Trade Law and the Environment

Doug Farquhar, J.D.July 3, 2014

Product: The Slinkyo Made in Philadelphia, Pennsylvania since 1945o Subject to Federal/State/Local Laws

• Chemicals subject to the Federal Toxic Substances Control Act

• Workers protected by State Occupational Safety and Health Administration

• Waste disposed under the Federal Resource Conservation and Recovery Act

• Product subject to Federal Consumer Products Safety Commission

• State and Local Requirements apply as wello City Building Codes

Product: Dolls from ChinaEstimated 70-80% of toys sold in U.S. today

come from China

Dept. of Homeland Security (not Consumer Product Safety Commission) only inspects about 1 out of every 100 cargo containers at Port Entries.• must look for illegal drugs, guns, stowaway

persons, banned pesticides on fruits, pirated CDs and DVDs, chemical hazards and toys.

How can Western Colorado farmers sell Kobucha Squash to Japan?

o Japan is not subject to any US contractual laws• Not subject to the Uniform Commercial Code• Not subject to US Common Law

o Colorado Farmers not subject to Japanese lawHow can these farmers ensure their squash will

be delivered and that payment will be received? Who will oversee the legality of

these transactions?

General Agreement on Trade and Tariffs (GATT)

World Trade Organization (WTO)• Established in 1948• “New” GATT created in 1994 during the

Uruguay round which established the WTO • Multi-national agreement among 159

countries• Sets the basic rules for international trade

World Trade Organization• Created in the Uruguay GATT (1986 to

1994)Round Agreement with 134 member countries

• Intended to strengthen GATT and eliminate barriers to international commerce

• Provides a forum for trade negotiations• Provides a mechanism for handling trade

disputes• Administers WTO trade agreements

Statutory Standard of Care/Federalism• Signatory governments agreed to ensure

subnationals follow agreement• states & locals may be limited in adopting

laws• Cases defended by USTR, not states• Rules negotiated by USTR, not states• Supports notion of individual property rights

over public health/safety/economic concerns

U.S. Organic Food Standard• California adopted an Organic Food Safety Standard• U.S. Government used the California standard as the U.S. standard until the U.S. Department of Agriculture developed a federal Organic Food Safety Standard

Free Trade AgreementsDo free trade agreements weaken state

sovereignty? • Foreign investors used WTO/NAFTA to

attack state laws they deem discriminatoryThe Burma Case

• Massachusetts law restricted state government from doing business with companies that trade with Myanmar because of human rights abuses; based on previous laws adopted to address apartheid in South Africa

Free Trade AgreementsThe Burma Case (continued)

• Decided in 1998 in a federal district court in Boston, “State interests, no matter how noble, do not trump the federal government’s exclusive foreign affairs power…”

• Supreme Court affirmed lower court decision based on a narrow interpretation of the Constitution, yet did not discuss the merits of trade agreements v. state law

Free Trade AgreementsThe Burma Case• Court affirmed Foreign Interests right to

enforce WTO decisions and challenge state laws through the federal courts

• Reaffirmed principle that states cannot determine foreign policy in the U.S. (U.S. v. Pink); foreign policy is sole jurisdiction of federal government • Ergo – trade policy is foreign policy

NAFTA Chapter 11:Investment and State Law

• Enhancing Investor Security• Provides “Investors” the right to challenge

foreign government on laws and policies that divests them of their interest ‘investor’ includes directors, executives or

shareholders divestment can mean any state regulation

NAFTA Chapter 11 InvestmentsInvestors receive assurances that the countries

will not, directly or indirectly, expropriate or nationalize the businesses or industries they invest in, unless certain conditions are met:• That the expropriation is for a public purpose;• That it is done on a non-discriminatory basis;• That it is in accordance with due process of law

and general principles of international law and fairness; and

• It is accompanied with payment of compensation

NAFTA Ch 11 Methanex v. US

• California law to phase out MTBE; U.S. Federal Gov’t did not regulate MTBE

• Methanex (Vancouver, BC) sought $970 m in lost profits under Chapter 11

• USTR chose Warren Christopher to protect state interests (and protect NAFTA)

• NAFTA Dispute Settlement Panel fully supported the California Ban

Federal Standard of Care – NAFTA Cases

Ethyl Corp Ban on MMT into gasolineMetalclad State/Local laws prohibiting

hazardous waste facilityS.D. Myers Ban on PCB waste exportsSunBelt Water Biased treatment by against

Corp. by British ColumbiaPope and Talbot Lumber Quotas under

softwood lumber agreement

Legal Standard of Care (WTO, NAFTA)

• National Treatment of foreign interests• Most-Favored Nation Treatment• Minimum International Standard of Treatment• Prohibitions against certain performance

requirements on investors; and• Provisions governing expropriations

NAFTA Chapter 11• Any standard (measure) that prohibits a

product can be challenged• Import of MMT into Canada• Ban on PCB waste exports

• Can be challenged in US Federal Court AND via a NAFTA tribunal• US Federal Courts must uphold NAFTA

Tribunal decisions and use authority to force payment of damages

General Agreement on Trade in Services (GATS)

• Originally discussed during the Uruguay Round, but not finalized until 1994; continually being revised

• Focus is on Services; 70% of the U.S. Economy• Designed to protect investorsPart I - Services• Between Member Countries• Between Member Countries and Citizens

• Allows Bank of Topeka to fund new airport in Bahrain• Between Citizens of Member Countries

• Allows a U.S. Citizen to book a tour thru Cambodia Tour CompanyPart II - Obligations and Disciplines

• Most Favoured Nation: “shall accord immediately and unconditionally to services and service providers of any other Party, treatment no less favourable than that it accords to like services and service providers of any other country”

General Agreement on Trade in Services (GATS)

Part III - Market Access and National Treatment• Members must accord services

and service providers same treatment• No limitations on the types

or availability of servicesPart IV - Liberalization of Trade in

Successive RoundsPart V - Dispute Settlement

ProcessAccepts GATT Article XX exceptions

• May impose certain measures to protect health and safety

• May NOT distort trade

Environmental Measures permitted• Non-trade distorting• Applied only as necessary to

achieve environmental goal• Not designed to limit foreign

services or investmentDomestic Regulation

• CA limits on creation of LNG facility at Port of Long Beach

• CA Air Act restricts the development of the facility• Makes it cost-prohibitive• GATS issue?

GATS (continued)Transparency

• Publication of all relevant laws and regulations• Be imposed in a reasonable, objective and impartial

mannerRegulations must be 'pre-established,

based on objective and transparent criteria and relevant to the supply of the services to which they apply'• 'Pre-established’ limits change• 'Objective' means that public interest is subject to

questions• 'Relevant' could means tangential issues (such as

environment) may not be acceptable

Trans-Pacific Partnership (TPP)United States, along with Australia, Brunei, Chile, Malaysia, New Zealand,

Peru, Singapore, Vietnam• Mexico, Canada, and Japan have since joined

Core issues traditionally included in trade agreements• industrial goods, agriculture, and textiles • intellectual property, technical barriers to trade, labor, and environment.

Cross-cutting issues not previously in trade agreements, • making the regulatory systems of TPP countries more compatible so U.S.

companies can operate seamlessly • helping innovative, job-creating small- and medium-sized enterprises

participate more actively in international trade.• New emerging trade issues such as addressing trade and investment in

innovative products and services, ensuring state-owned enterprises compete fairly with private companies and do not distort competition in ways that put U.S. companies and workers at a disadvantage

Trans-Pacific Partnership (TPP)• Environment. The agreement addresses important trade and

environment challenges reinforces environmental protection and an effective institutional arrangement to oversee implementation and a specific cooperation framework.

• Investment. The investment text will provide substantive legal protections for investors and investments of each TPP country including ongoing negotiations on provisions to ensure non-discrimination, a minimum standard of treatment, rules on expropriation, and prohibitions on specified performance requirements that distort trade and investment. The investment text will protect the rights of the TPP countries to regulate in the public interest.

• SPS (Food Safety) - following the WTO• TBT (Food Processing) - following the WTO

Trans-Atlantic Partnership (T-TIPP)o Accumulation of a 20-year negotiation

with the EUo Includes an Investor-State Dispute

Resolution• Like NAFTA Chapter 11

o Allows for 3rd Party Tribunal• Your State or Local Environmental Health Law

(Measure) could be challenged by the EU! And your office could be sued by USTR!

Trans-Atlantic Partnership (T-TIPP)Negotiation Issues

o Emerging Technologies- Nano-Technology- problem with Confidential Business Information

(CBI) issues- 1986 Biotech Framework v. EU Measures- substantial equivalence- no Nano specific regulations, no labeling of Nano-

tech- Am Chemistry Council sued over labeling

o TIPP on food and farming- EU and US will use TIPP as the new direction on

trade- food standards are under attack- Initiatives on Safe Chemicals; REACH v. TSCA

Contact Information/Questions

Doug Farquhar, JDNational Conference of

State LegislaturesDoug.farquhar@ncsl.org

303-856-1397