Vermont Commission on International Trade and State Sovereignty

1. Vermont Commission on International Trade and State Sovereignty Overview of International Trade And Its Impact on Vermont Vermont Legislative Council October 30, 2007

2. What is International Trade and What Are International Trade Agreements? • International Trade is the exchange of goods and services across international boundaries or territories. • International Trade between countries traditionally was conducted according to agreements between two countries. Such agreements are referred to as bilateral agreements.

3. What is International Trade and What Are International Trade Agreements? • Beginning in 1944 at Bretton Woods, trade began to be considered in a global manner and global economic institutions were created to help regulate its conduct. • Some of these organizations include: • The World Bank • The International Monetary Fund (IMF), and • The Global Agreement on Tariffs and Trade

4. Evolution of the International Trading System In the U.S. -- • In 1974, “fast-track” authority was established, streamlining Congressional consideration of trade bills. • In 1979, the Office of the U.S. Trade Representative (USTR) was created by Executive Order.

5. Evolution of the International Trading System In the U.S. -- • The USTR is part of the Executive Office of President and is not subject to Freedom of Information Act requests. • USTR formally consults with states through the Inter-Governmental Policy Advisory Committee (IGPAC) and State Points of Contact (SPOCs).

6. Evolution of the International Trading System • In 1994, the “Uruguay Round” global trade discussions were completed and the World Trade Organization (WTO) was created. • The WTO now has 149 members.

7. Evolution of the International Trading System • WTO agreements include: • Goods • Services • Government procurement • Agriculture • Intellectual property rights • A binding dispute resolution system • More than a dozen separate agreements

8. Evolution of the International Trading System Since the Uruguay Round… • North American Free Trade Agreement (NAFTA) • U.S. – Singapore Free Trade Agreement • U.S. – Chile Free Trade Agreement • U.S. – Australia Free Trade Agreement • Central American Free Trade Agreement (CAFTA)

9. Why Should Vermont Care About International Trade?The Opportunities • Vermont had $3.8 billion of exports in 2006. • Vermont’s exports of merchandise increased 51% between 2002 and 2006. • Vermont exported to 148 foreign destinations in 2006. • Vermont’s largest market by far was NAFTA member Canada, which received $1.7 billion (44%) of Vermont’s merchandize export total.

10. Why Should Vermont Care About International Trade?The Opportunities • Among manufactured products, the state’s leading export category is computers and electronic products, which accounted for $3.0 billion (78%) of Vermont’s total merchandise exports in 2006. • Other top manufactured exports in 2006 were machinery manufactures ($136 million), transportation equipment ($126 million), and fabricated metal products.

11. Why Should Vermont Care About International Trade?The Opportunities • Export-supported jobs linked to manufacturing account for an estimated 7.4% of Vermont's total private-sector employment. • In 2003, over one-fifth (22.9%) of all manufacturing workers in Vermont depended on exports for their jobs. • 828 companies exported goods from Vermont locations in 2005. Of those, 712 (86%) were small and medium sized enterprises with fewer than 500 employees.

12. Why Should Vermont Care About International Trade?The Opportunities • Trade with the world—both exports and imports of goods and services—creates jobs in Vermont. • According to the U.S. Business Roundtable, trade supports 77,886 jobs in Vermont. • 18.7% of jobs in Vermont are supported by trade, up from 10.5% in 1992. Thus, trade supports nearly one-fifth of Vermont jobs.

13. Why Should Vermont Care About International Trade?The Opportunities • Foreign-owned companies employ more than 10,800 workers, nearly 4% of all Vermont employees. • U.S.-Canada trade supports 12,000 jobs in Vermont.

14. Why Should Vermont Care About International Trade?The Opportunities • Note: Export-related employment data shown do not include manufacturing and non-manufacturing jobs involved in the export of non-manufactured goods, such as farm products, minerals, and services sold to foreign buyers. The complete 2003 export related employment series is available on the ITA’s Export Related Jobs website. Additional information on methodology used in the 2003 export-related employment series can be found in the U.S. Census Bureau’s publication Exports from Manufacturing Establishments: 2003.

15. Why should Vermont care About International Trade?The Opportunities • International trade is a growing part of the economy • States that track the U.S.’s negotiating strategy may get the jump on new economic opportunities • Jobs in export sectors are generally higher-wage • Trade diplomacy is important for non-economic reasons

16. Why should Vermont Care About International Trade?The Concerns • Foreign competition can negatively impact wages, and cost jobs at home. • Labor Organizations argue that Vermont has lost close to 9,000 jobs due to trade and Free Trade Agreements.

17. Why should Vermont Care About International Trade?The Concerns • The Vermont Department of Labor reports that 1,600 people have received Trade Adjustment Assistance. • Trade Adjustment Assistance is available to workers who lose their jobs to Free Trade Agreements between the United States and other countries.

18. Why should Vermont Care About International Trade?The Concerns • International trade agreements can impact state legal authority • The federal government can sue states to preempt state laws by citing international trade commitments • Some agreements provide expanded legal protection for foreign investors

19. Why should Vermont Care About International Trade?The Concerns Provisions in several Free Trade Agreements may impact the ability of states to regulate: • Pharmaceuticals; • Gambling; • The Environment and Land Use; • Professional regulation and licensing; • Utilities; • Tobacco; and • Procurement standards.

20. Why should Vermont Care About International Trade?The Concerns • Many Free Trade Agreements also include clauses, known as Investment Clauses, which allow countries or corporations within countries to bring expropriation claims (similar to a takings claim) against the United States based on state law. • These expropriations claims and the limits that Free Trade Agreements may place on state sovereignty and state authority to regulate will be discussed at future public hearings addressing the environment, health care, and agriculture.

21. Additional Information and Terms Used in Trade Agreements GATT = General Agreement on Tariffs & Trade [Goods] • Requires equal treatment for all foreign suppliers (national treatment and most favored nation) and bans limits on market access* • Technical regulations may “not be more trade-restrictive than necessary to fulfill a legitimate objective” GATS = General Agreement on Trade in Services • Contains similar rules (*) relating to “committed” services • “No more burdensome than necessary” to ensure quality of service (“domestic regulation”) GPA = Government Procurement Agreement • Contains similar rules (*) relating to procurement in “committed” sectors • Technical specifications (broadly defined) may not be adopted “with the effect of creating unnecessary obstacles to international trade” • The one agreement where the USTR has sought states’ “consent”

22. Additional Information and Terms Used in Trade Agreements FTAs = Multilateral free trade agreements • NAFTA, CAFTA, proposed Free Trade Agreement of the Americas (FTAA) BITs = Bilateral investment treaties • Over 1,800 BITs signed between 1959 and 1999 • NAFTA’s investor protection provisions (“Chapter 11”) are patterned after the BITs Text of agreements: http://www.wto.org/english/docs_e/legal_e/gatt47.pdf

23. Additional Information and Terms Used in Trade Agreements National treatment/Most favored nation • Bans discrimination in the provision of goods and services Market access • Prohibits quantitative limitations Domestic regulation • Requires laws to be “no more burdensome than necessary” (in flux) Minimum treatment (for investors) • Requires treatment consistent with international law Expropriation (for investors) • Requires compensation for loss of value