International Economic Law and Policy Blog

Thea Lee on NAFTA Chapter 11

I've been intrigued with the brief mentions of investor-state arbitration during the Presidential campaign.  Here is something on this subject from Thea Lee, policy director for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO):

The NAFTA investment chapter should also be revisited. NAFTA was the first trade agreement that allowed corporations to sue governments and challenge statutes protecting the environment, public health, and consumers. Legislators and ordinary citizens have no effective voice in the dispute resolution process. We would argue for eliminating the investor-state dispute settlement provision and more carefully defining both “investment” and “expropriation.”

I wonder if this could become important in the general election.  McCain seems to support trade agreements as currently written, but the Democrats have been quite critical.  So which candidate, Clinton or Obama, is more likely to follow the AFL-CIO view?  Based on this AP article, it could be either, although Clinton may be (slightly) more closely tied to the AFL-CIO:

The AFL-CIO has not endorsed either Clinton or Obama in the Democratic presidential primary, although it has allowed its 56 member unions to make individual endorsements. Clinton so far has been endorsed by more AFL-CIO unions than Obama.

Clinton has made explicit criticisms of investor-state dispute provisions (see the first link above); I haven't seen anything from Obama, though.

Investor-State Arbitration and the U.S. Presidential Campaign

From Alan Beattie in the FT:

Amid the noisy battering the North American Free Trade Agreement is taking from both Democratic presidential hopefuls, one recent statement from Hillary Clinton was particularly resonant. “We will have a very clear view of how we’re going to review Nafta,” the New York senator said. “We’re going to take out the ability of foreign companies to sue us because of what we do to protect our workers.”

...

.. as Mrs Clinton suggested, even the White House and Congress were surprised and disturbed when the US ended up being on the end of several high-profile claims under Nafta. With companies from emerging markets like India and China investing abroad, the rich countries could find themselves increasingly targeted by litigation.

Nonetheless, the system of international investment arbitration continues to expand its reach. European and American business lobbies, often dominated by service sector companies like telecommunications, retailers and banks that invest abroad, are keen on new investment treaties and on adding investment rules to broader trade deals.

The US is pursuing BITs with the “Brics” (Brazil, Russia, India and China) group of emerging market countries. A US trade official says that Washington’s model for BITs deals with some of the problems encountered under Nafta by including rules against frivolous claims, along with consolidation procedures allowing multiple claims to be considered simultaneously rather than clog up the system. But the official adds: “It is inconceivable to think that we would sign a [BIT] without provisions for investor-state litigation.”

That aspect may prove a sticking point for some. Brazil, Latin America’s largest recipient of foreign direct investment, has traditionally been suspicious about investment treaties. A senior Brazilian foreign ministry official said recently that the Argentine example was “very politically visible” and that it would be enormously difficult to get investor-state arbitration through the country’s congress.

One Washington trade lawyer says: “The US business community clearly still likes BITs. But why Brazil or any other country would agree to sign one after looking at Argentina defeats me.”

I've always been surprised at how little public debate there has been on investor-state arbitration.  Perhaps part of the reason is that the issues are somewhat complex and difficult to explain.  I noticed Hillary Clinton's reference to the issue at the time, and I wonder whether this issue will emerge as an important one in the Presidential race, or just get buried in the larger trade debate, as seems to be the case now.

Obama/Clinton: "Opt Out Of" Or "Re-negotiate" NAFTA

I was just watching the Obama-Clinton debate in Ohio.  Most of the trade stuff was boilerplate, but one point jumped out at me.  Both Obama and Clinton stated explicitly that they will "opt out" of NAFTA unless the governments of Canada and Mexico agree to re-negotiate the agreement.  In particular, they want labor and environmental standards to be a core part of the agreement, enforceable through dispute settlement.  (Senator Clinton also mentioned something about preventing foreign investors from challenging our laws designed to protect workers, but I forget whether that was said in the same context).

Here's my question for any Canadian or Mexican readers (or any others who might have some insights):  What would the reaction of the Canadian and Mexican governments be to this proposal?

UPDATE:  Here's the part where Clinton talks about foreign investors:

But let's talk about what we're going to do. It is not enough just to criticize NAFTA, which I have, and for some years now. I have put forward a very specific plan about what I would do, and it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards -- not side agreements, but core agreements; that we will enhance the enforcement mechanism; and that we will have a very clear view of how we're going to review NAFTA going forward to make sure it works, and we're going to take out the ability of foreign companies to sue us because of what we do to protect our workers.  (emphasis added)

So I think it's clear that modifying the investment provisions is part of her general re-negotiation plan.  What's not clear to me is whether the investment re-negotiation will be limited to laws "to protect our workers."  That's the only part she mentions, but it seems strange to single that area out.

Trade in Everything: Live Cattle and "Pregnant Heifers"

Reader Perry Bechky points me to a NAFTA Chapter 11 ruling from a couple days ago, in which the Tribunal rejected an investment claim related to trade restrictions on certain live cattle coming from Canada into the U.S.  The basic finding was that the Canadians had no investment in the U.S., so the Tribunal did not have jurisdiction.

(I'm going to leave it to the investment folks around here to say more about the decision, if they want to.)