Fair and balanced: NAFTA needs neutral deal judges

These are exciting times for the small business community. Some positive tax changes are beginning to gain steam, and while the path forward remains harrowing, reasons exist to hope that the policy landscape is shifting in favor of American small businesses. 

While how to fix our outdated federal tax code may garner the bulk of the headlines, it is far from the only show in town when it comes to pivotal policy negotiations that have the capacity to enhance — or hinder — American competitiveness on the global stage. Consider the talks surrounding the North American Free Trade Agreement (NAFTA).

{mosads}After commencing negotiations this summer and making only marginal progress, envoys from Canada, Mexico and the United States came together this week for the fourth round of talks. The decisions they make will set the tone for the future of trade within North America and, if done right, clear a path for enhanced opportunity in all member states.

As the talks progress, negotiators must take care to protect the foundation upon which multilateral trade and investment occurs, including the maintenance of constitutional protections and the rule of law through Investor State Dispute Settlement (ISDS) mechanisms.

The purpose of ISDS protections in NAFTA, or in any multilateral trade agreement, is to ensure that businesses investing abroad are not subject to unfair preference at the hands of local legal courts or jurisdictions in the event of a dispute over anything from tax payments to zoning rules.

ISDS makes sure that foreign companies, in short, aren’t steamrolled by local politicians and appointees. In doing so, these help foster the certainty needed to spur investment activity across international borders, thereby enhancing economic opportunity and growth.

This summer, I had the opportunity to testify before the U.S. International Trade Commission regarding the future of NAFTA. In my remarks, I stressed the significant benefits that NAFTA has delivered to the American small business community, while also emphasizing the need to ensure that the renegotiation process stay true to the free-trade goals of reducing the governmental barriers, obstacles and costs that stand in the way of success for entrepreneurs, workers and consumers alike.

ISDS protections play a crucial role in advancing those goals. The fate of ISDS mechanisms should be of considerable interest to businesses of all sizes as they plot their investment, expansion and import/export strategies for the future.

If the issue sounds like a matter of theory rather than practice, the story of Bilcon, a family-owned American company, is just one example of the very real implications.

In 2015, a tribunal established through NAFTA ISDS authority found that the Canadian government acted in a “fundamentally flawed” manner in rejecting Bilcon’s proposal to expand a Nova Scotia quarry. The independent tribunal determined that government review panels breached their obligations in substituting unannounced environmental criteria for established law to reject the proposal.

In other words, thanks to ISDS, an American company that sought to compete and invest overseas was protected when a foreign government pulled the rug out from under that investment. It will be awarded up to $101 million in damages when the case concludes.

It’s not news to say that politicians and governments can be unpredictable. But ISDS protections ensure that even when the unexpected happens, investors have ground to stand upon.

That’s important, whether you’re talking about a billion-dollar deal pursued by a Fortune 50 company or an expansion into a new market being pursued by one of the small businesses that make up the vast majority of the U.S. economy.

With limited resources available for legal and political battles, the protections provided by ISDS are particularly critical for small- to mid-size companies.

Critics of ISDS try to paint it as a way to give foreign corporations more sway in the American courts. Nothing could be further from the truth. A Brookings report published this spring found that ISDS has been profoundly beneficial to American interests, with around $100 million in settlements being brought back to American investors in the last 15 years alone.

Foreign investors have filed 18 ISDS cases against the U.S. during the same time frame, and the U.S. has won every single time.

Reducing uncertainty is always important to a business owner — small or large. ISDS provides some much-needed certainty to companies that want to invest, compete and expand. As NAFTA renegotiations kick back into gear, it is essential that these mechanisms are maintained.

Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council, an advocacy and research organization focusing on advancing policies and initiatives that encourage entrepreneurship and small business growth.