United States reviews its model bilateral investment treaty

Investment Treaty News | 5 June 2009

United States reviews its model bilateral investment treaty

By Damon Vis-Dunbar

The United States has embarked on a review of its model bilateral investment treaty (BIT). Last updated in 2004, the US closely adheres to the model in its BIT negotiations with other countries.

The BIT review follows campaign pledges by President Barack Obama, in which he committed to “ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest.”

A subcommittee to the Advisory Committee on International Economic Policy (ACIEP)-a committee of non-government advisers to the US government on matters of international economic policy-has been charged with “taking a fresh look” at the US model BIT.

Co-chaired by Alan Larson, a Senior International Policy Advisor to the law firm Covington and Burling LLP, and Thea Mei Lee, Policy Director for the American Federation of Labor and Congress of Industrial Organizations, the subcommittee will directly counsel the ACIEP. The ACIEP, in turn, advises the US government.

The subcommittee will seek input from interested groups and individuals through a public hearing and invitations for written statements, said a U.S. government official. A date for the public hearing will be announced in the next couple of weeks. ITN was unable to confirm whether the public hearings would be open to groups and individuals based outside of the United States.

The BIT review will also include consultations with a range of government agencies, including the Environmental Protection Agency, Department of the Interior, Justice Department and Department of Labor.

BIT review rejuvenates debate

The US model BIT underwent its last transformation in 2004, after an inter-agency review. The 2004 model BIT introduced procedural rules granting greater transparency in investor-state arbitrations, as well as substantive changes to provisions on expropriation and minimum standard of treatment.

The 2004 model BIT “emphasizes the need for states to regulate in the public interest far more than the old treaty,” notes Professor Jose E. Alvarez, an American academic and former US BIT negotiator, in a recent paper on US BITs, The Evolving BIT.

The changes introduced in 2004 have drawn competing criticism. On the one hand, the 2004 model BIT has been censured for retreating from unqualified, comprehensive provisions of protection for foreign investors. On the other, it has been criticized for not going far enough to ensure government rights to regulate in the public interest.

The current review promises to invigorate the debate over the balance struck in US investment agreements between these demands.

Indeed, addressing a Congressional trade committee in May, the co-chair of the ACIEP investment subcommittee lamented an imbalance in US investment agreements.

Ms. Lee said her key concerns include: “the investor-state dispute resolution; failure to distinguish between regulatory action on the part of government and ‘indirect expropriation’; an overly broad definition of investment; potential impact on needed future national and global financial regulation efforts; and the need to establish commensurate and enforceable responsibilities for investors with respect to workers ‘ rights and the environment.”

In contrast, Mr. Larson stressed the “valuable role” that international investment treaties play in “providing a more stable and predictable environment” to international investment.

Referring to investor-state arbitrations pursuant to BITs, Mr. Larson remarked: “On balance, it is fair to say that the outcome of such cases does not suggest a bias in favor of either the State or the investor”.

source: ITN