The Trump Administration's Push to Revamp ISDS

Recently, President Trump has prompted discussion of renegotiating the North American Free Trade Agreement (NAFTA) with the United States, Canada and Mexico.  The NAFTA system had been put in place in order to protect businesses and investors— to ensure that they would be treated fairly in international transactions.   If a business believes that a particular country’s acts are harmful, the business can request a hearing before a tribunal through the Investor-State Disputed Settlement (ISDS) system under NAFTA.  Similar to court-ordered arbitration, the business and country each select an arbitrator and both of them agree on a third.

The National Association of Manufacturers (NAM) along with hundreds of other business groups have advocated keeping ISDS in NAFTA.  NAM calls ISDS “a matter of critical importance” and states that “attempts to weaken ISDS will harm American business and, as a consequence will serve to undermine business community support for the NAFTA modernizations.”  ISDS provides many benefits for the U.S. manufacturing industry as a whole.  For instance, ISDS helps aide sustainability and growth among the industry by enabling manufacturers to reach millions of new customers. ISDS also encourages 50% of manufacturing exports, which further supports research, development and capital investment.   However, other individuals and industries argue that ISDS allows companies to excessively sue governments, therefore disrupting the democratic process. Others also argue that arbitrators are not always independent.  

The Trump administration is currently pushing to revamp ISDS.  U.S. Trade representative Robert Lighthizer has been involved with a new proposition of making ISDS voluntary (an “opt-in” provision) for the United States, Canada and Mexico—in which there would be a panel of intermediaries for complaints, instead of the current court-like process.  Yet, there is great debate on how the new system would work for countries that have opted-in versus those who have not. ISDS is up for change due to major complaints of the tribunals being tilted in favor of international court systems.

Overall, the Investor-State Dispute Settlement seems to help the overall health of the manufacturing industry.  The NAM supports the due process and basic protection that ISDS has to offer. With positive benefits and multinational markets, companies are able to expand internationally without fear of foreign governments.

For more information, please contact Schneider Downs or visit the Our Thoughts On blog.