A Bipartisan Opening for Trump on Trade in the First 100 Days

By Todd Tucker |

From climate change to immigration reform, many progressive priorities are dead on arrival with the coming of President-elect Donald J. Trump. However, there’s at least one Trump priority that overlaps in part with progressive concerns: trade policy. As Michael Moore argued in July, Trump’s successful cooptation of labor unions’ talking points on trade catapulted him to victory in the Upper Midwest.

Trade is a complicated policy area, and trade agreements implicate a wide range of topics. But the aspect of trade deals that most politicians and grassroots organizations now seem to agree is problematic is investor-state dispute settlement, or ISDS. This system allows multinational corporations to sue host governments over environmental and other policies. It has come under fire from the Tea Party and Progressive Caucus, and even from former trade deal proponents like Hillary Clinton and Tim Kaine.

While Trump has focused primarily on older-fashioned aspects of trade deals (like tariffs), his campaign has noted, “The Trump Trade Doctrine also opposes any provisions in any trade deals that interfere with the sovereignty of the United States government… and ISDS clauses raise sovereignty issues.” Language similar in spirit if not letter made its way into the Republican platform. (In any case, there’s a clear connection between issues to which Trump has dedicated more airtime, e.g. offshoring of U.S. jobs, and ISDS. Legal scholar Kenneth Vandevelde has noted that the Carter administration kept early U.S. policy planning on ISDS very quiet out of concerns that it would be seen as encouraging U.S. companies to invest overseas rather than at home. While the evidence is mixed on whether this actually happened, there is at least a conceptual linkage Trump could invoke if he wanted to flesh out his campaign’s hitherto limited comments.)

If Trump is genuine on this point, there could be room to forge a bipartisan and international consensus on ISDS. The “how” is important. Reform of a single deal (such as the Trans-Pacific Partnership) would not be an efficient use of scarce policymaker energy. After all, the U.S. has ISDS with 53 countries. Like playing whack-a-mole, killing ISDS in one treaty will not prevent corporations (thanks to a loophole in the treaties) from simply reincorporating in other countries to launch their claims. I’ve argued elsewhere for a progressive rebalancing of the network of treaties, including enhanced rights for labor and environmental groups. But as I noted in that piece, getting to international consensus on what this looks like will be hard, as values across countries are so divergent on these points. With this victory for Trump (who presumably opposes labor and environmental rules), that’s now true even within the U.S.

So what if Trump did a solely subtractive fix, removing ISDS from existing treaties? The U.S. is currently party to 40 bilateral investment treaties (BITs) and has 10 regional and bilateral “free trade agreements” (FTAs) with ISDS with 16 countries.* Trump could terminate all of them on his first day in office by instructing the State Department to give notice to the trading partners. As Gary Hufbauer at Peterson Institute has indicated, this is well within the president’s treaty and foreign affairs authority under the Constitution. And, as far as I can tell, there is nothing in the statute that implemented (say) NAFTA that would need to be changed, meaning Congress wouldn’t need to agree (as they might with other changes to the deals).

There is a catch: the U.S. would still be bound under its BIT obligations for as long as 11 years. (The FTAs are more permissive, requiring only six months’ notice, and seemingly no overhang period.) The standard treaty language requires a year’s written notice, and then the U.S. is bound by the obligations for another 10 years after that. So the soonest the U.S. would be off the hook from ISDS claims would be January 20, 2028, or the outer bound of a constitutionally permissible Trump administration plus almost all of the 46th president’s first term. This long overhang period is one reason why countries that have been critical of ISDS have rarely completely left the system. Any costs are frontloaded, and any benefits accrue to future administrations.

Trump could do a workaround. He could tell our trading partners that he wants to amend the termination provisions of the old treaties to make them have more immediate effect.** If his counterparts agreed, under the international rules on treaty interpretation, this would probably pass muster. He could even go for the nuclear option and “unilaterally amend” the treaty by saying the U.S. will no longer be bound by it effective immediately. International lawyers would have a field day arguing the legality of such a move, but by doing it Trump would create “facts on the ground” that would be hard to contest. Would a Trump that unilaterally made such a move in the first place then willingly show up to international dispute settlement to hear others complain about it?

The good news for such a Trump move is that many countries will probably readily agree to this idea. Many trading partners face controversy over ISDS at home. If the U.S. signaled a change of priorities, it is likely other countries would follow. Removing this major sticking point would probably also make it easier to pass trade deals down the line.

There are several things in all this for Trump. First, it would allow him to do something politically big on trade without starting an economically damaging trade war. Moreover, the best ISDS reform ideas by trading partners like Canada and the EU have hit their own impasses. By putting forward his own plan, Trump can show proactive leadership in the international arena. Indeed, he could go beyond the U.S.’s 50 deals and propose a global convention rolling back ISDS that any country could join. (This tactic would use a docking mechanism I describe here.)

A big question mark is whether Trump would actually do anything to ISDS. The people projected to fill roles in Trump’s cabinet include the types of oil and gas officials who often benefit from the system. Moreover, progressives will have to decide how far they are willing to collaborate with a Trump administration. There are principled reasons to just say no, but also opportunities to exploit the opening created by the implosion of both political parties.

Footnotes

* For three countries (Honduras, Morocco, and Panama), the U.S. first had ISDS under a BIT, before later putting an FTA with ISDS on top of that. The later FTAs effectively suspended ISDS claims under the BITs until and unless the FTAs were terminated, so Trump would need to need to give notice under both. Note that, for the FTAs, the technical fix would be easier. Trump could just get consensus with the relevant trading partners to amend the text to remove the investment rules without terminating the overall agreement.

** This would be straightforward as a technical matter. FTAs typically have provisions allowing amendments to take effect immediately. BITs do not always have explicit amendment processes, but the U.S. practice has been to amend agreements by an exchange of diplomatic notes. The note for the U.S.-Argentina BIT would read something like the following:

January 20, 2017

Mr. Minister [of the Mauricio Macri Government]:

I have the honor to refer to the Treaty between the United States of America and the Argentine Republic concerning the reciprocal encouragement and protection of investment, with Protocol signed at Washington, November 14, 1991 (“The Treaty”).

Based on recent discussions over the appropriateness of the investor-state dispute settlement system generally, I wish to propose amending Article XIV, paragraphs 2 and deleting paragraph 3, so as to read:

  1. Either Party may, by giving written notice to the other Party and receiving a letter by the other party expressing support and consent, terminate this Treaty, effective immediately.

If the foregoing is acceptable to your Government, I have the honor to propose that this note, together with your reply to that effect, shall constitute an agreement between the two Governments amending the Treaty. If such an amendment is acceptable, I have the honor of further proposing that the Treaty be terminated, effective immediately.

Accept, Mr. Minister, the renewed assurances of my highest consideration.

Sincerely,

John Bolton

Secretary of State

Washington, DC

There are other technical matters to consider. For instance, if Trump wanted to keep some of the investment rules in place, but only allow them to be enforceable by government-to-government dispute settlement, he could simply remove investor standing rules from the treaties but keep the rest intact. Also, the Trump administration would need to consider what changes (if any) it wished to make to the multilateral treaties that underpin individual BITs.

Todd N. Tucker is a Roosevelt Fellow. His interests revolve around global economic governance, including dispute settlement and the domestic regulatory implications of international trade, investment, and tax treaties.