Commission on International Trade and State Sovereignty

International Trade Agreements Overview

Generally

· International Trade is the exchange of goods and services across international boundaries.

· Trade is a growing part of the economy that affords Vermont opportunities for economic growth.  However, trade agreements may undermine state sovereignty and preempt state law.

International Trade Opportunities and Benefits

· Vermont had $3.8 billion in exports in 2006.  Vermont’s exports of merchandise increased 51% between 2002 and 2006.

· According to the U.S. Business Roundtable, trade supports 77,886 jobs in Vermont.  18.7% of jobs in Vermont are supported by trade, up from 10.5% in 1992.

Origin and Authority for Trade Agreements

· Some trade agreements are considered treaties, but others are not.  In the Trade Act of 1974 and the Omnibus Trade and Competitiveness Act of 1988, Congress granted the President the authority to enter into trade agreements with other countries subject to a streamlined and limited Congressional review.  This authority became known as Fast Track Trade Authority.

· In 1979, an Executive Order created the office of the U.S. Trade Representative (USTR) to coordinate U.S. international trade and negotiate trade agreements with other countries.

· Bilateral trade agreements are trade agreements between the U.S. and individual countries.

· Multilateral trade agreements are agreements between many countries, including the U.S.

Global Agreement on Trade and Tariffs (GATT) & the World Trade Organization (WTO)

· GATT is the primary multilateral international trade agreement.

· The WTO was formed as part of the GATT in 1994 to regulate international trade.

· The WTO now has 149 member countries and multiple agreements addressing trade in goods, services, government procurement, agriculture, and intellectual property rights.

· The WTO resolves disputes through individual, binding decisions of an arbitration panel.

Substantive Rules of Trade Agreements

· Trade Agreements, such as the GATT and other WTO agreements, include rules or standards for the conduct of trade.  These rules or standards may include the:

o National treatment and most favored nation standards, which ban discrimination in the provision of goods and services.

o Market access standard, which prohibits quantitative limitations.

o Domestic regulation standard, requiring laws to be “no more burdensome than necessary.”

o Minimum treatment standard, requiring treatment consistent with international law.

o Expropriation standard, requiring compensation of investors for loss of value.

Criticism of International Trade Agreements

· The terms and standards used in many agreements are vague and, consequently, the agreements are subject to arbitration panels interpreting vague terms in a manner contrary to the intent of the parties.

· For example, in the Antigua gambling case in which an arbitration panel ruled that U.S. commitment to subject “recreational services” to the Global Agreements on Trade and Services prohibited the U.S. from regulating Internet gambling.

· Some agreements provide expanded legal protection for foreign investors.  For example, some argue that foreign investors have greater rights under investment claims than a U.S. citizen would have under U.S. takings law.

· The arbitration panel hearings that resolve disputes are held in secret.  State governments are not involved, even when a state law is at issue.  Panel decisions have no precedential effect.

Impact of Trade Agreements on State Sovereignty

· International trade agreements can impact state legal authority and prohibit a state from regulating in area or field authorized under the U.S. Constitution.

· When an arbitration panel in a trade dispute rules against the U.S. based on a state law, the federal government can sue the state to preempt that state law by citing international trade commitments.

· In addition to preemption, the federal government may recoup damages from the state.

· Trade agreements also may undermine the ability of states to regulate the environment, health care, agriculture, and professional regulations among other fields.

o Environment:  Challenges have been brought under NAFTA challenging land use regulations, the ban on the chemical MTBE in gasoline, the transport of hazardous waste,  historic preservation laws, and mining laws.

o Health care:  Under the U.S.-Australia Bilateral Trade agreement, 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.

o Health care:  The U.S.-Australia Bilateral Trade agreement confirms right of patent holders to control resale or importation of their products, which could conflict with state  efforts to ease drug importation.

o Agriculture:  Negotiations are ongoing to address the WTO Agreement on Agriculture, with many countries pushing to ban agricultural subsidies, including state subsidies.  A WTO panel already has held that the U.S. cotton subsidy violated the WTO Agreement, and, in 2007, Canada initiated a challenge to the U.S. corn subsidies in 2007.

o Professional regulation:  GATS proposal to add “hospital services” to 90 sectors where the U.S. has committed to GATS rules may encompass nursing services.  Because GATS states that domestic regulations must be “no more burdensome than necessary to ensure the quality of the service,” state nursing standards and qualifications could be overridden.  This could also impact other professional standards.