| Posted March 31, 2005:
Driving through the countryside during the late 1950s and the
1960s, it was not uncommon to see a billboard proclaiming "Get
the US out of the UN," reflecting, in part, the concern
that US sovereignty might be compromised by decisions made at
the United Nations headquarters in New York City. The sponsors
of this billboard wanted to make sure that no world government
would be able to impose its decisions on the citizens of the
US. The UN was seen as a harbinger of a coming One World Government.
We find it a bit ironic that, today, those fears seem to
have subsided despite the creation of and broad powers given
to the World Trade Organization (WTO) and regional agreements
like the North American Free Trade Agreement (NAFTA) and the
yet-to-be adopted Central America Free Trade Agreement (CAFTA).
We find it ironic because, while the UN can be seen as a
toothless tiger (it has little power to enforce the resolutions
it passes), the trade agreements often include stringent enforcement
powers.
Under NAFTA, the situation gets even more serious because
of a provision in that agreement called Chapter 11. Under
Chapter 11, an investor or group of investors in one country
can sue the government of either of the other two signatory
governments, if it believes that an action by that government
infringes on the investors' rights granted under NAFTA.
So, for instance, a case has been filed with regard to California's
ban on the gasoline additive MTBE. California banned the additive
because it was found in that state's groundwater and was ruled
a potential carcinogen. Methanex, a Canadian corporation,
which produced a product used to manufacture MTBE, sued the
US government for $970 million arguing that the "California
ban harmed it by substantially reducing the demand for methanol,
its sole product."
If the court were to rule in favor of Methanex, it is possible
that a decision of an international trade disputes body could
force California to rescind a decision that was made to protect
the health of the people of California. In the US, the courts
have consistently ruled against US corporations who have tried
to make similar arguments against various regulations. But,
because it is a Canadian company, Methanex has more rights
under an international tribunal than a US company would have
under US courts.
Business Week began a recent article (March 7, 2005, p. 102)
on the problems with Chapter 11 type rules by describing the
situation in Utah, where gambling has been illegal throughout
its 110 year history. The Caribbean island nation of Antigua
and Barbados filed a case against Utah arguing that "gambling
regulations in Utah and most other states conflict with America's
obligation not to discriminate against foreigners providing
'recreational services.'" The WTO panel agreed with Antigua
and Barbados and Utah lost a bit of its sovereignty. Powers
that once were within the realm of individual states are being
usurped by various trade dispute panels.
The recent trade ruling in the Brazil-US cotton case has
the potential to force a significant revision of the US farm
program. If the US does not comply with the ruling, it could
be subject to significant trade sanctions.
Once upon a time it took an invading army to deny a country
its sovereign right to make decisions in the interests of
its citizens. No longer is that true. Today it appears a government,
a group of producers, a group of investors or a corporation,
through the workings of an international trade dispute panel,
can override those sovereign decisions, forcing the country
to rescind a duly passed law or regulation it believes is
in the best interests of its citizens or pay a substantial
penalty.
Daryll E. Ray holds the Blasingame Chair of Excellence
in Agricultural Policy, Institute of Agriculture, University
of Tennessee, and is the Director of UT's Agricultural Policy
Analysis Center (APAC). (865) 974-7407; Fax: (865) 974-7298;
dray@utk.edu; http://www.agpolicy.org.
Daryll Ray's column is written with the research and assistance
of Harwood D. Schaffer, Research Associate with APAC.
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