Settlement of Disputes

Settlement of Disputes in the United States

The Transatlantic Trade and Investment Partnership (T-TIP) with the European Union

We recognize that trade agreements that are effectively enforced establish a set of high-standard rules and obligations that help keep markets open to U.S. exporters and investors and ensure a level playing field. When we negotiate and implement a trade agreement, we expect our trading partners to stick by the rules and obligations they agreed to. However, when our trading partners fall short of what they promised – whether to reduce tariffs, implement strong labor and environment provisions, or otherwise provide U.S. exporters fair and non-discriminatory treatment – we need a means to hold them accountable. This is why we have this important objective to establish a fair and open dispute settlement mechanism. Dispute settlement gives us a means to discuss our concerns in a timely way and to seek compensation if they are not addressed. Dispute settlement with trading partners in T-TIP will give the American public the confidence that we not only negotiate strong, high-standard obligations, but that we also have the means to enforce them.

For more information on dispute settlement, visit www.ustr.gov/trade-agreements/wto-multilateral-affairs/wto-issues/dispute-settlement.

The Facts on Investor-State Dispute Settlement

Safeguarding the Public Interest and Protecting Investors

As the Obama Administration promotes trade and investment agreements, we work closely with Congress, stakeholders, and the public to ensure that our trade agenda advances our economic interests and reflects our values.  One of our core values is promoting the rule of law.  In our agreements, we want to ensure that the United States and partner countries are able to regulate in the public interest as they see fit.

We also seek to ensure that Americans investing abroad are provided the same kinds of basic legal protections that we provide in the United States to both Americans and foreigners doing business within our borders.  One element we use to achieve that goal is investor-state dispute settlement (ISDS).  ISDS creates a fair and transparent process, grounded in established legal principles, for resolving individual investment disputes between investors and states.

There are a lot of myths out there suggesting that ISDS somehow limits our ability – or our partners’ ability – to regulate in the interest of financial stability, environmental protection, or public health.  Some have even suggested that a company could sue a government just on the grounds that the company isn’t earning as much profit as it wants.

These assertions are false.

The United States promotes provisions in our trade agreements that protect our right to regulate in the public interest while promoting higher standards in many partner countries in areas ranging from labor and environment to transparency to anti-corruption.

Over the last 50 years, nearly 3,200 trade and investment agreements among 180 countries have included investment provisions, and the vast majority of these agreements have included some form of ISDS.  The United States entered its first bilateral investment treaty (BIT) in 1982, and is party to 50 agreements currently in force with ISDS provisions.  The United States has been a leader in developing carefully crafted ISDS provisions to protect the ability of governments to regulate, to discourage non-meritorious claims, and to ensure a high level of transparency.

Our approach to ISDS has helped establish higher global standards and strengthen arbitration procedures through clearer legal rules, enhanced safeguards, and transparency throughout the ISDS process.  As a country that plays by the rules and respects the rule of law, the United States has never lost an ISDS case.  In our current negotiations, we are working to expand upon this approach to ISDS, in ways spelled out in the Model BIT that the Obama Administration released in 2012 following an extensive period of public comment and consultation.

Here are eight facts you should know about ISDS provisions under U.S. trade agreements.  These provisions are different – and stronger – than the provisions in many other investment agreements in which the United States is not a participant.  It’s important to understand how U.S. agreements differ from other agreements that do not meet the same standards.

  1. Provide basic legal protections for American companies abroad that are based on the same assurances the United States provides at home.  

    Investment protections are intended to prevent discrimination, repudiation of contracts, and expropriation of property without due process of law and appropriate compensation.  These are the same kinds of protections that are included in U.S. law.  But not all governments protect basic rights at the same level as the United States.  Investment protections are intended to address that fact.  Our agreements provide no new substantive rights for foreign investors.  Rather, they provide protections for Americans abroad that are similar to the protections we already provide Americans and foreigners alike who do business in the United States.

  2. Protect the right of governments to regulate in the public interest.

    The United States wouldn’t negotiate away its right to regulate in the best interest of its citizens, and we don’t ask other countries to do so either.  Our investment rules preserve the right to regulate to protect public health and safety, the financial sector, the environment, and any other area where governments seek to regulate.  U.S. trade agreements do not require countries to lower their levels of regulation.  In fact, in our trade agreements, we require our partners to effectively enforce their environmental and labor laws and to take on new commitments to increase environmental and labor protections.

  3. Do not impinge on the ability of federal, state, and local governments to maintain (or adopt) any measure that they deem necessary.

    Under our investment provisions, no government can be compelled to change its laws or regulations, even in cases where a private party has a legitimate claim that its basic rights are being violated and it is entitled to compensation.

  4. Do not expose state or local governments to new liabilities.

    Under our Constitution and laws, investors frequently exercise their rights in U.S. courts.  For example, in recent years, the U.S. government has defended hundreds of cases in U.S. courts under the Constitution’s “takings clause,” which requires compensation for expropriations.  State and local governments have likewise defended many such claims.  By contrast, the United States has only been sued 17 times under any U.S. investment agreement and has never once lost a case.  In some instances, we have even received compensation for having had to defend against a case in the first place.  In any disputes arising under our trade agreements, the federal government assumes the cost of defending the United States, even if they relate to state and local issues.

  5. Provide no legal basis to challenge laws just because they hurt a company’s profits.

    Our investment rules do not in any way guarantee a firm’s rights to any profits or to its projected financial outcomes.  Rather, they only provide basic rights – like non-discrimination and compensation in the event of an expropriation – that are already consistent with U.S. law.  Our investment rules seek to promote standards of fairness, not protect profits.

  6. Include strong safeguards to deter frivolous challenges to legitimate public interest measures.  

    The United States has proposed additional safeguards that include stricter definitions than are in most investment agreements of what is required for successful claims, as well as mechanisms for expedited review and dismissal of frivolous claims, payment of attorneys’ fees, consolidation of duplicative cases, and transparency.  These are some of the strongest safeguards in any of the nearly 3,200 investment agreements around the world.

  7. Ensure fair, unbiased, and transparent legal processes.

    The United States is committed to ensuring the highest levels of transparency in all investor-state proceedings.  Investment arbitration hearings under recent U.S. trade and investment agreements, as well as all key documents submitted to investor-state tribunals and tribunal decisions, are public.  Recent U.S. trade and investment agreements also give NGOs and other non-parties to a dispute the ability to participate by filing amicus curiae or “friend of the court” submissions, similar to non-parties’ ability to make filings in U.S. courts.

  8. Ensure independent and impartial arbitration.

    Investor-state arbitration is designed to provide a fair, neutral platform to resolve disputes.  The arbitration rules applied by tribunals under our agreements require that each arbitrator be independent and impartial.  These rules permit either party in a dispute to request the disqualification of an arbitrator and the appointment of a new arbitrator if necessary to ensure the independence and impartiality of all tribunal members.

The United States has been a leader in developing ISDS provisions that protect the ability of governments to regulate, discourage frivolous claims, and ensure a high level of transparency.

Treaty

PART XV
SETTLEMENT OF DISPUTES

SECTION 1. GENERAL PROVISIONS

Article 279
Obligation to settle disputes by peaceful means

States Parties shall settle any dispute between them concerning the
interpretation or application of this Convention by peaceful means in
accordance with Article 2, paragraph 3, of the Charter of the United
Nations and, to this end, shall seek a solution by the means indicated in
Article 33, paragraph 1, of the Charter.

Article 280
Settlement of disputes by any peaceful means chosen by the parties

Nothing in this Part impairs the right of any States Parties to agree at
any time to settle a dispute between them concerning the interpretation or
application of this Convention by any peaceful means of their own choice.

Article 281
Procedure where no settlement has been reached by the parties

1. If the States Parties which are parties to a dispute concerning the
interpretation or application of this Convention have agreed to seek
settlement of the dispute by a peaceful means of their own choice, the
procedures provided for in this Part apply only where no settlement has
been reached by recourse to such means and the agreement between the
parties does not exclude any further procedure .

2. If the parties have also agreed on a time-limit, paragraph 1 applies
only upon the expiration of that time-limit.

Article 282
Obligations under general, regional or bilateral agreements

If the States Parties which are parties to a dispute concerning the
interpretation or application of this Convention have agreed, through a
general, regional or bilateral agreement or otherwise, that such dispute
shall, at the request of any party to the dispute, be submitted to a
procedure that entails a binding decision, that procedure shall apply in
lieu of the procedures provided for in this Part, unless the parties to the
dispute otherwise agree.

Article 283
Obligation to exchange views

1. When a dispute arises between States Parties concerning the
interpretation or application of this Convention, the parties to the
dispute shall proceed expeditiously to an exchange of views regarding its
settlement by negotiation or other peaceful means.

2. The parties shall also proceed expeditiously to an exchange of views
where a procedure for the settlement of such a dispute has been terminated
without a settlement or where a settlement has been reached and the
circumstances require consultation regarding the manner of implementing the
settlement.

Article 284
Conciliation

1. A State Party which is a party to a dispute concerning the
interpretation or application of this Convention may invite the other party
or parties to submit the dispute to conciliation in accordance with the
procedure under Annex V, section 1, or another conciliation procedure.

2. If the invitation is accepted and if the parties agree upon the
conciliation procedure to be applied, any party may submit the dispute to
that procedure.

3. If the invitation is not accepted or the parties do not agree upon the
procedure, the conciliation proceedings shall be deemed to be terminated.

4. Unless the parties otherwise agree, when a dispute has been submitted to
conciliation, the proceedings may be terminated only in accordance with the
agreed conciliation procedure.

Article 285
Application of this section to disputes submitted pursuant
to Part XI

This section applies to any dispute which pursuant to Part XI, section 5,
is to be settled in accordance with procedures provided for in this Part.
If an entity other than a State Party is a party to such a dispute, this
section applies mutatis mutandis.

SECTION 2. COMPULSORY PROCEDURES ENTAILING
BINDING DECISIONS

Article 286
Application of procedures under this section

Subject to section 3, any dispute concerning the interpretation or
application of this Convention shall, where no settlement has been reached
by recourse to section 1, be submitted at the request of any party to the
dispute to the court or tribunal having jurisdiction under this section.

Article 287
Choice of procedure

1. When signing, ratifying or acceding to this Convention or at any time
thereafter, a State shall be free to choose, by means of a written
declaration, one or more of the following means for the settlement of
disputes concerning the interpretation or application of this Convention:

(a) the International Tribunal for the Law of the Sea established in
accordance with Annex VI;
(b) the International Court of Justice;
(c) an arbitral tribunal constituted in accordance with Annex VII;
(d) a special arbitral tribunal constituted in accordance with Annex VIII
for one or more of the categories of disputes specified therein.

2. A declaration made under paragraph 1 shall not affect or be affected by
the obligation of a State Party to accept the jurisdiction of the Sea-Bed
Disputes Chamber of the International Tribunal for the Law of the Sea to
the extent and in the manner provided for in Part XI, section 5.

3. A State Party, which is a party to a dispute not covered by a
declaration in force, shall be deemed to have accepted arbitration in
accordance with Annex VII.

4. If the parties to a dispute have accepted the same procedure for the
settlement of the dispute, it may be submitted only to that procedure,
unless the parties otherwise agree.

5. If the parties to a dispute have not accepted the same procedure for the
settlement of the dispute, it may be submitted only to arbitration in
accordance with Annex VII, unless the parties otherwise agree.

6. A declaration made under paragraph 1 shall remain in force until three
months after notice of revocation has been deposited with the Secretary-
General of the United Nations.

7. A new declaration, a notice of revocation or the expiry of a declaration
does not in any way affect proceedings pending before a court or tribunal
having jurisdiction under this article, unless the parties otherwise agree.

8. Declarations and notices referred to in this article shall be deposited
with the Secretary-General of the United Nations, who shall transmit copies
thereof to the States Parties.


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