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Does WTO Limit Local Authority?

Proposed Commission Would Explore Impact of “Free Trade”

By Arnie Alpert, 2/20/2007

Four years ago Rolfe Voltaire, a Nottingham resident, asked Congressman John Sununu if World Trade Organization rules could trump state and local decisions about the proposed USA Springs bottling plant.  Sununu sent the request on to Robert Zoellick, who at the time was the chief trade official for President Bush. 

The trade official said nothing in WTO rules would force the state or town to allow a bottling company to operate.  “Of course,” Zoellick continued, “once local authorities decide to permit bulk water to be extracted from an aquifer, bottled, and sold as an article of commerce, WTO rules would likely apply.”

In other words, the WTO can trump local authority after all.

Since the WTO was created in 1994, a huge question mark has loomed over the state’s authority, and not only concerning international sales of bottled water.  The WTO administers seventeen major trade agreements, binding on its 150 member nations.  These agreements deal with tariffs on manufactured products, but also with intellectual property, government purchasing, investment, and public health standards. 

In addition, the WTO’s General Agreement on Trade in Services (GATS) covers the entire service sector, including education, health, utilities, tele-communications, business services, tourism, transportation, construction, and wholesale and retail trade.  The GATS rules, which seek to remove barriers to cross-border sale and consumption of services, apply explicitly to policies under the authority of state and local governments.  Policies the WTO determines to be in conflict with these rules make governments subject to penalties.

Rules with slight variations also appear in regional agreements to which the United States is a party, including NAFTA (with Canada and Mexico), CAFTA (with the five nations of Central America plus the Dominican Republic), as well as bilateral agreements with Australia, Oman, and Chile.  New agreements with Peru, Colombia, and Panama are complete, but await Congressional ratification. Negotiations with S. Korea, Thailand, and Malaysia are underway.

What all these agreements have in common is that they aim to “free” international commerce from laws, policies, and regulations established by governments at all levels.  Areas such a procedures for professional licensing, zoning restrictions, public health measures, and affirmative action policies can be challenged if a foreign company believes such rules are “overly burdensome,” or if they favor local businesses over foreign ones.  In some cases, foreign investors can sue directly for damages.  In other cases, foreign governments can begin a dispute with our federal government, which is responsible to make sure all subdivisions abide by the agreements.

For example, Antigua, a small Caribbean island nation, protested that U.S. restrictions on internet gambling were violations of “free trade” in what the WTO calls “recreational services.”  The WTO ruled that the U.S. ban on internet gambling kept Antigua’s gambling industry out of the U.S. market and was therefore a a trade-illegal quota.  The ruling, which the federal government is contesting, applies to state laws as well as federal ones.

In the case of bottled water, a number of questions arise.  For example, do GATS rules that forbid governments from setting quantitative limits on transportation services mean that town governments risk a trade challenge if they tell a bottler how many trucks a day can enter and leave their property?  Could state limits on the amount of water that can be extracted be challenged as an unfair restriction on pipeline services?  Or, if the State were to reduce the licensed pumping limit in a time of drought, could a bottling company sue for damages under investment rules?  It is worth noting that the world’s largest bottling company is Nestle, based in Switzerland.  Moultonborough’s Crystal Geyser Roxane is owned by a Japanese conglomerate.

In an era in which the economy is increasingly integrated across national boundaries, Rolfe Voltaire, a former member of Nottingham’s Planning Board, believes New Hampshire’s state and local officials need a better understanding of trade agreements.  "I am personally dismayed by the inaction of our elected officials since we received the letter from Robert Zoellick,” Voltaire says.  “If our elected officials understood how much their authority is at risk, I am sure they would do something."  

Sen. Jacalyn Cilley agrees.  Addressing this concern is the purpose of her bill, SB 162, to establish a commission made up of citizens and elected officials, which would evaluate the impact of international trade agreements on the state.  Similar commissions are already operating in Maine, Vermont, Utah, and North Carolina. 

Renato Ruggiero, the WTO’s first Director General, once said “We are writing the constitution of a single, global economy.”  If so, New Hampshire’s citizens and officials need to know where our authority ends and the WTO’s begins. 

Arnie Alpert is New Hampshire Program Coordinator for the American Friends Service Committee.  He is a member of the Monitor’s Board of Contributors.