Hatch, Brady warn Lighthizer that his ISDS approach in NAFTA will risk congressional passage

Mar 14, 2018 Issues: Trade

The chairmen of the Senate Finance and House Ways & Means committees will tell U.S. Trade Representative Robert Lighthizer he is seriously risking the chances that a NAFTA 2.0 will make it through Congress if he does not revise his approach on investor protections.

In a letter set to be sent later this week, Sen. Orrin Hatch (R-UT) and Rep. Kevin Brady (R-TX) will point to the Obama administration’s disregarding of GOP advice when concluding the Trans-Pacific Partnership talks, which they say reduced Republican support.

The powerful lawmakers say they “insist” that investor-state dispute settlement provisions “at least as strong as those contained in the existing NAFTA must be included in a modernized agreement to win Congressional support.”

“Our position on the importance of these protections has not changed and is as strong as ever: ISDS is an essential enforcement mechanism for investor protections and must be maintained rather than weakened or abandoned,” the letter states.

USTR put forward a proposal in the talks that would allow each party to choose whether it wants to opt in or out of ISDS, with the Trump administration choosing to opt out. Lighthizer argues that the provision would encourage outsourcing and non-market based investments.

Last October, the USTR likened including those protections for investors in a trade agreement to the U.S. government buying companies political risk insurance. “The bottom line is business says ‘We want to make decisions and have markets decide. But! We would like to have political risk insurance paid for by the United States’ government.’ And to me that’s absurd,” he told reporters.

Sources described ISDS as one of the “ideological” issues Lighthizer is insisting upon changing in trade agreements and said it was therefore unlikely -- even against the backdrop of overwhelming Republican opposition to his approach -- that he would change his mind.

Both Canada and Mexico have made clear they do not want the Trump administration to dictate the terms by which the other countries could opt in or out. At the sixth round of talks in January, they discussed ways to grant each other mutual investor protections while excluding the U.S. That proposal drew the ire of the U.S. business community, which was hoping for the NAFTA parties to push back against Lighthizer.

But Mexican and Canadian officials have argued that ISDS is a domestic political issue for USTR, the U.S. Congress and its business community to figure out. While moving forward with their bilateral approach on ISDS, they also left the door open to future discussions with the U.S. should USTR be convinced to modify its proposal.

Hatch and Brady also link their insistence on a strong ISDS provision to the requirements Congress laid out in the 2015 Trade Promotion Authority law.

Their letter states that “the overwhelming majority of Republicans in both the House and the Senate” supported TPA, “which directed the Administration to include robust investor protections in trade agreements.”

“In particular,” they add, “TPA directs the Administration ‘to secure for investors important rights comparable to those that would be available under United States legal principles and practices,’ including by ‘providing meaningful procedures for resolving investment disputes.’ Congress expects that both the substantive protections and the enforcement mechanisms for investment commitments will be more or equally robust in an updated NAFTA relative to the existing agreement.”

The lawmakers cite what they see as an Obama administration failure to follow GOP advice on ISDS in the TPP talks, which concluded with an ISDS carveout for tobacco products. “As you may know, the prior Administration disregarded advice from Congressional Republicans and excluded a single sector from ISDS in the Trans-Pacific Partnership (TPP). This policy choice significantly diminished Republican support for that agreement,” Hatch and Brady’s letter says.

“Excluding ISDS altogether or making it optional in a modernized NAFTA similarly will jeopardize Republican support, even among Members who consistently have voted for trade agreements,” they write.

Several Republicans cited the TPP carveout on tobacco as the reason they opposed the deal. While former USTR officials and congressional sources have different estimates of how many GOP votes it would have cost the Obama administration had it moved forward with a vote on TPP, many sources believe the opposition to a new NAFTA over its ISDS outcome alone would not jeopardize its passage.

One Democratic lobbyist said eliminating or limiting ISDS would probably cost the administration only “small numbers” of Republicans in either chamber and said those would include “people who have been convinced by it and have strong allies with particular business organizations.”

“But if you drop it,” the lobbyist added, “you could pick up way more Democrats, especially if labor moves in the right direction.”

That view is not shared by the U.S. business community and even some labor sources who have stressed that congressional Democrats predominantly are focused on the labor and environment chapters in a new deal.

They also noted that Ways & Means trade subcommittee ranking member Bill Pascrell (D-NJ) told a group of business leaders in Montreal that he supported protections for U.S. investors and that Rep. Sandy Levin (D-MI), instead of pushing for ISDS elimination, brought up reforms his caucus proposed in the TPP talks.

The Hatch-Brady letter is being circulated for signatures and will be sent to Lighthizer on Thursday evening, congressional sources said. At press time it was unclear whether it would be circulated only among Republicans on the two committees or the entire caucus in both chambers.

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INSIDE TRADE: Hatch, Brady warn Lighthizer that his ISDS approach in NAFTA will risk congressional passage