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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This was about the same time Attorney General Meese was alerting government agencies to Epstein's "regulatory takings," but many important CEOs had probably never heard of the man or his theory. "The investor-state was not on business's radar screen," an important corporate trade lawyer says. "The critical part for American business was getting Mexico to begin to dismantle its restrictions on investment, which were substantial. I do not recall any philosophical debate. This was a practical problem. We've got corrupt courts in a lot of these countries; companies should have the right of honest redress."

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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Washington lawyers, in and out of government, were the main transmission belt. Their role, often underappreciated, is to act as the keepers of the flame, nurturing long-term policy objectives over many years and beyond the transient influence of elected politicians or corporate CEOs. They move in and out of government themselves, helping to write the official texts and laws they later use as tools in behalf of corporate clients when they return to private practice. "Businesses as a general matter do not understand the subtleties of these legal issues, and they are led by the lawyers," the corporate lawyer explained, adding, "A lot of them came out of the Legal Adviser's office at the State Department--who are great believers in international law, and they are very enamored of this concept."

Edward Graham, the economist at IIE, thinks Chapter 11 grossly overreached its purpose, and this was not an accident. "There are those I've talked to who maintained that there was at least a subgroup of constituents who really saw this as a way to get compensation for regulatory actions," Graham said. "There was strong advocacy that thinks, whenever the government enacts a regulatory measure, it should compensate. They saw this, I am told, as a way of getting such a provision into international law that does not exist in US domestic law."

When NAFTA negotiations began in 1990, the multinationals' lawyers already had the investor protection scheme in hand, the arbitration feature borrowed from prior bilateral agreements. Then they expanded it vigorously during the negotiations. Dan Price, now the top trade lawyer at Powell, Goldstein, is widely credited (and admired among his peers) for the design of the "investor-state" provisions, whose ostensible purpose--and the explanation given to Congress--was that US investors needed an insurance policy in Mexico, whose courts were notoriously corrupt. Price had worked at the State Department's Legal Adviser's office before he became a key negotiator on Chapter 11 for the US Trade Representative (his views reinforced by what one diplomat called "investment groupies" from Treasury and State). "The breadth of coverage and the strength of the disciplines [in Chapter 11] exceed those found in any bilateral or multilateral instrument to which the United States is a party," Price has boasted. Price and other advocates claim that Chapter 11's "enormously broad" definition of property rights is in accord with US law--though any diligent law student could demonstrate that the claim is fallacious.

Price is hailed among some younger lawyers as a negotiating genius for persuading Mexico to accept such dramatic concessions, but they misunderstand the lopsided dynamics of the negotiations. The corrupt regime of Carlos Salinas was so desperate to get the inflows of US capital that when the Americans kept pushing for tougher language, the Mexicans regularly agreed rather than risk losing the deal. Canada had previously refused to include similar rules in its own bilateral free-trade agreement with the United States, so Canadian negotiators may have been counting on Mexico to hold off the American demands. Instead, Mexico rolled over.

Price's arguments and language are a good fit with Epstein's. Though other lawyers say he is not a right-wing ideologue himself, he invokes a moral logic that is identical. Governments, Price has explained, "recognize that it would be unfair to force an investor to bear the entire cost of a change in social policy. These costs, at least under certain circumstances, should be borne by society as a whole.... Simply designating a government measure as a conservation measure, or a health and safety measure, does not answer the basic question about who should bear its costs and should not be enough to remove that measure from international investment disciplines. The purpose of the regulation may be very noble, but it is necessary to examine how that purpose is effectuated and the impact on the affected investor."

Today, Price represents the USCIB as well as corporate clients. He also initiated one of the first Chapter 11 cases brought against Mexico--the Azinian claim, filed by a Los Angeles trash-hauling firm that lost its contract in a Mexico City suburb. (Price dropped the case when he discovered the client had no money.) Another lawyer active in claims cases said, "Dan told me he has two claims against Canada that he was just waiting to file." Price declined numerous requests for an interview.

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