WTO scholar Chad Bown, with the Peterson Institute, has been out in front in raising the specter that some of the policies on the Trump Administration/Republican agenda, in particular the current corporate tax reform plan, could lead to immense trade retaliation under WTO rules. I'm somewhat less alarmist than they, partly because I take a rather different view of some of the WTO case law, particularly that related to taxes and subsidies. Also, retaliation at too large a scale might harm the very countries undertaking it, if their own prosperity depends on imports from the US such as inputs in manufacturing. Finally,some of the most troubling features of the current plan might be tweaked to respond to concerns of WTO panels and the Appellate Body.
This said, Bown, from whose scholarship I always learn a great deal, is to be lauded for getting the issue on the table at this early stage. By contrast, I have not seen any analysis of the potential liability of the United States for damages under its many investment treaties with foreign states. Typically these treaties would allow any firm with a corporate structure or asset in the US that can characterize itself as a foreign investor there to sue for damages if certain norms, such as National Treatment, Fair and Equitable Treatment, or compensation for expropriation are violated. There is no Appellate Body in investor-state dispute settlement, just floating ad hoc international tribunals, disproportionately staffed by arbitrators from Western Europe. The case law is highly inconsistent, and precedent doesn't apply. Some of these tribunals have found that there were violations of Fair and Equitable Treatment merely because some policy change in the host country upset a foreign investor's "legitimate" expectations; similarly, tribunals can have a very expansive view of "expropriation", holding (e.g. the Metalclad NAFTA case) that any policy change that has an economic impact on the investment equivalent to a direct taking must be fully compensated. Damages sometimes go in the billions and are enforceable through domestic courts around the world.
President Obama didn't worry about the vulnerability of the United States to suit in these international bodies; he liked to point out to critics that the US had never lost a case.
In that respect, however, the current trade and investment agenda in Washington may be a game-changer. In a case where I was a consultant to the investor claimant against the United States some years ago (Canfor/Terminal), the investor persuaded an arbitral tribunal that it had jurisdiction under the investor-state provisions of NAFTA to adjudicate on protectionist US measures (the Byrd Amendment) that were impacting negatively the Canadian company's supply chain. The case didn't go to the merits because there was a new political settlement between Canada and the United States about softwood lumber.
But the basic point is that where new policies disrupt supply chains of multinational firms operating in the United States in ways that have a negative economic impact on those firms it is not just governments that can take action at the WTO. The investors themselves can sue for damages under investment agreements. ((some foreign investors might benefit from the changes but that doesn't prevent others from suing). In a recent decision I've blogged about here, a tribunal under the NAFTA seemed to suggest, for instance, that if a change in policy were 'dramatic" or radical or fundamental, there could be liability, either under Fair and Equitable Treatment, or on a regulatory takings theory. I doubt it would be too difficult to convince two of three arbitrators that the kind of plans being now contemplated, including the tax overhaul, would count as "dramatic" or fundamental.
But if it acts before any such claims are brought, the Trump Administration has a good get out of jail card, and it doesn't involve any withdrawal from an international agreement. As I've explained in a different context on this blog:
The inclusion of investor-state arbitration in the treaty as a forum agreed by the states parties [to an investment agreement] does not itself suffice for the forum (say ICSID) requirement of consent, which is an indispensable basis of the tribunal's jurisdiction. Investment agreements such as BITs initially had state-to-state, not investor-state, dispute settlement. The latter really got going with ICSID, but ICSID was originally designed with investment contracts in mind, where there is a pre-existing agreement between the investor themselves and the state. So how, on the basis of a treaty between states, to establish the the requisite agreement to arbitrate between the state and any particular investor? The theory is that the specification in the treaty of investor-state arbitration as the forum constitutes, in addition to an obligation between states, a general offer to investors to arbitrate. That offer is accepted when a particular investor initiates proceedings in the specified arbitral forum. The offer to arbitrate is a legal effect created by the treaty but separate from the treaty obligations themselves, which are between states.... Since there is no agreement to arbitrate until a particular investor accepts the offer as it were by filing a claim, a declaration withdrawing the offer to arbitrate is perfectly adequate as a unilateral act.
It is true that other states that are parties to these treaties might claim that a continuing offer to arbitrate is a state-to-state obligation under the agreements. So the US might have international responsibility to other states if it withdraws its offer to arbitrate. But that would have to be settled through a state-to-state process that would take years to complete.
In sum, if it acts before claims are brought, the White House could simply issue an Executive Order requiring the State Department to make a declaration of withdrawal of consent to arbitrate under the agreements in question, and at least one headache in policy reform would go away. The WTO is quite another matter.
