Senator Grassley Letter regarding Central American Free Trade Agreement Letter

Economic Development, Trade and Cultural Affairs

National Conference of State Legislatures
National League of Cities
National Association of Towns and Townships

April 12, 2005

The Honorable Chuck Grassley
Chairman, Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 20510-6200

Dear Chairman Grassley:

On behalf of the nation’s state and local elected officials, we are writing to raise some questions about the impact of the investment chapter of the Central American Free Trade Agreement (CAFTA) on our American system of federalism. State and local governments’ support for free trade is conditioned by our commitment to the authority of states and municipalities to regulate land-use, health, safety, welfare, public morals, and environment measures. To that end, our respective organizations ask you to consider the following inquiries and to seek responses from panelists testifying before your committee.

Do U.S. courts have final authority to review a decision rendered by an international tribunal regarding investor-state disputes under Chapter 10 of CAFTA? The interplay of state and local judicial authorities and jurisdictions and the quasi-juridical, ad hoc bodies created to consider investor-state disputes continues to trouble our members.

Do the provisions of the agreement addressing “expropriation” and “minimum treatment under international law” meet the mandate in the Trade Promotion Authority (TPA) Act that future investment agreements not grant greater substantive rights to foreign investors than are enjoyed by U.S. citizens under comparable concepts embodied in the “takings” and “due process” clauses of the U.S. Constitution? We remain very committed to TPA’s “no greater rights” language and hope that Congress will ensure through close oversight the proper and thorough implementation of TPA’s intent.

Can the initiative taken by the United States in its side letter with Costa Rica intended to restrict the capacity of foreign investors to bring claims based on U.S. regulation and taxation of gambling be further clarified and extended to cover the other parties to CAFTA? In the wake of the Antigua gambling case, states and localities are interested in ensuring that U.S. agreements touching on such a highly charged public policy issue clearly respect American federalism and reserve this authority to the states.

Does the text of the agreement grant standing to subsidiaries of U.S. corporations to bring CAFTA investor-state claims against the United States? Expert analysis of the CAFTA draft language has raised the specter of such claims and our members are keenly interested in forestalling such backdoor challenges to state and local regulatory authority.

We have already initiated discussion of these issues with the Office of the U.S. Trade Representative, and we are pleased with their willingness to discuss the issues in detail. However, sufficient assurances have not been offered to assuage our concerns that American federalism is not placed in jeopardy by the investment chapter of CAFTA. We look forward to discussions with members and staff of your committee about these critical issues and to working with you to guarantee that international trade continues to provide economic development opportunities for Americans with full respect for federalism.

Sincerely,

Donald. J. Borut
Executive Director
National League of Cities   William T. Pound
Executive Director
National Conference of State Legislatures

Allen R. Frischkorn, Jr.
Executive Director
National Association of Towns and Townships

CC: Members, Senate Committee on Finance