NCSL Labor and Economic Development Committee - Policy

Free Trade and Federalism

expires August 2013

The National Conference of State Legislatures (NCSL) supports efforts to expand U.S. exports through well-crafted international trade agreements. NCSL also believes that these agreements must be harmonized with traditional American values of constitutional federalism. In particular, state legislative, judicial and regulatory authority must be protected.  NCSL will not support international trade and investment agreements, tradepromotion authority, or implementing legislation unless they include such federalism protections. 

Federalism Protections

NCSL supports federal legislation that promotes consultation between the states and the federal government on trade policy. In particular, NCSL urges the Office of the United States Trade Representative (USTR) to consult with state legislatures as well as governors about state procurement practices. USTR should only be able to bind a state to an international procurement agreement following formal consent from the state legislature.  

NCSL supports the creation of a standing federal-state commission on international trade or a national center on trade and federalism to conduct unbiased legal and economic analysis of the effect of international trade policy on states and localities.

The Commission must have trade policy capacity with resources relevant to state level concerns, and promote information sharing and trade policy dialogue between USTR and the states. 

NCSL encourages USTR to utilize the “positive list” approach for making services, procurement, and investment commitments in trade agreements. Only state laws that are specifically committed should be covered in the agreement. Following appropriate consultations with USTR, the states must be able to set and adjust their commitments – a right the states have and which USTR has repeatedly recognized. USTR should therefore make clear to trade negotiating partners that U.S. states retain the ability to make adjustments to commitments regarding state-level services, procurement, and investment policies. 

NCSL supports the authorization and appropriation of adequate resourcesso that USTR is best equipped to fully consult with state legislatures in order torepresent their interests and the American public in trade negotiations while protectingand preserving American constitutional principles. 

NCSL encourages Congress to require the Government Accountability Office to develop state economic and sovereignty impact statements for international trade and investment agreements under negotiation.  

NCSL will not support Bilateral Investment Treaties (BITs) or Free Trade Agreements (FTAs) with investment chapters that provide greater substantive or procedural rights to foreign companies than U.S. companies enjoy under the U.S. Constitution.  Specifically, NCSL will not support any BIT or FTA that provides for investor/state dispute resolution. NCSL firmly believes that when a state adopts a non-discriminatory law or regulation intended to serve a public purpose, it shall not constitute a violation of an investment agreement or treaty, even if the change in the legal environment thwarts the foreign investors’ previous expectations. 

NCSL believes that BIT and FTA implementing legislation must include provisions that deny any private action in U.S. courts or before international dispute resolution panels to enforce international trade or investment agreements. Implementing legislation must also include provisions stating that neither the decisions of international dispute resolution panels nor international trade and investment agreements themselves are binding on the states as a matter of U.S. law.  

NCSL will support federal legislation assuring states that the federal government will not seek to preempt state law as a means of enforcing compliance with an international agreement unless Congress has expressed clear intent to preempt state law in implementing legislation or other law. Likewise, the federal government must not withhold federal funds to a state as a means of enforcing compliance with provisions of an international agreement.  

NCSL similarly supports federalism protections related to enforcement actions by the federal government. Because the federal government retains the power to sue a state to enforce international agreements, federal legislation implementing any new trade or investment accord must continue to include appropriate protections for the states related to rules of procedure, evidence, and remedies in such litigation. The federal government must continue to bear the burden of proof in court showing that state law is inconsistent with an international agreement, regardless of the finding of an international dispute resolution panel. As current law now provides, in any implementing legislation for new agreement, the President must be required, at least 30 days before the Justice Department files suit against a state, to file a report with Congress justifying its proposed action. In the event of an unfavorable judgment, states must be protected from financial liability. If the federal government agrees to allow foreign firms to collect money damages for “harm” caused by a state law, then the federal government must bear the burden of any such award by international tribunals and not seek to shift the cost to states in any manner. Additionally, states must be fairly compensated by the federal government for the time and expense associated with assisting the federal government in defending against a foreign claim. The absence of such a requirement has led to a kind of “unfunded mandate,” such as was experienced by the California Department of Justice during its preparations for defense in the NAFTA “Methanex” and “Glamis Gold” cases. 

The President, the U.S. Trade Representative, and other federal agencies involved in negotiating trade agreements must remain cognizant of the intimate role that state legislators play in crafting state laws, policies, and programs directly affected by today’s international commercial agreements. In particular, NCSL urges the United States Trade Representative (USTR) to consult with state legislators as well as governors prior to the onset of trade negotiations about state procurement practices, investment, and services issues.  

NCSL believes that all international services agreements entered into by the United States must include provisions that preserve the right of federal, state, and local governments to provide and regulate services in the public interest on a non-discriminatory basis. Nothing in any services agreement should bar measures rolling back service privatization or require the privatization of public services. 

With respect to ongoing negotiations on “domestic regulation” under the General Agreement on Trade in Services (GATS), NCSL believes that the United States should never accept an agreement that requires domestic regulations to meet a “necessity test” even if drafted in language requiring domestic regulation to be “pre-established, based on objective criteria, or relevant.” It is the job of elected legislatures, not international tribunals to decide when regulations are necessary. 

NCSL acknowledges that trade can bolster economies. However, many families and communities may suffer in the adjustment to open international markets. NCSL, therefore, supports federal efforts to provide Trade Adjustment Assistance (TAA) to affected workers. NCSL encourages Congress and the implementing federal agencies:

  • to ensure that the funding for TAA programs is sufficient to meet current and future needs;
  • to expand benefits eligibility to service-sector and agricultural workers impacted by trade; and
  • to work with NCSL and state legislatures to ensure that TAA programs are flexible to suit different states’ needs. 

Building Capacity in Trading Partners

NSCL recognizes that many developing countries do not have the institutions or capacity to fully implement and enforce FTA obligations. NCSL supports federal efforts to assist in building the trade capacity and trade agreement compliance of developing countries, including funding infrastructure and rural development, and ensuring that laws and institutions related to labor and the environment are improved and strengthened. 

Labor and Economic Development Committee