April 20, 2015
U.S. International Investment Agreements (IIAs)
Box 1. Basic Provisions of U.S. IIAs.
In recent decades, the United States, the largest source of
and destination for foreign direct investment (FDI) in 2013,
has entered into binding investment agreements with
foreign countries to facilitate investment flows, reduce
restrictions on foreign investment and expand market
access, and enhance investor protections, while balancing
other policy interests. Some World Trade Organization
(WTO) agreements address investment issues in a limited
manner. In the absence of a comprehensive multilateral
agreement, bilateral investment treaties (BITs) and
investment chapters in free trade agreements (FTAs),
known as international investment agreements (IIAs), have
been the primary tools for promoting and protecting
In addition to specific market access commitments, U.S.
international investment agreements typically include:
Non-discriminatory treatment. Provides for the better of
national treatment or most favored nation treatment for the full
life cycle of an investment (from its establishment or acquisition,
through its management, operation and expansion, to its
Minimum standard of treatment. Investment protections in
accordance with customary international law, including fair and
equitable treatment and full protection and security.
Compensation for expropriation. Prompt, adequate, and
effective compensation when direct or indirect expropriation
takes place; recognition that, except in rare circumstances, nondiscriminatory 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
policy negotiating objectives; Senate ratification of BITs;
and congressional consideration and passage of legislation
to implement FTAs. Current and future U.S. investment
negotiations raise several policy issues for Congress.
Transfer of funds. Timely transfer of funds into and out of the
host country without delay using a market rate of exchange.
U.S. Investment Agreements
Investor-State Dispute Settlement (ISDS). The right of an
investor to submit an investment dispute with the treaty
partner’s government to binding, impartial international
To date, 2,390 IIAs are in force globally, of which U.S.
IIAs are a small fraction. The United States has BITs in
force with 40 countries and 14 FTAs with 20 countries,
most with investment chapters, covering 21% of U.S. FDI
abroad at the end of 2013 (based on Department of
Commerce data). At the same time, U.S. IIAs often are
viewed as more comprehensive and high-standard than
those of other countries. The Department of State and
United States Trade Representative (USTR), who co-lead
U.S. investment negotiations, use a “Model BIT” (last
revised in 2012) to negotiate U.S. BITS and FTA
investment chapters (Box 1).
Historically, U.S. investment agreements have focused on
developing and emerging economies, striving to eliminate
investment barriers by protecting U.S. companies investing
in countries with weak legal regimes, and/or insufficient
protection for private property. The latest U.S. BIT signed
was with Rwanda in 2008. In terms of FTAs, U.S.
investment agreements exist with six of the top twenty U.S.
trading partners: Australia, Canada, Colombia, Mexico,
Singapore, and South Korea.
Congress provides investment negotiating objectives in
statute granting the President TPA. The 2002 TPA, which
expired in 2007, included a principal negotiating objective
to reduce or eliminate barriers to foreign investment while
ensuring that, in the United States, foreign investors are not
accorded “greater substantive rights” for investment
protections than domestic investors.
Limits on performance requirements. Restrictions on
trade-distorting performance requirements (such as local content
rules or export quotas).
Other interests. Environmental, labor, transparency, and antibribery requirements, as well as exceptions for national security
and prudential interests.
Issues for Congress
What is the status of U.S. investment negotiations and
priorities? Current U.S. investment negotiations center on
two proposed mega-regional FTAs: the Trans-Pacific
Partnership (TPP) and Transatlantic Trade and Investment
Partnership (T-TIP), whose participating countries represent
around three-quarters of the stock of U.S. FDI abroad, but
do not include major emerging economies, such as China,
India, and Brazil. The United States, separately, is
conducting BIT negotiations with China and India, which
present both significant market access opportunities and
challenges. Congress could examine priorities in these and
future investment negotiations.
Possible TPA renewal could have implications for
investment negotiations. In addition to “traditional”
investment objectives, Congress may consider objectives
related to issues that have arisen since the 2002 TPA, such
as new investment barriers posed by emerging markets and
the balance between reducing restrictions to capital flows
and ensuring adequate prudential exceptions, such as for
financial crises. Bicameral legislation to reauthorize TPA,
the Bipartisan Congressional Trade Priorities and
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
investment negotiating objectives of the 2002 TPA as well
as provisions in other negotiating objectives that may
Why is investor-state dispute settlement (ISDS)
controversial? International investment rules originally
were seen as significant in depoliticizing investor disputes
by allowing investors to bring claims against foreign
governments in a neutral forum instead of requiring their
governments to espouse claims on their behalf (Box 2).
ISDS is a core component of the U.S. Model BIT, and is in
most U.S. FTAs. At the same time, its treatment is actively
debated in current negotiations, such as TPP and T-TIP.
Box 2. Mechanisms for ISDS
The most widely used fora for investor-state arbitration are the
International Centre for Settlement of Investment Disputes
(ICSID) a World Bank Group affiliated organization, and United
Nations Commission on International Trade Law (UNCITRAL).
They provide the procedural rules for arbitrating international
investment disputes. Each investment dispute is decided by
individual tribunals, typically consisting of three arbitrators: one
appointed by the investor, one by the State, and one by
agreement of both parties.
Contributing to the increased prominence of the ISDS
debate has been the growth in investor-state disputes in
recent years (568 treaty-based claims as of April 2014),
along with the growing stock of global FDI (Figure 1).
U.S. investors file around one-fifth of investment claims.
Since the United States began signing investment treaties in
the 1980s, only 17 cases have been initiated against the
United States, with none decided against the United States.
Figure 1. FDI and Investment Disputes
treatment of a specific investor and cannot force
governments to change laws or regulations. Critics argue
that large multinational companies can use ISDS to restrict
governments’ regulatory ability, leading to a “regulatory
chilling” environment, even if the dispute is not decided in
a company’s favor. Critics also highlight the increased use
of ISDS to resolve claims centering, for example, on the
host state’s environmental and labor regulations.
Also at issue is whether ISDS treats foreign and domestic
investors equally. The 2002 TPA stipulated that, in the
United States, foreign investors are not accorded “greater
substantive rights” for investment protections than domestic
investors. ISDS supporters stress that provisions in U.S.
IIAs are equivalent to existing protections in U.S. law (e.g.,
the Takings Clause) and are reciprocal, while critics argue
that the use of ISDS itself implies greater procedural rights.
Additionally, Members could consider whether to advocate
more assertively for creating an appellate body to review
investment disputes, first identified as a negotiating
objective in the 2002 TPA. Contradictions between arbitral
awards resulting from the use of ad-hoc dispute panels may
raise concerns. In trade disputes, by contrast, participants
can appeal a decision to a permanent WTO appellate body.
What are prospects for the investment rules
architecture? The 2,390 IIAs currently in force form a
complex, overlapping network of investment rules. The
mega-regional agreements under negotiation (e.g., TPP and
T-TIP) may impact global investment rules. First, the
proposed agreements could enhance rules with a range of
trading partners, some of which already have robust
investment ties with the United States. Second, they could
serve as a platform for developing approaches to address
investment issues with countries that are not a part of these
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.
Source: CRS, adapted from Center for Strategic and International
Members of Congress could examine issues raised in the
ISDS debate. Supporters of ISDS argue that it is a key way
to remove investment restrictions and protect their
investments against inequitable treatment by a host
government. They also assert that U.S. IIAs do not prevent
governments from adopting or maintaining nondiscriminatory laws or regulations that protect public
interests, and, further, that outcomes of ISDS cases focus on
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
rules architecture; and if more comprehensive multilateral
rules should be pursued, such as through the WTO. See
CRS Report R43052, U.S. International Investment
Agreements: Issues for Congress.
Martin A. Weiss, firstname.lastname@example.org, 7-5407
Shayerah Ilias Akhtar, email@example.com, 7-9253
| 7 5700