Trade Law and the Environment

1. Trade Law and the Environment Doug Farquhar, J.D. July 3, 2014

2. Product: The Slinky • Made in Philadelphia, Pennsylvania since 1945 • 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 well • City Building Codes

3. Product: Dolls from China Estimated 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.

4. How can Western Colorado farmers sell Kobucha Squash to Japan? • Japan is not subject to any US contractual laws • Not subject to the Uniform Commercial Code • Not subject to US Common Law • Colorado Farmers not subject to Japanese law How can these farmers ensure their squash will be delivered and that payment will be received? Who will oversee the legality of these transactions?

5. 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

6. 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

7. 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

8. 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

9. Free Trade Agreements Do free trade agreements weaken state sovereignty? • Foreign investors used WTO/NAFTA to attack state laws they deem discriminatory The 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

10. Free Trade Agreements The 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

11. Free Trade Agreements The 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

12. 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

13. NAFTA Chapter 11 Investments Investors 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

14. 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

15. Federal Standard of Care – NAFTA Cases Ethyl Corp Ban on MMT into gasoline Metalclad State/Local laws prohibiting hazardous waste facility S.D. Myers Ban on PCB waste exports SunBelt Water Biased treatment by against Corp. by British Columbia Pope and Talbot Lumber Quotas under softwood lumber agreement

16. 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

17. 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

18. 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 investors Part 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 Company Part 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”

19. 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 services Part IV - Liberalization of Trade in Successive Rounds Part V - Dispute Settlement Process Accepts 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 investment Domestic 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?

20. GATS (continued) Transparency • Publication of all relevant laws and regulations • Be imposed in a reasonable, objective and impartial manner Regulations 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

21. 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

22. 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

23. Trans-Atlantic Partnership (T-TIPP) • Accumulation of a 20-year negotiation with the EU • Includes an Investor-State Dispute Resolution • Like NAFTA Chapter 11 • 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!

24. Trans-Atlantic Partnership (T-TIPP)Negotiation Issues • 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 • 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

25. Contact Information/Questions Doug Farquhar, JD National Conference of State Legislatures Doug.farquhar@ncsl.org 303-856-1397