Is There a Democratic Deficit in the Free Trade Agreements? What Local Governments Should Know

By Warner, Mildred; Gerbasi, Jennifer | Public Management, March 2004 | Go to article overview

Is There a Democratic Deficit in the Free Trade Agreements? What Local Governments Should Know


Warner, Mildred, Gerbasi, Jennifer, Public Management


The term "free trade" has as many definitions as there are interpreters. The United States Trade Representative (USTR) calls it an opportunity to gain access to markets worldwide for U.S. goods and services and to generate more quality and choice for the consumer. State and local governments are intimately involved in economic development and benefit from foreign markets. Some elected officials, however, are concerned that the free trade agreements, as currently drafted, fail to adequately protect our democratic traditions.

In 2002, Bill Moyers produced and wrote a documentary for PBS called "Trading Democracy" that outlined these fears. The states of California and Washington have convened trade oversight committees to interpret the impact of free trade on state and local government activities. They are concerned that everything from subsidies for local export programs to public health and environmental quality might be directly affected by the trade agreements. A group of states recently started a Forum on Democracy to study the impact of trade agreements on state authority.

Everyone wants to enjoy the benefits of larger markets and consumer choice. What is it about free trade that has state and local governments concerned?

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STATE AND LOCAL GOVERNMENT AUTHORITY CHALLENGED BY FREE TRADE AGREEMENTS

In the past, trade treaties have focused on customs regulations and tariffs that are in the purview of the federal government. States and localities would only be concerned if the industry in question affected their economies. The new trade agreements, however, reach into nearly every aspect of government. Free trade goals focus on removing perceived barriers to the flow of money, services, and goods. Trade agreements don't regulate industry, they regulate government activity.

Many state and local government activities and regulations may be viewed as "nontariff barriers to trade." The free trade agreements seek to create a level playing field for foreign investors by eliminating local licensing, labeling, and contracting requirements; limiting purchasing criteria to quality and quantity considerations; and eliminating practices that favor public provision or domestic investors. Clearly, protectionist legislation would be contrary to the spirit of the trade agreements and a legitimate concern, but some analysts believe that harmonization of state and local laws for the sake of simplicity may come at the cost of local governments' ability to suit local needs and values.

Specifically, the new generation of free trade agreements presents these challenges to state and local governmental authority:

* Superior rights are granted to foreign investors.

* Private international tribunals replace public courts.

* Many public services may be subject to free trade provisions.

* Free trade goals conflict with government charters.

* Free trade agreements cause a democratic deficit.

FOREIGN INVESTORS GRANTED SUPERIOR RIGHTS

The new challenges to state and local government authority stem from the North American Free Trade Agreement, which came into force in 1994, and the World Trade Organization General Agreement on Trade in Services (GATS) signed in 1995. NAFTA's Chapter 11, which has been used as a template for other free trade agreements, creates special property rights for foreign investors. NAFTA expands the definition of "property" to include market share, market access, and future expected profits. This definition is important because it is used to value the loss to an investor, as well as the liability of government in a dispute.

This treatment of property rights is the most striking example of the impact on state and local government. What is called "takings" legislation

in the United States, based on the Constitution's Fifth Amendment protections against unlawful seizure of property, is called "expropriation" in the free trade agreements. …

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