Labor and Economic Development Committee

May 1, 2007

The Honorable Charles B. Rangel
Chairman, Ways & Means Committee
U.S. House of Representatives
1102 Longworth House Office Building

Washington, D.C. 20515

Dear Chairman Rangel:

On behalf of the National Conference of State Legislatures (NCSL), thank you for your thoughtful and candid presentation to state legislators and legislative staff attending our organization’s Spring Forum. We are additionally pleased with your willingness to respond to numerous questions covering a wide array of subject matter.

The fact that so many of the questions related to international trade and global competitiveness should highlight the interest of state legislators in protecting state sovereignty while seeking the economic benefits of trade. We appreciate your invitation to further this discussion with you by correspondence, but we also hope that we will have the opportunity to explore states’ interests in international trade again in person very soon.

The U.S. Trade Representative (USTR) is currently negotiating with our partners in the World Trade Organization to define a clause in the General Agreement on Trade in Services (GATS) relative to domestic regulation. NCSL applauds USTR staff for the attention they have paid thus far to state concerns about the effect an expansive agreement on domestic regulation could have on state legislative, regulatory, and police authority and for the public release of their current negotiating principles for a wider discussion. However, we are gravely concerned that any preamble or operational language creating a necessity test or an objectivity test will needlessly complicate states’ ability to legislate and regulate in the public interest.

We support USTR’s position calling for transparency but fear that discussions of necessity tests or objective criteria will actually create new standards that go well beyond transparency. Most people would agree that objectivity in public policy is desirable. But to turn objectivity into an international mandate runs counter to other capacities such as expert judgment and flexibility to balance competing interests. To illustrate, some WTO documents define “objective” to mean not subjective or not open-ended discretion. But state legislatures and the Congress often delegate broad discretion to administrative agencies such as health commissions, coastal commissions or public utility commissions (PUCs) to regulate in the “public interest.” Legislatures often define “public interest” as a balancing act that serves consumers, the regulated company, employees of the regulated company, and the environment. Often, these are competing interests that a PUC must balance in order to arrive at the “public interest.” The value of such a broad delegation is flexible management of complexity; the PUCs’ delegated role requires plenary judgment. To turn necessity or objectivity into an international mandate would promote mechanical standardization and harm the ability of legislators and regulators to deal with complex service industries.

We are further concerned with the recent WTO dispute settlement panel decision that the United States has not complied with the ruling on Antigua-Barbuda’s claim against the U.S. regarding Internet gaming. NCSL has strongly encouraged USTR to withdraw the “recreational services” commitment, which has been found to include Internet gaming despite USTR’s assertions that the U.S. never intended to include that service under that commitment. We want to ensure that any state may legislate and regulate the gaming industry in the way their residents wish. While many aspects of Antigua’s claim were not upheld based on “public morals” or because sufficient arguments were not made, we fear that not withdrawing this commitment leaves the United States generally and state laws on gaming in particular open to future challenge at a time when the international value of this market is growing.

We are also concerned that the gaming industry is well positioned to bring investment claims against the United States, directly or as a surrogate for state laws. This prospect is particularly troubling given that investment agreements or chapters typically do not have “public morals” exceptions as found in the GATS.

We would like to conclude by restating NCSL’s on-going concern about investor-state dispute mechanisms in the investment chapters of free trade agreements. NCSL recently wrote to USTR encouraging that such a dispute mechanism be excluded from the South Korea FTA just as it was from the Australia FTA. Even though the United States has not lost any investor-state cases, several cases have been brought under NAFTA challenging state laws or regulations and the prospect of challenges have had a chilling effect on state policy innovation. We stress that investor-state dispute mechanisms should be excluded from investment chapters of FTAs as the best way of properly applying the “no greater rights” provision of the current Trade Promotion Authority (TPA). As you and your Committee begin to consider any extension or renewal of TPA, we would welcome the opportunity to speak with you or your colleagues about investor-state dispute mechanisms.

Mr. Chairman, thank you again for taking the time to speak to NCSL’s Spring Forum. We appreciate this engagement and your attention to states’ trade interests. We would welcome the opportunity to speak with you further at your convenience and look forward to working with you, your colleagues, and your staff. Please do not hesitate to contact us directly or to contact NCSL’s Jeremy Meadows (202-624-8664; jeremy.meadows@ncsl.org) if any of us can be of any assistance to you.

Sincerely,

Leticia Van de Putte
Chair, Texas Senate Democratic Caucus
President, NCSL Sheryl Allen
Representative, Utah
Vice Chair, NCSL Steering Committee

Adobe PDF Click Here for Printer Friendly Version