Last week, 103 House and Senate Republicans, led by Ways and Means Member Rep. David Schweikert (R-AZ), Ways and Means Committee Chairman Kevin Brady (R-TX), Ways and Means Subcommittee on Trade Chairman Dave Reichert (R-WA), and Senate Finance Committee Chairman Orrin Hatch (R-UT), sent a letter to United States Trade Representative (USTR) Ambassador Robert Lighthizer calling on USTR to maintain high-standard investment protection, including the indispensable enforcement tool of investor-state dispute settlement (ISDS), in the North American Free Trade Agreement (NAFTA).

In the letter sent to Ambassador Lighthizer, Congressional Republicans emphasized:

“[A]bandoning or weakening this important enforcement tool would harm the ability of U.S. companies to export and locally provide goods and services to Canada and Mexico.  In addition, such action would advantage our global competitors – including China – which continue to benefit from ISDS and/or direct government ownership and support.”

But, what exactly is ISDS? And why is this so important?

According to the USTR:

“ISDS is neutral, international arbitration procedure. …seek[ing] to provide an impartial, law-based approach to resolve conflicts. Various form of ISDS are now part of over 3,000 agreements worldwide, of which the United States is party to 50.” 

In short: U.S. companies that are treated unfairly by a foreign government can seek redress without creating unnecessary disruption to the broader trade relationship between the countries. This is important because 96% of all consumers of U.S. products live outside of the United States. If there aren’t mechanisms in place to ensure that American job creators are fairly treated abroad, it will be more difficult for U.S. companies to make the investments required to serve those markets and create related jobs in the United States. As Republicans noted in their letter:

“These protections are crucial for U.S. companies that invest abroad to serve foreign markets, whether through exports from the United States or through the provision of local goods or services.  These protections provide certainty for U.S. companies in all sectors, including U.S. energy companies that drill or operate pipelines or service stations in Mexico; U.S. railroads that operate on both sides of the U.S.-Mexican border; agriculture entities that maintain feedlots or processing or storage facilities; and U.S. services companies that maintain capital in Mexico to meet regulatory requirements or establish facilities.” 

As Dennis Arriola, a senior executive at Sempra Energy, told the Ways and Means Trade Subcommittee in July 2017:

“ISDS is not theoretical, it’s not academic, it’s real … American companies need to be treated fairly and have access to a tribunal that will think fairly.”

ISDS protects American products and businesses in foreign countries from discrimination and allows for due process on a global stage. At the same time, the United States has never lost an investor dispute because our domestic legal system already provides these protections to both U.S. and foreign investors.

Leaders from the Business Roundtable, National Association of Manufacturers, and U.S. Chamber of Commerce emphasized the importance of ISDS to the Administration in August 2017, writing:

“ISDS does not infringe U.S. sovereignty. Rather, it upholds the same fundamental due process and private property guarantees protected by our Constitution, and it obligates other countries to uphold these precepts as well. ISDS cannot overturn U.S. laws or regulations: All arbiters can do is award compensation when a government expropriates property or otherwise tramples on the rule of law. Moreover, few cases have ever been filed against the United States, and the U.S. government has never lost an ISDS dispute.”

The National Association of Manufacturers, following Congressional Republicans’ letter to USTR last week, said:

“Investment rules, enforced through ISDS, are a vital recourse against unfair treatment against manufacturers in America and must continue to be a priority in the ongoing NAFTA negotiations as well as in future agreements. Manufacturers and other businesses in the United States have successfully used ISDS to address discrimination, the theft of U.S investment property and forced localization measures designed to shift jobs outside the United States. As Congressman Schweikert and members from both the House and Senate have recognized, the continued inclusion of ISDS in NAFTA is vital to ensure that investment overseas continues to support U.S. exports, manufacturing and jobs here in the United States.”

ISDS is vital for keeping the U.S. competitive on a global stage, for protecting our workers and businesses, and for maintaining sound trade agreements with our partners.

Maintaining ISDS, as called for by Congressional Republicans, is essential to building the needed Congressional support for an updated NAFTA, as well as for future trade agreements.

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