logo logo

Trump move on settling trade disputes splits NAFTA fans and critics

Labor groups such as the AFL-CIO and Democratic lawmakers have made removing the ISDS provision a major goal.

Washington Examiner | Aug 27, 2017

Trump move on settling trade disputes splits NAFTA fans and critics

by Sean Higgins

The Trump administration has proposed revamping one of the key aspects of the North American Free Trade Agreement, its system for settling disputes between governments and private companies, and the move is scrambling the usual partisan lines.

If successful, the maneuver would put pressure on Democrats to back the change and put Republicans on the spot as well.

U.S. Trade Representative Robert Lighthizer has reportedly pushed a proposal to make the trade deal’s investor-state dispute settlement system, known as ISDS, voluntary for the three signatory nations, the U.S., Canada and Mexico. The individual nations would have to opt in to the system, in which international panels of arbiters adjudicate complaints, or instead have their own courts hear the disputes.

That would potentially address one of the major complaints liberals have long made about NAFTA, since they view the tribunals as too tilted toward international companies. It would put conservatives in the awkward position of arguing in favor of an international court system.

"The ’opt in’ proposal is potentially a clever move, in that it splits both the opposition to and the advocates for ISDS," Todd Tucker, a fellow at the Roosevelt Institute, wrote in an email.

"Lighthizer knows it’s going to be hard to get majority support for NAFTA 2.0 in Congress (Dems won’t play ball, GOP doesn’t want changes) while also doing something transformational that Trump promised his base. This may be one of the few areas where he can do both. I can’t imagine that the many professional lawyers that make up Congress are going to go to the mat for the U.S. being subject to more lawsuits outside our legal system."

The U.S. Trade Representative’s Office declined to comment.

The NAFTA tribunal system – and others like it — works like this: If a business thinks it has been harmed by a country’s action, it can request that a tribunal be formed. The business picks one arbiter, the country picks a second and they jointly agree on a third. The tribunal then presides over the case and issues a binding ruling much like a regular court.

Should the opt-in provision be included in the new version of NAFTA, Tucker said, he believes that it would lead to the U.S. opting out and Mexico staying in because many there believe that ISDS helps it to attract foreign investment. Under that scenario, a Mexican company, for example, wouldn’t be able to contest a U.S. policy under NAFTA, but a U.S. company could contest a Mexican one. Canada would be a tossup in terms of whether it opted in or not since the issue splits its domestic politics.

Since U.S. companies are mainly concerned about protecting their investments overseas, not opting in to ISDS may be palatable to many. The American Automotive Policy Council, whose members include General Motors, Ford and Fiat Chrysler, called for the U.S. to abandon ISDS in a comment filed with the Trade Representative’s office in June. "The vast majority of U.S. companies doing business in Mexico and Canada have not used or benefited from the ISDS provisions, while the inclusion of ISDS raises significant concerns for other stakeholders," it said.

Nevertheless, keeping the existing system intact was one of the key requests of other business groups. The news that the U.S. was considering altering it, first reported Tuesday by the Wall Street Journal, prompted a joint letter Thursday to Lighthizer and others in the Trump administration from heads of the Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers. They said retaining ISDS was a matter of "critical importance."

"For decades, U.S. trade and investment agreements have provided for neutral arbitration to resolve investment disputes. These ISDS procedures ensure that other countries treat U.S. investors fairly, do not seize their property without compensation, and do not impose ’forced localization’ requirements that compel jobs to be shipped overseas," the groups wrote, adding: "Attempts to eliminate or weaken ISDS will harm American businesses and workers and, as a consequence, will serve to undermine business community support for the NAFTA modernization negotiations."

Labor groups such as the AFL-CIO and Democratic lawmakers by contrast have made removing that provision a major goal. Their reaction has been muted, however. None would speak on the record to the Washington Examiner regarding the administration’s push. Few would want to be on the record applauding anything the Trump administration does, but Lighthizer’s proposal would represent the best opportunity they have had since NAFTA passed in 1993 to end ISDS.

"It will come down to how Mexico reacts. If they indicate they’ll stay in no matter what, then Lighthizer’s gambit works. If they don’t — or if it’s uncertain — it won’t," Tucker said.

 source: Washington Examiner