Trading Up: Investment Rules and State-of-the-Art Enforcement Are Critical to Grow Manufacturers’ Sales

By November 14, 2013Trade

The TPP talks present an important opportunity for manufacturers to grow their businesses and increase sales to the approximately 480 million consumers throughout the other 11 TPP nations.  In some cases, manufacturers export directly to foreign customers and need comprehensive elimination of tariffs and non-tariff barriers to create a level playing field and spur needed growth in such export sales.

In other cases, manufacturers invest overseas, setting up facilities to customize products and distribute them directly to the foreign consumer and provide after-sales service.  Both export sales and sales by foreign subsidiaries are vital for manufacturers to sustain and expand production and jobs here in the United States.

While some may question the value of foreign investment to the United States, the facts are clear. The U.S. Bureau of Economic Analysis’ own data show that year after year U.S. investment overseas helps drive U.S. exports and R&D in the United States, producing higher wages for employees of companies that invest overseas.  In the most recent 2010 data, U.S. companies with foreign investments generated about 48 percent of total U.S. goods exports, while accounting for less than a quarter of U.S. private sector output and are also involved in approximately three-quarters of all R&D in the United States. And most of the sales made by those foreign subsidiaries – nearly 90 percent – stay overseas.

Manufacturers’ success investing in foreign markets is no surprise, because doing so often enables them to develop products tailored for local consumers, creating new sales opportunities.  Indeed, many foreign-headquartered companies invest in the United States for that very reason.

While investment overseas greatly increases opportunities for manufacturers, such investment can carry great risks of unfair, discriminatory and expropriatory government actions that negate the benefit of such investments for U.S. manufacturers and their workers.  For that reason, manufacturers place a high priority on strong and enforceable rules in the TPP talks to ensure that our investments are accorded the same basic rule of law protections already available to all investors, foreign and domestic, in the United States.

A top priority for manufacturers across every major sector is ensuring that all basic protections, as well as key investment agreements and authorizations, are subject to investor-state dispute settlement rules.

The TPP must provide the ability to enforce these basic rules before a neutral arbitration panel – commonly known as investor-state dispute settlement (ISDS).  ISDS permits an investor to take a foreign government to a neutral arbitration forum to address concerns that the foreign government has acted contrary to the basic rules that govern such investment. .U.S. trade agreements, from NAFTA onwards, have generally included ISDS, as have the more than 45 bilateral investment treaties (BITs) that the United States has negotiated with individual countries.  Worldwide, there are more than 3,000 such agreements and every one of the eleven TPP countries has already accorded ISDS rights to other investors.

Yet, critics point to specific cases and argue that investor claims should be limited.  Most recently, questions have been raised about a recent NAFTA Chapter 11 case brought by Eli Lilly over Canada’s denial of certain patents which Lilly claims are expropriatory.  Others suggest that tobacco companies should not be permitted to pursue cases against Australia or Uruguay for mandating plain packaging of tobacco products, which companies believe expropriates valuable trademarks.

While these cases will take some time to go through the process, certainly we should all agree that the right to challenge a government’s action as expropriatory without  prompt, adequate and effective compensation is a valid claim and one that investors should be ensured will be heard before a neutral system of dispute settlement.  To suggest otherwise denies the bedrock principles of the U.S. Constitution and the U.S. judicial system where we do not deny access to justice because a law or regulation is intended to promote public welfare.

Arguments that the ISDS tribunal itself is a problem and that such claims should go through local courts is another red herring.  The obligations in our trade and investment agreements are generally not part of a country’s domestic systems of laws and rules, and therefore cannot be the subject of domestic court review.  So without investor-state, there is no enforcement of these basic rules of market access and fairness.

Let’s stand up for the enforcement of basic property rights, due process and the value that our investors overseas bring back to the United States.  All eleven TPP countries have already agreed to ISDS with other countries.  The TPP must bring home strong and enforceable protections for U.S. manufacturers.

Trading Up is a blog series from manufacturers, which focuses on the need for a comprehensive, high-standard Trans-Pacific Partnership (TPP) that eliminates barriers, creates concrete new market access and levels the playing field for manufacturers in the United States.


Linda Dempsey

Linda Dempsey

Linda Dempsey is the vice president of international economic affairs at the National Association of Manufacturers (NAM). In this capacity, Ms. Dempsey leads the NAM’s efforts to improve the global competitiveness of manufacturers in the United States by advocating intellectual property protection, increased export financing and the elimination of trade barriers as well as pushing for agreements and treaties to open up new export markets to create jobs. Ms. Dempsey is noted for her experience on a wide range of international trade and investment policy issues.
Linda Dempsey

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