In NAFTA Negotiations, Trump Must Ensure Protection of US Property Rights

COMMENTARY Trade

In NAFTA Negotiations, Trump Must Ensure Protection of US Property Rights

Aug 8th, 2017 3 min read
COMMENTARY BY
Bryan Riley

Jay Van Andel Senior Policy Analyst in Trade Policy

Bryan is a full-time advocate for free trade through his research at The Heritage Foundation.
International arbitration panels protect the property rights of U.S. citizens from foreign governments. iStock

Key Takeaways

The Trump administration has called for an “America first” trade policy.

Elizabeth Warren assumes that legal systems in other counties are perfectly able—and willing—to protect the property rights of American citizens.

An “America first” NAFTA should continue the practice of providing unbiased referees for trade and investment disputes.

The Trump administration has called for an “America first” trade policy.

An important aspect of such a policy should be to protect Americans’ property from being stolen by foreign governments.

Most U.S. trade agreements include a version of the Constitution’s “Takings Clause,” which requires governments to compensate Americans if they expropriate (i.e. steal) their property.

The Takings Clause states: “ … nor shall private property be taken for public use, without just compensation.”

When American property is stolen by a foreign government, however, trade agreements allow the plaintiffs to directly challenge foreign governments in a neutral setting. Otherwise, Americans would have to rely on the court system of the country that stole their property—a risky proposition at best.

Here’s what the North American Free Trade Agreement says with regard to expropriation of private property:

No party may directly or indirectly nationalize or expropriate an investment of an investor of another party in its territory or take a measure tantamount to nationalization or expropriation of such an investment (‘expropriation’), except for a public purpose; on a non-discriminatory basis; in accordance with due process of law; and on payment of compensation.

In NAFTA and most other U.S. trade agreements, if a foreign government expropriates U.S. property, Americans don’t have to rely on the court system of the government that just stole their property to receive justice. Instead, they can rely on neutral referees.

But some groups want to use upcoming NAFTA negotiations as an opportunity to eliminate this provision. Sen. Elizabeth Warren, D-Mass., has argued against these international arbitration panels.

[A]fter World War II, some investors worried about plunking down their money in developing countries, where the legal systems were not as dependable. They were concerned that a corporation might build a plant one day only to watch a dictator confiscate it the next. … Those justifications don’t make sense anymore, if they ever did. [emphasis added]

Warren assumes that legal systems in other counties are perfectly able—and willing—to protect the property rights of American citizens.

But that is a risky assumption. Here are two examples that illustrate why.

  1. In Venezuela, socialist President Hugo Chavez expropriated numerous domestic and foreign investments, including factories owned by U.S. glassmaker Owens-Illinois. Fortunately, Owens-Illinois did not have to rely on Venezuela’s court system to seek compensation. Because the United States and Venezuela had a bilateral investment treaty, the company was able to bypass the Chavez government and seek compensation through a neutral arbitration panel. Owens-Illinois was awarded $455 million.
  2. In Canada, U.S.-based Windstream Energy contracted with the province of Ontario to build a wind farm to provide electricity. But in 2011, Ontario placed a moratorium on wind farms.

Windstream sued Ontario under Chapter 11 of the North American Free Trade Agreement. The dispute was mediated by a neutral international panel, which determined Ontario failed to provide “fair and equitable treatment in accordance with international law” and awarded Windstream $24.2 million in Canadian dollars.

Major League Baseball would be in trouble if the home teams provided the umpires for each game. In international commerce, as in baseball, neutral referees help guarantee a fair outcome.

An “America first” NAFTA should continue the practice of providing unbiased referees for trade and investment disputes.

This piece originally appeared in The Daily Signal.