At a time when American companies must invest heavily in overseas markets to remain competitive (or to meet our growing energy needs, see related article), the U.S. government is making it more difficult for them to do so in a safe and predictable manner.

In the context of the FTAA negotiations and several other agreements, U.S. officials are taking steps to water down what many in the business community regarded as “state-of-the-art” measures to promote and protect foreign investments.  Taken together, these changes will enhance, rather than mitigate, the risks of investing in emerging markets, says Stephen J. Canner, USCIB’s vice president for investment and financial services.

For example, when the U.S. negotiates a free trade agreement or a bilateral investment treaty, “existing investment arrangements such as licensing or turnkey agreements will no longer be covered as a standard feature, as they have been in earlier agreements,” says Mr. Canner.

Rather, coverage of such arrangements will be limited to prospective agreements, leaving existing agreements beyond the reach of any investor-to-state arbitration provisions agreed to the U.S. and its negotiating partners.  The most well-known such provision is Chapter 11 of the NAFTA agreement, which provides for an impartial international tribunal where domestic legal remedies prove unable to resolve an investment dispute.

Moreover, in the areas of banking and finance, U.S. firms will no longer be able to directly avail themselves of investor-to-state arbitration for alleged violations of national treatment or most-favored nation treatment.  Investors must first appeal to the host government to have access to international arbitration of these issues.

“If government officials deny permission, a U.S. company would have no other remedy than to urge the United States government to make a diplomatic incident out of the dispute and address it under state-to-state remedies,” observed Mr. Canner.

These are just two illustrations of the U.S. government’s actions to trim away at hard-won investment protections in often risky and unpredictable foreign markets.  Mr. Canner said USCIB would continue working with its members to "push back" on these policy setbacks.

For more information, contact Steve Canner at scanner@uscib-dc.org.