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National Conference of State Legislatures
National Association of Towns and Townships
Ambassador Robert Zoellick
The Office of the U.S. Trade Representative
1724 F Street, Northwest
Washington, D.C. 20006
Re: Comments on the Proposed Free Trade Area of the Americas
(Federal Register, July 31, 2002, Volume 67, Number 147)
Dear Ambassador Zoellick:
State and local governments enthusiastically support trade investments because they generate jobs and economic growth in our local communities. Our organizations' ardent support for free trade is balanced by our commitment to fair trade laws that respect the authority of states and municipalities to enact and enforce land-use, health, safety, welfare, and environmental measures.
Organizations representing state and local governments, like a majority of the American people, support trade liberalization and generally support new trade and investment agreements, such as the Free Trade Area of the Americas (FTAA), provided that the language in such agreements is consistent with American values and constitutional principles. In particular, state and local governments insist that international trade and investment agreements, including the FTAA, must not infringe upon our American federal system and must not afford foreign investors greater rights than those afforded to American investors and property owners, vis-a-vis state laws, local ordinances and regulations, protected under our constitution. This latter standard is, of course, parallel to the "no greater rights" language incorporated into the recently-enacted Trade Promotion Authority bill on a 98 to 0 vote of the U.S. Senate.
State and local officials are gravely concerned about the prospect that the FTAA may include an investor-to-state dispute resolution mechanism. The investment chapter of NAFTA provides for a private right of action for foreign investors to seek damages from the United States. It is also being used to seek compensation for the exercise of such traditional state government powers as the protection of the drinking water supply and the invocation of state sovereign immunity to protect taxpayer interests.
State and local governments believe that NAFTA's investment chapter is a threat to "our federalism," and that no provision remotely similar to it should be included in future agreements, including the FTAA.
U.S. negotiators, in our view, will have to meet a very high burden to show that any investor-to-state system will not grant foreign investors greater rights than those afforded to U.S. businesses and property owners under the U.S. Constitution. As stated by Senator Baucus in explaining the purpose of the no greater substantive rights language, "the rights of U.S. investors under U.S. law define the ceiling. Negotiators must not enter into agreements that grant foreign investors rights that breach that ceiling."
Will, for example, the mere diminution of the value of an investment as a result of government regulation give rise to a claim for compensation under the FTAA, in circumstances where no such claim could arise under the U.S. Constitution? Similarly, would dispute resolution panels under the FTAA consider a claim for compensation that would not be "ripe," under U.S. constitutional standards, as for example when American state law remedies have not been sought and exhausted?
And, as another example, would a reviewing tribunal under the FTAA examine a law or regulation of an American state based only on the impact of the law and regulation upon a segment of the property rather than follow the practice under the U.S. Constitution of considering the impact on the property as a whole?
As a final and most important example of the difficulty of reconciling any international investor-to-state mechanism with U.S. constitutional standards, will the definition of "investment" under the FTAA be as narrowly defined as the concept of "property" under the takings clause of the Fifth Amendment of the U.S. Constitution? Will this concept of property still be defined with primary reference to state constitutions and state legislative acts?
State and local governments believe that the world can have free trade while America at the same time preserves its federal constitution. We believe in mending, not ending our international trade and investment agreements. Thus, state and local governments urge U.S. negotiators to learn from the mistakes made in crafting NAFTA's investment chapter as they draft the new FTAA and similar agreements.
Sincerely,
William T. Pound
Executive Director
National Conference of State Legislatures
Tom Halicki
Executive Director
National Association of Towns and Townships
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