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State Economies, Global Market PDF Print E-mail
Written by Howard M. Unger   
Tuesday, 17 April 2007
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"All for one, one for all" was fine for the King's Guards, but does it work for 50 states?

Canadian potatoes and Mexican truckers. Border states want them heavily regulated, but there's not much lawmakers can do. The Constitution gives legislators in Maine and Texas as much right to restrict trade as it gives Des Moines officials the ability to make agreements with South Korea over Iowa beef.

Although the Constitution guarantees each state the right to a democratic government, it gives Congress the power to regulate foreign commerce and limits states' ability to negotiate with foreign countries. However, when the Constitution was ratified, America exported roughly $11 million in goods, about 40% of which was tobacco. Last year, the United States exported $1.4 trillion in everything from corn to computers.

As the American economy becomes more dependent on foreign markets, states are learning to deal with trade policies negotiated not out of their own capitals, but out of Washington, DC.

"Here in Maine, our future is tied up in international trade," says State Senator Peggy Rotundo, who worries that trade agreements negotiated by the Office of the United States Trade Representative (USTR) may negatively impact the Pine Tree State. She's particularly worried about how agreements may force her state to change its health care plan in order to meet federal trade policies. "It's not that we're anti-trade. We're pro-trade. Pro-free trade. However, trade agreements have the potential to undermine our state's progressive environmental legislation, our ability to regulate gambling, and to impact our progressive state health care plan."

Worse yet, she says, because USTR negotiators do not need to answer to state governments, many agreements are drawn up without input from states that could be impacted by trade deals. "Trade agreements have the potential to touch about every single policy area and their happening in the darkness of night. The USTR has been operating in total secrecy. They're supposed to be listening and I'm not sure that they are," Rotundo says.

Rotundo, who co-chairs the Maine Citizen Trade Policy Commission, a group created by the Maine legislature to monitor trade agreements, argues that trade issues have changed since the Framers gave authority to the President to oversee foreign trade agreements.

"Trade used to just be about tariffs, but with international trade and investment agreements being signed these days, we're in a whole new ballgame," she says. "We're not trying to take away Congress' rights, we are saying, 'Let us sit at the table.' It's not about state sovereignty, it's about creating trade agreements, which benefit people in countries around the globe and not just a small group of people around the world who are getting very rich."

Paul Volckhausen, who represents small farmers on the state commission, which was created in 2003, says group members have learned that any trade agreement—even ones dealing with issues like medical licensing or land use issues—can potentially impact his state.

But Maine is not alone, he says. "All of the states are in it together, but part of the problem is that the states do not have any input in the agreements before they're agreed on. Other states have to get involved in the process because these agreements have a much further reach than we originally thought they did," Volckhausen says. Trade agreements, he says, often impact local industries that federal negotiators did not think would be affected.

To help assess the impact of trade agreements on Maine, the commission holds public hearings and has the ear of state leaders and the state's congressional delegation. Whether it's reviewing the impact of Canadian potatoes or the Central American Free Trade Agreement, Volkhausen says, the commission is adding to the policy-making process. "Just the fact that we are holding this dialogue with our senators and congressman, we can continue to have more impact on the process as it develops."

Talking Trade

Not all states have a commission like Maine's. Some are savvier than others when it comes to analyzing and commenting on trade agreements, according to one U.S. trade official who asked not to be named due to the sensitivity of the topic. A major issue that USTR has with state governments, the official said, is that federal policymakers don't always know who speaks for them.

"It's important for us to know that the person we're talking to represents the state's interests," the trade official said. "A governor will tell me one thing and a legislator from the opposing party will tell me something else."

The official said that a lot of states' interests are represented on USTR's Intergovernmental Policy Advisory Committee, which is consulted on all free trade agreement negotiations. Members of the group, which includes state and local government officials from around the country, all have security clearances that allow them to view potential trade language, according to the official. "Any time we propose things, they let us know what their views are," the official said.

USTR also hears from state and local governments not represented on the committee, the official said. "I don't think anyone's ever shy about letting us know what they think about agreements. We make sure that we talk to all interested parties at the state level. We like to make sure that we're talking to everyone."

In fact, in February, U.S. Trade Representative Susan Schwab addressed the National Governors Association's annual winter meetings in Washington, where she did not gloss over USTR's trading goals.

During one discussion, Schwab told Michigan Governor Jennifer Granholm that it is imperative for South Korea's automobile sector be opened to American cars if the United States is going to sign a trade pact with the Asian nation. However, although Michigan would benefit from exporting cars, Michigan lawmakers have voiced their concerns about a free trade pact resulting in a flood of South Korean cars in the United States and few American cars going overseas. When Granholm asked why her state would require numerical targets for opening the South Korean car market, Schwab replied that no trade agreement can guarantee market share. "What you should be able to guarantee is a level playing field and fair access," Schwab said. Weeks later, after 10 months of negotiations, the United States finalized an agreement with South Korea (without targets for American car sales). As of April 2, the treaty was awaiting Senate ratification.

USTR also has less confrontational ways for soliciting states' concerns on potential trade agreements. For instance, the agency may seek comments from Colorado aerospace businesses, according to Laurel Alpert, division director for the Colorado International Trade Office. "We'll provide the information to the companies so they can weigh in on it," says Alpert, who notes that her office is "working on working more closely with USTR."

Other states have a more formal mechanism to communicate with USTR. In California, a law that took effect earlier this year designates a point of contact within the executive branch to act as the liaison between the state and the USTR on trade matters. That contact, according to Assemblyman Jim Silva, was already tasked with reviewing and commenting on trade negotiations. However, the law requires the contact to disseminate information from USTR to state agencies and legislative committees and work with them to review the effects of trade agreements on California and to communicate any concerns to USTR.

"In essence, the contact simply must communicate with the legislature regarding trade policy oversight and communicate any concerns that the Legislature or any other state agency may have to the USTR," says Silva.

States may have a difficult time influencing federal trade policy, but it is not impossible for them to address the policy areas affected by mandates like the North American Free Trade Agreement, says Senator Eddie Lucio, Jr., who chairs the Texas State Senate Committee on International Relations and Trade.

"States can pursue measures to cope with some of these federal mandates," says Lucio, Jr. "For instance, in Texas we have implemented certain work training measures to help those workers who have been dislocated because of trade acts. Along the same lines, we have continuously attempted to work with our federal delegation so that the state can receive greater roadway funding for the increased transportation that has resulted from free trade."

Understanding foreign trade's affects can be very complex and not easy to offset, admits Washington State Representative Barbara Bailey, who was recently seated on the legislature's Community, Economic Development and Trade Committee as its ranking minority member.

"A lot of the state's authority is actually not available in this area and some of our sovereignty issues are affected," says Bailey. "Trying to decipher where the state's authority starts and stops is quite complicated and more complex than most people know."

Besides being complex, trade policy may also get a lot more stressful. The President's "fast track authority" is set to expire June 30 and there is a movement on Capitol Hill to renew the authority. With it, Congress has 90 days to approve trade packages and cannot add amendments to any agreements. The South Korean trade agreement—the largest bilateral trade agreement in the world—was submitted to the Senate on the last possible day for a treaty to fall under the "fast track" provision.

"Fast track" supporters say that the United States needs to keep pace with the European Union and China when it comes to opening up the marketplace to goods and services. Critics argue that with it, members of Congress will not be able to analyze the potential impact of agreements or pore through hundreds of pages of trade language before having to vote on it.

Even though it has no formal authority, one state recently took a public stand on "fast track." In February, the Montana Senate, by a vote of 45 to 5, approved a resolution asking Congress to replace the President's "fast track" authority with an alternative that uses a "more democratic, inclusive mechanism that enshrines the principles of federalism and state sovereignty." It also accused federal trade negotiators of ignoring and disrespecting states' demands regarding whether or not they agreed to be bound to trade agreements.

Trading States

Trade experts say that the United States must be clear about who speaks for the country at the negotiating table but that states can still influence their own trade policies.

"Our government needs to speak with one voice on trade policy and foreign matters," says Daniel Griswold, director of the Center for Trade Policy Studies at the Cato Institute. While states can make their voices heard in Washington, Griswold says, trade agreements involve changes in U.S. law, which require Congressional approval.

However, Griswold says, states do have tools to influence trade on the local level. "They can change state law in regards to taxes or subsides or infrastructure, but they can't use trade policy as a tool," he says. In addition, many states promote their local industries by having trade offices in foreign countries. Many states have trade offices in Mexico and Canada. California even has one
in Armenia.

At times, Griswold says, state interests conflict. For instance, South Carolina may want to ensure that local timber companies succeed while Arizona may want to ensure that it's marketplace for new homes is not impacted by rising lumber costs. If Canadian companies suddenly begin offering lumber at rock bottom prices, South Carolina is free to lower taxes on its lumber companies, even if Congress chooses not to raise tariffs on Canadian lumber. "The wisdom of the Constitution is that it's up to Congress to sort out what's best for the government as a whole," Griswold says.

Sherman Katz, a senior associate at the Trade, Equity and Development project at the Carnegie Endowment for International Peace, says that while Congress may be the final voice on trade agreements, as agreements become more complex, states need to weigh in on them before Congress acts on them.

When agreements expand opportunities for American companies to enter foreign markets, he says, America is expected to allow foreign companies to enter the American marketplace—something some states may not want.

"If states were to come to USTR individually or, better yet, in groups, and say we have concerns if a Brazilian company comes into their states to offer insurance or radiologists from India who want to set up practice, the states can play a role in negotiations," says Katz, referring to recent World Trade Organization issues. "States need to make their concerns known because, when various service sectors get included in what USTR says we're prepared to liberalize, it creates a source of pressure."

Once trade policy is set, he warns, states cannot avoid trade agreements. If a state enacts a law that conflicts with federal trade policy, he says, other countries can wage complaints with the World Trade Organization. For example, in one instance, the European Union and Japan filed complaints against the United States because Massachusetts barred state companies from doing business with Burma. The U.S. Supreme Court, in a unanimous decision, eventually decided that, among other issues, the state law interfered with the President's authority to develop a national policy on Burma.





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