'Don't tread on me': NAFTA respects states' rights - North American Free Trade Agreement - Special NAFTA Issue

One of the key concerns expressed during the NAFTA negotiations and in the period since the Agreement was concluded is that NAFTA would preempt the states' ability to legislate and regulate. The Agreement certainly has implications for the states, and a number of chapters contain specific provisions of interest to state and local governments. Nonetheless, fears of NAFTA preemption of state authority are unfounded.

The North American Free Trade Agreement covers the 50 states, as well as the District of Columbia and Puerto Rico. Measures enacted by U.S. states, including laws and regulations, must generally conform to our NAFTA obligations. What many people don't realize is that the vast majority of state and local laws already comply with NAFTA, and most proposals for future legislation will as well. This is because NAFTA's key principle is that laws not discriminate against other parties, and U.S. laws in general are not discriminatory.

Further, special provisions allow the states to preserve existing regulations and exempt states from certain NAFTA provisions. In no instance does NAFTA require federal preemption of state laws.

Consultations With the States

Special care was taken during the NAFTA negotiations to ensure that state interests and concerns were addressed. The Intergovernmental Policy Advisory Committee (IGPAC) is the formal mechanism through which the United States trade negotiators receive state advice. The IGPAC consists of 37 members, including 16 governors, 6 state commissioners, 6 state legislators and 9 mayors and county officials. As with all federal trade advisory committees, the IGPAC was consulted and briefed on a regular basis during the NAFTA negotiations.

In addition, other elected officials at the state and local level were consulted. The former Administration also met with a wide range of organizations that represented sub-federal interests, including the U.S. Conference of Mayors, the National Governors' Association, National Association of Insurance Commissioners, and the National Association of Counties.

These consultations were critical in designing provisions that accommodated state concerns and preserved state sovereignty while still providing trade liberalization throughout North America. Consultations with state and local governments will continue during NAFTA implementation.

Standards

NAFTA permits the states to set their own standards, including standards on plant and animal health and safety and environmental standards, such as emissions levels. State standards may be more stringent than the parallel federal-level standard; NAFTA does not require preemption of state laws. So, for example, if Texas wishes to enact more stringent emissions standards for automobiles than federal law currently contains, NAFTA does not interfere with its ability to do so.

NAFTA does not require states to lower their standards to make them compatible with Mexican or Canadian standards. Ideally, all three countries would have identical standards set at the highest possible appropriate level of protection. This would enable businesses to efficiently produce goods for all three markets, and make enforcement efforts easier, since authorities in all three countries would be enforcing the same standards. However, identical standards are not always feasible. NAFTA recognizes this by allowing each country (and each state within a country) to establish any non-discriminatory standard it believes necessary to protect its population.

NAFTA does require the United States to notify Mexico and Canada when a state implements new standards. We will receive similar notice from Canada and Mexico on state and provincial standards. This provision ensures transparency in the standards-development process, but does not allow Mexico or Canada to alter a state-proposed standard. The U.S. government is responsible for the actual notifications and will work with the states to ensure efficient communications.

Services

Laws and regulations affecting services enacted by all levels of government--state, local, and federal--are covered by NAFTA. New laws and regulations enacted after NAFTA by all levels of government will have to comply with the Agreement. However, this does not limit the ability of states to regulate and license services and trades, such as doctors, nurses, architects, engineers, surveyors, electricians, and plumbers. Each state may establish whatever legitimate licensing and certification requirements it believes necessary, and these licensing requirements may be very strict.

Existing laws regulating services, whether or not they conform with NAFTA, may be retained and continue to be enforced, as long as they are identified and listed. The Agreement provides a mechanism for existing state and local laws to be exempted from NAFTA obligations when they do not conform.

The Agreement allows all measures enacted by states that are in existence when NAFTA is implemented on Jan. 1, 1994, to remain unchanged for at least two years. If a state wishes to continue enforcing a non-conforming measure beyond two years, it may do so. The United States must simply provide to Mexico and Canada a written description of the measures that will be continued within the first two years of NAFTA's implementation. The federal government will work closely with the states to ensure proper listing of all measures they want to retain.

Measures enacted by local governments that are in existence at the time NAFTA enters into force can continue to be enforced without any requirement to identify the measure. This practice is known as "grandfathering."

All three parties committed to eliminate within two years citizenship and permanent residency requirements that affect the licensing of professional service providers. Permanent residency refers to a requirement that applicants be permanent residents of the United States, one step short of citizenship, and not to requirements that a person reside in a state in order to be eligible for a license. Requiring that someone be a citizen or permanent resident of the United States in order to be licensed serves no purpose except to exclude citizens of other countries, and thus all three countries agreed it was an unnecessary burden on trade. However, NAFTA does not impinge on the ability of states to protect consumers. The states retain the right to impose legitimate prudential measures.

Financial Services

As with services in general, states will be able to maintain existing regulations affecting banks, insurance companies, and securities firms that do not comply with NAFTA. Most jurisdictions have until Jan. 1, 1995 to list measures that will be retained beyond the first year of NAFTA implementation. For the states of California, Florida, Illinois, New York, Ohio, and Texas, however, non-conforming measures must be listed by Jan. 1, 1994. The federal government is already working with these states to ensure proper listing of measures to be retained.

Investment

State and local measures affecting investment are covered to the same extent as measures affecting services. States will be allowed to continue non-conforming measures as long as a written description of the measure is provided to Canada and Mexico within two years. Local non-conforming measures will be "grandfathered."

Government Procurement

Government procurement refers to purchases of goods and services by government agencies. Under NAFTA, certain federal level contracts are open to bidders supplying Canadian and Mexican goods or services. This has no implications for the states. State government procurement practices are not subject to NAFTA. The U.S. government will encourage states to adopt NAFTA procurement disciplines, but the final decision rests with the individual states. The Mexican and Canadian governments have also committed to work with their state and provincial governments to seek their voluntary and reciprocal participation.

NAFTA also preserves federal-level programs that reserve some contracts exclusively for U.S. small- and minority-owned businesses. These programs are of special interest to many states in assisting the development of small- and minority-owned businesses.

Land Transportation

States will maintain their authority to impose and enforce safety regulations affecting land transportation services. States can require Mexican and Canadian commercial vehicles operating into or through their jurisdiction to comply with all relevant state requirements such as vehicle registration and inspection, vehicle size (for trucks operating on state roads), payment of fuel taxes, and other fee or permitting requirements. These requirements may not discriminate against non-U.S. companies or vehicles, but may otherwise be as stringent as a state believes necessary.

All Mexican and Canadian drivers entering the United States must comply with federal truck safety and commercial driver regulations.

Telecommunications

NAFTA makes no changes in the state or federal regulations of common carrier services, such as local telephone exchanges. NAFTA does not cover measures that affect provision of or investment in basic telecommunications services. The NAFTA telecommunications chapter only applies to enhanced telecommunications services, such as data processing, and intra-corporate communications networks.

Dispute Settlement

NAFTA includes a dispute settlement mechanism to ensure that all three parties comply with their obligations. Parties may use the dispute settlement provisions to challenge measures that they believe violate the NAFTA. Like measures at the federal level, state and local measures are subject to NAFTA dispute settlement. However, this does not mean that a NAFTA dispute settlement panel can force a state to change a law or regulation. In the rare event that a panel determines that a state measure violates the NAFTA, the United States must then determine what action to take. If the state chooses not to change a measure, the United States may have to pay compensation. If no action is taken by the United States, the complaining party may suspend NAFTA benefits of equivalent value, such as preferential tariff treatment.

It has been normal U.S. practice under the U.S.-Canada Free Trade Agreement and the GATT for state government personnel to counsel the U.S. team in panel proceedings regarding state measures. That practice will continue under NAFTA. The U.S. government will work closely with state governments at all stages of a dispute settlement proceeding in preparing the defense of any state measure.

NAFTA Benefits All States

NAFTA will benefit the entire country, not just selected regions. Forty-eight out of fifty states increased exports to Mexico from 1986 to 1992. Twenty-one states exported more than $250 million to Mexico in 1992. Five of the top ten states exporting to Mexico are northern industrial states. NAFTA's benefits will be felt by all U.S. states, but its impact on how states legislate and regulate will result in minor changes to business as usual.

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