MegaReg Forum Paper 2017/1

Alexander Hamilton’s Defense of Foreign Capital

José E. Alvarez

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The Trump Administration promises to reshape, and perhaps even dismantle, significant parts of the international trade and investment regimes.  The new President appears to favor trade wars (at least with China and Mexico) that may violate WTO agreements or the NAFTA, has promised to rip up the Trans-Pacific Partnership (TPP)(which some see as an alternative to post-Doha WTO paralysis), and seems even less likely to defend the independence of WTO Appellate Body members than the Obama Administration. The possibility of populist ethno-nationalistic policies spilling over into trade wars with China or Mexico has alarmed many, but treaties to protect foreign investors, particularly through investor-state dispute settlement (ISDS), had few defenders in the recent Presidential campaign or among members of Congress from either party.  For many, including prominent academics, it was easier to defend low tariffs and binding WTO arbitration to enforce them as well-established “American” ideas – as compared to special and enforceable privileges for foreign investment capital.  The latter seemed a more recent (failed) experiment, an “un-American” attempt to emulate, in the wake of naïve post- Cold War enthusiasm, European bilateral investment treaties (BITs) like that concluded between Germany and Pakistan in 1959 and Indonesia and the Netherlands in 1968.  This essay seeks to correct the historical record by reminding us that the defense of foreign capital has a longer association with U.S. foreign policy than does the goal of avoiding trade wars.