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In less than eight weeks, ongoing talks over the North American Free Trade Agreement are set to expire. The White House has found common ground with some progressives over the Investor State Dispute Settlement, a NAFTA clause that allows foreign companies to sue governments for passing laws that jeopardize their investment. NewsHour Weekend Special Correspondent Patricia Sabga reports from Canada, where a group opposes their government’s stand on the clause.
TRUMP (State of the Union):
"The era of economic surrender is over. From now on, we expect trading relationships to be fair and to be reciprocal."
On the campaign trail, upon taking office, right up to his recent State of the Union Speech, President Trump has been consistent about what he calls America's "bad trade deals." And that includes the North American Free Trade Agreement, NAFTA.
The 1994 pact allows goods and services to move more freely among and between America, Canada and Mexico. But critics say it also threatens each country's national sovereignty – its ability to govern and enforce its own laws.
There's a provision in NAFTA and thousands of trade agreements called investor state dispute settlement, or ISDS. It allows foreign investors to sue governments for passing laws or regulations that could harm the value of their investments.
Geoffrey Gertz is an ISDS scholar with the Brookings Institution. He says ISDS was created in the 1960s to protect foreign investors from governments taking control of their assets.
If we can think back to original ISDS, the kinds of disputes they often had was, you know, a nationalist government's coming in and saying, you know, "Foreign investors, we are taking over this mine, you know, it is ours. We're kicking you out of the country. We might be throwing you in jail."
Today, a growing chorus of critics say companies are often using isds for a very different purpose. One of them is an oil and gas company called Lone Pine Resources. It had plans to begin fracking in Quebec, Canada.
Seven years ago citizens turned out by the thousands in Montreal to demand an end to all fracking in Quebec for at least a generation.
Lone Pine, meanwhile, had obtained permits to begin drilling beneath the St. Lawrence River.
The protests culminated in Montreal following a march of more than 400 miles from small town to small town to garner support. And get the attention of the Canadian government.
The march was organized by this man – grassroots activist Philippe Duhamel.
They had plans to drill 12,000 wells around this area, the St Lawrence Valley in Quebec. I took out my savings to organize it. Because there was this urgency and no time to fundraise.
So you spent your own money to organize this citizen's march?
Yeah, yeah and a few other people including my father. When we got to Montreal. Faces are pure light. Pure delight. Because again you can feel that history's on your side and you're winning
As the protesters converged on downtown Montreal, the activists did win a partial victory. The Quebec government adopted and later passed a bill that temporarily banned fracking beneath the St. Lawrence river.
To the protesters, it may have seemed like their victory was sealed. But it marked the beginning of a much bigger fight. That's because oil and gas firm Lone Pine Resources lost its permits to frack beneath the St Lawrence. So it decided to use NAFTA'S Investor State Dispute Settlement provision to fight back.
It could do that because though it's based in Canada, Lone Pine is incorporated in Delaware which technically makes it a foreign investor. And under ISDS, foreign investors can sue national governments for damages. So Lone Pine sued Canada. Lone Pine had received no compensation for the money it had spent obtaining its permits – or for the potential profits it hoped to reap.
So in 2012, the company filed a lawsuit claiming the act revoked its permits was "a clear violation of Canada's obligations under NAFTA." Six years on, the case is still pending and the company is seeking roughly $90 million in damages.
But these investor state disputes don't play out openly in a domestic court. They're arbitrated behind closed doors by a tribunal of corporate lawyers, and whatever they decide is final."
In a statement to Newshour Weekend, Lone Pine's legal counsel said quote: "Lone Pine's argument is that the [Canadian] government acted for political expediency rather than environmental protection."
Duhamel is outraged by the suit, which he says impinges on Canada's right to protect its environment, by allowing a foreign investor to potentially undermines the government's ability to determine its own laws.
This investor has rights that are supranational. When did that happen? When did we renege the power, our sovereignty? We've been robbed of our power to create our own laws.
That concern has landed progressives like Duhamel on the same page as the Trump administration. U.S. trade representative Robert Lighthizer worries that America's right to determine its own laws could be undermined by similar suits. He voiced his concerns to congress last year.
"I am troubled by the sovereignty issue. I'm troubled by the fact that anyone, anyone can overrule the United States congress and the United States when it's passed a law. That is troubling to me.
Canada and Mexico don't appear to be as concerned as the Trump administration and they reportedly want to keep and update NAFTA ISDS provision.
So do more than one hundred U.S. business and industry associations. They sent this letter to the Trump administration claiming that Investor State Dispute Settlement has been highly beneficial to the United States.
Linda Dempsey is with the National Association of Manufacturers.
What ISDS does is ensure that the same basic rules that we have in the United States are available for our manufacturers. Let me give you an example. We had one manufacturer with a paper mill in Canada. The Province of Newfoundland decided to end its contracts, seize some of the property up there, and leave that manufacturer high and dry. The only recourse that company had after all that investment, investment that supports its US workforce, supports its bringing US product into Canada; it was gonna lose all that without ISDS. And so that's why we need ISDS, as a backstop. And it has been used, I think, very responsibly.
As for cases pursued against the United States, Dempsey and supporters of the clause point out that companies have sued the U.S. Under NAFTA fewer times than they've sued Canada and Mexico and when America has been sued, it has so far never lost a case. Therefore ISDS is not a threat to the U.S.
We can't expect to dodge that bullet forever.
Ben Beachy heads the Sierra Club's trade program, which has fought against ISDS for decades. He says the trade clause threatens democracy by placing tribunals – predominantly made up of corporate lawyers – above governments.
"It may well be possible to use such protections…"
Beachy argues corporations are using the threat of ISDS lawsuits to pressure governments not to enact regulations in the first place.
He showed us this webpage from a law firm which advises multinational corporations. It describes ISDS as a tool companies can use to exert influence over the regulatory process.
He also pointed to this study by researchers at Toronto's York university. They conducted 51 anonymous interviews with current and former officials and insiders in Canadian environment and trade ministries. The study's top finding – government ministries have changed their decision-making to account for trade concerns including ISDS.
Time and again these government officials said YES, and in fact named NAFTA cases, ISDS cases as one of the principal sources of litigation that affected their policy making.
Are they taking into account trade agreements? Sure, because though, and we want them to, because those are the same basic rules our own Constitution requires, and we wanna make sure our investors aren't cheated, aren't treated unfairly, aren't harmed by foreign governments.
Both Philippe Duhamel and the Trump administration will be keeping a close eye on ISDS, as the current NAFTA negotiations continue.
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Melanie Saltzman reports, shoots and produces stories for PBS NewsHour Weekend on a wide range of issues including public health, the environment and international affairs. In 2017 she produced two stories for NewsHour’s “America Addicted” series on the opioid epidemic, traveled to the Marshall Islands to report on climate change, and went to Kenya and Tanzania to focus on solutions-based reporting. Melanie holds a BA from New York University and an MA in Journalism from Northwestern University, where she was a McCormick National Security Fellow. In 2010, she was awarded a Fulbright scholarship in Berlin, Germany.
Christopher Booker is a correspondent and producer for PBS NewsHour Weekend covering music, culture, our changing economy and news of the cool and weird. He also teaches at Columbia University’s School of International and Public Affairs, following his work with Northwestern's Medill School of Journalism in Chicago and Doha, Qatar.
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