| 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
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
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; email@example.com;
Daryll Ray's column is written with the research and assistance
of Harwood D. Schaffer, Research Associate with APAC.