President Trump recently criticized South Africa’s government for allegedly expropriating the property of that country’s farmers. On August 4, he tweeted that he was asking Secretary of State Pompeo to “closely study” such potential seizures. The Trump administration should show similar concern when foreign governments expropriate the property of Americans.
Property Rights and NAFTA
The idea that the government cannot expropriate Americans’ property is enshrined in the Bill of Rights: “No person shall... be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
The North American Free Trade Agreement (NAFTA) includes a similar provision. NAFTA borrowed heavily from the Bill of Rights to protect Americans’ property rights in Canada and Mexico: “No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except: (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with due process of law and Article 1105(1); and (d) on payment of compensation.”
This so-called “Investor-State Dispute Settlement” (ISDS) provision provides important anti-confiscation benefits to all Americans.
However, some critics want to weaken or even remove NAFTA’s anti-confiscation benefits. For example, U.S. Trade Representative Robert Lighthizer has expressed hostility to NAFTA’s anti-confiscation chapter. According to Amb. Lighthizer, “It’s always odd to me when the business people come around and say ‘oh, we just want our investments protected.’ I thought, ‘well so do I.’ I mean don’t we all? I would love to have my investments guaranteed. But unfortunately it doesn’t work that way in the market.”
Amb. Lighthizer is incorrect. In fact, that is exactly the way it works in the market -- or at least, the way it should work. If you own property, it is by definition yours to keep and not the government’s to seize. Respect for private property rights is the foundation upon which the U.S. market economy rests.
Trade Agreements Provide Impartial Referees for Americans
NAFTA’s anti-confiscation chapter gives Americans the option of using a neutral dispute-resolution panel to determine whether their property has been expropriated by Canada and Mexico. Without this provision, Americans would have to rely on the court system of the government that just confiscated their property, a highly risky proposition.
Critics, who often appear to view private property as an impediment to big-government schemes rather than the source of U.S. prosperity, allege the ISDS process gives corporations “special” rights, because it provides companies with an alternative to potentially biased courts. That’s exactly the point.
Consider the case of Mexico. It’s been said that even Mexicans don’t trust the country’s court system.
Mexico ranks just 135th out of 180 countries measured in Transparency International’s Corruption Perception Index.” According to The Heritage Foundation’s Index of Economic Freedom, “Property rights are protected by a modern legal framework, and records are digitized, but both are made less secure by a weak judicial system, frequent demands for bribes, and acts of criminal extortion. The delays, unpredictability, and corruption that plague the justice system and law enforcement in general encourage a culture of impunity.”
In Mexico, the anniversary of the government’s 1938 expropriation of foreign energy assets is a national holiday. The country’s incoming president has called U.S. investment in Mexico’s oil industry “tantamount to piracy” and described Fidel Castro as “a giant.” Legislation in Mexico has already been proposed to “expropriate assets and properties” of Americans if the Trump administration interferes with private transfers of dollars to Mexicans in order to fund a border wall.
Our other North American trading partner, Canada, provides no constitutional protection against having property expropriated by the federal or provincial governments. NAFTA’s anti-confiscation provisions have resulted in more than $200 million (Canadian dollars) being awarded to investors whose property rights were found by arbitration panels to have been violated by Canada.
With business experience in both Canada and Mexico, President Trump should understand the importance of these issues. The Trump Organization has a luxury hotel in Vancouver, and after efforts to open a resort in Baja collapsed, President Trump wrote: “I have a lawsuit in Mexico’s corrupt court system that I won but so far can’t collect. Don’t do business with Mexico!” He later added, “Mexico’s court system is a dishonest joke.”
It would be highly risky to weaken NAFTA, thereby making it easier for the governments of Canada and Mexico to confiscate Americans’ property without providing compensation.
Taxpayers, The Environment, and Property Rights
Jared Bernstein, former chief economist to Vice President Joe Biden and senior fellow at the Center on Budget and Policy Priorities, recently wrote: “...the reality is that in 25 years of NAFTA, corporations have grabbed $392 million from taxpayers in investor-state attacks on environmental and health laws.”
The reality is that these disputes have grabbed zero dollars from U.S. taxpayers, because the U.S. government has never lost an anti-confiscation case.
The reality is also that NAFTA explicitly guarantees each country’s ability to maintain legitimate environmental and health laws: “Each Party may, in accordance with this Section, adopt, maintain or apply any sanitary or phytosanitary measure necessary for the protection of human, animal or plant life or health in its territory, including a measure more stringent than an international standard, guideline or recommendation.”
“NAFTA 2.0” May Devalue American’s Property Rights
The text of the new trade agreement between the United States and Mexico has not yet been made public. When it is, there may be some red flags to watch for.
The most radical downgrade will be if protection against confiscation is removed from NAFTA entirely. This would require Americans to rely on the judicial systems of the government that just expropriated their property to receive compensation.
Another red flag will be if there are special-interest “carve-outs” providing different levels of protection for different industries based on political expediency. The takings clause of the Constitution applies equally to all Americans. So should NAFTA.
NAFTA should also continue to protect Americans against regulatory actions by Canada or Mexico that indirectly expropriate U.S. property, discriminate against U.S. investors relative to Canadian or Mexican investors, or that fail to provide U.S. citizens with “fair and equitable treatment and full protection and security” under international law.
During NAFTA negotiations there have been proposals to allow countries to “opt-in” to anti-expropriation rules. This would also be a mistake. Americans’ right to own their property without expropriation should not be optional.
Keep Property Rights in NAFTA
Opponents of ISDS like Sen. Elizabeth Warren (D-MA), the AFL-CIO, and Public Citizen will be thrilled if it turns out Amb. Lighthizer has gutted NAFTA’s anti-expropriation rules. Such a change would reverse long-standing U.S. trade policy, deviate from congressionally mandated negotiating objectives, and prioritize anti-market political views above constitutional values. Americans who support property rights should be appalled at this potential outcome.