Problems with Current U.S. Policy.

Key Problems

* The U.S. government is promoting an approach to the FTAA based in large part on NAFTA, despite the failure of that accord to raise living standards.

* Proposals for an "investor-state" clause in the FTAA would give investors the power to challenge national and local laws.

* The USTR is promoting a significant expansion of trade in services, leading potentially to the privatization of such public services as health and education.

On the eve of the Clinton administration's departure, the U.S. Trade Representative's office (USTR)--in response to congressional and international NGO pressure--published summaries of its FTAA negotiating positions. The summaries, while giving only partial and rather vague information, do provide a clear indication that the United States is promoting proposals based in large part on NAFTA.

The USTR supports, for example, the controversial "investor-state" provision contained in both NAFTA and the failed Multilateral Agreement on Investment (MAI), as well as in a series of bilateral investment agreements negotiated by the U.S. government. That clause, which grants corporations legal status formerly reserved for nations, represents a significant expansion of investors' abilities to use trade agreements to challenge local laws. When this sweeping procedural right to challenge governmental regulatory actions is coupled with the broad and vaguely worded investor protections in Chapter 11 of NAFTA, virtually all government regulation becomes a potential target. In the past, investment agreements or national laws have provided for compensation in cases where governments take control of investors' assets in the public interest. Under the MAI/NAFTA approach, that right is broadened to include measures tantamount to expropriation, which investors have used to demand compensation for potential lost profits arising from regulatory changes. These challenges are decided by dispute resolution panels meeting in secret without input from citizen groups.

In 1998, the Canadian government was forced to rescind its ban on MMT, a gasoline additive believed to cause nerve damage, after a challenge brought under the investor-state provision by the U.S.-based Ethyl Corporation. Currently, the Canadian corporation Methanex is suing the U.S. government for $970 million because of a California executive order banning the use of MTBE, another gasoline additive associated with serious health and environmental risks. The inclusion of such a provision in the FTAA could effectively provide corporations with veto power over local laws and regulations.

As with NAFTA, the USTR proposals for the FTAA would result in greater rights for investors, without establishing any corresponding responsibilities. The USTR's position is that investors should have the right to move funds into and out of countries without delay--meaning that provisions such as capital controls or performance requirements to ensure that investments serves to promote development goals would be illegal under an FTAA.

NAFTA includes weak side-agreements on labor and the environment, in which the three countries commit not to break their own laws on those issues, but not even these meager measures are being considered under the FTAA. Washington suggested even weaker language, calling for countries to strive to ensure that labor or environmental standards are not lowered in order to attract investment. Most Latin American governments, however, have rejected even those ideas as inappropriate in trade talks, fearing that any efforts to raise such standards would lead to disguised protectionism. Instead, they have relegated discussion of those issues to unenforceable summit declarations and action plans.

In an outline of its objectives leaked last year, the FTAA services negotiating group stated its goal to liberalize all services in all sectors--i.e., commercial services such as tourism, data processing, and financial transactions, as well as public services at all levels of government. The USTR supports further liberalization of trade in services, promoting a top-down approach in which all services not specifically excluded would be included in the trade deal. This approach could lead to the privatization of such public services as health and education--particularly if a government has opened the door to commercialization of the services by allowing some aspects to be subcontracted to private service providers. The USTR proposal calls for the inclusion of energy services, something excluded from NAFTA, and it fails to address the possible environmental consequences of such a move.

It is clear that the U.S. is pursuing a "NAFTA plus" approach to the FTAA, despite ample evidence of the failure of NAFTA to raise living standards in North America. Many promises were made during the debate over NAFTA approval: that it would, for example, result in more and better jobs, improved environmental conditions, and more stable economies in all three of the countries involved. None of these promises has been fulfilled. More than 335,000 Americans have been certified as having lost their jobs because of NAFTA, and the true number could be much higher. Most of the jobs created in the United States have been in the low-wage service sector, and many have been temporary. Also significant has been the increase in the "blackmail effect:" Cornell University researcher Kate Bronfenbrenner found that the incidence of employers using the threat of moving production out of the U.S. in order to undermine union organizing efforts has increased dramatically since NAFTA's inception.

Environmental conditions, particularly in the U.S.-Mexico border region, have deteriorated as industrial activity has increased, and the aftereffects of the 1995 financial crisis in Mexico (particularly the collapse of the banking sector) continue to plague that country. Massive increases in U.S. corn exports to Mexico under NAFTA displaced hundreds of thousands of farmers in that country. While employment did increase in the maquiladora sector, the lack of effective labor rights protections has meant poor wages and working conditions. Wages in the manufacturing sector in Mexico have fallen some 9.5% since NAFTA's onset, even though worker productivity has increased.

Karen Hansen-Kuhn <[e-mail]> is trade program coordinator at The Development GAP and international coordinator of the Alliance for Responsible Trade.