The People of America's Oil and Natural Gas Indusry

Keep NAFTA’s ISDS Protections for U.S. Investors

Mark Green

Mark Green
Posted October 10, 2017

With talks between the U.S., Canada and Mexico on modernizing NAFTA heading for a fourth round this week, our negotiators can help ensure the global competitiveness of U.S. energy companies by working to retain strong protections for U.S. investments abroad through the agreement’s investment protections and investor-state dispute settlement (ISDS) provision.

ISDS sounds a little wonky, but its basic mission is pretty straightforward: It helps protect U.S. investors from being treated unfairly by host nation governments. Conversely, there’s potential jeopardy if the U.S. allows ISDS to be weakened or removed in the current talks. It could undermine ISDS provisions globally in other treaties and agreements.

In U.S. free trade agreements like NAFTA, the investment chapter commits the treaty signers to grant investors from the other countries involved in the pact a basic standard of protection that includes non-discrimination, fair and equitable treatment and limits and rules for expropriation. ISDS backs this up by allowing investors to seek remedies for alleged violations of this standard in a neutral forum.

Again, in NAFTA modernization talks, strong investor protections and ISDS must be retained. Here’s why:

ISDS Works for U.S. Interests

  • Under NAFTA, U.S. investors have won or favorably settled most of the 40 cases against Canada and Mexico.
  • The U.S. has a perfect track record in ISDS cases brought against it under NAFTA by Canadian and Mexican interests. In the 22 years since the inception of NAFTA, the U.S. has not lost a single ISDS claim brought against it.

For example, in one case a U.S. investor’s mining project was denied by the Canadian government under an undefined standard that only U.S. investors, not Canadian, were held to. A tribunal found Canada had breached certain NAFTA obligations, and that the investor was entitled to financial compensation. In another, a U.S. high fructose corn syrup producer faced a discriminatory tax imposed by Mexico – levied on beverages sweetened with high fructose corn syrup, primarily imported from the U.S., but not those sweetened with cane sugar, mostly produced domestically. A $77.3 million award was granted.

To borrow a phrase, under NAFTA’s ISDS provision, the United States is winning. Beyond NAFTA, the concept of ISDS in thousands of other trade and investment agreements commits foreign governments to afford U.S. investors the same protections of fairness and non-discrimination as in the U.S. Constitution. This enhances the bargaining and deal-making power of U.S. businesses, as well as their overall competitiveness in the world.

ISDS Safeguards U.S. Foreign Direct Investment

U.S. companies have significant natural gas and oil investments in Canada, and Mexico’s decision to open its energy sector to outside investors offers the opportunity for U.S. companies to make natural gas and oil investments there that are similar to those in Canada. ISDS helps protect these investments. Details:

ISDS Has Remedied Natural Gas and Oil Expropriation Attempts

Here’s the track record for ISDS provision in U.S. trade agreements:

  • Since 1996, 19 of the 64 cases of natural gas and oil expropriation globally involved API member companies and were covered by ISDS protections. For those 19 cases, ISDS was afforded by nine different free trade agreements or bilateral investment treaties, including NAFTA. Eleven of those 19 cases were settled or decided in favor of the investor (the API member company), with five cases still pending, one discontinued and two for which data are not available.

ISDS is a neutral, international arbitration procedure. Its scope isn’t unlimited and it doesn’t infringe on the sovereign rights of other nations to regulate in the public interest in a non-discriminatory way. It’s simply a mechanism to support fair treatment under agreements such as NAFTA.

This is especially important in the energy space, with U.S. companies working all over the globe to find and develop natural gas and oil. Companies must be confident that they can seek protection for their investments. Again, if the United States retreats from ISDS in NAFTA, it could damage ISDS provisions globally by establishing a precedent for other countries to renege on their ISDS commitments in other treaties and agreements.


Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.