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<p class=MsoNormal><b><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS";font-weight:bold'>Model Bilateral Investment
Treaty (Model BITs)<o:p></o:p></span></font></b></p>
<p class=MsoNormal><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS"'><a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#1">http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#1</a>
<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS"'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS"'>A collective statement outlining the
progressive viewpoint below came from: <o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS"'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 face="Trebuchet MS"><span style='font-size:
10.0pt;font-family:"Trebuchet MS"'>Kevin P. Gallagher, <st1:place w:st="on"><st1:PlaceName
w:st="on">Boston</st1:PlaceName> <st1:PlaceType w:st="on">University</st1:PlaceType></st1:place>
and Global Development and Environment Institute<br>
Owen Herrnstadt, International Association of Machinists and Aerospace Workers<br>
Sarah Anderson, Institute for Policy Studies<br>
Linda Andros, United Steelworkers<br>
Marcos Orellana Cruz, Center for International Environmental Law<br>
Elizabeth Drake, Stewart and Stewart<br>
Matthew C. Porterfield, Harrison Institute for Public Law - <st1:place w:st="on"><st1:City
w:st="on">Georgetown</st1:City></st1:place> Law<br>
Margrete Strand Rangnes, Sierra Club<br>
Martin Wagner, Earthjustice<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Contents<o:p></o:p></span></font></b></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>I. Introduction<br>
II. Making Dispute Settlement Consistent with the Public Interest<br>
III. Ensuring that Foreign Investors Do Not Have Greater Rights than <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> Investors<br>
IV. Protecting Health, Safety, and the Environment and Promoting Good Jobs<br>
V. Preventing and Mitigating Financial Crisis<br>
VI. Creating a Level Playing Field between State-Owned and Private Enterprises<b><span
style='font-weight:bold'><o:p></o:p></span></b></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>I. Introduction</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The authors of these comments wish to express their sincere
appreciation to the other members of the Private Sector Advisory Subcommittee
on Investment of the Advisory Committee on International Economic Policy
(ACIEP). We are especially grateful for the atmosphere of collegiality that
encouraged an open and frank discussion on various matters concerning the U.S.
Model BIT. We learned a great deal from these discussions and welcome the opportunity
in this annex to share some of our most pressing additional recommendations for
change, as well as expanded explanations of some of the points raised in the
main body of the Subcommittee report.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>We feel this is a critical moment to take a fresh approach to
bilateral investment treaties and the investment chapters of trade agreements.
We are encouraged by President Obama’s statements indicating a commitment
to make significant changes to the investment rules in <st1:country-region
w:st="on">U.S.</st1:country-region> trade agreements, which are similar to the
rules in the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
model bilateral investment treaty. For example, President Obama has stated:
“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 <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> greater
than those of Americans.”<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>We were also pleased that at the recently held AFL-CIO
Convention, President Obama committed to rebuild <st1:country-region w:st="on"><st1:place
w:st="on">America</st1:place></st1:country-region> by creating jobs that
cannot be outsourced to other countries. We applaud him for all of his work and
for undertaking such bold and much needed initiatives. We look forward to
working with the administration to put these commitments into practice by
establishing a whole new framework for the governance of international
investment that protects the public interest in the <st1:country-region w:st="on"><st1:place
w:st="on">United States</st1:place></st1:country-region> and abroad.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Striking the right balance in a new Model BIT requires
addressing in a meaningful way many valid concerns that labor unions and
environmental, development, and other nongovernmental organizations have raised
consistently for many years. Some primary examples:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Jobs, Capacity and Technology:</span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Current investment rules facilitate
and accelerate the off-shoring of U.S. jobs, capacity and technology by
providing sweeping protections for U.S. investments abroad, without
commensurate investor obligations to adhere, for instance, to internationally
recognized worker rights. While strong labor provisions and a record of
effective enforcement of those provisions should be a pre-condition for any
negotiations, they are not enough. A whole new framework is needed to reverse
the devastating impacts of offshoring on <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> workers and communities.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Democracy:</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'> Current rules allow private foreign investors to
bypass domestic courts entirely and take claims related to laws and regulations
developed through the democratic process directly to international tribunals.
If the challenge is successful, the host government is compelled to pay
compensation to the investor, which may deter future adoption or enforcement of
meaningful safety, worker, and environmental standards.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Environment:</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'> Many governments, including the <st1:country-region
w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>,
have had to spend millions of dollars defending legitimate environmental and
health and safety protections against investor-state claims. The threat of such
expensive lawsuits can also dissuade elected officials and regulators from
taking responsible action to promote sustainable development, environmental
protection, and human health and safety.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Since the last review of the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> model bilateral investment
treaty in 2004, there have been several significant developments that make
policy changes even more important:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>The Global Financial Crisis:</span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Current rules in the U.S. model
bilateral investment treaty restrict governments from placing even temporary
controls on capital flows, despite the fact that many countries have used this
policy tool effectively to prevent or mitigate financial crisis. We also have
strong concerns that the financial services rules do not sufficiently protect
responsible government actions to ensure financial system stability or to facilitate
economic recovery.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Surge in Foreign Investment into the <st1:country-region
w:st="on">United States</st1:country-region>:</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'> With foreign investment inflows into the <st1:country-region
w:st="on">United States</st1:country-region> increasing by more than 70 percent
since 2004, the possibility that <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> laws and regulations will be
the target of investor claims is significantly greater than at the time of the
last official BIT review.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>II. Making Dispute Settlement Consistent with
the Public Interest</span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>We recommend that the administration replace
investor-state dispute settlement with a state-to-state mechanism. If the
administration continues to include an investor-state dispute settlement
mechanism, investors should be required to exhaust domestic remedies before
filing a claim before an international tribunal. That mechanism should also
provide a screen that allows the Parties to prevent frivolous claims or claims
which otherwise may cause serious public harm.</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Investor-state claims often involve matters of vital importance
to the public welfare, the environment, and national security. However,
international arbitrators are not ordinarily well-versed in human rights,
environmental law, or the social impact of legal rulings. Allowing private
foreign investors to bring claims over such sensitive matters to international
commercial arbitration tribunals is particularly disturbing when the disputes
raise constitutional questions. For these reasons, we feel strongly that the
Model BIT should provide only for state-to-state dispute settlement, which
guarantees the crucial role of governments in determining and protecting the
public interest.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>However, if investors are still allowed to file claims against
governments before international tribunals, they should at least be required to
first exhaust domestic legal remedies. As noted in the Subcommittee report, the
exhaustion requirement is a fundamental principle of international law.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#i"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[i]</span></font></b></a> It is also <st1:country-region w:st="on">U.S.</st1:country-region>
policy with regard to most claims by <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> citizens against foreign
governments.<a href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#ii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[ii]</span></font></b></a> There is simply no need for foreign investors
to pursue claims against the <st1:country-region w:st="on">United States</st1:country-region>
outside of the <st1:country-region w:st="on">U.S.</st1:country-region> judicial
system, unless it is in an attempt to obtain greater rights than those provided
under <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
law. In developing countries, the exhaustion requirement would promote a key <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> foreign
policy goal – the strengthening of domestic judicial systems. Requiring
exhaustion would also restore some balance to a system that currently elevates
the interests of foreign investors over other groups – including labor,
environmental and human rights organizations – which do not enjoy
comparable private rights of action to enforce international legal obligations.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>By including a “futility” clause, the administration
could avoid placing unreasonable costs on foreign investors. This would allow
investors to proceed to international tribunals if, for example, domestic
remedies caused undue delay<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#iii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[iii]</span></font></b></a> or if domestic courts lacked jurisdiction to
provide relief.<a href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#iv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[iv]</span></font></b></a> Even if the domestic courts lacked
jurisdiction to hear international law claims, the exhaustion requirement could
be satisfied by raising the substance of the claim under domestic law.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#v"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[v]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As noted in the Subcommittee report, we also recommend that in
addition to requiring exhaustion of domestic remedies, the dispute settlement
mechanism should provide a screen that allows the Party governments to prevent
claims that are inappropriate, without merit, or would cause serious public
harm.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>III. Ensuring that Foreign Investors Do Not
Have Greater Rights than <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
Investors</span></font></b><font size=2 color="#252525" face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>There is broad, bipartisan support for the principle that the
investor protection standards contained in <st1:country-region w:st="on">U.S.</st1:country-region>
investment agreements should not provide foreign investors with greater rights
than those enjoyed by <st1:country-region w:st="on">U.S.</st1:country-region>
investors in the <st1:country-region w:st="on"><st1:place w:st="on">United
States</st1:place></st1:country-region>. Congress first instructed <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
negotiators to comply with the “no greater rights” principle in the
Trade Act of 2002.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#vi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[vi]</span></font></b></a> In May 2007, the Bush Administration and the
Democratic leadership in the House of Representatives agreed that this
principle would be explicitly stated in the preamble of the investment chapters
of free trade agreements.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#vii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[vii]</span></font></b></a> And, as mentioned earlier, candidate Obama
similarly pledged not to grant foreign investors any rights in the <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> greater
than those of Americans.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#viii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[viii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The provisions concerning indirect expropriation and the minimum
standard of treatment in <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
investment agreements are intended to reflect the relevant standards under
customary international law, which is created through the “general and
consistent practice of states followed by them from a sense of legal
obligation.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#ix"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[ix]</span></font></b></a> Given that the U.S. Constitution provides
among the highest levels of protection for property rights of any country,
standards that are based on the general and consistent practice of nations
regarding the protection of property rights would generally comply with the no
greater rights principle.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Unfortunately, arbitral tribunals have not based their
interpretations of the “indirect expropriation” and “minimum
standard of treatment” provisions of investment agreements on the actual
practice of nations, but rather have simply cited the characterization of these
standards by other tribunals, using essentially a common law methodology to
create “evolving” standards of investor protection.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#x"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[x]</span></font></b></a> The following recommendations respond to these
and other provisions of the Model BIT that could conflict with the “no
greater rights” mandate.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Recommendations:</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>1. We recommend that the administration
consider codifying the State Department’s position in <i><span
style='font-style:italic'>Glamis</span></i> regarding the standard of proof for
identifying principles of Customary International Law (CIL) in the Model BIT. </span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The 2004 Model BIT states that the minimum standard of treatment
– including its “fair and equitable treatment” component
– is limited to the customary international law standard for the
treatment of aliens and does not encompass any additional rights.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xi]</span></font></b></a> The Model BIT similarly states that the
prohibition on uncompensated expropriation “is intended to reflect
customary international law concerning the obligation of States with respect to
expropriation.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Annex A of the Model BIT further clarifies that customary
international law “results from a general and consistent practice of
States that they follow from a sense of legal obligation.” This language
does not provide adequate guidance on the standard for demonstrating that a
purported principle of customary international law exists. This uncertainty
about the standard for demonstrating CIL has created uncertainty about the
scope of the indirect expropriation and minimum standard of treatment
obligations, which are derived from CIL.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As noted in the Subcommittee report, the State Department has
provided useful guidance on this point in the memoranda it submitted on behalf
of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>
in the recently concluded <i><span style='font-style:italic'>Glamis Gold Ltd.
v. United States</span></i> arbitration. The Model BIT should codify the State
Department’s positions on these important principles in order to clarify
the proper standard for establishing CIL, particularly as it relates to the
minimum standard of treatment and expropriation.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>2. We recommend that the administration
consider codifying the State Department’s position in <i><span
style='font-style:italic'>Glamis</span></i> regarding the content of the
minimum standard of treatment in the Model BIT. </span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As noted in the Subcommittee report, in <i><span
style='font-style:italic'>Glamis</span></i>, the State Department noted that
state practice and <i><span style='font-style:italic'>opinio juris</span></i>
had established minimum standards of treatment with regard to foreign investors
and investment in only a few areas.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xiii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xiii]</span></font></b></a> Conversely, the State Department rejected
Glamis’s assertion that the minimum standard of treatment prohibits
either conduct that frustrates an investor’s expectations concerning an
investment<a href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xiv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xiv]</span></font></b></a> or “arbitrary”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xv]</span></font></b></a> conduct. Regarding Glamis’s claim that
the minimum standard of treatment required compensation for measures that
adversely affect an investor’s expectations, the State Department noted
that such an interpretation was both inconsistent with the no greater rights
mandate and unsupported by state practice.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xvi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xvi]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The asserted right to compensation for government measures that
a tribunal deems “arbitrary” would similarly provide greater rights
than the comparable standard under <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> law. The Administrative
Procedure Act does provide for review of certain final agency actions under an
“arbitrary and capricious” standard of review. No comparable
standard of review for economic legislation has been available, however, since
the 1930s, when the Supreme Court abandoned the aggressive substantive due
process review of the <i><span style='font-style:italic'>Lochner</span></i>
era.<a href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xvii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xvii]</span></font></b></a> Although substantive due process review of
economic legislation remains theoretically possible, the post-<i><span
style='font-style:italic'>Lochner</span></i> standard is a highly deferential
“minimum rationality” review, pursuant to which legislation will be
upheld “unless in the light of the facts made known or generally assumed
it is of such a character as to preclude the assumption that it rests upon some
rational basis within the knowledge and experience of the legislators.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xviii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xviii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Not only would an international “arbitrary” standard
of review for economic legislation provide greater rights than the highly
deferential standard of review for substantive due process claims, it would
also exceed the standard of protection afforded under the domestic law of other
developed countries. The Supreme Court’s <i><span style='font-style:italic'>Lochner
</span></i>era jurisprudence, in fact, “stands as perhaps the
paradigmatic instance of an ‘anti-model’ of comparative
constitutional experience.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xix"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xix]</span></font></b></a> Accordingly, we recommend that the new Model
BIT codify the State Department’s deferential interpretation of the
minimum standard of treatment.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>3. We recommend that the administration
consider clarifying in the Model BIT that an “indirect
expropriation” occurs only when a host state seizes or appropriates an
investment for its own use or the use of a third party, and that regulatory
measures that adversely affect the value of an investment but do not transfer ownership
of the investment do not constitute acts of indirect expropriation. </span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The 2004 Model BIT contained several important clarifications
concerning the standard for “indirect expropriation.” Two
provisions in particular are significant: the language indicating that in order
to constitute an expropriation a measure must affect a property right,<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xx"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xx]</span></font></b></a> and the statement that “[e]xcept in rare
circumstances, non-discriminatory regulatory actions by a Party that are
designed and applied to protect legitimate public welfare objectives, such as
health, safety and the environment, do not constitute indirect
expropriations.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxi]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Despite these reforms, however, there remains the potential that
the indirect expropriation provisions of BITs could be applied in a manner that
would violate the “no greater rights” principle by providing
foreign investors with greater rights than the comparable protections of the
Takings Clause of the Fifth Amendment of the U.S. Constitution.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxii]</span></font></b></a> For example, the Model BIT permits tax
measures to be challenged as violations of the prohibition on uncompensated
expropriations,<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxiii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxiii]</span></font></b></a> and there is substantial precedent in
international arbitral practice for finding that tax measures can constitute
forms of indirect expropriation.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxiv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxiv]</span></font></b></a> Under the Fifth Amendment’s Takings
Clause, in contrast, the Supreme Court has repeatedly rejected takings
challenges to tax measures, even when the tax is set at a level that threatens
the viability of a business.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxv]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The restriction of expropriation claims to situations involving
“property” as opposed to the more broadly defined
“investment” is also inadequate to ensure compliance with the
“no greater rights” principle, because it does not reflect that the
requirement of compensation for “regulatory takings” under the
Fifth Amendment of the U.S. Constitution has generally been only held to apply
to regulations affecting <i><span style='font-style:italic'>real </span></i>property.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxvi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxvi]</span></font></b></a> For example, the Supreme Court has indicated
that personal property is unlikely to be the basis for a successful regulatory
takings claim given that “in the case of personal property, by reason of
the State's traditionally high degree of control over commercial dealings, [the
owner] ought to be aware of the possibility that new regulation might even <a
name="sp_780_1028"></a><a name="SDU_1028"></a><a
name="citeas((Cite_as:_505_U.S._1003,_*1028,_1"></a>render his property
economically worthless.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxvii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxvii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Moreover, the indirect expropriation provision in investment
agreements has been interpreted to require compensation based on the impact of
the government measure on the value of the investment, regardless of whether
there has actually been some appropriation of an asset by the government.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxviii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxviii]</span></font></b></a> This interpretation of the standard for
indirect expropriation cannot be justified as reflecting the general practice
of states, given that the dominant practice of nations is to provide for
compensation only when the government has actually acquired an asset, not when
the value of an asset has been adversely affected by regulatory measures.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxix"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxix]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>It may be argued that domestic legal standards regarding
expropriation do not constitute relevant state practice with regard to
international relations for the purposes of identifying customary international
law. Domestic legal standards for expropriation, however, are relevant to the
identification of state practice given that they generally define the standard
of protection for both domestic and foreign property owners. There is no
indication that it is the general and consistent practice of nations to provide
foreign investors with a higher standard of protection with regard to
regulatory expropriations than is provided to domestic investors. To the
contrary, some jurisdictions – such as the <st1:country-region w:st="on"><st1:place
w:st="on">United States</st1:place></st1:country-region> with its “no
greater rights” principle – explicitly link their international
practice to their domestic standards of protection for property rights.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Accordingly, we recommend that the Model BIT clarify that an
indirect expropriation occurs only when the government acts indirectly to seize
or transfer ownership of an investment, and not when the government merely acts
in a manner that decreases the value of profitability of an investment. This
approach would be consistent with both the “no greater rights”
mandate and the general practice of states that forms the basis of customary international
law.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>4. We recommend that the administration
consider narrowing the definition of investment to include only the kinds of
property that are protected by the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> Constitution. This would mean
excluding the expectation of gain or profit and the assumption of risk. We also
recommend excluding derivatives and caution against the inclusion of carbon
offset contracts. </span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As noted in the Subcommittee report, the definition of
“Investment” in Article 1 of the Model BIT is much broader than the
real property rights and other specific interests in property that are
protected under the U.S. Constitution. The inclusion of “futures,
options, and derivatives” is also worrisome, given the troublesome role
these instruments played in the financial crisis and ongoing regulatory reform
efforts. We also strongly caution against expanding the definition of
investment to include international offset contracts. This could undermine <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> climate
change efforts by giving rise to investor claims over government actions taken
to ensure the integrity of the offset program, such as requirements that
investors share profits with local communities or limit the project scope to
respect indigenous rights.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>5. We recommend that the administration
consider revising the Model BIT to ensure that foreign investors may not use
the most favored nation (MFN) principle to assert rights provided by other
investment agreements or treaties. </span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The lack of clarity in the text of the 2004 Model BIT concerning
MFN leaves open the possibility that foreign investors could claim greater
rights than are provided under the BIT that was agreed to by their home
country. Conversely, foreign investors who enjoy the right to MFN through an
existing trade agreement or other treaty could wield that MFN obligation to
demand the full new set of rights – both substantive and procedural
– granted to foreign investors in the Model BIT. The unfettered
application of the MFN clause in investment agreements would thus push towards
a harmonized and enlarged system for the protection of investments, where
investors could pick the most favorable standards and dispute settlement
mechanisms.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>6. We recommend that the administration
consider explicitly limiting national treatment to instances in which a
regulatory measure is enacted for a primarily discriminatory purpose.</span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The broad scope of the “national treatment”
non-discrimination principle in the 2004 Model BIT leaves the principle open to
interpretations by international tribunals that could have negative
consequences for appropriate environmental, health and safety, and other public
interest protections. As has been the case in WTO jurisprudence, the principle
can be interpreted by tribunals as prohibiting regulatory actions that result
in “de facto” discrimination, even when there is no facial or
intentional discrimination involved. For example, an otherwise neutral
regulatory action to protect the environment that results in a disproportionate
impact on a foreign investor could run afoul of this standard.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>7. We recommend that the administration
consider revising Article 17 to ensure that foreign subsidiaries are not
allowed to bring investment claims against a nation that is the home of their
parent company. </span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The 2004 Model BIT’s language on Denial of Benefits
contains a loophole that allows corporations to bypass their own
country’s domestic courts by filing investor-state claims through foreign
subsidiaries located in a BIT partner nation. This is explicitly permitted in
Article 17.2, so long as the corporation has “substantial business activities”
in the other Party. We are concerned that global corporations will
inappropriately use this provision to avoid the normal “diversity of
nationality” requirement for investors to state arbitration before
international tribunals.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>IV. Protecting Health, Safety, and the
Environment and Promoting Good Jobs</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>1. We recommend that the administration
consider providing a stronger exception for health, safety and environmental
measures by deleting the phrase “otherwise consistent with this
Treaty” in Article 12.2.</span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The 2004 Model BIT does not contain a general exception for
“health, safety and environmental” (HSE) measures. This omission
introduces a high level of uncertainty regarding the legality of measures
adopted by the State to protect its people and environment from HSE threats.
This uncertainty reduces the ability of the State to effectively respond to HSE
risks.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>In disputes concerning HSE measures, the absence of general
exceptions for HSE measures places the interpretive focus on the substantive
investment disciplines, such as expropriation, the fair and equitable treatment
standard as an element of the minimum standard of treatment, and the
non-discrimination standards. In this regard, it has been argued that there is
no need for a general exceptions clause given that the substantive rules
already provide sufficient flexibility to the State for the adoption of
measures necessary to address health, safety and environmental threats. While
certain flexibility does exist in certain disciplines, this is a matter of
interpretation that is left to each tribunal. Consequently, there is no
certainty that an investment tribunal will interpret the substantive rules in a
way that provides sufficient flexibility to safeguard the regulatory needs of
the host State. As noted earlier, the lack of certainty reduces the ability of
the State to respond to HSE risks. Moreover, it is far from clear that existing
flexibilities are sufficient to fully safeguard measures designed and applied
for the protection of health, safety and the environment. In this regard, a
general exceptions clause makes explicit what may be implicit, thereby
providing guidance to tribunals as well as certainty to the law in a critical
area of public policy.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The General Agreement on Tariffs and Trade (GATT), for example,
contains general exceptions in Article XX for measures necessary for the
protection of human, animal or plant life or health, or that relate to the
conservation of exhaustible natural resources, provided that such measures are
not applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions
prevail, or a disguised restriction on international trade. These exceptions
have been critical in ensuring that the <st1:country-region w:st="on"><st1:place
w:st="on">United States</st1:place></st1:country-region> can adopt measures to
protect the environment and natural resources. For example, in <i><span
style='font-style:italic'>US-Shrimp Turtle</span></i> decided under the World
Trade Organization, the general exceptions in Article XX of the GATT were
critical to upholding the legality of <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> measures adopted to protect
endangered sea turtles.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>In the context of performance requirements, the 2004 Model BIT
already contains an exception for measures necessary to protect human, animal,
or plant life or health, or related to the conservation of living or non-living
exhaustible natural resources. While this exception is important in this
particular context, it should nevertheless be designed to apply to the whole
BIT. The fact that it only applies to performance requirements leads the treaty
interpreter to question whether the drafters intended to exclude similar
measures from the scope of application of other disciplines when in fact the
need for such exceptions to safeguard governments’ ability to protect
health, safety and the environment applies to all aspects of the BIT.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>In the particular context of treaties for the protection of
investments, countries like <st1:country-region w:st="on">Canada</st1:country-region>,
<st1:country-region w:st="on">China</st1:country-region>, <st1:country-region
w:st="on">India</st1:country-region>, <st1:country-region w:st="on">New Zealand</st1:country-region>
and <st1:country-region w:st="on"><st1:place w:st="on">Singapore</st1:place></st1:country-region>,
for example, have incorporated general exceptions for the protection of health,
safety or the environment, in varying formulations. Other countries, like <st1:country-region
w:st="on"><st1:place w:st="on">Germany</st1:place></st1:country-region>, have
incorporated exceptions for particular disciplines, such as national treatment.
These provisions are critical to ensuring that the State will be able to
respond to health, safety and the environment threats and provide protection to
its people and environment, without having to risk liability under the BIT.
Accordingly, the Model BIT should include a general exception for measures
related to the protection of health, safety and the environment, or to the
conservation of natural resources.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>2.</span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'> <b><span style='font-weight:bold'>We recommend that the
administration consider transforming the hortatory and aspirational language in
the “Investment and Environment” provision into a legal obligation
subject to State-to-State dispute settlement. </span></b><o:p></o:p></span></font></p>
<p class=MsoNormal style='mso-margin-top-alt:auto;mso-margin-bottom-alt:auto;
margin-left:0in;text-indent:-.25in;line-height:15.0pt;mso-list:l0 level1 lfo2;
background:white'><![if !supportLists]><font size=2 color="#252525"
face=Symbol><span style='font-size:10.0pt;font-family:Symbol;color:#252525'><span
style='mso-list:Ignore'>·<font size=1 face="Times New Roman"><span
style='font:7.0pt "Times New Roman"'>
</span></font></span></span></font><![endif]><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>In Article 12.1, the language “shall
strive to ensure that it does not waive or otherwise derogate from”
should be replaced by a firm obligation: “shall not waive or otherwise
derogate from”.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxx"><span
style='font-weight:normal'>[xxx]</span></a> The footnote to this article should
be deleted to expand the scope of Article 12 to all environmental laws.</span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <o:p></o:p></span></font></p>
<p class=MsoNormal style='mso-margin-top-alt:auto;mso-margin-bottom-alt:auto;
margin-left:0in;text-indent:-.25in;line-height:15.0pt;mso-list:l0 level1 lfo2;
background:white'><![if !supportLists]><font size=2 color="#252525"
face=Symbol><span style='font-size:10.0pt;font-family:Symbol;color:#252525'><span
style='mso-list:Ignore'>·<font size=1 face="Times New Roman"><span
style='font:7.0pt "Times New Roman"'>
</span></font></span></span></font><![endif]><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>The Investment and Environment Provision should
be subjected to State-to-State dispute settlement by deleting Article 37.5 and
deleting the last sentence of Article 12.1.</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The Model BIT, including its use of investor-to-State
arbitration allowing private investors to file suit against legitimate health,
safety and environmental measures, will continue to pose an obstacle to
environmental protection, and sustainable development more generally, until
environmental concerns are fully integrated into the Model’s legal
framework. The current environmental provision only contains hortatory and
aspirational language that stands in stark contrast with the mandatory and
enforceable obligations established by other provisions of the Model. This
hortatory and unenforceable provision is insufficient to prevent the Model BIT
from driving or exacerbating environmental pollution or degradation, or
unsustainable natural resource extraction, in the territories of BIT partners.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>In order to address some aspects of this limitation, we
recommend that the Administration consider revising Article 12(1) to establish
an enforceable legal obligation, subject to State-to-State dispute settlement,
generally requiring States to refrain from derogating from environmental laws
to attract investments. This revision follows the U.S.-Peru Trade Promotion Agreement
as well as agreements with <st1:country-region w:st="on">Korea</st1:country-region>,
<st1:country-region w:st="on">Panama</st1:country-region> and <st1:country-region
w:st="on"><st1:place w:st="on">Colombia</st1:place></st1:country-region>. These
agreements contain a commitment by parties to enforce their domestic
environmental laws and comply with international environmental agreements
adopted by both parties. These agreements do not require parties to achieve a
given level of environmental protection, to adopt new environmental laws or to
become parties to international agreements, but only to enforce their domestic
laws and to comply with international environmental agreements. These
agreements also subject this commitment to the same dispute settlement
mechanism as that available for commercial disputes, thereby ensuring parity
between commercial and environmental obligations.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Through these revisions, the Administration can demonstrate that
it is just as important for BITs to reinforce the rule of law with respect to
domestic environmental rules as it is with respect to economic concerns.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>3. We recommend that the administration include
in the preamble language that clarifies that the broader objective of the Model
BIT is to contribute to sustainable development.</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>While the preamble of the 2004 Model BIT does not pose
obligations per se, it plays a key role in the interpretation of the BIT,
particularly in dispute settlement. The WTO’s experience has shown the
critical importance of the reference to sustainable development and
environmental protection in the preamble of the WTO Agreement. This language
has enabled greater integration and mutual supportiveness of the environmental,
social and economic regimes underlying health, safety and environmental
measures, thereby allowing the WTO to depart from narrow trade goals and
embrace the broader objective of sustainable development. The 2004 Model BIT,
in order to adequately frame its objective and thereby avoid unidirectional,
investor-above-all interpretations that disregard the public interest, should
clarify that the objective of the treaty is sustainable development, and that
protection of investments is a means to achieve it this objective.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>4. We recommend that the administration
consider requiring Parties to adopt and maintain laws and regulations
consistent with the ILO core labor rights, as defined by the core conventions,
and to effectively enforce them, as well as laws and regulations related to
acceptable conditions of work, and to provide an effective mechanism to enforce
those and other labor commitments.</span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Five years ago, labor representatives stated in their comments
to the ACIEP: “While we can envision a system of international investment
rules that would benefit workers in the U.S. and abroad by creating jobs,
guaranteeing workers’ rights, regulating corporate behavior, and
disciplining government practices that unfairly distort investment flows, the
BIT program does not achieve these goals.” Nothing that has occurred in
the past five years and nothing that is reflected in the Investment
Subcommittee’s consensus report change that position.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Since we expressed these objections in 2004, our fundamental
concerns have only deepened. Millions of jobs have since been lost and many
U.S.-based corporations continue to transfer production abroad. Far too often,
outsourcing of this nature is initiated to take advantage of workers in other
countries who do not enjoy fundamental human rights, like the right to form a
union and to engage in collective bargaining. Our current approach to
investment policy, as reflected by the Model BIT, contributes greatly to these
job losses. They encourage the transfer of investment to other countries by providing
stability, security, and predictability that otherwise would make overseas
investments unattractive and too costly.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>While strong labor provisions that explicitly incorporate
international labor standards as reflected by the ILO and the effective enforcement
of those provisions prior to entering into any BIT are essential to any new
approach, they are not enough. <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
workers have suffered too many jobs losses, communities have been decimated,
and hope is fast disappearing for the millions of unemployed workers and the
millions of more workers who are forced to accept part time and low wage jobs.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>This is why a new approach to a BIT must reflect a comprehensive
approach to rebuilding our economy. It must be part of a jobs policy that will
restore our industrial base, making it vibrant and sustainable well into the
future. Adopting a BIT that is not reflective of the need for a national jobs
policy and that does not responsibly constrain corporations from transferring
production, services, and technology is not in the in the best interest of U.S.
workers, their communities, or the nation.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The above notwithstanding, the current labor protections
reflected in the 2004 Model BIT are woefully inadequate. The major problems
include:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>1. In Article 13.1, a party does not have an absolute obligation
not to waive or derogate from its domestic labor laws (or offer to do so) in
order to encourage investment. It needs only to strive not to do so. One could
argue that a party has not striven to ensure that it does not waive or derogate
if in fact the party has waived or derogated; however, an affirmative
prohibition would provide a clearer and more enforceable obligation.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>2. Article 13.2 refers to “internationally recognized
worker rights.” This language is culled from our trade preference
programs, dating from the 1984 Generalized System of Preferences. The standard
is long outdated. For example, “internationally recognized worker
rights” does not include non-discrimination in employment, which the ILO
has defined as a core labor right in the 1998 ILO Declaration on Fundamental
Principles and Rights at Work. Subsequent trade-related legislation and trade
agreements have also since referred to “core labor standards” or to
the 1998 ILO Declaration, which enumerates the core labor rights. The Model BIT
must adopt a definition of international labor standards that refers to the
core labor rights as they are defined in the ILO Conventions and developed in
the accompanying jurisprudence.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>3. The BIT does not require a country to have any labor laws,
just not to waive or derogate from them if it has them. There is not even an
obligation to improve laws over time so that they may eventually be consistent
with the core labor rights. The lack of any minimum standard with regard to labor
laws is a major flaw.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>4. If one party has encouraged investment by waiving or
derogating from its labor laws, the only available remedy is state-to-state
consultations. There are several problems here: 1) A worker aggrieved by a
party’s decision not to enforce its laws on freedom of association in
order to retain investment, for example, has no specific role in this process.
Certainly, the party that waived the right is unlikely to be receptive to the
complaints of its workers, and such workers may not have easy access to U.S.
officials responsible for raising such issues under a BIT; 2) A violation of
the labor provisions can proceed to consultations but is explicitly excluded
from state-to-state dispute resolution (Article 37.1 and 37.5). If the matter
is not resolved in the consultations, then workers are simply out of luck; and
3) The Parties are to consult “with a view to avoiding any such
encouragement.” This ambiguous language could be read to require a party
do nothing more than to make an effort to have the other party rethink its
action. The purpose of the consultation should be to have the other party
either enforce its law as it applies to the investment, or, if the act in
question was a weakening or repeal of a law, to nullify that weakening or
repeal. As a matter of principle, we strongly recommend that the remedies
available under any dispute mechanism regarding international labor standard
violations should be as effective as they are for investors.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>V. Preventing and Mitigating Financial Crises</span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As the <st1:country-region w:st="on"><st1:place w:st="on">United
States</st1:place></st1:country-region> and the rest of the world have
learned the hard way, an un-regulated and unstable financial system can lead to
financial crises and have a profound effect on jobs, livelihoods, growth, and
economic development. The following recommendations are aimed at ensuring that
the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>
and its BIT partners have the necessary flexibility to utilize a wide array of
measures to prevent and mitigate future such crises.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Recommendations: </span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>1. We recommend that the administration
consider undertaking a thorough legal review of the potential that any of the
measures that it has implemented (or is contemplating implementing) in response
to the financial crisis might be inconsistent with any standard of investor
protection contained in <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
BITs. </span></font></b><font size=2 color="#252525" face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>There is a growing body of literature discussing the potential
that measures adopted by the United States and other countries in response to
the financial crisis will result in international legal disputes. Most of the
discussion thus far has focused on the potential for state-to-state trade
disputes pursuant to the WTO’s dispute settlement process.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxi]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>A recent study by Anne van Aaken and Jürgen Kurtz, however, concludes
that “international investment law is, in the short-term, more likely
than any other area of international economic law to give rise to complaint and
initiation of legal action” based on government measures adopted to
address the financial crisis.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxii]</span></font></b></a> Among the factors the authors cite in
support of this conclusion is the availability of investor-state arbitration
for investment claims, which reduces the deterrent effect that the potential
for retaliatory complaints may have on state-to-state disputes over trade rule
violations.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Certain types of emergency financial measures appear to be
vulnerable to challenge under the terms of the 2004 Model BIT. To the extent
that <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
emergency financial measures have taken the form of “subsidies or
grants...including government-supported loans, guarantees, and
insurance,” they are carved out from some obligations under the Model
BIT, including national treatment and most favored nation treatment. <i><span
style='font-style:italic'>See</span></i> 2004 Model BIT, art. 14(5). This
provision, however, does not apply to the minimum standard of treatment
obligation and its “fair and equitable treatment” component.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Accordingly, certain financial bailout measures could be
challenged on the grounds that they denied a foreign investor’s right to
fair and equitable treatment. For example, it could be argued that a foreign
financial institution operating in the <st1:country-region w:st="on">United
States</st1:country-region> was denied fair and equitable treatment because it
was not provided with access to the same bailout programs as <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> banks.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxiii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxiii]</span></font></b></a> A similar argument was made in an
investor-state case against the <st1:PlaceName w:st="on">Czech</st1:PlaceName> <st1:PlaceType
w:st="on">Republic</st1:PlaceType>, in which a Dutch subsidiary of a Japanese
bank successfully argued that the <st1:place w:st="on"><st1:PlaceName w:st="on">Czech</st1:PlaceName>
<st1:PlaceType w:st="on">Republic</st1:PlaceType></st1:place> had violated its
right to fair and equitable treatment by excluding a small bank in which it had
invested from a bailout program made available to larger Czech banks.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxiv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxiv]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>2. We recommend that the administration also
consider conducting a thorough legal review of the “prudential
measures” exception in the 2004 Model BIT. Based on the outcome of these
legal reviews, the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
government should consider including a stronger prudential measures exception.
Specifically, the U.S. government should consider eliminating the arguably
self-canceling second sentence of Article 20.1, and including language
indicating that the prudential measures exception is self-judging (similar to
the language in the essential security provisions of recent FTAs).<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxv"><font
color="#2664a2"><span style='color:#2664A2;text-decoration:none'>[xxxv]</span></font></a></span></font></b><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Article 20.1 of the Model BIT is aimed at protecting government
actions to secure the integrity and stability of its financial system from
challenge. However, a noted in the Subcommittee report, the second sentence of
that provision is unclear and could be interpreted in a manner that would
undermine the overall prudential exception.<a
href="httphttp://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxvi"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxvi]</span></font></b></a> It’s worth noting that this
potentially “self-canceling” sentence is absent from an otherwise
similar section of North American Free Trade Agreement (Article 1410.1). Yet
even the NAFTA provision has been interpreted as permitting tribunals to review
financial measures to determine whether they are “reasonable” or
“arbitrary.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxvii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxvii]</span></font></b></a> Accordingly, even if the second sentence
of Article 20.1 is deleted, language clarifying that the prudential measures
exception is intended to be self-judging is necessary unless the <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> government
intends to subject its applications of the exception to review by investment
tribunals.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>3. We recommend that the administration
consider including a temporary safeguard provision in the Model BIT for balance
of payments and other financial crises that is not subject to investor-state
dispute settlement.</span></font></b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Many noted economists and international institutions (such as
the IMF) recognize that while capital account liberalization may be a desirable
goal for some nations, the process should be gradual and sequenced. Even then,
there may be circumstances in which capital account management is necessary to
address massive inflows and outflows of short-term capital leading up to and
resulting from a financial crisis.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxviii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxviii]</span></font></b></a> This volatility also hurts <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> investors
in countries experiencing uncontrolled massive capital flight, since it often
leads to significant currency depreciations, which could reduce the value of
these investors’ host country revenues and increase the cost of any
imported inputs. However, the 2004 Model BIT essentially forces BIT partners to
liberalize their capital accounts, regardless of the nation’s
institutional capacity -- or be prepared to literally pay the consequences.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As noted in the Subcommittee report, IMF officials explained to
members of the Subcommittee that the IMF’s Articles of Agreement do not
require member states to obtain IMF approval before applying restrictions on
capital transactions.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xxxix"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xxxix]</span></font></b></a> An IMF official also stated that it is the
official IMF board and staff position that capital account liberalization needs
to be sequenced and that temporary exceptions to such liberalization may be
needed in some circumstances to prevent and mitigate financial
crises—particularly to regulate inflows and outflows of short-term
capital. He also raised concerns about a potential circumstance in which a
country had a BIT with the <st1:country-region w:st="on">United States</st1:country-region>
and elected to impose capital controls, because they would have to apply the
controls in a discriminatory way (not on <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> investors but only on those
from other countries). The IMF official said that during the negotiations for a
Multilateral Agreement on Investment (MAI) the IMF advocated for such an
exception and was able to include a temporary safeguard measure in the final
draft of the MAI. <a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xl"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xl]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The IMF has advised at least two countries to impose capital
controls to prevent or mitigate a crisis -- <st1:country-region w:st="on">Estonia</st1:country-region>
and <st1:country-region w:st="on"><st1:place w:st="on">Peru</st1:place></st1:country-region>.
Moreover, the IMF was supportive of capital controls introduced by national
governments in seven of the twelve cases in the 1990s.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xli"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xli]</span></font></b></a> In the current crisis, the IMF has been
supportive of the capital controls deployed by <st1:country-region w:st="on"><st1:place
w:st="on">Iceland</st1:place></st1:country-region>.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xlii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Below we offer sample language based on the MAI text. We
recommend that the administration consider including a safeguard provision that
is not subject to investor-state dispute settlement. At most, the provisions
should be subject to state-to-state dispute settlement, and even then such
procedures should only be available after enhanced consultation procedures are
undertaken. Parties may be required to consult with other Parties on any
safeguard measure, but such consultations should provide the primary means of
ensuring </span></font><font size=2 color=blue face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:blue'>consistency with
the Agreement.<o:p></o:p></span></font></p>
<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=600
style='width:6.25in'>
<tr>
<td style='padding:0in 0in 0in 0in'>
<p style='line-height:15.0pt'><i><font size=2 color=navy face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:navy;font-style:
italic'>TEMPORARY SAFEGUARD</span></font></i><font size=2 color=navy
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:navy'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt'><font size=2 color=navy face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:navy'>1. A Party may
adopt or maintain measures inconsistent with its obligations under the
transfers section as a temporary safeguard in the event of serious
balance-of-payments and external financial difficulties or threat thereof.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt'><font size=2 color=navy face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:navy'>2. Measures
referred to in paragraph 1:<br>
(a) shall be consistent with the Articles of Agreement of the International
Monetary Fund;<br>
(b) shall not exceed those necessary to deal with the circumstances described
in paragraph 1;<br>
(c) shall be temporary and shall be eliminated as soon as conditions permit;<br>
(d) shall be promulgated and applied in good faith and in an equitable and
non-discriminatory manner.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt'><font size=2 color=navy face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:navy'>3. Measures
referred to in paragraph 1 and any changes therein that are approved by the
International Monetary Fund in the exercise of its jurisdiction shall be
considered as consistent with this Article.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt'><font size=2 color=navy face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:navy'>4. (a)
Measures referred to in paragraph 1, and any changes therein, shall be
promptly notified to the other Party.<br>
(b) A Party applying a measure referred to in paragraph 1, or making any
changes therein, shall consult promptly with the other Party regarding the
measure and any changes therein.<br>
(c) The consultations referred to in paragraph 4(b) shall occur within six
months of the adoption of a measure referred to in paragraph 1 and every six
months thereafter until the measure’s elimination.</span></font><font
size=2 color=blue face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:blue'><o:p></o:p></span></font></p>
</td>
</tr>
</table>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>4. We recommend that the Administration
consider excluding “sovereign debt” from Article 1 definitions of
an investment.</span></font></b><font size=2 color="#252525" face="Trebuchet MS"><span
style='font-size:10.0pt;font-family:"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Unlike the North American Free Trade Agreement, the U.S. Model
BIT does not explicitly exclude sovereign debt from the definition of covered
investments.<a href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xliii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xliii]</span></font></b></a> The <st1:country-region w:st="on">U.S.</st1:country-region>
government is the largest issuer of sovereign debt, and recent steep increases
in such debt levels have prompted the Chinese government and other foreign
investors to express concerns about the safety of their investments in <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> government
debt. The risk of default is of course much higher in the world’s poorest
countries. The IMF has reported that 28 countries have accumulated debt in
excess of 60% of GDP as a result of the current crisis.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xliv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xliv]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>In the July 31, 2009 meeting with several members of the
Subcommittee, a senior IMF legal official raised concerns that efforts to
restructure unsustainable public debts may give rise to investor-state claims.
The prospect of another round of debt crises has renewed interest in developing
a permanent sovereign debt work-out procedure. A UN Commission on the financial
crisis, for example, stated that “There is an urgent need for renewed
commitment to develop an equitable and generally acceptable Sovereign Debt
Restructuring Mechanism.”<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xlv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlv]</span></font></b></a> These efforts, however, could be undermined
if bondholders are able to circumvent such mechanisms by filing claims under
BITs. We note, however, that the debt of state-owned enterprises (SOEs) should
not be excluded from the definition of investment under Article 1, as that
result would provide an unfair competitive advantage to SOEs with deleterious
affects on <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
competitors.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Some post-NAFTA <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
trade agreements and bilateral investment treaties include special annexes on
debt restructuring.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xliv"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlvi]</span></font></b></a> These annexes are problematic for several
reasons. First of all, they allow investor-state claims over debt restructuring
when such restructuring violates National and Most Favored Nation treatment.
There are several reasons why a country might need to resort to offering
preferential conditions to domestic creditors in the aftermath of financial
crises, particularly when the domestic debt is associated with meeting wage,
salary, pension and other social obligations. Another problem is that these
annexes set a deadline of 270 days for governments to secure agreements with
creditors before investor-state claims can proceed. Experience shows that it is
difficult to bring all creditors together in one forum to obtain agreement on a
haircut across all bond issuance categories. This hard deadline therefore may
encourage foreign creditors to hold out for bigger potential payoffs through
investor-state claims than they might receive in a negotiated restructuring.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>VI. Creating a Level Playing Field Between
State-Owned and Private Enterprises</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>1. We recommend that the administration consider
including in the Model BIT a provision to ensure that State-Owned Enterprises
(SOEs) which invest in productive assets in the <st1:country-region w:st="on"><st1:place
w:st="on">United States</st1:place></st1:country-region> do not receive
financing and inputs at below market rates or access to other anti-competitive
subsidization by a foreign government.</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-weight:bold'>Draft Language:</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><i><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525;font-style:italic'>Each Party shall ensure that state enterprises
(meaning an enterprise owned or controlled by a Party) investing in the
territory of the other Party do not receive financing of covered investments at
below-market interest rates or receive other anticompetitive subsidization
regarding such covered investments</span></font></i><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>As investment flows into the <st1:country-region w:st="on">United
States</st1:country-region> continue to grow, it can be anticipated that
investment into the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
market will continue to expand substantially.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xlvii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlvii]</span></font></b></a> Consequently, BITs can no longer be viewed
solely as a package of rights and obligations to protect outward investment by <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> investors
in less developed nations. BIT obligations apply with equal force to
investments within the <st1:country-region w:st="on"><st1:place w:st="on">United
States</st1:place></st1:country-region> by foreign companies and governments,
including SOEs.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>A Model BIT must address the impact on domestic competitiveness
and maintaining and creating jobs and technology in the <st1:country-region
w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>.
What is good for <st1:country-region w:st="on"><st1:place w:st="on">America</st1:place></st1:country-region>’s
global corporations is no longer necessarily good for the American economy. In
particular, the consequences of inward investments made by foreign SOEs on our
domestic industries and workforce should be taken into account. A Model BIT
must ensure that such foreign nationals are not permitted to gain an unfair
competitive advantage in such acquisitions. A BIT model should address
significant domestic competitiveness issues to balance these domestic interests
with the interests of outbound investors. This is especially the case when
considering entering into BITs with developing countries like <st1:country-region
w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>, which
has massive reserves available for foreign investment, is searching the globe
to secure finite resources and where at least half the production is in the
hands of SOEs. <st1:country-region w:st="on">China</st1:country-region> engages
in trade based on mercantilist principles and has a strategic industrial policy
meant to create and expand industrial sectors with the intent of becoming
dominant within <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
and globally. In fact, <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
has targeted ten sectors or “pillars”, including steel,
telecommunications and aerospace. To achieve dominance, the Chinese government
subsidizes home-grown enterprises (commonly SOEs), manipulates its currency for
export advantage and insulates its domestic enterprises from foreign
competitors in a host of ways. <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
also uses access to its market as a means to force technology transfers. All of
these policies have one thing in common – they advance Chinese industries
often at the expense of foreign competitors. Certainly, such anti-competitive
policies have created disadvantages for <st1:country-region w:st="on">U.S.</st1:country-region>
companies investing in <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xlviii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlviii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>There can be no reasonable expectation that <st1:country-region
w:st="on">China</st1:country-region>, or other countries with similar
industrial policies and significant SOEs, will on their own initiative adopt
inherently different or more market-based, hands-off policies as they look to
expand their economic prospects by investing in the <st1:country-region w:st="on"><st1:place
w:st="on">United States</st1:place></st1:country-region>. Rather, it can be
expected that countries like <st1:country-region w:st="on">China</st1:country-region>
will seize the opportunity (and the insulation afforded under a BIT) to invest
in the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
market to advance the domination of their industries in the same way as in
their home countries. In either or both circumstances, such policies also can
distort competition in third country markets. Likewise, it should be borne in
mind that governments, particularly non-democratic ones, may have more than
pure commercial interests behind any particular foreign investment decision.
Indeed, in addition to the described industrial policies, <st1:country-region
w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region> has a
“go out” strategy, which involves the purchase of on-going,
successful enterprises and brand acquisitions, in particular involving finite
and commercially critical resources like oil, gas and gold.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#xlix"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[xlix]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>This raises at least two broad concerns involving SOEs investing
in the U.S. market under the protection of a BIT, which U.S. laws, such as
anti-trust law or the CFIUS regime, may not be amenable to addressing in a
meaningful manner.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#l"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[l]</span></font></b></a> First, there is a potential problem with regard
to SOEs that are subsidized by their governments and likely to purchase
productive assets in the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
under the protection of a BIT. In that circumstance, an SOE could gain an
unfair advantage over similarly situated domestic competitors. For example, a
Chinese SOE may decide to purchase a manufacturing plant (a purchase subsidized
by the Chinese government) and may also export inputs from China (subsidized by
the Chinese government) to maintain and create jobs in China,<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#li"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[li]</span></font></b></a> or a subsidized Chinese SOE could purchase an
enterprise in the U.S. solely to gain technology, which could be shipped back
to China for future development and control. In all of these instances, <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
manufacturing capacity, innovation and job creation could be adversely
affected, thus undermining our domestic competitiveness. As noted above,
President Obama has spoken eloquently on the need to rebuild a vibrant American
manufacturing sector.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Second, as discussed above, the current BIT extends to a foreign
investor -- like an SOE -- greater process rights than domestic investors.
Under the protection of the BIT attempts by governmental entities in the <st1:country-region
w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>
to discipline an SOE for anti-competitive behavior (as illustrated above) could
be evaded by recourse in the first instance to an arbitral panel. For instance,
a Chinese SOE could rely on overly broad definitions of expropriation,
investment and “fair and equitable treatment” to bring arbitral
claims, arguing that application of anti-trust laws has been applied in a
discriminatory manner against their investment and thus has resulted in an
indirect expropriation under the BIT. This could well have a very deleterious
impact on the ability of the <st1:country-region w:st="on"><st1:place w:st="on">United
States</st1:place></st1:country-region> to ensure an open and competitive
marketplace free of foreign government intervention.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>A new BIT model should strike a balance that ensures that
foreign SOEs operating in the <st1:country-region w:st="on"><st1:place w:st="on">United
States</st1:place></st1:country-region> do not import anti-competitive
industrial policies (<i><span style='font-style:italic'>e.g.</span></i>,
subsidization) that result in the undermining of our domestic competitiveness,
productive capacity, innovation and job creation. A BIT should not offer
protection to SOEs that operate in such a manner but rather provide meaningful
disciplines to ensure open and fair competition in the United States free from
anticompetitive foreign government intervention.<a
href="http://www.state.gov/e/eeb/rls/othr/2009/131118.htm#lii"><b><font
color="#2664a2"><span style='color:#2664A2;font-weight:bold;text-decoration:
none'>[lii]</span></font></b></a><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>This recommendation is consistent with the recent OECD
Declaration on Sovereign Wealth Funds and Recipient Country Policies. Under
that Declaration, recipient countries “…should not discriminate
among investors in like circumstances.” Investors that have access to
unlimited sovereign government largess, and those who do not, are not “in
like circumstances.”<o:p></o:p></span></font></p>
<p class=MsoNormal style='line-height:15.0pt;background:white'><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'>----- <o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=i><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[i]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Interhandel Case (Switz. v. <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>), 1959
I.C.J. Rep. 5, 27 (Mar. 21).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=ii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[ii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
U.S. Department of State<i><span style='font-style:italic'>, Bilateral
Investment and Other Bilateral Claims</span></i>, <i><span style='font-style:
italic'>available at </span></i>http://www.state.gov/s/l/c7344.htm:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Under international law and practice the <st1:country-region
w:st="on">United States</st1:country-region> does not formally espouse claims
on behalf of <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
nationals unless the claimant can provide persuasive evidence demonstrating
that certain prerequisites have been met. The most important of these
requirements [include] that all local remedies have been exhausted or the
claimant has demonstrated that attempting to do so would be futile ... .<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=iii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[iii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See,
e.g.,</span></i> El Oro Mining and Railway Co. Case (<st1:country-region w:st="on"><st1:place
w:st="on">Gr. Brit.</st1:place></st1:country-region> v. Mex.), 5 Int'l Arb.
Awards 191, 198 (Perm. Ct. Arb. 1931).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=iv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[iv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See,
e.g.</span></i>, Panevezys-Saldutiskis Railway (Est. v. Lith.), 1939 P.C.I.J.
(ser. A/B) No. 76, at 18 (Feb. 28) (“There can be no need to resort to
the municipal courts if those courts have no jurisdiction to afford relief . .
.”) <i><span style='font-style:italic'>See also generally</span></i> The
Finnish Ships Case (<st1:country-region w:st="on">Finland</st1:country-region>
v. <st1:country-region w:st="on"><st1:place w:st="on">United Kingdom</st1:place></st1:country-region>),
3 R. Int'l Arb. Awards 1484 (1934) (domestic judicial appeal not required where
it would not afford a basis for reversing determination of British Admiralty
Transport Arbitration Board that the British government had not requisitioned
certain Finnish ships).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=v><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[v]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Elettronica Sicula S.p.A. (ELSI) (<st1:country-region
w:st="on">U.S.</st1:country-region> v. <st1:country-region w:st="on"><st1:place
w:st="on">Italy</st1:place></st1:country-region>), 1989 I.C.J. 15, 45-46 (July
20) (exhaustion requirement satisfied where “the substance of the
claim” brought in domestic court “is essentially the same” as
the international claim).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=vi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[vi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Trade Act of 2002, H.R. 3009, 107th
Cong. § 2102(b)(3) (2002).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=vii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[vii]</span></font></b></a><i><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525;font-style:italic'> See </span></font></i><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'>Office of the United States Trade
Representative, <i><span style='font-style:italic'>Bipartisan Agreement on
Trade Policy: Investment </span></i>(May 2007),<i><span style='font-style:italic'>
available at </span></i>http://www.ustr.gov/sites/default/files/uploads/factsheets/2007/asset_upload_file146_11282.pdf<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=viii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[viii]</span></font></b></a><i><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525;font-style:italic'>See</span></font></i><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Pennsylvania Fair Trade Coalition, <i><span
style='font-style:italic'>2008 Presidential Candidate Questionnaire, answer of
Sen. Barack Obama</span></i>, question 10, <i><span style='font-style:italic'>available
at</span></i> http://www.citizenstrade.org/pdf/QuestionnairePennsylvaniaFairTradeCoalition040108FINAL_SenatorObamaResponse.pdf.
Secretary of State Clinton also endorsed the no greater rights principle during
the 2008 campaign. <i><span style='font-style:italic'>See</span></i> Texas Fair
Trade Coalition, <i><span style='font-style:italic'>Presidential Candidate
Questionnaire</span></i>, Answer of Sen. Hilary Rodham Clinton, question 6
(“I will ensure that foreign companies do not have greater rights than
American companies.”), <i><span style='font-style:italic'>available at</span></i>
http://www.texasfairtrade.org/documents/HillaryClintonQuestionnaireResponse.pdf<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=ix><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[ix]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> RESTATEMENT (THIRD) OF THE FOREIGN
RELATIONS LAW OF THE UNITED STATES, § 102(2) (1987).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=x><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[x]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See
generally</span></i> Matthew C. Porterfield<i><span style='font-style:italic'>,
An International Common Law of Investor Rights? </span></i>27 U. <st1:State
w:st="on"><st1:place w:st="on">Pa.</st1:place></st1:State> J. Int’l Econ.
L. 79 (2006).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
2004 Model BIT, art. 5(2).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
2004 Model BIT, Annex B, para. 1.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xiii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xiii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
U.S. Counter-Memorial at 221 (footnotes omitted):<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>Sufficiently broad State practice and <i><span style='font-style:
italic'>opinio juris </span></i>have thus far coincided to establish minimum
standards of State conduct in only a few areas. Article 1105(1) embodies, for
example, the requirement to provide a minimum level of internal security and
law and order, referred to as the customary international law obligation of
full protection and security. Similarly, Article 1105 recognizes that a State
may incur international responsibility for a “denial of justice”
where its judiciary administers justice to aliens in a “notoriously
unjust” or “egregious” manner “which offends a sense of
judicial propriety.” In addition, the most widely-recognized substantive
standard applicable to legislative and rule-making acts in the investment
context is the rule barring expropriation without compensation, but that
obligation is particularized in the NAFTA under Article 1110.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xiv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xiv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
U.S. Counter-Memorial at 233:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>While the minimum standard of treatment under customary
international law requires compensation in the event of an expropriation, there
is no such rule requiring compensation for actions that fall short of an
expropriation but that frustrate an alien’s expectations. Certainly,
Glamis has made no showing that States refrain out of a sense of legal
obligation from taking regulatory action that may frustrate an alien’s
expectations. Indeed, most, if not all, regulatory action is bound to upset the
expectations of a portion of the populace. If States were prohibited from
regulating in any manner that frustrated expectations – or had to
compensate everyone who suffered any diminution in profit because of a
regulation – States would lose the power to regulate.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
U.S. Counter-Memorial at 227 (“Glamis has also failed to present any
evidence of relevant State practice to support its contention that Article
1105(1) imposes a general obligation on States to refrain from
‘arbitrary’ conduct.”)<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a
name="xvi”>[xvi]</a>_See:_U.S._Counter-Memoria"><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xvii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'>[xvii] <i><span style='font-style:
italic'>Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co.</span></i>,
463 <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
29, 43 n.9. (1983) (rejecting suggestion that “the arbitrary and
capricious standard [under the APA] requires no more than the minimum
rationality a statute must bear in order to withstand analysis under the Due
Process Clause. We do not view as equivalent the presumption of
constitutionality afforded legislation drafted by Congress and the presumption
of regularity afforded an agency in fulfilling its statutory mandate.”)<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xviii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xviii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <st1:country-region w:st="on"><i><span
style='font-style:italic'>United States</span></i></st1:country-region><i><span
style='font-style:italic'> v. Carolene Products</span></i>, 304 <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> 144, 152
(1938). In the context of exercises of executive authority, the Supreme Court
has indicated that conduct that “shocks the conscience” violates
substantive due process. <st1:PlaceName w:st="on"><i><span style='font-style:
italic'>See</span></i></st1:PlaceName><i><span style='font-style:italic'> <st1:PlaceType
w:st="on">County</st1:PlaceType> of <st1:City w:st="on">Sacramento</st1:City>
v. Lewis</span></i>, 523 <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
833, 846 (1998). Although the Court has not applied this standard to economic
legislation, it is arguably comparable to the current deferential standard of
substantive due process review of economic regulations. Accordingly, given the
similarity of the “conscience shocking” formulation of substantive
due process to the traditional <i><span style='font-style:italic'>Neer </span></i>test
for the minimum standard of treatment, the <i><span style='font-style:italic'>Neer</span></i>
standard could be interpreted as consistent with the “no greater
rights” principle.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xix><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xix]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Sujit Choudhry, <i><span
style='font-style:italic'>The Lochner Era and Comparative Constitutionalism</span></i>,
2 Int'l J. Const. L. 1, 3 (2004).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xx><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xx]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
2004 Model BIT, Annex B, para. 2.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <st1:State w:st="on"><st1:place
w:st="on"><i><span style='font-style:italic'>Id.</span></i></st1:place></st1:State><i><span
style='font-style:italic'>,</span></i> para 4(b).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See
generally,</span></i> Matthew C. Porterfield, <i><span style='font-style:italic'>International
Expropriation Rules and Federalism, </span></i>23 Stanford Envt’l L. J.
3, 43-62 (2004) (comparing international standard for regulatory expropriation
with U.S. regulatory takings doctrine).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxiii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxiii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
2004 Model BIT, Article 21 (Taxation).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxiv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxiv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See
generally</span></i> Thomas W. Wälde and Abba Kolo, <i><span style='font-style:
italic'>Taxation and Modern Investment Treaties,</span></i> in The Oxford
Handbook of International Investment Law at 347 - 352 (2008).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See,
e.g., Pittsburgh v. Alco Parking Corp.</span></i>, 417 U.S. 369, 373 (1974)
(rejecting a takings challenge to a tax on gross receipts from parking
facilities, and noting that “the Court has consistently refused either to
undertake the task of passing on the ‘reasonableness' of a tax that
otherwise is within the power of Congress or of state legislative authorities,
or to hold that a tax is unconstitutional because it renders a business
unprofitable.”)<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxvi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxvi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See
</span></i>Eduardo Moisès Peñalver, <i><span style='font-style:italic'>Is Land
Special? </span></i>31 Ecology L.Q. 227, 231 (2004) (“it is almost beyond
dispute that . . . the [Supreme] Court has focused overwhelmingly on
regulations affecting land and that landowners bringing regulatory takings
claims stand a greater chance of prevailing in the Supreme Court than the
owners of other sorts of property”); Molly S. McUsic, <i><span
style='font-style:italic'>The Ghost of Lochner: Modern Takings Doctrine and Its
Impact on Economic Legislation</span></i>, 76 B.U. L. Rev. 605, 647, 655 (1996)
(“Economic interests, such as personal property, trade secrets,
copyright, and money, are all recognized by the Court as ‘property’
under the Fifth Amendment, but receive little protection against government
regulation.”) J. Peter Byrne, <i><span style='font-style:italic'>Ten Arguments
for the Abolition of Regulatory Takings Doctrine</span></i>, 22 Ecology L.Q.
89, 127 (1995) (“the Supreme Court has shown absolutely no interest in
applying the regulatory takings doctrine to assets other than land”).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxvii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxvii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>Lucas
v. South Carolina Coastal Comm’n</span></i>, 505 <st1:country-region
w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> 1003,
1027-28 (1992). The Supreme Court’s decision in <i><span
style='font-style:italic'>Ruckelshaus v. Monsanto Co.</span></i>, 467 U.S. 986
(1984), which involved a claim that the disclosure of trade secrets by the
federal government constituted a taking, is sometimes cited as an example of
the application of the regulatory takings analysis outside the context of real
property. The Court in <i><span style='font-style:italic'>Monsanto</span></i>,
however, stressed that “[w]ith respect to a trade secret, the right to
exclude others is central to the very definition of the property interest. Once
the data that constitute a trade secret are disclosed to others, or others are
allowed to use those data, the holder of the trade secret has lost his property
interest in the data.” <i><span style='font-style:italic'>Monsanto</span></i>,
467 <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
at 1012. Accordingly, “<i><span style='font-style:italic'>Monsanto</span></i>
is a case in which the government conduct in question was the functional
equivalent of a direct appropriation of the entire piece of property, as
opposed to a mere regulation of that property.” Eduardo Moisès Peñalver, <i><span
style='font-style:italic'>Is Land Special? </span></i>31 Ecology L.Q. 227, 231,
n. 20 (2004).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxviii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxviii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Andrew Newcombe, <i><span
style='font-style:italic'>The Boundaries of Regulatory Expropriation in
International Law,</span></i> 20:1 ICSID Review – FILJ at 4 (2005)
(noting that “under the ‘orthodox approach’ [a regulatory] expropriation
occurs when a foreign investor is deprived of the use, benefit, management or
enjoyment of all or substantially all of its investment” rather than
whether the government has actually appropriated the investment for its own
use).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxix><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxix]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
A.J. Van der Walt, Constitutional Property Clauses: A Comparative Analysis
(1999) at 17 (“the distinction between police-power regulation of
property and eminent-domain expropriation of property is fundamental to all
[constitutional] property clauses, because only the latter is compensated as a
rule. Normally, the will be no provision for compensation for deprivations or
losses caused by police-power regulation of property.”) United States law
is an exception in this regard, and under certain circumstances – most
notably in the “rare circumstance” when a regulatory measure
destroys all value of real property – requires compensation even when
there has been no appropriation of the property by the government. <i><span
style='font-style:italic'>See Lucas v. <st1:State w:st="on">South Carolina</st1:State>
Coastal Comm’n</span></i>, 505 <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> 1003 (1992).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxx><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxx]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> This language has already been
introduced in the Peru-U.S. FTA, Article 18.3.2.:<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><font size=2 color="#252525"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#252525'>The Parties recognize that it is inappropriate to encourage
trade or investment by weakening or reducing the protections afforded in their
respective environmental laws. Accordingly, a Party shall not waive or
otherwise derogate from, or offer to waive or otherwise derogate from, such
laws in a manner that weakens or reduces the protections afforded in those laws
in a manner affecting trade or investment between the Parties.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See, e.g., Gary Hufbauer, Luca
Rubini and Yee Wong, Swamped by Subsidies:Averting a US-EU Trade War after the
Great Crisis (August 4, 2009). See also Subsidies Rules and Financial Services
Bailouts (August 7, 2009), International Law and Economic Policy Blog,
available at
http://worldtradelaw.typepad.com/ielpblog/2009/08/subsidies-and-services.html.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Anne van Aaken and Jürgen Kurtz, <i><span
style='font-style:italic'>The Global Financial Crisis and International
Economic Law</span></i> at 2 (June 2009)<i><span style='font-style:italic'>, </span></i>forthcoming
in: Simon Evenett and Bernard Hoekman (Eds.) <i><span style='font-style:italic'>Trade
Implications of Policy Responses to the Crisis </span></i>(<st1:State w:st="on"><st1:place
w:st="on">Washington</st1:place></st1:State>: World Bank Publication,
forthcoming 2009), available at http://ssrn.com/abstract= 1417957.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxiii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxiii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See</span></i>
Todd Tucker<i><span style='font-style:italic'>, Eyes on Trade</span></i>
(August 5, 2009) (“no foreign bank got TARP money, or had access to many
of the other bailout programs”), available at
http://citizen.typepad.com/eyesontrade/2009/08/the-most-awesome-wto-agreement-that-no-one-can-remember.html.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxiv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxiv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See <i><span style='font-style:italic'>Saluka
<st1:Street w:st="on"><st1:address w:st="on">Investments BV</st1:address></st1:Street>
v. The <st1:country-region w:st="on"><st1:place w:st="on">Czech Republic</st1:place></st1:country-region>,
</span></i>UNCITRAL, Award (Mar. 17, 2006), available at
http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> <i><span style='font-style:italic'>See,
e.g.,</span></i> <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
–Colombia FTA, art. 22.2, footnote 2 (“For greater certainty, if a
Party invokes [the essential security exception] in an arbitral proceeding
initiated under Chapter Ten (Investment) or Chapter Twenty-One (Dispute
Settlement), the tribunal or panel hearing the matter shall find that the
exception applies.”)<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><b><font size=2 color="#2664a2"
face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS";
color:#2664A2;font-weight:bold'>[xxxvi]</span></font></b><font size=2
color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#252525'> The second sentence of that provision reads as
follows: “Where such measures do not conform with the provisions of this
Treaty, they shall not be used as a means of avoiding the Party’s
commitments or obligations under this Treaty.”<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxvii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxvii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See Fireman’s Fund Insurance
v. United Mexican States, ICSID Case No. ARB(AF)/02/01 (Award of July 17,
2006), paras. 166-68.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxviii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxviii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> In a thorough and recent review of
the literature, former IMF economist Carmen Reinhart and Nicolas Magud write:
"In sum, capital controls on inflows seem to make monetary policy more
independent, alter the composition of flows, and reduce exchange rate
pressures." See (Magud, Nicolas, and Carmen Reinhardt (2007),
"Capital Controls: An Evaluation," Capital Controls and Capital Flows
in Emerging Economies, Sebastian Edwards (editor), <st1:City w:st="on"><st1:place
w:st="on">Cambridge</st1:place></st1:City>: National Bureau of Economic
Research).<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xxxix><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xxxix]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See “Transfer of
Funds,”http://www.unctad.org/en/docs/psiteiitd20.en.pdf<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xl><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xl]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> OECD, Multilateral Agreement on
Investment, Draft Consolidated Text, April 22, 1998. See:
http://www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xli><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xli]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See page 43-44 of aforementioned IMF
report noted in footnote 3<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> International Monetary Fund,
“Interview with IMF mission chief for <st1:country-region w:st="on"><st1:place
w:st="on">Iceland</st1:place></st1:country-region>, Poul Thomsen,”
December 2, 2008. http://www.imf.org/external/pubs/ft/survey/so/2008/INT111908A.htm.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xliii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xliii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Article 1 of the 2004 U.S. Model BIT
includes in the definition of investment "bonds, debentures, other debt
instruments, and loans.” NAFTA Chapter 14 on Financial Services, Article
1416, reads: Definitions, reads: investment means "investment" as
defined in Article 1139 (Investment Definitions), except that, with respect to
"loans" and "debt securities" referred to in that Article:<br>
(a) a loan to or debt security issued by a financial institution is an
investment only where it is treated as regulatory capital by the Party in whose
territory the financial institution is located; and<br>
(b) a loan granted by or debt security owned by a financial institution, other
than a loan to or debt security of a financial institution referred to in
subparagraph (a), is not an investment;<br>
<u>for greater certainty: </u><br>
<u>(c) a loan to, or debt security issued by, a Party or a state enterprise
thereof is not an investment;</u><o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xliv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xliv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> International Monetary Fund,
“The Implications of the Global Financial Crisis for Low-Income
Countries,” March 03, 2009. See:
http://www.imf.org/external/pubs/ft/books/2009/globalfin/globalfin.pdf<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlv><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlv]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> United Nations,
“Recommendations by the Commission of Experts of the President of the
General Assembly on reforms of the international monetary and financial
system,” March 19, 2009. See:
http://www.un.org/ga/president/63/letters/recommendationExperts200309.pdf.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlvi><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlvi]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> See, for example, the U.S.-Peru
Trade Promotion Agreement and the U.S.-Colombia FTA (not yet ratified), as well
as the U.S.-Uruguay BIT.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlvii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlvii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> In 2007, foreign direct investment
reached $2.1 trillion, and since 2004 has increased by over 70 percent.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlviii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlviii]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Others on the BIT review
sub-subcommittee recognize the many ways in which SOEs engage in anticompetitive
behavior within host countries, particularly <st1:country-region w:st="on">China</st1:country-region>,
to the disadvantage of <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
investors and have advanced proposals to amend the Model BIT to provide for
means to discipline such anticompetitive affects in the host country.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=xlix><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[xlix]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> As part of its “go-out’
policy China uses its own EX-IM bank, which has been described as not following
market-based OECD rules in a recent EX-IM Bank competition report.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=l><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[l]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> Anti-trust or tax laws may not be
able to address adequately such competition issues and trade remedies only
address imports. Likewise, CFIUS may not be sufficient to address the question
of a SOE purchasing a productive asset when that purchase does not implicate
what traditionally has been deemed to impact our national security interests.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=li><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[li]</span></font></b></a><font
size=2 color="#252525" face="Trebuchet MS"><span style='font-size:10.0pt;
font-family:"Trebuchet MS";color:#252525'> A Chinese pipe-maker and SOE, Tanjin
Pipe, is readying a million ton pipe-making capacity in <st1:State w:st="on"><st1:place
w:st="on">Texas</st1:place></st1:State>. Within the last two years Tanjin was
found to be an SOE and to have been subsidized and causing harm to domestic
pipe-makers and workers in cases brought under U.S. trade remedy laws and the
WTO (“Famous Brands” WTO case). Thus, it would be possible for
Tanjin to compete against our domestic pipe-makers with the advantage of
government subsidies to finance and operate the facility and the provision of
inputs from <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
at subsidized prices.<o:p></o:p></span></font></p>
<p style='line-height:15.0pt;background:white'><a name=lii><b><font size=2
color="#2664a2" face="Trebuchet MS"><span style='font-size:10.0pt;font-family:
"Trebuchet MS";color:#2664A2;font-weight:bold'>[lii]</span></font></b></a><font
size=2 face="Trebuchet MS"><span style='font-size:10.0pt;font-family:"Trebuchet MS"'>
Concerns by some that recent <st1:country-region w:st="on">U.S.</st1:country-region>
government actions to bail-out <st1:country-region w:st="on">U.S.</st1:country-region>
banks and the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
auto industry might open such actions to investor-state disputes were this
recommendation to be adopted lack merit. The actions the government took are
temporary in nature (some companies have already paid back the funds) and are
not designed to control operations or management and were taken to avert the
total collapse of the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
and global economy. Stepping in with temporary measures to prevent the collapse
of the largest banks and manufacturing sector (autos) – both of which put
at grave risk the collapse of the entire economy -- is fundamentally very
different than actions taken by governments that have ownership interests and
control over SOEs and which assist such SOEs to compete by providing subsidies.
For instance <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
has about half of its total productive capacity in the hands of SOEs and has a
deliberate industrial policy to advance “pillar SOE industries” by
use of a wide variety of government subsidization and intervention and control.<font
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