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Will Trump demand ISDS ‘opt-in’ provision at 3rd round of NAFTA talks?

The Council of Canadians opposes the investor-state dispute settlement (ISDS) provision in the North American Free Trade Agreement (NAFTA). That’s the provision that allows, for example, a US corporation to sue the Canadian government for future profits impacted by public interest legislation, most commonly environmental protection legislation. We have called for this provision to be removed from NAFTA (most recently in this video).

Fox Business now reports, “US trade officials are putting together a proposal to let the US withdraw from a corporate arbitration system at the heart of NAFTA, upsetting big American companies that say the system protects their investments overseas. …Under the United States Trade Representative (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. …The US could decide against joining the system, forcing investors to take any disputes through the US court system.”

This isn’t, of course, because the USTR is concerned by a provision that enshrines corporate rights and undermines the public interest. US Trade Representative Robert Lighthizer has commented, “I’m always troubled by the fact that nonelected non-Americans can make the final decision that the United States law is invalid. This is a matter of principle I find … offensive.”

The article adds, “The USTR is circulating its plan to other agencies and the White House, which haven’t yet given their approval. The US is trying to put together concrete plans to submit to Mexico and Canada in time for the third round of NAFTA negotiations [on Sept. 23-27] in Canada, which will follow a second round [Sept. 1-5] in Mexico City. …The USTR hasn’t briefed Mexican or Canadian negotiators on its proposal in detail, said individuals familiar with the plan.”

Fox Business then highlights the National Foreign Trade Council (an organization representing US exporters), more than 100 US trade associations, and the Peterson Institute for International Economics (a free trade think tank), all oppose fundamental change to the ISDS system.

The American political news source Politico adds, “Business groups, particularly in the oil and gas sector, have launched a full-court press on [Capitol] Hill offices to request that they put pressure on the administration to include the dispute provision. …One lobbyist source said the energy sector’s support of a modernized NAFTA deal hinges directly on the inclusion of ISDS.”

It would appear that Canadian corporations also do not want to lose ISDS. Osler Hoskin & Harcourt LLP has noted, “To date, 44 publically reported claims have been filed by Canadian investors under foreign investment agreements including NAFTA. Not all such proceedings are publicly reported, and, as such, the number of actual disputes may be much larger. In addition, in some cases, Canadian investors can use FIPAs [Foreign Investment Promotion and Protection Agreements] to achieve fairer settlements and compensation from foreign governments, without proceeding to arbitration.”

For its part, the Trudeau government has defended the ISDS provision. Global Affairs Department has previously stated, “NAFTA Chapter 11 establishes a framework that provides investors with a predictable, rules-based investment climate. While disputes are a normal part of every trade relationship, they represent a very small portion of the billions of dollars in investment that Canada attracts and the billions that Canadian companies invest abroad.”

Then on August 14, The Globe and Mail reported, “[Foreign Affairs Minister Chrystia] Freeland explained Canada wants to reform NAFTA’s investor-state dispute-settlement process ‘to ensure that governments have an unassailable right to regulate in the public interest’. …It’s a negotiating objective that will likely not be opposed by Mr. Trump and protectionist US critics of NAFTA who have long felt that Washington ceded too much sovereign decision-making power.”

The presumption is that the Trudeau government has the investment court system (ICS) provision in the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) in mind as a replacement for the NAFTA Chapter 11 investor-state dispute settlement provision.

But ICS would still allow the most controversial ISDS challenges launched under NAFTA to proceed. That was the finding of this report by the Canadian Centre for Policy Alternatives, Corporate Europe Observatory, Friends of the Earth Europe, Forum Umwelt und Entwicklung, and the Transnational Institute. And Osler Hoskin & Harcourt LLP cautions, “As the Canadian government embarks on significant renegotiations of NAFTA’s Chapter 11, it will need to balance the protections it seeks to regulate domestically and advance public policy goals with the legitimate expectation of Canadian businesses (and their owners and other stakeholders) making investments overseas.”

The Council of Canadians calls on the Trudeau government and its negotiators to push for the scrapping of the Chapter 11 investor-state dispute settlement provision in NAFTA 1.0 and to abandon their efforts to include the equally bad investment court system ‘reform’ in NAFTA 2.0.