American Coatings Association

ACA Joins Coalition Letter on Maintaining NAFTA ISDS


Last week, ACA joined more than 100 organizations representing manufacturers, service providers, energy, technology and food and agricultural industries across the nation, in a letter to Cabinet- and Executive-level officials, urging that robust market access commitments and investment protections, enforceable through investor-state dispute settlement (ISDS), be maintained and upgraded in the negotiations to modernize the North American Free Trade Agreement (NAFTA). The Aug. 8 letter to U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross, Secretary of State Rex Tillerson, Treasury Secretary Steve Mnuchin, and White House National Economic Council Director Gary Cohn underscored ACA’s view that the original NAFTA included basic access, protection and enforcement provisions that have helped grow manufacturing, services and agricultural industries by enabling our businesses to reach new consumers and to participate in foreign infrastructure, energy and resource development projects. ISDS is a strong enforcement tool that helps ensure that American investors, businesses and their workers will be treated fairly overseas. This mechanism has been an essential part of the NAFTA and other high-standard U.S. trade and investment agreements.

The letter noted that while individuals, non-profits and businesses primarily invest in the United States, they also invest overseas, bringing significant benefits to the United States, its economy and U.S. workers. “U.S. businesses that invest overseas to acquire foreign property, reach foreign customers, serve U.S. clients investing abroad or participate in otherwise inaccessible foreign projects are outsized participants in the U.S. economy and are more successful because of their access to foreign markets,” stated the letter. U.S. companies that invest overseas are America’s largest exporters, biggest producers, largest innovators and investors in U.S. capital expansion and highest- paying employers.

ACA and the other signatories maintain that the existing NAFTA framework protects American individual, non-profit and business investors by extending several of the private property protections already found in the U.S. Constitution and U.S. law, including due process, non-discrimination, fair treatment by the government and compensation for the seizure of property. Each of these disciplines is directly enforceable by the investor through the neutral arbitration system, ISDS. These provisions are highly valuable and have already helped many U.S. businesses that have faced the seizure, theft and mistreatment of investments in both Canada and Mexico. ISDS in the NAFTA has been highly beneficial to the United States. The United States has only faced 18 cases and won every one that has been concluded. U.S. investors, however, have used ISDS in 40 cases with Canada and Mexico, winning several to ensure compensation when those governments have taken unfair actions against American investment. In other cases, the existence of strong, neutral and fair enforcement provisions has helped U.S. investors avoid and resolve problems with foreign governments.

The letter pointed out that foreign investment is often the best way for American manufacturers, service providers and agricultural producers to reach foreign consumers. “Such investment allows them to set up their own distribution networks to deliver products and services directly, tailor products to the local consumer and win sales more efficiently and successfully. Highly regulated service providers have to invest and establish themselves in foreign countries to be able to sell their products. Likewise, in some areas, such as energy, natural resources, and foreign infrastructure development, foreign investment is the primary way American businesses can participate and grow, because activities to access and develop those resources can only take place in those foreign countries.” With those investments, businesses in the United States also see additional advantages, as exports of U.S. goods are more often included in foreign infrastructure and natural resource development when those projects include American investment. The letter also pointed to data demonstrating that year-after-year, more than 90 percent of foreign affiliate sales are almost entirely made to customers outside the United States, rather than being sold back to the United States.

While baseline investment protection and enforcement provisions were included in the original NAFTA, the signatories highlighted that there are significant gaps as those provisions did not provide full coverage to all sectors or full enforcement. The NAFTA modernization provides an important opportunity to improve the NAFTA by:

  • Ensuring intellectual property is fully protected as in the United States as a protected investment;
  • Guaranteeing all sectors are afforded the same protections and access to ISDS to enforce those protections;
  • Improving U.S. investment access in Canada and Mexico on a non-discriminatory basis, including by locking in reforms that have opened markets since NAFTA was negotiated;
  • Adding stronger disciplines against forced technology transfers and localization;
  • Expanding access to ISDS enforcement for breaches of major investment contracts; and
  • Extending the enforcement period to at least ten years after any potential termination of the agreement, to ensure that American investment is appropriately and fully protected.

“ISDS enforcement is a core element to protect the United States against the theft, discrimination and unfair treatment of U.S. property overseas. Unlike other provisions of a trade agreement that can typically be enforced through more generalized dispute settlement systems, individual investments are impacted uniquely by foreign government actions and require a specialized, dependable, targeted and neutral form of enforcement. Notably, ISDS panels are limited to enforcing only the international commitments to which each country has voluntarily agreed and can only award monetary penalties. These ISDS panels have never overturned – and do not have any authority to change – any country’s laws or regulations.”

ACA and its fellow signatories believe that investment and ISDS remain high priorities in the NAFTA modernization to strengthen enforcement and ensure the fair treatment for U.S. individual, non-profit and business investors.

Contact ACA’s  Allen Irish for more information.