NAFTA 2.0 needs to enshrine investor protections

Getty Images

With the Trump administration looking to update the North American Free Trade Agreement, we in industry and other trade policy watchers were eager to see its negotiating objectives, which were released earlier this month. These objectives provide insight on which areas the president’s trade negotiators intend to focus and what the administration wants included in a final agreement.

Overall, the administration’s “NAFTA 2.0” wish-list is solid. Some commentators have noted the irony of including so many goals that were essentially attained in the Trans-Pacific Partnership, an agreement President Trump withdrew from on his third day in office.

{mosads}These goals include unfettered cross-border data flows, regulatory harmonization, stronger labor and environmental standards and a ban on currency manipulation. But the fact is that these objectives were worthy in and of themselves and were set in close consultation with the Congress and with industry. So why not add these to the NAFTA blueprint?


What’s more, the administration’s objectives emphasize the importance of improving access for U.S. investors in Canada and Mexico. This is critical, because foreign direct investment (FDI) is set to eclipse traditional trade flows as the digital economy continues to grow, and as we confront a world where the vast majority of consumers — including an emerging global middle class — are located outside U.S. borders.

Why then does the Trump administration’s NAFTA blueprint give short shrift to one of the original NAFTA agreement’s real innovations — investor protection under the agreement’s Chapter 11?

These provisions, which allow U.S. investors both small and large to seek compensation for unfair, discriminatory or inequitable treatment at the hands of foreign governments, are based on bedrock principles embedded in our own Constitution prohibiting abusive government treatment and the taking of private property without just compensation.

Without this provision, domestic courts become the only legal recourse for a wronged investor. While Mexico has made great strides in many respects, its court system is still far from impartial. Indeed, miscarriages of justice can happen in any country, including advanced democracies like the United States and Canada.

What’s more, leaving investor protections out of a renegotiated NAFTA would set a terrible precedent for other countries, including China, that we desperately need to adhere more closely to the rule of law in all aspects of their governance.

The debate over investor protection has become very heated over the past few years, particularly in Europe, where anti-globalization protesters have latched on to the principle as the scapegoat of everything that is wrong in the world today. But the fact is that investor protections have served America very well in NAFTA, and in numerous other free trade agreements and bilateral investment treaties we have negotiated.

Under NAFTA, for example, 59 cases have been filed using Chapter 11 provisions since the agreement’s inception: 16 against the United States, 25 against Canada and 18 against Mexico. Notably, the U.S. has never lost a case.

Increased trade and investment help create economic growth and jobs and make us more competitive. The best kind of investors are those who invest for the long haul, who put in the time to build in and contribute to the communities in which they do business. Without meaningful protections, the risk assessment changes for potential investors, and they may become reluctant to participate in the market at that level.

This is as important to potential foreign investors in the United States as it is to American companies doing business abroad. We should be careful about abandoning such time-honored principles of fairness.

Instead, the Trump administration should be as ambitious in its goals to spur cross-border investment as it is on measures to open up trade even further. “NAFTA 2.0” provides a great opportunity to strengthen provisions on greater transparency in proceedings and addressing concerns regarding state-led economies, including issues regarding domestic technology transfer. For those provisions to be meaningful to future investors, the inclusion of a strong, depoliticized arbitration process is necessary.

So as the administration moves forward to modernize the 23-year-old NAFTA agreement, let’s all hope that it keeps its eyes squarely on the importance of investment — and the protections needed to ensure that long-term investors can contribute to our country and our continent’s growth, jobs and competitiveness. Anything less would be a big step backward.

Shaun Donnelly, a retired U.S. diplomat, is vice president for investment and financial services at the United States Council for International Business, which advocates for international regulatory regimes that recognize the essential role business plays in building a prosperous global economy. Eva Hampl is the council’s director of investment, trade and financial services.

The views expressed by contributors are their own and not the views of The Hill. 


The Hill has removed its comment section, as there are many other forums for readers to participate in the conversation. We invite you to join the discussion on Facebook and Twitter.

Most Popular

Load more


See all Video