Trade Pacts vs. National Sovereignty

Timothy A. Canova

The late Bill Dixon, a senior partner at the Rodey law firm in Albuquerque, was an expert on First Amendment law and defender of individual rights and liberties. Before his untimely death in 2003, Dixon also sounded the alarm about the growing use of international trade agreements to undermine our national sovereignty and constitutional system of government.

In particular, he was critical of the  investor-state dispute settlement provisions in Chapter 11 of the North American Free Trade Agreement, which allows multinational corporations to challenge national, state and local laws as infringements on their anticipated profits and to receive compensation for regulations that are deemed  tantamount to expropriation.

This same troubling provision is now part of the Obama administration s Trans-Pacific Partnership (TPP) proposal.

The 5th Amendment of the U.S. Constitution grants the federal government the power of  eminent domain to take private property for public purposes as long  just compensation is provided to property owners. For years, the U.S. Supreme Court has made a distinction between a physical  taking of private property and regulatory requirements that merely restrict the use of private property to protect the public health, safety and general welfare.

A physical taking requires just compensation, while regulatory restrictions do not. Although regulations that go too far may be recognized as a taking, such cases are rare and require courts to consider a host of factors that balance the public need and private burdens.

Since the 1980s, some conservative legal scholars began advocating for an extreme doctrine of  regulatory takings that would require compensation for any regulation that restricts the freedom of private property owners and potentially limits their profit opportunities. This effort did not get much traction and the Supreme Court has for the most part maintained the distinction between physical takings and regulations that merely restrict the use of property.

Unfortunately, the NAFTA  investor-state provision provided an end-run around the U.S. Constitution and served as the model for bilateral trade agreements and now the TPP.

Suits brought under these investor-state provisions are decided not by U.S. courts, but by private arbitration tribunals consisting of trade lawyers.

While such offshore legal venues are not able to overturn U.S. laws, they have the authority to grant significant monetary damages that undermine government efforts to protect workers, the environment and even the stability of the financial system.

Indeed, NAFTA arbitration panels have already imposed millions of dollars in damages on U.S., Canadian and Mexican governments. Even the threat of such claims has deterred governments from imposing certain health and safety regulations.

In the 1990s, the Canadian government urged its NAFTA partners to craft a joint binding  interpretive statement to limit the damage from these investor-state tribunals. The Clinton administration rejected this proposal and instead sought to expand the use of these tribunals to advanced industrial countries in the Organization for Economic Co-Operation and Development through its proposed Multilateral Agreement on Investments (MAI).

But the MAI was roundly criticized by civil society and the anti-globalization movement which disrupted the World Trade Organization ministerial conference in Seattle in late 1999.

The failure of Clinton s MAI was followed by President George W. Bush s attempt to revive the investor-state dispute settlement model in his failed Free Trade Area of the Americas proposal, which would have expanded NAFTA to the entire Western Hemisphere, with the exception of Cuba.

Unfortunately, the Obama administration now seeks to expand these investor-state tribunals globally in the TPP and a proposed Transatlantic Trade and Investment Partnership.

As Bill Dixon recognized so prophetically, these investor-state tribunals are part of a relentless corporate agenda to turn the clock back to the 19th century when governments were unable to protect the public from avoidable harms.

Investors should not be compensated to be good citizens and comply with regulations that help provide a more civilized life for all of us.

Timothy A. Canova is a professor of law and public finance at Nova Southeastern University Shepard Broad College of Law in Fort Lauderdale/Davie. He is also a member of the NJFAC Advisory Board. Published June 8, 2015, and reprinted from

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