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States' Rights and International Trade States’ Rights and International Trade A Legislator’s Guide to Reinvigorating Federalism and Preserving Policy Space in the Era of Globalization, December 2009 States’ Rights and International Trade A Legislator’s Guide to Reinvigorating Federalism and Preserving Policy Space in the Era of Globalization December 2009 © 2009 by Public Citizen’s Global Trade Watch. All rights reserved. No part of this document may be repro- duced or utilized in any form or by any means, electronic or mechanical, including photography, recording, or by information exchange and retrieval systems, without written permission from the authors. Public Citizen is a national, nonprofit consumer advocacy organization that serves as the people’s voice in the nation’s capital. Founded in 1971 by Ralph Nader, we champion citizen interests before Congress, the execu- tive branch agencies and the courts. We fight for openness and democratic accountability in government, for the right of consumers to seek redress in the courts; for clean, safe and sustainable energy sources; for social and economic justice in trade and globalization policies; for strong health and safety protections; and for safe, effective and affordable prescription drugs and health care. Visit our web page at www.citizen.org. Acknowledgments: This report was written by Mary Bottari and Lori Wallach. Thanks to Sarah Edelman, Kate Pollard, Todd Tucker, Brandon Wu, Bill Holland, Daphne Watkins, Naomi Logan, Travis McArthur, Bryan Buchanan, Daniel Meltzer and James Decker. Additional copies of this document are available from: Sarah Edelman, Public Citizen’s State and Local Program Coordinator, at 202/454-5193 or [email protected]. Public Citizen’s Global Trade Watch 215 Pennsylvania Ave. S.E., • Washington, D.C. 20003 PC Product ID No: E9034 Other Titles by Public Citizen’s Global Trade Watch: • To Promote Economic Stability Argentina Must Free Itself from WTO Financial Deregulation Dictates (November 2009) • To Promote Economic Stability, Nations Must Free Themselves from WTO Financial Deregulation Dictates (October 2009) • No Meaningful Safeguards for Prudential Measures in World Trade Organization’s Financial Service Deregulation Agreements (September 2009) • Panama FTA Would Undermine U.S. Efforts to Stop Offshore Tax-Haven Abuse and Regulate Risky Financial Conduct (April 2009) • The Rise and Fall of Fast Track Authority (Public Citizen, 2008) • Federalism and Global Governance: Comparative Analysis of Trade Agreement Negotiations and Approval Mechanisms Used in U.S. and Other Federalist Governance Systems (Public Citizen, 2008) • Prosperity Undermined: Economic Outcomes During the Era of Fast Tracked NAFTA and WTO Model Trade Agreements (August 2008) • Santa’s Sweatshop: Made in D.C. With Bad Trade Policy (December 2007) • Trade Deficit in Food Safety (July 2007) • Peru-U.S. “Free Trade Agreement” Would Help Lock-In Failed Social Security Privatization in Peru (June 2007, with Americans for Democratic Action and USAction) • Big Box Backlash: The Stealth Campaign at the World Trade Organization to Preempt Local Control Over Land Use (December 2005) • Whose Trade Organization? A Comprehensive Guide to the WTO (New Press, 2004) Table of Contents Introduction ............................................................................................................................1 Section 1: Primer: “Free Trade” and Federalism ..................................................................11 Section 2: Procurement Rules in Trade Pacts Jeopardize State Legislative Control Over Purchasing Policy ...............................................25 Section 3: Service-Sector Rules in Trade Pacts Limit State Health Care, Other Policy Options ...........................................................31 Section 4: Investment Rules in Trade Pacts Restrict Policy Solutions to Critical Problems .................................................................41 Section 5: What State Elected Officials Can Do at the State Level to Promote Better Trade Policymaking .............................................49 Section 6: What State Elected Officials Can Do at the Federal Level to Promote Better Trade Policymaking .........................................55 Annex 1: Maryland’s “Safeguarding Local Economic Development in Trade Act” .............63 Annex 2: New Jersey’s “Jobs, Trade and Democracy Act” ..................................................67 Annex 3: “Safeguarding Federalism in Trade Negotiation” ................................................71 Annex 4: States Bound to International Trade-Agreement Government Procurement Provisions ....................................................................................74 Annex 5: Trade-Agreement Threats to Climate Change Policy Space ................................76 Annex 6: Trade-Agreement Threats to Health Care Policy Space ......................................78 Annex 7: Trade-Agreement Threats to Higher-Education Policy Space .............................80 Annex 8: Trade-Agreement Threats to Local Land-Use Policy Space .................................82 Annex 9: Trade-Agreement Threats to Toxics Regulation ..................................................84 Annex 10: Trade-Agreement Threats to Financial Service-Sector Reregulation ....................86 Annex 11: U.S. Model Bilateral Investment Treaty: Repeating NAFTA’s Mistakes ..............90 Annex 12: The TRADE Act: A Path Toward a New Trade and Globalization Model that Safeguards States’ Rights.............................................................................93 Annex 13: National Conference of State Legislatures’ Free Trade and Federalism Resolution ......................................................................................95 Endnotes ........................................................................................................................101 This Legislator’s Guide ith this Legislator’s Guide, Public Citizen’s We conclude by highlighting opportunities for state WGlobal Trade Watch division has condensed officials to improve the system of federal-state trade all of the information state officials need to know consultation on trade agreements, both at the state about the problems today’s trade pacts pose to states’ and at the federal levels, so that states are guaranteed rights and policy space. It also explains how to a formal process to “opt in” to trade-agreement terms reinvigorate federalism in the era of globalization, so before being bound to trade pacts’ mandatory, non- that the United States can gain the benefits of trade trade regulatory constraints – in other words, the without unnecessarily sacrificing our democratic right to prior informed consent. Fast Track trade au- policymaking systems. While law and policies under thority sunset in 2007. In the coming years, President local jurisdiction are also frequently implicated in Obama will request that Congress provides him with trade agreements, for brevity’s sake this Guide will new trade agreement authority. How Congress for- highlight challenges to state laws and opportunities mulates the delegation of its exclusive constitutional for state officials to act. authority over trade to the new president will greatly determine both the substance of and policymaking The Introduction to this Guide provides context for procedures for future trade agreements. This Guide why state officials’ day-to-day effectiveness is inhib- is an essential tool for state legislators seeking to ited by today’s trade agreement policymaking and an understand the extremely rare opportunity that this update on the current state of play. The first three pending debate over the future form of trade agree- sections of this Guide focus on how trade agreements’ ment authority will provide to transform our trade procurement, service-sector and investment rules can policymaking processes and create trade agreements limit state policymakers’ regulatory options. We also that work for Americans. include information about the many creative ways in which states have worked to simultaneously promote We hope this guide is useful for you, increased trade and preserve their policy options. Lori Wallach, Director of Public Citizen’s Global Trade Watch Division Sarah Edelman, Coordinator of Global Trade Watch State and Local Program Introduction “[I]t is clear that world trade is evolving into new areas that touch not only the sovereign heart of nation-states, but also areas within the constitutional prerogative of subnational governmental units.” – University of Chicago law review article1 “[I]t is vital to maintain the principle that the federal government may request, but not require, states to alter their regulatory regimes in areas over which the states hold constitutional authority …” – Letter from 29 U.S. State Attorneys General2 Background on the Conflict Between Overreaching “Trade” Agreements and Federalism he vast majority of Americans understand that Education is not enough to protect workers from the Tour current trade policy, symbolized by the wage pressure caused by trade. Increasingly, college- 1994 North American Free Trade Agreement (NAF- educated workers are seeing their wage growth stag- TA) and the 1995 World Trade Organization (WTO) nate, even in technologically sophisticated fields like agreements, have harmed the U.S. economy. Since engineering.8 Moreover, offshoring of American jobs the establishment of NAFTA and the WTO, the U.S. is moving rapidly up the income and skills ladder. trade deficit
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