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u.s international investment agreements iias updated january 27 2021 background the united states a major source of and destination for foreign direct investment fdi is party to binding international investment agreements iias with over 50 countries taking the form of bilateral investment treaties bits and investment chapters in free trade agreements ftas these iias reduce fdi restrictions ensure non-discriminatory treatment of both investors and investment and balance investment protections against other policy interests such as safeguarding a host government's right to regulate in the public interest while some world trade organization wto agreements address investment issues in a limited manner iia's have been the primary tools for promoting investment in protecting investors as of january 2021 more than 3 300 iias were concluded globally forming a complex overlapping network of investment rules role of congress usbits require senate advice and consent ftas that include investment provisions that 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 most recently in the 2015 trade promotion authority tpa pl 114-26 which reaffirmed principal u.s negotiating objectives to reduce or eliminate foreign investment barriers and to ensure that foreign investors do not receive greater substantive rights for investment 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 c box one box one basic provisions of usia's market access for investments non-discriminatory treatment of foreign investors and investments compared to domestic investors national 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 in full protection and security prompt adequate and effective compensation for direct or indirect expropriation with safeguards allowing for non-discriminatory 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 exceptions for national security and prudential interests usi the united states has bits with 40 countries and 14 ftas with 20 countries see figure 1 most with investment chapters more recent u s investment agreements and negotiations involve larger u.s trading partners figure one u.s international investment agreements 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 states under isds usmca eliminates isds altogether with respect to canada with respect to mexico usmca limits isds to claimants regarding government contracts in oil and natural gas power generation infrastructure and telecommunications sectors it restricts isds and other sectors to claims alleging discrimination or direct expropriation and requires claimants to exhaust local remedies first issues for congress u.s investment negotiations congress may use a possible renewal of the current tpa which expires on july 1st 2021 to reaffirm or change u.s trade negotiating objectives on investment for future u.s trade agreements one issue in this regard is whether the usmca represents a specific shift in u.s investment policy or a new model for trade agreements more broadly protection of investors rights balanced against other policy goals may resurface as an issue in potential future trade agreement such as with the united kingdom uk or the 27 member european union eu treatment of isds may be particularly contentious see next section if the biden administration continues these or pursues new fta negotiations congress may actively monitor and shape their approaches to investment among things and could consider implementing legislation for any final agreement congress also may consider whether to encourage the biden administration to renew efforts to negotiate bits with emerging markets previous usbit talks with china and india have stalled over inability to resolve differences bit negotiation efforts with economies such as china and india if renewed could expand u.s market access and investor protections but would need to overcome unique challenges faced in these markets such as state-driven strategic investment strategies and strong presence of state-owned enterprises in investment activity a recent eu china agreement in principle on a new investment deal with china may inject competitive pressure or considerations for any potential future us china bit negotiations debate over isds isds was designed to depoliticize disputes by allowing investors to bring claims against foreign governments in a neutral forum cbox2 while isds has been a core component of usiias under successive u.s administrations and retains wide support in the business community it has been contentious in recent u.s trade negotiations and is opposed by some in civil society issues included how to balance investor protections with government's right to regulate for environmental health and other objectives and the fairness and transparency of isds the debate has intensified with the growth of global fdi and isds cases u.s investors account for about one-fifth of isds claims to date no cases have been decided against the united states however some analysts note that measures taken by the united states as well as other countries to respond to the covid19 pandemic might be subject to future disputes box 2 rules for isds the international center for settlement of investment disputes ics id a world bank group affiliated organization and the united nations commission on international trade law on citral provide the most widely used set of procedural rules for arbitrating international investment disputes typically by a unique tribunal consisting of one arbitrator appointed by the investor one by the state and one by agreement of both parties the biden administration's view on isds and potential future iia negotiations is unclear members of congress could revisit issues raised in the isds debate supporters argue that isds has a reciprocal right protecting u.s investors overseas isds gives foreign investors in the united states no additional substantive rights relative to u.s law as investment obligations mirror u.s law and no isds case has ever been decided against the united states critics in contrast assert that investors should not have additional procedural rights to challenge governments through a venue outside of the country's courts the scope of covered protections is too broad and that isds presents transparency and fairness concerns other aspects of isds elicit debate as well critics argue companies use of isds or the mere threat of it can lead to a regulatory chill they also highlight the use of isds to resolve claims for example centering on environmental and labor regulations supporters counter that usi provide basic due process protections modeled after u s law and do not prevent governments from adopting or maintaining non-discriminatory laws or regulations that protect the public interest they also note that isds awards are restricted to monetary penalties or restitution and cannot force governments to change its laws or regulations currently isds decisions cannot be appealed in trade disputes by contrast participants have been able to appeal decisions to a permanent wto appellate body a b in december 2019 however the a b ceased functioning as the united states blocked appointments of new jurors to spur wto reform members of congress could consider the pros and cons of an appellate mechanism for investment disputes as well as whether to advocate more assertively for its creation which was endorsed in tpa 2015 contradictions between arbitral awards resulting from the use of ad hoc dispute panels have raised concerns about the coherence of global investment protections yet appeals processes prolong disputes and investor uncertainty treatment of isds was a central issue in past us negotiations on the proposed trans-pacific partnership tpp and the proposed transatlantic trade and investment partnership t tip after president trump ceased u.s participation in the proposed tpp the eleven remaining parties concluded a new comprehensive partnership on the tpp cptpp which suspended some contested tpp provisions including on the use of isds for certain purposes for example for claims by private companies relating to investment contracts in which they have entered with governments in the ttip negotiations the eu proposed replacing isds with a new bilateral investment court system ics that would include a standing body with a first instance an appellate tribunal and a permanent set of judges to date the u.s government and u.s industry have favored isds over the eu proposal while some civil society groups assert that the proposed ics fails to resolve their concerns about isds recent eu trade agreements such as with canada mexico singapore and vietnam include a bilateral ics in addition the eu has called for a multilateral investment court since 2017 international discussions have been underway in uncentral in working groups on various proposals to reform isds investment rules congress may consider the u.s approach to iias in the global context and whether to press a biden administration to pursue more comprehensive multilateral rules such as in the wto continuing to pursue bilateral iias may reinforce the current trajectory of overlapping investment rules yet may allow opportunity for rules more tailored to specific investment relationships yet usia commitments could form the basis for potential multilateral investment rules a consideration may be any efforts by other economies to shape global rules through their own iias and whether they align with u s goals for more information ccrs in focus i f 11167 usmca investment provisions and crs in focus if10636 foreign direct investment overview and issues martin a weiss specialist in international trade and finance i actor specialist in international trade and finance