When a foreign government's actions harm a U.S. investor, the United States Government does not leave the investor to the mercy of foreign courts and foreign law. While WTO member nations commit to certain standards of foreign investment treatment in their courts, these commitments may not suffice. Some provisions are watered down; others do not yet apply to many of less-developed countries. To ensure elevated protection for its companies, the United States seeks to create "bilateral investment treaties" (BIT). BITs accelerate standards like "national treatment," which requires countries to treat foreign investments as domestic investments, ensuring immediate attention if an issue arises. In some key areas, the BIT may require better treatment for foreign investment.
The key to enforcing elevated protections is to ensure that U.S. companies can bring claims outside the courts, in independent, binding arbitrations. Because the parties bear all the costs of the arbiters' time and expenses--costs that would otherwise be absorbed in the court system-- and the risk of paying their opponent's costs if they do not prevail, a party will proceed to arbitration only where the guarantee of neutrality and the exclusive application of the BIT's standards provide a level playing field.
In November 2005, the United States and Uruguay signed a new bilateral investment treaty. When ratified, it will be the first agreement based on the new U.S. Model BIT published by the United States Trade Representative since 2004. This version reflects the lessons learned since the WTO came into existence and clarifies key U.S. interests. For example, the Model BIT now incorporates all the U.S. standards for compensating private companies for nationalizations ("expropriations"), clarifying when they are permissible and the manner in which compensation must be paid. Other changes in the U.S. Model BIT include the delineation of clearer "minimum treatment" standards, mandated publication (and general "transparency") of arbitral proceedings, shortened timelines, and tighter language disfavoring "artificial" trade-barriers (such as customs regulations so arduous that they amount to restrictions on investment). These provisions are generally pro-investor, but the current Model BIT also provides that countries will not relax their own labor or environmental standards to entice foreign investment.
The United States' trade agreements are not limited to its forty-odd bilateral investment treaties with developing countries. Other variously titled agreements provide varying levels of protection to U.S. companies beyond the standards of the WTO or other multinational agreements. Generally, Free Trade Agreements (FTAs), Trade and Investment Framework Agreements (TIFAs), and Trade Promotion Agreements (TPAs), do not provide for independent arbitration. They seek additional protections for U.S. investment and often include a commitment to engage in negotiations before actions in deviation of agreed standards, but these provisions will still be enforceable only through domestic courts. All of the tiers of agreement have clear overlap; for example, some important changes in the 2004 Model BIT first appeared in FTA’s with Singapore and the Andean Trade Promotion Agreement.
If you have questions about the affect of United States' trade and investment on your situation, contact Scott Isaacson at sisaacson@kmclaw.com or 801.328.3600.