By Bob Davis
WASHINGTON -- U.S. trade officials are putting together a
proposal to let the U.S. withdraw from a corporate arbitration
system at the heart of the North American Free Trade Agreement,
upsetting big American companies that say the system protects their
investments overseas.
The plan, drawn up by the U.S. Trade Representative's office,
would remake what is known as the investor-state dispute settlement
system. ISDS is a form of international arbitration in which
corporations can sue governments for damages if they believe
governmental decisions improperly diminish the value of their
foreign investments. The arbitration panels, which operate as an
alternative to domestic court systems, have been widely criticized
by labor and environmental groups and conservative nationalists as
giving corporations -- and only corporations -- a way to circumvent
domestic laws and regulations.
Under the USTR plan, the three Nafta countries would need to
"opt in" to the ISDS system in the future -- essentially making
participation in the system voluntary, say individuals briefed on
the plan. Mexico, for instance, could decide to keep the
arbitration system as a way to give investors confidence that
disputes won't drag out in the Mexican court system, which has long
been criticized for delays and corruption.
But the U.S. could decide against joining the system, forcing
investors to take any disputes through the U.S. court system. If
the U.S. took that path, Canadian and Mexican companies wouldn't
have the right under Nafta to submit investment disputes with the
U.S. to arbitration panels. It isn't clear whether U.S. companies
would continue to be able to use ISDS panels in other Nafta nations
if the U.S. doesn't join the system in the future.
The USTR is circulating its plan to other agencies and the White
House, which haven't yet given their approval. The U.S. is trying
to put together concrete plans to submit to Mexico and Canada in
time for the third round of Nafta negotiations next month in
Canada, which will follow a second round beginning Sept. 1 in
Mexico City.
A spokeswoman for the agency declined to comment on the
proposal.
The plan is generating opposition among business groups and on
Capitol Hill. "The business community supports no fundamental
change" in the ISDS system, said Vanessa Sciarra, a trade
specialist at the National Foreign Trade Council, an organization
representing big U.S. exporters. Early this month, more than 100
U.S. trade associations sent a letter to the administration
supporting the system as "a core element to protect the United
States against the theft, discrimination and unfair treatment of
U.S. property overseas."
The U.S. stance is among several evolving positions that put the
administration at odds with big business, which has the potential
to unleash its lobbying power among lawmakers to put pressure on
U.S. negotiators and, potentially, prompt members of Congress to
vote against the final pact when it comes to Capitol Hill. Already
the U.S. side has suggested it wants to require a "substantial"
portion of autos and auto parts produced under the pact be made in
the U.S. -- an idea Detroit auto makers generally oppose.
In the case of the dispute-settlement system, business officials
fear that should the U.S. scrap the system, other countries would
be bound to do the same. "It's just a transparent excuse to delete
the [arbitration] procedure," said Jeffrey Schott, a trade expert
at the Peterson Institute for International Economics, a free-trade
think tank.
Critics of ISDS have long said the arbitration panels infringe
on U.S. sovereignty, an argument made by U.S. Trade Representative
Robert Lighthizer in Senate testimony in June. "I'm always troubled
by the fact that nonelected non-Americans can make the final
decision that the United States law is invalid," he said. "This is
a matter of principle I find...offensive."
USTR hasn't briefed Mexican or Canadian negotiators on its
proposal in detail, said individuals familiar with the plan.
Carlos VĂ©jar, a trade attorney at law firm Holland & Knight
in Mexico City, said the panels are of more benefit to the U.S.
given that it invests more in Mexico than vice versa. The U.S.
accounted for 52% of the $15.6 billion in foreign direct investment
in Mexico in the first half of this year.
Mexico has recently opened its energy industry to foreign
investment, for instance, a sector likely to draw substantial
investment, he said. Brazil, he noted, gets plenty of foreign
investment even though it isn't party to an ISDS system.
Canada recently agreed to a different form of arbitration system
in a trade pact it negotiated with the European Union. The two
sides created an Investment Court System to replace ISDS. The new
courts would have a roster of 15 tribunal members bound by tough
conflict-of-interest rules. Grounds for suing under the arbitration
system would be narrowed. The EU and Canada also created an
appellate body to review decisions for legal errors and some other
issues. Nafta doesn't provide for an appeals process.
It isn't clear whether the U.S. would consider those changes
sufficient should Canada propose them as part of the current Nafta
negotiations.
While the USTR plan was meant to address longstanding complaints
by labor groups, among others, the AFL-CIO's trade adviser, Celeste
Drake, said she found it inadequate. By allowing Mexico and Canada
to retain the arbitration system, "it still maintains for global
corporations an extrajudicial system of private justice that no one
can access," she said.
Additionally, she said, if the U.S. were to withdraw from the
ISDS system while Mexico and Canada stayed in the body, U.S.
companies would have an incentive to move their operations out of
the U.S. to take advantage of the extra legal protections afforded
by the system.
"You may be including an additional incentive to move production
to Mexico by leaving in this legal provision that investors could
find very valuable," Ms. Drake said.
--Anthony Harrup contributed to this article.
Write to Bob Davis at bob.davis@wsj.com
(END) Dow Jones Newswires
August 22, 2017 13:56 ET (17:56 GMT)
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