Inside U.S. Trade: House Democrats call for an end to CAFTA-DR's investor-state dispute provisions

The U.S. must remove investor-state dispute settlement mechanisms from the Dominican Republic-Central America Free Trade Agreement and other trade deals in the region, nearly 50 House Democrats said last week.

In a March 21 letter to U.S. Trade Representative Katherine Tai and Secretary of State Antony Blinken, a group of 47 House lawmakers called for the officials to work with CAFTA-DR partners to remove the agreement’s ISDS mechanism, arguing it facilitates “harmful corporate overreach in emerging economies.”

“While there is no evidence that ISDS significantly promotes foreign direct investment, there is ample evidence that the abuse of the ISDS process harmed the Central America and Caribbean region,” the lawmakers wrote. “Multinational corporations have used ISDS to demand compensation for policies instituted by governments in CAFTA countries, undermining their democratic sovereignty and, often, harming the public good.”

Under ISDS, companies have targeted “labor rights, environmental protection, and public health policies,” which work to counter U.S. efforts to address migration from the region, the lawmakers contended.

For some Central American and Caribbean countries, losing even one ISDS lawsuit could “destabilize their economy, as limited fiscal revenues are diverted from critical domestic priorities to cover legal defense expenses, tribunal costs and damages,” they wrote. Taxpayers in CAFTA-DR countries paid out at least $58.9 million in ISDS awards to foreign corporations and there are at least $14.5 billion in pending ISDS claims, it said, citing data from Georgetown Law’s Center for the Advancement of the Rule of Law in the Americas.

Removing ISDS from CAFTA-DR and all other regional FTAs would “send a powerful signal that the U.S. government is committed to a new model of partnership in the region – a model that uplifts and protects democracy, rule of law, human rights, and the environment,” they said.

House Ways & Means Committe Democrats Linda Sánchez (CA) and Lloyd Doggett (TX) led the letter, also signed by fellow panel members including Judy Chu (CA) and Daniel Kildee (MI). House progressives including Reps. Jan Schakowsky (IL), Pramila Jayapal (WA) and Jamie Raskin (MD) also signed the letter.

“By getting rid of ISDS, we can focus on fair trade that will build a more stable and prosperous future for the people of Central America while also addressing the underlying factors of migration,” Sánchez said in a March 21 statement on the letter.

Multinational corporations continue to use ISDS to “intimidate small countries from strengthening health, environmental, and worker rights protections,” Doggett said in the statement, citing a claim against Honduras he said is “equal to about two-thirds of the country’s entire national budget.”

In December 2022, Honduras Próspera, a U.S. company, filed a $10.8 billion ISDS claim against the Honduran government because the president repealed a law providing Honduran economic development and employment zones (ZEDE), areas that had autonomous governance and judicial systems.

The company claimed it filed the dispute because Honduras “continues to refuse to cooperate” on efforts to negotiate a solution, Próspera said in a December 2022 statement announcing the claim.

Two of the co-authors of the Americas Act, a proposal to overhaul the U.S.’ approach to Latin America, last month said the Honduran government’s actions could disqualify it from benefitting from the bill should it become law.

“Threats of wholesale elimination of the ZEDE legal framework and harassment of lawful investors are exactly the type of actions which have kept Honduras with a large informal economy and increased irregular migration; and are actions which the Americas Act would seek to eliminate; but also which would make Honduras ineligible for Americas Act accession when that becomes law,” Rep. María Elvira Salazar (R-FL) and Sen. Bill Cassidy (R-LA), said in a Feb. 21 letter to Honduran President Xiomara Castro.

The Americas Act, introduced earlier this month, includes a pathway for some Western Hemisphere trading partners to join the U.S.-Mexico-Canada Agreement. Americas Partnership for Economic Prosperity countries would be first in line to benefit from joining USMCA; Honduras is not party to APEP.

Democratic lawmakers have long pushed for the administration to eliminate ISDS provisions from FTAs. Sen. Elizabeth Warren (D-MA) and Doggett last May also led a letter to Tai and Blinken urging them to eliminate ISDS, and pointing to the Honduras case.

Warren last October also pledged to “keep on fighting” until all U.S. FTAs are free from such mechanisms. She spoke during a webinar related to a white paper about how the U.S. can leverage APEP to phase out ISDS in the Western Hemisphere.

The white paper, published by American Economic Liberties Project’s Rethink Trade, the Columbia Center on Sustainable Investment and Georgetown Law’s Center for the Advancement of the Rule of Law in the Americas and Center on Inclusive Trade, said ISDS hampers APEP countries’ ability to develop their economies and outlined three ways to eliminate ISDS: terminating bilateral investment treaties; “amending FTAs to remove investment chapters and ISDS provisions”; and withdrawing consent to ISDS arbitration in free trade agreements and BITs. -- Jason Asenso (jasenso@iwpnews.com)