Over the past decade, international trade and investment agreements have expanded their scope beyond just targeting tariffs, import quotas, and other traditional barriers to trade. Trade agreements now serve as a mechanism for eliminating “non-tariff barriers,” a catch-all term which increasingly encompasses non-trade-related domestic regulations. This shift is significant, in that the former is the exclusive responsibility of the federal government while the latter is often, per the US Constitution, a responsibility of state and local governments. Thus, the current model of free trade agreements is a growing threat to state and local governance.
The process by which free trade agreements become law demonstrates the root of this threat. The federal government negotiates trade agreements without direct input from state and local governments. Even Congress lacks substantial input in the process. Due to Fast Track, also known as Trade Promotion Authority, the President possesses all trade negotiation power and Congress is denied the opportunity for debate and amendment on the trade agreements. Thus, elected officials in Congress are unable to address the concerns of their states regarding the implications of trade policies.
Once passed into law, the terms of these agreements present serious challenges to the authority of state and local governments. Investment rules in the North American Free Trade Agreement (NAFTA) are illustrative. Chapter 11 of NAFTA grants foreign corporations the right to sue the US government for anticipated and actual profit losses due to state and local governmental regulations. For instance, in response to a California ban of MTBE, a gasoline additive that contaminated drinking water throughout the state, the Canadian corporation Methanex sued the US in a NAFTA tribunal for $970 million or a repeal of the ban. Under NAFTA rules, national governments must enforce such rulings including with regard to state actions. National governments must either pay billions of dollars in sanctions or bring the local government into compliance through withholding funds or other means. This produces a chilling effect on state and local lawmakers, who are increasingly discouraged from enacting certain types of legislation, particularly public interest protection. Meanwhile, provisions similar to NAFTA’s Chapter 11 have been included in the text of several free trade agreements currently being negotiated, including the proposed Central American Free Trade Agreement (CAFTA) and the Free Trade Area of the Americas (FTAA).
The present model of trade agreements undermines the decision-making authority of state and local governments in other ways as well. Under trade rules, decisions regarding community development, government purchasing, public health and safety, and foreign ownership or investment which should be debated and legislated by City Councils and State Legislatures, instead are being made by unaccountable and anonymous bureaucrats and closed trade tribunals. Since only national governments are represented in the negotiating process and on dispute tribunals, state and local governments play no role even when it is their interests that are at stake. Local and state government decisions, for instance, on how to spend tax revenue, institute anti-sweatshop or recycling codes, or instate living wage legislation, can all be challenged under procurement rules in trade agreements. Additionally, the regulation of the number of service providers (for example hospitals or landfills) in an area is illegal under the General Agreement on Trade in Services (GATS), a part of the WTO, and similar provisions in the proposed FTAA. Under these rules, domestic regulations, including those under state and local jurisdiction, must be deemed “no more burdensome [to trade and investment] than necessary.”
To address these concerns, greater participation must be granted to state and local governments throughout the negotiation, approval, and adjudication process. Without this, free trade agreements will continue to expand the rights of corporations and diminish the scope of jurisdiction of state and local governments.