Global Trade Deals Must Protect U.S. Property Rights

With ongoing talks with Europe and the Pacific Rim, trade agreements are top of mind to manufacturers in the United States that are engaged in the global economy.

Some 80 percent of Americans support trade and investment agreements that eliminate unfair and discriminatory barriers overseas and level the playing field, according to a recent poll commissioned by the National Association of Manufacturers. Such agreements are essential to access the 95 percent of the world's consumers outside our borders and thereby sustain and grow jobs in the United States.

To be successful, these agreements must be more than just words on paper. They must provide neutral and fair mechanisms to ensure that a government's promises are kept and enforced.

Over the past 40 years, two forms of enforcement mechanisms have found widespread use. The first, as found in the World Trade Organization and individual free trade agreements (FTAs), is a state-to-state mechanism that allows one country to challenge another country's failure to keep its promises. While useful, such provisions typically are only used when there is a widespread sectoral or precedential impact.

The second mechanism, which is found in FTAs and more than 2,000 investment treaties, is known as investor-state dispute settlement (ISDS), which allows an investor (a business or other investment entity) to challenge a government for failure to live up to its commitments. U.S.-based manufacturers have used ISDS to address unfair or illegal foreign government actions before an independent hearing without politicization.

This second form of enforcement has become something of a cause célèbre among critics of trade agreements as well as some governments, starting with Venezuela and Ecuador. They clamor that ISDS should be dropped from agreements or otherwise rendered useless.

The vilification of ISDS is nothing more than an attack on the principles of government accountability and fair treatment upon which our nation and many others were built. The same widely held principles reflected in the U.S. Constitution, law and jurisprudence-fair treatment, due process, impartial hearings, evidence-based decisions, protection of property rights and regulatory accountability-have, with leadership from the United States, formed the bedrock of thousands of international agreements. Does it come as a surprise that U.S. companies want access to fair treatment similar to what they have access to in America?

Yet, critics of ISDS seek to portray it as a sinister corporate tool used to undermine sovereignty. According to critics, a tobacco company should not have the ability to have a fair hearing after a government deprived it of its intellectual property rights, without compensation, and even where the country's own high court acknowledged that the law effected a "taking." Similarly, critics are troubled that an oil company would have the right to challenge a government's breach of its own contract with that investor. Such critiques are an assault on core principles of the United States and any country that embraces the rule of law. The right to question government action before an independent tribunal is a basic principle, not some extraordinary privilege.

For businesses seeking to succeed globally, ISDS has long been a mechanism to ensure that a government is not placing its thumb on the scale against an investor. Foreign investment produces huge wins for the U.S. economy, driving about half of all U.S. exports, catalyzing U.S. research and development and helping companies pay workers more than companies that do not invest overseas.

ISDS has already undergone modernization in the past decade, particularly in the United States where both the Bush and Obama administrations have undertaken full reviews of ISDS, producing more transparent mechanisms with numerous safeguards for government action.

The United States is seeking strong outcomes on investment and ISDS as part of broader talks with Europe and with its Trans-Pacific partners. It is also involved in investment-treaty talks with China and is looking to expand such talks with others. ISDS is important for all countries at the table, and many trading partners in Europe and Asia have concluded far more agreements with ISDS than the United States. However, as both the largest overseas investor and recipient of foreign investment, America must continue to set the bar high and embed these principles of fairness into the international system.

To reverse course on ISDS now would have negative consequences for U.S. leadership in promoting the rule of law and, more directly, on the ability of our businesses and workers to succeed today and going forward.