This is from The Canadian Press:
Canada and Mexico are applying pressure on the United States to decide whether it wants to be part of NAFTA’s investor-state dispute mechanism, threatening to sideline it unless it commits to participating fully.
Multiple sources say the conversation came to a head this week over how to settle disagreements between states and corporations, with the two countries refusing to let the U.S. rewrite the rules for Chapter 11 if it can’t commit to being part of it.
The Trump administration wants the right to opt out of Chapter 11’s binding dispute resolution panels, because it views them as an invasion of sovereignty and an incentive for companies to outsource to Mexico by guaranteeing them a forum to sue for unfair treatment.
“We basically said to them, ‘If you want to opt out, that’s fine — you’re gone,”‘ said an official with knowledge of the talks who described the American reaction.
“You can imagine that the U.S. negotiators didn’t like it.”
The source was one of several who agreed to discuss the issue on the condition of anonymity because of the sensitivity of the talks.
A series of options are beginning to crystallize behind closed doors, including:
–Canada and Mexico could sign a side-letter or annex to cover their co-operation on the subject in the agreement.
–Canada and Mexico could abandon Chapter 11’s dispute resolution section altogether and rely on other forums, including using the dispute resolution provisions of the revamped Trans-Pacific Partnership that both countries signed this past week.
There's a lot going on here. First of all, assuming the TPP 11 goes ahead, it's not clear why Canada and Mexico need NAFTA ISDS as between them, because TPP has some fairly advanced and modern provisions on this. (Of course, it's not clear to me that they need it at all, but that's another story).
Also, Canada is now pushing for an investment court, so maybe it sees NAFTA as an opportunity to get Mexico on board with that idea.
So why does the U.S. care about any of this? My guess is TPA (but someone correct me if I'm mis-reading this). The relevant provision there states:
(b) PRINCIPAL TRADE NEGOTIATING OBJECTIVES.—
...
(4) FOREIGN INVESTMENT.—Recognizing that United States law on the whole provides a high level of protection for investment, consistent with or greater than the level required by international law, the principal negotiating objectives of the United States regarding foreign investment are to reduce or eliminate artificial or trade distorting barriers to foreign investment, while ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States, and to secure for investors important rights comparable to those that would be available under United States legal principles and practice, by—
(A) reducing or eliminating exceptions to the principle of national treatment;
(B) freeing the transfer of funds relating to investments;
(C) reducing or eliminating performance requirements, forced technology transfers, and other unreasonable barriers to the establishment and operation of investments;
(D) seeking to establish standards for expropriation and compensation for expropriation, consistent with United States legal principles and practice;
(E) seeking to establish standards for fair and equitable treatment, consistent with United States legal principles and practice, including the principle of due process;
(F) providing meaningful procedures for resolving investment disputes;
(G) seeking to improve mechanisms used to resolve disputes between an investor and a government through—
(i) mechanisms to eliminate frivolous claims and to deter the filing of frivolous claims;
(ii) procedures to ensure the efficient selection of arbitrators and the expeditious disposition of claims;
(iii) procedures to enhance opportunities for public input into the formulation of government positions;
and
(iv) providing for an appellate body or similar mechanism to provide coherence to the interpretations of investment provisions in trade agreements; and
(H) ensuring the fullest measure of transparency in the dispute settlement mechanism, to the extent consistent with the need to protect information that is classified or business confidential, by—
(i) ensuring that all requests for dispute settlement are promptly made public;
(ii) ensuring that—(I) all proceedings, submissions, findings, and decisions are promptly made public; and
(II) all hearings are open to the public; and
(iii) establishing a mechanism for acceptance of amicus curiae submissions from businesses, unions, and nongovernmental organizations.
I can imagine that people at USTR are interpreting this as an obligation to have some sort of NAFTA ISDS that applies to U.S. investors, so they can't just let Canada and Mexico agree to something that doesn't apply to the U.S. Since Lighthizer and others object to ISDS, the workaround is to have whatever they come up with apply to all three NAFTA parties, but then have the U.S. opt out for now. That's just me speculating, but if I'm right, it's a clever idea by USTR.
The problem is, having Canada and Mexico write their own ISDS rules -- even just as a side letter -- that exclude the U.S. undermines this. The U.S. doesn't necessarily want to abandon ISDS entirely at this point. It just wants a path to getting a new NAFTA without ISDS getting in the way.
I'm pretty sure there is a solution in here somewhere, but it's going to be complicated.
