Transcript Vermont Commission on International Trade and State

Vermont Commission on International
Trade and State Sovereignty
International Trade “Primer”/
What’s at Stake for Vermont?
Elliot Burg
Vermont Attorney General’s Office
September 28, 2006
Overview
 Why should Vermont care about international trade?
 How did the international trading system evolve?
 What parts of our economy are covered by trade rules?
 (How) can state law be impacted by trade agreements?
 What can Vermont do to respond to these challenges?
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Why should Vermont care? (Opportunities)
 International trade is a growing part of the economy
 States that track the U.S.’s negotiating strategy may get the
jump on new economic opportunities
 Jobs in export sectors are generally higher-wage
 Trade diplomacy is important for non-economic reasons
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Why should Vermont care? (Dangers)
 Foreign competition can negatively impact wages, and cost
jobs at home
 Free trade may undermine human rights, welfare abroad
 International trade agreements can impact state legal
authority
 The federal government can preempt state laws by citing
international trade commitments
 Some agreements provide expanded legal protection for
foreign investors
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Evolution of the international trading system (1)
1944—At Bretton Woods, global economic institutions created
 World Bank, IMF, GATT
 Rejected an International Trade Organization
1958—EEC established
 Another “free trade zone”
1979—Tokyo Round trade negotiations
 7th such round
 Tariffs reduced, some non-tariff agreements
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Evolution of the international trading system (2)
In the U.S. …
 1974—“Fast-track” authority established, streamlining Congressional
consideration of trade bills
 1979—Office of U.S. Trade Representative (USTR) created by
Executive Order … part of Executive Office of President (not subject
to Freedom of Information Act requests) … formally consults with
states through Inter-Governmental Policy Advisory Committee
(IGPAC) and State Points of Contact (SPOCs) … current USTR is
(Ambassador) Susan Schwab
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Evolution of the international trading system (3)
1994—“Uruguay Round” completed/World Trade Organization created
 Now has 149 members
 Ministerial Conferences take place every two years
WTO agreements include:
 Goods
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Services
Government procurement
Agriculture
Intellectual property rights
A binding dispute resolution system
More than a dozen separate agreements
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Evolution of the international trading system (4)
Since the Uruguay Round…
 North American Free Trade Agreement (NAFTA)
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U.S. – Singapore Free Trade Agreement
U.S. – Chile Free Trade Agreement
U.S. – Australia Free Trade Agreement
Central American Free Trade Agreement (CAFTA)
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“Alphabet soup” of trade agreements
GATT = General Agreement on Tariffs & Trade [Goods]
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Requires equal treatment for all foreign suppliers (national treatment and
most favored nation) and bans limits on market access*
Technical regulations may “not be more trade-restrictive than necessary to
fulfill a legitimate objective”
GATS = General Agreement on Trade in Services
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Contains similar rules (*) relating to “committed” services
“No more burdensome than necessary” to ensure quality of service
(“domestic regulation”)
GPA = Government Procurement Agreement
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Contains similar rules (*) relating to procurement in “committed” sectors
Technical specifications (broadly defined) may not be adopted “with the
effect of creating unnecessary obstacles to international trade”
The one agreement where the USTR has sought states’ “consent”
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More “soup”
FTAs = Multilateral free trade agreements
 NAFTA, CAFTA, proposed Free Trade Agreement of the
Americas (FTAA)
BITs = Bilateral investment treaties
 Over 1,800 BITs signed between 1959 and 1999
 NAFTA’s investor protection provisions (“Chapter 11”) are
patterned after the BITs
Text of agreements: http://www.wto.org/english/docs_e/legal_e/gatt47.pdf
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International trade agreements: rules
National treatment/Most favored nation
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Bans discrimination in the provision of goods and services
Market access
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Prohibits quantitative limitations
Domestic regulation
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Requires laws to be “no more burdensome than necessary” (in flux)
Minimum treatment (for investors)
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Requires treatment consistent with international law
Expropriation (for investors)
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Requires compensation for loss of value
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Summary of issues for the states
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Investment
Pharmaceuticals
Gambling
Environmental regulation
Professional regulation
Utilities
Tobacco
Procurement standards
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Investment (1)—rules
NAFTA, CAFTA and most bilateral agreements provide a
special dispute resolution process for foreign investors
Expropriation—must compensate to regulate
 U.S. constitutional standards don’t apply—real estate v. any
investment interest
Minimum treatment provisions
 Standards not well defined
International investment tribunals
 Cases heard in secret by panels of international trade lawyers
 State does not participate
 Federal government may recoup damages, or preempt state
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Investment (2)—court decisions
The Loewen Group, Inc. v. U.S.:
 Contract suit filed in Mississippi state court v. Loewen, Canadian funeral home
operator… jury verdict of $550 million
 Loewen filed an investor claim under NAFTA over national treatment, minimum
treatment, and expropriation without compensation … panel dismissed on a
technicality, but stated that the state-court trial was a “miscarriage of justice” in
violation of minimum treatment under international law
Mondev International, Ltd. v. U.S.:
 Mondev, of Montreal, embarked on commercial real estate development in Boston …
city refused to allow option to acquire a critical piece of land … Mondev sued, won in
trial court but lost before state supreme court on “sovereign immunity” grounds
 Mondev filed an investor claim under NAFTA for $50 million … panel dismissed
claim on a technicality, but U.S. did not contest notion that a judicial decision could
be the basis for an international investment award
Conference of Chief Justices: investor challenges “can undermine the enforcement and
finality of state court judgments”
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Investment (3)—environment
Metalclad Corp. v. United Mexican States:
 Permits issued for Mexican company to construct a hazardous waste facility …
U.S.-based Metalclad bought the Mexican company
 Mexican state and municipality objected to the facility, citing environmental
concerns, and it never opened
 Metalclad filed a NAFTA claim against Mexico for $90 million, alleging
violation of minimum treatment and expropriation without compensation …
NAFTA panel agreed and awarded $16.7 million
S.D. Meyers, Inc. v. Canada:
 Meyers, a U.S. company, had orders to treat PCB waste from Canada
 Canada temporarily banned the export of PCB waste, forcing Meyers’
customers to have their waste handled by a higher-priced Canadian competitor
 Meyers sought $20 million under NAFTA on grounds that Canada’s ban
violated national treatment, minimum treatment, and expropriated without
compensation … panel awarded $6 million for discrimination against Meyers
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Pharmaceuticals
U.S.-Australia Free Trade Agreement Annex:
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Countries must “promote timely and affordable access to innovative
pharmaceuticals” … this could mean that states cannot limit drugs on
their preferred drug lists, based on cost-effectiveness
Requires an independent review panel for a manufacturer whose PDL
application has been rejected … states’ role in process is unclear
Confirms right of patent holders to control resale or importation of
their products … could conflict with efforts to ease drug importation
Eli Lilly is now challenging Australia’s refusal to put an osteoporosis
drug on its formulary due to uncertain cost-effectiveness
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Gambling
WTO panel on Antigua’s GATS challenge to federal and state
bans on Internet gambling decided:
 U.S. commitment in “recreational” sector encompassed gambling,
even though unintended
 Ban on quantitative limits on market access under GATS includes
absolute prohibitions (“zero quotas”)
 Challenged federal anti-gambling laws violate U.S. commitment
under GATS—but “saved” by GATS’ “public morals” exception
due to gambling addiction, money laundering and fraud
 Left open: whether state bans on land-based gambling might fall,
if “public morals” are less relevant to that form of gambling
Slot machines in Vermont?
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Environmental regulation (1)
Ethyl Corp. v. Canada—investor-state dispute:
 Canada banned international sale of octane enhancer MMT, suspected of adverse
health effects … Ethyl filed a NAFTA claim, alleging violation of national treatment
and expropriation without compensation … Canada suspended ban and agreed to
pay $13 million
Glamis Gold Ltd. v. U.S—investor-state dispute:
 Glamis, a Canadian mining company, target of large protests over forest destruction
and water contamination in Honduras
 Glamis proposed a massive open-pit cyanide “heap-leach” gold mine in California
… pristine area, use of large amounts of water, near tribal ancestral sites
 Clinton administration denied permit, Bush’s reversed, California passed a law
requiring backfilling of open pit mines on or near sacred sites
 In 2003, Glamis filed a NAFTA claim for $50 million, claiming violation of
minimum treatment and expropriation without compensation
 Still pending
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Environmental regulation (2)
Methanex Corp. v. U.S—investor-state dispute:
 Canadian Methanex makes methanol, a key component of MTBE, a potential
carcinogen … 2005 Vermont joint resolution noted problems with MTBE …in
1997, California ordered a phaseout of MTBE
 In 1999, Methanex filed a NAFTA claim for $900 million: violation of national
and minimum treatment (favoring ethanol) and uncompensated expropriation
 2005, decision: Methanex failed to prove discriminatory intent … a nondiscriminatory regulation for a public purpose, enacted with due process, is not
expropriation unless “specific commitments” are given by regulating government
… also, one may not compare different products (MTBE and ethanol)
 Remaining issues: What kind of “commitment” could lead to expropriation?
What will other panels do?
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Environmental regulation (3)
GATS (non-investment)—What laws are “no more burdensome
than necessary to ensure the quality of the service”?
 Size limits on big-box stores?
 Limits on development to protect historic or cultural sites?
 Restrictions on outdoor advertising and signage?
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Professional regulation
The case of nursing
 GATS proposal to add “hospital services” to 90 sectors where the U.S. has
committed to GATS rules may encompass nursing services
 GATS says that domestic regulations must be “no more burdensome than
necessary to ensure the quality of the service” … could supersede state
determinations that would otherwise be upheld
 Could GATS:
 Override curriculum diversity requirements?
 “Federalize” or internationalize nursing qualification standards?
 What about other professions—law, medicine, accounting?
 Public education—in-state scholarships and state licensing could be at risk
 Note potential breadth of “domestic regulation”—could turn trade panels
into “super-legislatures”
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Utilities
In 1994, the U.S. made a specific GATS commitment on
“services incidental to energy distribution,” which could affect:
 State monopolies for distribution of electricity
 Renewable portfolio standards that disadvantage
foreign suppliers (such as Vermont’s definition
of “renewable” hydropower, which excludes
large-scale hydro)
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Tobacco
Grand River Enterprises Six Nations, Ltd. v. U.S.
 Grand River is a Canadian corporation involved in the manufacture and
sale of tobacco products, mostly exported to U.S.
 In 2004, Grand River filed a claim under NAFTA for $340 million in
damages allegedly resulting from the 1998 settlement agreement between
state attorneys general and major tobacco companies (“MSA”), and state
laws that implement the MSA
 Grand River claims that state laws that require non-signatories to MSA to
pay into escrow funds violate national treatment, most-favored-nation
treatment, minimum treatment under international law, and cause
expropriation without compensation
 Case could undermine efforts to pursue “non-defendant” tobacco
companies
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Government procurement
General Procurement Agreement (GPA):
 Requires equal treatment of foreign suppliers … must use standards that
are essential to fulfill contract—unclear how broad this is
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Limits on off-shoring
Green procurement policies (recycling, fuel efficiency, renewable energy)
Prevailing or living wage agreements
Preferences based on human rights standards
 USTR has chosen to ask states sign on, as a political matter
 Q: Who decides at the state level? USTR has only asked governors
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How state laws could be undermined
 Federal government can attempt to recoup trade panel
losses from future state appropriations
 Federal government can sue to preempt “offending” state
law
 States may decline to legislate in controversial areas
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Solutions (1)—federal action
Congressional action—implementing legislation
 November 2006, U.S.-Peru, U.S.-Colombia FTAs considered by
Congress?
Implementation of agreements and oversight of disputes
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Monitor trade/investment disputes that affect state authority
Contribute to “interpretive” notes to agreements
Be involved in stating limits on U.S. commitments under GATS
Be active on procurement matters
Join the debate on renewal of fast track (set to expire in June 2007)
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Solutions (2)—networking
Government associations
 NCSL, NAAG, NGA, IGPAC, etc.
States with active oversight committees on trade policy
 California
Maine
North Carolina
 Utah
Vermont
Washington
Multistate working groups
 Electricity
 Investment
Prescription Drugs
Rural Development/Agriculture
Non-governmental organizations
 Unions
 Environmental groups
Business associations
Civic groups
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Solutions (3)—court challenges
Two possibilities:
 Are trade agreements consistent with the treaty clause of the Constitution?
 Art. II, sec. 2: President “shall have Power, by and with the Advice and Consent of the
Senate, to make Treaties, provided two thirds of the Senators present concur”
 But trade agreements pass by a majority of both houses of Congress (fast-track)
 Challenge rejected by one appellate court, because it presented a “political question”
 Do the investor-state dispute provisions violate Article III of the Constitution?
 Sec. 1: federal judicial power shall be “vested in the Supreme Court and such inferior
courts as Congress may create”… judges must posses lifetime appointment
 Sec. 2: judicial Power extends to all cases “arising under … Treaties made, or which
shall be made … [and] to controversies to which the United States shall be a Party”
 But trade panels—which hear cases arising under treaties and to which U.S. is a party—
are not created by Congress, nor do their members have lifetime appointments
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Has the anti-discrimination agenda been “hijacked”
by an anti-regulatory agenda?
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Closing
International trade matters to Vermont
We need to be informed
We need to be active
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