Free Trade Agreements

Issue: Free Trade Agreements


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. 


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.


In addition to NAFTA, Congress has approved FTAs with several countries (e.g., Australia, Chile, Peru, Morocco, Bahrain, Oman, Peru, and Singapore) and six Central American countries and the Dominican Republic [CAFTA], Colombia, Panama, and South Korea).  Several multilateral FTAs are being negotiated on fast tracks -- the Trans-Pacific Partnership Agreement (TPP), the International Services Agreement (involving 20 assorted US trading partners who are impatient with the GATS process), and the recently proposed Transatlantic Trade and Investment Partnership Agreement (commonly called the US-EU trade agreement).  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.  The Colombia FTA requires investors to choose between pursuing their claim in the courts or through international arbitration, though this choice can be made after court proceedings are underway.  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. Concerns have been expressed the adequacy of the proposed appellate procedure.


The CCJ has formally been raising federalism concerns for almost a decade.  It adopted a resolution in 2004 urging USTR “to negotiate, and the United States Congress to approve, provisions in trade agreements that recognize and support the sovereignty of state judicial systems and the enforcement and finality of state court judgments.” Twice this year, CCJ President Myron Steele filed formal comment letters regarding two ongoing trade-in-services negotiations (the TPP & and the TTIPA FTAs) to the USTR expressing the position that state courts are in the best position to determine the core qualities for a lawyer to obtain and maintain a license to provide legal advice and advocacy in courts of the USA. One education program in the January 2014 CCJ midyear meeting will be devoted to discussing the federalism implications of FTAs upon state court operations.