Increasing host state regulatory flexibility in defending investor-state disputes: The evolution of U.S. approaches from NAFTA to the TPP

Building on the negotiation of U.S. bilateralinvestment treaties beginning in the early 1980s, U.S. free trade agreementsincorporatingspecific host-state obligations to foreign investors and binding investor-statedispute settlement (ISDS) have been a feature of U.S. trade and investment policy since 1992 (when the NAFTA negotiationswere concluded). PresidentsRonaldReagan, George H. W Bush, Bill Clinton, George W Bush and Barack Obama have all endorsed ISDS, despite opposition by many Democratic legislators, organized labor and environmental groups. Yet the content of these investment chapters shows a significant evolution from NAFTA to the Australia-United States FTA ("AUSF7A," without ISDS), ^the United States-Chile FTA and the Singapore-United States FTA (2003) to the Trans-PacificPartnership(TPP) (2015). The changes have been driven largely by the concerns of civil society and government officials over the dozens of NAFTA investment claimsfiled againstthe NAFTA Parties. They also reflect the perceived needfor the United States andother host governments to maintain a higher level of regulatory flexibility and discretion, particularly in such areas as protecting the environmentand maintainingpublic health. The United States' Trade Promotion Authority (TPA) legislation enacted in 2002 and 2015 also mirrors these post-NAFTA changes. The newest iteration of the mechanism (Chapter9 of the TPP), should it eventually enter into force for all or most of the signatories or he incorporatedin other U.S. trade agreementssuch as a renegotiatedNAFTA, would thus afford host governmentsfar more regulatorydiscretionthan earlieragreements such as NAFTA, along with increased transparency, making it more difficult for foreign investors to prevailagainst host governments with claims of denial of 'fair and equitable treatment" and "regulatory takings." The evolution of U.S. sponsoredinvestmentprotectionprovisionsinto a significantly more host government friendly, regulatory friendly, process, is the principaltheme of this paper.