Comments of Public Citizen, Inc., On Trade Matters Related to the Free Trade Area of the Americas

September 30, 2000

Public Citizen submits these comments in response to a request from the Office of the United States Trade Representative (USTR) and Committee of Government Representatives on the Participation of Civil Society (CGR) for public comment on trade matters related to the Free Trade Area of the Americas (FTAA).(1) Public Citizen notes that the FTAA's San Jose Ministerial Declaration relies on World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) rules for guidance in the FTAA negotiations. Given the negative outcomes of the WTO and NAFTA, the FTAA's reliance on this model is mistaken. Yet, instead of recognizing the failures of the WTO/NAFTA model, the FTAA negotiators are attempting to impose more of this anti-democratic, anti-consumer, anti-environment, pro-poverty agenda through the current U.S. approach to FTAA negotiations on nations in Latin America.

The WTO/NAFTA model of corporate-managed trade is under attack worldwide. A large part of this backlash is caused by the inappropriate expansion of these two pacts' terms into domestic regulatory issues. Unlike past international commercial agreements - such as the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT) - the WTO and NAFTA go beyond basic trade principles - such as treating domestic and foreign goods alike - and seek to impose subjective, value-laden decisions about the level of health or environmental protection a nation may pursue. The imposition (one-size-fits-all) of these subjective priorities and of limits on government food safety, public health, or other public interest regulations means the lives of nearly everyone living under an over-reaching agreement like the WTO or NAFTA is directly affected.

Our most basic advice for U.S. FTAA negotiators is to learn the WTO and NAFTA lessons and, in contrast to these agreements' invasive expanse, to stick to narrow trade principles, such as non-discrimination. The additional corporate de-regulatory agenda that has hitched a ride on the WTO and NAFTA must be dumped. Leave the special interests to try to undercut our basic public interest priorities in the sunlight of public policy-making in our Congress and regulatory agencies, not as free riders on U.S. trade negotiations.

The Interests of Public Citizen

Public Citizen, a non-profit consumer advocacy organization founded by Ralph Nader in 1971, has over 120,000 supporters nationwide. Public Citizen works in U.S. and international legislative bodies, courts, and regulatory agencies to strengthen the ability of citizens to participate in the domestic policy-making process and to ensure public health and safety. For the past nine years, Public Citizen has endeavored to educate both the American public and consumers worldwide about the enormous impact of international trade and economic globalization on nations' health, safety, labor, and environmental standards, democratic accountability, and policy-making procedures. Public Citizen submits these comments to urge the USTR and CGR to abandon the failed WTO/NAFTA model of international commercial agreements in favor of a new model that takes into account consumer and worker safety, environmental protection, and democratic accountability.

Executive Summary

These comments focus on the FTAA issue areas of investment, sanitary and phytosanitary standards, intellectual property rights, and dispute resolution. These comments express the views of Public Citizen, a well-respected U.S. consumer rights organization with years of experience in international commercial agreements and their effects on domestic sovereignty, consumer health and safety, worker rights, and the environment. These comments represent a member of civil society's input into the FTAA process, the purported intent of the CGR and its notice inviting comment.

WTO/NAFTA Failures

The WTO/NAFTA model has existed for six years and has provided extensive data documenting its failure. The USTR and CGR must learn from these failures and move away from the WTO/NAFTA model of international commercial agreements toward a new type of international commercial agreement that respects citizens' rights to a safe food supply, accountable governance, and a healthy and safe environment and workplace. In contrast, the current U.S. approach to FTAA negotiations has been to use NAFTA as a template for the FTAA. Given that some NAFTA provisions are considerably more extreme than related WTO provisions, basing the FTAA on NAFTA would serve as a back door means to overcome unified developing nation opposition to imposing further investment liberalization or new corporate intellectual property provisions.

1. Investment

What Has Failed: NAFTA's provisions on investment have been an unmitigated disaster. NAFTA Chapter Eleven rules governing "Expropriation and Compensation" allow private investors to sue NAFTA nations directly outside of domestic courts and before NAFTA tribunals for cash compensation for government actions that the tribunal decides undermine an investor's NAFTA rights and privileges. Specifically Chapter Eleven guarantees foreign investors compensation from NAFTA nation governments for any government action "tantamount" to an "indirect expropriation."(2)

These provisions have created a broad regulatory takings mechanism, permitting corporations to sue national governments for huge sums of money for enacting legitimate, non-discriminatory measures to protect public health and the environment. Such regulatory takings ransoms are an unthinkable prospect in domestic courts.

A recent and glaring example of this extreme NAFTA investment provision occurred in July, 1999, when the Canadian corporation Methanex sued the U.S. government after the California Governor Gray Davis, by executive order, mandated the removal of methyl tertiary butyl ether (MTBE) from gasoline sold in the state by December 31, 2002.(3) Significantly, once the ban is completely implemented, it will be non-discriminatory, treating domestic and foreign goods and investors identically, with both domestic and foreign producers prohibited from using MTBE in gas sold in California.

However, Methanex claims that California's ban on MTBE violates its investor rights under NAFTA's Chapter Eleven rules by limiting the corporation's ability to sell MTBE. Methanex is suing for $970 million. If a NAFTA tribunal finds the regulation to be a "regulatory taking," as claimed by Methanex, the U.S. government can be held liable for the corporation's lost profits.

Governor Davis implemented the phase out of MTBE after reviewing considerable scientific evidence of public health and environmental problems caused by MTBE. He concluded that "on balance, there is significant risk to the environment from using MTBE in gasoline in California."(4) The chemical has been associated with human neurotoxicological effects, such as dizziness, nausea, and headaches, and has been found to be an animal carcinogen with the potential to cause human cancer.(5) The California MTBE ban is based on a 1998 University of California-Davis study which found, "There are significant risks and costs associated with water contamination due to the use of MTBE."(6) The report noted, "MTBE is highly soluble in water and will transfer readily to groundwater from gasoline leaking from underground storage tanks, pipelines and other components of the gasoline distribution system."(7) The report also noted that the use of MTBE gas in motor boats results in contamination of surface water.(8) It concluded, "We are placing our limited water resources at risk by using MTBE."(9)

Methanex claims that MTBE provides cleaner air.(10) However, the U.C.-Davis report found that "there is no significant additional air quality benefit to the use of oxygenates such as MTBE in reformulated gasoline. . . ."(11) The report also found no economic benefit from the use of MTBE. In comparing the costs of gas with MTBE added to gas with ethanol added and gas without any oxygenate added, the report concluded that MTBE gas "has the highest net annual cost due primarily to the costs of treating contaminated water supplies, higher fuel prices, and lower fuel efficiency."(12)

In effect, this extreme NAFTA provision allows one special interest, Methanex, to override the Governor, State Senate, and people of California. The case is being watched closely by many Members of the U.S. Congress, including those who supported and opposed NAFTA, as a test of NAFTA's ability to undermine the legislative process and the public health and environmental legislation resulting from it.

The Methanex case has drawn comparisons to the 1998 case brought against Canada by the U.S.-based Ethyl Corporation under NAFTA's Chapter Eleven provisions. In that case, Ethyl sued Canada for $250 million after Canada banned the gasoline additive methylcyclopentadienyl manganese tricarbonyl (MMT) because the additive posed health risks and clogged vehicles' catalytic converters. Ethyl claimed the ban violated NAFTA because it "expropriated" future profits and damaged Ethyl's reputation. After learning that the NAFTA tribunal was likely to rule against its position, the Canadian government revoked the ban, paid Ethyl $13 million, and issued a public statement declaring there was no evidence that MMT posed health or environmental risks.(13)

There are several other examples of corporations using NAFTA's investment rules to sue governments for adopting legitimate, non-discriminatory laws to protect public health and safety or the environment. However, the two cases described suffice to illustrate why NAFTA's investment rules are threatening to the public interest and should not be emulated in the FTAA.

FTAA negotiators must also take into consideration that Canada has sought changes to the Chapter Eleven provisions to eliminate the regulatory takings aspect. The U.S. to date has blocked efforts to fix this extreme NAFTA provision and instead continues to try to expand its coverage to all FTAA nations.

Canada, which has been subjected to several NAFTA Chapter Eleven lawsuits, is seeking interpretive changes to the Chapter Eleven rules to limit the ability of private investors to obtain compensation from governments for legitimate, non-discriminatory public health, the environment, culture, and other concerns.(14) A November 13, 1998 Canadian government memo listed potential methods of reining in the NAFTA Chapter Eleven provisions, including shifting the burden of proof to the private investor to show that a government had abused its power by enacting a particular regulation and that the regulation is "truly expropriative;" or listing governmental activities that could not be the subject of a Chapter Eleven suit.(15)

Moreover, the USTR and CGR should note that the attempt to establish investment rules similar to those in NAFTA's Chapter Eleven at the Organization for Economic Cooperation and Development (OECD) failed miserably. The proposed Multilateral Agreement on Investment (MAI) would have allowed private investors to circumvent domestic sovereignty rules and sue national and sub-national governments that attempted to limit the degree and nature of foreign

investment (both outgoing and incoming), impose standards of behavior on investors, and shape investment policies promoting social, economic, and environmental goals.

Fortunately, in 1997, Public Citizen and other consumer groups began campaigns in OECD countries against the MAI and succeeded in forcing some sunshine on the MAI. The MAI was finally scrutinized by lawmakers, citizens' groups, environmental groups, and labor unions in numerous countries. This attention resulted in broad concern about the sweeping impact the proposed treaty could have on national and local governments' ability to pursue policies in support of decent living standards, environmental protection, and human rights. Due largely to these campaigns, the OECD announced in December 1998 that it had ceased negotiations on the MAI. Yet, FTAA negotiators also seem to have missed this rather dramatic lesson: the widespread popular opposition to these extreme investment rules will not be overcome simply by changing the venue and attempting to include them in the FTAA.

A New Approach: Investment rules that set forth investors' rights and obligations clearly are useful. For instance, as guaranteed by U.S. law, private investors should be compensated for actual takings. For example, when a government body seeks to put a road through an individual's property for the public good, the government must compensate the individual for taking his/her property. Similarly, as currently provided by U.S. law, property owners can be regulated to promote the public welfare, for instance by forbidding the dumping of toxic chemicals.

In direct contrast to this latter notion in U.S. property law, current NAFTA investment rules forbid the imposition of obligations on property holders. Clearly a private investor should not be compensated with public funds for lost future profits when a local, state, or national government enacts a non-discriminatory law or regulation that restricts the sale of the investor's product because it poses risks to public health or the environment. These "indirect takings" are a form of domestic deregulation, an attempt by corporations to circumvent domestic legislative and judicial processes (and the domestic media) and undercut local, state, and federal health and environmental laws in closed and secretive trade venues. FTAA negotiators must base their positions regarding investment rules on the long-existing U.S. principles: non-discriminatory public interest regulations are not only permitted, but their observance by a property holder is an objective, with penalties for failure to comply.

2. Sanitary and Phytosanitary Measures (Food Safety)

What Has Failed: Both the WTO and NAFTA contain agreements on sanitary and phytosanitary measures. However, since the WTO agreement is more anti-public interest than the NAFTA agreement, these comments focus on the WTO agreement.

The WTO's Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) sets the criteria WTO member nations must follow regarding policies designed to protect human, animal, and plant life from pests, diseases, and toxins. It also covers labeling and packaging laws related to food safety. By imposing caps on food safety and bio-diversity protections, the WTO SPS approach to food rules is totally unacceptable. Yet the FTAA negotiators are basing their approach to food rules on this model.

First, the SPS Agreement requires nations to harmonize their SPS measures by basing them on international standards, such as the food safety and pesticide residue level standards set by the Codex Alimentarius Commission.(16) SPS measures that are based on such international standards are presumed to "necessary to protect human, animal or plant life or health," and thus WTO-legal.(17) However, SPS measures that achieve a higher level of human, animal, or plant protection than relevant international standards must pass a series of tests, or else they may be considered illegal barriers to trade.

One such test requires more protective measures to have a "scientific justification."(18) A nation has "scientific justification" only if it analyzes available scientific data and determines that an international measure is insufficient to attain its "appropriate level of sanitary or phytosanitary protection."(19)

This places the burden of proof on the nation with the pro-health food safety measure. That nation essentially must prove a negative - that the international standard is unsafe. This is the reverse of the requirements of many U.S. laws. For example, the U.S. Federal Food, Drug, and Cosmetic Act requires companies attempting to introduce a new drug to prove that it is safe and effective before it can be marketed.(20) It does not put the burden on the U.S. government to show the new drug is dangerous or ineffective.

This backwards approach also eviscerates the Precautionary Principle, an international legal doctrine that requires proof of safety before a product that poses potential risks is allowed on the market. The Precautionary Principle is based on the premise that science does not always provide the information or insights necessary to take protective action effectively or in a timely manner, and that undesirable and potentially irreversible effects may result if action is not taken until science does provide such insights. The Precautionary Principle allows nations to protect their citizens from potential, but scientifically-uncertain, harm.

In the 1950s, for instance, the U.S. Food and Drug Administration (FDA) exercised the Precautionary Principle in the case of thalidomide, a drug approved in some European nations for use by pregnant women to prevent nausea. Thalidomide ended up causing thousands of severely deformed babies in those nations. The FDA had not approved the use of thalidomide in the U.S. because it did not have proof that the drug was safe. This decision prevented countless birth defects in the U.S.

Requiring domestic measures that provide more protection than international measures to be "scientifically justified" also exalts the role of science beyond its appropriate use, eliminating all non-science factors from policy-making. Clearly science must play a role in policy-making. However, that role must be limited to informing policy-makers, rather than commanding what a nation's level of sanitary or phytosanitary protection should be. Scientific uncertainties concerning the health and environmental threats posed by chemicals, pesticides, hormones, and other toxins are too widespread for science to claim the role of ultimate arbiter of a nation's level of protection.

Moreover, political judgments play a central role in policy-making regarding risk. While science informs policy decisions, it is ultimately a legislative body that must make the political decision concerning how much risk society will face. Thus, if citizens desire a zero-risk policy regarding certain hazards, a legislature can pass a zero-risk law, simply banning a substance that might pose a small risk in small doses. Under the SPS Agreement, however, such policy judgments are not permitted.

Second, the SPS Agreement requires an importing nation to accept the SPS measures of exporting nations as equivalent, even if they are different, if the exporting nations can prove to the importing nation that their measures achieve the importing nation's "appropriate level of protection."(21) The key is a nation's "appropriate level of protection," defined as "the level of protection deemed appropriate by the Member establishing a sanitary or phytosanitary measure to protect human, animal or plant life or health within its territory."(22) This definition gives the appearance that nations have unfettered discretion to set their own level of protection.

However, when determining its "appropriate level of protection," a nation must perform a proper risk assessment, as defined by the SPS Agreement.(23) A nation must take into account "risk assessment techniques developed by the relevant international organizations"(24) and "available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest- or disease-free areas; relevant ecological and environmental conditions; and quarantine or other treatment."(25) That is not all. A nation also must take into account "relevant economic factors," including "the relative cost-effectiveness of alternative approaches to limiting risks."(26)

There are numerous problems with such risk assessments. First, instead of discovering how to prevent exposure to risks, quantitative risk assessment asks, "How much risk is acceptable?" The inherent questions of risk assessment lead to a policy focus on risk control, rather than risk prevention. Furthermore, potentially dangerous products (e.g. pesticide residues, genetically-modified foods, growth-promoting hormones, antibiotics in animal feed) are often allowed to continue being marketed as inevitabilities under the mantra of "acceptable risk" without a thorough consideration of alternatives that could prevent the risk altogether.

This problem has implications beyond food safety. For instance, a string of WTO rulings has decided that before a nation can take action to prevent or halt an invasive species outbreak, it must conduct a risk assessment proving why such action is necessary.(27) This means a nation must allow an invasion while trying to prove the damage it will cause instead of preventing it in the first place.

Further, risk assessment is based on countless assumptions about exposures, human behavior, and chemical effects. Sometimes these assumptions are based on science, but sometimes they are political decisions. Such assumptions can have a significant impact on the outcomes of the assessment. For example, in a European Union risk assessment exercise in which 11 different risk assessment teams came up with 11 different risk estimates, the organizers concluded that "at any step of a risk analysis, many assumptions are introduced by the analyst and it must be recognized that the numerical results are strongly dependent on these assumptions."(28) Thus the use of assumptions in risk assessment makes it is impossible to separate science from policy decisions (i.e. establishing the assumptions).

Moreover, risk assessment does not adequately consider multiple exposures, cumulative effects, and sensitive populations. Risk assessment is concerned solely with setting single chemical standards rather than determining the cumulative effects of exposure to mixtures of multiple chemicals. Furthermore, risk assessments often do not take into account sensitive populations, such as children, the elderly, or those already suffering from a disease.

Finally, risk assessment is usually linked to cost-benefit analysis. In fact, as mentioned above, the SPS Agreement requires nations to take into account "the relative cost-effectiveness of alternative approaches to limiting risks" when setting their appropriate level of protection.(29) Cost-benefit analysis depends on good risk assessment data, which, as described above, is often impossible to obtain. Cost-benefit analysis also frequently discounts the uncertain - and difficult to quantify - future costs of harm to future generations while overestimating the costs of regulation.(30)

Risk assessment, therefore, is a poor technique on which to base a nation's level of protection for its environment and its citizens' health and safety.

Finally, the SPS Agreement places trade above all other concerns, including the protection of public health and the environment. For example, when determining their appropriate levels of protection, nations are admonished to "take into account the objective of minimizing negative trade effects."(31) When adopting or maintaining SPS measures, nations must "ensure that such measures are not more trade-restrictive than necessary to achieve their appropriate level of sanitary or phytosanitary protection, taking into account technical and economic feasibility."(32) This forces a nation with SPS measures that provide more protection than international measures to prove that there is no less-trade-restrictive way in which to achieve its appropriate level of protection, a daunting, if not impossible, task.

The implications of spreading the anti-public interest WTO SPS model are broad and negative. The first WTO tribunal decision involving the SPS Agreement came in the dispute between the U.S. and the European Union (EU) over the use of artificial growth hormones in cattle. Since 1988, the EU has banned the sale of beef from cattle treated with artificial growth hormones. The EU ban applies in a non-discriminatory fashion to both domestic and foreign beef producers.(33) Exposure to the artificial hormones themselves have been linked to cancer and premature pubescence in girls,(34) although the risk to humans of artificial hormone residues in the meat they consume is uncertain.

On the basis of the known risks of direct exposure, the public's demand for a ban on meat from cattle treated with artificial hormones, and the Precautionary Principle, the EU adopted a "zero risk" standard. Rather than trying to assess a tolerable amount of an indeterminable risk or waiting for negative human health effects to accrue over time, the EU chose to eliminate public exposure to the risk altogether. The EU made this policy choice after prolonged and effective consumer campaigns in numerous EU countries.

The U.S. beef and biotechnology industries have long opposed this EU policy,(35) and in 1996 the U.S. challenged the EU ban in the WTO.(36) In 1997, a WTO dispute panel ruled that the EU ban was illegal under the SPS Agreement, in part because the EU ban was not based on international standards.(37) At that time, Codex rules allowed use of the artificial hormones and set residue levels for five of the six hormones at issue.

A key argument centered around the meaning of the term "based on international standards," a requirement in the SPS Agreement. The dispute panel ruled that "based on" meant "complied with," which essentially meant that all domestic standards had to be the same as international standards. Since the EU ban covered five hormones for which Codex had set maximum residue levels, the dispute panel ruled that the EU measures were not "based on" international standards. And since the EU measures were not based on international standards, under WTO rules they would be considered illegal trade barriers unless the EU could bear the burden of proving that its measures met a long set of tests set forth in the WTO text, including that the ban was "scientifically justified."

The dispute panel ruled, "Since in this dispute we have already found that there exist international standards and that the EC measures at issue are not based on these standards, we find that the burden of justifying the measures in dispute under Article 3.3 . . . rests on the European Communities."(38) Article 3.3 of the SPS Agreement requires domestic standards that provide more consumer protection than international standards, among other conditions, to be based on a scientific risk assessment.(39) The dispute panel concluded that the EU had not done a proper risk assessment and ruled the ban on hormones an illegal barrier to trade.(40)

The EU appealed this decision to the WTO Appellate Body. Although the Appellate Body softened the harsh tone of the language in the dispute panel's opinion, it still upheld the panel's final decision and ordered the EU to begin importing U.S. artificial hormone-treated beef by May 13, 1999.(41)

However, the EU refused to import the hormone-treated beef and commissioned the EU Scientific Committee on Veterinary Matters Related to Public Health to study the health effects of the hormones.(42) The U.S. petitioned the WTO dispute panel for permission to impose sanctions on $202 million of EU exports, but the panel lowered that figure to $116.8 million.(43)

The EU scientific committee found that one of the six artificial growth hormones used by U.S. cattlemen, 17 beta oestradiol, may cause cancer. The European Commission then issued a statement declaring, "The Commission agreed that there can no longer be any question of lifting the ban on hormone-treated beef since the risk assessment has identified risks to health caused by hormones."(44)

As of September 2000, the EU has not lifted the ban on hormone-treated beef, and is paying millions of dollars worth of sanctions to the U.S. on a variety of products. As a result, U.S. consumers face higher prices on a variety of goods imported from Europe. The only relief U.S. consumers could obtain from these raised prices would come at the cost of EU consumers' exposure to artificial hormone residues in their beef.

The decision in this case demonstrates the worst aspects of the SPS Agreement. Since the EU's standards were not based on international standards, the EU was forced to bear the burden of proving that its standards were "scientifically justified." Consequently, the EU had to perform a proper "risk assessment," as defined by the SPS Agreement. The Precautionary Principle and the EU's political decision to prevent the potential risk associated with artificial hormones, rather than "managing" it, were rejected out of hand.

A New Approach: Fixing the SPS Agreement is not a simple proposition, if the political will exists to promote consumer health and safety and bio-diversity over agribusiness trade goals. First and foremost, the right of national governments to set any level of food safety protection, including a zero-risk standard, must be affirmed. A nation's level of protection is inherently a political decision and is not appropriately subjected to the one-size-fits-all mentality of the SPS Agreement, especially not for the dozens of nations involved in the FTAA negotiations. Second, the right of national governments to set their level of protection based on legitimate factors other than science (e.g. the Precautionary Principle, consumer opinion, environmental protection, cultural concerns, etc.) must be guaranteed. Again, science should inform this political decision, but it is only one of many factors to be considered in establishing a nation's level of protection. Finally, the "least trade restrictive" test must be scrapped. The only test a nation's health, safety, and environmental standards should be subjected to is the non-discrimination test, i.e. whether they treat domestic and foreign producers the same.

3. Intellectual Property Rights

Intellectual property rights bestow ownership rights and legal protections on ideas, artistic creations, technological innovations, and marketing tools. The idea underlying intellectual property rights is to promote and reward innovations in the fields of art, science, technology, and industry by ensuring the inventor receives compensation from those seeking to use his or her creation. There are many different approaches to intellectual property rights, from compulsory licensing, which requires a user to pay a set fee to obtain a license to use a creation , to a monopoly patent, which sets exclusive marketing rights for the patent holder for a certain period of time.

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement) establishes enforceable intellectual property rights, such as patents and copyrights, worldwide and requires all the WTO member nations to enact domestic legislation to enforce these new rights. NAFTA's Chapter Seventeen on Intellectual Property contains many provisions similar to those in the WTO TRIPs Agreement, but in some instances goes even further than the TRIPs Agreement. For example, failure to meet NAFTA's intellectual property rules can result not only in trade penalties but also in criminal proceedings against violators.

Before these agreements were enacted, nations had the freedom to decide how to balance inventors' (and industry's) interest in profiting from innovation with society's interest in enjoying the benefits of such innovation. For example, since technological progress is often a direct result of public investment in research and development, many nations' domestic intellectual property laws often gave substantial weight to the public claim on new technologies, especially pertaining to access to medicines.(45)

What Has Failed: The TRIPs Agreement and NAFTA's Chapter Seventeen, with limited exceptions, impose uniform global intellectual property protections on all member nations. While nations are given limited flexibility in narrowly-prescribed areas to develop their own approaches to intellectual property policy, for the most part these agreements set out a single, very broad definition of what qualifies as intellectual property and a single set of rules regarding governments' obligations to protect this property.

For example, both the TRIPs Agreement and NAFTA's Chapter Seventeen require nations to extend patent rights for 20 years.(46) This is a longer term than even the U.S. provided. U.S. law did provide for a 17-year patent term, but the Uruguay Round Agreements Act changed that to a 20-year term in 1994.(47) While purporting to be a tool for trade liberalization, this rule is in effect a trade restrictive measure, ensuring 20-year monopolistic marketing rights to corporations.

As a general matter, international trade liberalization agreements are simply an inappropriate forum for creating new corporate protections. We are joined with thousands of non-governmental organizations worldwide who demand that the current TRIPs Agreement be removed from the WTO trade pact.

Both agreements also allow plant varieties, including seeds, to be patented.(48) This shifts ownership and control over seed stocks from small farmers to multinational seed and biotechnology corporations. When corporations patent seeds, small farmers must pay annual fees to use the seed type, even if the seed was the product of breeding conducted over generations by the very ancestors of the farmers themselves. To date, patents have been awarded on varieties of soybeans, corn, and canola.(49) Both agreements also allow for the patenting of microorganisms, which includes human and animal cells, genes, and umbilical cord cells.(50) And both agreements allow pharmaceuticals to be patented, although nations are not required to permit patents for medical treatments - such as diagnostic, therapeutic, and surgical techniques.(51)

The WTO TRIPs Agreement has created a firestorm of protest in developing nations, many of which have traditionally excluded food and medicine from their intellectual property laws in order to ensure that these basic necessities are accessible and affordable and not subject to private monopoly control.(52) Under the TRIPs Agreement, however, the food and medicine that once was in the public domain must now be privatized and patented. From the perspective of many developing nations, where food shortages and disease threatens the population on an ongoing basis, the TRIPs Agreement protections for corporate property rights undermine their ability to respond generally to basic public needs and specifically to public health crises.

In addition, since most of the world's bio-diversity is located in developing nations, these nations fear widespread "bio-piracy" of indigenous plants and other wildlife. Already biotechnology corporations send out "prospectors" to collect medicinal plants and indigenous knowledge about their uses. The TRIPs Agreement gives these corporations the ability to obtain worldwide patents on these resources and thus exclusive ownership and marketing rights.

The first known example of bio-piracy involved patents on products derived from the neem tree, which is native to India. Indians have long revered the tree for its medicinal value and use as a bio-pesticide.(53) For centuries people in India have used products derived from the tree for cleaning teeth and treating conditions ranging from acne to ulcers.(54)

In 1971, when a U.S. importer observed the neem tree's pharmaceutical properties, multinational corporations from the U.S. and Japan began seeking and obtaining patents on various products extracted from the tree.(55) The U.S.-incorporated W.R. Grace Company is one of these corporations, obtaining a patent (with the U.S. Department of Agriculture) from the European Patent Office on a fungicide extracted from the neem tree seed.(56) The corporation's justification for its patent is that its modernized extraction processes constitute a genuine innovation.(57) It matters little that this "innovation" was based on traditional knowledge, and that neem tree-based bio-pesticides and medicines have been produced by indigenous populations by using complex processes for centuries.

More than 200 non-governmental organizations from 35 nations challenged the W.R. Grace Company's patent in the European Patent Office.(58) The challengers argued that the extracted fungicide in question has long been known to and used by the people of India.(59) Therefore, the knowledge was available to the Indian people at the time the patent was granted, and the patented product was "obvious," rather than the product of innovation. In May 2000, the European Patent Office revoked the W.R. Grace Company patent.(60) However, it is an exceptional situation that finds 200 groups and the funds to sponsor litigation to challenge this system. If the neem patent had been upheld, India and all other WTO member nations would have been required to extend patent rights under the terms of the TRIPs Agreement.

The TRIPs Agreement has come under fire not only from consumer and environmental organizations but also from the United Nations (UN). On August 17, 2000, the UN Commission on Human Rights, Sub-Commission on the Promotion and Protection of Human Rights, adopted a report criticizing the TRIPs Agreement.(61) The Sub-Commission noted that "actual or potential conflicts exist between the implementation of the TRIPs Agreement and the realization of economic, social and cultural rights in relation to, inter alia, impediments to the transfer of technology to developing countries, the consequences for the enjoyment of the right to food of plant variety rights and the patenting of genetically modified organisms, 'bio-piracy' and the reduction of communities' (especially indigenous communities') control over their own genetic and natural resources and cultural values, and restrictions on access to patented pharmaceuticals and the implications for the enjoyment of the right to health."(62)

The Sub-Commission then reminded governments "of the primacy of human rights obligations over economic policies and agreements," and requested governments "to take international human rights obligations and principles fully into account in international economic policy formulation."(63) Finally, the Sub-Commission requested the WTO "to take fully into account the existing State obligations under international human rights instruments," and the UN High Commissioner for Human Rights "to undertake an analysis of the human rights impacts of the TRIPs Agreement."(64)

A New Approach: Intellectual property rights, especially patents, should be of special significance to the South and Central American nations involved in the FTAA negotiations since those nations contain much of the world's bio-diversity and indigenous plants and knowledge. To protect these precious resources from bio-piracy, the FTAA negotiators at a minimum must explicitly exclude seeds, plants, and indigenous knowledge from patentability. These natural and cultural resources must remain in the public domain. Furthermore human, animal, and plant genes must be excluded from patentability. These microorganisms already exist in the public domain and should not be commodified. Finally, nations must specifically maintain the ability to exclude pharmaceuticals from patentability if such medicines are needed to address a public health crisis, such as malaria or AIDS.

4. Dispute Resolution

What Has Failed: All of the agreements described above are enforced in the WTO and NAFTA through binding dispute resolution systems. Both systems are empowered to authorize sanctions against nations whose policies contradict WTO or NAFTA rules. Once a WTO or NAFTA tribunal has declared a nation's law or regulation an illegal barrier to trade, that nation must either change its policy or face trade sanctions. There is no need to establish an additional FTAA dispute resolution system. Indeed, given the enormous flaws in the existing WTO and NAFTA systems, energy must be focused on replacing them.

Both WTO and NAFTA tribunals are cloaked in secrecy and lack even basic due process requirements. The WTO's Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and NAFTA's Chapter Twenty on Institutional Arrangements and Dispute Settlement Procedures both require all tribunal activities and documents to be confidential.(65) Under these provisions, dispute panels operate in secret, documents are restricted to the nations involved in the dispute, due process requirements are absent, citizen participation is denied, and no outside appeal is available. The WTO's dispute panel and Appellate Body meet in closed sessions,(66) and the proceedings are confidential.(67) All documents are also kept confidential unless a government voluntarily releases its own submissions to the public.(68)

The closed nature of the dispute process prevents domestic proponents of health, environmental, or other policies from obtaining sufficient information about the proceedings to provide input. Not surprisingly, the WTO has systematically ruled against democratically-achieved environmental, health, and food safety laws that have been challenged.

WTO disputes are heard by tribunals comprised of three panelists.(69) The WTO secretariat nominates panels members for each dispute, and the disputing parties may oppose nominations only for "compelling reasons."(70) Qualifications for serving on a WTO dispute panel include past service on General Agreement on Tariffs and Trade (GATT) panels, past representation of a nation before a trade institution or tribunal, past service as a senior trade policy official of a WTO member nation, and teaching experience in or publishing on international trade law or policy.(71) These qualification requirements promote the selection of panelists with a stake in the existing trade system and rules. They also winnow out potential panelists who do not share an institutionally-derived philosophy about international commerce and the role of the WTO system that supports the status quo. Finally, these requirements serve to narrowly limit the panelists' areas of expertise solely to international commercial policy. NAFTA's dispute resolution system is similar.

However, given that NAFTA and the GATT Uruguay Round contain hundreds of pages of non-tariff rules, most trade disputes now involve broad public interest policies governing such issues as the environment, human and animal health, economic development, and workplace health and safety. To competently judge cases involving such policies, panelists need more than just trade law expertise. Because of the WTO and NAFTA rules on tribunalists qualifications, the panelists that have judged WTO and NAFTA cases to date have been limited to trade law experts. Consequently, the outcomes of these cases have not always been consistent with conventional interpretations of environmental treaties or other international law.(72) Indeed, WTO panels have been criticized in international law journals for their excessively narrow interpretations.(73)

The threat of the WTO/NAFTA model of dispute resolution rules should be of special interest to the many developing nations involved in the FTAA negotiations because of the expense involved in bringing or defending a case before such tribunals. While developed countries have the resources to take advantage of the time-consuming and expensive dispute resolution process, many developing nations not only cannot afford to bring complaints under the WTO but also cannot afford the costs of a defense. Indeed, an alarming trend under the WTO is that developing nations - faced with the enormous expertise and resource requirements involved in mounting a defense before a WTO tribunal in Geneva, Switzerland - simply change their laws at the threat of a WTO challenge from wealthy nations.

For example, Guatemala implemented the UNICEF/World Health Organization baby milk substitute code with a domestic law prohibiting the use of packaging for breast milk substitutes that would induce illiterate parents to associate formula with healthy, fat babies, including pictures of such babies on labels for baby food for children under the age of two.(74) The law, aimed at reducing the high infant mortality rates in Guatemala, applied equally to both domestic and imported breast milk substitutes.

All of Guatemala's domestic and foreign suppliers of breast milk substitutes complied with the Guatemalan law except one, Gerber Food.(75) Gerber's trademarked logo includes the picture of a pudgy infant, the "Gerber Baby." Gerber did not want to stop using its logo in Guatemala, so in 1994 the company wrote a letter to the Guatemalan government threatening a WTO case if the Guatemalan government did not change the law to allow Gerber to continue marketing its baby foods with the Gerber Baby logo.(76) Although the company itself could not have brought a WTO case, the letter and contact in support of Gerber by the U.S. State Department raised the specter of a challenge to intimidate the Guatemalan government. The ploy worked. Rather than expend millions of dollars defending the law before a WTO tribunal in Geneva, the Guatemalan government changed the law so that imported baby food products would be exempt from a basic, vital health law protecting the most vulnerable - infants.(77)

A New Approach: The secrecy shrouding the WTO's dispute resolution system was one of the primary reasons that thousands of protestors shut down the WTO Ministerial in Seattle in November 1999. To address their concerns with these dispute resolution rules, FTAA negotiators must adopt a presumption of openness in any FTAA-negotiated dispute resolution system so that documents are automatically made available to the public unless they meet clear confidentiality criteria. All documents of the dispute resolution system - including all party briefs, experts' memos, tribunal legal staff memos, and rulings - should be published. All trade dispute resolution proceedings must be opened to the public.

In addition, if FTAA negotiators ignore the call not to include an additional, FTAA-specific dispute resolution system, they must establish procedures for dispute resolution panels, including expanding the panelist qualification requirements to allow for a broader array of expertise; developing conflict of interest rules both for panelists and technical experts; maintaining a public file of potential panel members; and guaranteeing that cases raising health, environmental, or consumer protection issues shall include panelists with expertise in those areas. Finally, the FTAA negotiators must tackle the financial, human resource, and infrastructure constraints of developing nations to ensure that all nations can participate equally and effectively in the dispute resolution process. These are also some of the ways in which the WTO and NAFTA dispute resolution systems must be transformed.


For the reasons stated above, Public Citizen urges the USTR, CGR, and FTAA negotiators to steer away from the failed WTO/NAFTA model and base the FTAA negotiations on our recommendations for a new model for international commercial agreements.

Respectfully submitted,

Dion Casey, Esq.
Public Citizen Global Trade Watch

1. 65 Fed. Reg. 38872 (Jun. 22, 2000).

2. North American Free Trade Agreement, Part Five - Investment, Services and Related Matter, Chapter Eleven, Article 1110: Expropriation and Compensation.

3. California Executive Order D-5-99, Mar. 25, 1999.

4. Id. at 1.

5. Keller, Arturo, et. al, Health & Environmental Assessment of MTBE, Vol. 1, Summary & Recommendations, Nov. 1998, at 23-24.

6. University of California at Davis Report: MTBE Fact Sheet, Nov. 12, 1998, at 1.

7. Id.

8. Id.

9. Id.

10. See Bullet Point Background on Methanex's NAFTA Claim and MTBE, available at, at 1; site visited on July 21, 1999.

11. University of California at Davis Report: MTBE Fact Sheet, Nov. 12, 1998, at 1.

12. Id.

13. See Courtney Tower, "Canada Backs Away From US Firm's NAFTA Challenge," Journal

of Commerce, Jul. 22, 1998.

14. See Edward Alden, "Canada Seeks Tighter NAFTA Rules to Limit Compensation," Financial Times, Jan. 22, 1999; and Courtney Tower, "NAFTA Considers Curb on Claims from 'Green' Laws," Journal of Commerce, Feb. 23, 1999.

15. Nihal Sherif, "Canadian Memo Identifies Options for Changing NAFTA Investment Rules," Inside U.S. Trade, Feb. 12, 1999.

16. World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary Measures, Article 3.1.

17. Id. at Article 3.2.

18. Id. at Article 3.3.

19. Id. at Footnote 2.

20. 21 U.S.C. ? 355(b)(1).

21. World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary Measures, Article 4.1.

22. Id. at Annex A (Definitions), Paragraph 5.

23. Id. at Article 5.1.

24. Id.

25. Id. at Article 5.2.

26. Id. at Article 5.3.

27. See, e.g., World Trade Organization, Australia - Measures Affecting Importation of Salmon (WT/DS18/AB/R), Report of the Appellate Body, Oct. 20, 1998; and World Trade Organization, Japan - Measures Affecting Agricultural Products (WT/DS76/AB/R), Report of the Appellate Body, Feb. 22, 1999.

28. Contini, et al., Benchmark Exercise on Major Hazard Analysis (1991), EUR 13386, EN Commission of the European Communities, Luxembourg.

29. World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary Measures, Article 5.3.

30. The above discussion of risk assessment is based on Joel A. Tickner, "Hazardous Exports: The U.S. Transfer of Risk Assessment to Central and Eastern Europe," New Solutions (Summer 1996), 3-12.

31. World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary Measures, Article 5.4.

32. Id. at Article 5.6.

33. See European Economic Council Directive 88/146/EEC.

34. See, e.g., "Brie and Hormones," The Economist, Jan. 7, 1989, at 22; Samuel S. Epstein, "The Chemical Jungle," International Journal of Health Services (1990) at 278; A.L. Fisher, et al., "Estrogenic Action of Some DDT Analogues," 81 Proc. Soc. Expt'l Med. 439-441; and W.H. Bulger & D. Kupfer, "Estrogenic Activity of Pesticides and Other Xenobiotics on the Uterus and Male Reproductive Tract," in J.A. Thomas, et al., Eds., Endocrine Technology (1985) at 1-33.

35. See, e.g., National Cattlemen's Beef Association, "Government Must Retaliate If EU Continues to Ban American Beef," Press Release, May 10, 1999: George Swan, NCBA President, said, "Ten years of false accusations. Ten years of lost markets for U.S. cattlemen and lost opportunities for European consumers. . . ."

36. World Trade Organization, European Communities - Measures Affecting Meat and Meat Products (Hormones) (WT/DS26), Complaint by the U.S.

37. World Trade Organization, European Communities - Measures Affecting Meat and Meat Products (Hormones) (WT/DS26/R/USA), Report of the Panel, Aug. 18, 1997, at Paragraph 8.88.

38. Id.

39. World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary Measures, Article 3.3.

40. World Trade Organization, European Communities - Measures Affecting Meat and Meat Products (Hormones) (WT/DS26/R/USA), Report of the Panel, Aug. 18, 1997, at Paragraph 8.159.

41. See World Trade Organization, European Communities, Measures Affecting Meat and Meat Products (Hormones) (WT/DS26/AB), Report of the Appellate Body, Apr. 16, 1998.

42. "EU says it will not lift ban on hormone-treated beef, cites scientific committee's findings that growth hormone may cause cancer; JECFA finds growth hormone use safe," World Food Chemical News, May 12, 1999, at 1.

43. "U.S. issues final sanctions list in beef-hormone dispute with EU," World Food Chemical News, Jul. 21, 1999, at 1.

44. "EU says it will not lift ban on hormone-treated beef, cites scientific committee's findings that growth hormone may cause cancer; JECFA finds growth hormone use safe," World Food Chemical News, May 12, 1999, at 1.

45. See Ralph Nader and James Love, "Federally Funded Pharmaceutical Inventions," testimony in U.S. Senate, Special Committee on Aging, The Federal Government's Investment in New Drug Research and Development: Are We Getting Our Money's Worth?, Serial No. 103-1, U.S. Government Printing Office, Washington, DC, Feb. 24, 1993.

46. World Trade Organization, Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 33; North American Free Trade Agreement, Part Six, Chapter 17 - Intellectual Property, Article 1709.12.

47. See 35 U.S.C. ? 154(a)(2), as amended by the Uruguay Round Agreements Act, Pub. L. 103-465, Dec. 8, 1994.

48. World Trade Organization, Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 27.3(b); North American Free Trade Agreement, Part Six, Chapter 17 - Intellectual Property, Article 1709.3.

49. See Martha L. Crouch, How the Terminator Terminates: An Explanation for the Non-Scientist of a Remarkable Patent for Killing Second Generation Seeds of Crop Plants (1998), Edmunds Institute, at 1.

50. World Trade Organization, Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 27.3(b); North American Free Trade Agreement, Part Six, Chapter 17 - Intellectual Property, Article 1709.3(b).

51. Id. at Article 27.3(a), and Article 1709.3(a).

52. For example, India and Argentina.

53. Vandana Shiva, Biopiracy: The Plunder of Nature and Knowledge (1997) at 69.

54. John F. Burns, "Tradition in India vs. A Patent in the U.S.," New York Times, Sep. 15, 1995.

55. Joris Kocken and Gerda van Roozendaal, "The Neem Tree Debate," Biotechnology and Development Monitor, Mar. 1997, at 8-11.

56. "Global Attack on U.S. Firm's Neem Patent," India Abroad, Ethnic News Watch, Sep. 22, 1995.

57. Joris Kocken and Gerda van Roozendaal, "The Neem Tree Debate," Biotechnology and Development Monitor, Mar. 1997, at 8-11.

58. "Global Attack on U.S. Firm's Neem Patent," India Abroad, Ethnic News Watch, Sep. 22, 1995.

59. Id.

60. "US Patent on Neem Revoked," The Times of India News Service, May 12, 2000.

61. United Nations Commission on Human Rights, Sub-Commission on the Promotion and Protection of Human Rights, "Intellectual Property Rights and Human Rights," E/CN.4/Sub.2/2000/L.11/Add.1 (2000/7), Aug. 17, 2000.

62. Id.