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Implementing 'no greater rights'

State and local governments have been engaging Congress on international investment and 'no greater rights' for much of this decade.  Looking ahead, there are a number of possible options for strengthening U.S. federalism in light of these international agreements.

The 2002 Trade Act & “no greater rights.”

During the 2002 'fast track' (Trade Promotion Authority) debate, a coalition of state and local associations lobbied Congress to clarify an objective of U.S. trade negotiations: that foreign investors should not be granted property rights that are greater than those enjoyed under the U.S. constitution.  A watered-down version of the “Kerry Amendment” was incorporated in the Trade Act of 2002. 

But despite the language in the 2002 TPA act, international trade and investment agreements recently concluded by the United States include property rights protections not available under U.S. constitutional law.

The bi-partisan trade deal of 2007
On May 10, 2007, the Bush administration and Democratic congressional leaders announced a compromise on trade policy intended to facilitate congressional approval of the U.S./Peru trade promotion agreement.  That part of the deal addressing investment agreements does no more than restate the objective in the 2002 Trade Act, with only one change:  the 2002 “no greater rights” language will be reiterated in the preambles of future agreements.

But this will not override clear language in an investment agreement that provides greater substantive or procedural rights to foreign investors.  In some cases, tribunals might look to the preamble of an agreement for guidance regarding what the parties meant.  But the plain-language content of the investment chapter will remain the primary text that tribunals will interpret. 

As the bi-partisan trade deal was released, USTR declared that the existing text of the U.S./Peru FTA and the text in all bilateral and regional agreements concluded since 2002 were already in compliance with the investment language in the bipartisan deal.  So, no changes needed, and no changes contemplated.

An analysis of the post-2002 US investment agreements demonstrates that they only give lip service to the “no greater rights’ mandate in the 2002 Trade Act.

Again, despite new language on investment, expropriation, and minimum standard of treatment articles in post-2002 U.S. investment agreements, all of these agreements, just like NAFTA chapter 11, provide substantially greater substantive and procedural rights to foreign investors.

Looking Ahead
The grant of 'trade promotion authority' given from Congress to the executive branch (specifically, the Office of the United States Trade Representative) has expired.  It is likely a new president will seek trade negotiating authority in 2009.  Congress may considers writing a totally new and reformed legislative framework for trade promotion authority.  Congress may also proceed with a freestanding bill or an amendment to substantive trade legislation.

Many options are available for reforming the investor-to-state arbitration process-- even if the option of ending it outright, as has been sought by state and local leaders and the national associations that represent them--is not considered politically possible. Congress could mandate that new agreements, as well as official interpretations of existing ones, include provisions that:

  • Incorporate and expand upon the central holdings of the Methanex case.  In that case, the tribunal held that a non-discriminatory regulation for a public purpose, which is enacted with due process, cannot constitute an expropriation or a violation of minimum treatment under international law.
  • Define investment more narrowly.  For example, Congress could exclude "expected future profits" and resource extraction permits from the definition.
  • Establish strict conflict of interest standards for arbitrators.
  • Provide for domestic court review of any tribunal award to ensure that the investor claim is not contrary to U.S. public policy.
  • Provide for domestic court review of any tribunal award to ensure that the investor claim does not conflict with provisions of the U.S. Constitution.
  • Provide for diplomatic review of all claims prior to the onset of international litigation.

Next steps in Congress: building on 'no greater rights' to protect states and cities
The current bipartisan agreement provides a framework for amending the NAFTA model and safeguarding the rights of local governments
Codifying the 'Methanex' decision to protect states, cities, and counties
A recent NAFTA tribunal decision provides a basis for the protection of local governments' right to regulate in the public interest

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