Preventing Trade Deals from Undermining State Power


When the Montana State Senate voted overwhelmingly two weeks ago to oppose approval of reauthorization of "Fast Track" Trade Promotion authority for new trade deals, it sent a powerful message that the American people and state governments are tiring of misguided trade deals.  

Instead of delivering promised economic growth, those trade rules have led to enormous trade deficits, lost jobs and an undermining of state democratic powers to regulate large corporations in the public interest. 

This Dispatch will highlight the problems with present trade laws, emphasizing especially the undermining of local regulatory powers, but also what states like Montana are doing to challenge these global backroom deals.  Many of the resources linked to come from Public Citizen's Global Trade Watch, one of the key allies Progressive States is working with to promote resolutions like Montana's that will send a message from the states that we need a new approach to global trade.


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Background on a Failed Trade System


While the American people believe that in a fair trading system working families both in the United States and abroad would benefit, they are increasingly skeptical that the present trade regime is fair or delivering on that promise.  As polls show:

  • By a 60 percent to 25 percent margin, Americans said that NAFTA has had a bad effect on the job security of American workers
  • Americans oppose a trade deal with China by 56 percent to 34 percent margin.
  • Much of the anger stems from the offshoring of jobs, a process that 64% of the American people believe is driven by the greed of corporate executives.

As the AFL-CIO Executive Council argued in a resolution approved last week:

[T]he costs of this flawed globalization model are paid by workers, family farmers and domestic producers””but all Americans are affected by growing inequality and eroding protections for consumer safety, public health and the environment...The offshoring of our capacity is underwritten by a toxic brew of workers’ rights violations, lax environmental standards, currency manipulation and illegal subsidies that global corporations seek and from which they benefit.

Why are we getting such bad trade deals?  The answer is a "fast track" process that allows the President to negotiate trade deals, then prevents any amendments or real debate when those trade deals are submitted to Congress.  

This means that multinational corporate interests know that if they cut a backroom deal at global negotiating forums, such special interest provisions can't be removed when the deal comes up for a vote in Congress.   We then have the repeated threat in which elected officials are told that they either vote "Yes" or the whole global economy will collapse.  No third option of building real labor, environmental and consumer protections into those trade deals is even allowed. 


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State Regulation Under Assault by Trade Deals


When trade deals were merely about lowering tariffs, this lack of democratic process was not such a deep problem, but trade deals today are as thick as phone books with detailed provisions governing areas ranging from prescription drugs to government procurement rules.  Trade rules impact the most basic areas of day-to-day democratic decision-making at both the federal and state level, so it is no longer acceptable for trade negotiations to lack a democratic framework that includes the voices of all sectors of society, including state governments whose powers are increasingly undermined by such deals.

Those assaults on state sovereignty have only accelerated in recent years:

Investor Lawsuits against State Laws:  One growing concern is the independent power being granted to corporations to use international trade law to sue state governments. NAFTA has given private corporations the right to sue state governments under so-called "investor rights" provisions: 

  • At least twenty lawsuits have resulted, including a lawsuit challenging California's and other states' ban on the gasoline additive MTBE, a suspected carcinogen which has been found to leak out of gas storage tanks.  
  • 42 lawsuits have been filed by investors to overturn government policies deemed illegal under the trade agreements.
  • To date, over $35 million in public funds have been paid in compensation to foreign investors by the governments signing the NAFTA agrement.

Undercutting Government Procurement Laws: Rules governing purchases of goods and services by state governments are increasingly being struck down based on trade rules and agreements:

  • Soon after the European Union and Japanese governments challenged Massachusetts' Burma law which had barred use of state money to buy goods produced by the repressive Burma regime, the US Supreme Court struck down the state law as preempted by federal rules on trade with Burma.
  • A number of states have passed laws giving preference for government contracts to firms that do not offshore jobs overseas or do not have a record of labor and environmental violations, laws that may be subject to challenge under World Trade Organization rules.

New Limits of Regulation of Services: An even deeper threat to state sovereignty is the WTO's General Agreement on Trade in Services (GATS) which, as it is expanded, could undercut state powers over zoning and land use, health care, gambling and a range of other public services:

  • Wal-Mart has been lobbying the WTO negotiators to eliminate the power of state and local governments to limit the size or impose labor or environmental rules on "big box" retailers or other companies developing local land.
  • Proposed GATS rules could undercut efforts to promote universal health insurance by barring certain health regulations and state professional licensing laws as illegal "service monopolies."
  • Already, the WTO has ruled that a number of state rules limiting gambling are prohibited under global trade rules, showing a broad precedent for striking down an array of laws if trade regulations are not scaled back to respect state powers.


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States Taking Action


Because of the threat to state democratic decision-making, states in recent years have increasingly demanded a voice in federal trade negotiations:

  • Governors from a number of states sent formal letters to federal negotiators condemning the procurement rules contained in the recent Central America Free Trade Agreement (CAFTA).
  • Legislators from multiple states sent a joint letter in 2005 to federal negotiators expressing opposition to the investor provisions contained in the CAFTA agreement.
  • A number of states, including Maine, Washington, North Carolina and California, have created specific legislative oversight committees to review trade agreements and develop policy responses on behalf of those states' governments.

States have introduced the Jobs, Trade and Democracy Act, a model bill (HI version as introduced) that ensures that citizens and state legislators have access to information on the impact of trade policy, requires governors to have the consent of the state legislature to bind the state to international trade agreements, and creates oversight bodies to assess the legal and economic effects of trade agreements. 

And states are moving to follow Montana in passing resolutions aimed directly at Congress to demand that "fast track" be rejected and a new mechanism be created to establish binding negotiating commitments early and to include state governments and other sectors within the process of establishing US trade negotiation objectives.


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As trade negotiations move beyond tariff negotiations to becoming a de facto global legislative system of regulating the global economy, it becomes even more important that states raise their voices to demand that the outdated and undemocratic "fast track" system be replaced by a democratic process for establishing US trade objectives.  

If states don't join Montana in sending a message to Congress on trade, they will increasingly find that much of their legislative work is irrelevant as international trade deals preempt state laws and set the rules for their local economy.  


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