North American Union Would Trump U.S. Supreme Court

The Bush Administration is pushing to create a North American Union out of the work on-going in the Department of Commerce under the Security and Prosperity Partnership of North America in the NAFTA office headed by Geri Word. A key part of the plan is to expand the NAFTA tribunals into a North American Union court system that would have supremacy over all U.S. law, even over the U.S. Supreme Court, in any matter related to the trilateral political and economic integration of the United States, Canada and Mexico.

Right now, Chapter 11 of the NAFTA agreement allows a private NAFTA foreign investor to sue the U.S. government if the investor believes a state or federal law damages the investor’s NAFTA business.

Under Chapter 11, NAFTA establishes a tribunal that conducts a behind closed-doors “trial” to decide the case according to the legal principals established by either the World Bank’s International Centre for the Settlement of Investment Disputes or the UN’s Commission for International Trade Law. If the decision is adverse to the U.S., the NAFTA tribunal can impose its decision as final, trumping U.S. law, even as decided by the U.S. Supreme Court. U.S. laws can be effectively overturned and the NAFTA Chapter 11 tribunal can impose millions or billions of dollars in fines on the U.S. government, to be paid ultimately by the U.S. taxpayer.

On Aug. 9, 2005, a three-member NAFTA tribunal dismissed a $970 million claim filed by Methanex Corp., a Canadian methanol producer challenging California laws that regulate against the gasoline additive MTBE. The additive MTBE was introduced into gasoline to reduce air pollution from motor vehicle emissions. California regulations restricted the use of MTBE after the additive was found to contaminate drinking water and produce a health hazard. Had the case been decided differently, California’s MTBE regulations would have been overturned and U.S. taxpayers forced to pay Methanex millions in damages.

While this case was decided favorably to U.S. laws, we can rest assured that sooner or later a U.S. law will be overruled by the NAFTA Chapter 11 adjudicative procedure, as long as the determinant law adjudicated by the NAFTA Chapter 11 tribunals continues to derive from World Court or UN law. Once a North American Union court structure is in place can almost certainly predict that a 2nd Amendment challenge to the right to bear arms is as inevitable under a North American Union court structure as is a challenge to our 1st Amendment free speech laws. Citizens of both Canada and Mexico cannot freely own firearms. Nor can Canadians or Mexicans speak out freely without worrying about “hate crimes” legislation or other political restrictions on what they may choose to say.

Like it or not, NAFTA Chapter 11 tribunals already empower foreign NAFTA investors and corporations to challenge the sovereignty of U.S. law in the United States. Sen. John Kerry (D.-Mass.) has been quoted as saying, “When we debated NAFTA, not a single word was uttered in discussing Chapter 11. Why? Because we didn’t know how this provision would play out. No one really knew just how high the stakes would get.” Again, we have abundant proof that Congress is unbelievably lax when it comes to something as fundamental as reading or understanding the complex laws our elected legislators typically pass.

Under the Council on Foreign Relations (CFR) plan expressed in May 2005 for building NAFTA into a North American Union, the stakes are about to get even higher. A task force report titled “Building a North American Community” was written to provide a blueprint for the Security and Prosperity Partnership of North America agreement signed by President Bush in his meeting with President Fox and Canada’s then-Prime Minister Paul Martin in Waco, Tex., on March 23, 2005.

The CFR plan clearly calls for the establishment of a “permanent tribunal for North American dispute resolution” as part of the new regional North American Union (NAU) governmental structure that is proposed to go into place in 2010. As the CFR report details on page 22:

The current NAFTA dispute-resolution process is founded on ad hoc panels that are not capable of building institutional memory or establishing precedent, may be subject to conflicts of interest, and are appointed by authorities who may have an incentive to delay a given proceeding. As demonstrated by the efficiency of the World Trade Organization (WTO) appeal process, a permanent tribunal would likely encourage faster, more consistent and more predictable resolution of disputes. In addition, there is a need to review the workings of NAFTA’s dispute-settlement mechanism to make it more efficient, transparent, and effective.

Robert Pastor of American University, the vice chairman of the CFR task force report, provided much of the intellectual justification for the formation of the North American Union. He has repeatedly argued for the creation of a North American Union “Permanent Tribunal on Trade and Investment.” Pastor understands that a “permanent court would permit the accumulation of precedent and lay the groundwork for North American business law.” Notice, Pastor says nothing about U.S. business law or the U.S. Supreme Court. In the view of the globalists pushing toward the formation of the North American Union, the U.S. is a partisan nation-state whose limitations of economic protectionism and provincial self-interest are outdated and as such must be transcended, even if the price involves sacrificing U.S. national sovereignty.

When it comes to the question of illegal immigrants, Pastor’s solution is to erase our borders with Mexico and Canada so we can issue North American Union passports to all citizens. In his testimony to the Subcommittee on the Western Hemisphere of the U.S. Senate Foreign Relations Committee on June 9, 2005, Pastor made this exact argument: “Instead of stopping North Americans on the borders, we ought to provide them with a secure, biometric Border Pass that would ease transit across the border like an E-Z pass permits our cars to speed though toll booths.”

Even Pastor worries about the potential for North American Unions to overturn U.S. laws that he likes. Regarding environmental laws, Pastor’s testimony to the Trilateral Commission in November 2002 was clear on this point: “Some narrowing or clarification of the scope of Chapter 11 panels on foreign investment is also needed to permit the erosion of environmental rules.” Evidently it did not occur to Pastor that the way to achieve the protection he sought was to leave the sovereignty of U.S. and the supremacy of the U.S. Supreme Court intact.

The executive branch under the Bush Administration is quietly putting in place a behind-the-scenes trilateral regulatory scheme, evidently without any direct congressional input, that should provide the rules by which any NAFTA or NAU court would examine when adjudicating NAU trade disputes. The June 2005 report by the SPP working groups organized in the U.S. Department of Commerce, clearly states the goal:

We will develop a trilateral Regulatory Cooperative Framework by 2007 to support and enhance existing, as well as encourage new cooperation among regulators, including at the outset of the regulatory process.

We wonder if the Bush Administration intends to present the Trilateral Regulatory Cooperative Framework now being constructed by SPP.gov to Congress for review in 2007, or will the administration simply continue along the path of knitting together the new NAU regional governmental structure behind closed doors by executive fiat? Ms. Word affirms that the membership of the various SPP working group committees has not been published. Nor have the many memorandums of understanding and other trilateral agreements created by these SPP working groups been published, not even on the Internet.

The "Amero," the proposed currency under the
"North American Union."
The question is, what happens to the present
U.S. Federal Reserve System?

How would the value of the amero determined?

There are several advantages to making the amero worth one US dollar. First, the cost of conversion would be minimized since, in the dominating, large American economy, all financial assets, liabilities, and other contracts remain unchanged. They do not have to be converted and accounting changes involve only the renaming of the currency. Second, US dollar notes and coins could continue to circulate after the introduction of the common currency. They could gradually be replaced by amero notes and coins as they wear out. Third, the opposition to the amero by Americans would be minimized as their financial transactions and accounting would be virtually unchanged.

Basic economic principles suggest that with the amero worth one US dollar, the Canadian dollar cannot be equal to one amero also. I have encountered persons who argued that such a conversion rate of one for one in Canada would be just and that any other rate would be bad for Canada. This argument is false. If the two dollars were converted at par, it would be equivalent to roughly a doubling of the value of the Canadian against the US dollar. As a result, Canada's trade would be in very large deficit, there would be a recession, and the downward pressure on wages would be very strong. Canada would go through the same difficult process encountered by Germany, which, upon reunification with the formerly communist part of the country, decided that all wages and prices there would be converted at a rate of one East German for one West German deutschemark. The market exchange rate between the two currencies was about six East German deutschemark to one West German deutschemark. The official motivation behind this policy was that it would prevent massive migration to West Germany by workers attracted to higher wages there. In the adoption of the policy, an important role was undoubtedly also played by the pressure of unions and employers in West Germany, who had feared that low wages in East Germany would cause "unfair" competition and threaten living standards in West Germany.

It is ironic that the policy adopted reduced West Germany's living standards more significantly and for a longer period than would have occurred if wages and prices in the East Germany had initially been lower than those in the West Germany. Because of the policy adopted, it was necessary not only to invest large resources in upgrading the infrastructure in East Germany and in bailing out its unfunded pension system. But, as economists had predicted--this is most relevant to the current analysis--additional massive transfers were necessary to keep the economy of the former East Germany functioning at all and unemployment rates at a socially acceptable level. Five years after they began, the subsidies to labour and capital are continuing to flow because the wages paid still exceed the productivity of labour. Private capital still has few incentives to make unsubsidized investments in East Germany.

Most important, to finance these transfers, West Germany had to raise already high rates of taxation. As a result, the economic performance of all of Germany has been poor and there is no early prospect for improvement. There are important unresolved questions about the future. Will it ever be possible to stop the subsidies that have been built into the economic structure and are threatening to become considered a right? Canadians are familiar with the effects of continuous large transfers to the Atlantic provinces and the resultant dependency of the region on such support. Chances are that the same conditions will develop in much of the eastern part of Germany.

For economic reasons, the validity of which is evident from the German experience, the Canadian dollar will have to be valued at a rate that does not affect Canada's international competitiveness in the longer run. Such an efficient rate of exchange by definition would leave unchanged Canada's exports, imports, interest rates, capital inflows and outflows, production, employment, and unemployment.

Unfortunately, it is difficult to determine in practice what such an optimal rate of exchange would be. The market exchange rate is only an imperfect guide since it is distorted frequently by temporary, often speculative, short-term capital flows and random influences on trade in goods and services.

In Europe, conversion rates were established gradually during a period of ten years leading up to the official adoption of the euro on January 1, 1999. During this period, countries progressively co-ordinated their domestic monetary and fiscal policies. Increasingly stricter rules were applied to countries of the European Union aspiring to membership in the currency union with respect to acceptable inflation, deficits, and debts. This process resulted in growing exchange-rate stability and ultimately produced the rates for conversion into the euro.40 We might expect a similar, lengthy process, say, five to ten years, of co-ordination of monetary and fiscal policies to result in more stable exchange rates among the countries of North America, which would reflect national competitiveness as defined above, rates at which the final conversion would take place.

It should be noted, however, that it is not overly important that the exchange rate used for the initial conversion is precisely equal to the theoretical optimum. A deviation of perhaps two percent to three percent from that optimum would probably be eliminated quickly through normal increases in trade and productivity, without requiring changes to current rates of pay.

The external value of the amero against the euro, the Yen, and other currencies will be determined in the longer run by prices, income, and productivity in the amero region relative to those in the other zones. Chances are that the exchange rates with these large trading blocks will be close to those prevailing against the US dollar in the period preceding the union, simply because the trade and capital flows of the United States will be of overwhelming importance in the activities of the amero zone.

During the period before the union is created, speculators may distort the equilibrium dollar exchange rate. Cyclically low or high interest rates designed to minimize unemployment or inflationary pressures might result in capital flows and correspondingly distorted value of the dollar. We might see a repetition of the experience of the euro, which started life at 1.18 against the US dollar but, six months later, had fallen to near parity.

Nevertheless, just as no significant tensions and demands for change of that dollar-to-euro exchange rate have developed since its fall against the dollar, so we may expect that the amero's value will be relatively unimportant for the amero zone. The bulk of the trade of Canada, Mexico, and the United States will be with each other and will not be influenced by the external value of the amero. In 1999, fully 80 percent of Canada's trade was with the United States and monetary union would increase this figure even more.

The advantage of this relative independence of economic conditions in the amero zone from the value of the region's currency is, of course, one of the major benefits. It will allow the North American central bank to make monetary policy with price stability as its most important policy objective while the exchange rate is given even less consideration than it has been by the Federal Reserve since the 1970s.

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