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Investment Rules in Trade AgreementsKorea-U.S. FTA and Beyond<br />July 19, 2010<br />Sarah Anderson, Institute for Policy Studies<br />sarah@ips-dc.org<br />

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Rules in Korea-US FTA investment chapter are similar to those in existing US agreements with 52 nations.<br />40 of these are bilateral investment treaties.<br />Others are FTAs, such as NAFTA, CAFTA, etc…<br />KORUS would expand an old model<br />

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Provide private foreign investors sweeping protections against many types of government actions that might reduce the value of their investment.<br />Allow foreign investors to bypass domestic courts and sue governments in international tribunals. <br />What Do These Investment Rules Do?<br />

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They do not give tribunals the power to repeal a law or regulation.<br />However, they can force a government to pay massive compensation to the investor. <br />These potential high costs can put a “chilling effect” on responsible policymaking.<br />What Do They Not Do? <br />

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Some Controversial Cases<br />Philip Morris v. Uruguay<br />The tobacco giant is suing over cigarette packaging restrictions.<br />Their claim: limits on space for branding unfairly infringes on intellectual property rights.<br />

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Using CAFTA to sue El Salvador over the denial of gold mining permits.<br />A diverse civil society coalition had persuaded the government to block the projects, on environmental grounds. <br />Pacific Rim and Commerce Grp.<br />

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US chemical company sued over a ban on a gasoline additive that was a suspected neurotoxin. <br />Canadian government reversed the ban and paid the company $13 million. <br />Ethyl v. Canada<br />

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Canadian companies sued under NAFTA against California environmental protections. <br />Both cases dismissed, but after years of legal proceedings. In Glamis, US government had to pay for 1/3 of arbitration costs and its own legal defense.<br />Methanex and Glamis v. US<br />

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Pushed a risky oil derivatives deal on Sri Lanka that blew up in 2009, costing $800 million.<br />While contract fraud charges were being investigated, Sri Lanka suspended payments. The banks sued.<br />Deutsche Bank and Citibank v. Sri Lanka <br />$ $<br />$ $<br />

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Two international oil companies are suing Algeria over a windfall profits tax on oil. <br />The United States applied a similar oil tax between 1980 and 1988.<br />Maersk Oil and Anadarko v. Algeria<br />

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Arguments in Support of Current Rules<br />Argument #1: “As we grow investment abroad, we increase U.S. exports and create higher-paying jobs here in the United States.” <br />

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The foreign investment boom has actually coincided with a steady decline in U.S. manufacturing jobs.<br />

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Argument #2: <br />“Weaker standards of investment protection will hurt our trade partners’ ability to attract the additional foreign investment and strengthen the rule of law that are crucial to their growth.” <br />

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Countries with U.S. investment agreements are no more likely to attract foreign investment. <br />Foreign investment does not automatically translate into good jobs; it often displaces domestic investment.<br />Bypassing domestic judicial systems is not the way to strengthen them. <br />

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Argument #3: <br />“US government hasn’t lost any cases yet, so they probably never will.”<br />

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Strong defense lawyers (may not always be the case)<br />Canada the only major capital exporter among investment agreement partners (likely to change)<br />Tribunals reluctant to rule against the superpower for fear of fueling reform efforts<br />Luck of the draw. Arbitrators issue contradictory rulings <br />Possible Explanations for US No-loss Record: <br />

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“With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will 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. And I will never agree to granting foreign investors any rights in the U.S. greater than those of Americans.” <br />- President Barack Obama<br />Important Moment for Fresh Approach to Investment Rules<br />