The Right and US Trade Law: Invalidating the 20th Century | The Nation


The Right and US Trade Law: Invalidating the 20th Century

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A host of conservative litigation groups have sprung up to argue Epstein's doctrine in court and taken a series of cases to the Supreme Court. So far, the Court's pro-takings decisions have dealt only with subsidiary questions and stopped short of fully embracing Epstein's claim that government must compensate an owner even if property or a business has been only partially affected. It is this claim of partial injury that makes Epstein's theory so radical, because it would freeze government action, which inevitably has some partial impact on many people. It also would overturn twentieth-century precedent, even the Rehnquist Court's. The putative "pro-takings" majority on the Court has hesitated to go that far. Perhaps for good reason: To enshrine this radical new definition of property rights would provoke a grave governing crisis, from local zoning laws to the Court's own legitimacy.

See Public Citizen's new report: "NAFTA Chapter 11: Bankrupting Democracy."

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William Greider
William Greider
William Greider, a prominent political journalist and author, has been a reporter for more than 35 years for newspapers...

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Doug Hughes is not a dangerous fruitcake. In fact, he is a small-d democratic idealist who went out of his way to alert the authorities in advance of his so-called “Freedom Flight.”

The thought leaders of the Next System Project want to move past the narrow debate about policy and toward a conversation about the deeper structural change required of the political system itself.

Professor Epstein, in fact, is bitterly disappointed at the Supreme Court's hesitation and especially irked at his former law school colleague Justice Antonin Scalia. "Scalia is terribly worried, as I'm not, about what will happen to the federal judicial power if he adopts the kinds of cases I'm championing--that local zoning cases would be subject to federal scrutiny," Epstein said. "So he's nervous about a sea change. He looks for ways to change the doctrine on the margins, but he doesn't want to go all the way. As a result, his decisions are incoherently decided. He knows 'takings' is right, but he can't bring himself to do it.... The only person who holds the 'takings' position in what I regard as a consistent fashion is Clarence Thomas, not Scalia, not Rehnquist and so forth. They're much more timid."

Many legal authorities, including conservatives who reject Epstein, have assumed the Rehnquist Court would not undertake such a radical leap in behalf of its ideology, but their confidence was deeply shaken by Bush v. Gore. "The Court is just on a knife edge," said Georgetown Law Professor John Echeverria, who studies the takings decisions. "If a liberal member resigned and was replaced by a Justice who is pro-takings, it is very likely the Court could swing wildly on that doctrine."

Epstein is perplexed by another matter. While his conservative brethren on the Supreme Court have so far declined to accept his radical redefinition of the Constitution, multinational business has already succeeded in planting his premise in NAFTA and promoting it for other trade agreements. The claims are being heard, some companies have already won huge awards for regulatory injury to investments. The professor's contribution didn't even get a footnote. "I am aware that what I have said has been very influential in the NAFTA debate and that, strangely enough, much of what I say seems to have more resonance in the international context than it did in the domestic context," Epstein said."Nobody from any of those [business] organizations even thought to ask me to give an opinion, let alone hire me as a consultant. I think they should have asked me."

III. Think Locally, Act Globally

How did the professor's ideas migrate from one realm to the other? "The takings stuff is a little like fluoride in the water," Echeverria said. "It's an advocacy agenda that's been floating around Washington for fifteen years with a large number of influential supporters." His colleague professor Robert Stumberg explained more concretely that NAFTA's investor protections "are based on a long-term strategy, carefully thought out by business, with many study groups and law firms involved in developing them. This is about limiting the authority of government--that is its central importance."

The American multinational community initiated its first discussions on the investment problem in the mid-1980s, well before NAFTA negotiations began but at a time when overseas capital investment was beginning its great surge--dispersing production worldwide. The first seminars were attended by both business and government experts, including Dan Price, who would negotiate NAFTA under the US Trade Representative; the discussions were organized by the US Council for International Business (USCIB), a less prestigious group than the Business Roundtable but with overlapping membership. Global economic integration, the companies recognized, would no longer be driven so much by further tariff reductions, already largely accomplished, but by foreign direct investment--building and buying factories, banks and affiliated firms in other countries and markets.

The problem they foresaw, as US capital invested heavily abroad, was not the old-style expropriation of outright seizure, but a more subtle process in which foreign governments, by enacting progressively stiffer regulatory measures, could effectively take control of assets and profits. Economist Edward Graham, NAFTA expert at the Institute for International Economics (IIE), a think tank supported by international business and finance, thought the fears were legitimate. "There had been problems in Latin America,though not so much Mexico, I think, and some other developing countries, particularly in Southeast Asia, with what came to be known as creeping expropriation. Measures were taken by governments that were regulatory in nature but clearly expropriatory in intent. For example, taxes. You just keep pumping the taxes, you claim the company had used various tax-avoidance mechanisms in the past. So the government would present them with a big bill for back taxes and say, Look, if you don't pay up on this, we are taking 25 percent of equity for the government."

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