[CTC] Trump eyeing NAFTA proposal to roll back protections for foreign investors

[Arthur Stamoulis]

https://www.politicopro.com/agriculture/story/2017/10/trump-eyeing-nafta-proposal-to-roll-back-protections-for-foreign-investors-163145 <https://www.politicopro.com/agriculture/story/2017/10/trump-eyeing-nafta-proposal-to-roll-back-protections-for-foreign-investors-163145>
 
Trump eyeing NAFTA proposal to roll back protections for foreign investors
The administration is said to want to soften two key protections that investors often use as a basis for filing disputes
By ADAM BEHSUDI <https://www.politicopro.com/staff/adam-behsudi>
 
10/10/2017 05:03 AM EDT
The Trump administration is expected to make its assault on NAFTA's investor-state dispute settlement process during this week's talks, coming out with a proposal that would effectively hobble the controversial arrangement.

The existing investor-state dispute settlement process — which allows foreign investors to seek steep damages for government actions that they believe violate their rights under the agreement — has strong backing among the business and agriculture sectors, making the administration's play a risky move.

The administration's proposal features an “opt-in” provision that would make the entire ISDS process voluntary for countries to observe, according to three sources briefed on the plans.

The administration floated <https://www.politicopro.com/tipsheets/morning-trade/2017/08/trump-well-probably-terminate-nafta-024363> the opt-in concept to congressional trade committees before the first round of negotiations in August. But now the administration wants to go even further by proposing to roll back two key protections that investors often use as a basis for filing disputes, the sources said.

First, the U.S. proposal would no longer permit a violation of the “minimum standard of treatment” as grounds for foreign investors to request an independent arbitration panel if they feel government action has diminished the value of their investment. The concept of a minimum standard of treatment, found in customary international law, establishes that governments must generally provide foreign investors with fair and equitable treatment under their laws. It is supposed to serve as a threshold for defining when a company experiences a "denial of justice."

But critics of ISDS argue the minimum standard of treatment has become subject to overly broad interpretations by arbitration panels and has become a catch-all argument for foreign companies that can’t successfully argue their case under the more prescriptive investment protections.

Trade watchdog group Public Citizen, in a 2015 analysis <https://www.citizen.org/sites/default/files/tpp-investment-leak-2015.pdf> of the Trans-Pacific Partnership’s ISDS language, said 75 percent of the 28 ISDS cases that foreign investors have won against the U.S. were successful in part because of violations of the minimum standard of treatment.

Second, the NAFTA proposal the administration is expected to unveil would also eliminate “indirect expropriation” as an argument a foreign investor could use to file a claim. That would make it harder for a foreign company to win damages based on a government action that has only partially devalued an investment as opposed to a full seizure of the investment without proper compensation.

Critics say the concept of indirect expropriation has also broadened interpretations beyond loss of physical property to include harm of other assets, such as intellectual property.

One business source told POLITICO that for the administration to call to ditch the two protections is “almost beside the point,” based on the fact that President Donald Trump's negotiators are expected to press for the entire ISDS system to be made voluntary.

If the opt-in provision were to become part of a reworked deal and the U.S. were to decide not to be subject to the dispute-settlement process, it is almost certain that Mexico and Canada would also refrain from opting in, this source predicted.

The pair of carve-outs on top of the proposal to make the ISDS system voluntary would represent a negotiating point consistent with the Trump administration’s “America First” approach to trade policy, which rejects the power of international bodies to reverse or penalize U.S. government action.

At the start of NAFTA talks in August, U.S. Trade Representative Robert Lighthizer said <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/august/opening-statement-ustr-robert-0> he wanted a new agreement to feature dispute-settlement provisions “designed to respect our national sovereignty and our democratic processes.”

U.S. trade promotion authority legislation <https://www.congress.gov/114/plaws/publ26/PLAW-114publ26.pdf>, through which Congress gave directions to the administration on negotiating demands as a condition for fast-tracking passage of trade deals, provides some leeway to the administration on ISDS, only requiring that a deal “provide meaningful procedures for resolving investment disputes.” But the law also requires that any dispute mechanism be improved to cut down on frivolous claims, allow for more public input and include an appeals procedure.

Lighthizer could also argue that eliminating the two protections from ISDS is in line with the TPA's requirements that "foreign investors in the United States are not accorded greater substantive rights with respect to investment protections."

"What I understand their goal to be is to meet the fast track standard of having nothing greater than what's in U.S. law," said Lori Wallach, director of Public Citizen's Global Trade Watch, which has long opposed ISDS as an overreach.

Wallach argued that both protections provide companies with the ability to seek damages for legal standards that wouldn't otherwise be available under U.S. laws.

More broadly, critics of the ISDS process, including labor unions and many congressional Democrats, say it gives foreign corporations too much power to skirt domestic courts, thereby elevating their rights above those of U.S. citizens.

But for U.S. businesses that strongly support the ISDS mechanism, the administration's proposal would be the latest in a series of U.S. demands that are seen as “highly dangerous <https://www.politicopro.com/agriculture/story/2017/10/nafta-talks-trump-administration-chamber-of-commerce-163095>” departures from decades of established U.S. trade policy.

American business and agricultural groups see the ISDS process as a red line for any trade deal. U.S. firms often view ISDS cases as the only viable way to recover an investment in countries where the judicial system is considered inadequate or corrupt.

It will also be a huge battle to incorporate such a provision, predicts the U.S. Chamber of Commerce.

"Let me be forceful and direct. There are several poison pill proposals still on the table that could doom the entire deal," the U.S. Chamber of Commerce CEO Tom Donohue is expected to say in a speech he will give in Mexico City on Tuesday.
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