The United States is a major source and recipient of foreign direct investment (FDI). In recent decades, the United States has entered into binding international investment agreements (IIAs) with foreign countries to facilitate investment flows, reduce restrictions on foreign investment, expand market access, and enhance investor protections, while balancing other policy interests. Congress is active in developing and implementing U.S. policy on protecting and promoting FDI, including through setting trade policy negotiating objectives in Trade Promotion Authority (TPA) legislation, Senate ratification of bilateral investment treaties (BITs); and congressional consideration of legislation to implement free trade agreements (FTAs). Bicameral legislation to reauthorize TPA, the "Bipartisan Congressional Trade Priorities and Accountability Act of 2015" ( H.R. 1890 / S. 995 ), was introduced in April 2015 and is currently under consideration. This report answers frequently asked questions about IIAs made between the United States and other countries. Questions are categorized in three main areas: (1) background and context; (2) U.S. international investment agreements; and (3) investor-state dispute settlement (ISDS). An Appendix summarizes select ISDS cases. Foreign direct investment (FDI) is a type of cross-border capital flow. It takes place when a resident (including a company) of one country obtains a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. The United States defines direct investment as the ownership of at least 10% of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise. The U.S. "international investment position" or "stock" of FDI is the cumulative amount at a given point in time, while the flow of FDI measures its movement for a particular period of time, such as for a year. In 2013, the total stock of global FDI surpassed $25 trillion, with the United States continuing to have the world's largest cumulative share of FDI on a country basis ($4.9 trillion). Global FDI inflows increased by 9% to reach nearly $1.5 trillion in 2013, though remaining below pre-2008 financial crisis levels ( Figure 1 ). According to preliminary estimates, global FDI inflows decreased to $1.26 trillion in 2014. Historically, developed countries have been the primary sources of global direct investment. In recent years, emerging market and developing economies have played an increasing role in global investment. In 2010, these economies accounted for the more than 50% of global FDI inflows for the first time. While FDI generally has flowed from capital-exporting, developed countries to developing countries, "South-South" investment flows are growing. FDI flows can fluctuate broadly on a year to year basis, associated with changes in global economic conditions, the impact of certain business deals, and other factors. As such, the U.S. position as the leading recipient of direct investment flows has been overtaken in some years. According to preliminary estimates, in 2014, the U.S. position as a recipient of inward direct investment dropped to third largest ($86 billion), after China ($128 billion) and Hong Kong ($111 billion). In 2013, the stock of U.S. direct investment abroad totaled $4.7 trillion, with Europe and Latin America ranking as the first and second largest recipients. Meanwhile, the stock of direct investment in the United States totaled $2.8 trillion, with investors from Europe and the Asia-Pacific ranking as the first and second largest sources of inward U.S. FDI. Investment is considered to be a major driver of trade. Economists generally believe that firms invest abroad because those firms possess some special process or product knowledge or because they possess special managerial abilities which given them an advantage over other firms. In general, U.S. firms invest abroad to serve the foreign local market, rather than to produce goods to export back to the United States, although some firms establish overseas operations to replace U.S. exports or production, or to gain access to raw materials, less expensive labor, or other markets. Foreign companies may choose to invest in the United States, for instance, to access U.S. skills, resources, and the U.S. consumer market. Both U.S. inward and outward direct investment play a role in U.S. trade, jobs, and production. In 2011, the affiliates of foreign firms in the United States employed about 6.3 million workers, exported $343 billion in goods, and imported $677 billion in goods. Investment gives rise to inter- and intra-firm trade, which represents trade between U.S. parent companies and their foreign affiliates and U.S. affiliates of foreign firms and their foreign parent company. The rapid pace of globalization in recent years has led to the creation of diverse international supply and value chains, where goods are transformed from basic components to end-use consumer products, often crossing the borders of multiple countries in the process. Thus, for example, exports by U.S. parent companies to their foreign affiliates include not only exports for resale without further manufacture, but also exports for further manufacturing. U.S. Department of Commerce data indicate that the value of exports shipped by U.S. parent companies was $738 billion in 2012, which accounted for 47% of total U.S. exports of $1.6 trillion. Similarly, the U.S. affiliates of foreign parent companies exported $334 billion in 2012, or 21% of total U.S. exports. Also, U.S. parent companies accounted for 41% of U.S. imports, or $ 949 billion, and the U.S. affiliates of foreign firms accounted for 29% of U.S. imports. Intra-firm trade, or trade between parent companies and their affiliates accounted for 29% of total U.S. goods exports and 34% of total U.S. goods imports. Intra-firm trade between U.S. parent firms and their foreign affiliates accounted for 18% of U.S. exports and 13% of U.S. imports, while trade between the U.S. affiliates of foreign firms and their foreign parent companies accounted for 10% of U.S. exports and 21% of U.S. imports. IIAs broadly refer to agreements that establish binding rules on investment protections. U.S. IIAs are reciprocal in nature; thus, in exchange for the specific protections that the United States offers foreign investors in the United States, U.S. investors investing in IIA partner countries are expected to receive the same protections. For the United States, the primary forms of IIAs are bilateral investment treaties (BITs) and BIT-like investment chapters in regional and bilateral free trade agreements (FTAs). Investment chapters in U.S. FTAs generally resemble investment provisions in U.S. BITs. The major difference is that BITs, as their name indicates, focus on investment issues, while FTAs are more comprehensive, encompassing a wide range of trade and trade-related issues involving goods, services, agriculture, and investment. Barriers faced by investors in foreign countries include discriminatory and other restrictions on foreign equity participation, forms of establishment, local content requirements, technology transfer requirements, export performance requirements, and restrictions on repatriation of earnings, capital, fees, and royalties, among other issues. Companies also can face barriers in a foreign market's operational environment. These barriers may include economic and political instability; economic policies and measures that limit growth (such as capital controls, exchange rate controls, tax and regulatory policies); expropriation and nationalization of private property; weak, underdeveloped, or overly bureaucratic institutions; corruption and lack of transparency; non-independent judicial systems, and limited infrastructure. The United States' dual role as both a major source and recipient of direct investment shapes its investment policy and generally supports an open investment climate consistent with national security. The United States has pursued binding, reciprocal investment agreements with foreign countries to facilitate investment flows, reduce restrictions on foreign investment, expand market access, and enhance investor protections, while balancing other policy interests. U.S. commitments in IIAs also provide national security exceptions. In addition to negotiating IIAs, the United States conducts other activities related to facilitating U.S. investment abroad. For example, the Overseas Private Investment Corporation (OPIC) provides political risk insurance, financing, and other services to U.S. investors to mitigate the risks of investing in developing and emerging countries. With respect to national security, the interagency Committee on Foreign Investment in the United States (CFIUS) serves the President by overseeing the national security implications of foreign investment in the economy by reviewing proposed foreign investment transactions in the United States. The President has the authority to block proposed or pending foreign investment transactions that threaten to impair the national security. U.S. investment policy also includes a focus on attracting investment to the United States. In 2011, President Obama issued a statement reaffirming the United States' "open investment policy," which is a "commitment to treat all investors in a fair and equitable manner under the law." The Department of Commerce's SelectUSA program is intended to coordinate federal efforts to attract and retain investment in the United States, complementing states' investment promotion activities. The role of Congress on IIAs includes setting U.S. trade policy negotiating objectives on investment ; Senate advice and consent on ratification of BITs; and congressional consideration and passage of legislation to implement free trade agreements, which typically include an investment chapter. Congressional prerogatives are present in the U.S. trade and investment negotiating agenda. Presently, the United States is negotiating two mega-regional free trade agreements—the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP)—that would include investment provisions. Other U.S. engagement on investment includes current BIT negotiations with China, India, Pakistan, and Mauritius, and discussions with the East African Community (EAC—Kenya, Tanzania, Uganda, Rwanda, and Burundi) over a possible regional BIT. Congress provides investment negotiating objectives in statutes granting the President Trade Promotion Authority (TPA). The 2002 TPA ( P.L. 107-210 ), which expired in 2007, included a principal negotiating objective to "reduce or eliminate artificial or trade-distorting barriers to foreign investment while ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States ... " It also sought to "secure for investors important rights comparable to those that would be available under United States legal principles and practice.... " Recently introduced bicameral legislation to reauthorize TPA, the "Bipartisan Congressional Trade Priorities and Accountability Act of 2015" ( H.R. 1890 / S. 995 ) incorporates the investment negotiating objectives of the 2002 TPA, as well as provisions in other negotiating objectives that may affect investment. The 2002 TPA, the 2012 Model BIT, and the recently-introduced legislation includes language advocating for a future multilateral appellate mechanism, which could review awards rendered by investment arbitration tribunals. Presently, some World Trade Organization (WTO) agreements address investment issues in a limited manner: The Trade-Related Investment Measures (TRIMS) Agreement includes disciplines on WTO member countries applying restrictive investment measures that are inconsistent with national treatment obligations (such as performance requirements) under the General Agreement on Tariffs and Trade (GATT); The General Agreement on Trade in Services (GATS) includes investment liberalization provisions related to trade in services; and The Agreement on Subsidies and Countervailing Measures (ASCM) and the Government Procurement Agreement (GPA) deal indirectly with investment by including several investment incentives in its definition of subsidies and public procurement services, respectively. Additionally, the Energy Charter Treaty, agreed to in 1994, covers investment in the energy sector among its 51 member countries (the United States is not a member). Over the past several decades, efforts have been made through international organizations to develop investment rules (see text box ). In the absence of an overarching multilateral framework on investment, investment flows largely are governed by bilateral and regional IIAs. To date, around 3,200 international investment agreements have been concluded worldwide, of which around 2,500 are in force. The first modern BIT, concluded in 1959, was between West Germany and Pakistan. During that time, European countries, especially those lacking colonial ties and informal networks in developing countries, began negotiating investment treaties to safeguard their existing global investments and facilitate new investments in their former colonies. By the mid-1960s, several European countries had initiated BIT programs. Asian nations began to sign BITs in the 1970s; Japan signed its first BIT in 1977 with Egypt. The United States subsequently initiated its BIT program in 1977. Following the fall of the Soviet Union, Central and Eastern European countries began signing BITs in the late 1980s and 1990s, and Latin American countries entered the arena in the 1990s. The BIT network grew slowly over the first three decades. Initially, BITs were drafted by capital-exporting states primarily to protect their investors from unfair foreign treatment. For developing countries, there was a shared belief that BITs would increase foreign investment, spurring economic growth. From the late 1980s through the mid-1990s, BITs proliferated rapidly, both between developed and developing countries and between developing countries, as many developing countries embraced the so-called "Washington Consensus" reforms of macroeconomic discipline, market-based economies, and rules-based openness to trade and foreign direct investment. The United States has BITs in force with 40 countries, and 14 FTAs in force with 20 countries, most with investment chapters (see Figure 4 ). While U.S. IIAs are a small fraction of the global total, they are often viewed as more comprehensive and of a higher standard than those of other countries. The U.S. Department of State and the Office of the U.S. Trade Representative (USTR) co-lead the U.S. BIT program, in close coordination with other U.S. government agencies. The USTR leads FTA negotiations, also in close coordination with other U.S. government agencies. In contrast to the investment treaty programs of many other advanced economies, the U.S. investment treaty program has focused on developing and emerging economies. All of the individual U.S. BITs are with developing countries. The United States has FTAs (with investment chapters) with six of its top twenty trading partners: Australia, Canada, Columbia, Mexico, Singapore, and South Korea. The U.S.-Australia FTA's investment chapter does not include iinvestor-state dispute settlement. Current U.S. investment negotiations center on two proposed mega-regional FTAs: the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP), whose participating countries represent around three-quarters of the stock of U.S. FDI abroad, but do not include major emerging economies, such as China, India, and Brazil. The United States, separately, is conducting BIT negotiations with China and India, which present both significant market access opportunities and challenges. The United States has also started BIT negotiations with Mauritius and Pakistan in recent years. Additionally, the United States is in discussions with the East African Community (EAC—Kenya, Tanzania, Uganda, Rwanda, and Burundi) over a possible regional BIT. The USTR and the State Department negotiate U.S. investment agreements on the basis of a Model BIT text. The United States completed its original Model BIT in 1981, and it has been revised several times, most substantively in 2004, and most recently in 2012. Prior to the 2004 changes, the United States negotiated BITs on a 1994 Model BIT based largely on the investment chapter in the North American Free Trade Agreement (NAFTA). The 2004 Model BIT changes primarily related to U.S. concerns that the types of protection granted to foreign investors by NAFTA may have been written too broadly, and that foreign investors would possibly receive more favorable treatment for their NAFTA-related investor-state dispute claims than U.S. investors would under U.S. law. To address these concerns, the U.S. government made several changes in the 2004 Model BIT in order to give the BIT parties greater control over the arbitral process and to limit access to ISDS. These changes were reaffirmed in recent agreements and the 2012 Model BIT. Post-NAFTA U.S. investment provisions in BITs and FTAs incorporated a principal trade negotiating objective from the 2002 Trade Promotion Authority stipulating that no trade agreement is to lead to foreign investors in the United States being granted greater substantive rights than what are granted to U.S. investors in the United States (see below section on core provisions). Additionally, the 2004 model and subsequent investment treaty chapters now provide more detailed guidance for both parties and tribunals and also address procedural and other matters not included in earlier U.S. investment treaties, such as the expedited review of claims, rules on frivolous claims, the participation of non-disputing third parties in the arbitration, a statute of limitations, and the consolidation of related claims. The 2012 Model BIT and recent FTAs also formalized the transparency and openness of the arbitral proceedings. Presently, questions remain about further revisions to the Model BIT, for instance, in terms of developing an appellate mechanism. Since the beginning of the BIT program, the definition of investment in U.S. treaties has expanded beyond traditional forms of investment, such as "physical" investments. It recognizes that investment may take a variety of forms, including intangible investments such as intellectual property rights but that not all assets are considered an investment. The 2012 Model BIT provides the following definition of investment: "investment" means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges. All U.S. IIAs are binding, reciprocal agreements. In addition to specific market access commitments, U.S. international investment agreements typically include the following: Non discriminatory treatment. Provides for the better of national treatment or most favored nation treatment for the full life cycle of an investment (from its establishment or acquisition, through its management, operation and expansion, to its disposition). Minimum standard of treatment . Investment protections in accordance with customary international law, including fair and equitable treatment and full protection and security. Compensation for expropriation. Prompt, adequate, and effective compensation when direct or indirect expropriation takes place (based on U.S. law); recognition that, except in rare circumstances, non-discriminatory government regulation (e.g., public health, safety, or environmental regulation) is not an indirect expropriation. Transfer of funds. Timely transfer of funds into and out of the host country without delay using a market rate of exchange. Limits on performance requirements. Restrictions on trade-distorting performance requirements (such as local content rules or export quotas). Investor-State Dispute Settlement (ISDS). The right of an investor to submit an investment dispute with the treaty partner's government to binding, impartial international arbitration. Other requirements and exceptions . Environmental, labor, transparency, and anti-bribery requirements, as well as exceptions for national security and prudential interests and provisions to prevent forum shopping. These provisions are reflected in the 2015 bicameral TPA reauthorization legislation introduced in the 114 th Congress ( H.R. 1890 / S. 995 ). The 2012 Model BIT and other U.S. IIAs prohibit the expropriation of covered investments except: (1) for a public purpose; (2) in a non-discriminatory manner; (3) upon payment of prompt, adequate, and effective compensation; and (4) in accordance with due process of law and the minimum standard of treatment. Direct expropriation of an investment occurs when the host country deprives the investor of the value of its investment by, for example, transferring title in the investment to the state. By contrast, an indirect expropriation occurs when the investor retains title to the investment but cannot make economic use of the investment for a significant period of time because, for example, of discriminatory government regulations that substantially interfere with the investor's use of the investment. Some observers raised concerns about early NAFTA decisions interpreting the legal standard for indirect expropriation. To address concerns raised by these decisions, the 2012 Model BIT contains an annex that specifically spells out the factors a tribunal must consider when determining whether an indirect expropriation has occurred. These factors mirror those in the U.S. Supreme Court decision in Penn Central , a case that determined the test for regulatory takings under the Fifth Amendment of the U.S. Constitution. The factors consist of: (i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) the character of the government action. Recent U.S. IIAs, such as the investment chapter of the U.S.-South Korea FTA (KORUS), state that nondiscriminatory regulatory measures generally do not result in indirect expropriation. For example, the 2012 Model BIT states that "Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations . " U.S. IIAs are binding reciprocal agreements and do not provide greater substantive rights to foreign investors. Earlier concerns that foreign investors were receiving greater substantive rights under IIAs with ISDS provisions than U.S. investors obtained under U.S. law prompted Congress to include a provision in the investment negotiating objectives in the 2002 TPA stating that the investment protections in future IIAs should ensure that "foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States." Some observers argue that the availability of ISDS itself implies greater procedural rights by providing foreign investors in the United States with an additional choice of venue besides U.S. courts. While this debate has focused on rights afforded to investors in the United States, it is important to recognize that, under a U.S. investment agreement, a U.S. business investing in a foreign country would have recourse to ISDS to resolve disputes with the host country's government. From the view of supporters, this access may be particularly important in situations where judicial systems in foreign countries may not be fully formed or independent, or where there may be significant corruption. ISDS provisions in IIAs enable an aggrieved investor, with an investment located in the territory of a foreign host government, to bring a claim against that government for breach of an investment agreement before an international arbitration panel. ISDS provisions are intended to establish a binding and impartial procedure for the settlement of investment disputes. Although ISDS is a common part of the international investment architecture, its use is actively debated, including in the current TPP and T-TIP negotiations. Historically, before the advent of ISDS, "unlawful behavior by States targeting foreign investors tended either to go unaddressed or to escalate into conflict between States." Further, "[m]ilitary interventions in the early years of U.S. history—gunboat diplomacy—were often in defense of private American commercial interests." In the absence of ISDS, an investor whose property has been expropriated, or otherwise injured by a foreign government, such as through discriminatory action, also could either seek redress in the domestic courts of the foreign government or seek the espousal of their claim by their investor's home government through state-to-state dispute settlement. From this perspective, ISDS represented a more peaceful, effective mechanism for addressing disputes between investors and host countries. According to one of the framers of the U.S. BIT program, the decision to include ISDS in U.S. investment treaties "was based on the desire to provide investors with a stable and secure dispute settlement device and to de-politicize investment disputes." Predecessors to the contemporary form of ISDS date to the 1900s, with arbitration institutions established in London, Stockholm, and Paris. States began to include ISDS in their investment treaties in the late 1960s and early 1970s. By the 1990s, ISDS became a standard element of international investment agreements. Although an investor submitting a claim under a U.S. IIA must typically consent to the mandatory substantive and procedural rules contained therein, the parties to an investment dispute generally may jointly choose the forum as well as many of the procedural rules under which the tribunal conducts the arbitration. Most international investor disputes are conducted under rules of the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States , which established the International Centre for Settlement of Investment Disputes (ICSID). ICSID, an affiliate of the World Bank Group headquartered in Washington, DC, provides arbitral services and rules for investment disputes to the 147 members who have ratified the ICSID Convention. Investment arbitration tribunals (e.g., NAFTA Chapter 11 tribunals) may use the facilities and rules provided by ICSID. A separate facility, the ICSID Additional Facility, was created in 1978 to arbitrate disputes if either the home or host state, but not both, is not a member of ICSID. The ICSID Additional Facility can also arbitrate non-investment disputes. The most common alternative to ICSID is international arbitration under the rules established in the United Nations Commission on International Trade Law (UNCITRAL). Unlike ICSID, UNCITRAL rules do not provide an institution to administer the arbitration, and all aspects of the dispute resolution (tribunal, support staff, facilities, etc.) are developed ad hoc. Other arbitration rules include those of the International Chamber of Commerce, the Stockholm Chamber of Commerce, and the Permanent Court of Arbitration. The methods of selection and disqualification of arbitrators may differ depending on whether the arbitration is conducted under ICSID or UNCITRAL Arbitration Rules, NAFTA, or agreements based on the U.S. Model BIT. Furthermore, the parties may also contract to have the dispute governed by rules other than the ICSID and UNCITRAL Arbitration Rules. With regard to selection of arbitrators, both NAFTA and U.S. FTAs based on the recent Model BIT state that, unless the parties otherwise agree, the tribunal shall be comprised of three arbitrators. The claimant appoints one arbitrator; the respondent state appoints one arbitrator; and the parties then agree on a presiding arbitrator. If the disputing parties cannot agree on appointment of an arbitrator, then the Secretary General of ICSID becomes the appointing authority. Under the ICSID Convention, arbitrators must be "persons of high moral character and recognized competence in the fields of law, commerce, industry or finance." However, under the UNCITRAL Arbitration Rules, there does not appear to be a corresponding provision that explicitly requires arbitrators to be recognized as competent in any particular field. In the event that a party to the arbitration believes that an arbitrator should be disqualified, the procedures it must follow depend on the rules that govern the arbitration. Under the ICSID Convention and Arbitration Rules, a party may propose disqualification of an arbitrator on account of any fact indicating that the arbitrator has a "manifest lack" of the ability to exercise independent judgment. Similarly, under the UNCITRAL rules, an arbitrator may be challenged if "circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence." Arbitrators have an obligation to affirmatively disclose such circumstances both prior to, and during, the dispute proceedings. It appears that many challenges to an arbitrator's qualifications to sit on a tribunal arise from prior existing relationships between the arbitrators and the disputing parties. For example, one arbitrator, in 2013, was disqualified from the tribunal in Blue Bank v. Venezuela because the arbitrator in question was a partner at a law firm that was representing the claimant in a different ISDS proceeding against Venezuela that dealt with issues similar to the case he was set to decide. However, tribunals have also held that "the mere existence of some professional relationship with a party is not an automatic basis for disqualification of an arbitrator." In one case, the arbitrator in question advised the disputing parties that one of the partners in his law firm had worked for the claimant-company's predecessor on an unrelated tax issue but the panel did not find this relationship warranted disqualification. Prior relationships with disputing parties are not the only reason that an arbitrator can be disqualified. Arbitrators can also be removed from a panel if they have biases against the law in dispute or the specific subject at issue. One such example, involving a successful challenge, came when the United States, during a NAFTA arbitration conducted under the UNCITRAL Arbitration Rules, challenged the appointment of an arbitrator who had previously given a speech on the U.S. law at issue in the dispute. The arbitrator, in his speech, referred to the U.S. law in question as "harassment." The ICSID Secretary General, who was authorized to make the final determination on the issue as the appointing authority, informed the arbitrator that ICSID would be issuing an opinion upholding the challenge. In response, the arbitrator resigned and the ICSID did not issue a written opinion on the matter. Under U.S. IIAs, a claimant must follow several procedures in order to initiate an arbitration proceeding. First, the claimant must attempt to resolve the dispute by consultations and negotiations with the respondent state. The agreements generally contain a "cooling down period" of six months from the time the claim arose to the time that an investor may submit it to arbitration. This is intended to give the investor and respondent state time to enter into consultations and possibly negotiate a settlement. In addition, U.S. IIAs typically require the claimant to provide 90-days' written notice to the respondent state prior to submitting a claim to arbitration, which includes, among other things, the legal and factual basis of its claim. When the investor submits the claim, they must consent in writing to the mandatory substantive and procedural rules contained in the IIA under which the investor submits the claim. The claimant investor (and, if applicable, the enterprise on behalf of which it submits the claim) must also waive its rights to pursue monetary relief for its claim in domestic tribunals of parties to the treaty or under other dispute settlement procedures. There is a three-year limitation period on claims beginning on the date on which the claimant had actual or constructive knowledge of the respondent state's breach of the investment agreement, as well as knowledge that the claimant or the relevant enterprise "incurred loss or damage." The parties generally have a large amount of discretion in jointly choosing the facilities at which the arbitration will be conducted as well as many of the procedural rules that will govern the arbitration. In terms of investor eligibility to ISDS under an investment agreement, one issue is the amount of business activity an investor would need to have in the host country in order to qualify. Under the KORUS FTA(Chapter 11), a Party may deny investment benefits to investors of the other Party that are enterprises and to their investments if: (1) the enterprise has "no substantial business activities" in the territory or the other Party;  and  (2) persons of a non-Party, or of the denying Party, own or control the enterprise. The threshold for "substantial business activities" is not defined in Chapter 11 of the KORUS FTA. According to USTR, in the TPP, the United States is seeking a "denial of benefits" provision that would prevent "the use of shell companies" from accessing ISDS. Neither NAFTA nor the 2012 Model BIT requires exhaustion of local administrative or judicial remedies as a prerequisite to a tribunal's jurisdiction over an ISDS claim against a host country. This may be related to U.S. concerns about inadequate judicial systems or corruption in potential partner countries. However, at least under NAFTA, it appears that, as a matter of substantive law , an investor seeking to establish a violation of the minimum standard of treatment obligation based on "denial of justice" by a host country's judiciary must have first exhausted its judicial remedies (i.e., pursued all appeals) unless these remedies are not reasonably available. Tribunals have deemed this requirement to be an element of a "denial of justice" claim under NAFTA Article 1105 (minimum standard of treatment) rather than a prerequisite to a tribunal's exercise of jurisdiction. "Forum shopping" generally refers to a practice in which an investor first pursues compensation in either the host country's local courts or before an ISDS tribunal and, if the investor is unhappy with the outcome, then pursues compensation in the other forum. U.S. IIAs typically provide that an investor cannot seek local remedies in the form of monetary compensation after consenting to arbitration under the agreement. For example, under the 2012 Model BIT, an investor must, as a condition of pursuing a claim under the ISDS provisions, agree to waive "the right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach ... " except to the extent that the investor seeks interim injunctive relief during the pendency of the arbitration. However, this does not prevent an investor from seeking local remedies in the form of monetary compensation prior to bringing a dispute before an international investment arbitration tribunal. U.S. IIAs limit the remedies that an arbitration tribunal may award. For example, in both NAFTA and the 2012 Model BIT, the ISDS provisions state that a tribunal may award only monetary damages and/or restitution of property. Furthermore, if a tribunal elects to award restitution of property, the respondent state has the option of paying monetary damages in lieu of such restitution. NAFTA and the 2012 Model BIT also provide that an arbitration panel cannot award punitive damages. The Constitution governs how federal statutes may be enacted, amended, or repealed. Therefore, in order to amend a duly enacted statute, Congress must follow the processes established in Article I of the Constitution. Because the Constitution is superior to ISDS provisions in BITs and investment chapters in FTAs, such ISDS provisions cannot alter federal law. Although, to date, the United States has yet to lose a claim brought against it under an IIA, if it were to lose a claim in the future, the arbitration panel would not be able to amend, void the application of, or repeal the laws of the United States. However, a tribunal's inability to change the laws or regulations of the United States directly does not mean that arbitration awards cannot be substantial. For example, in Occidental Petroleum Corp. v. Ecuador , the tribunal ordered Ecuador to pay Occidental $1,769,625,000—over 1 billion dollars—in damages. The tribunal rendered that award, which is one of the largest awards in favor of a claimant under ISDS arbitration, after finding that Ecuador violated an investment agreement by expropriating Occidental's property in response to Occidental transferring some of its economic interests under an oil production contract in contravention of Ecuador law. Therefore, although a tribunal lacks authority to alter a U.S. statute directly, some commentators believe that the possibility for such large monetary damages potentially could influence lawmakers and regulators when they consider proposed laws or regulations that may run afoul of IIA obligations. However, other commentators counter that the federal government faces potential monetary damages under its own domestic legal system for claims filed against the government and that most would not consider this practice a threat to democratic principles. The level of transparency in ISDS proceedings depends on the underlying IIA giving rise to the dispute and on the rules that the parties agree to follow during the arbitration. Generally speaking, U.S. IIAs are regarded as providing a great level of transparency when compared to other agreements between other countries. For example, under the NAFTA Free Trade Commission interpretation of the NAFTA investment chapter, the public has access to "all documents submitted to, or issued by, a [investor-state dispute settlement] tribunal, subject to redaction of" confidential information, such as trade secrets or information related to national security. Similar transparency requirements are a U.S. trade negotiating objective, and are provided for in the 2012 Model BIT and other U.S. IIAs. Although the transparency provisions provided for in the underlying IIA would control, regardless of which set of arbitration rules are followed during the proceeding, it is worth noting that the ICSID Arbitration Rules and the UNCITRAL Arbitration Rules differ with regard to transparency requirements. Under the ICSID Arbitration Rules, the transparency provisions are less robust than what the United States has negotiated in recent IIAs. ICSID awards are only made publicly available if both disputing parties consent. Importantly, if the disputing parties do not consent to the publication of the full award decision, ICSID Arbitration Rules still provide for publication of "excerpts of the legal reasoning of the Tribunal." Further, commentators have noted that "oral and written submissions of the disputing parties and their experts and witnesses ... almost always remain confidential." UNCITRAL amended its Arbitration Rules in 2013 by adding Rules on Transparency in Treaty-Based Investor-State Arbitration (Rules on Transparency). The Rules on Transparency will apply to all arbitrations conducted under treaties governed by UNCITRAL Arbitration Rules that were entered into after April 1, 2014, "unless the Parties to the treaty have agreed otherwise." In order to facilitate states to agree to follow these new transparency rules, states can sign the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, known as the Mauritius Convention on Transparency (Mauritius Convention). The Mauritius Convention opened for signature on March 17, 2015, and provides for the Rules on Transparency to apply to IIAs entered into by both parties prior to April 1, 2014, by stipulating that if both parties have signed the Mauritius Convention, they will be deemed to have agreed to apply the Rules on Transparency to such IIAs. The United States has supported ISDS transparency reforms and efforts have been made in recent years to expand transparency, for instance through the 2004 and 2012 U.S. Model BITs. Indeed, commentators regard U.S. IIAs as some of the most transparent agreements currently in existence. Furthermore, the United States signed the Mauritius Convention on Transparency, discussed above, on the first day that the Convention was opened for signature, March 17, 2015. In a memorandum to reporters, the USTR stated that transparency provisions in U.S. IIAs afford respondent governments and interested members of the public the ability to monitor the progress of ISDS proceedings in a way that they could not if the claims were filed in many countries' domestic court systems. Investment arbitration hearings under recent U.S. trade and investment agreements, as well as all key documents submitted to investor-state tribunals and tribunal decisions, are public and available on the State Department website. At the same time, some stakeholders remain concerned about the level of transparency in ISDS proceedings. In the TPP, the United States is seeking "full transparency" in ISDS cases, such that governments "must make all pleadings, briefs, transcripts, decisions, and awards in ISDS cases publicly available, as well as open ISDS hearings to the public," with a key objective in these provisions being to "allow governments that are party to the agreement, as well as the public at large, to carefully monitor pending proceedings and more effectively make decisions about whether to intervene." Similar to submissions of amicus briefs to the United States Supreme Court, ISDS arbitration tribunals may allow interested persons, who are not parties to the dispute, to present their views to the tribunal. The rules governing the submission of third-party statements vary depending on whether the arbitration is governed by the ICSID Arbitration Rules, the UNCITRAL Arbitration Rules, or some other arbitration provision. NAFTA is generally silent on amicus submissions but provides that NAFTA parties, even when they are not involved in the particular dispute in question, may "make submissions to a Tribunal on a question of interpretation of this Agreement," while the Model BIT provides that a non-disputing state that is a party to the treaty "may make oral and written submissions to the tribunal regarding interpretation" of such treaty. The U.S. Model BIT further provides that the presiding arbitration tribunal "shall have the authority to accept and consider amicus curiae submissions from a person or entity that is not a disputing party." The KORUS FTA provides more discretion to the tribunal regarding amicus curiae submissions. It states that, "[a]fter consulting the disputing parties, the tribunal may allow a party or entity that is not a disputing party to file a written amicus curiae submission with the tribunal regarding a matter within the scope of the dispute." It also provides a set of factors to be considered in determining whether to permit an amicus curiae filing including the extent to which the submission would assist the tribunal in determining a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge, or insight that differs from that of the disputing parties; the submission would address a matter within the scope of the dispute; and the third party has a significant interest in the proceeding. Further, the KORUS FTA requires the tribunal to ensure that the submission does not disrupt the proceeding or unduly burden or unfairly prejudice either disputing party, and that the disputing parties are given an opportunity to present their observations on the amicus curiae submission. The ICSID Arbitration Rules were amended in 2006 to permit submission of amicus briefs expressly. ICSID arbitration tribunals have interpreted the ICSID Arbitration Rules in a manner that requires a third-party to ask for leave to provide written statements for the tribunal's consideration. Pursuant to Rule 37, the tribunal must consult with the disputing parties prior to permitting the submission. However, notably, the disputing parties do not have a "veto" power—that is, the tribunal may allow third-party submissions over the objection of a party to the dispute. Under the ICSID Arbitration Rules, the grant of permission to provide amicus submissions does not permit the nonparty to attend closed hearings or get access to documents that have not been made publicly available. The new UNCITRAL Rules on Transparency provisions on third-party submissions, discussed above, are similar to the ICSID rules. The UNCITRAL Rules on Transparency provide clear authority and procedural requirements for accepting written statements from third parties and non-disputing states that are parties to the treaty in question. A third party must apply to the tribunal to make a submission, the tribunal must consult with the disputing parties, and the tribunal must consider whether the submission would be able to assist the tribunal in making a determination on the dispute. A notable difference between the UNCITRAL Rules on Transparency and the ICSID Arbitration Rules is that the UNCITRAL Rules on Transparency require third-party submissions to be made public. When rendering decisions in ISDS cases, investment arbitration tribunals do not establish legally binding precedent. Thus, investment arbitration tribunals do not have to follow the decisions of prior tribunals in the way that, for example, U.S. federal courts must adhere to the decisions of the U.S. Supreme Court. However, arbitrators serving on ISDS tribunals have noted that a tribunal departing from a holding of a prior tribunal (particularly, in a case brought under the same IIA) may feel inclined to explain its reasoning in detail. As the Glamis Gold tribunal put it, a NAFTA tribunal, "while recognizing that there is no precedential effect given to previous decisions, should communicate its reasons for departing from major trends present in previous decisions, if it chooses to do so." Other commentators argue that there may be some value in evaluating each case on its own merits without being tied to precedent. Currently, U.S. IIAs lack a mechanism under which a disputing party may appeal a decision of an investment arbitration tribunal. Under ICSID Arbitration Rules, a committee may be established to consider annulment of an award on five limited grounds. However, these committees are not supposed to serve as appellate bodies. The United Nations Conference on Trade and Development (UNCTAD), ICSID, and other commentators have suggested that establishing an international appellate system for ISDS arbitral decisions could improve the overall operation of investment agreements. For example, an appellate mechanism might bring some coherence to inconsistent tribunal decisions, resulting in greater certainty for investors and host countries regarding their rights and obligations under IIAs. However, to date, there does not appear to have been any concrete progress toward establishing such a body. Some observers have noted that including an appeals process could lead to additional delays and costs for disputing parties. In addition, some commentators have questioned whether a global appellate body would be able to reconcile inconsistent decisions based on numerous investment treaties that provide different substantive and procedural rights to investors. While NAFTA does not mention an appeal process, the 2012 U.S. Model BIT provides that if "an appellate mechanism for reviewing awards rendered by investor-State dispute settlement tribunals is developed in the future under other institutional arrangements, the Parties shall consider whether awards rendered under Article 34 should be subject to that appellate mechanism." The Model BIT also provides that the parties should "strive to ensure" that any appellate process agreed to is transparent. In terms of TPA, the possible creation of an appellate mechanism was first identified as a U.S. trade policy negotiating objective on foreign investment in the 2002 TPA. The 2015 bicameral TPA bill ( H.R. 1890 / S. 995 ) incorporates this objective as well. Some U.S. IIAs provide for state-to-state dispute settlement when a respondent state to an ISDS proceeding fails to pay compensation to a prevailing investor or when state parties to the IIA disagree about an issue of interpretation. For example, the 2012 Model BIT provides that the non-disputing state party may bring a dispute settlement case against the respondent state if the respondent does not comply with a final award. The panel hearing the dispute may determine that the respondent state has breached its obligations under the BIT and recommend that the respondent state abide by or comply with the award. State-to-state dispute settlement proceedings may also be available when state parties to the IIA disagree over the interpretation or application of its provisions. The United States has never been ordered to pay compensation to an investor in an ISDS case. At the same time, the United States has spent a considerable amount in costs and attorneys' fees defending ISDS cases. According to the USTR, ISDS is "accompanied by similar legal costs to complex litigation in [U.S. domestic] courts." In addition, the United States entered into settlement agreements with investors' home countries to resolve issues raised by investors in the Softwood Lumber Consolidated Proceedings (Canada) and the CANACAR case (Mexico). However, in both cases, a state-to-state dispute settlement panel had already determined that some aspects of the U.S. measures at issue were inconsistent with U.S. WTO or NAFTA obligations. The right to ISDS, in some form, is a common feature of many international investment agreements. Despite the inclusion in BITs of ISDS provisions since 1968, it was not until the mid-1990s, following the passage of several investment agreements between advanced economies, that the number of cases of investment disputes began increasing. Since then, the prominence of ISDS has increased concurrent with the rapid growth of FDI in recent decades – From a negligible amount in the 1960s global FDI flows were $1.45 trillion in 2014. Globally, in 2014, investors initiated 42 known ISDS cases, bringing the overall known number of ISDS cases to 608 since the early 1960s. At the same time, in the overall context, ISDS appears to be relatively infrequently used; for example, about 90% of all BITs in force reportedly have operated without any claims filed. Investors from capital-exporting countries most frequently file ISDS claims. In terms of the total at the end of 2014, the main users of ISDS have been investors from the United States (around 130 cases); several European countries, namely the Netherlands (over 60), the United Kingdom (around 50), Germany (over 40), and France (nearly 40); and Canada (around 30)—collectively representing over 80% of all ISDS claims filed. By contrast, developing and transition countries are the most frequent respondents in ISDS claims. In 2014, 60% of all cases were brought against developing and transition economies, with Argentina, Bolivia, and the Czech Republic the top three historically. In 2014, Spain was the most frequent respondent (with five cases). The nature of disputes brought under ISDS has evolved. For example, claims over direct expropriation, such as those related to the nationalization of economic sectors in the 1970s and 1980s, have largely given way to disputes involving foreign investment regulation and indirect expropriation. In 2014, the two types of government conduct most commonly at issue in ISDS were cancellations or alleged violations of contracts and revocations or denial of licenses. Around 61% of the cases filed in 2014 related to the services sector, followed by primary industries (28%) and manufacturing (11%). According to one analysis of ISDS cases during 2003-2013, the primary (oil, mining, hydrocarbon, etc.) and electricity generation and distribution sectors were the most frequently involved in cases. Another analysis characterizes the economic sectors most frequently involved in ISDS cases generally as ones with "significant government involvement or those governments view as critical for the national economy." Cumulatively, in 2014, the global number of concluded ISDS cases reached 356, with 37% decided in favor of the host country; 25% in favor of the investor, and 28% settled. Information regarding the amounts claimed by investors is limited, though efforts to enhance transparency exist: for example, in the 2012 U.S. Model BIT and the new UNCITRAL rules. Internationally, from available information on cases, the amounts sought in claims by investors historically have varied from about $8 million to $2.5 billion. In cases where investors win, the damages awarded are often lower (see text box ). One dispute that has been characterized as being a record high is the aggregate amount of $1.77 billion sought by three claimants who constituted the majority shareholders of the former Yukos Oil Company in an arbitration proceeding against Russia, and the subsequent award issued against Russia of $50 billion. According to the USTR, under the 50 agreements the United States has concluded which include ISDS, the United States has faced "17 ISDS cases, 13 of which were brought to conclusion." Nearly all ISDS cases brought by investors against the United States have been brought under NAFTA. Additionally, one case has been filed under each of the CAFTA-DR, the U.S.-Chile FTA, the U.S.-Peru FTA, and the U.S. Uruguay BIT by foreign investors. None of these cases was decided against the United States. The Appendix contains a summary of the facts and outcomes of recent ISDS cases that may be of interest to Congress. Not all of these cases involve claims under U.S. IIAs. Some have played a role in current U.S. investment negotiations and the U.S. trade policy debate over immigration. For example, in recent years, two cases concerning the pharmaceutical industry and intellectual property rights have been prominent: one filed by a subsidiary of Philip Morris against Australia concerning its plain packaging law for tobacco and the other filed by Eli Lilly against Canada regarding its so-called "promise doctrine" concerning patent utility. For example, businesses claim an interest in seeking compensation for what they consider to be deprivation of their property (IPR) through a fair hearing in a neutral body. Others argue that these cases infringe on a state's right to regulate in the public welfare, and that the "mere threat" of litigation can have a "chilling effect on policy." Some observers argue that these cases are not "representative" of ISDS, and express caution as to drawing any conclusions from either case, given that in neither case has the tribunal yet issued an award on jurisdiction or on the merits in the dispute.

Summary: In recent decades, the United States has entered into binding investment agreements with foreign countries to facilitate investment flows, reduce restrictions on foreign investment and expand market access, and enhance investor protections, while balancing other policy interests. Some World Trade Organization (WTO) agreements address investment issues in a limited manner. In the absence of a comprehensive multilateral agreement, bilateral investment treaties (BITs) and investment chapters in free trade agreements (FTAs), known as international investment agreements (IIAs), have been the primary tools for promoting and protecting international investment. This report answers frequently asked questions about U.S. IIAs including provisions for investor-state dispute settlement.