Colombia and US Come to Agreement on Disputed Parts of Free Trade Agreement

The governments of Colombia and the United States have formalized an interpretative note concerning Chapter 10 of their existing Free Trade Agreement (FTA), in effect since May 2012. This development occurred during a bilateral meeting between Colombia’s Minister of Commerce, Industry, and Tourism, Luis Carlos Reyes Hernández, and the US Trade Representative Katherine Tai. The session concluded with the signing of Decision 9 by the Free Trade Commission, providing clarification on specific aspects of the investment chapter.

The interpretative note serves to elucidate the proper understanding of Chapter 10, which addresses investment-related matters, particularly investor-state disputes. Notably, the note does not alter the original text of the FTA, thereby maintaining existing protections.

Minister Reyes emphasized the significance of this clarification for investor expectations, state commitments, and the resolution of disputes by national judges, authorities, and international arbitrators. He stated, “This clarification is important for the expectations of investors, the commitments of the States, and for the resolution of disputes by national judges and authorities and international arbitrators.”

Minister Reyes clarified that the declaration does not undermine incentives for foreign investment

The note aims to clarify the protection commitments each state assumes, addressing ambiguities within the agreement that could lead to frivolous claims or abuses by investors seeking undue advantage. It reaffirms each country’s right to enact new regulations in the legitimate pursuit of public policy objectives, such as environmental protection.

Additionally, the document stipulates that investments not complying with the host country’s internal regulations will not receive protection, thereby excluding illicit investments. It underscores the sovereignty of national judges and authorities by explicitly stating that investment tribunals are not appellate bodies for domestic decisions and cannot review the substance of rulings issued by national judges and authorities.

The note also reiterates that investors bear the burden of proving their claims, which must be based on objective and concrete evidence rather than mere expectations or potential future or hypothetical damages.

Furthermore, it clarifies non-discrimination rules for foreign investments, specifying that differential treatment does not inherently constitute discrimination and that investors will not be subjected to discriminatory treatment based on nationality. It also affirms that investors cannot selectively choose protections from the portfolio of investment treaties each party has signed.

Minister Reyes clarified that the declaration does not undermine incentives for foreign investment but reinforces them for investments that benefit both investors and Colombian society.

This interpretative note aligns with directives from recent US administrations regarding investor-state dispute resolution, which have historically received bipartisan support. It also corresponds with Colombia’s Constitutional Court rulings stipulating that investment agreements must conform to the constitutional order.

Moreover, the note aligns with discussions in multilateral forums, such as the Organization for Economic Co-operation and Development (OECD) and the United Nations, in which Colombia has actively participated.

The United States remains Colombia’s principal source of foreign investment. As of the third quarter of 2024, according to the balance of payments data from the Banco de la República, foreign capital from the US in Colombia amounted to $4.163 billion, representing approximately 42% of the total. The US is also Colombia’s main trading partner, accounting for 29% of the country’s total exports and 31.6% of non-mining energy goods exports. It contributes to about 26% of total goods imports.

Headline Image: Colombia’s Minister of Commerce, Industry, and Tourism, Luis Carlos Reyes Hernández. Photo credit: Mincit.gov.co