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Montana Viewpoint

A DIFFERENT KIND OF CHAPTER ELEVEN

New WTO trade rules have the potential to deny Montanans the right to self-government.

July 21, 2003

TouchAmerica’s Chapter Eleven bankruptcy and pending sale is bad news for Montana, but there’s another Chapter Eleven that is even worse news, especially in light of the fact that a Canadian company is looking at buying TouchAmerica. It’s Chapter Eleven of NAFTA, the North American Free Trade Agreement, and it basically gives an individual Canadian or Mexican investor the right to dictate Montana law. Worse yet, similar rights are being given to other foreign investors in every major trade agreement being formulated by the World trade Organization (WTO).

Under Chapter Eleven of NAFTA, Canadian and Mexican investors can sue the United States government if they believe a local ordinance or state law lowers their profit margin. (American investors have the same right in Mexico or Canada.)

There are two reasons for serious concern: first, companies operating in Montana are being bought by foreign investors; second, a foreign investor’s lawsuit against the federal government as a result of a Montana regulation or law could bring immense pressure from the U. S. government to change our laws to comply with NAFTA rules.

Here’s a concrete example. A couple of years ago California banned the use of a gasoline additive called MBTE. Its original use was to cut down on exhaust pollution, and it seems to have done a dandy job in that regard, but it also had an incredible ability to pollute groundwater, forcing California citizens and cities to find MBTE free sources of drinking water.

If you were an American producer of MBTE you might want to consider going into the bottled water business, but if you’re a Canadian producer of MBTE you can sue the United States for potential lost profits because of the California ban. That’s exactly what the Methanex Corporation of Vancouver, British Columbia, did; for $970 million, American.

Fortunately, Methanex lost their case (heard, not by a U.S. judge in open court, but behind closed doors under the WTO’s International Arbitration Agreement process) because they produced only the “M” part of MBTE. MBTE. However, Methanex is still pursuing ways to change the ban, and California has postponed enacting it.

This threat strikes close to home because of the recent purchases of ASARCO by Grupo Mexico and the Stillwater mine by a Russian consortium; the serious bid on TouchAmerica by 360networks, Inc., again of Vancouver, B.C.; and the financial difficulties of NorthWestern Power, which may force them, too, into Chapter Eleven bankruptcy and possible sale.

In addition to NAFTA, one of the controlling international trade agreements is GATS, the General Agreement on Trade in Services of the WTO, which contains provisions similar to NAFTA. In essence, these rules require that the United States and all its political subdivisions treat foreign service suppliers in certain service sectors, such as transportation or communications, as well or better than American service providers. The GATS agreement allows the international Council for Trades in Services to dictate rules ensuring state laws do not place an “undue burden” on foreign service suppliers.

Of particular concern to Montana is the threat to the regulation and operation of our electrical energy system, and serious implications for Montana’s sovereignty of the use and regulation of our water. At present, there is no trade sector governing electrical energy, but the United States Trade Representative is working on one. This has serious implications for Montana, because our current laws regarding energy production and distribution are in direct conflict with WTO rules. This was pointed out to me by Bob Sundberg of the Harrison Institute for Public Law of Georgetown University. Sundberg had done a study for the Idaho Legislature, and found that the GATS rules trumped Idaho’s ability to manage its rivers and streams for the benefit of Idahoans.

I asked Sundberg to do a similar analysis of how Montana laws on energy and water rights might be affected by GATS. His research found five significant conflicts with GATS rules that could present Montana with serious challenges from WTO member states.

The United States is continually entering into trade agreements that bring state and local government decisions under international influence and control. I don’t think that’s desirable. While Senator Baucus has insisted successfully that other trade agreements must state that foreign firms can be given “no greater rights” than American firms, there is still a serious opportunity for Americans to lose control over important rights and privileges.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org