Case Overview, International Property Takings Amendment

          Free trade-trade between nations that is unencumbered by tariffs and other kinds of restrictions-is considered to be highly desirable because it produces wealth on both sides of the transaction. If country A can sell its bananas to country B (which grows no bananas), and country B can sell its automobiles to country A (which doesn't manufacture cars), both will be better off. By selling what it grows or manufactures fairly easily, people can be employed to produce those goods. If trade barriers made it difficult for such sales to take place, both countries will be worse off as there is a limit to how many bananas or automobiles the residents of the home country can consume on their own.
          Despite the value of free trade in theory, it's difficult for governments to execute it in practice. Although free trade promotes general economic growth, it can hurt an industry in one country when a trading partner can produce the same goods at a lower price. Thus, steel companies and steel workers in the United States can suffer when cheaper steel is imported from South Korea or Brazil. Nevertheless, the North American Free Trade Agreement (NAFTA) overcame opposition in the United States and was approved by the Congress in 1993. The pact between the U.S., Canada, and Mexico has increased trade activity among the three countries, but with its success has come problems.
          Chapter 11 of the NAFTA agreement allows one country to file a claim against another country when it believes that country has violated some part of the accord. Each such claim is decided on a case-by-case basis by a three person panel. If the accused is found in violation, the responsible country must pay the damages specified in the panel's decision. A major source of the claims that have been filed since NAFTA became law derive from the complexity of federalism in the United States. To what degree are states and cites sovereign in regard to NAFTA? For example, the state of California passed a law that requires a particular fuel additive, MTBE (methyl tertiary butyl ether), to be sold in high-smog areas. The government of Canada filed a Chapter 11 claim on behalf of a Canadian company that produces a competing fuel additive, methanol. State and local governments and environmental advocates have argued that a Chapter 11 decision in favor of Canada can essentially override the California environmental regulation, setting a precedent that could wreak havoc with the United States system of federalism.
          Legislation was introduced into the 107th Congress to try to protect state and local government authority from such NAFTA rulings. The primary vehicle for the effort to rein in Chapter 11 was a separate bill to provide a "fast track" for future NAFTA negotiations. This bill incorporated many provisions that spoke to the concerns of state and local governments. Still, it wasn't as explicitly sympathetic as local government associations wanted and they developed a strategy to amend the Senate bill to strengthen it in the desired direction. Senator John Kerry, Democrat of Massachusetts, introduced an amendment to accomplish this. One Senate aide dismissed the local government associations working on behalf of this legislation as organizations "just worried about their turf." Ultimately the Kerry Amendment failed in the Senate 55-41, and the Fast Track Trade Authority bill was signed into law by President Bush in August of 2002.