US still wants ISDS out of NAFTA, despite business lobbying

May 8, 2018: According to an Inside US Trade report dated May 3, Investor-State Dispute Settlement is still a key issue at the current session of North American Free Trade Agreement talks between the US, Mexico and Canada. US Trade Representative Robert Lighthizer appears determined to opt out of ISDS provisions, while big business groups are frantically lobbying to retain them.

Lighthizer has testified to Congress that he opposes ISDS as a threat to US national sovereignty, and argues that international investors should take out their own risk insurance, rather than expecting governments to provide it through trade agreements.

On May 2, the American Petroleum Institute, the US Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers sent President Trump, Lighthizer and other Cabinet members a letter calling for the new NAFTA to retain ISDS provisions.

ISDS was originally intended to provide compensation in cases where governments nationalised or expropriated the assets of foreign investors. But it now includes concepts like ‘indirect’ expropriation and ‘fair and equitable treatment,’ which enable foreign investors to sue governments over changes in regulation which they can allege have reduced the value of their investment. US Democrats and civil society groups have long criticized ISDS for providing foreign investors with a parallel system of justice outside of domestic, sovereign judicial systems that can be used to roll back or chill the creation of legitimate government regulations designed to protect the environment or public health.

The bottom line may be US petroleum companies’ resistance to a possible change of policy in Mexico if opposition Presidential candidate Andrés Manuel López Obrador wins and reverses Mexico’s recent liberalization in the oil and natural gas sector. Instead of ISDS provisions, Inside US Trade reports that Lighthizer may opt for a specific side letter dealing with these fears. Another reported option is a version of ISDS that only permits cases against governments that directly expropriate assets, and does not include indirect expropriation. Big business also opposes these options.

This debate throws the spotlight on the Turnbull government’s uncritical support for ISDS in the TPP-11 and other trade deals, when both the US and the EU are retreating from it.