United States and Colombia Join Forces to Dilute Investment Protections Under the US-Colombia TPA

On January 16, 2025, the Biden administration published a decision issued by the Free Trade Commission (FTC) of the U.S.-Colombia Trade Promotion Agreement (TPA), purporting to “interpret” key provisions of the TPA’s Investment Chapter. But the document goes beyond mere interpretation and attempts to dilute core investment protections that Colombian and U.S. investors enjoy under the TPA’s Investment Chapter.  

According to the Office of the United States Trade Representative (USTR) — the U.S. agency responsible for negotiating trade agreements — the FTC decision “does not modify the TPA, nor does it create any new commitments or narrow existing ones.”^[1] However, the decision effectively seeks to operate as a retroactive and disguised amendment that dilutes core investment protections under the TPA, including the guarantee of fair and equitable treatment, protections against unlawful expropriation, and the right to non-discriminatory treatment.

Given this shift in the investment protection under the TPA, investors should carefully assess the potential impact of the FTC decision on both their substantive and procedural rights, and consider whether their investments are adequately protected under the agreement. This will help investors mitigate risks associated with new projects and fully understand the remedies available in response to adverse government measures affecting their current investments.

Key “Interpretations”

Under Article 20.1.3 of the TPA, the United States and Colombia — acting at the ministerial-level through the FTC — may issue interpretations of the provisions of the agreement. Article 10.22.3 of the Investment Chapter provides that such FTC interpretations “shall be binding” upon tribunals presiding over investment disputes brought by investors against the U.S. or Colombia under the agreement.  

The FTC decision purports to “interpret” several critical TPA provisions in a manner that could affect investors’ ability to enforce investment protections established under the TPA through international arbitration. The provisions addressed in the FTC decision include:

• National Treatment (NT): The FTC decision states that a breach of national treatment occurs only when a claimant demonstrates: (i) that it or its investment was treated less favorably than domestic investors in like circumstances, and (ii) that the treatment was discriminatory based on nationality. The FTC notes that whether domestic investors are in “like circumstances” depends on the totality of the circumstances, including legitimate public welfare objectives claimed by the State.
• Most-Favored-Nation Treatment (MFN): The FTC decision establishes a similar test for the MFN standard. In addition, the decision provides that “[a] Party does not accord ‘treatment’ through the existence or substantive content of provisions in its other international agreements such as conditions to consent, procedural provisions, umbrella clauses, or clauses that impose autonomous fair and equitable treatment standard.”
• Minimum Standard of Treatment (MST): The FTC decision purports to exclude from MST under customary international law protections arising from legitimate expectations, transparency, good faith, and non-discrimination. The decision further attempts to restrict the ability of investment tribunals to rule on the content and boundaries of customary international law. Additionally, the FTC specifies that due process rights in administrative decisions need not align with those in judicial proceedings.
• Expropriation and Compensation: The FTC decision asserts that expropriation claims require showing that a government measure “destroyed all, or virtually all” of the investment’s value, “or interfered with it to such a similar extent and so restrictively as to support a conclusion that the property has been taken from the owner.” It also provides that whether the government’s actions align with investment-backed expectations depends on whether the government provided “binding written assurances,” as well as the nature and extent of the relevant government regulation.
• Investment and the Environment: The FTC decision emphasizes that the investment protections of the TPA are not intended to undermine the ability of the U.S. or Colombia governments to address environmental concerns, and that such state actions will not breach the treaty, even if they affect an investment’s value, as long as they are consistent with the TPA’s provisions.
• Submission of Claims to Arbitration: The FTC specifies that arbitration claims can only be brought after an alleged breach occurs and resulting loss or damage is incurred by the investor, excluding future damage claims. It also notes that claims under Article 10.16.1(b) (allowing claims on behalf of a local enterprise) and under Article 10.16.1(a) (allowing claims on the claimant’s own behalf) address “discrete and non-overlapping types of injury” and that claims for indirect injury “must be brought, if at all, under Article 10.16.1(b), thus purportedly limiting the damages that an owner of an enterprise could claim.”
• Governing Law: The FTC states that, with respect to an investment arbitration brought by an investor under the agreement, the burden of proof lies with the investor to prove its claims, and with the respondent to prove its affirmative defenses. The standard of proof is preponderance of the evidence.
• Definitions: The FTC decision specifies that investment protections apply only to investments made in compliance with domestic law at the time of establishment or acquisition, though minor violations of domestic law will not lead to dismissal of claims. The FTC decision also provides that a claimant qualifies as an “investor of a Party” if it has made a concrete effort to invest, such as by channeling resources or applying for permits.

Implications for Investment

The purported binding effect of the FTC decision on tribunals hearing investor claims under the investor-state dispute settlement (ISDS) mechanism of the agreement means that the FTC “interpretations” could impact not only future but also pending arbitrations under the TPA. 

Albeit in the context of a significantly less ambitious “interpretation,” a similar issue was tested in the context of the FTC decision jointly executed by the United States, Mexico, and Canada with respect to the interpretation of investment protections under the North America Free Trade Agreement (NAFTA). On July 31, 2001, the NAFTA FTC issued the Notes of Interpretation of Certain Chapter 11 Provisions in response to what it viewed as expansive interpretations of NAFTA’s minimum standard of treatment.^[2] The interpretation came at a time when several Chapter 11 proceedings were ongoing, and notices of arbitration had been filed in others.

NAFTA tribunals responded in different ways. The tribunal in ADF v. USA, for example, rejected any inquiry into whether the interpretation was an “amendment” of NAFTA, emphasizing that such scrutiny would “tend to degrade and set at naught the binding and overriding character of FTC interpretations.”^[3] The tribunal thus accepted the interpretation as authoritative, noting that it was the official stance of all NAFTA parties.^[4]

In contrast, the Pope & Talbot tribunal — during the damages phase of that proceeding — questioned whether the FTC’s interpretation was a true interpretation within the FTC’s mandate, or an impermissible attempt to amend NAFTA, outside the scope of such mandate.^[5] Ascribing to itself the power to decide this question, the tribunal considered that were it required to make such a determination, it would characterize the FTC interpretation as an improper amendment. That said, the tribunal concluded that fair and equitable treatment constituted a self-standing right in addition to the minimum standard of treatment,^[6] and that the FTC interpretation did not narrow the scope of protection afforded under NAFTA Article 1105, ultimately confirming its previous finding that Canada had breached that provision.^[7]

Takeaway

In summary, while the U.S. and Colombia may not formally modify the TPA by means of an FTC interpretation, the FTC decision could undermine investment protections under the TPA if it were accepted as a valid interpretation by investment tribunals. This development raises important questions about how the TPA’s provisions will be applied in future and pending arbitrations. Given these uncertainties, investors should carefully assess the impact of the FTC decision on both their current and future investments, ensuring they fully understand the potential risks and remedies available under the TPA, and consider whether their investments would be better protected under other investment treaties.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Arbitration practice.