Globalization: Nightmare on Main Street?

Halloween—a day on which not everything is as it seems—offers a fitting occasion to ponder the possible effects of globalization on the U.S. regulatory system and its ability to protect Americans. 

Globalization is a complex subject, and, like the bandages of a reanimated mummy, its ramifications could probably be unwound indefinitely.  Its proponents wax eloquently on the myriad ways that globalization might improve the capacity of U.S. regulators to protect Americans.  They observe, for example, that increased interdependence among nations will expedite the transfer of pollution reduction technologies, developments that would undoubtedly redound to the benefit of U.S. citizens.  Recent news reports, however, portend the horrors that globalization might inflict on the U.S. regulatory system.  Most terrifyingly, these reports suggest how globalization can, like an ambidextrous Freddy Krueger, slice at the U.S. regulatory safety net from multiple directions.

To begin with, a string of news reports stretching back many months have detailed how public health and safety agencies like the Consumer Product Safety Commission and the Food and Drug Administration are ill-equipped to handle the challenges of globalization.  Excessive analytical requirements (e.g., cost-benefit analysis) and decades of budget cuts have reduced these agencies to the point where they are but ghosts of their former selves, incapable of carrying out even their most basic core missions.  Unfortunately, in an era of globalization, the jobs of these agencies have only become tougher.  More and more, the goods consumed by Americans are manufactured abroad, in countries, like China, with little to no regulatory capacity or interest.  That puts a huge strain on U.S. regulatory agencies to inspect all the goods that come into the United States.  The results of this arrangement have been nothing short of horrific.  For months, Americans have been haunted by news stories of lead-covered toys from China and salmonella-infected tomatoes from Mexico.

Some of the most recent consumer scares have involved plastic toys containing phthalates—a chemical added to plastics to make them more flexible—which research indicates can disrupt hormones leading to defects in reproductive organs.  Congress recently passed legislation to ban the chemical.  Fortunately for the already overstretched Consumer Product Safety Commission—the agency charged with its enforcement—the ban won’t take effect until February 10, 2009.  In the meantime, manufacturers of phthalate-laden toys—both at home and abroad—will be able to continue dumping these toxic playthings on U.S. store shelves through the 2008 holiday shopping season.  This will no doubt leave many American parents wondering if their children’s holiday gifts amount to tricks or treats.

A second line of globalization-related horror stories is also becoming more common in recent years.  Emblematic of this line of chilling tales is a recent news report regarding a potential challenge by Dow Agrosciences under the North American Free Trade Agreement (NAFTA) against a ban on certain pesticides by the Canadian province of Quebec.  Specifically, the chemical-manufacturing giant has challenged Quebec’s ban on Dow’s 2,4-D pesticide on the grounds that it violates the controversial Chapter 11 provisions of NAFTA.  These provisions enable private companies in one member-nation of NAFTA to sue any of the other member-nations of NAFTA in an international tribunal for implementing policies that are “tantamount to nationalization or expropriation.”  In other words, Chapter 11 of NAFTA was intended to prevent member-nations from seizing the property of foreign-based companies that are operating within their borders.  It takes the unusual step—unprecedented in the history of international agreements—of enabling private companies to enforce their treaty-granted rights directly against the offending member-nation.  If the company prevails in the tribunal, it is entitled to collect without any cap or limitations vast sums of taxpayer money from the member-nation.  The amount of money sought in these challenges is often quite substantial, serving as an effective deterrent against member-nation malfeasance.  (Indeed, Dow is seeking at least $2 million in compensation from Quebec for “damages” related to the pesticide ban.)

In practice, however, NAFTA’s Chapter 11 provisions have been used by private companies to thwart efforts by foreign member-nations to promulgate stricter environmental and public health and safety regulations than those imposed by the private company’s home country.  In this way, NAFTA’s Chapter 11 has been used to impose an international version of what CPR Member Scholar William Buzbee has called “ceiling preemption”—that is, a mechanism that is used to prevent one government from setting more protective regulatory standards than those of other governments.  Not only does this flout the basic international principle of national sovereignty (and most gallingly, it is the profit motive of a private company that is trumping the democratic decisions of foreign countries); it also undermines the ability of countries to protect their citizens.

There are no easy solutions to these and the many other threats that globalization poses for the U.S. regulatory system.  At the very least, we must take a careful look at the U.S. regulatory system to determine how it must be reformed to account for these novel challenges.  Though it offers no guarantees of success, some proactive planning will be necessary to make the future a less scary place.