Now that Congress has approved the Colombia Trade Protection Agreement (CTPA) and two similar pacts with South Korea and Panama, the treaty awaits only President Obama's signature. (Colombia has already taken all its necessary steps to bring the treaty into force.) Although the press will focus on the treaty's trade benefits, U.S. investors into Colombia will care more about its investment protections.

The CTPA's foreign investment-protection chapter is a "good news, OK news" story. The good news: before now, U.S. investors had no protection from government wrongful acts impairing their investments in Colombia; now they have some (albeit imperfect), protection. The OK news: protections are arguably weaker than under the 1994 NAFTA or U.S. BITs predating NAFTA. After some NAFTA cases caused concern in Washington, investors' protection was arguably limited in the U.S.'s 2004 model-form bilateral investment treaty (2004 Model BIT). The CTPA is based on that model.

This means U.S. investors should still consider structuring their investment ownership chain in a manner that engages more than one of Colombia's investment protection treaties.

U.S. investors in Colombia (already the world's second most profitable stock market over the last five years) have held relatively flat investment levels since the recession — with the bulk of U.S. investments being in mining, high-value construction, and oil and gas. Now, big tariff reductions on U.S. goods as well as formalized investor protections mean increased activity in these key industries.

The CTPA's basic investor protections include:

  • Mandatory "most favored nation" nondiscriminatory treatment. The right to acquire and maintain investments on equal footing with Colombian citizens and entities; 100 percent foreign ownership is allowed in most industries.
  • Protection against expropriation (i.e., governmental seizing). Expropriation is only allowed for public purposes following due process and the government must pay "prompt, adequate, and effective compensation."
  • Establishment of binding neutral dispute resolution for investor-state disputes (ICSID arbitration).
  • Creation of specific protections for intellectual property.

The CTPA's protections may not be as strong as U.S. investors in Mexico and Canada enjoy under NAFTA, because the CPTA:

  • May set a lower floor than some other U.S. treaties. Government obligations like providing police protection, adequate infrastructure, and paying for expropriation rest on "customary international law." Customary international law has been argued to be a floor lower than the protections found in NAFTA and, more importantly, lower than the protections of third countries' BITs with Colombia.
  • Makes it arguably harder for investors to prove indirect expropriation. For example, the treaty's official text states "[e]xcept in rare circumstances, non-discriminatory regulatory actions by [government seeking public welfare objectives], do not constitute indirect expropriations."
  • Contains state-friendly arbitration provisions. The CTPA has a new motion-to-dismiss process requiring the tribunal to quickly dismiss investors' claims whenever "as a matter of law, a claim submitted is not a claim for which an award in favor of the claimant may be made . . . ." (Similar to a 12(b)(6) dismissal in U.S. courts).

The impact of these scaled-back investor protections is unclear, so U.S. investors should still consider ownership chains that engage more than one of Colombia's investment protection treaties with third countries. Nationality planning, or choosing the right holding structure through third-country BITs with Colombia (e.g. Spain and/or Switzerland) may provide better protection. But these and other BITs have unique exclusions, carve-outs, and limitations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.