the time being, with negotiations at an impasse, new service sectors that the Bush administration had offered to be bound to WTO constraints as part of the Doha Round - such as higher education, public libraries, and construction services - remain outside WTO jurisdiction.

However, there is still cause for great concern, vigilance and activism. Unless incoming President Obama demands a fundamental change in the direction of WTO talks, the Doha Round agenda and objectives, some of which deeply affect states' regulatory policy space, will remain on the negotiating table when talks resume. Indeed, even now, with national capitols worldwide going into holiday hiatus and the WTO's Geneva staff heading for the traditional winter break, interested parties who have sought to use the Doha Round to impose an array of new policy constraints are trying to get the talks restarted. Getting President Obama to take an initiative to replace the Doha Round WTO expansion agenda with a new WTO repair and transformation agenda is critical if state regulatory authority is to be safeguarded and global economic stability restored.

As part of the WTO Doha Round negotiations, federal trade negotiators have been looking to expand the WTO's General Agreement on Trade in Services (GATS) by adding further sectors of our service economy to comply with the restrictive rules contained therein. Already the WTO service-sector rules prohibit U.S. federal and state governments from limiting the number of foreign service providers in many sectors - for instance, limiting the size of foreign retail outlets or requiring economic impact analyses for large retailers or imposing needs-test on hospitals with foreign investors, or on the number of foreign-owned beach-front hotels or other development in environmentally-sensitive locations. Certain policies being considered to re-regulate banks, investment firms and other financial services may also conflict with existing WTO rules.

These rules also discourage the creation of new public services or the use of policy tools such as exclusive service contracts, which many states have considered in their health-care reform debates. They also prohibit certain domestic policies that have the unintended effect of disadvantaging foreign firms, even if those policies were applied equally to domestic and foreign firms alike. For instance, U.S. CAFE (Corporate Average Fuel Economy) standards were successfully challenged because European carmakers' decision to sell large luxury cars in the United States meant that averaging fuel efficiency across maker's fleets required each of their models to have better fuel efficiency rates than the fleets of domestic makers who also produced smaller, more efficient cares. The rules applied equally, and that Japanese producers who sold mainly small cars here had an easier time meeting the rules than U.S. makers was irrelevant to the finding that in effect the equal standard discriminated against European cars.

One of the best examples of the WTO services agreement gone wrong for the United States is the 2003 WTO Internet gambling suit - in which a WTO tribunal ruled that the United States' ability to regulate gambling was extremely limited because "gambling services" were covered by WTO rules. Although, at the urging of state officials, the Bush administration made an unprecedented decision to withdraw the U.S. gambling service sector from WTO jurisdiction, the United States is still reeling from this dispute. Last year, the WTO ruled against the United States, requiring annual payment of $21 million in compensation for the U.S. ban on Internet gambling. Antigua did not consider that amount fair and is attempting to negotiate a higher annual payment. Further, the United States has yet to complete compensation negotiations with all of the affected WTO members, who under WTO rules must be compensated for the U.S. withdrawal of the gambling service sector. In these negotiations, the Bush administration has offered to submit yet more sensitive sectors of the U.S. service economy to WTO jurisdiction, including regarding siting of LNG terminals and chemical and fuel tank farms and how governments can use tax credits and other tools to promote Research and Development investment at home. The WTO internet gambling ordeal not only shows how service sector commitments can limit regulatory authority, it also reveals the difficulty of withdrawing commitments once made.
 
Although 2008 will conclude without new U.S. service sectors commitments to the WTO's GATS - and thus new limits on states regulatory authority -  state and local officials must start 2009 with strong advocacy on the incoming administration to replace the Doha Round agenda and keep vital service sectors outside of WTO jurisdiction.

We look forward to working with you in the new year! Happy Holidays!

Yours,

Sarah and Kate
Public Citizen's Global Trade Watch

Investors Use NAFTA Chapter 11 to Challenge Health and Environmental Regulations

This fall, Canadian health care and environmental advocates saw the start of two challenges to Canadian health and environmental regulations. First, Melvin J. Howard, an Arizona businessman, frustrated after failed attempts to open private surgical centers in Canadian provinces, filed a U.S. NAFTA investor suit against Canada demanding payment of over $150 million in lost expenses and profits!

 

Howard's claim is that as a NAFTA foreign investor, he has a right to operate such businesses in Canada, even though Canada's health care policies say otherwise. U.S. chemical giant, Dow Agrosciences, has also filed the first round of NAFTA Chapter 11 paperwork to sue Canada over a recent province-wide ban in Quebec on residential use of pesticides.

 

This case is similar to an earlier NAFTA Chapter 11 case in which Ethyl Corporation sued Canada after it banned MMT, a gasoline additive the firm produced which is linked to health and environmental problems. In the Ethyl case, Canada reversed its ban and paid Ethyl $13 million for lost sales.

 
What does this mean for U.S. legislators?

 
Keep in mind that the United States is just as vulnerable to such NAFTA investor suits as is Canada. In fact,  four NAFTA Chapter 11 cases are now pending against the United States.

 

That is bad news since foreign investors have succeeded five times with NAFTA Chapter 11 attacks on domestic health, logging, and zoning policies, and $35 million in public funds have been paid by NAFTA countries in compensation to foreign investors.

 
Furthermore, this example calls attention to the challenges our legislators might face while trying to bring desperately needed reform to our health-care system. Options on the table - such as the single-payer systems proposed in 16 states and pharmaceutical purchasing plans - are among the many reform measures vulnerable to such trade agreement foreign investor challenges.

Flipper v. GATTZilla, Again

In October, Mexico initiated yet another trade challenge against U.S. dolphin safe tuna laws. The case filed at the WTO claims that the U.S. "dolphin safe" tuna label violates Mexico's WTO rights and that the U.S. must allow Mexican tuna imports to bear the dolphin safe label - even though a U.S. federal court has ruled otherwise.

You may have thought the the whole GATTzilla v. Flipper tuna-dolphin trade fight was settled several years ago when Congress, in response to a 1991 General Agreement on Trade and Tariffs (GATT) ruling, dramatically weakened U.S. "dolphin safe" standards.  Originally, law outlawed sale of tuna caught by domestic or foreign fishers using encirclement of dolphins with purse seine nets, a practice that led to the death of millions of dolphins. In 1997 Congress modified the standards to allow for tuna caught with encirclement nets to enter the United States and be labeled "dolphin safe" if a special dolphin safety observer (only one observer required on boats as long as a football field) witnessed no dolphin deaths.

Now the dispute is back. Mexico claims that the watered down law still violates its WTO rights. The 1991 GATT ruling against the Marine Mammal Protection Act first brought to the attention of many the threat to environmental and other non-trade laws posed by trade agreements. This hot potato case will be inherited by the Obama administration, with the first hearings expected in early 2009. If Mexico proceeds with its attack, this case could become another high profile example of why trade agreements - and the procedures ued to develop them - must be fundamentally changed. Check out this article for a history of previous cases.

Join the network of state and local officials working to create a winning new trade policy that safeguards state sovereignty and democracy in trade agreements! See below for more information, or contact Sarah Edelman at (202) 454-5193 or sedelman@citizen.org.

Join Public Citizen's State Legislator Working Group on Trade Policy Reform!

Work with legislators around the country toward creating a winning new trade policy that safeguards state sovereignty in trade agreements!

To join the listserv email us, subject: Please sign me up for the working group!

Tell A Colleague

The State of Global Trade is a low-frequency newsletter for state and local officials. Help spread the word.

 

If you do not wish to receive e-mail messages from Public Citizen in the future, please click here.

Copyright © 2008 Public Citizen. All Rights Reserved
215 Pennsylvania Ave. SE, 3rd Floor
Washington, DC 20003