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"Free Trade" Puts Democracy in Peril

by Arnie Alpert

When the subject of international trade comes up, most people probably think about imports of cars made in Japan, export of Midwest grain, or perhaps the shipment of fabric pieces to Mexico where they are sewn into garments and shipped back to U.S. retail stores. Until recently, free trade agreements were about reducing tariffs-taxes on cross-border shipments of goods-to reduce the cost of international trade.

Not any more. Now what passes for "free trade" agreements goes way beyond tariff reduction. Under the rules of the World Trade Organization (WTO), provisions of the North American Free Trade Agreement (NAFTA), and the proposed Free Trade Area of the Americas, virtually any law that hinders international commerce can be considered a "barrier to trade." This new expansive view of trade puts democracy at risk, along with the rights of workers, the protection of the environment, and the health of communities.

Take the case of MTBE, a gasoline additive that eliminates pollutants from automobile emissions but contaminates groundwater. Two years ago the New Hampshire legislature passed the Safe Drinking Water Act, which authorizes the Commissioner of Health and Human Services to set limits on MTBE in gas sold in the state.

Sound reasonable? Probably not to Methanex, a Canadian corporation that produces methanol, one of MTBE's components.

When California adopted laws to phase out MTBE, Methanex filed suit. Under NAFTA's Investor Rights clause, laws that reduce a Canadian or Mexican company's ability to do business in the United States are considered expropriation of the company's property, comparable to a government seizure of property. (The same applies to Canadian or Mexican laws affecting a U.S.-based company.) If Methanex wins, the United States will be forced to pay compensation. The company is demanding $970 million in damages. The case will not be heard in an open court, but in a closed session before a panel of trade experts.

"Cases companies could never hope to win in domestic courts" are headed for NAFTA and WTO dispute resolution panels, according to Robert Stumberg of the Harrison Institute for Public Law of Georgetown Law Center, who testified March 14 at the State House in Concord. "There's a huge power shift going on," he said, and the states are among the losers. Even municipal ordinances could be challenged.

Governments Pay Polluters

Here's some examples of cases brought under NAFTA:

The U.S.-based Ethyl Corporation forced Canada to pay $13 million in damages and drop its ban on the dangerous gasoline additive MMT, a known toxin that attacks the human nervous system. The U.S.-based Metalclad Corp. sued a Mexican state that blocked construction of a toxic waste disposal site. Metalclad claimed that the environmental zoning law forbidding the dump constituted an effective seizure of the company's property, and was awarded $16.7 million by a NAFTA arbitration panel. The Canadian funeral home chain Loewen Group sued the U.S. government for $750 million in cash damages after a Mississippi court found Loewen guilty of malicious and fraudulent practices that unfairly targeted a local small business. Loewen argued that the very existence of the state court system violates its rights. A Massachusetts law designed to deny State contracts with firms doing business in Burma, which is ruled by a brutal dictatorship, was challenged before the WTO. Had the law not been stricken down by the U.S. Supreme Court, the WTO arbitrators would probably have determined it to be in violation of WTO rules on government procurement.

Neither NAFTA nor the WTO have power to overturn state laws, but you can bet that if WTO and NAFTA tribunals find public health, economic development, and environmental laws to be illegal trade barriers, the federal government will find ways to persuade states to change their laws.

That's the direction "free trade" agreements have taken us, what Stumberg calls "a trade policy that is less accessible and accountable to the people of any country, and a trade system that is more accessible and responsive to multinational corporations that no longer see themselves as the citizens of any particular country."

When President George W. Bush and the other heads of state will meet April 21 to 22 at the Summit of the Americas in Quebec City, the proposed FTAA will be a major item on their agenda.

The FTAA negotiations, which began in 1994, have taken place in secret, so it is not possible to say for sure what is being proposed. There is informed speculation, though, that it will go "far beyond NAFTA in its scope and power, according to Maude Barlow, a trade specialist with the Council of Canadians.

"Essentially, what the FTAA negotiators have done, urged on by the big business community in every country, is to take the most ambitious elements of every global trade and investment agreement-existing or proposed-and pull them all together," Barlow says.

For example, government support of public services could be considered illegal subsidies under new rules to "liberalize" government purchasing. Private education companies could claim taxpayer support for public schools to be an illegal subsidy. Governments then might be forced to provide an equal subsidy to the private companies, or drop their support for their own schools. Other services offered by government entities, like water and health care, would face a similar challenge by multi-national companies, accountable to shareholders rather than citizens.

Sounds far-fetched? United Parcel Service has already sued Canada for $230 million, claiming that Canada's publicly funded network of mailboxes and post offices give Canada Post an unfair advantage.

"Global trade agreements are intended to limit government power, including state and local power," said Professor Stumberg. What that means is that the promotion of what is called "free trade" puts democracy itself in peril.

April 15, 2001

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