No seat at the table

Imagine that the city you live in has a “smart growth” policy that restricts the development of big box retail stores. Now imagine that your local city council refuses to make an exception for a certain developer and denies an application to put in a massive retail store because it violates the ordinance. It could happen.

Now imagine that developer takes the city to court, and after a drawn-out lawsuit, the developer loses. End of story, right? Not necessarily.

If the developer is a foreign-owned company, or a foreign-owned subsidiary of another company, the developer could take the case to a secret panel of national trade representatives and, under the provisions of the North American Free Trade Agreement (NAFTA), be awarded millions of dollars because the local government unwittingly violated international free trade rules.

Has this ever happened? No. Will it happen? Nobody is sure. But a growing chorus of environmental groups, trade experts and labor groups are beginning to realize that scores of state and local environmental, labor and land use laws may one day run afoul of NAFTA and other free trade agreements.

“The trade law that is being made today undercuts California’s environmental sovereignty. It is antithetical to environmental regulation,” said Dan Seligman, a free trade expert with the Sierra Club.

Local land use laws are just one potential battleground under a new regime that pits international free trade agreements against state and local sovereignty. Similar scenarios could play out for state and local governments that try to buy emission-free fleet vehicles, or which prefer to buy recycled paper products, or which attempt to ban import of produce grown with certain pesticides.

That is why state Senator Sheila Kuehl (D-Santa Monica) has authored Senate Bill 1111, which would require the California Environmental Protection Agency and the state Resources Agency to look at the potential conflicts between state environmental laws and provisions of NAFTA and other free trade agreements, and report their findings to the Legislature and governor. She has authored similar legislation, SB 1044, which would require a study of state labor laws.

“I hope to bring this a little higher in everybody’s consciousness. I don’t want to seem alarmist, but nobody is really paying attention to this,” Kuehl said.

The state has a fairly sophisticated bureaucracy—four different offices—that encourages international trade. But there is not an equivalent bureaucracy for considering the potential costs to the state from the same trade agreements, according to Arnie Peters, a legislative staff person for the Senate Environmental Quality Committee.

Kuehl’s bill is essentially the same as SB 1516, authored by her predecessor Tom Hayden but vetoed by Governor Gray Davis last year. In his veto message, Davis essentially said the bill was a waste of money.

“Existing provisions of the United States Constitution grant the United States Congress the sole power to regulate commerce with foreign nations. Therefore, the expenditure of the resources necessary to comply with this measure would be unproductive,” Davis said.

Davis further said that the bill contained no mechanism allowing California lawmakers to consult with federal officials in trade disputes. According to analysis by the Assembly Appropriations Committee, the bill would have cost less than $50,000 a year for each agency involved in the reporting.

Kuehl also chairs the Senate Select Committee on International Trade Policy and State Legislation, the first of its kind in the United States. On May 16, the committee will hold hearings to consider which laws may run afoul of trade agreements. An early draft of a report to be presented during that hearing identifies 11 potential areas of conflict, including land use, labor law, food quality and economic development policies.

Senate Republicans seem disinterested in studying the impacts of free trade on state environmental laws.

“The state of California has no seat at the table when it comes to international trade agreements,” said Karen Hanretty, spokeswoman for Senator Jim Brulte (R-Cucamonga).

But Kuehl disagrees that California’s position is futile.

“This perception that we are unable to do anything doesn’t equate to our needing to be ignorant,” said Kuehl.

She hopes to use the select committee and her legislation to raise the awareness not only of state legislators, but also of California’s congressional delegation, and legislators and officials from other states.

Concern over California’s ability to enforce its own environmental laws is not a matter of idle curiosity or an elaborate game of “what if?” The state has already become entangled in a cross border battle with a Canadian corporation Methanex, which produces methanol, a key ingredient in the manufacture of methyl tertiary butyl ether (MTBE), a chemical which was introduced into California to make gasoline produce fewer poisonous tailpipe emissions.

Governor Gray Davis ordered a phase out of MTBE because the chemical turned out to be a groundwater contaminant. Yet Methanex brought a complaint under NAFTA and is suing the U.S. government for $1 billion in lost profits. The case will be decided by a tribunal of trade experts from each of the three NAFTA nations.

The panel is expected to decide any day whether Methanex has enough “standing” to go forward with its complaint. (For more on the Methanex case, see “The Big Chill” SN&R, September 28, 2000.)

There hasn’t been a flood of claims against state laws yet, mostly because of the cost of mounting such a case and the uncertainty, given the lack of any clear precedent, of winning such a claim. But if Methanex wins it may prompt other corporations to look for a chance to take on labor and environmental laws.

“If a couple more cases go that way, NAFTA could be seen as an alternative to domestic courts,” said Robert Stumberg, a Georgetown University professor and consultant to Kuehl’s committee.

The conflict between state sovereignty and corporate interest becomes even more critical if the provisions of the Free Trade Area of the Americas, which is modeled on NAFTA, are agreed to.

“If the FTAA is agreed to," Seligman said, "we expect the kinds of problems you’re seeing with the Methanex case to proliferate."