Congressman Kevin Brady and U.S. Trade Rep. Robert Lighthizer had a good exchange today on ISDS at a House Ways and Means hearing. Here is a messy transcript (hopefully it is mostly accurate):
Brady: You know I'm confident you and your team are going to negotiate a pro-growth NAFTA that makes America stronger economically. To do that, and to maximize the economic growth from our now one of the most competitive tax codes in the world, to maximize on that we need more customers, and many of those customers live outside the United States. Many of them are in Mexico, in Canada. And when we compete and win on a level playing field, we grow American jobs here. But, to do that, we all sometimes have to invest in those countries to compete and win against China, Europe, and the rest of the world. But if that investment in those countries is to benefit America, our investors have to receive fair treatment from other governments. And many countries don't provide basic, substantive or procedural protections for American businesses. That means American investors have to rely on the investor state dispute settlement process to ensure that they are treated fairly, and they aren't discriminated against in these other countries, that the rule of law, the property, and investment is protected as it is in America. Without ISDS Americans’ property is left unprotected against discrimination, foreign seizure, or regulatory abuses and other forms of unfair action. This issue is basically a question ‘When other countries treat American investment unfairly, who has their back?’ The answer should be ‘America has their back.’ I'm deeply concerned about reports that Mexico and Canada are negotiating bilateral ISDS provisions without us, because USTR said it doesn't want to participate in that. Mr Schweiker from Arizona has led a letter that many of us have signed now, signed by 103 Republicans, affirming that inclusion of a strong ISDS is essential in the NAFTA agreement. Mr Ambassador, we've had many discussions about that; this is a key part of passing a strong NAFTA agreement that we're convinced you will negotiate well for us. So, how do you square USTR’s current proposal against the Congressional objectives that are in law, and that 103 of us have as of today said are crucial for passage of this agreement?
Lighthizer: Well, thank you Mr Chairman. Yes, I'm aware that there are some controversies surrounding ISDS.
Brady: You picked up on that?
Lighthizer: Yeah, I have picked up on that. I would say this about it: First of all, that whatever happens on ISDS, the kinds of issues that members are concerned about in terms of U.S. investment overseas will be able to be handled within the context of what we call Chapter 20 or the state-to-state dispute settlement. So it isn't like we will be in a position where there will be no recourse. So, that is the first thing I would say.
The second thing I would say that we have proposed an opt-in/opt-out proposal. We are skeptical about ISDS for a variety of reasons which I would like to go into if I have a second to do it. Number one, on the U.S. side there are questions of sovereignty. Why should a foreign national be able to come in and not only have the rights of Americans in the American court system but have more rights than Americans have in the American court system? It strikes me as something that at least we ought to be skeptical of and analyze. So a U.S. person goes into a court system, goes through the system and they're stuck with what they get. If a foreign national can do that and then at the end of the day say ‘I want three guys in London to say we're going to overrule the entire US system.’ So on the inward bound, it strikes me as a question of sovereignty and I view it myself as a conservative and a “sovereigntist”. So this is troubling in that respect.
On the outgoing side, there are many people who believe that in some circumstances, and I can discuss the varieties, that in some circumstances it's more of an outsourcing issue. So what is it? It's a situation where somebody says ‘I want to move a plant from Texas and I want to put it in Mexico; and when I go down there, I don't want to take the political risk that AMLO is going to win in Mexico and change my bargain. So I want the U.S. government essentially to buy political risk insurance for me.’ Our view tends to be that if you want to move a plant from the United States to Mexico, and the economics suggest that, then you should go with the economics, it is too bad, and your responsibility as a Congress is to make the U.S. more competitive so that isn't the problem. But if you're going there because we are underwriting the investment, we are putting our finger on the scale, we're encouraging you to move your plant down there, that's not the job in my opinion at least of the United States government.
I would say also this is an area that's not without controversy. This is, the National Association of States attorney general thinks this is a mistake. The Cato Institute, an issue which I don't always agree with, a liberty issue, they think ISDS is something that we shouldn't have. The National Association of State Legislatures which is controlled by Republicans is on record as against ISDS. So there are a whole variety of issues; I can go on and on and on. People will respond ‘Well we haven't lost cases in the United States in our position,’ and while in fact that is the case, we have come close to losing some. But more importantly we've had situations where real regulation which should be in place which is bipartisan, in everybody's interest, has not been put in place because of fears of ISDS. So I think it is something we have to think about very carefully.
Our view was that rather than have this mandatory ISDS provision, which we think is a problem in terms of our sovereignty in the United States, encourages outsourcing and losing jobs in the United States, and by the way lowering standards in a variety of places, that we should be very careful before we put something like that into place. So you say ‘What are the risks, what are the alternatives for these companies?’ The first alternative I’d say is state-to-state dispute settlement, the second alternative is if you go to any one of these companies and ask them ‘Why do you need this; why don't you put in place an arbitration provision in your contract?’ They'll all say ‘Well we could do that,’ and indeed they did do it - did it before we had ISDS. In a country like Mexico they subscribe to all the conventions and they have to enforce those. If they put that contract in arbitration provision in their contract, these things are then resolved in a similar manner, but without the United States ceding sovereignty in order to encourage people to outsource jobs. It's just not a good trade in my opinion. I realize however that it's a controversial provision and that my view is in the minority in some very intelligent caucuses.
Brady: Mr Ambassador, thank you for that defense – a couple quick thoughts before I turn to Mr Neal. There is no threat to sovereignty. Foreign investors have no more rights than American investors because in our country you have the greatest standards and protections for property rights, investment rights in the world – bar none. Secondly, your client is Congress. Speaking out for our agriculture community that wants you to have America's back when they have to invest in other countries, to win customers, energy, manufacturing, technology, services – every key industry in America has to compete against China and the rest of the world, and other countries, is saying ‘We need to have their back’ when they make their investments, and so you're right there is a disagreement there; we're going to continue to work together with you Mr Ambassador to get to a good place and make sure we're keeping this in a trade agreement and we have the backs of our American investors.
