Transcript Notes on US BIT program - US

Ministry of Justice
Bộ Tư Pháp
U.S. – Vietnam Trade Council Education Forum
Diễn đàn giáo dục Hội Đồng Thương Mại Mỹ-Việt
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
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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.
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• 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
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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.
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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.
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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
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• 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
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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 investorstate dispute settlement.
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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.
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• 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.
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• 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.
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• 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.
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• 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.
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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.
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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.
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• 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.
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• 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.
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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.
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