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Observations on the US BIT Program

Observations on the US BIT Program. David A. Gantz Rogers College of Law This project is funded in part through the support of the GE Foundation. History. 1980 saw initiation of U.S. program. Objectives: encourage and protect outward DFI, as part of US national interest;

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Observations on the US BIT Program

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  1. Observations on the US BIT Program David A. Gantz Rogers College of Law This project is funded in part through the support of the GE Foundation MOJ, Hanoi, August 2009

  2. History • 1980 saw initiation of U.S. program. • Objectives: • encourage and protect outward DFI, as part of US national interest; • level playing field with Europeans; • get State Dept. out of adjudicating disputes; • spread acceptance that treatment of foreign investors is subject to minimum international law standards. MOJ, Hanoi, August 2009

  3. Recognition then as now that a multilateral investment protection agreement is politically unachievable, despite a series of efforts at UN, OECD and elsewhere. • MAI failed in 1998 • WTO Members refused to place investment under Doha MOJ, Hanoi, August 2009

  4. BIT Practice • US now has over 40 BITs and ten or so FTAs with similar investment provisions • Many European capital exporting nations and increasingly investor countries in Asia such as Japan and S. Korea have been much more aggressive in concluding BITs in recent years, leading to over 2600 world-wide. • Note that provisions, including investor-state arbitration, vary widely; there isn’t full consistency even among OECD nations. MOJ, Hanoi, August 2009

  5. Model BITs • Most individual US BITs have been based on “model” BITS, either prepared by US directly or with reliance on OECD models; • high degree of uniformity was considered desirable, despite many differences among countries and their investment climates. • 2004 version is third or fourth over 25 years. MOJ, Hanoi, August 2009

  6. Recent BIT Practice • Negotiation of new US BITs was limited in 1990s, in part due to opposition by Clinton Administration’s important labor constituency • Agreements limited to relatively minor destinations such as Honduras, Jordan, Bahrain • Under 2004 model BIT agreements concluded by Bush Administration only with Uruguay and Rwanda MOJ, Hanoi, August 2009

  7. BITs, unlike trade agreements, are subject to advice and consent by Senate (traditionally less protectionist than house) • Considered self-executing under U.S. Constitution, meaning no implementing legislation must be submitted to House of Representatives MOJ, Hanoi, August 2009

  8. Investment Provisions in FTAs • Other than Israel FTA , most US FTAs beginning with NAFTA include BIT type provisions unless there was already a BIT in force. • US-Canada FTA had some investment protection but no investor-state arbitration. • Australia is major exception, with no investor-state dispute settlement. MOJ, Hanoi, August 2009

  9. Importance of NAFTA • NAFTA was the first US FTA with comprehensive investment provisions. U.S. wanted to protect investors in Mexico from concerns about court system and arbitrary government actions. • Mexico believed (correctly in retrospect) that strong investor provisions would encourage large investment volumes from US and Canada to create jobs, increase exports and increase technology transfer. MOJ, Hanoi, August 2009

  10. Although BITs are normally fully reciprocal there were no claims against US under BITs until NAFTA • Under NAFTA there have been about 50 claims, nearly 1/3 against USG (all filed by Canadian enterprises) • NAFTA has thus provided the experience that the US applies to other BIT negotiations and to questions of revising the model. • Canada has been forced to pay compensation in two cases (P& T and S.D. Myers), Mexico in five (Metalclad, Feldman, ADM, Corn Products, Cargill). Total for Mexico is in $100 million range. MOJ, Hanoi, August 2009

  11. U.S. position as defendant, particularly in cases involving indirect expropriation as a result of state or national regulatory actions, has caused great concern among citizen groups and in Congress even though the United States has never lost an arbitration under NAFTA. MOJ, Hanoi, August 2009

  12. Changes in NAFTA procedures have improved the process, including level of transparency and clarifying reliance on customary international law, but there have been no amendments • Congressional efforts at protecting U.S. Government as respondent began in earnest in 2002 with TPA: • efforts to limit scope of fair and equitable treatment obligation to a very high international law standard • avoid having legitimate environmental and other government regulations treated as compensable regulatory takings. MOJ, Hanoi, August 2009

  13. Standard for fair and equitable treatment is much easier to meet in some of European BITs and in Part IV of VBTA since it does not limit F&E treatment to that required by customary international law. • TPA mandated changes are found in Chile, Singapore and other post 2002 FTAs and in 2004 Model BIT. MOJ, Hanoi, August 2009

  14. No Better Treatment • Concerns have been expressed that foreign investors could receive better treatment than U.S. businesses challenging USG under 5th Amendment, particularly with respect to partial takings, where property values or economic benefits are reduced but not eliminated. • Resulted in BTD language in May 2007, where such limits were to be included in Preamble of Chapter 10 of FTAs with Peru, Panama, Colombia and South Korea. MOJ, Hanoi, August 2009

  15. Revising 2004 Model BIT • Revision of 2004 Model BIT now underway may result in further exceptions to protection of investors abroad, few changes from 2004 Model, or some sort of gridlock. • Most of 2004 BIT provisions won’t likely be changed much as result of these procedures, but process could take some time to complete. MOJ, Hanoi, August 2009

  16. Current review is a controversial one: interests are varied and conflicting: • Labor groups (represented by one of the co-chairs, AFL-CIO political director Thea Lee) and NGOs who are opposed to virtually all trade and investment agreements because they don’t want to encourage US enterprises to invest abroad • Exxon and Chamber of Commerce and Foreign Trade Council who would like to see investor state provisions strengthened • Pragmatists who believe 2004 model is basically satisfactory. MOJ, Hanoi, August 2009

  17. The 2004 Model BIT took three years to negotiate, at a time when the President was a strong supporter • Objective of concluding current review by end of 2009 seems optimistic. MOJ, Hanoi, August 2009

  18. Future U.S. BITs • Post-NAFTA, few US BITs were with countries that might be exporting capital to U.S. • Situation is different with planned negotiations with Vietnam, China and India, where inward investment is likely. • This is likely to make U.S. policy makers in Obama Administration careful in negotiations. MOJ, Hanoi, August 2009

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