January 31, 2001
Mr. Robert Zoellick
United States Trade Representative Elect
United States of America
1600 Pennsylvania Avenue
Washington, D.C. 20500
RE: UNITED STATES TRADE POLICY
Dear Mr. Zoellick,
As the legislative representatives of the world's sixth largest economy, we write to express our concern about the impact of certain trade policies on the institution in which we serve and on important democratic norms.
We recognize that the United States Constitution grants the federal government power to conduct foreign relations. We also recognize the economic importance of trade to California and the role that trade can play in fostering positive relationships between nations.
We are concerned, however, that as presently administered, the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) agreements diminish the sovereignty of states such as California and, in so doing, shift decision-making power from elected officials to unelected international trade officials. In the paragraphs that follow, we detail the reasons for our concern.
MTBE.
As you know, in the fall of 1999, a Canadian corporation named Methanex filed a NAFTA investment claim for $970 million against the U.S. government. The claim argued that California's phase-out of MTBE is not adequately justified by scientific evidence and that the phase-out amounts to an unauthorized "expropriation" of the company's expected profits. In Senate Resolution 20 (Mountjoy, 1999) and House Resolution 8 (Robert Pacheco, 1999), California state legislators of both parties communicated their misgivings about this challenge. We find it disconcerting that our democratic decision-making regarding this important public health issue is being second-guessed in a distant forum by unelected officials. This shift in governance is made even more troubling by the fact that the California Legislature has not received formal notice of the MTBE case proceedings and is not entitled to participate in any way.
Public Health.
In 1997, a WTO dispute resolution body ruled that a ban on beef treated with artificial hormones violated trade rules because the alleged harm on which the ban was based had not yet been definitively scientifically established. The effect of this ruling was to deem an important public health principle, the precautionary principle, to be in contravention of trade law. This concerns us for several reasons.
First, we believe that when the level of risk posed by a product or policy is scientifically uncertain, as is common given the nature of science, the option to err on the side of precaution is entirely legitimate and should not be penalized. As we stated in House Resolution 8 (Pacheco, 1999), "The State of California has a strong and legitimate interest under the United States Constitution to initiate and develop standards in matters affecting health, public safety, and the environment ...The Assembly recognizes the sovereign right of California to act with precaution in establishing policies to protect the health and safety of its residents..."
Secondly, we, as California legislators, find it problematic to be told by remote and unelected trade officials what paradigms or standards we must apply in writing environmental and public health laws for the people of our state. We further believe that since decisions about the level of risk to which a populace shall be exposed are ultimately a matter of values, such decisions are best made by elected officials in accessible and democratic fora.
Procurement policy.
We are also concerned by the invalidation of the Massachusetts' Burma law. Massachusetts, like nine California localities, had enacted a law stating that it would not award procurement contracts to corporations doing business with Burma, a slave labor regime. This law was similar to those that helped overturn the South African apartheid regime in the 1980s. Last summer, the United States Supreme Court ruled that the Massachusetts Burma law is preempted by congressional Burma sanctions. This ruling was narrow and did not address questions as to whether the Massachusetts procurement policy was in conflict with federal foreign affairs power or presented an inappropriate burden on foreign commerce. We were disturbed to learn, however, that the United States urged the Court to rule against Massachusetts on these broader grounds. We thus want to state in the strongest possible terms that the rights of elected state and local officials to decide how to spend and invest the public's money when acting as market participants must be preserved. California has enacted numerous purchasing preference laws including, but not limited to, a ban on the purchase of goods made with forced labor, a purchasing preference for recycled paper, and selective purchasing laws that favor disabled veterans. We wish to keep such laws intact as they were established through democratic processes and reflect the values of the citizens we represent.
Foreign investor claims.
We also want to mention our concern regarding the NAFTA investment claims that challenge well established elements of state common law. A pending NAFTA claim against a Mississippi jury verdict regarding fraudulent business practices challenges existing state common law on punitive damages and state Supreme Court rules regarding bond posting. Another pending NAFTA investment complaint against a Massachusetts court decision challenges state sovereign immunity. We are concerned that these NAFTA claims foreshadow a radical change in the common law liability of government that state legislatures across the country, both Republican and Democratic, have long declined to make. The American standards of compensation for tort, contract and taking claims have evolved over centuries and serve important public purposes. We do not wish to see these standards disrupted by international investor rights created by trade negotiators who may not have fully comprehended the potential implications of open-ended language.
Taxation.
We also have concerns about the potential for challenges to California taxation of multinational corporations. California utilizes the "unitary business principle" to tax corporations that conduct business in multiple nations. Under this approach, a corporation is taxed in a manner that reflects the share of its business in California. Even though the United States Supreme Court has approved this method of taxation, and even though California has recently modified its approach in response to concerns raised by the European Union and the Clinton Administration, other nations continue to assert that it is a trade barrier and thus may bring a WTO challenge.
Numerous other laws.
Many other democratically-enacted California laws may also be subject to challenge under NAFTA and the WTO. A study by the Harrison Institute for Public Law at Georgetown University Law Center identified at least 80 laws in California that potentially conflict with the WTO agreements alone.
Procedural problems.
The procedures applicable to the operation of dispute resolution tribunals and other aspects of trade policy formation fail to comply with basic democratic norms of transparency, openness and due process. While trade treaties may have evolved within a context that required confidentiality and limited access, the secrecy with which they operate now undermines the credibility of NAFTA and the WTO in free and democratic societies. We are also concerned that the trade advisory groups that advise the Administration are largely closed to groups representing the public interest and that the United States Trade Representative has failed to comply with explicit Congressional directives regarding consultation with states.
Attempted expansion.
We are aware that the Administration is currently involved in negotiating provisions relating to General Agreement on Trade in Services (GATS) and the Free Trade Area of the Americas Agreement (FTAA). As currently contemplated, GATS would have major impacts on state and local procurement of services and state and local regulation of services such as sewer and waste management. FTAA would affect government at all levels in such areas as services, procurement, subsidies and regulatory powers and would include an investment chapter even more expansive than that currently being used to challenge California's MTBE policy. The scope of GATS and FTAA negotiations give real urgency to the concerns we express above.
Consultation with California Legislature and Public Needed.
For all of the reasons outlined above, we request both of the following:
- That the California Legislature be provided with regular and complete updates regarding: (a) all challenges to state laws brought under NAFTA and the WTO agreements that could have implications for California's ability to keep its own laws intact; and (b) the progress of negotiations on the GATS and the FTAA; and
- Release of the FTAA and GATS texts for public and legislative analysis. Governance decisions must take place in the light of day, and large and technical documents take time to analyze.
We look forward to the opportunity to participate in the process recently established by the USTR and the Council on Environmental Quality for the review of the potential impacts of trade agreements, including potential impacts on state law. The establishment of this review process represents a positive and appropriate step.
Thank you for your attention to our concerns. We look forward to working with you as we collectively seek to protect important democratic norms of policy making in the current era of enforceable international trade agreements.
Sincerely,
Assembly Speaker pro Tem Fred Keeley (D)
Senator Sheila Kuehl (D)
Assembly Majority Leader Kevin Shelley (D)
Assemblymember John Longville (D)
Assemblymember Joe Nation (D)
Senator Bruce McPherson (R)
Senate pro Tempore John Burton (D)
Senator Byron Sher (D)
Senator Rico Oller (R)
Assemblymember Dion Aroner (D)
Senator Bob Margett (R)
Assemblymember Darrell Steinberg (D)
Assemblymember Hanna Beth Jackson (D)
Assemblymember Christine Kehoe (D)
cc: Governor Davis
California Congressional
Robert Stumberg
stumberg@law.georgetown.edu
202-662-9603 phone
202-662-9613 fax
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Harrison Institute for Public Law
Georgetown University Law Center
111 F St., NW - Suite 102
Washington, DC 20001-2095
