Strong Investor Protections Needed
in US Treaties and Trade Agreements: Policy Paper

• " U.S. companies engage in significant investment abroad that enables them to be more competitive and successful here in the United States. These investments help spur economic growth at home and abroad and ensure U.S. access to key natural resources worldwide. They also are important in promoting the development of the rule of law, adherence to contract principles and respect for private property in developing countries around the world.
• " Billions of dollars of existing U.S. investment involves so-called investment agreements: agreements involving natural resources (e.g., oil, gas, timber, minerals) and other assets controlled by a foreign government including infrastructure (e.g., running an airport, a port) or other activities (e.g., running a computer network, chemical facility, a utility etc.).
• " Foreign investment commitments in the energy sector alone have been calculated at well over one hundred billion dollars.
• " Compromising on lowered protections for existing investments would have enormously negative consequences not only for U.S. companies, but also for the U.S. economy and our energy and security interests.

Guaranteed Access to International Arbitration for Investment Agreement Commercial Disputes is Critically Important

• " Since the 1980's, U.S. Bilateral Investment Treaties (BITs) have guaranteed U.S. investors access to independent, impartial tribunals for disputes involving investment agreements. This access is a critical protection for U.S. investment that ensures that disputes are resolved fairly and that decisions are enforceable.
• " Some in the U.S. Government are now seeking to limit the protection for investment agreements in future BITs such that existing investment agreements would have no guaranteed access to arbitration. If that position is adopted by the Administration, hundreds of billions of dollars of U.S. investment will be left to the vagaries and corruption of local legal systems. U.S. economic interests and interests in energy and resource security will be at a severe risk.
• " The importance of this issue to the nation's economy is evident from two recent letters from the private sector:
  • " On March 19, 2004, 23 Chief Executives of U.S. companies representing most major sectors of the U.S. economy sent a strong letter to the President expressing their concerns about an apparent policy shift.
    They wrote that "U.S. negotiators no longer appear to be seeking to ensure protection and dispute resolution for a wide range of sectors such as natural resources and financial services." The chief executives urged the President to continue to "maintain high standards of protection for U.S. investment."
  • " On March 17, 2004, the President's Export Council sent a letter stating that "We are deeply concerned that investor protections in these agreements may be weakened in order to satisfy defensive and regulatory concerns on the part of a few USG agencies -- concerns that we believe can be addressed without denying U.S. investors adequate protections and effective remedies under these agreements." The President's Export Council urged that "traditional protections for investors including international arbitration must be preserved and expanded in future U.S. FTAs and BITs."

Concerns Raised About U.S. Defensive Interests Should Not Result in a Loss of Protection for U.S. Investors Abroad

• " The defensive concerns about the United States' potential liability are, in the first instance, wholly theoretical; there have been no cases in which the U.S. government has been taken to arbitration over a breach of an investment agreement. Furthermore, the United States has yet to lose even one case when it has been challenged under other provisions in investor-state litigation.
• " Further, the concerns raised are based on two unsupported assumptions:

  Assumption One: Foreign investors would prefer to go to arbitration rather than utilize U.S. contract dispute system.

  • " Fact: There have been no specific examples given of foreign investors seeking arbitration under these provisions against U.S. agencies. While some foreign investors may seek arbitration, it is more likely that most simply seeking fair investor treatment will simply continue to use a fair and equitable U.S. contract dispute system to which they are already very much accustomed.

  Assumption Two: The United States will incur greater liability through international arbitration than under the traditional contract disputes process.

  • " Fact: There is simply no basis to assume that an arbitration panel will reach a significantly different result than the U.S. contract dispute system.

Bottom Line: Failing to guarantee U.S. investors' ability to access a neutral and objective dispute settlement system with respect to investment agreements could undermine billions of dollars of U.S. investment abroad, prospects for economic growth in the developing world, and U.S. access to natural resources. Given especially the energy supply diversity goal of the U.S. Government, and the existing investments of U.S. companies in countries with significant energy resources but also with evolving, inept or corrupt legal systems, strong FTA and BIT investor-state dispute resolution provisions for existing and future investment agreements are extremely important.

Domestic Petroleum Council contact: Bill Whitsitt, 202 544 7100