U.S. International Investment Agreements (IIAs)

U.S. International Investment Agreements (IIAs)

Updated April 1, 2022
U.S. International Investment Agreements (IIAs)
The United States, a major source and recipient of foreign
Mexico-Canada Agreement (USMCA), which entered into
direct investment (FDI), historically has sought to promote
force in 2020, retains many of the historically core
U.S. FDI and protect U.S. investors through the negotiation
investment provisions, but notably, curtails the degree to
and enforcement of international investment agreements
which foreign investors can seek enforcement of these
(IIAs). Taking the form of bilateral investment treaties
provisions under the investor-state dispute settlement
(BITs) and investment chapters in free trade agreements
(ISDS) provisions, although recourse may be available
(FTAs), IIAs aim to reduce FDI restrictions, ensure
through USMCA’s state-to-state dispute settlement
nondiscriminatory treatment of investors and investment,
mechanism. USMCA eliminates ISDS with respect to
and balance investment protections and other policy
Canada. With respect to Mexico, for government contracts
interests through binding, reciprocal obligations. While
in oil and natural gas, power generation, infrastructure, and
some World Trade Organization (WTO) agreements
telecommunications sectors, USMCA maintains ISDS for
address investment issues in a limited manner, IIAs have
any claim for breach of investment chapter obligations.
been key tools to govern bilateral and regional investment
USMCA, however, restricts ISDS in other sectors to claims
ties. The United States has BITs with 40 countries and 14
FTAs with 20 countries (see Figure 1), most with
alleging discrimination or direct expropriation, and requires
investment chapters. According to the United Nations
claimants to exhaust local remedies first—also a significant
Committee on Trade and Development (UNCTAD), as of
change compared to the U.S. approach to ISDS historically.
March 2022, 2,805 IIAs were concluded globally, of which
Box 1. Basic Provisions of U.S. IIAs
2,242 were in force—forming a complex, overlapping

Market access for investments.
network of investment rules. Congress has a major role in

Nondiscriminatory treatment of foreign investors and
overseeing and approving U.S. IIAs.
investments compared to domestic investors (national
Figure 1. U.S. International Investment Agreements
treatment) and those of a third country (most-favored-
nation treatment).

Minimum standard of treatment (MST) in accordance
with customary international law, including fair and equitable
treatment and ful protection and security.

Prompt, adequate, and effective compensation for direct
or indirect expropriation, with safeguards allowing for
nondiscriminatory regulation in the public interest.

Timely transfer of funds into and out of the host country
without delay using a market rate of exchange.

Limits on performance requirements that, for example,
condition investment approval on using local content.

Investor-State Dispute Settlement (ISDS) for binding
international arbitration of private investor claims against
host country governments, along with transparency

requirements of ISDS proceedings.
Source: USTR and the Department of State information.

Exceptions for national security and prudential interests.
Overview
Issues for Congress
U.S. BITs require Senate advice and consent. FTAs that
U.S. IIA Negotiations. Protection of investors’ rights
include investment provisions that require changes in U.S.
balanced against other policy goals may resurface as an
law require implementing legislation approved by both
issue in potential future IIA negotiations. The Biden
Houses to enter into force. Congress sets U.S. negotiating
Administration is reviewing FTA negotiations pursued by
objectives on investment, most recently in the 2015 Trade
its predecessor, such as with the United Kingdom and
Promotion Authority (TPA) (P.L. 114-26), which
Kenya. If the Administration pursues these or other trade
reaffirmed principal U.S. negotiating objectives to reduce
negotiations, Congress may monitor and shape the
or eliminate foreign investment barriers and to ensure that
Administration’s approaches to foreign investment trade
foreign investors do not receive “greater substantive rights”
barriers and rules, among things, and consider
for investment protections than U.S. investors in the United
implementing legislation for any final agreement. Congress
States. TPA expired on July 1, 2021.
also may consider whether to modify U.S. trade negotiating
objectives on investment in any future TPA renewal debate.
The Department of State and U.S. Trade Representative
(USTR) co-lead U.S. investment negotiations using a
Congress also may consider whether to encourage the
“Model BIT,” revised in 2012 (see Box 1). The U.S.-
Biden Administration to renew efforts to negotiate BITs
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U.S. International Investment Agreements (IIAs)
with emerging markets. Previous U.S. BIT talks with China
decisions to a permanent WTO appellate body (AB); in
and India stalled over inability to resolve differences. BIT
December 2019, however, the AB ceased functioning as the
negotiation efforts with such economies, if renewed, could
United States blocked appointments of new jurors to spur
expand U.S. market access and investor protections, but
WTO reform.) Members of Congress could consider the
would need to overcome unique challenges faced in these
pros and cons of an appellate mechanism for investment
markets, such as state-driven investment strategies and the
disputes, as well as whether to advocate more assertively
strong presence of state-owned enterprises in investment
for its creation, which was endorsed in TPA-2015.
activity. A new EU-China investment deal agreed to in
Treatment of ISDS was a central issue in past U.S.
principle may inject competitive pressure for the United
negotiations on the proposed Trans-Pacific Partnership
States in terms of investment ties with China.
(TPP) and the proposed Transatlantic Trade and Investment
Congress also may consider the scope of other bilateral
Partnership (T-TIP). After President Trump ceased U.S.
trade tools to further promote U.S. investments and protect
participation in the proposed TPP, the 11 remaining parties
U.S. investors internationally, as well as potentially to help
concluded a new Comprehensive Partnership on the TPP
set global standards for investment policy. These may
(CPTPP), which suspended some contested TPP provisions,
include Trade and Investment Framework Agreements
including the use of ISDS for certain purposes (e.g., for
(TIFAs) and other dialogues, including the newly-launched
claims by private companies relating to investment
trade dialogues with the European Union (EU) and the UK.
contracts in which they have entered with governments).
ISDS Debate. ISDS aims to depoliticize disputes by
In the now-stalled T-TIP negotiations, the EU proposed
allowing investors to bring claims against foreign
replacing ISDS with a new bilateral Investment Court
governments in a neutral forum (see Box 2). Historically a
System (ICS) that would include a standing body of judges
core component of U.S. IIAs under successive U.S.
and appellate tribunal. The U.S. government and U.S.
administrations, ISDS has been subject to increased debate
industry favored ISDS over the EU proposal, while some
with the growth of global FDI and ISDS cases. U.S.
civil society groups assert that the proposed ICS would not
investors comprise about one-fifth of ISDS claims. To date,
resolve their concerns about ISDS. Recent EU trade
no cases have been decided against the United States.
agreements with other countries include a bilateral ICS. The
However, some analysts note that measures taken by the
EU also has called for a Multilateral Investment Court that
United States, as well as other countries, to respond to the
would include a standing tribunal and appeals mechanism.
COVID-19 pandemic might be subject to future disputes.
Since 2017, international discussions at UNCITRAL have
Box 2. Rules for ISDS
been underway on various proposals to reform ISDS. In
The International Centre for Settlement of Investment Disputes
2021, UNCITRAL approved a work plan to focus on a
(ICSID), a World Bank Group affiliated organization, and the
range of procedural and structural reforms and leaving core
United Nations Commission on International Trade Law
substantive issues for a later date. Members of Congress
(UNCITRAL) provide the most widely used set of procedural
could revisit ISDS issues in any future TPA renewal debate
rules for arbitrating international investment disputes, typically by
or IIA negotiations.
a unique tribunal consisting of: one arbitrator appointed by the
investor; one by the State; and one by agreement of both parties.
Investment Rules. Congress may also consider the U.S.
approach to IIAs in the global context, and whether to press
Supporters, including in the business community, argue that
a Biden Administration to pursue more comprehensive
ISDS is a reciprocal right that protects U.S. investors
multilateral rules, such as in the WTO. Continuing to
abroad, and does not give foreign investors in the United
pursue bilateral IIAs may reinforce the current trajectory of
States more substantive rights than U.S. investors. They
overlapping investment rules, yet may allow opportunity for
also argue that U.S. IIAs provide due process protections
rules more tailored to specific investment relationships; yet,
modeled after U.S. law, and do not prevent governments
U.S. IIA commitments could form the basis for potential
from adopting or maintaining nondiscriminatory laws or
multilateral investment rules. A consideration may be any
regulations that protect the public interest. Additionally,
efforts by other economies to shape global rules through
they note that ISDS awards are restricted to monetary
their own IIAs, and whether they align with U.S. goals.
penalties or restitution and cannot force governments to
Russia/Ukraine. An evolving issue for Congress may be
change its laws or regulations. They further point to the
treatment of U.S. investments in Russia. After Russia’s
U.S. record of prevailing in ISDS cases.
February 2022 invasion, the United States and international
Critics take issue with ISDS affording investors with
partners imposed financial and economic sanctions. Russia
additional procedural rights to challenge governments in a
is retaliating by expropriating foreign assets in Russia,
venue outside of a country’s courts. Some also argue that
among other things. It has also destroyed foreign-owned
the scope of covered protections is too broad, claiming that
businesses in Ukraine. While Russia never ratified the 1992
some recent tribunals have awarded multi-billion
U.S.-Russia BIT, U.S. investors in Russia may nevertheless
settlements that go beyond protecting property rights and
be able to pursue claims against Russia via international
may deter host countries’ ability to take legitimate policy
arbitration if their presence is through a subsidiary or joint
measures to address climate change or public health. Critics
venture in a jurisdiction with an IIA with Russia. Russia is a
argue companies’ use of—or mere threat to use—ISDS to
party to over 60 IIAs and the Energy Charter Treaty.
resolve claims can lead to a “regulatory chill.”
Martin A. Weiss, Specialist in International Trade and
Currently, ISDS decisions cannot be appealed. (In trade
Finance
disputes, by contrast, participants have been able to appeal
https://crsreports.congress.gov

U.S. International Investment Agreements (IIAs)

IF10052
Shayerah I. Akhtar, Specialist in International Trade and
Finance

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https://crsreports.congress.gov | IF10052 · VERSION 13 · UPDATED