Should an international trade agreement determine how we are allowed to spend our domestic tax dollars? Prior to the passage of the Central America Free Trade Agreement (CAFTA) by a one-vote margin in July 2005, the majority of state governments agreed: Subjecting decisions about how to spend state taxpayer dollars to second-guessing by foreign trade tribunals is a bad idea!
As a result, a bi-partisan group of governors from eight states (Pennsylvania, Iowa, Missouri, Maine, Minnesota, New Hampshire, Oregon and Kansas) withdrew their initial agreement to bind their states to comply with the government procurement rules in CAFTA. Many other governors simply avoided binding their states to CAFTA's procurement rules in the first place. The Maryland General Assembly even passed legislation over the governor’s veto withdrawing the state’s consent, and establishing that the legislature must approve all requests for the state to sign on to international trade agreement terms. All told, upon passage of CAFTA, only 19 U.S. states consented to the agreement’s restrictive procurement provisions.
Since then, Rhode Island, Hawaii, Minnesota and Maine have also passed legislation establishing that only the legislature can bind the state to the procurement terms of a trade agreement. In the recent trade agreements with Peru, Panama and Colombia, all but eight governors declined to sign up to the agreements' procurement rules.
Why such opposition? Common state economic development and environmental policies are prohibited by trade agreement procurement rules. Such policies include:
Currently, several NAFTA-style "free trade" agreements left over from the Bush administration, including the Peru, Panama and Colombia Free Trade Agreements, remain pending. Each would expand the threat of a trade challenge to state laws where state officials commit to be bound.
Although setting state procurement policy is generally the job of legislatures, state legislators are not consulted by the USTR, only governors. In fact, the USTR has rejected a National Conference of State Legislatures request to simply carbon copy state legislative leaders on requests to governors to bind states to trade agreements. As a result, more and more state legislatures are acting to demand a new direction for U.S. trade policy.