Altered States

A new trade proposal would place local sovereignty in the hands of multinationals

BY Mischa Gaus

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A backdoor attempt to subject states to corporate-driven trade deals could undermine laws that rein in capitalism’s worst abuses.

The Bush administration’s top trade official, Robert Zoellick, pushed governors last September to sign onto a letter including their states in upcoming trade agreements, which would allow foreign companies to bid on the state’s purchasing and contracts, and thereby improve Zoellick’s negotiating position.

The letter did not say that if states signed they could lose the right to mandate that the goods they purchase abide by social and environmental standards. These include assurances about prevailing or living wages for contractors, sweat-free goods, recycled-content rules for products, renewable-energy targets, consumer or environmental labeling on packages, pro-union bidding practices, bans on trade with abusive regimes and corporations that have abysmal human rights records, and anti-offshoring and buy local provisions.

“The way a product is made and who does it are rights states hold in purchasing laws,” says Chris Slevin, a spokesman for Public Citizen’s Global Trade Watch. “They’re giving those rights away.”

Under investor-protection clauses enshrined in international trade pacts, corporations can demand compensation for state and local laws that conflict with their profit-maximizing motive. Such rules, like NAFTA’s investor-rights Chapter 11, have been used by U.S. corporations to extract millions from the Canadian government for implementing international environmental treaties and by a California company to force Mexico to pay it for blocking a toxic-waste dump. The Clinton administration used these rules to pressure Maryland not to sanction Nigeria for the country’s egregious human rights violations.

By signing the letter, states give the Bush administration blanket approval to commit them to the rules of the Central American Free Trade Agreement (CAFTA), a pact scheduled for signing in late May with five hemispheric neighbors, as well as bilateral trade deals with Australia and Morocco.

State purchasing typically is exempt from trade agreements unless the state explicitly consents. Because the letter seeks states’ inclusion in all trade pacts under negotiation, however, it could bind states to the Free Trade Area of the Americas, NAFTA’s expansion to 31 more nations whose final requirements are still unwritten.

When a copy of Zoellick’s letter to outgoing Democratic California Gov. Gray Davis leaked to groups like Global Trade Watch early this year, it became clear that few of its hidden details were known.

“There’s no thought process going on,” says Richard Walsh, assistant director of governmental affairs in the AFL-CIO’s field mobilization department. “No governor would sign this if he or she thought it would revoke state laws.”

Citing concerns that state money could support the outsourcing of jobs, four governors—from Pennsylvania, Missouri, Minnesota and Iowa—removed their states from the trade deals this month; 24 others remain committed. “We stand ready to engage in future trade agreements when we are certain that such trade agreements ensure a level playing field for our domestic employers and workers,” Pennsylvania Gov. Ed Rendell, a Democrat, wrote in his May 11 letter rescinding his state’s involvement. The legality of Zoellick’s invitation to governors also is disputed because how money is spent is a legislative prerogative, not an executive one.

Supporters of the trade deals say limiting state and local discretion is an acceptable consequence.

“When you’re trying to liberalize trade, what you get depends somewhat on what you offer,” says Robert Hamilton, trade policy adviser for Washington Gov. Gary Locke, a Democrat. “Part of that exercise is giving up sovereignty to a degree.”

CAFTA’s authors ensured that the pact remained viable for governors by exempting minority, veteran and women hiring preferences in state and local contracts. But with no such safeguards extended to other areas of social and environmental legislation, critics expect the worst. CAFTA contains the same arbitration procedures that years of secret World Trade Organization tribunals have developed to quash “disguised restrictions on trade.”

While local rulemaking loses, corporations win big. Companies can challenge state law in these closed-door tribunals even if they are based elsewhere. Just as corporations found ways to export jobs and off-shore their taxes, says Dan Beeton of the Citizens Trade Campaign, a coalition of environmental, labor and fair-trade groups, a firm could open a subsidiary shell in a country that is party to the trade deal and then use it to sue a state for restricting its profit.

“If this is successful,” says Ben McKean, national organizer for United Students Against Sweatshops, “I have to imagine it would move much further much faster. It would have a chilling effect on our core work.”

A policy climate that voids anti-sweatshop rules in state purchasing, McKean says, could outlaw the licensing agreements corporations sign with universities prohibiting child labor, blacklisting and other abuses in the production of collegiate apparel.

Once states are locked into these trade deals, it is expensive to extricate them. Removing a state requires compensating all other signatories to the pact for the loss of this “benefit.”

“They are bound despite the fact that state legislators have never debated it, let alone voted on it,” Beeton says. “The U.S. trade representative knows this would not survive the scrutiny of the general public.”


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Mischa Gaus is an editor of Labor Notes magazine, the largest independent union publication in the United States.

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