Statement of
Thomas M.T. Niles
President, U.S. Council for International Business
On the Investment Provisions of the
U.S.-Chile Free Trade Agreement
I believe that the investment provisions in the U.S.-Chile FTA weaken existing standards of protection for U.S. investors and, therefore, are inconsistent with the principal trade negotiating objectives approved by Congress in the Bipartisan Trade Promotion Authority Act of 2002. My concerns cover four areas:
Minimum Standard of Treatment: Article 10.5.2 refers to the “minimum standard of treatment of aliens.” This language, first adopted in July 2001 as a NAFTA clarification, has been argued by the NAFTA Parties, Canada in particular, as representing an extremely narrow standard akin to a requirement for a showing of something as “shocking the conscience.” This is not the appropriate standard, nor what Congress sought when it directed the Administration to negotiate protections for fair and equitable treatment consistent with United States legal principles and practice, including the principle of due process.
Expropriation:
1. By definition, the Unnumbered Annex to the Chile FTA inappropriately narrows the protection against expropriation without compensation to “a tangible or intangible property right or property interest” rather than to an “investment.” Congress directed the Administration to establish standards for expropriation consistent with U.S. legal principles and practice, which presumably includes, but is not limited to, the “takings clause” of the Fifth Amendment. While the Fifth Amendment does define a taking in terms of “property”, introducing that term into an international agreement could have adverse implications for U.S. investors and would be inconsistent with Congressionally established negotiating objectives. The U.S. defines “property” more broadly than foreign jurisdictions. Since international law would look to the location of an investment to determine whether it is “property,” U.S. investors abroad are likely to face a more restrictive definition of “property” and therefore lower standards of protection than foreign investors enjoy in the U.S. For that reason, I believe the language used in the annex is inappropriate and against U.S. interests and should also be revised.
2. Article 4 (b) of the Annex requires a case-by-case inquiry as to whether an action by a Party constitutes indirect expropriation. In my view, in such a case-by-case inquiry no single factor listed under Article 4(b) should be read in isolation in making such a determination. The “adverse effect” cited in the Article is one of those factors. I interpret this language to encompass, as in U.S. law, those circumstances where less than the entirety of the value of the property has been expropriated. In such circumstances, compensation may still be due depending on the analysis of these factors. The Administration’s confirmation of this interpretation would be appreciated.
3. On the issue of regulations for the public welfare (Unnumbered Annex Article 4c), I consider it essential to clarify that regulations must be created and applied in a non-discriminatory manner. There are certainly cases where a regulation can be developed for a legitimate public welfare purpose, but applied in a discriminatory manner (e.g. the WTO’s findings in the Reformulated Gasoline case). Again, the Administration’s confirmation that this Article applies to the application of a regulation as well as its development would be welcome.
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