Updated January 27, 2021
U.S. International Investment Agreements (IIAs)
Background
Box 1. Basic Provisions of U.S. IIAs
Market access for investments.
The United States, a major source of, and destination for,
Nondiscriminatory treatment of foreign investors and
foreign direct investment (FDI), is party to binding
investments compared to domestic investors (national
international investment agreements (IIAs) with over 50
treatment) and those of a third country (most-favored-
countries. Taking the form of bilateral investment treaties
nation treatment).
(BITs) and investment chapters in free trade agreements
Minimum standard of treatment (MST) in accordance
(FTAs), these IIAs reduce FDI restrictions, ensure
with customary international law, including fair and equitable
nondiscriminatory treatment of both investors and
treatment and ful protection and security.
investment, and balance investment protections against
Prompt, adequate, and effective compensation for direct
other policy interests (such as safeguarding a host
or indirect expropriation, with safeguards allowing for
government’s right to regulate in the public interest). While
nondiscriminatory regulation in the public interest.
some World Trade Organization (WTO) agreements
Timely transfer of funds into and out of the host country
address investment issues in a limited manner, IIAs have
without delay using a market rate of exchange.
been the primary tools for promoting investment and
Limits on performance requirements that, for example,
protecting investors. As of January 2021, more than 3,300
condition investment approval on using local content.
IIAs were concluded globally—forming a complex,
Investor-State Dispute Settlement (ISDS) for binding
overlapping network of investment rules.
international arbitration of private investor claims against
host country governments, along with transparency
Role of Congress. U.S. BITs require Senate advice and
requirements of ISDS proceedings.
consent. FTAs that include investment provisions that
Exceptions for national security and prudential interests.
require changes in U.S. law require implementing
legislation approved by both Houses to enter into force.
Congress sets U.S. negotiating objectives on investment,
U.S. IIAs. The United States has BITs with 40 countries
most recently in the 2015 Trade Promotion Authority
and 14 FTAs with 20 countries (see Figure 1), most with
(TPA) (P.L. 114-26), which reaffirmed principal U.S.
investment chapters. More recent U.S. investment
negotiating objectives to reduce or eliminate foreign
agreements and negotiations involve larger U.S. trading
investment barriers and to ensure that foreign investors do
partners.
not receive “greater substantive rights” for investment
Figure 1. U.S. International Investment Agreements
protections than U.S. investors in the United States. The
Department of State and U.S. Trade Representative (USTR)
co-lead U.S. investment negotiations using a “Model BIT,”
revised in 2012 (see Box 1).
Source: USTR and the Department of State information.
The U.S.-Mexico-Canada Agreement (USMCA), which
replaced the North American Free Trade Agreement
(NAFTA) when entered into force on July 1, 2020, contains
the most recent set of U.S. international investment
commitments. USMCA retains many of the same core
investment provisions, but adds new qualifications and
provisions that reflect more recent U.S. trade and
investment agreements, as well as compromises struck with
the other parties. Notably, USMCA curtails the degree to
which foreign investors can bring complaints against host
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U.S. International Investment Agreements (IIAs)
states under ISDS. USMCA eliminates ISDS all together
Box 2. Rules for ISDS
with respect to Canada. With respect to Mexico, USMCA
The International Centre for Settlement of Investment Disputes
limits ISDS to claimants regarding government contracts in
(ICSID), a World Bank Group affiliated organization, and the
oil and natural gas, power generation, infrastructure, and
United Nations Commission on International Trade Law
telecommunications sectors. It restricts ISDS in other
(UNCITRAL) provide the most widely used set of procedural
sectors to claims alleging discrimination or direct
rules for arbitrating international investment disputes, typically by
expropriation and requires claimants to exhaust local
a unique tribunal consisting of: one arbitrator appointed by the
remedies first.
investor; one by the State; and one by agreement of both parties.
Issues for Congress
The Biden Administration’s view on ISDS in potential
U.S. investment negotiations. Congress may use a possible
future IIA negotiations is unclear. Members of Congress
renewal of the current TPA, which expires on July 1, 2021,
could revisit issues raised in the ISDS debate. Supporters
to reaffirm or change U.S. trade negotiating objectives on
argue that ISDS is a reciprocal right protecting U.S.
investment for future U.S. trade agreements. One issue in
investors overseas, ISDS gives foreign investors in the
this regard is whether the USMCA represents a specific
United States no additional substantive rights relative to
shift in U.S. investment policy or a new model for trade
U.S. law as investment obligations mirror U.S. law, and no
agreements more broadly.
ISDS case has ever been decided against the United States.
Protection of investors’ rights balanced against other policy
Critics, in contrast, assert that investors should not have
goals may resurface as an issue in potential future trade
additional procedural rights to challenge governments
agreement, such as with the United Kingdom (UK) or the
through a venue outside of the country’s courts, the scope
27-member European Union (EU). Treatment of ISDS may
of covered protections is too broad, and that ISDS presents
be particularly contentious (see next section). If the Biden
transparency and fairness concerns.
Administration continues these, or pursues new, FTA
Other aspects of ISDS elicit debate as well. Critics argue
negotiations, Congress may actively monitor and shape
companies’ use of ISDS, or the mere threat of it, can lead to
their approaches to investment, among things, and could
a “regulatory chill.” They also highlight the use of ISDS to
consider implementing legislation for any final agreement.
resolve claims, for example, centering on environmental
Congress also may consider whether to encourage the
and labor regulations. Supporters counter that U.S. IIAs
Biden Administration to renew efforts to negotiate BITs
provide basic due process protections modeled after U.S.
with emerging markets. Previous U.S. BIT talks with China
law, and do not prevent governments from adopting or
and India have stalled over inability to resolve differences.
maintaining nondiscriminatory laws or regulations that
BIT negotiation efforts with economies such as China and
protect the public interest. They also note that ISDS awards
India, if renewed, could expand U.S. market access and
are restricted to monetary penalties or restitution and cannot
investor protections, but would need to overcome unique
force governments to change its laws or regulations.
challenges faced in these markets such as state-driven
Currently, ISDS decisions cannot be appealed. (In trade
strategic investment strategies and strong presence of state-
disputes, by contrast, participants have been able to appeal
owned enterprises in investment activity. A recent EU-
decisions to a permanent WTO appellate body (AB); in
China agreement in principle on a new investment deal with
December 2019, however, the AB ceased functioning as the
China may inject competitive pressure or considerations for
United States blocked appointments of new jurors to spur
any potential future U.S.-China BIT negotiations.
WTO reform.) Members of Congress could consider the
Debate over ISDS. ISDS was designed to depoliticize
pros and cons of an appellate mechanism for investment
disputes by allowing investors to bring claims against
disputes, as well as whether to advocate more assertively
foreign governments in a neutral forum (see Box 2). While
for its creation, which was endorsed in TPA-2015.
ISDS has been a core component of U.S. IIAs under
Contradictions between arbitral awards resulting from the
successive U.S. administrations and retains wide support in
use of ad-hoc dispute panels have raised concerns about the
the business community, it has been contentious in recent
coherence of global investment protections. Yet, appeals
U.S. trade negotiations and is opposed by some in civil
processes prolong disputes and investor uncertainty.
society. Issues included how to balance investor protections
Treatment of ISDS was a central issue in past U.S.
with governments’ right to regulate for environmental,
negotiations on the proposed Trans-Pacific Partnership
health, and other objectives; and the fairness and
(TPP) and the proposed Transatlantic Trade and Investment
transparency of ISDS. The debate has intensified with the
Partnership (T-TIP). After President Trump ceased U.S.
growth of global FDI and ISDS cases. U.S. investors
participation in the proposed TPP, the 11 remaining parties
account for about one-fifth of ISDS claims. To date, no
concluded a new Comprehensive Partnership on the TPP
cases have been decided against the United States.
(CPTPP), which suspended some contested TPP provisions,
However, some analysts note that measures taken by the
including on the use of ISDS for certain purposes (e.g., for
United States, as well as other countries, to respond to the
claims by private companies relating to investment
COVID-19 pandemic might be subject to future disputes.
contracts in which they have entered with governments).
In the T-TIP negotiations, the EU proposed replacing ISDS
with a new bilateral Investment Court System (ICS) that
would include a standing body with a first instance and
appellate tribunal and a permanent set of judges. To date,
the U.S. government and U.S. industry have favored ISDS
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U.S. International Investment Agreements (IIAs)
over the EU proposal, while some civil society groups
U.S. IIA commitments could form the basis for potential
assert that the proposed ICS fails to resolve their concerns
multilateral investment rules. A consideration may be any
about ISDS. Recent EU trade agreements, such as with
efforts by other economies to shape global rules through
Canada, Mexico, Singapore, and Vietnam, include a
their own IIAs, and whether they align with U.S. goals.
bilateral ICS. In addition, the EU has called for a
Multilateral Investment Court. Since 2017, international
For more information, see CRS In Focus IF11167, USMCA:
discussions have been underway in UNCITRAL in working
Investment Provisions; and CRS In Focus IF10636, Foreign
groups on various proposals to reform ISDS.
Direct Investment: Overview and Issues.
Investment rules. Congress may consider the U.S.
Martin A. Weiss, Specialist in International Trade and
approach to IIAs in the global context, and whether to press
Finance
a Biden Administration to pursue more comprehensive
Shayerah I. Akhtar, Specialist in International Trade and
multilateral rules, such as in the WTO. Continuing to
Finance
pursue bilateral IIAs may reinforce the current trajectory of
overlapping investment rules, yet may allow opportunity for
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rules more tailored to specific investment relationships; yet,
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https://crsreports.congress.gov | IF10052 · VERSION 12 · UPDATED