Public
FTAA.soc/civ/52
June 11, 2002

Original: English

This submission is a list of suggestions and questions regarding the formulation of the Free Trade Area of the Americas (FTAA). Where possible, the formulation follows the format of the treaty. I would like to receive responses to my questions in the time frame that is reasonable for your organization. I would also like the option to resubmit questions if the answers are not responsive either due to their generic content or my lack of specificity in the question. Please forward me the address of the party to whom I would submit such follow-up questions for clarification. I look forward to a productive and enlightening experience.

Free trade agreements grant countries access to previously closed markets and have the potential to benefit both producers and consumers. These benefits only accrue if the development of the treaty is open and represents the needs and values of all parties. The United States has a duty to be fair to the countries in which it acts as a catalyst to both economic development and in some cases democratic governance. Fair and principled trade is a mechanism for benefiting from foreign markets and influencing sustainable development where research and advancements have been lagging. Free trade should not be a used to circumvent or interfere with democratically approved legislation and rule in any country.

Many of the questions and comments in this brief note focus on the retention of national and state sovereignty in the US context, which would also benefit our democratic partners. Sovereignty should be highly regarded and should not be burdened more than necessary to achieve the legitimate goals of free trade. As a baseline, any amendment to a Constitutional tenet of the country is off limits to this venue. Any proper use of police powers to protect human health or the environment should be questioned only for discriminatory intent and not open for substantive second-guessing by the international community. As I write this, I realize that this may require the US to also amend our obligations to the WTO or stop trying to force other countries to accept our standards, but for now, we must concentrate on keeping the actual impact of the FTAA positive and spread equitably throughout the participating region.

Article 2 National Treatment

My understanding of the benefits of free trade is that the markets will discipline countries to produce and export what they are most capable of producing (through comparative advantage) and import the other goods and services from countries well suited to those other occupations. In this way, efficiency is optimized, as is profit. Resources should be saved, and the resulting financial gain will spill over into environmental protection and social benefits.

National treatment in practice should insist that this vision remember that goal and the preamble of the treaty. Cases in the WTO like the Venezuela gas case, the shrimp/turtle, and tuna/dolphin cases touch on this subject and seem to give a different reading of comparative advantage. US citizens have made democratically supported decisions to live in a certain fashion. Rather than holding countries we purchase from to those standards, we have lessened our expectation of self-governance to give these other countries a “handicap” so that they can compete. It is worrisome that, rather than supporting producers that rise to a certain level of environmental responsibility, we have changed our position so that inferior production methods that do not meet public values have access to our markets. National treatment should require like treatment, not a waiver that lowers the bar so that inferior products and processes prevail.

Question 1. Will there be any exception to national treatment to allow countries to give a preference to domestic (particularly public) access to natural resources? For example, if a state were allowing the export of fresh water, would a moratorium trigger Article 2? What if US manufacturing used 400 billion gallons per day but didn’t allow exports in that amount to Mexico. Is there a potential for a challenge?

Article 6 Fair and Equitable Treatment

This article suggests that fair and equitable treatment is an international standard. Fair and equitable should follow national treatment and be a uniform treatment for domestic and foreign interests. This passage, therefore, should be based on minimum standards of treatment against arbitrary and capricious behavior. The restrictions that one country decides to exist under are their sovereign choice, and those who chose to business there should not be able to subvert those choices.

Article 7 Performance Requirements - Question 2.

4c) Hypothetically, if a state starts exporting water, can an area where there may be a drought begin to forbid exports of water from the county of origin (state/country) as a precautionary measure without offending Article 7? Article 10 Expropriation and Compensation

Question 3. Will foreign investors have greater rights to compensation for expropriation than domestic companies/citizens under US takings precedence? (For partial takings or greater valuation)

The traditional US perspective of takings was to protect individual property owners who were suffering a permanent, total loss of value in their land in the name of the public good. Justice Stevens recently reaffirmed that diminution of value due to regulations does not constitute a taking. The property must also be taken as a whole and cannot be segmented. This concept forecloses any right to a partial takings claim on land and capital property. Further, particular uses of land are not protected, but use of the land in some fashion. Therefore, zoning out one use does not require compensation if the property has another economic use. These are very important limits on compensation for taking for the public good, and should not be abandoned to satisfy an international treaty.

The international standard seems to be broad enough to allow for segmentation of property, loss of profits or market share due to regulation in contrast with both the theory of national treatment and takings jurisprudence in the United States. Laws that treat domestic and foreign investors equally are being challenged based only on the different status, not disproportionate impact (Loewen v. United States). The Methanex v. United States claim is requesting payment for loss of profit due to regulation, which is foreclosed as a remedy to domestic companies. This is a significant shift from the common practice in the United States.

Realizing that treaties require some compromise of national sovereignty, this does not mean that the pillars of the Constitution should be changed to fit an international standard that may not represent the values and principles of the American citizens.

Question 4. What is the justification for including market share and market access in the definition of property?

Selling in commerce has not been a protected right because there is no legitimate expectation that the status quo will remain. Regulation that may change circumstances is to be expected. The inclusion of the words “market share” insinuates that the property right compensation can be based on a diminution of that share. If it were not, then market access, the right to participate or not, would be sufficient to cover the right to have a share in the market. National treatment would demand regulations that did not give domestic companies greater rights (e.g. domestic companies couldn't be given mining rights at a 2:1 ratio over foreign investors). Therefore, that kind of discrimination is already covered in the treaty. The inclusion of “market share” is misleading and could open each participating country to costly challenges.

Question 5. Will regulatory partial diminution of value constitute a compensable expropriation for foreign investors? Will this be true even if domestic and foreign companies are equally burdened? If so, what is the justification for putting domestic companies at a disadvantage?

If partial takings due to regulation are not compensable that should be stated clearly to avoid unfounded claims. Some definition of what is a taking would inform the business community that non-discriminatory regulation is legitimate and will be supported by arbitration panels. The government is not the insurer of last resort, and investments by their nature are risks. It is the value added by that risk that attracts investors, and they should bear it.

Article 12 General Exceptions and Reservations

The environment should be listed under section 1, first selection, and also a statement that this list is not all-inclusive, but includes basic moral and community value programs and initiatives. The first line should also stress that the “it deems necessary” will get tremendous weight in the face of a challenge. This list should be exempted form national treatment requirements where natural resources and health are affected.

Article 13 Dispute Settlement:

Question 6. What is the scope of the time limitation for actions before the treaty enters force?

This sounds like a grandfathering clause, but Sun Belt v. Canada is based on a measure that took effect in 1991, 3 years before NAFTA. Does the use of the law then trigger challenges and negate the grandfathering?

Article 14 State-to State Disputes

Question 7. What is going to be added to the FTAA draft that will enforce this requirement?

Either SD Myers or Pope v. Talbot filed before the 6-month period and were not delayed.

Article 15 Investor-State Disputes, and Article 16 Basic Definitions

Investors

The definition of investor should be limited to companies, not individual investors and lenders. Investors who are not officers in a company are in no position in the American system to act in the name of the company without actual authority, and foreign investors shouldn’t either. Lenders build risks into their interest rates, and are in a good position to assess and put a value on those risks, so loans should not be considered an investment. Investment presupposes risk that taxpayers shouldn’t finance. We should not use a treaty or any legislative mechanism to eliminate that risk at the expense of the general populace of the participating countries.

Section 8. Precedent to Submission of a Claim to Arbitration

Parties should only be allowed to bring claims in the international arbitration tribunal if they have exhausted the remedies available within the host country. If the host government is frustrating access to the court system to dissuade the challenge from being heard, this may be modified to allow for those extenuating circumstances.

Articles 18 and 19 Commitment not to relax environmental and labor laws

Question 8. Will the wording be stronger to support new laws, or reactions to changes in circumstances including new scientific knowledge or ESA listings?

Question 9. Is there any intention to add some teeth to these provisions (e.g. lose market access) to ensure that there will not be a race to the bottom?

Question 10. Is there a provision that requires labor standards to meet or be greater than some floor set by international standards?

Section Three: Non-tariff measures Article 10.

10.3 This section seems to say that neither the US nor any sub-national government can limit the export of goods from the country. GATT Article XX states that limitations on exports are allowed as long as the restriction is paralleled domestically. The following questions may be relevant to other natural resources, but are posed in the context of water.

Question 11. Can the United States prefer domestic uses of natural resources above foreign uses?

Question 12. States have traditionally set water policy and land use laws, and have been given deference by the Supreme Court in disputes between federal and state laws. The FTAA will be, in effect, federal law. Will state governments continue to have control of their surface and aquifer stores of water?

Question 13. Will the US be able to limit the amount of water exported from the country?

Question 14. Will sub-national governments have the flexibility to set export restrictions based on the requirements of that particular location or will the US have to adopt a uniform regulation?

Question 15. Will, as Sun Belt, Inc. has stated to Canada, foreign companies be involved in setting water policy?

Question 16. If a certain quantity of water is legally exported in one year, can the quantity exported the next year be reduced? What liability, if any, would attach to the national government for such an action? Would domestic use have to be reduces proportionally?

Article 5 Conformity Assessment

5.1 Non-discrimination and Avoidance of Unnecessary Barriers to Trade

Conformance assessments should be able to take into account the values of the populace. For example, products made with slave labor or toxins that could be replaced with safe components should not be given the same value as products made in a sustainable fashion. PPMs are not evil, and in fact are constructive means to support sustainable practices.

1.4 Services other than those supplied “in the exercise of governmental authority”.

Question 17. Will there be any public discussion about which services should be held as closed to foreign investment?

2.4 Sectoral Coverage

Question 18. Is there a list of services that will be reserved due to national security concerns?

Question 19. Will the FTAA list of services liberalized be in any way related to the GATS bottom-up selected list or be more broad only reserving those listed in 2.4?

General questions on this topic

Question 20. Will water delivery services be considered public in perpetuity regardless of the privatization of operations and management through contracting? Privatization internationally has had mixed results including pricing that precludes the poor from having access to clean water. The purpose of the public sector is to provide public necessary goods and services that would not otherwise be adequately evenly distributed in the private sector.

Question 21. Does contracting out services delivery constitute a competitive market thereby forcing the public provision to be offered to international investment? Vancouver rejected a contract with an O&M company specifically because they thought that it would require the market to be available to an unlimited number of competing water delivery companies.

Question 22. Can a state or the nation create restrictions on what is taught in private schools for the sake of preserving the state or national culture?

Article 3. Most Favored Nation Treatment

3.4 NAFTA specifically listed certain Multilateral Environmental Agreements that were not superceded.

Question 23. Is FTAA supreme over or include previous treaties that are not specifically mentioned?

Question 24. Does FTAA have a similar list of MEAs that are supreme over the FTAA?

Future Work. Harmonization is the better choice over equivalence for attaining the highest standards attainable through negotiation. The bottom necessarily has to rise to some extent. However, harmonization is a process of changing laws to fit an international standard. Any group other than the legislative body that passed a law originally is by definition not representative. An unelected working group is inappropriate to assess what is acceptable without extensive public input.

Subsidies

Question 25. Could public services be considered a subsidy that distorts the market?

UPS v. Canada has suggested that the parcel post is an illegal cross-subsidy that is unfair to the commercial carrier.

Question 26. Is there a committee that is looking into the potential impacts to public services or accelerated privatization?

Question 27. Standing

The government of the investor’s home country should approve the challenge before the party has standing to sue. At this juncture, the home country should make a determination of whether the claim is intended to circumvent legal proceedings elsewhere as contracted by the company, or a complaint due to government measures. For example, Methanex is suing for the loss of future profits though under US precedence, they would be denied a claim because there is no compensation for government acting to stop a nuisance. MTBE has caused environmental degradation that has resulted in several large awards for remediation payable by the oil refineries. Why should a constituent of that dangerous product force federal spending to defend a legitimate act of police powers?

Access to arbitration

The party that passed the measure in question should be intimately involved in the arbitration if they so choose. Just as jurisdiction is generally allotted to the place where the defendant has sufficient nexus AND the most witnesses and information is available, the body that has the most intimate knowledge of the challenged measure should be involved in the defense of that action. In the federalist paradigm, states have the freedom to protect or regulate more than the floor set by the federal government. The federal government is not the representative of state citizen preferences. The principle of subsidiarity has been widely accepted internationally as good governance because it keeps the decision-making at the local citizen or representative level.

Production Performance Measures

I want to lobby for allowing PPMs as a cultural asset that shouldn’t be wholly abandoned. This country is based on diversity and tolerance, but not the tolerance of injustice whether that involves labor, human rights, or the environment. Taxes are collected from the people to be spent on the building of the country in a manner that is formed by a democratic process. This process defines the will of the people, and is the map for our actions as a nation. Without this direct representation, states and individuals are giving money to a government that is deaf to their moral values and vision of the United States’ role globally.

Performance Bond

The free transfer of capital required under the treaty in the Investment Chapter Article 9 is inconsistent with the provision banning performance bonds. Bonds are important as insurance for the host country resident in case of breach of contract or court assessment of liability for environmental or public health degradation. The bond supplies cash for financing these potential failures. Foreign companies can no longer be required to have residents present in the host country or any capital investment that could be seized to satisfy liabilities. Bonds are the only collateral. The foreign investor is no longer a sojourner without any influence on the political process or citizen protections. If there are greater benefits, there should be corresponding obligations to protect the domestic taxpayer and consumer.

If this is a protectionist measure for US companies abroad, please identify the concerns and how those concerns justify putting domestic ventures at risk.

Predatory Practices

It is common knowledge that Philip Morris threatened to sue Canada for requiring that the “light” word not appear on packaging due to evidence that the word in conjunction with advertising mislead consumers to think the cigarettes were less harmful to their health. Smoking is a public health issue. NAFTA specifically forbids this type of aggressive behavior, but does not outline any punishment.

Question 28. What is being added to the draft to make sure that there is an expectation for financial or market access loss due to this behavior?

The standard for public health and environmental protection laws will rely on international standards if this treaty follows the path of WTO. After challenges like the loss suffered by France where the country lost the ability to choose their own food quality standards, it would be in the interest of consumers/citizens to reserve the right to make these intimate decisions locally without international interference. Please see the section on labeling for further discussion on the consumer’s right to know. Effective competition cannot prevail if products are forced on the consumer and information is not made readily available.

Question 29. Will the federal government continue to pay for the negotiations and awards indefinitely, or is there a plan to make the offending state or locality reimburse the federal coffers for the awards?

Question 30. What justification will the USTR give to the American people if the pesticide residue of food imported into the country is found to be "non-scientifically" based on the precautionary principle? Are we to believe that it is not possible to regulate beyond the provable threshold for safety because it may put another country's company at a perceived disadvantage?

Thank you for your consideration and responses to these questions.