BILL ANALYSIS
AB 1276
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Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 1276 (Skinner) - As Introduced: February 27, 2009
SUBJECT : International trade agreements and state engagements
SUMMARY : Prohibits a state official, including the Governor, from
binding the state to provisions of a Proposed International Trade
Agreement without specified statutory authorization. Specifically,
this bill:
1)Provides various findings and declarations.
2)Defines "Proposed International Trade Agreement" as a trade
agreement negotiated, or in the process of being negotiated,
between the federal government and a foreign country.
3)Provides that a state official, including the Governor, may not
bind the state, or give consent to the federal government to bind
the state, to provisions of a Proposed International Trade
Agreement unless a statute is enacted that explicitly allows a
state official, including the Governor, to bind the state or give
consent to bind the state to the provisions of that trade
agreement.
EXISTING LAW :
1)The U.S. Constitution, Article VI, provides that treaties and
international trade agreements are laws of the U.S., and as such,
are supreme over the laws of the states.
2)The California Constitution, Article IV, vests the California
Legislature, which consists of the Senate and Assembly, with the
legislative power of this state.
3)The California Constitution, Article V, vests the Governor with
the supreme executive power of the state and requires the Governor
ensure that the laws of the state are faithfully executed.
4)The California Constitution, Article I, prohibits a person from
being deprived of life, liberty, or property without due process
of law or denied equal protection of the laws.
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5) State law, recognizes the Governor as the primary state officer
representing California's interest in international affairs, to
the extent that representation is not in conflict with federal law
or the California Constitution. Further, this recognition is
declaratory of existing law and does not in and of its self confer
any new authority.
6)State law, specifies that the state point of contact (SPOC) acts,
in compliance with federal practice, as the liaison between the
state and the Office of the United States Trade Representative
(USTR) on trade-related matters. State law recognizes that the
SPOC receives updates from the federal government on trade
policies and is often provided the opportunity to review and
comment on ongoing trade negotiations.
7)State law, requires the SPOC, in addition to any other duties
assigned by the Governor, to do both of the following:
a) Promptly disseminate information from the USTR to the
appropriate state agencies, departments, and legislative
committees.
b) Work with the Legislature and appropriate state agencies to
review the effects of any proposed or enacted trade agreement
provisions on California environment, businesses, workers, and
general lawmaking authority and communicate those findings to
the USTR.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : International trade agreements delve deeply
into matters of state law. Past California governors have
unilaterally granted their consent for the state to be bound to
the rules regarding government procurement contained in trade
agreements even though there is no process for this in state law
and even though the California legislative branch is charged with
setting the state's procurement policy. California has experienced
the unintended consequences associated with trade-related
preemption of state regulatory authority.
To secure the many benefits of trade for California and safeguard
domestic policies we must establish transparency and open
procedures that ensure inclusive decision-making with respect to
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whether the state should commit to the non-trade (non-tariff)
regulatory policy constraints found in trade agreements. AB 1276
is needed to prevent future trade challenges against California
law, and to grant the legislature a formal role in federal-state
consultations regarding trade.
AB 1276 will not limit California's ability to engage in trade.
The bill does not cover any traditional trade matters, such as
tariff rates, quotas or customs rules. Further AB 1276 does not
violate rules of prior international trade agreements. Four states
addressed this problem legislatively and many more states are
considering doing so.
2)U.S. Trade Policy : The U.S. Constitution grants the federal
government the power to enter into treaties and trade agreements
and provides that these treaties and agreements are laws of the
U.S. and, as such, are supreme over the laws of states. By
Executive Order, the Office of the U. S. Trade Representative
(USTR) is created as an agency within the Executive Office of the
President and is responsible for international trade negotiations.
By Congressional directive, the USTR is required to secure advice
from states on trade negotiations through the Intergovernmental
Policy Advisory Committee (IGPAC). IGPAC is one of six policy
advisory committees established in the Trade Act of 1974. IGPAC
is comprised of state and local officials, including members of
state legislatures, state trade directors, and related national
associations. Despite repeated requests in 2005 and 2006, no
Members of the California State Legislature have been appointed to
IGPAC.
The USTR also maintains a SPOC system in which the governor of
each state designates a single point of contact within the state
that is responsible for transmitting information to the USTR and
disseminating information from the USTR to state officials. In
California the SPOC serves as the official liaison between the
USTR, the Administration, and the Legislature.
Under California law, the SPOC is required to "promptly
disseminate correspondence or information" from the USTR to the
relevant state agencies, departments, and legislative policy
committees in the Senate and the Assembly. The SPOC is also
required to work with the Administration and the relevant state
committees to review and comment to the USTR on the effects of
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proposed and enacted trade agreements.
Existing California law does not specifically address the issue of
this bill, that is, under what circumstances and conditions can
the state bind itself to a proposed international trade agreement.
As discussed later the analysis, existing law does provide for
and in several cases requires joint actions between the
Administration and the Legislature in order to act on
international trade issues.
3)Representative democracies and checks and balances: The laws
that govern representative democracies are full of checks and
balances between the different branches of government. As an
example, while the Administration negotiates international trade
agreements, approval from both houses of Congress is required for
the agreement to be placed in service. Treaties, which the
President is empowered by the US Constitution to make, also
require the advice and consent of the Senate, which must approve
the treaty by a two-thirds majority for it to become law.
The National Conference of State Legislatures (NCSL) has also
expressed the need for a greater voice for legislatures in
developing and binding states to U.S. trade agreements.
Responding to these concerns, the USTR spoke at the 2005 annual
meeting of NCSL and is quoted as saying "As an executive branch
agency, we are required by statute to maintain a single point of
contact in each state government, generally with the Governor or a
Cabinet official. We strongly encourage governors to consult with
their legislatures as well. We also want to have direct contact
with legislators, to help address concerns and answer questions
and hope we will continue such contacts in the future." Other
areas of the California international trade program also have
specific checks and balances which are described in comment 8
below.
AB 1276 would seek to codify a specific role for the California
Legislature, as mirrored at the federal level through the process
for enacting U.S. trade agreements and as best practice as
determined by the USTR. Lawmakers in Rhode Island, Hawaii,
Minnesota, and Iowa have already enacted legislation to increase
their role in decisions that would bind their state to certain
international trade agreement provisions.
4)Distinct roles for legislative and executive branches of
government : The California Constitution provides for three
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distinct powers - the legislative, executive, and judicial
branches of government. The California Constitution further
states that "persons charged with the exercise of one power may
not exercise either of the others except as permitted by this
Constitution." Legislative power is specifically vested with the
California Legislature and the executive power is vested with the
Governor.
The proponents of AB 1276 state that the decision to provide the
federal government consent to bind the state to the rules of an
international trade agreement is a legislative function as it has
the potential of altering the legal rights and duties of the
state, as well as setting state policies. This is because once
the state is bound to an agreement, the state is constrained from
implementing or enforcing legislation that falls outside of the
rules set forth in the trade agreement. Further, the state is
open to challenges in foreign trade tribunals of its laws and
regulations brought by foreign businesses seeking preferential
treatments guaranteed by the trade agreements.
As an example, California has a number of state policies and laws
relating to procurement which direct state resources to small
businesses, business located in enterprise zones, and disabled
veteran-owned business enterprises. Potentially, these types of
laws could be found to be trade barriers to foreign businesses who
want to compete for state contracts.
The proponents state that the decision to commit a state to an
international trade agreement involves the state evaluating its
principles and priorities, weighing environmental, labor, human
rights, foreign relations, business, and budget consideration
against the opportunities and limitations of being bound to an
agreement. While it is the role of the Governor to implement
state laws, it is the role of the Legislature to set policy.
Therefore, the Governor cannot unilaterally undertake a
legislative function. AB 1276 seeks to put forth a more
transparent review of the potential impacts of a trade agreement
and limit the ability of the Governor to bind the state to an
agreement without the statutory consent of the Legislature.
5)Undue barriers to state trade program : The California Business,
Transportation and Housing Agency is opposing AB 1276, states that
the bill places an unnecessary hurdle on international trade and
unnecessarily complicates processes. BTH also raises concerns
that the bill would defy current agreements with the WTO and
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existing trade agreements. A similar bill, SB 348 (Figueroa), was
vetoed by the Governor in 2005. The Governor's veto message
stated:
"This bill will not accomplish its intended goal because, under
the Supremacy Clause of the United States Constitution,
international trade agreements are treaties that preempt state
law.
However, for advice from states and local entities on trade policy
matters, the federal government has established the IGPAC which is
comprised entirely of state and local officials. Appointed on a
bipartisan basis, the Committee makes recommendations to the USTR
and the Administration on trade policy matters. The IGPAC
provides the appropriate venue for the Legislature to express its
views on international trade agreements."
BTH further emphasizes that given our current economic situation,
international trade presents a unique economic development
opportunity for California. In closing their letter of
opposition, BTH stated that the Governor should continue to be the
person who ensures that all the trade agreements that California
signs are in the best interest of the state.
6)California's experience in binding its self to trade agreements :
In September of 2003, the USTR sent letters to the governors of
all fifty states, asking the governors to commit their states to
be covered by procurement provisions in an array of pending trade
agreements. According to the USTR, at that time, the U.S. was in
the process of negotiating trade agreements with Morocco,
Australia, five Central American countries, five nations of the
South African Customs Union, and 34 countries in the Western
Hemisphere.
Governor Schwarzenegger agreed on May 6, 2004, on behalf of the
executive branch agencies of California to be bound by the terms
of the U.S. - Australia Free Trade Agreement. As a result of the
Governor's response, California was included as a covered
sub-central government entity in the procurement chapter of the
U.S. - Australia Free Trade Agreement, which was approved by
Congress in 2004.
On May 28, 2004, twenty-one California Legislators sent a letter
to Governor Schwarzenegger expressing concern over his commitment
for California to be bound by the procurement chapter of the U.S.
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- Australia Free Trade Agreement, and asked that the Governor not
commit California to the procurement chapter of the Dominican
Republic - Central America Free Trade Agreement.
In January of 2005, the USTR sent letters to state governors
explaining that the U.S. is currently negotiating trade agreements
with Panama and the Andean countries of Columbia, Ecuador, and
Peru, and asking the governors to commit their states to those
trade agreements as well. On November 10, 2005, Senators Figueroa
and Perata wrote the Governor asking for his assistance to assure
that California would not be committed to any trade agreement that
could affect California laws or lawmaking authority. Staff
understands that Governor Schwarzenegger has not agreed to bind
the state to any further agreements.
7)Development of the state's new trade program : In 2003, as the
result of poor economy and significant management issues within
the state's international trade program, the Technology, Trade and
Commerce Agency was eliminated, including all authority for the
state to undertake international trade and investment activities.
After years of debate, in 2006, the Legislature and the Governor
began an unprecedented collaboration on the development of a new
international trade and investment program. Agreements on the new
program were codified in SB 1513, Chapter 663, Statutes of 2006.
Development of the new trade program has five steps including:
a) Directing BTH to prepare a comprehensive International Trade
and Investment (ITI) Study on where California fits within the
overall global economy and evaluates how the state could help
California businesses be more competitive in the global
economy.
b) Directing BTH to prepare a preliminary ITI Strategy based on
the findings of the ITI Study.
c) Requiring the policy and fiscal committees of the
Legislature to publicly review the ITI Strategy and provide
comments to BTH prior to the strategy becoming final.
d) Providing that the final ITI Strategy forms the foundation
for all future international trade and investment activities of
the state.
e) Requiring the SPOC to work with the Legislature and
appropriate state agencies to review the effects of any
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proposed or enacted trade agreement provisions on the
California environment, businesses, workers, and general
lawmaking authority and communicate those findings to the USTR.
In December 2007, BTH published the ITI Study, and in March 2008,
BTH submitted its preliminary ITI Strategy to the Legislature for
review. In March and June of 2008 the Assembly Committee on Jobs,
Economic Development, and the Economy (JEDE) and the Assembly
Budget Subcommittee on General Government reviewed and submitted
comments on the ITI Strategy. The final Strategy was published by
BTH in August 2008.
8)Checks and balances : Under the terms of the new trade program
agreement, the Legislature and the Governor also agreed that the
state's future activities must have certain checks and balances
that seemed to have been missing during the state's first efforts
in trade development. Some, but not all, of the key provisions
are listed below:
a) Requiring BTH to annually report to the Joint Budget
Committee funding related to the implementation of the ITI
Strategy;
b) Requiring benchmarks and measurable objectives be included
in the ITI Strategy to assist the Administration and
Legislature in overseeing the program;
c) Requiring that the SPOC promptly disseminate USTR provided
trade agreement information to the Legislature and relevant
agencies;
d) Requiring approval by the Legislature before establishing
any foreign trade office; and,
e) Prohibiting further state funding to the BTH for trade- and
foreign investment-related activities should certain
statutorily defined oversight requirements fail to be met.
Collectively, the requirements enacted through SB 1513 for
establishing state priorities and implementing the state's trade
activities set forth a dual role for the Legislature and the
Administration in advancing the state's trade activities. AB 1276
furthers this statutorily-defined relationship by detailing how
the Legislature and the Administration should engage on the
consideration of binding California communities to condition of
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foreign trade agreements.
9)Protecting California's rights under U.S. Trade agreements: As
noted above, existing law requires the development of an ITI Study
to help guide the development of the ITI Strategy. While the
study found that California is doing a number of things right, the
study also found that the state faces significant challenges from
offshoring, the global redistribution of manufacturing and
services, and growing talent pools in other countries.
In addition, the ITI Study raised concerns regarding the impact of
global trade arrangements on California businesses. More
specifically, the ITI Study identified five key shifts in U.S. and
global international trade policy and practice that may affect
California including that:
a) Progress on further multilateral trade negotiations is
likely to be limited with the WTO being so fractured by the
three distinct interests of the U.S., the European Union, and
the developing countries.
b) The U.S. and other countries will likely accelerate efforts
on bilateral and regional trade-related agreements resulting in
an increase in one-off trade agreements. This stems, partly,
from the lack of progress on multilateral negotiations.
c) International trade issues will be litigated increasing in
dispute settlement format with the WTO and all U.S. bilateral
trade agreements containing mandatory dispute settlement
mechanisms. This has already resulted, and will continue to
result, in having California policies coming under attack in
foreign trade tribunals.
d) Domestic laws and regulations will increasingly be a target
of negotiations and disputes. The term used to describe these
policies is "behind the border" domestic regulations, which
includes such things as environmental protections, labor and
human rights, competition policy, investment, consumer rights
and product standards.
e) Trade "leakage" issues such as homeland security, crime,
drugs, and illegal immigration will become increasingly salient
and linked to trade liberalization.
In response to these issues and other global competitiveness
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concerns, the ITI Strategy provides several specific
recommendations for advancing California's interests in
international trade policies. Several recommendations include,
but not limited to, sharing trade information with the
Legislature, participating in IGPAC; and regularly making public
reports on pending and enacted U.S. trade agreements. The ITI
Strategy further recommends that California join the State
International Development Organization as a means of working more
closely with other states to advance states' interests in the
development and implementation of U.S. trade agreements.
While these are significant actions and clearly indicate that
California needs to be diligent in protecting the state's economy
from trade agreements negotiated at the federal level, they do not
specifically address the question of binding the state to
international agreements.
10)California's trade-based economy : International trade is a very
important component of California's $1.8 billion economy. If
California were a country, it would be the 11th largest exporter
in the world. Exports from California accounted for more than 12%
of total U.S. exports in goods, shipping to 222 foreign
destinations in 2007.
California's land, sea, and air ports of entry serve as key
international commercial gateways for products entering the
country. California exported $144.8 billion in goods in 2008,
ranking only second to Texas with $192.1 billion in export goods.
Computers and electronic products were California's top exports in
2008, accounting for 29% of all state exports, or $41.7 billion.
Manufacturing is California's most export-intensive activity.
Overall, manufacturing exports represent 9.4% of California's
gross domestic product, and computers and electronic products
constitute 54.3% of the state's total manufacturing exports. More
than one-fifth (21.9%) of all manufacturing workers in California
directly depend on exports for their jobs.
Small- and medium-sized firms generated more than two-fifths (43%)
of California's total exports of merchandise. This represents the
seventh highest percentage among states and is well above the 29%
national average export share for these firms.
Mexico is California's top trading partner, receiving $20.5
billion in goods in 2008. The state's second and third largest
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trading partners are Canada and Japan with $17.7 billion and $13.1
billion, respectively. Other top-ranking export destinations
include China, South Korea, Taiwan, the United Kingdom, Hong Kong,
Germany, and Singapore.
The economic crisis has, however, had significant affects on top
California trading partners. According to the International
Monetary Fund's 2008 World Economic Outlook, China's gross
domestic product growth is expected to fall from 11.9% in 2007 to
9.3% in 2009 - which is the first serious slowdown for China in
thirty years. In Japan, the industrial output plunged 10% in
January, corporate icons such as Sony and Toyota have conquered
global markets but are now facing huge losses and laying-off
workers, the production of automobiles plunged 41% percent in
January.
Mexico has also experienced the value of the Peso drop to 12.31
per dollar, the lowest since the government eliminated currency
controls in December 1994. Automakers experienced the biggest
downturn, reporting a 13% decline in exports to the U.S. These
economic downturns may have major adverse affects on California's
economy as China accounts for $11 billion, Japan $13.1 billion,
and Mexico $20.5 billion of California exports. Further, as
exports in these countries decline, consumption of U.S. products
also decline.
11)Importance of foreign direct investment : The U.S. is the largest
recipient of foreign direct investment (FDI) in the world. In
2007, the U.S. received $199 billion in FDI. California receives
more FDI than any other state in the U.S. with the largest share
of foreign activity in California being in the non-manufacturing
industries. FDI impacts the California economy in many ways,
including assisting in the creation of jobs, boosting worker
wages, increasing exports, bringing in new technology and skills,
and generally strengthening the state's manufacturing base.
Foreign-controlled companies accounted for 8.9% of total
manufacturing employment in California in 2006.
California has the highest level of employment attributed to
foreign-owned firms in the nation. Foreign investment in
California was responsible for 4.3% (approximately 550,000
workers) of the state's total private-industry employment in 2006.
Along with employment, foreign owned firms own more property,
plants, and equipment in California than any other state.
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As one of the 10 largest economies in the world, California plans
to aggressively market itself to global investors; making the need
for clarity regarding the rights and privileges of those foreign
investors very important. Leading sources of California FDI
include investors from the United Kingdom, Japan, Switzerland,
Germany, and France. Europe, in total, is the largest source of
FDI in California. Collectively, Asian Pacific countries have the
second highest FDI in California with a higher proportion of
manufacturing employment and commercial property holdings than
Europe.
12)Proposed amendments to clarify implementation : The author may
wish to address how this measure integrates into the existing
statutory requirements.
13)Related legislation : Below is a list of related legislation,
some of which is discussed in greater detail earlier in the
analysis.
a) AB 3021 (Nu?ez): This bill establishe the six-member
California-Mexico Border Relations Council (Border Council)
comprised of all Agency Secretaries and the Director of the
Office of Emergency Services for the purpose of coordinating
activities of state agencies. The Border Council is required
to report to the Legislature on its activities annually.
Status: Signed by the Governor - Chapter 621, Statutes of
2006.
a) AJR 14 (Jeffries ): This resolution memorializes the
President of the U.S. and Congress to enact legislation to
ensure that a substantial increment of new revenues derived
from customs duties and importation fees be dedicated to
mitigating the economic, mobility, security, and environmental
impacts of trade in California and other trade-affected states
across the U.S. Status: Approved by both Houses, Resolution
Chapter 73, Statutes of 2007.
b) AJR 55 (Villines): U.S.-Colombia Trade Promotion Agreement:
This resolution would have memorialized Congress that the
California Legislature supports the United States-Colombia
Trade Promotion Agreement as it will enhance California
competitiveness, level the playing field for California
exporters, and make trade with Colombia a two-way street,
benefiting California's businesses, farmers, and workers.
Status: Refused adoption in the Assembly Committee on Jobs,
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Economic Development, and the Economy in 2008.
c) SB 348 (Figueroa): This bill would have prohibited a state
official, including the Governor, from binding the state, or
giving consent to the federal government to bind the state, to
provisions of a proposed International Trade Agreement,
including, the government procurement rules, unless a statute
is enacted that explicitly authorizes a state official to bind
the state or to give consent to bind the state to that trade
agreement. Status: Vetoed by the Governor in 2005.
d) SB 1513 (Romero ): Final Compromise - California
International Trade and Investment Act. This bill provides new
authority for the BTH to undertake international trade and
investment activities, and as a condition of that new
authority, directs the development of a comprehensive
international trade and investment policy for California. This
bill reflects extended bi-partisan discussions between the
Senate and the Assembly. Based on these agreements, AB 2601
was dropped to allow a single consensus bill on international
trade to be sent to the Governor. More specifically, this
bill:
o Provides an organizational structure for California's
foreign relations.
o Requires BTH develop an international trade and
investment strategy ITI Strategy, by February 1, 2008, and
submit it to the Legislature for public review.
o Requires BTH convene a statewide business partnership,
no later than March 1, 2007, to advise the Secretary of BTH
on business needs and priorities for inclusion in the ITI
strategy.
o Prohibits the establishment of foreign trade and
investment offices (Foreign Offices), unless certain
conditions are met, including professional management of the
Foreign Offices and extensive oversight by BTH and the
Legislature. Failure to meet the reporting requirements will
result in discontinuation of state funding to BTH for
international trade purposes.
o Requires OPR to maintain and update a comprehensive list
of all state agreements made with foreign governments.
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o Requires all state employees, within 30 days of
traveling outside of the U.S. on official state business,
submit a memorandum to their respective administrative
agencies with specified information on the purpose and
outcomes of the trip.
Status: Signed by the Governor - Chapter 663, Statutes of
2006.
a) SB 1762 (Figueroa): This bill would have prohibited the
Governor from binding California to provisions of international
trade agreements without consent from the Legislature. Based
on bi-partisan discussions with all authors of international
trade related legislation, the provisions of this bill were
modified and amended by JEDE into SB 1513. Status: Held in
the Assembly Committee on Jobs, Economic Development and the
Economy in 2006.
REGISTERED SUPPORT / OPPOSITION :
Support
International Longshore and Warehouse Union (Sponsor)
Bay Localize
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Fair Trade Coalition
California Farmers Union
California Labor Federation/ AFL-CIO
California Teamsters Public Affairs Council
Engineers and Scientists of California
Environmental Health Coalition
Pacific Environment
Professional & Technical Engineers, Local 21
Public Citizen California
San Diego-Imperial Counties Labor Council AFL-CIO
Sierra Club California
Strategic Committee of Public Employees, LIUNA
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
Opposition
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Business, Transportation and Housing Agency
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090