The United States is restarting Bilateral Investment Treaty (BIT) negotiations with BRIC countries (Brazil, Russia, India and China) after a recent revision to the United States’ model BIT. On April 20, 2012, the Office of the United States Trade Representative (USTR) released the new 2012 model BIT after a lengthy three-year review and revision process.
BIT negotiations with the United States, until recently, had been on hold since 2009. Upon taking office in 2009, President Obama immediately called for a review of the model text to ensure its consistency with the “public interest” and the Administration’s overall economic agenda, as well as to make certain that “U.S. companies benefit from a level playing field in foreign markets.”
BITs are bilateral agreements between two States aimed to protect private investors (either companies or individuals) of one State operating in the territory of the other host State. BITs entered into by the United States, unlike Free Trade Agreements (FTAs), have tended to address a more limited number of issues by focusing on treatment of foreign investment once a host State has availed itself to such investment rather than regulating access of foreign investment into the host State.
The United States often takes a hard stance in negotiating BITs, insisting that other countries accept the provisions of its model text. The model text was last revised in 2004 after President Bush took office. The United States is currently a party to 46 BITs, including six that have been signed, but not ratified. Worldwide, 178 economies have entered into more than 2500 BITs.
United States BITs are important tools for protecting overseas investment. BITs protect United States companies and individuals investing abroad or facing adverse actions from a host State while invested abroad. The United States model text aims to afford investors national treatment or most-favored nation treatment, compensation in the event of expropriation, and protections against currency inconvertibility of funds into and out of a host State. The model text also provides restrictions against imposing performance requirements onto investments, as well as the rights to select top management regardless of nationality and to submit an investment dispute to international arbitration, rather than being subjected to the host State’s domestic courts.
In updating the model text, USTR and the State Department solicited input on provisions relating to dispute settlement, state-owned enterprises, and financial services. Businesses, non-governmental organizations, Congress and the public provided comments. Among other stakeholders, the Advisory Committee on International Economic Policy (ACIEP), which includes Berkeley Law’s Professor David Caron, submitted a report regarding its view of the model text. As Professor Caron described “the deep challenge for the State Department in considering the many viewpoints expressed was to work at questions of expertise while simultaneously also weighing fundamentally different philosophical and political values.”
The 2012 model BIT made some changes as a result of perceived shortcomings in the prior text. One such change is that obligations under BITs also extend to entities that are delegated (through formal and informal means) governmental authority, which clarifies concerns that state-owned enterprises were receiving preferential treatment relative to foreign investors. (Article 2.2.a footnote 8). Another such change relates to prohibitions against performance measures that require an investor to show a preference to 1) the host State’s technology and/or 2) any particular technology. (Article 8.1.h). A further revision relates to transparency, requiring publication of regulatory actions and transparency into State regulatory matters. The goal is to appraise investors of upcoming regulatory changes in host States. (Articles 11.3 and 11.4). Lastly, the 2012 model BIT includes language that places obligations onto host States to recognize, enforce and not derogate from domestic environmental and labor laws (Articles 12.1, 13.1, 12.2, 13.2). A full analysis of the revisions can be found here.
Ultimately, the Obama Administration declined to adopt many of the modifications proposed during the review. The 2012 model BIT retains the core substantive investment protections, which include non-discriminatory treatment (Articles 3 and 4), treatment in accordance with customary international law (Article 5) and compensation for expropriation (Article 6). The text also retained the investor-State dispute settlement clauses (Article 23-36), disappointing some critics of investment treaty arbitration.
Reactions to the new 2012 model BIT are sharply divided between those who want to protect domestic public interests and sovereign rule of law and those who want to protect U.S. investments overseas and eliminate foreign barriers. The Administration appears to have spent a great deal of effort analyzing the provisions of the model text, but ultimately chose to preserve a similar balance as in the 2004 model. Admittedly, this is a difficult balance.
While the revisions to the model text will not modify existing treaties, the new provisions will form the basis of future negotiations. The completion of the new model BIT text seems to have renewed negotiations with both China and India. Russia has also expressed interest in engaging in negotiations, and the US has sought to engage Brazil in beginning talks. Other opportunities for negotiation also are emerging with various African countries.
[Note: Professor Caron’s quote added after initial publication]