April 20, 2015
U.S. International Investment Agreements (IIAs)
Introduction

Box 1. Basic Provisions of U.S. IIAs.
In addition to specific market access commitments, U.S.
In recent decades, the United States, the largest source of
international investment agreements typically include:
and destination for foreign direct investment (FDI) in 2013,
Non-discriminatory treatment. Provides for the better of
has entered into binding investment agreements with
national treatment or most favored nation treatment for the ful
foreign countries to facilitate investment flows, reduce
life cycle of an investment (from its establishment or acquisition,
restrictions on foreign investment and expand market
through its management, operation and expansion, to its
access, and enhance investor protections, while balancing
disposition).
other policy interests. Some World Trade Organization
Minimum standard of treatment. Investment protections in
(WTO) agreements address investment issues in a limited
accordance with customary international law, including fair and
manner. In the absence of a comprehensive multilateral
equitable treatment and ful protection and security.
agreement, bilateral investment treaties (BITs) and
investment chapters in free trade agreements (FTAs),
Compensation for expropriation. Prompt, adequate, and
known as international investment agreements (IIAs), have
effective compensation when direct or indirect expropriation
been the primary tools for promoting and protecting
takes place; recognition that, except in rare circumstances, non-
international investment.
discriminatory government regulation (e.g., public health, safety,
or environmental regulation) is not an indirect expropriation.
The role of Congress on IIAs includes setting U.S. trade
Transfer of funds. Timely transfer of funds into and out of the
policy negotiating objectives; Senate ratification of BITs;
host country without delay using a market rate of exchange.
and congressional consideration and passage of legislation
Limits on performance requirements. Restrictions on
to implement FTAs. Current and future U.S. investment
trade-distorting performance requirements (such as local content
negotiations raise several policy issues for Congress.
rules or export quotas).
U.S. Investment Agreements
Investor-State Dispute Settlement (ISDS). The right of an
investor to submit an investment dispute with the treaty
To date, 2,390 IIAs are in force globally, of which U.S.
partner’s government to binding, impartial international
IIAs are a small fraction. The United States has BITs in
arbitration.
force with 40 countries and 14 FTAs with 20 countries,
Other interests. Environmental, labor, transparency, and anti-
most with investment chapters, covering 21% of U.S. FDI
bribery requirements, as well as exceptions for national security
abroad at the end of 2013 (based on Department of
and prudential interests.
Commerce data). At the same time, U.S. IIAs often are
viewed as more comprehensive and high-standard than
Issues for Congress
those of other countries. The Department of State and
United States Trade Representative (USTR), who co-lead
What is the status of U.S. investment negotiations and
U.S. investment negotiations, use a “Model BIT” (last
priorities? Current U.S. investment negotiations center on
revised in 2012) to negotiate U.S. BITS and FTA
two proposed mega-regional FTAs: the Trans-Pacific
investment chapters (Box 1).
Partnership (TPP) and Transatlantic Trade and Investment
Partnership (T-TIP), whose participating countries represent
Historically, U.S. investment agreements have focused on
around three-quarters of the stock of U.S. FDI abroad, but
developing and emerging economies, striving to eliminate
do not include major emerging economies, such as China,
investment barriers by protecting U.S. companies investing
India, and Brazil. The United States, separately, is
in countries with weak legal regimes, and/or insufficient
conducting BIT negotiations with China and India, which
protection for private property. The latest U.S. BIT signed
present both significant market access opportunities and
was with Rwanda in 2008. In terms of FTAs, U.S.
challenges. Congress could examine priorities in these and
investment agreements exist with six of the top twenty U.S.
future investment negotiations.
trading partners: Australia, Canada, Colombia, Mexico,
Possible TPA renewal could have implications for
Singapore, and South Korea.
investment negotiations. In addition to “traditional”
investment objectives, Congress may consider objectives
Congress provides investment negotiating objectives in
related to issues that have arisen since the 2002 TPA, such
statute granting the President TPA. The 2002 TPA, which
as new investment barriers posed by emerging markets and
expired in 2007, included a principal negotiating objective
the balance between reducing restrictions to capital flows
to reduce or eliminate barriers to foreign investment while
and ensuring adequate prudential exceptions, such as for
ensuring that, in the United States, foreign investors are not
financial crises. Bicameral legislation to reauthorize TPA,
accorded “greater substantive rights” for investment
the Bipartisan Congressional Trade Priorities and
protections than domestic investors.
Accountability Act of 2015 (H.R. 1890/ S. 995), was
www.crs.gov | 7-5700


U.S. International Investment Agreements (IIAs)
introduced in April 2015. The legislation incorporates the
treatment of a specific investor and cannot force
investment negotiating objectives of the 2002 TPA as well
governments to change laws or regulations. Critics argue
as provisions in other negotiating objectives that may
that large multinational companies can use ISDS to restrict
impact investment.
governments’ regulatory ability, leading to a “regulatory
chilling” environment, even if the dispute is not decided in
Why is investor-state dispute settlement (ISDS)
a company’s favor. Critics also highlight the increased use
controversial? International investment rules originally
of ISDS to resolve claims centering, for example, on the
were seen as significant in depoliticizing investor disputes
host state’s environmental and labor regulations.
by allowing investors to bring claims against foreign
governments in a neutral forum instead of requiring their
Also at issue is whether ISDS treats foreign and domestic
governments to espouse claims on their behalf (Box 2).
investors equally. The 2002 TPA stipulated that, in the
ISDS is a core component of the U.S. Model BIT, and is in
United States, foreign investors are not accorded “greater
most U.S. FTAs. At the same time, its treatment is actively
substantive rights” for investment protections than domestic
debated in current negotiations, such as TPP and T-TIP.
investors. ISDS supporters stress that provisions in U.S.
Box 2. Mechanisms for ISDS
IIAs are equivalent to existing protections in U.S. law (e.g.,
the Takings Clause) and are reciprocal, while critics argue
The most widely used fora for investor-state arbitration are the
that the use of ISDS itself implies greater procedural rights.
International Centre for Settlement of Investment Disputes
(ICSID) a World Bank Group affiliated organization, and United
Additionally, Members could consider whether to advocate
Nations Commission on International Trade Law (UNCITRAL).
more assertively for creating an appellate body to review
They provide the procedural rules for arbitrating international
investment disputes, first identified as a negotiating
investment disputes. Each investment dispute is decided by
objective in the 2002 TPA. Contradictions between arbitral
individual tribunals, typical y consisting of three arbitrators: one
awards resulting from the use of ad-hoc dispute panels may
appointed by the investor, one by the State, and one by
raise concerns. In trade disputes, by contrast, participants
agreement of both parties.
can appeal a decision to a permanent WTO appellate body.
What are prospects for the investment rules
Contributing to the increased prominence of the ISDS
architecture? The 2,390 IIAs currently in force form a
debate has been the growth in investor-state disputes in
complex, overlapping network of investment rules. The
recent years (568 treaty-based claims as of April 2014),
mega-regional agreements under negotiation (e.g., TPP and
along with the growing stock of global FDI (Figure 1).
T-TIP) may impact global investment rules. First, the
U.S. investors file around one-fifth of investment claims.
proposed agreements could enhance rules with a range of
Since the United States began signing investment treaties in
trading partners, some of which already have robust
the 1980s, only 17 cases have been initiated against the
investment ties with the United States. Second, they could
United States, with none decided against the United States.
serve as a platform for developing approaches to address
investment issues with countries that are not a part of these
Figure 1. FDI and Investment Disputes
negotiations. Third, these proposed agreements could form
the basis for potential future multilateral investment rules.
Fourth, they may present an opportunity to consolidate the
currently fragmented global investment network. The
United Nations Conference on Trade and Development
points out that proposed or concluded mega-regional
agreements overlap with 140 separate investment treaties.
The proposed U.S. BITs with China and India also could
affect global investment rules. They could not only expand
U.S. market access and enhance legal protections for
investors in these countries, but also may set an example for
addressing investment challenges with other emerging and
developing economies. However, their successful
conclusion requires resolving complex issues such as
differing approaches to market access and ISDS.
In this global context, Members of Congress could examine
the effectiveness of the current global network of IIAs; the
role of proposed FTAs and BITs in shaping the investment
Source: CRS, adapted from Center for Strategic and International
rules architecture; and if more comprehensive multilateral
Studies.
rules should be pursued, such as through the WTO. See
CRS Report R43052, U.S. International Investment
Members of Congress could examine issues raised in the
Agreements: Issues for Congress.
ISDS debate. Supporters of ISDS argue that it is a key way
to remove investment restrictions and protect their
Martin A. Weiss, mweiss@crs.loc.gov, 7-5407
investments against inequitable treatment by a host
Shayerah Ilias Akhtar, siliasakhtar@crs.loc.gov, 7-9253
government. They also assert that U.S. IIAs do not prevent

governments from adopting or maintaining non-
discriminatory laws or regulations that protect public
IF10052
interests, and, further, that outcomes of ISDS cases focus on
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