Trade News for State & Local Officials

Spring/Summer '09

Can We Make 2009 a Turning Point on Trade?

Newsletter Headlines:

  • US-EU Proposed Settlement on Gambling Case, LNG Concerns
  • Four States Moving 'Right-to-Opt-In to Trade Pact' Bills
  • States "Buy America"
  • 18 Million Americans Endorse "New Day on Trade"

USTR's Proposed Compensation Offer in WTO Gambling Case Would Subject U.S. LNG Terminals to WTO Jurisdiction

The never-ending problems arising out of Antigua's successful World Trade Organization (WTO) attack on U.S. gambling regulations are again proving to be Exhibit #1 in the case against WTO over-reach into non-trade domestic policy space. A proposed U.S.-EU settlement document in the gambling case released recently (as a result of a Public Citizen Freedom of Information Act lawsuit) reveals that the United States Trade Representative (USTR) has proposed binding four new U.S. sectors to the WTO General Agreement on Trade in Services (GATS) in exchange for removing gambling from GATS jurisdiction. The proposed new commitment of storage and warehousing services would bind Liquefied Natural Gas (LNG) terminals to the WTO.

Although USTR reported to Public Citizen that it intended to exclude LNG services from the proposed compensation offer, a close look at the actual offer shows that USTR did not in fact write the proposed commitment in a manner that effectively excludes LNG services from WTO jurisdiction. WTO GATS commitments are highly complex and involve a labyrinth of codes and sub-codes that have tripped up USTR in the past. In fact, the WTO Antigua gambling case began when USTR mistakenly committed the entire gambling sector to WTO jurisdiction by failing to realize that "recreational services," a sub-sector the United States committed, included gambling services! Despite the USTR's best intentions, in the instance of a trade challenge, a WTO tribunal, not USTR, would interpret the U.S. written commitments. Therefore, U.S. commitments, especially those involving sensitive service sectors like LNG, must be clear and unambiguous.

The Story Behind the Proposed LNG Commitment

State attorneys general protested in 2005, with good reason, when U.S gambling laws came under attack at the WTO. In 2007, USTR eventually complied with states' calls to withdraw gambling services from WTO jurisdiction. But to do so, the WTO requires the United States to negotiate compensation for any and all WTO signatories who say they would be damaged by such a U.S. withdrawal of a service sector. In exchange for removing the gambling sector from WTO coverage, USTR officials have proposed to commitment four new service sectors to WTO jurisdiction. One of these proposed new sector commitments could hinder state efforts to regulate LNG terminals.

Specifically, the U.S. proposed commitment of "Storage and Warehouse Services" is of serious concern. This service sector includes the subcategory called "Bulk Storage Services of Liquids or Gases" which covers facilities storing oil, gas and chemicals." USTR reports that it intended to exclude LNG services from its proposed commitment and tried to do so by taking an exception for a category called "Maritime Transport Services." However, a close investigation of the relevant United Nations and WTO GATS scheduling codes reveals that this exception does not in fact exclude LNG facilities - because it fails to cover many the services that are integral to LNG facilities.

LNG facilities are part of a chain of services that transfer highly volatile frozen fuel from ship to shore while restoring it to a gaseous state. Generally they include a deepwater port or an offshore docking site for marine tankers, a re-gasification process, on-shore storage tanks and pipelines. The storage aspect of the facility accounts for up to 50 percent of the total capital expenditure. The proposed USTR offer EXPLICITLY binds the storage facilities of LNG to the GATS and fails to take exception for any of the other aspects of the activities like pipelines, cargo handling, etc.

It is critical that the United States not commit LNG facilities to the constraints imposed by WTO GATS. The siting of LNG facilities has generated a great deal of government concern, public protest and press in many states because of serious concerns regarding potential damage to air and water quality, seismic safety issues, the catastrophic explosive hazards posed by aspects of the regasification and spills, as well as the risk of LNG facilities or tankers located near population centers presenting a target for terrorism.

Moreover, preserving policy space with respect to LNG and LNG facilities is critical to the Obama administration's goal of energy independence. Given plentiful U.S. domestic supplies, natural gas is one of the sectors in which this goal is most achievable. Some state legislatures have responded to this reality with legislation that would apply needs testing to applications for LNG facilities. Needs testing makes sense: there is ample domestic supply of natural gas and LNG facilities are very hazardous. That is to say LNG facilities pose hazards that are not necessary to ensure plentiful natural gas supplies.

Yet, if LNG services are committed to the "market access" rules that apply to sectors covered by GATS, neither the federal government nor state governments could apply needs testing and stop authorizing unneeded LNG facilities, even if this policy applied equally to domestic and foreign-owned facilities. (GATS Article XVI (Market Access) explicitly bans use of needs testing for covered service sectors.)

The good news is that there is still time to act. The proposed agreement negotiate during the Bush administration has not gone into effect yet because the United States is still negotiating with Antigua over compensation. This opens the door for the Obama administration to listen to concerns and revisit this issue. Environmental advocates, state and federal officials are already voicing their concerns to the Obama administration.

Thank you to state legislators who have already written to President Obama asking for redress so we can avoid this serious GATS-LNG problem! To date, legislators in Oregon and California, where needs-testing bills are being considered, as well as legislators from Washington and Massachusetts have written.

If you are not yet involved, you can take action by sending a letter to USTR requesting that the category of "bulk storage services of liquids or gases" be excluded from any settlement in the WTO gambling case and any future trade negotiations! (And, this is a good idea generally, because this category also would cover chemical and oil tank farms, which also require policy space preserved from GATS for environmental and other regulation.)

For more information or to get involved, contact Sarah Edelman or call: (202) 454-5193. We have analysis and sample letters that you can use to both learn about this troubling proposal and do something about it!

More about LNG on the right.


Four More States Moving Bills that Empower Legislature to Decide Whether to Opt-In to Trade Pact Regulatory Constraints

California, New Jersey, New York, and Maine are the latest states to move legislation similar to laws now in effect in Rhode Island, Hawaii, Maryland, and Minnesota which require legislative approval before a state can be bound to comply with non-trade regulatory restraints in trade agreements. To date, federal officials have only inquired about states' willingness to be bound to trade agreements' procurement policy constraints, and then only asked the governor who often agreed without consultation with state legislatures despite the legislatures' jurisdiction over state procurement policy. Federal officials have bound states to comply with trade pact non-tariff regulatory constraints on investment and service sector regulation without obtaining any form of consent.

California Assembly Member Nancy Skinner and Sen. Loni Hancock, both Berkeley Democrats, have introduced AB 1276, which would require a vote of the legislature to authorize any new decisions to bind the state to non-tariff regulatory provisions (like procurement, services and investment provisions) of future trade pacts. The California Assembly passed AB 1276 yesterday and the bill now heads for the Senate.

Rep. Sharon Treat of Maine (D-Hallowell) is sponsoring LD 1257, legislation to require consultation with the Maine Citizen Trade Policy Commission and legislative approval before any state official, when asked by federal officials, can indicate that Maine agrees to be bound to provisions of international trade agreements. The Maine House of Representatives voted unanimously today to support LD 1257.

New Jersey Assembly Members Joseph Egan (D-Middlesex) and Ruben Ramos (D-Hudson) are leading the charge on A. 2754. This legislation would establish a Citizens Commission on Jobs, Trade and Democracy to assess the economic and legal impacts of proposed trade agreements on the New Jersey economy and state law. A. 2754 also requires legislative approval to determine whether the state will inform federal officials of its agreement to be committed to comply with provisions of trade agreements. Last week the New Jersey General Assembly passed the bill: Sixty-one Assembly Members voted for the bill, 12 voted against the measure and 3 abstained. Now on to the Senate!

In New York, Assemblyman William Colton (D-Brooklyn) has introduced two versions of a bill aimed at addressing the lack of legislative oversight of state commitments to procurement rules of trade agreements. The version of the bill that has gained the most support, A. 1268/S. 3350, requires legislative approval in order for the state to commit to comply with procurement provisions of future trade agreements. It would also establish a task force within the Department of Labor to "analyze the potential impact of trade proposals to the state, assess the impact of trade on the state economy and make trade policy recommendations, and assist local workers, firms and communities on trade matters."



States "Buy America" v. Offshoring Corporations

Some of America's most notorious chronic job offshoring corporations are using trade agreement rules to attack Buy America provisions in the federal stimulus bill passed earlier this year. Their outlandish claim: allowing Congress to determine how our tax dollars should be spent to stimulate the U.S. economy through domestic infrastructure projects is 'protectionist!'

States have been ahead of the curve in recognizing that U.S. 'trade' agreements contain limits on domestic procurement policy that can limit local preferences and some states have taken action to ensure that state policy space in this area is preserved. Buy American and Buy America - the policy of giving U.S.-made products a preference in government procurement - has been used at the national levels for years, but a coalition of large multinationals that have moved significant production offshore sought to eliminate these existing policies with respect to the huge federal stimulus bill, formally known as the American Recovery and Reinvestment Act.

Buy American has been in place since the early 1980s, applies to federal transportation grants to the states, and has long been excluded from the over-reaching trade agreement procurement policy constraints - meaning domestic preferences can be used for such project grants without facing trade sanctions. Buy America, on the other hand, has been in place since the New Deal and applies to all other federal procurement. Thanks to 'trade' pacts such as WTO, NAFTA and CAFTA - and related Buy America trade agreement waivers - the U.S. federal government is required to treat U.S. trade-agreement partners (Canadian, European and other countries') products and services as if they were U.S. products and services for federal contracts. (Side note: the outrageous notion of trade agreement limiting how our tax dollars are used in government procurement is a major reason we oppose NAFTA-WTO-style trade agreements!)

With widespread support, committees in both the House and Senate included language in the stimulus package that made clear that the existing Buy America and Buy American preferences would apply to the massive stimulus spending. All the committees did was extend existing U.S. practice. However, companies like General Electric and Caterpillar that have long offshored U.S. jobs joined up with foreign governments and "free trade"-loving think-tanks to claim that the policy would spark a "trade war." This was a shameless ploy intended to pressure the Obama administration early on to back down from its extensive campaign commitments to trade reform. The sad irony is that because of existing U.S. trade agreements, a huge amount of the stimulus funds could not be made subject to domestic preferences - for instance the $20 billion allocated to transfer medical record into electronic form. And, the Buy America and Buy American preferences that were included in the stimulus bill complied with the trade pact limits. Despite this, the corporations with a major assist from various foreign governments raised a huge brouhaha.

Public Citizen showed that, not only was the "trade war" claim absurd, but that many other governments' WTO procurement commitments and actual practices provided much more policy space for domestic procurement preferences than U.S. law! The attempt to use the moment of economic crisis to roll back Buy America/n failed, luckily, when an amendment by Sen. John McCain (R-Ariz.) to strip all domestic preferences from the stimulus package was overwhelmingly voted down by the Senate in February.

We may have won that battle, but the war is far from over. The executive branch is writing regulations that may ultimately water down the Buy America provisions in the bill. And the debate is moving to the "laboratories of democracy" - the states! State legislatures are using a variety of measures to ensure that their economic recovery plans effectively target spending so stimulus money circulates in the local economy and stimulates local economic activity. In addition to creating oversight committees to guarantee transparent administration of federal economic recovery dollars, legislators in some states are also instituting Buy America purchasing policies as part of a comprehensive economic development strategy. For instance, legislators in Minnesota have introduced legislation that prohibit public employers from purchasing any uniforms, safety equipment, or protective accessories not manufactured in the United States of America:

Depending on your state's commitments to the procurement provisions of various trade agreements, you might hear apocalyptic arguments launched against Buy-America/state/local/regional or anti-offshoring legislation similar to those raised (and debunked) at the federal level. Do not allow these threats to undermine your efforts. Seventeen U.S. states have no trade agreement procurement commitments and many states have exceptions from various aspects of the rules even when they are bound - in part thanks to action by state legislators in the past. If a trading partner country were to challenge a state buy-local law, the challenge would take years to get even an initial WTO ruling. That is to say, ignore the claims and threats and legislate how to best spend to the stimulus money now! If a country decides to challenge your state law - and wins after 2-4 years of WTO process - that can be dealt with later.

Contact us if you have questions about your state's procurement commitments, or to join the state legislators working to change trade agreements so that vital state policy tools like procurement are not constrained by future trade agreements.

For a full list of state obligations to the sub-federal procurement provisions of U.S. international trade agreements, click here. The chart is an excerpt taken from a White House document issued in April regarding updated implementing guidance for the American Recovery and Reinvestment Act of 2009.


Organizations Representing 18 Million Americans Endorse "New Day on Trade"

Shortly after the new Congress had started, 350 national, state and local organizations representing over 18 million combined members from across the country sent each and every House and Senate members a letter calling on Congress to "replace the failed trade policies of the past with those that deliver broadly shared benefits." The letter lays out an affirmative trade reform agenda - addressing the China trade mess, closing the loopholes that promote offshoring, improving the safety of food and product imports, replacing the Doha Round WTO expansion negotiating agenda with a WTO-repairing agenda, and more. It also laid out what Leftover Bush initiatives the Obama administration should dustbin, including the three still-pending Bush hangover "free trade agreements" (FTAs), a new investment agreement with China that would provide new rights for a Chinese sovereign wealth fund, new threats to foreign tribunal challenges of U.S. laws and a vast new Asian NAFTA with Vietnam and other countries.

The Citizens Trade Campaign, a coalition of faith, family farm, environmental, labor, and consumer groups, issued the letter, promising to push for reform. Their pledge: "As the new Congress begins, we look forward to working with you and the Obama administration to seize this opportunity to create better rules for trade policy."

"Free trade agreements with Colombia, Panama and Korea represent more-of-the-same failed model backed by the Bush administration, and strongly rejected by voters," said Andy Gussert, CTC's Executive Director. "Hundreds of groups are now organizing, rolling up their sleeves, and pushing for reform…"

The statement, representing broad support from civil society groups, indicates growing interest in the impacts of trade policy - reinforcing the leadership taken on these matters by many state officials. The letter shows that many Americans continue to experience, first-hand, the ongoing damage to the economy brought, in part, by U.S. trade policies, and want their elected officials to take a new direction. Given 71 House and Senate members elected in 2006 and 2008 ran on trade reform and replaced those who had voted for WTO, NAFTA, Fast Track and CAFTA, this year could be the turning point on trade reform - but only if we all work to make that change reality. And it looks like the fight could start soon...

The Trade Reform, Accountability, and Employment (TRADE) Act, groundbreaking legislation that offers a new way forward on trade, will be introduced in Congress this summer. In addition to addressing many of the types of concerns raised in the letter above, the TRADE Act also contains provisions that stop preemption of state regulatory authority by trade agreements. We'll keep you posted as the legislation begins to move. Thanks for all that you do!

Yours,

Sarah and Kate
Public Citizen's Global Trade Watch

NCSL Spring Forum Panel on Technical Barriers to Trade

Thanks to your work, and the resolution you passed at NCSL last year, USTR is no longer actively alerting U.S. trade partners to pending state bills that might conflict with WTO terms.

USTR will however continue to post completed new state regulations, which is a requirement of the WTO's "Technical Barriers to Trade (TBT)" agreement. (The name of that WTO agreement is revealing, in that what WTO considers "technical barriers to trade" are any product regulation that may have an effect on trade, such as bans on lead-containing toys or other environmental or safety standards.)

The USTR and Department of Commerce provided more details about the WTO notification process at a panel at the NCSL Spring Forum in April. Here are some of the highlights from their presentations:

  • 22 percent of the 563 notifications of new standards and other policies that the United States has provided to the WTO since 2005 have pertained to state-level regulations;
  • Thus far in 2009, 60 notifications have been sent to the WTO and of these 14 were state-level policies (23%);
  • Washington, California and New York have the honor of being the three "most notified" states;
  • The most common types of state regulations selected for notification include those that pertain to environmental protection (auto emissions, recycling of electronic equipment, air quality, and volatile organic compounds), chemical technology, agriculture, and foods (country of origin labeling).

Although the USTR and Department of Commerce officials did not mention this at the NCSL session, it is worth noting that currently the United States is only required to give notice to WTO of product regulations - but, recent leaked documents in the ongoing GATS negotiations include proposals to require a similar notification system for alerting trading partners to new service sector regulations.

LNG Conference Call Recap

Last month we hosted a call for state officials to discuss the USTR WTO gambling case compensation deal that would bind LNG services to WTO jurisdiction in exchange for withdrawing gambling services from WTO. If you were able to join us, thank you for participating! If not, there are still ways to get involved. (See the article above!)

Nearly twenty participants from around the country contributed to discussion of the U.S. proposal and the potential problems it would pose for regulation of LNG facilities, and what state officials and advocates can do to prevent the deal from being finalized!

If you would like to be added to the LNG listserv we have created to facilitate further communication about the issue between state and local officials, please contact Kate.

Kirk and Locke,
Former State,
Local Officials at Helm of U.S. Trade Policy

Former Dallas Mayor Ron Kirk is now Ambassador Ron Kirk, the 16th United States Trade Representative and former Washington State Governor, Gary Locke is the new Secretary of Commerce. These two cabinet-level officials and their agencies are at the helm of establishing, implementing and enforcing U.S. trade policy.

So far, it appears that these two officials need to hear from their former state and local counterparts. In his first news conference and then again in his first major policy speech, Kirk announced it was time for a new paradigm on trade and then proceeded to outline his agenda which comprised pushing all three of President Bush's leftover NAFTA expansion agreements, finishing WTO talks under the current retrograde expansion agenda and not a word on China, manufacturing, import safety, closing offshoring loophole, the trade deficit or trade-related downward pressure on U.S. wage levels.

Kirk even announced that he planned to continue a massive Asian NAFTA expansion deal including Vietnam that the Bush administration had hastily announced in its last weeks - even though this decision is supposed to be under review for a later decision.

Effectively, Kirk's agenda is the opposite of what President Obama committed to during his campaign.

In Locke's confirmation hearing, the former governor made a promising statement "More than free trade, though, I believe in fair trade…[which means] we must enforce our trade agreements and place a high value on environmental, labor and safety standards."

As governor of Washington State, Locke experienced first hand USTR indifference towards state officials when the Bush administration ignored his letter requesting that USTR exempt Washington's human rights and labor standards from the restrictive procurement rules of CAFTA.

On the other hand, Locke's past intense support for our many of the past failed trade policies puts him outside the norm of U.S public and congressional opinion. While governor of Washington, Locke chose to commit the state to CAFTA's procurement rules, was a strong supporter of Permanent Most Favored Nation Status for China and China's admission into WTO and, over the objections of Seattle's mayor, called in the national guard to crush the protests against the Seattle WTO Ministerial in 1999.

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