Letter from California State Senator Sheila Kuehl, Chair, Senate Select Committee on International Trade Policy and State Legislation, regarding the Free Trade Area of the Americas, FTAA. Ambassador Robert Zoellick Executive Office of the President Office of the United States Trade Representative Washington DC, 20508 September 20, 2002 I am writing in response to the USTR's request for comments on the draft text of the Free Trade Area of the Americas (FTAA). The FTAA is an international trade agreement that seeks to establish rules on trade among 34 nations of the Western Hemisphere. The FTAA, if enacted, would be the most comprehensive and far-reaching trade agreement in history, affecting over 800 million people throughout the Americas. Built upon the model of the North American Free Trade Agreement (NAFTA), the FTAA seeks to include a powerful set of services and investment agreements that could have far-reaching and detrimental impacts on local and state governments. As a member of the California Legislature, I remain deeply concerned about international trade agreements and their potential implications for state and municipal lawmaking authority. For purposes of these comments I will be addressing the draft services and investment provisions of the FTAA, and more generally, the overall impacts to basic democratic governance and accountability. In addition, I will be expressing support for current efforts underway to require a gender assessment of any international trade agreements. Although much of the FTAA text is bracketed, and therefore still subject to negotiation, the overall direction and negotiation objectives suggest that the FTAA would pose grave consequences for democratic governance in the hemisphere. The proposed FTAA contains powerful new provisions in competition policy, government procurement and market access, that, together with the powerful services and investment provisions, could dramatically limit the ability of governments throughout the Americas to create and maintain laws, standards, preferences and regulations in the public interest. The very architecture of the agreement seems designed to limit the authority and traditional processes of democratic governance, turning on its head the long established notion that government regulation plays a vital and positive role in economic growth and long term sustainability. Under the models proposed in the FTAA, government accountability and public protection seem to take a back seat to the interests of deregulation and privatization, which would label such actions unfair barriers to the natural laws of the free market. In this model, transnational corporations of the hemisphere will be given new rights to compete for and challenge a stunning array of publicly funded government services, including vital services such as health care, water delivery and education. FTAA Draft Agreement - Chapter on Services I am concerned about the massive scope of the services agreement of the FTAA, its broad new definitions, and its lack of clarity on the extent to which it will apply to state and municipal laws. I am concerned that the current services language suggests that a wide range of public protections, enacted in the public interest, would be considered barriers to trade. According to the draft text, the services agreement seeks to establish disciplines to progressively liberalize trade in services, defining services as "any service in any sector", and would apply to "all measures affecting trade in services taken by all governmental authorities at all levels of government." This language represents a great expansion in the definition of services and would include measures taken in the delivery of services by the public sector at all levels of government, including state and local governments. The word "measure" refers to any law, regulation, rule, procedure or decree that has an effect on trade in services. This would include a multitude of publicly provided services, including health care, the delivery of water, postal services, garbage delivery, education and many other services commonly provided in the public interest. According to the text, the only services exempted would be those services "supplied in the exercise of governmental authority", defined as "any service which is supplied neither on a commercial basis, nor in competition with one or more service providers." However, no vital human service would be exempted under these requirements, as many public services are currently provided in that manner. For example, many government services include fees, such as water and electricity rates, national park fees or postal fees, and few government services, such as transportation or water delivery, are provided as an exclusive monopoly. The text also states that countries, including their sub-federal entities, can regulate and introduce new regulations in pursuit of domestic policy goals, but only in ways compatible with the "disciplines established in the context of the FTAA agreement". This would mean that measures could be no more burdensome than necessary, that the scope of regulations must be limited to only that which is necessary to achieve that goal, and that the regulations should be aimed at using market mechanisms to achieve their objectives, restricting government actions to those that fall within the strict framework of the services doctrine, as outlined below. While these exemptions have been used to assuage the concerns of state and local lawmakers about the implications to state and local law, and while they could in theory be used to shield some public interest laws from challenge, similar exemptions have been rarely used to do so in challenges under the WTO or NAFTA. Additionally, the terms of the exemptions remain undefined; there is no clear definition of what supplying a service "on a commercial basis" means, or what it means to supply a service "in competition". These are problematic ambiguities that, in the event of an FTAA challenge to a state or local measure, would be left open to interpretation by unaccountable trade officials in a dispute resolution court. The standards for such requirements are contained in a framework of rules which could further impose onerous obligations on state and local governments, undermining their ability to protect the public interest. These include: Most Favored Nation (MFN) would require countries to treat service providers from all counties in equally favorable ways, i.e.; access granted to investors or corporations in one FTAA country would have to be granted to investors from another FTAA country, regardless of that country's human rights, labor or environmental practices; National Treatment would require countries to treat foreign service providers as well as they treat domestic service providers, even if the domestic service provider is public, and the foreign provider is private, paving the way for allowing private service providers to compete with publicly funded providers; Market Access rules would also forbid governments to limit the number of service providers, the total number of service operations, or the total quantity of service output, among other things; Domestic Regulation rules would limit regulation to those "based on objective and transparent criteria" and require that those regulations not be "more burdensome that necessary", making it possible for trade tribunals to rule against public interest laws that cover topics unrelated to trade. Each of the aforementioned issues would impose burdensome restrictions on the ability of local and state government to effectively regulate in the public interest. The services agreement should be drafted so that state and local government actions are specifically carved out from the scope of its coverage. FTAA Draft Agreement - Chapter on Investment The mandate of the Negotiating Group on Investment is to "establish a fair and transparent legal framework to promote investment through the creation of a stable and predictable environment that protects the investor, his investment and related flows, without creating obstacles to investments from outside the hemisphere." The provisions of this chapter build on NAFTA's Chapter 11, provisions which granted unprecedented new protections for investors seeking to invest in one of the three NAFTA countries by allowing a private foreign investor to bypass its own government and directly challenge laws or policies that impinge on its "rights", as defined by the agreement. Chapter 11 gives the investor the right to sue for compensation for loss of expected future profit from governmental actions. Since its enactment, corporate investors in all three NAFTA nations have used these new rights to challenge a variety of national, state and local environmental and public health policies, domestic judicial decisions, a federal procurement policy and a government services provision. Many national governmental associations have expressed concerns with NAFTA's investment chapter, including the National Conference of State Legislators, the National League of Cities, The U.S. Conference of Mayors and the National Association of Attorneys General. Also expressing concern was the California Legislature, which recently passed a resolution asking that state and local governments be carved out of investor-state provisions in international trade agreements. In spite of the concerns raised, the FTAA Negotiating Group on Investment has crafted language that would provide the same broad powers to investors throughout the hemisphere. These include new definitions of who would qualify as an investor, as well as broad definitions as to what measures would be covered under the agreement. Further rules for government activity include: National Treatment which would require each member state to accord to foreign investors "no less favorable treatment" than domestic investors; Most Favored Nation treatment would require each member state to accord a foreign investor the same treatment as it accords investors from another state; Minimum Standards of treatment require member states to ensure that regulations afford investors minimum standards of "fair and equitable treatment and full protection and security"; Performance Requirement rules, which would prohibit performance requirements on foreign investments; Expropriation and regulatory expropriation rules would require member states to compensate investors whose investments may have been expropriated "directly or indirectly" by any state measure or by any measure that is "tantamount to expropriation". This model suggests serious problems for democratic governance and reflects a U.S. position that favors property rights over social rights, trade tribunals over elected officials and the laws of the market over public policy making. This represents a deep intrusion on democratic governance. In August of this year, the California Legislature recognized this intrusion and passed a resolution memorializing Congress and your office to preserve the traditional powers of state and local governments by requiring trade negotiators of international investment rules do the following in any future trade agreements, including the FTAA: (a) Either carve out state and local governments from the scope of future investment agreements or exclude investor-to-state disputes from investment agreements. (b) Ensure that international investment rules do not grant greater rights to foreign investors than United States investors enjoy under the United States Constitution. (c) Ensure that international investment rules do not undermine traditional police powers of state and local governments to protect public health, conserve environmental resources, and regulate fair competition. (d) Ensure that all proceedings are open to the public and that all submissions, findings, and decisions are promptly made public, consistent with the need to protect classified information, and that amicus briefs will be accepted and considered by investment tribunals. (e) Provide that an investor's home government must consent to the investor's claim against its host government, if investor-to-state disputes are retained. It remains my position that state and local governments should be carved out from the scope of future investment agreements. Finally, I would like to register my support for efforts being initiated that would require a gender assessment of the FTAA. In the Summit of the Americas work plan that came out of the FTAA meetings in Quebec in 2001, the governments agreed to "integrate a gender perspective into the programs, actions and agendas of national and international events, to ensure that women's experiences and gender equality are an integral dimension of the design, implementation and evaluation of government and inter-American policies and programs of all spheres". In spite of this language, trade negotiators have paid little attention to the specific needs and concerns of women when designing trade agreements. I urge your office to continue to find ways to take into account the specific impact upon women as a result of international trade agreements by supporting gender assessments of such agreements. In conclusion, while I appreciate the opportunity to respond to your request for comments, I would like to register my disappointment in the exclusionary nature of the FTAA negotiating process. With the exception of recent public hearings held in Washington DC, there has been little effort undertaken to engage either the public or elected officials on the substance or effect of the FTAA. All requests for participation in or access to negotiations by civil society groups have been firmly rejected. Even the release of the draft negotiating text in April of 2001, on which I base these comments, was obtained only after intense public pressure from elected officials and civil society groups from throughout the hemisphere. Since that time, while there have been numerous meetings of the negotiating groups, none of the results of these meetings have been made public. In addition, I would like to note that USTR consultations with both the Congressional Oversight Group and the NGO community have occurred with such late notice that it raises questions as to whether there is any commitment to engaging in a meaningful process. In contrast, it appears that corporate representatives have had significant access to government negotiators drafting the text, raising critical questions about whose interests are being served by the development of these policies. I hope you will take these comments into consideration during the FTAA negotiations. Sincerely, Senator Sheila Kuehl Chair, Senate Select Committee on International Trade Policy and State Legislation Legislative Office Building 1020 N St., Rm. 248 Sacramento, CA 95814 (916) 322-8616 (916) 324-3036 fax