Worldwide: US Bilateral Investment Treaties: Recent Developments

Originally published June 11, 2012

Keywords: bilateral investment treaties, BITs, US Model BIT, free trade agreement, FTA

A Bilateral Investment Treaty (BIT) is an agreement between two States meant to promote and protect private investment by nationals (companies or individuals) of one State in the territory of the other State (the "host" State). A number of protections are offered to investors covered by a BIT, which often include guarantees of fair and equitable treatment, fair compensation in case of expropriation, full protection and security, national treatment, nondiscrimination and sometimes a most favored nation clause. Most BITs also contain a dispute resolution provision allowing an investor to initiate arbitration proceedings against the host State for violations of the treaty, in many cases before the World Bank's International Centre for Settlement of Investment Disputes (ICSID).

The United States is currently party to 48 BITs, including seven that have been signed but not yet ratified.1 It is also in negotiations to conclude several others. Globally, there are almost 3,000 BITs signed in the world. The United States is also party to several Free Trade Agreements (FTA), many of which contain chapters providing comparable protection for investments (such as the FTAs with Australia, Bahrain, Chile, Israel, Jordan, Morocco, Oman, Peru and Singapore). The North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement (CAFTA-DR) are good examples of multilateral treaties entered into by the United States containing a chapter on investments.

Several developments have recently occurred on the US BIT scene, which are notable as much for the discussion and debate they have produced as for the fact that they lie at very different ends of the spectrum in their promotion of US BIT interests: a new model US BIT was announced, varying degrees of enthusiasm have been expressed with respect to BITs between the US and the BRIC nations and, in a somewhat contrary footnote, Bolivia's previously announced termination of its BIT with the United States will take effect on June 10.

New Model US BIT

Several States now have their own "model" BIT, which they use as a template when entering into negotiations with another State for the conclusion of a new treaty. The United States is one such country, having had its own model BIT since 1982. The adoption of a new model BIT does not change existing treaties, but it will form the basis of the US position in negotiating future treaties.

On April 20, 2012, the Office of the United States Trade Representative released its newly revised and updated model BIT.2 This new model has been the subject of a lengthy review process that began in February 2009, and has been a significant focus of the Obama administration, which has been keen to promote foreign direct investment and ensure that "U.S. companies benefit from a level playing field in foreign markets."3

US BITs are essential tools for US companies and nationals when considering investing abroad, or if faced by measures adverse to their investment by the host State of the investment. Many US companies have already resorted to arbitration pursuant to the dispute resolution provision of a BIT. Currently, there are at least 13 pending ICSID arbitrations that have been brought by a US company or individual under a US BIT.4 There are also currently a number of other international arbitrations that have been initiated by US companies in non-ICSID fora, such as the Permanent Court of Arbitration and others. In addition, foreign subsidiaries of US companies have relied on BITs signed by third countries to bring claims against certain States.

WHAT IS THE NEW MODEL US BIT AND HOW DOES IT DIFFER FROM THE 2004 MODEL BIT?

The 2012 Model US BIT is an update of the 2004 Model US BIT, which formed a template for US BIT negotiations since its adoption. The 2012 revisions aim to eliminate what were seen as previous shortcomings and update and refresh the model text. A summary of the principal changes follows.

Financial Services (Article 20)

Modification of the financial services provisions of the Model US BIT was motivated in part by concerns about claims that might have been asserted under existing treaties as a result of US government actions in response to the recent financial crisis. Fears were raised in particular that similar actions in the future could result in claims by foreign state-owned enterprises (SOE) with investments in the financial services industry. Yet despite the call for more wideranging amendments, only the following changes were made:

  • A footnote (no. 18) was added to Article 20 which clarifies the scope of "prudential reasons" and makes clear that exempted "measures relating to financial services" for such reasons can include measures to preserve "safety and financial and operational integrity of payment and clearing systems"
  • A new provision was incorporated at Article 20.3(e) allowing a respondent State to require a Tribunal to promptly decide upon the application of these prudential measures and financial services exemptions
  • A new provision was incorporated, at Article 20.8, clarifying that the BIT does not prevent financial services measures which are necessary to ensure compliance with laws and regulations otherwise consistent with the BIT, including measures to prevent fraud

State-Owned Enterprises (Article 2.2)

This subject generated much discussion with regard to the scope of the obligations imposed by the BIT upon state-owned enterprises. One change was made in this regard.

Article 2.2(a) makes clear that the application to a state enterprise of the substantive obligations of the BIT also extends to entities that have been delegated governmental authority. The 2012 Model US BIT includes a new footnote (no. 8) to this provision, which clarifies that governmental authority can be validly delegated for the purposes of the BIT by "a legislative grant, and a government order, directive or other action transferring ... governmental authority." This additional language ensures that even when governments delegate their authority to SOEs through informal means, such enterprises are still bound to abide by the obligations of the State in the BIT.

Performance Requirements (Article 8)

The 2012 Model US BIT widens the scope of the prohibition against performance requirements found in Article 8. Performance requirements are prohibited by many BITs as it is generally felt they prejudice investors by setting requirements that cannot always be met (or would result in less desirable economic conditions if they were met).

Article 8 has been amended (at 8.1(h)) to now include a prohibition against a State requiring an investor to show a preference to (i) the host State's technology and/or (ii) any particular technology.

Transparency (Article 11)

Transparency and public participation were given significant weight during the BIT review. Some significant changes resulted.

Standards-Setting (Article 11.8)

The provisions found under Article 11.8 of the 2012 Model US BIT are completely new and are designed to ensure that standards are developed transparently and openly. Article 11.8 requires a host State to allow investors to participate in the development of standard-setting within the host State. This includes the development of product standards and technical standards by central government bodies within the host State. It also includes an obligation upon the host State to recommend that non-governmental standardsetting bodies also allow investors to participate in the development of standards by those bodies. The provisions under Article 11.8 are subject to State-State dispute resolution, rather than to investor-State arbitration.

Regulatory Transparency (Article 11.2)

The provisions concerning the publication of regulatory actions and transparency in host State regulatory and administrative matters have been expanded in the 2012 Model US BIT. While the 2004 Model US BIT required parties to publish in advance any laws, regulations, procedures, administrative rulings of general application and adjudicatory decisions, a new article (11.3) has been added to the 2012 Model US BIT. This increases the notification and commentary obligations in relation to the above situations. More explanations and substantive comments are now required from a host State in these instances.

Environmental Obligations (Article 12) and Labor Obligations (Article 13)

These sections of the 2012 Model US BIT sparked some debate. On the one hand, environmental organizations and labor unions argued for stricter provisions and for specific standards and controls to be set, alleging that the provisions under the 2004 Model US BIT were weak and unenforceable. On the other hand, many businesses argued for the provisions to be cut altogether. In the end, the 2012 Model US BIT positioned itself between these two standpoints.

The new Model US BIT places an obligation on host States to recognize and enforce domestic environmental and labor laws and to commit not to derogate from them (articles 12.1, 13.1, 12.2, 13.2). A consultation procedure has also been set out (articles 12.6 and 13.4), whereby parties are entitled to request a consultation with regard to these matters. However, these provisions are not subject to any kind of dispute resolution, other than the consultation procedure set out at articles 12.6 and 13.4.

Appellate Mechanism

The 2004 Model US BIT contained a requirement, in Annex D, that the parties commence negotiations over an appellate mechanism for investment arbitration within a fixed period of time. It was felt, however, that this was ineffective because of the considerable difficulties in obtaining any consensus as to what appellate mechanism would be desirable. In the 2012 Model US BIT, Annex D was deleted in favor of a provision in the text of the BIT providing that there is no fixed time period for commencing discussions.

Territorial Seas

The definition of the "territory" of a party has been modified to expressly include territorial seas as defined by customary international law. Territorial seas had not been specifically included in the definition in the 2004 Model US BIT; rather, the definition had been left entirely blank, to be completed by the parties during the BIT negotiations.

REACTIONS TO THE NEW MODEL US BIT

Reactions to the new Model US BIT have been markedly divided. Opponents claim that it has barely changed from the 2004 version and that it does not do enough to protect domestic public interests. Supporters, however, strongly welcome the revised Model US BIT, seeing it as evidence of US commitment to open markets, the protection of US investments overseas and the elimination of foreign barriers. They especially praise the localized technology and transparency and standard-setting measures. Yet even the supporters state that they are "very disappointed"5 that the new model did not go further and that many of their proposed changes during the review process were simply overlooked and not included, such as recommendations to tighten the core substantive investment law protections in Articles 3 – 10.

Other Developments: US BIT Negotiations with BRIC countries

In other developments, there has been a recent increase in interest in the conclusion of US BITs from at least some of the BRIC countries. On April 16, 2012, US Secretary of State Hilary Clinton spoke at the National Confederation of Industries in Brasilia, at which she urged negotiations for a US-Brazil BIT: "We need to explore a bilateral investment treaty. We need to consider in the future free trade agreements. We need to look at how the United States and Brazil can anchor economic growth and democratic values not only for the region, but around the world." Whether this will come to fruition will remain to be seen, as Brazil has traditionally been opposed to BITs, evidenced by the fact that no such agreements are in force in Brazil.

At the Fourth US-China Strategic and Economic Dialogue in Beijing, on May 4, 2012, China and the United States committed to scheduling a seventh round of negotiations for the conclusion of a BIT, and also committed to intensify such negotiations. Negotiations for a potential BIT between India and the US have made "active" progress according to Nancy Powell, the US Ambassador to India, who also confirmed that a new round of talks will begin soon. Russia has also publicly indicated recently that it is interested in engaging in talks with the United States concerning a BIT.

Not a Happy Ending in Every Case: Bolivia's Termination of its BIT with the United States

There has been increasing defiance by certain Latin-American countries, including Bolivia, Venezuela and Ecuador, over BITs and their dispute-resolution clauses. In 2011, Bolivia announced the termination of its BIT with the United States, effective June 10, 2012.

Bolivia originally signed the US/Bolivia BIT on April 17, 1998, and the treaty came into force on June 6, 2001. Notwithstanding the BIT's termination, current investments that were made while the US/Bolivia BIT was in force will continue to be covered by the provisions of that treaty for the next 10 years pursuant to Article XVI, paragraph 3. In other words, the termination will only affect US investments in Bolivia made after June 10, 2012, which will no longer be protected by the treaty. For US companies considering investing in Bolivia going forward, ways will still exist to structure investments to achieve protection under another treaty, subject to conditions.

Footnotes

1 See http://tcc.export.gov/Trade_Agreements/ Bilateral_Investment_Treaties/index.asp

2 For text of Model US BIT, see http://www.ustr.gov/ sites/default/files/BIT%20text%20for%20ACIEP %20Meeting.pdf

3 Press Release published by the Office of the United States Trade Representative, April 20, 2012.

4 As of May 24, 2012, for the global list of pending ICSID arbitrations, see: http://icsid.worldbank.org/ ICSID/FrontServlet?requestType=GenCaseDtlsRH&action Val=ListPending

5 Statement released by the Emergency Committee for American Trade (ECAT)on April 20, 2012.

Learn more about our International Arbitration and International Trade practices

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions