New Interpretation of the Investment Chapter of the U.S.-Colombia Trade Promotion Agreement Will Make It Harder for Investors to File Claims Against Governments

At a Glance

• The U.S. and Colombia agreed to new limits on investor-state dispute settlements under the U.S.-Columbia Trade Promotion Agreement, focusing on safeguarding states’ ability to pursue public welfare objectives without triggering investor claims.
• The agreement clarifies key dispute settlement provisions — including national treatment, most-favored-nation treatment, minimum standards of treatment, and expropriation — reducing investor access to arbitration.
• The Free Trade Commission emphasized that domestic regulatory measures and evolving court decisions do not automatically constitute violations of international obligations.
• Investors in and operators of cross-border businesses should work with their legal advisors and be aware of these increased risks before making foreign investment decisions.

Amid the flurry of expected international trade actions by the second Trump administration, the outgoing Biden White House reached a significant (but overlooked) agreement of its own to curtail investor-state dispute settlement (ISDS) under the investment chapter of the U.S.-Colombia Trade Promotion Agreement (CTPA).

Background

The CTPA is a comprehensive free trade agreement which entered into force in 2012. The agreement reduced barriers to trade in goods and services between the U.S. and Colombia. The U.S. is Colombia’s top trading partner. Several hundred U.S. businesses operate in Colombia, primarily concentrated in the mining and manufacturing sectors. The investment chapter of the CTPA provides U.S. investors with due process protections for their investments in Colombia, enforced through ISDS — an international arbitration mechanism for resolving disputes.

ISDS has come under intense criticism in recent years, with several Latin American countries (Bolivia, Ecuador, Honduras and Venezuela) withdrawing from the Convention on the Settlement of Investment Disputes (better known as the ICSID Convention). This form of international arbitration, in which a foreign investor sues a host state — usually under the theory that the government violated its investment treaty obligations or other investment law — saw rapid growth as the dispute resolution of choice in hundreds of bilateral investment treaties (BIT) and free trade agreements over the past decades. In recent years, however, it has suffered from a crisis of perceived unfairness and erosion of countries’ sovereign rights to regulate in the face of corporate challenges to national policy decisions.

Colombia’s first-ever leftist president, Gustavo Petro, expressed his desire to renegotiate Colombia’s free trade agreements with the U.S. and Europe following Spanish company Telefónica’s $380 million award against Colombia under the BIT between Colombia and Spain. See Telefónica, S.A. v. Republic of Colombia (ICSID Case No. ARB/18/3). President Petro has decried ISDS, remarking that Colombia “do[es] not have the sovereignty to demand that if there are conflicts they should be settled by the Colombian justice system, or under the Latin American litigation justice system, and therefore we put ourselves in the mouth of the wolf, or the partner’s justice system.”

Colombia’s leader was not the only impetus for the agreement. Many members of Congress have also raised concerns about ISDS. Senators from both political parties sent a letter to President Biden just days before he left office “to express significant concerns with the United States Trade Representative’s (USTR) lack of transparency and consultation regarding its efforts to negotiate binding interpretations of congressionally approved trade agreements,” including the CTPA.

New Limits on ISDS

On January 16, 2025 — less than a week before the Biden administration left office — the U.S. and Colombia announced a decision setting forth the countries’ binding legal interpretation governing when an investor may pursue ISDS under the CTPA.

The decision, which was made under the auspices of the Free Trade Commission of the CTPA, would place limits on when investors may initiate arbitration against a host government. Specifically, the Free Trade Commission set forth its interpretation of four claims that are core to ISDS: national treatment, most-favored-nation treatment, minimum standards of treatment, and expropriation.

National Treatment

Article 10.3 of the CTPA provides that “Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.” According to the Free Trade Commission, “whether treatment is accorded in ‘like circumstances’ under Article 10.3 depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives.” This interpretation is clearly designed to limit investor claims arising out of the state’s public policy aims.

Most-Favored-Nation Treatment

Similarly, Article 10.4 provides that “Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.” The Free Trade Commission declared that “whether treatment is accorded in ‘like circumstances’ under Article 10.4 depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives” — again apparently limiting the circumstances in which successful claims may be brought.

Minimum Standards of Treatment

Article 10.5 provides that “Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.” According to the Free Trade Commission, this obligation does not empower an arbitral tribunal “to review the merits of a domestic court’s application of domestic law.” Rather, “a domestic court decision that may be seen as erroneous, or as a misapplication or misinterpretation of domestic law, does not in itself constitute a denial of justice.” Also, “the evolution or development of ‘new’ judge-made law that departs from previous jurisprudence within the confines of common law adjudication does not in itself constitute a denial of justice.” And “failure to satisfy requirements of domestic law does not necessarily violate international law, and therefore a departure from domestic law does not in-and-of-itself sustain a violation of this obligation.” This interpretation will limit investors’ ability to bring claims on the basis of an unexpected change in jurisprudence that diminishes the value of their investment.

Expropriation

Article 10.7 sets forth standards for government expropriation and appropriate compensation. According to the Free Trade Commission, “for an expropriation claim to succeed, the claimant must demonstrate that the government measure at issue destroyed all, or virtually all, of the economic value of its investment, 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.” Further, “whether an investor’s investment-backed expectations are reasonable depends, to the extent relevant, on factors such as whether the government provided the investor with binding written assurances and the nature and extent of governmental regulation or the potential for government regulation in the relevant sector.” This interpretation sets a high threshold for investors to bring a valid expropriation claim.

The Free Trade Commission’s decision also addressed other topics, including governing law, submissions of a claim to arbitration, and definitions. Perhaps most notably, the Free Trade Commission clarified that the investment chapter of the CTPA “is not intended to undermine the ability of a Party to take measures that it considers appropriate to address environmental concerns, even when those measures may affect the value of an investment, if otherwise consistent with the Chapter.”

Conclusion

This new interpretation of the CTPA represents a significant step toward rebalancing the perceived inequities of ISDS in ways plainly meant to favor state sovereignty. Rather than eliminating ISDS or handing over investment disputes to a multilateral court (as the European Union has proposed to do), the Free Trade Commission has instead clarified that the state may take decisions in the interest of “legitimate public welfare objectives,” or “that it considers appropriate to address environmental concerns,” without opening itself up to foreign investment claims. Additionally, domestic court decisions that depart from well-established precedent do not necessarily create grounds for a claim, while the standard for seeking redress for expropriation has become more demanding. Investors and their counsel will need to persuade tribunals that their claims are consistent with the Free Trade Commission’s interpretations which — in an era of rising trade protectionism — could also serve as a template for other nations to recalibrate investment treaty frameworks, making this area and subsequent developments worthy of continued attention.