Trade Letter for Public Officials
noimage Note to Activists: This letter is for your local and state legislators to sign. When they sign the letter, please send a copy to Ruth Caplan, Alliance for Democracy, Washington DC Office, 3407 34th Place NW, Washington DC 20016. We will keep the letter updated by listing those who have signed on this site.


Dear President Bush:

We are writing as state and local elected officials to express our serious concerns about the potential impact of existing international trade agreements and those under negotiation by your Administration. We believe provisions in these agreements may conflict with the lawmaking authority of state legislatures and city and local government bodies. We are particularly concerned about potential impacts on state and local procurement of goods and services, promotion of local development, provision of public services, and regulation to promote public welfare and environmental protection.

Our concerns are of great urgency given the ongoing negotiation of the Free Trade Area of the Americas (FTAA), the proposed Central America Free Trade Area (CAFTA), numerous bilateral trade agreements underway, and the expansion of the WTO's General Agreement on Trade in Services (GATS). We are also concerned about the possibility that formal WTO negotiations on investment and government procurement could be launched after the Fourth WTO Ministerial in 2003.

It is our position that traditional state and local government authority should not be compromised in any bilateral, regional or global trade agreement. Further, we wish to bring to your attention our specific concerns related to negotiations on services, government procurement and investment.

SERVICES. We are concerned that GATS and proposed FTAA rules modeled on GATS could undercut the traditional authority of state and local governments. The rules could impact our authority to provide and/or regulate land use, transportation, alcoholic beverages sales, education, health care, insurance, sewerage, solid waste, and potentially, water and energy.

GATS rules on "domestic regulation" set a standard that local regulation of services must not be "more burdensome than necessary" to trade, as opposed to the traditional standard that regulation must merely have a rational basis for protecting the public interest. This has a chilling effect on our ability to regulate. In addition, rules on "market access" forbid many traditional strategies for protecting the public interest such as certificates of need for hospitals. Even the location of pipelines, the size of landfills, and certain zoning regulations could be challenged.

Further we wish to note that the GATS language which exempts "services supplied in the exercise of government authority" does little to reassure us. In almost all instances local or state governments are not the sole supplier of a particular type of service. Yet this is a condition for the exemption. Therefore we conclude that most local and state services are not exempted by this language. The only real protection is to carve out state and local government from GATS and the services chapter of other agreements.

Finally, we object to proposals that these agreements include transparency language requiring all levels of government to publish proposed rules, solicit comments from interested parties in all countries which are part of the agreement, and take such comments into consideration in adopting any final rule. This represents an unfunded mandate that would place a major burden on state and local government.
INVESTMENT. The potential extension of NAFTA Chapter 11 investment provisions to the U.S. Chile agreement and the FTAA is also deeply troubling. By using Chapter 11 authority, foreign investors have challenged core functions of state and local government, including regulatory power to protect groundwater (California), the power of civil juries to use punitive damages to deter corporate fraud (Mississippi), the right of states to claim sovereign immunity (Massachusetts), and state compliance with "buy-America" requirements for spending federal highway funds (Virginia).

Many of these challenges have been brought on the grounds that foreign investors must be compensated when regulation entirely within the scope of traditional governmental authority negatively affects their business interests. Under the vague and overly broad language in the substantive provisions of Chapter 11, actions against the United States could result in outcomes that would not be possible if the challenges were brought in domestic courts, thereby granting to foreign investors greater rights than those available to U.S. investors.

We are concerned that such foreign investor claims may create fiscal pressure on the federal government to preempt or push for changes in state or local law. Such fiscal pressure on the federal government is illustrated by the $970 million Methanex claim challenging California's decision to phase out a gasoline additive (MTBE). Altogether, the first four claims against the U.S. based on state actions exceed $1.8 billion.

For these reasons, we concur with the National Conference of State Legislatures that trade agreements must not grant foreign investors greater rights than those available in our legal system and that these agreements must be clearly and effectively crafted to accomplish that aim. We also call your attention to concerns raised by the National League of Cities, the National Association of Counties, and the National Association of Attorneys General.

GOVERNMENT PROCUREMENT. Negotiations regarding government procurement could further restrict state and local government's authority in regulating their purchase of goods and services. In particular, we are concerned that current proposals could further endanger our ability to use procurement to promote legitimate public policy goals including economic development, support for veteran and minority-owned businesses, and responsible practices with regard to the environment and human rights. Trade agreements should not mandate that we only consider price and performance.

The right to utilize procurement as a tool for advancing the interests and values of our constituents has long been protected under the U.S. Constitution. It is our position that trade agreement provisions need to respect, not undermine, this important public policy tool and should not be applied to state and local governments without their prior legislative approval.

We look forward to your support in assuring that these essential state and local governmental authorities are protected and to working with your administration to achieve this goal.

Yours truly,

cc. Senate Majority Leader Thomas Daschle
Speaker of the House J. Dennis Hastert
Senator Max Baucus, Chair, Senate Finance Committee
Representative Bill Thomas, Chair, Committee on Ways and Means