In February 2009, the Obama Administration initiated a review of the United States’ model bilateral investment treaty (BIT) to ensure that it was consistent with the public interest and the Administration’s overall economic agenda. The Administration sought and received extensive input from Congress, companies, business associations, labor groups, environmental and other non-governmental organizations, and academics. While revisions to a U.S. model BIT do not require Congressional action, negotiated BITs require advice and consent of two thirds of the Senate.
The 2012 model BIT maintains language from the 2004 model BIT, in particular its carefully calibrated balance between providing strong investor protections and preserving the government’s ability to regulate in the public interest. The Administration made several targeted and important changes from the previous model text, however, in order to improve protections for American firms, promote transparency, and strengthen the protection of labor rights and the environment.
Transparency and Public Participation
Stakeholders representing a range of interests called on the Administration to enhance transparency and opportunities for public participation in the model BIT. The revised model BIT enhances transparency and public participation in several important ways, including:
1. Transparency consultations. The 2012 model BIT requires the Parties to consult periodically regarding how to improve their transparency practices, both in the context of developing and implementing laws, regulations, and other measures affecting investment and in the context of investor-State dispute settlement.
2. Notice and comment procedures. The 2012 model BIT bolsters Parties’ obligations to publish proposed regulations, explain their purposes and rationales, and address substantive comments provided by stakeholders (among other actions), including, as appropriate, with respect to financial services.
3. Multilateral appellate procedures. The Administration enhanced language regarding the possibility of a future multilateral appellate mechanism by requiring Parties to strive to ensure that any such mechanism includes provisions on transparency and public participation comparable to those already provided for in investor-State dispute settlement under the BIT.
Labor and Environment
It was an Administration priority to enhance labor and environmental standards in the model BIT. As a result, the 2012 model BIT expands obligations in the areas of labor and environment in four important ways.
1. New obligation not to “waive or derogate” from domestic laws. The 2012 model BIT includes an obligation on Parties to not waive or derogate from their domestic labor and environmental laws as an encouragement for investment.
2. New obligation to “effectively enforce” domestic laws. The 2012 model BIT also contains an obligation on Parties not to fail to effectively enforce their domestic labor and environmental laws as an encouragement for investment.
3. New provision whereby Parties reaffirm and recognize international commitments. Under the 2012 model BIT, Parties reaffirm their commitments under the International Labor Organization (ILO) Declaration and recognize the importance of multilateral environmental agreements.
4. Strengthened consultations procedure. Finally, the 2012 model BIT subjects the articles on labor and environment to more detailed and extensive consultation procedures than those applicable under the 2004 model BIT.
During the Administration’s review, several stakeholders raised concerns regarding “state-led economies,” i.e., countries that organize economic activity to a significant degree on the basis of state-owned enterprises (SOEs) and other mechanisms of state influence and control. While the 2004 model BIT already contains numerous tools to address such concerns, the Administration responded to this input by including three key innovations in the text.
1. Domestic technology requirements. The Administration crafted a new discipline to prevent Parties from imposing domestic technology requirements, i.e., requiring the purchase, use, or according of a preference to domestically developed technology in order to provide an advantage to a Party’s own investors, investments, or technology.
2. Participation in standard-setting. U.S. investors may be at a competitive disadvantage when product standards in foreign markets are developed in an opaque, unpredictable, or discriminatory fashion, especially where governments use standards or technical regulations to favor domestic firms and technologies. The 2012 model BIT includes new language requiring Parties to allow investors of the other Party to participate in the development of standards and technical regulations on non-discriminatory terms. This provision also recommends that non-governmental standards bodies observe this requirement.
3. Delegated government authority. The Administration developed a new footnote to clarify the standard for whether a Party has delegated governmental authority to an SOE or any other person or entity, in order to help ensure that the actions of SOEs and other entities acting under delegated governmental authority are fully covered by the BIT’s obligations.