San Francisco Chronicle
July 24, 1999
by Robert Collier, Glen Martin, Staff Writers

Question: What do the Marine Mammal Protection Act, the Endangered Species Act and clean-air rules of the United States and Canada have in common?

Answer: They all have been weakened because of rulings by international trade tribunals, whose legal and diplomatic power is under growing, bipartisan criticism.

More disputes are brewing, and elected officials across the United States and in other nations are hopping mad. Currently under challenge at the trade tribunals are a wide range of issues related to national, state and municipal sovereignty, such as jury awards and laws protecting water quality and human rights.

The North American Free Trade Agreement and the World Trade Organization, which began functioning in 1994 and 1995, respectively, established a system of three-member tribunals to resolve disputes over government measures that act, directly or indirectly, as trade barriers.

Governments that lose such rulings must amend domestic legislation or face heavy fines.

"Although there are benefits to getting more open markets, the unanswered--and, until recently, unexamined--question is whether Americans are willing to pay the high price of trading away our legislative power," said Robert Stumberg, a law professor at Georgetown University in Washington, D.C.

Controversy has been spurred by recent cases such as these:

• Gasoline. In 1997, the U.S. Environmental Protection Agency weakened its Clean Air Act regulations to comply with a WTO ruling barring U.S. limits on contaminants in imported foreign gasoline. Venezuela claimed that the limits, which affected California and eight other states, acted as an unfair trade barrier.

• Endangered turtles. Last October, the WTO ruled against the U.S. ban on shrimp imports from nations whose fishing fleets do not use devices to keep endangered sea turtles out of the nets. The Clinton administration is revising its implementation of the Endangered Species Act to comply with the WTO ruling.

• Dolphin-safe tuna. This fall, U.S. supermarkets will again sell tuna that is caught using mile-long nets blamed for snaring and killing thousands of dolphins per year. Last year, Congress weakened the Marine Mammal Protection Act to comply with a 1992 WTO ruling against the U.S. "dolphin-safe" tuna certification.

• State purchasing. Two U.S. federal courts have ruled that Massachusetts' ban on state contracts with firms doing business with Burma's military dictatorship is an unconstitutional intrusion on the federal government's foreign-policy powers. Massachusetts announced last week that it will appeal the rulings--in which the judges cited a complaint filed in the WTO by the European Union and Japan--to the Supreme Court, where it is expected to become a major test of federalism.

• Jury awards. In October, Loewen Group, a large Canadian funeral corporation, filed a NAFTA lawsuit against the U.S. government, seeking $750 million in damages because of what it claimed was unfair treatment by a local jury in a Mississippi state court. In that case, Loewen had been convicted of fraudulently trying to corner the regional funeral market and was fined $500 million--but instead of appealing the case through the U.S. legal system, Loewen settled out of court and made an end run to NAFTA.

• MTBE. The Vancouver-based Methanex Corp. filed a $970 million NAFTA lawsuit last month against California's plan to ban MTBE, the gasoline additive that is blamed for polluting the state's groundwater. A similar lawsuit filed last year by a U.S. company forced Canada to overturn its ban on a similar additive.

The MTBE case "is what we predicted would happen under NAFTA and what we predict will happen under the WTO," said Rep. George Miller, D-Martinez. "It's happened with dolphin-safe tuna, and it could happen with lots of other laws.

"This is the New World Order's assault on democracy," Miller said. "Local legislation can be nullified because a secret trade tribunal says so. . . . It doesn't matter whether you're a Republican or Democrat, a conservative or liberal.

"What's at risk now is the drinking water of every Californian. The issue just got brought home in a big way."

But others insist the new rules are helping to ensure fair treatment for international investors and are boosting trade.

Jack Lindsey, chairman of Santa Barbara-based Sun Belt Water Inc., has sued Canada under NAFTA for $468 million after British Columbia enacted a moratorium on the export of water, canceling a 1991 contract that Sun Belt had signed to bring the province's water by tanker to Southern California.

"They refused to reach an equitable settlement with us," Lindsey said. "All we are asking is that they honor the contract they originally signed with us, or pay us for breaching it."

He acknowledges that international trade tribunals can essentially overrule some national laws:

"In the sense that a country has assigned certain rights to an international entity, some sovereignty has been surrendered. But these are decisions outlined in treaties that are freely and openly negotiated by elected representatives. It is a legal process."

The Clinton administration is clearly embarrassed by the controversy over trade pacts it has championed. Officials of the State Department and the U.S. Trade Representative refused to comment on the record.

Many California lawmakers of both parties say they worry that their powers are under attack.

Assemblyman Robert Pacheco, a Los Angeles County Republican, said the MTBE lawsuit might open a Pandora's box.

"I'm concerned about the case's impact on California sovereignty, in terms of its impact on our ability to do away with something harmful to our citizens," Pacheco said. "It will probably wind up being a test case about states' rights."

California Attorney General Bill Lockyer and the cities of San Francisco, Los Angeles and Oakland have filed legal briefs supporting Massachusetts in the lawsuit against its Burma boycott.

For the three cities, the decision to back Massachusetts is natural -- they and a half-dozen other California cities and counties have similar bans regarding Burma. The state government does not have any such law, but views the case as important nonetheless.

"The Massachusetts-Burma ruling is a potential interference in our powers as state and local governments," said Assistant Attorney General Thomas Gede, referring to a June 22 federal appeals court decision. "We're confident that the Supreme Court will agree that the federal courts can't restrict how we choose to do our own purchasing."

Gede said an unfavorable Supreme Court ruling could lead to attacks on other local measures--such as the University of California's rules on sweatshop-free merchandise and the state's sanctions on European insurance firms involved in Holocaust-era claims--that might be vulnerable to challenge in the WTO.

The root of the overall problem is that there is an inherent conflict between the decentralized U.S. federal system and foreign investors, said Christiane Hayashi, a San Francisco deputy city attorney.

"The WTO is trying to achieve for our trading partners a uniformity that doesn't exist," she said. "The European Union wants to have uniform trading rules throughout the 50 states, because when San Francisco and others make local rules, it makes it more difficult for foreign corporations" to standardize their products and services.

Last year, the city's Board of Supervisors, along with the National Association of Counties and a dozen other U.S. cities, adopted resolutions opposing the Multilateral Agreement on Investments, a proposed pact that is expected to be negotiated at the WTO.

"It's not so much that the sovereignty of the nation is being directly threatened," said Daniel Seligman, director of trade policy for the Sierra Club.

"It's more that trade has become a kind of de facto global government serving only one constituent--transnational corporations.... You end up with corporate property rights that go well beyond what is provided by 200 years of Supreme Court rulings."

Backlash

Critics of the North American Free Trade Agreement and the World Trade Organization are trying to rein in their legal powers:

• Insider access: On Wednesday, a lawsuit filed in Seattle federal court charged the U.S. Trade Representative and the Commerce Department with excluding environmental groups from official trade advisory committees while giving access to the timber industry. The plaintiffs include the Sierra Club, Oakland-based Pacific Environment and Resources Center and San Francisco-based International Forum on Globalization.

• Enforcement of rulings: Congress is expected to vote in the next few weeks on an appropriations bill amendment sponsored by Rep. Dennis Kucinich, D-Ohio, and Rep. Ileana Ros-Lehtinen, R-Fla. The measure would block the federal government from carrying out legal challenges to city and state laws that WTO and NAFTA panels have ruled to be trade barriers. A similar move last year lost by a 228-200 vote, and this year's vote is expected to be closer.

• WTO summit: The WTO's November 29 to December 3 summit meeting in Seattle is expected to begin a new round of agreements involving investment, financial services and agriculture. But unions, environmentalists and poor nations want negotiations stopped, saying the WTO's powers should be limited, not expanded.

© 1999 San Francisco Chronicle