WTO, State Law on Collision Course

SACRAMENTO â€”  Sometime soon, members of the Legislature might want to ponder how many of the laws they enact this year could be overturned not by state or federal courts but by tribunals administered by foreigners, meeting in secret and rendering decisions that cannot be appealed.

To many politicians, such challenges to state laws, not to mention local ordinances, are instinctively interpreted as an undesirable byproduct of the continuing efforts to liberalize global commerce. Posing before TV cameras on a Seattle street during the recent World Trade Organization meetings, state Sen. Tom Hayden grimly alluded to “some 95 California laws� that may run afoul of WTO rulings. A few blocks away, Audie Bock, the former Green Party member who was the Legislature’s official representative at the meetings, told reporters that “there are a lot of California air-quality and water-quality laws that could be ruled trade barriers by the WTO.�

U.S. Trade Representative Charlene Barshefsky regards such concerns as baseless. The U.S. government, she says, is “not about to negotiate away the constitutional prerogatives of state and local authorities.� But legal scholars like Robert Stumberg of Georgetown University’s Harrison Institute for Public Law contend that not only have many of these prerogatives already been negotiated away, more are likely to be surrendered as additional trade agreements are made.

The most obvious conflict between international-treaty obligations and current state and local law involves government-procurement policies. Under the WTO’s Agreement on Government Procurement, public entities are prohibited from discriminating on grounds other than price and performance when purchasing goods and services. This casts a legal shadow over widely used preferential-bidding practices designed to benefit small businesses or companies owned by minorities, women, veterans or the disabled. The agreement’s provisions are also at odds with “buy-local� laws, such as one passed by the Legislature (but vetoed by Gov. Gray Davis) last summer.

Somewhat murkier is the future ability of state authorities to enact measures to protect consumers, workers and the environment. Chapter 11 of the North American Free Trade Agreement empowers foreign investors to sue if public-policy decisions nullify their expectations of future profits. Ongoing litigation based on investors’ claims filed under Chapter 11 will redefine the limits of state and local powers in these vital policy areas.

Much less attention has been devoted to the impact of the WTO’s Agreement on Subsidies and Countervailing Measures (SCM) on the ability of governments to promote economic-development strategies. The agreement, which curbs the use of broadly defined public subsidies to achieve a number of economic development goals, calls into question whether state and local governments may continue to offer tax breaks and other incentives to recruit and retain key companies, to foster technology-transfer efforts or to provide export-assistance programs. Among the items that might be subject to WTO scrutiny under SCM is the incentive package deployed by the Davis administration last month when it successfully lured a major foreign investor, SR Technics, to Palmdale, as well as much of the “smart investments� approach to infrastructure development espoused by state Treasurer Phil Angelides.

Despite warnings, concern in Sacramento has been largely muted. A spokesman for Atty. Gen. Bill Lockyer says possible conflicts between trade agreements and state law “have not yet become a major issue here.� Rather more actively, the state Senate is considering whether to hold a hearing into the subject this spring, and the governor’s office indicates that issues related to the WTO will be included in a comprehensive review of state trade policy the administration will be conducting over the next several weeks.

California is not atypical in its slow response to the problem. Carol Conway, who edits a trade newsletter, decries the general lack of involvement by state and local officials in trying to influence the federal government’s positions on key international trade and investment issues. Similarly, the Corporation for Enterprise Development concluded in a July 1999 study that “the subnational influence on [international trade] negotiations, at least in the United States, results more from the federal desire to avoid awakening state and local officials than from active state/local oversight.�

To be sure, many of the fears of a WTO coup seem exaggerated. For one thing, the uproar in Seattle was not confined to the streets. With numerous member-nations also voicing displeasure with the direction the WTO was taking, the political consensus needed to pursue a new round of talks has largely dissipated. Nor has the WTO shown its mettle in enforcing decisions involving major players. The European Union, for example, has spurned the WTO’s rulings against its banana-import policy and its ban on hormone-treated beef. Moreover, a WTO dispute panel’s pre-Christmas ruling approving U.S. use of unilateral trade sanctions, under Section 301 of the 1974 Trade Act, “should give pause to those who seem to think of the WTO as a sovereign entity that can jam its rulings down the throat of any member-nation,� contends L.A. trade attorney John Liebman.

Still, the prospect that the world may be ineluctably headed toward establishing a global set of rules governing cross-border trade and investment adds a vexing dimension to political deliberations at all levels of government. This risk to state sovereignty as we currently know it reinforces a growing conviction among some legislators and policymakers in Sacramento that the state should place greater emphasis in its trade policy on seeking to influence the positions of federal trade negotiators rather than merely seeking to promote export sales. The goods news, perhaps, is that the debacle in Seattle buys state and local leaders added time to contemplate the implications of globalization and decide what, if anything, they might want to do in response. *