Issue: Free Trade Agreements

Impact:

Free trade agreements (FTAs) permit referral of commercial disputes litigated before state and federal courts to international arbitration panels. These panels are free to determine whether federal and state law, regulations, court procedures, and judicial decisions meet international law principles.

Position:

 State court leaders urge the US Trade Representative (USTR) and Congress to only approve trade agreements provisions that recognize and support the sovereignty of state judicial systems and the enforcement and finality of state court judgments and to clarify that under existing trade agreements, foreign investors shall enjoy no greater substantive and procedural rights than US citizens and businesses.

Summary:

 In addition to NAFTA, Congress has approved FTAs with several countries (e.g., Australia, Chile, Columbia, Peru, Morocco, Bahrain, Oman, Peru, and Singapore) and six Central American countries and the Dominican Republic [CAFTA]). Three agreements are pending (Colombia, Panama, and South Korea). The so-called investor-state provision of each of the FTAs (except Australia) permits an investor to challenge a decision of a court by referring the dispute to an international arbitration tribunal. The Australia FTA does not contain such a provision because the Australians objected on the grounds that both Australia and the US have well-developed court systems that can provide fair decisions in disputes between investors and governmental entities. Thus far, the US has not “lost” a case referred to an arbitration panel. In both Loewen Group vs. United States and Mondev International Limited v. US, the panels declined to review a state court’s decision, but have left open the possibility. In addition to the standard Investor-State provision, CAFTA includes a clause calling for establishment of an appellate process. The USTR has circulated for comment, a proposal to utilize a second set of ad hoc arbitration panels to review the initial arbitration decision. Concerns have been expressed regarding both the appropriateness of institutionalizing the current process and the adequacy of the proposed appellate procedure.

Status:

The three pending agreements were submitted to Congress in time to have them considered under “fast-track” authority of the Trade Promotion Act (TPA) that expired 6/30/07. A bill extending the TPA is likely to be submitted in the new Congress. These agreements were modified to reflect a White House/Congressional agreement to include stronger labor and environmental provisions and an acknowledgment that foreign investors do not have greater substantive rights than domestic investors.