Investment Treaty Arbitration in USA

Background

Foreign investment

What is the prevailing attitude towards foreign investment?

Foreign direct investment (FDI) in the United States represents an essential aspect of the US economy, and the US government strives to create favourable conditions to maintain its status as one of the leading global recipients of it. The United States has historically been a leader in negotiating and entering into numerous international investment treaties, free trade agreements (FTAs) and double taxation treaties to promote foreign investment, and has many initiatives from local government to national levels designed to preserve and enhance the United States’ position as a top investment destination.

To that end, the United States has adopted a model bilateral investment treaty (BIT) that is utilised by many countries as a standard for treaty negotiations, and also has entered various multilateral investment treaties including the North American Free Trade Agreement (NAFTA) and the Dominican Republic and Central American Free Trade Agreement (CAFTA), which was modelled on NAFTA but with some important variations.

The election in November 2016 of Donald J Trump as the 45th President of the United States has led to some apparent shifts in US policy with respect to international trade agreements. Both during his campaign and since taking office, President Trump has criticised the effect of international trade agreements on American workers and the United States trade deficit. President Trump has withdrawn, threatened to withdraw from or attempted to renegotiate various trade agreements to which the United States is a party. For instance, on 23 January 2017, only three days after taking office, President Trump withdrew the United States from a landmark new free trade agreement with 11 Pacific Rim nations, the Trans-Pacific Partnership (TPP), which was then awaiting Congressional approval. An important foreign policy objective of the Obama administration, the TPP, which was signed by the US in February 2016, but had not yet been approved by Congress, was aimed at reducing tariffs and liberalising trade among the member states. The trading block covered by the agreement would have encompassed 40 per cent of global GDP. Following US withdrawal, the remaining nations signed - but have not yet ratified - a revised version of the TPP, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Although no formal decisions have been taken, early in 2018 President Trump reportedly requested his trade team to analyse the possibility of joining the CPTPP.

The Trump administration has also engaged in renegotiations of NAFTA with Mexico and Canada and the bilateral trade agreement with South Korea, after at first threatening to unilaterally terminate the agreements altogether. The Trump administration has also suspended negotiations with the European Union for a comprehensive trade and investment agreement (known as TTIP). Regarding NAFTA, in August 2018, the White House informed Congress that the United States and Mexico had reached a preliminary agreement to modernise the treaty. Following this announcement, President Trump threatened to exclude Canada from the new deal, despite the opposition of legislators. However, the United States and Canada resumed their negotiations, and, on 30 September 2018, the Trump administration announced that the countries’ two governments had struck a deal to modify NAFTA. This would allow Canada to join the preliminary agreement reached in August between the United States and Mexico. As of early October 2018, if the new treaty is ratified by its parties, the new three-country pact will be called the United States-Mexico-Canada Agreement (USMCA) and it will present significant changes in the investor-state dispute settlement regime compared to the current NAFTA. Notwithstanding the uncertainty arising over these various trade agreements, as of 2018, the United States nonetheless remained the world’s largest recipient of foreign direct investment and various initiatives remain in place to encourage foreign investment into the country. And the United States’ trade and investment policies - even if shifting in comparison to historical approaches - will continue to foster international commercial activity with its largest trading partners.

What are the main sectors for foreign investment in the state?

Foreign direct investment in the United States spans a wide spectrum of industry sectors. At over one-third of total FDI in the United States’ economy, the manufacturing sector continues to attract the largest percentage of total inward FDI flows.

The United States also attracts large FDI investments in various other sectors, notably:

• wholesale and retail trade;
• information industries;
• banking, finance and insurance;
• real estate and scientific industries; and
• technical and professional services.

Is there a net inflow or outflow of foreign direct investment?

The United States remains the largest recipient of global FDI. In 2017, FDI inflows to the US totalled US$275 billion (down from US$457 billion in 2016). 2017 net outflows exceeded net inflows with a total of US$342 billion. The decline in net inflows is explained by United Nations Conference on Trade and Development (UNCTAD) as a general phenomenon that occurred in the 2016-17 period, where FDI inflows declined in developed countries by 37 per cent. According to UNCTAD, the cause of this fall relates ‘in large part by a decline from high inflows in the preceding year caused by cross-border mergers and acquisitions, and corporate reconfigurations.’ (UNCTAD, World Investment Report 2018, see: www.unctad.org/en/PublicationsLibrary/wir2018_en.pdf).

Investment agreement legislation

Describe domestic legislation governing investment agreements with the state or state-owned entities.

There are no requirements over the form of contracts particular to foreign investors in the United States, whether contracting with the government or with private parties. Nevertheless, as noted in question 14, the US government will review certain foreign investments to ensure that they do not present national security concerns and that they comply with various national security laws in place in the country. In recent years, such national security concerns have impacted attempted FDIs in strategic areas such as ports and telecommunications and semiconductors. Government contractors, whether domestic or foreign, also will typically be subject to whatever procurement rules govern the particular state instrumentality (see: www.acquisition.gov).

International legal obligations

Investment treaties

Identify and give brief details of the bilateral or multilateral investment treaties to which the state is a party, also indicating whether they are in force.

The United States is party to multiple bilateral, regional and multilateral investment treaties and free trade agreements.

As of September 2017, the United States has concluded 47 BITs, of which 41 are in force (United States Bilateral Investment Treaties, US Department of State, see: www.state.gov/e/eb/ifd/bit/117402.htm). Bolivia and Ecuador terminated their BITs with the United States. Bolivia served its notice of termination on the United States in 2012, while Ecuador notified the United States of its intention to terminate its BIT in May 2017. Both treaties include sunset clauses, preserving treaty protection for a decade subsequent to the date of termination, for covered investments that existed as of the date of termination.

The United States has also entered into 14 FTAs with 20 countries, including NAFTA, between the United States, Canada and Mexico; and the CAFTA, between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua (FTAs, Office of the United States Trade Representative, see: www.ustr.gov/trade-agreements/free-trade-agreements). As noted above, the Trump administration, after first threatening to withdraw from NAFTA, has since reached an agreement with Mexico and Canada to enter into a new treaty (USMCA), which still needs to go through a ratification process in the three respective countries during 2018-19.

Many of the United States FTAs contain investment chapters with core investor protections and dispute resolution sections similar to those contained in the BITs. The most recent FTAs include those with Colombia, Panama and South Korea.

The United States is not a member of the Energy Charter Treaty.

The United States Department of State’s ‘Treaties in Force’ database includes a list of United States bilateral and multilateral treaties on record as being in force from 1 January of each year (see: www.state.gov/s/l/treaty/tif/).

If applicable, indicate whether the bilateral or multilateral investment treaties to which the state is a party extend to overseas territories.

NAFTA, CAFTA, the US model BIT, and many of the US BITs expressly apply to Puerto Rico. Certain older BITs reference the ‘territory’ of the United States, without specifically mentioning any overseas territories by name.

Has the state amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party?

In May 2001, a protocol amending the BIT between the United States and the Republic of Panama entered into force. The protocol was designed to ensure that investors would continue to have access to binding international arbitration following Panama’s 1996 accession to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) 1965. The protocol sets forth each party’s prior consent to ICSID Convention Arbitration as well as arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Rules) and further sets forth each party’s consent to ICSID Additional Facility arbitration, if Convention Arbitration is not available.

In addition, the BITs between the United States and certain former Soviet Bloc countries - Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia - were amended in connection with the accession of those countries to the European Union to reduce the possibility of conflict with EU laws.

Has the state unilaterally terminated any bilateral or multilateral investment treaty to which it is a party?

The United States, under President Obama, signed the TPP in February 2016, and President Obama began the process to obtain Congressional approval. By its terms, the TPP could not enter into force without its ratification by the United States. In January 2017, prior to any vote on ratification, President Trump issued a presidential memorandum announcing US withdrawal from the TPP, and the Office of the United States Trade Representative sent letters to the TPP Depository and other signatories informing them that the US does not intend to become a party to the TPP.

Has the state entered into multiple bilateral or multilateral investment treaties with overlapping membership?

Yes. The United States has entered into certain investment treaties and trade agreements with overlapping membership. This situation has been handled on a case-by-case basis. For instance, the bilateral investment treaty between the United States and the Republic of Panama has continued to operate after both countries ratified an FTA. On the other hand, when CAFTA entered into force, the United States and Honduras stipulated to the suspension of their pre-existing bilateral investment treaty.

ICSID Convention

Is the state party to the ICSID Convention?

The United States signed the ICSID Convention on 27 August 1965, and deposited its instrument of ratification on 10 June 1966. The ICSID Convention entered into force with respect to the United States on 14 October 1966 and remains in force to date.

Mauritius Convention

Is the state a party to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention)?

The United States signed the Mauritius Convention in 2015, but President Obama did not submit the agreement to the United States Senate for consideration until December 2016, after the election of Trump as President. The United States Senate did not give its advice and consent prior to the end of the Obama presidency. President Trump has not resubmitted the agreement to the Senate. As a result, the United States has not ratified the Mauritius Convention.

Investment treaty programme

Does the state have an investment treaty programme?

The United States launched a BIT programme in 1977, entered its first BIT (with Panama) in 1982 and has since concluded BITs with 47 countries. Many US FTAs also contain investment chapters that mirror protections found in many US BITs.

The US BIT programme aims to protect private investment, to develop market-oriented policies in partner countries and to promote US exports.

Its central goals are:

• to protect investment abroad in countries where investor rights are not already protected through existing agreements (such as modern treaties of friendship, commerce, navigation or FTAs);
• to encourage the adoption of market-oriented domestic policies that treat private investment in an open, transparent and non-discriminatory way; and
• to support the development of international law standards consistent with these objectives.

As discussed in question 17, US BITs are negotiated by representatives of the US Department of State, and its FTAs by the US Trade Representative, on the basis of a model BIT text developed by the United States. The most recent US model BIT was adopted in 2012 and replaced the earlier model BIT adopted in 2004 (see: www.state.gov/e/eb/ifd/bit/). As international treaties, negotiated BITs require advice and consent of two-thirds of the US Senate to enter into force under US law.

Regulation of inbound foreign investment

Government investment promotion programmes

Does the state have a foreign investment promotion programme?

The United States actively promotes foreign investment at multiple levels and across various government agencies. In addition to its active BIT and FTA negotiation programmes, and regular reviews of legislation and regulatory policy in the trade, tax, technology and other spheres to ensure competitiveness in the global marketplace, the government has instituted various initiatives specifically designed to maintain, attract and support foreign investment.

For example, SelectUSA, a programme established by President Obama (a predecessor programme called Invest in America was launched by President George W Bush in 2007), and housed within the US Commerce Department, strives to showcase US attributes as a premier business destination, and provide easy access to governmental programmes and services related to foreign investment. The Trump administration has continued with this initiative.

Among other features, SelectUSA maintains a website containing a searchable guide of federal programmes and services available to businesses operating in the United States, including grants, loans, loan guarantees and tax incentives, and provides industry and regional snapshots that describe the competitive landscape (see: http://selectusa.commerce.gov). The SelectUSA Academy also provides an online and on-site training programme for investors, and has been improving its online investment tools that assist companies in identifying state-based incentives, so that foreign investors can make more informed decisions as to where to target investments within the United States. In 2016, at the SelectUSA Investment Summit, the creation of a new FDI Advisory Council was announced whose membership (which includes representatives of US companies, entities and organisations with missions or activities that include the promotion or facilitation of FDI) will serve as a key conduit for stakeholder input on how best to support US economic growth through the attraction and retention of FDI (see: www.commerce.gov/news/press-releases/2016/06/commerce-department-establishes-new-forign-direct-investment-advisory). In turn, the theme of the June 2018 SelectUSA Investment Summit was ‘Invest Here. Grow Here. Succeed Here’. The 2018 Summit focused on the connections between US economic developers and international business (see: www.selectusa.gov/2018-Investment-Summit).

There is also a vast array of state and local economic development organisations and chambers of commerce, which work to attract and retain foreign investment by offering information on matters such as financing and incentive programmes, business tax structure, workforce and demographic attributes and available properties. State and municipal governments, together with their economic development agencies, sometimes offer various tax and other incentive structures to attract foreign investors.

Applicable domestic laws

Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.

For the most part, US law treats foreign-owned businesses identically to US-owned businesses, and state laws impacting FDI are not implemented as they would be pre-empted by the federal congressional and executive prerogatives to legislate within this sphere. There are no economic sectors restricted to US nationals or requiring specific holdings based on nationality. There are no restrictions on foreign ownership of real estate and there are no exchange control or currency regulations affecting foreign investment.

Generally, there are relatively few hurdles that need to be cleared in order to incorporate and register a business in the United States, although this varies from state to state. For example, in Delaware, one of the leading sites for business incorporation, only the following steps must be completed:

• choose a business entity type;
• obtain a registered agent in the state of Delaware;
• reserve your entity name;
• complete a certificate of incorporation; and
• request a certificate of status or good standing for certain financial institution requirements (see: www.corp.delaware.gov/howtoform.shtml).

Certain foreign investments, however, are subject to governmental review for potential national security implications. Pursuant to the Exon-Florio Amendment to the Defense Production Act of 1950, as amended, the Committee on Foreign Investment in the United States (CFIUS) is authorised to review foreign investments in US businesses for potential effects on national security. Although the CFIUS rarely suspends or blocks foreign investment activity, it is nevertheless empowered to require foreign investors to agree to various measures designed to mitigate national security concerns, such as notification obligations relating to changes in products or services, and the establishment of internal compliance monitoring measures. There are indications that under President Trump, CFIUS has been scrutinising investments from the People’s Republic of China with greater rigour, especially investments in the technology sector.

Further, foreign investors in United States entities are, of course, subject to the full panoply of domestic business, antitrust, securities, tax and other legislation governing domestic entities, and, when contracting with government agencies, any relevant state or federal procurement laws or regulations.

Relevant regulatory agency

Identify the state agency that regulates and promotes inbound foreign investment.

The US Department of Commerce, as well as a wide spectrum of regional, state and local economic development organisations and chambers of commerce, work actively and often in coordination to promote inward FDI. Again, state laws impacting foreign direct investment are not implemented as they are pre-empted by the federal congressional and executive prerogatives to legislate within this sphere.

Responsibility for the scrutiny of potential foreign investments for national security concerns resides with the CFIUS, an interagency committee chaired by the US Treasury.

Relevant dispute agency

Identify the state agency that must be served with process in a dispute with a foreign investor.

In investment treaty disputes with the United States or its agencies and instrumentalities, the procedures for proper notice on the United States will be set forth in the relevant treaty. NAFTA, the 2012 model BIT and the US BITs with Uruguay and Rwanda, for instance, all provide that notices and other documents shall be served on the United States by delivery to the Executive Director within the Office of the Legal Adviser at the United States Department of State, in Washington, DC.

To the extent that a foreign investor brings an action against the United States in the US courts, the requirements for process will be found in the relevant rules of procedure. Specifically, Federal Rule of Civil Procedure 4 provides that service upon the United States is made by delivering a copy of the summons and complaint to the US Attorney for the district in which the action is brought, or to an Assistant US Attorney or designated employee, and by sending a copy of the summons and complaint to the Attorney General of the United States in Washington, DC. 28 USC section 2410(b) establishes identical procedures for service of process on the United States in suits against the United States in state courts.

Investment treaty practice

Model BIT

Does the state have a model BIT?

In April 2012, upon the conclusion of a three-year review of the prior 2004 version, the US government released a revised 2012 model BIT, which negotiators in the Office of the United States Trade Representative and the United States Department of State use as a template in negotiating bilateral investment treaties and the investment chapters of United States FTAs.

Like the 2004 model, the 2012 model BIT attempts to maintain a balance between providing strong investor protections and preserving the government’s ability to regulate in the public interest. Targeted changes, however, have been made to the 2012 text to:

• enhance transparency and public participation;
• improve protections for US firms investing in state-led economies; and
• strengthen protections relating to labour and the environment.

The full text of the 2012 model BIT is available online at: www.state.gov/documents/organization/188371.pdf.

Preparatory materials

Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?

The Office of the Assistant Legal Adviser for Treaty Affairs, within the United States Department of State, serves as the principal US government repository for US treaties and other international agreements. The treaty office advises other offices under the Legal Adviser, other Department bureaus (including posts overseas), and other government agencies on all aspects of treaty law and procedure, including constitutional questions, and provides guidance and assistance in the authorisation, drafting, negotiation, application, and interpretation of hundreds of agreements annually. It also responds to treaty-related enquiries from Congress, academia, members of the public, and officials of foreign governments and international organisations.

The Legal Adviser office also publishes Treaties in Force, which details more than 10,000 US treaties and international agreements in force from 1 January of each year, and is charged with publication of treaties and international agreements in the Treaties and Other International Acts Series. An electronic edition of Treaties in Force as of January 2018 is available in text-searchable PDF format (see: www.state.gov/documents/organization/282222.pdf).

Copies of US treaty materials are widely available in many libraries across the country, including state, academic, public, federal depositories, and the Library of Congress and through online services such as Lexis, Westlaw and HeinOnline. See also www.fletcher.tufts.edu/Multilateral/ (including over 200 multilateral treaties and related instruments, divided into subject categories, such as human rights, trade and commercial relations, marine and coastal, and diplomatic relations). The text of treaties, as published as Senate Treaty Documents, may also be accessed through the Library of Congress’ THOMAS website (see: www.congress.gov/search?q={“source”:”treaties”}) and from the United States Government Printing Office (see: www.gpo.gov/fdsys/browse/collection.action?collectionCode=CDOC).

The Office of the United States Trade Representative also maintains an online repository of US trade-related agreements, organised into the following categories: WTO and multilateral affairs, FTAs, trade and trade investment framework agreements, and bilateral investment treaties (www.ustr.gov/trade-agreements).

Although there is no central repository of treaty preparation materials for all US treaties, the Yale University Law Library has collected the available travaux preparatoires for international treaties online and in its collection (see: http://library.law.yale.edu/collected-travaux-preparatoires).

Scope and coverage

What is the typical scope of coverage of investment treaties?

US BITs tend to cover a broad range of investments (including, for instance, stocks, bonds, various loan and debt interests, futures, options and other derivatives, contracts, intellectual property rights, licences, permits and similar rights conferred pursuant to domestic law, and movable and immovable property). They typically offer protection to both foreign nationals and enterprises. Recent US BITs also often contain a denial-of-benefits clause that allows a party to deny the benefits of the treaty to an investor of the other party if that investor does not maintain substantial business activities in the territory of the other party, and where investors of a non-party or the denying party own or control the enterprise.

Protections

What substantive protections are typically available?

Although there are variations among them, US BITs typically provide investors with the following core benefits, which apply to foreign investments and govern the conduct of both the federal US government and the government of any state within the United States:

• the better of national treatment or most-favoured nation treatment for the full life cycle of investment - from establishment or acquisition, through to management, operation, expansion and disposition;
• clear limits on the expropriation of investments and provisions for payment of prompt, adequate and effective compensation when expropriation takes place;
• treatment that is in accord with customary international law, including fair and equitable treatment and full protection and security;
• the transferability of investment-related funds into and out of a host country without delay and using a market rate of exchange;
• protection from the imposition of trade-distorting performance requirements, such as local content targets or export quotas;
• the right to engage the top managerial personnel of the investor’s choice, regardless of nationality; and
• the right to submit an investment dispute with the government of the other party to international arbitration. There is no requirement to use that country’s domestic courts.

Dispute resolution

What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?

To date, most claims against the United States have arisen under the NAFTA treaty, which, under article 1120, provides investors with the option of bringing claims under the ICSID Convention Rules, ICSID Additional Facility Rules or UNCITRAL Rules. Of the 17 former or pending cases, four have used the ICSID Additional Facility Rules, 12 have employed the UNCITRAL Arbitration Rules and one has employed the ICSID Convention Rules.

In addition, in 2012, investors filed official notices of intent to submit claims to arbitration alleging that US government regulators failed to sufficiently protect their investments against suspected frauds at the Texas-based Stanford Financial group of companies. Depending on their countries of nationality, the investors invoked applicable provisions of CAFTA, the US-Chile FTA, the US-Peru Trade Promotion Agreement and the US-Uruguay Bilateral Investment Treaty. To date, no formal claims have been filed.

Confidentiality

Does the state have an established practice of requiring confidentiality in investment arbitration?

No. In fact, the United States Department of State links to a large volume of materials concerning investor arbitrations against the United States on its website (see: www.state.gov/s/l/c3433.htm). In addition to pages describing the cases against state parties, the website contains pleadings, awards (where applicable) and certain other documents that are publicly available under the rules and confidentiality agreements applicable in each case.

Insurance

Does the state have an investment insurance agency or programme?

The Overseas Private Investment Corporation, an agency of the United States, allows US investors, lenders and contractors to purchase political risk insurance for investments in more than 160 developing and post-conflict countries. It is not contingent on the existence of a BIT.

The Export-Import Bank also offers insurance to US entities against the risk of non-payment stemming from war, terrorism, riots, revolution and expropriation. It is also not contingent on the existence of a BIT.

In addition, the United States is a member of the World Bank’s Multilateral Investment Guarantee Agency program (MIGA), which aims to promote FDI in developing nations by providing political risk insurance guarantees to private sector investors and lenders. MIGA offers guarantees to protect investments against non-commercial risks and can help investors obtain access to funding sources with improved financial terms and conditions.

Investment arbitration history

Number of arbitrations

How many known investment treaty arbitrations has the state been involved in?

The United States has faced 17 investor claims under NAFTA. Additionally, the United States has also received official notices of intent to file claims under certain other FTAs and BITs in connection with the Stanford Ponzi scheme, but so far no such claims have passed the notice stage. To date, the United States has never lost an investment dispute brought against it.

Information pertaining to treaty arbitrations where the United States has been named as a respondent is publicly available on the Department of State’s website (see: www.state.gov/s/l/c3433.htm).

Although many of these cases have been withdrawn or dismissed on jurisdictional grounds before reaching a merits hearing, several notable NAFTA cases are identified below.

Glamis Gold Ltd v United States of America

Glamis Gold Ltd, a publicly held Canadian mining corporation, submitted a claim to arbitration against the United States under the UNCITRAL Arbitration Rules. Glamis alleged injuries relating to a proposed gold mine in California.

Glamis contended that certain federal government actions and California regulations regarding open-pit mining operations resulted in the expropriation of its investments in violation of article 1110, and denied its investments the minimum standard of treatment under international law in violation of article 1105. Glamis claimed damages of not less than US$50 million. On 8 June 2009, the Tribunal released an award dismissing Glamis’s claim in its entirety and ordering Glamis to pay two-thirds of the arbitration cost in the case.

Methanex Corp v United States of America

Methanex Corporation, a Canadian marketer and distributor of methanol, submitted a claim to arbitration under the UNCITRAL Arbitration Rules on its own behalf for alleged injuries resulting from a California ban on the use or sale in California of the petrol additive MTBE. Methanol is an ingredient used to manufacture MTBE.

Methanex contended that a California Executive Order and the regulations banning MTBE expropriated parts of its investments in the United States in violation of article 1110, denied it fair and equitable treatment in accordance with international law in violation of article 1105, and denied it national treatment in violation of article 1102. Methanex claimed damages of US$970 million.

Following hearings on jurisdiction and admissibility, a hearing on the merits was held in June 2004. On 9 August 2005, the tribunal released the final award, dismissing all of the claims. The tribunal also ordered Methanex to pay the United States’ legal fees and arbitral expenses of approximately US$4 million.

Mondev International Ltd v United States of America, NAFTA Arb No. ARB(AF)/99/2

Mondev International Ltd, a Canadian real-estate development corporation, submitted a claim under the ICSID Additional Facility Rules on its own behalf for losses allegedly suffered by Lafayette Place Associates (LPA), a Massachusetts limited partnership it owned and controlled. Mondev alleged its losses arose from a decision by the Supreme Judicial Court of Massachusetts and from Massachusetts state law.

Mondev alleged that a Massachusetts statute immunising the Boston Redevelopment Authority from intentional tort liability was incompatible with international law, and that the decision of the Massachusetts court upholding that law was arbitrary and capricious and amounted to a denial of justice. Mondev also alleged that the United States failed to meet its Chapter 11 obligations by not according LPA national treatment (article 1102); by not according it treatment in accordance with international law (article 1105); and by expropriating its investment without compensation (article 1110). Mondev claimed damages of not less than US$50 million.

On 11 October 2002, the tribunal issued an award dismissing all claims against the United States.

TransCanada Corporation and TransCanada Pipelines Limited v United States of America, ICSID Case No. ARB(AF)/16/21

On 24 June 2016, TransCanada Corporation and TransCanada Pipelines Limited submitted a claim under the ICSID Rules for losses allegedly sustained as a result of the denial by the Obama Administration in November 2015 of a permit to build the Keystone XL Pipeline between the United States and Canada. Claimants contended that the denial breached the national treatment, most-favoured-nation treatment and minimum standard treatment clauses of NAFTA, and also constituted expropriation. Claimants claimed damages of not less than US$15 billion.

Upon taking office, President Trump granted a permit for the Keystone XL Pipeline and, as a result, the arbitration was discontinued.

Industries and sectors

Do the investment arbitrations involving the state usually concern specific industries or investment sectors?

Investment treaty claims against the United States have involved a large number of industries and sectors, ranging from US regulation of the mining, pharmaceutical and lumber industry to its rules on gasoline additives.

Selecting arbitrator

Does the state have a history of using default mechanisms for appointment of arbitral tribunals or does the state have a history of appointing specific arbitrators?

To date, the United States has participated actively in the defence of all investment treaty claims brought against it, including in the selection of arbitrators.

Defence

Does the state typically defend itself against investment claims? Give details of the state’s internal counsel for investment disputes.

The Department of State is the lead agency representing the United States government in investment treaty cases. The State Department works closely with other governmental agencies to develop United States government positions in these cases. The United States has defended all claims brought against it.

Enforcement of awards against the state

Enforcement agreements

Is the state party to any international agreements regarding enforcement, such as the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

The United States is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), in force since December 1970, and the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention), in force since October 1990, a similar regional treaty among certain members of the Organization of American States. The New York and Panama Conventions are codified into US law pursuant to Chapters 2 and 3 of the United States Federal Arbitration Act (FAA) (1925), 9 USC section 201 et seq.

The United States has attached what is commonly termed the ‘reciprocity reservation’ to its ratification of the New York and Panama Conventions, such that the United States will apply those Conventions only to the recognition and enforcement of awards made in the territory of another contracting state. The United States’ ratification of the New York Convention is also subject to the reservation that it will apply it only to differences arising out of legal relationships of a commercial nature.

The United States is also a party to the ICSID Convention.

Award compliance

Does the state usually comply voluntarily with investment treaty awards rendered against it?

To date, no investment treaty awards have been rendered against the United States, but the United States has encouraged other countries to comply with investment treaty awards that have been entered against them and, in a notable example, suspended preferential trade preferences granted to Argentina for failing to comply with such awards. This suggests that the United States would voluntarily comply with an investment treaty award validly entered against it.

Unfavourable awards

If not, does the state appeal to its domestic courts or the courts where the arbitration was seated against unfavourable awards?

The United States has not been subject to any unfavourable merits awards to date.

Provisions hindering enforcement

Give details of any domestic legal provisions that may hinder the enforcement of awards against the state within its territory.

The enforcement of non-ICSID international arbitral awards in the United States is governed by the New York and Panama Conventions and the FAA, 9 USC section 1 et seq, which gives effect to and implements the Conventions.

The FAA, and federal and state law express a strong presumption that international arbitration awards subject to the Conventions will be confirmed. Under section 10(a) of the FAA, an award made in the United States may only be vacated on the following limited grounds:

• where the award was procured by corruption, fraud or undue means;
• where there was evident partiality or corruption in the arbitrators;
• where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour by which the rights of any party have been prejudiced; or
• where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.

Some US courts have vacated awards on the additional ground that the tribunal manifestly disregarded the law. Those courts that have employed this ground, however, have used it sparingly, and generally only in instances where law to be applied was crystal clear and clearly ignored.

For international arbitral awards rendered outside the United States, recognition or enforcement may be refused only on the similar, and similarly narrow, grounds set forth in article V of the New York and Panama Conventions, which are:

• absence of a valid arbitration agreement (article V(1)(a));
• denial of the opportunity to present one’s case (article V(1)(b));
• excess of authority (article V(1)(c));
• violations of arbitral procedures or the law of the arbitral situs (article V(1)(d));
• awards that are not yet binding or have been set aside (article V(1)(e));
• awards that address non-arbitrable issues (article V(2)(a)); and
• awards that violate public policy (article V(2)(b)).

Although (unlike the FAA grounds for vacatur) the Conventions contain an express public policy ground for non-recognition, US courts have rejected an expansive reading of the public policy defence, and have tended to deny enforcement of awards on that basis only where enforcement would have violated the forum state’s most basic notions of morality and justice’ (eg, Parsons and Whitmore Overseas Co v Societe Generale de l’Industrie du Papier, 508 F2d 969, 974 (2d cir 1974)).

While there are only limited and narrowly construed bases for vacating or denying recognition of arbitral awards under the FAA and the Conventions, US courts, guided by the US Supreme Court’s January 2014 decision in Daimler v Bauman, will require that the party seeking enforcement of an international arbitral award establish personal jurisdiction over a judgment debtor. The Daimler decision recently informed a decision of the US Court of Appeals for the Second Circuit to refuse enforcement of an International Chamber of Commerce award, on the basis that the Turkish award debtor did not have a sufficient connection with the state of New York for the court to exercise personal jurisdiction over it (see Sonera Holding BV v Cukurova Holdings AS 750 F3d 221 (2d cir 2014)).

Separate procedures apply to the recognition and enforcement of ICSID awards. Although ICSID awards are not subject to ordinary judicial challenge, they still must be brought to a national court for recognition and enforcement if the losing party refuses to voluntarily comply. Article 54 of the ICSID Convention requires national courts of the contracting states to recognise an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that state. The United States enabling legislation for the ICSID Convention, 22 USC section 1650a, provides that the United States federal courts shall have exclusive jurisdiction over actions to enforce ICSID awards and clarifies that the grounds for vacatur or non-recognition set forth in the FAA shall not apply to ICSID Convention awards.

Where a judgment debtor is a sovereign, article 55 of the ICSID Convention provides that ‘[n]othing in Article 54 shall be construed as derogating from the law in force in any contracting state relating to immunity of that state or of any foreign state from execution’. This article is generally perceived to relate to the execution, rather than the judicial recognition phase.

Because the United States has never lost an investment arbitration, there is, accordingly, no case law in the United States directly addressing possible enforcement of a treaty award against the United States under any of the above Conventions.

The authors would like to thank Quinn Emanuel associate Manuel Valderrama for his assistance with this chapter. The information contained in this chapter was accurate as at October 2018.

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