Author: Jorge Luis Manrique de Lara Seminario*
| Jurisdiction: | Topics:
|
The current U.S. administration has implemented, in a very short period of time, a set of measures which may have a negative effect on the U.S. economy. The U.S. has approved new regulation on immigration, augmented export controls, raised import tariffs, and weakened the effects of climate change finance, among other measures. This blog post will focus on the most recent and volatile trade measure: import tariffs. This publication will analyze the considerations that investors should keep in mind in case they want to initiate an investor-State dispute against the U.S.
On February 4, the U.S. imposed 10% import tariffs on all goods imported from China under the International Emergency Economic Powers Act (IEEPA).[1] On March 4, 2025, the U.S. imposed 25% import tariffs on almost all Canadian and Mexican products, and raised to 20% the import tariffs applicable to all products from China and Hong Kong.[2] On March 12, 2025, a 25% import tariff was imposed on steel and aluminum and their derivative products imported to the US[3]. Then, on April 3, 2025, a 25% import tariff was imposed on automobiles and automobile parts imported to the US.[4] On April 5, 2025, the US imposed 10 % import tariff on goods from nearly all countries. On April 9, 2025, the US imposed an import tariff ranging from 1 to 74 % from nearly all countries with a trade surplus with the US. Finally, on April 10, 2025, China retaliated with an import tariff of 84% to goods from the US. On the same date, the US eliminated the import tariff imposed on April 9, 2025, and established an import tariff of 10% to goods from all origins with the exception of China, which is now facing an import tariff of 145 %.[5] Finally, on June 3, 2025, import tariffs on steel and aluminum and their derivative products were increased to 50% from all countries except the U.K.[6]
In this sense, some authors have argued that the U.S.’s increases in import tariffs could bring a series of investor-State disputes against the U.S.[7] The arguments have turned around the violation of the following obligations:
National Treatment
Under national treatment obligation, States have the duty to grant “to investors of the 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.”[8] A similar definition is included in bilateral investment treaties (BITs) between the U.S. and its other trade partners, such as in the Free Trade Agreement (FTA) between the U.S. and Peru.[9]
To apply national treatment, one must compare both national and foreign investors’ performance in the market. Whether an increase in import tariffs will affect foreign investors more than national investors will define the chances of successfully bringing a claim. As both groups will be exposed to the same type of measures, it is very unlikely to see possibilities to bring a case under this provision. If foreign investors rely on more foreign products than U.S. investors to make the same product in the U.S., this could open the possibility of bringing a national treatment claim. However, information about the quantity of foreign products that foreign competitors use in the U.S. market is confidential. Thus, this would be a difficult claim to bring forward.
Another big problem would be the scope of national treatment. National treatment applies only to internal measures, not to border measures, contrary to Most-Favored Nation (MFN) obligations which apply to both. The distinction between both measures is clear under World Trade Organization (WTO) law (Article I and III of the GATT). Border measures include custom duties, import and export prohibitions and quotas, tariff quotas, among others. Internal measures, on the other hand, include internal taxes on products and internal regulation that affects the sale, distribution, or use of products once the product crosses the border.[10] An increase in import tariffs only affects the import of products, which does not fall under the scope of national treatment. In fact, this is the reason why trade partners differentiate between custom duties (border measures) and taxes (internal measures). For example, under the FTA between Peru and the U.S., the parties defined customs duty as:
[A]ny customs or import duty and a charge of any kind imposed in connection with the importation of a good, including any form of surtax or surcharge in connection with such importation, but does not include any … charge equivalent to an internal tax imposed consistently with Article III:2 of the GATT 1994, in respect of like, directly competitive, or substitutable goods of the Party, or in respect of goods from which the imported good has been manufactured or produced in whole or in part.[11]
In FTAs, it is common to make this distinction. Therefore, there is no ground to claim a violation of national treatment to challenge the U.S.’s increased import tariffs.
Most-Favored Nation
As explained above, an import tariff is considered a border measure, and therefore it is under the scope of the MFN obligation. However, an increase in import tariffs does not produce a different treatment for foreign investors in the U.S. compared to local players. Foreign investors will be subject to the same rate of import tariffs. Some foreign investors will suffer more than others because of their reliance on products from certain countries that are targeted by higher import tariffs than those from other countries. However, this situation cannot trigger the MFN obligation as the measure does not apply to certain foreign investors, but rather is applied to goods from certain countries. In this sense, it is more likely that foreign investors will change their foreign suppliers or stop doing business in the U.S. rather than succeed under this standard.
Expropriation
Expropriation can occur directly, when the host State takes the ownership of the investment, or indirectly, when the actions implemented by the host State deprive the investor of the economic use of the investment. Foreign investors will not argue direct expropriation as the increase of U.S. import tariffs will not remove the ownership of the investment. However, the story may be different regarding indirect expropriation.
Indirect expropriation requires certain conditions. First, the investor must demonstrate that the action attributable to the host State amounts to a “taking.” A “taking” in indirect expropriation affects the investment in a more sublet way. In this sense, arbitral tribunals have recognized a more expansive concept of property rights. In Pope & Talbot v. Canada, the arbitral tribunal recognized that a tariff-quota regime implemented in certain areas of Canada that increased the cost of exporting softwood to the U.S. market could have an adverse effect on the property that the investor acquired in Canada.[12] In this case, the arbitral tribunal recognized that the alleged interference diminished the value of the claimant’s investment, but it did not rise to the level of an expropriation.[13]
Returning to the U.S. trade policy of imposing import tariffs of 10% on goods imported from any sources and a 145% tariff on goods from China[14], foreign investors in the U.S. could argue that this trade measure has reduced the value of their investment in the U.S. For this argument to succeed, foreign investors should demonstrate that their operations are closely connected to Chinese companies or with other countries’ companies affected by U.S. trade measures. Due to this close relationship, the higher the import tariffs on Chinese products, the more impact their investments may have suffered and it is more likely that value of their investment have been reduced. In fact, foreign investors could argue that this policy has increased their costs under two scenarios: (1) by increasing the value of goods imported from various origins into the U.S. market, and (2) by increasing the value of certain goods imported to the U.S. that are subject to additional domestic manufacturing procedures. In this sense, this policy could equate to a taking of their investment.
The second stage, after determining that a taking has occurred, requires analyzing whether the taking rises to the level of an expropriation. The arbitral tribunal in Goetz v. Burundi ruled that the removal of a tax exemption amounted to an expropriation.[15] However, in this case the investor had obtained a certificate indicating that the mining activities qualified for a tax and customs free zone.[16] The Burundian government subsequently revoked such exemption for mining activities, an action that affected the foreign investment. With regard to the heightened U.S. import tariffs, foreign investors did not receive any type of clear information that the import tariff rate will remain fixed or at least that it will not radically change. In fact, the U.S. may argue that since 2008, the rate of its average import tariffs has been constantly increasing.[17] Therefore, foreign investors could not have been expecting a stable import tariff.
Assuming that investors could succeed in the “taking” and “expropriation” requirements, there is another requirement. Foreign investors must determine whether the action taken by the U.S. administration pursued a public-purpose objective, was implemented on a non-discriminatory basis following due process, and was fairly compensated on.[18] Following these criteria, the arbitral tribunal in Saluka v. Czech Republic ruled that a State does not commit an illegal expropriation when it adopts general regulations that are accepted under the scope of police powers of States.[19] The arbitral tribunal in Methanex v. U.S. held that a non-discriminatory regulation for a public purpose and which affects a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments have been given that the government would refrain from such regulations.[20] In Tecmed v. Mexico, the arbitral tribunal focused on whether the expropriatory actions were proportional to the public interest presumably protected.[21]
The U.S. may argue that import tariffs were increased to guarantee economic security in its territory. Furthermore, the U.S. could argue that this measure was implemented on a non-discriminatory basis, as the import tariff rate was defined based on the origin of the products, not on the nationality of foreign investors. In the hypothetical event that the investor could satisfy the first two requirements, the U.S. would be found responsible as it did not compensate the foreign investors for its actions, but foreign investors will have to demonstrate the requirements explained in the previous paragraph.
Fair and Equitable Treatment
Under the fair and equitable treatment (FET) standard, foreign investors can challenge States for implementing measures that have affected their legitimate expectations anticipated upon the moment of the investment. The first cases where arbitral tribunals identified “legitimate expectations” as legal grounds to find States responsible were Tecmed v. Mexico and Thunderbird v. Mexico.[22]
Under this concept, investors can challenge States’ measures if they affected the general regulatory framework in force in the host State at the time the investment was made. However, not every change can trigger this obligation. It is accepted that States still maintain regulatory power in domestic matters in the name of public interest. In this sense, a severe change in the regulatory framework of the State could be enough to sustain a legitimate expectation claim under the FET standard. In Scholz Holding c. Maroc, the arbitral tribunal indicated that not every violation of FET implied a violation of legitimate expectations, and not every frustration of legitimate expectations constituted an internationally wrongful act giving rise to state responsibility.[23] In this case, the arbitral tribunal concluded that the Moroccan actions could not amount to a breach of FET. The arbitral tribunal ruled that the existence of a breach must be assessed (1) in light of the nature of the statements or representations made by the host State; and (2) from the general legislative and regulatory framework established by the State, on which the investor had relied with the expectation that it would not be disrupted.[24] In addition to these two criteria, the arbitral tribunal referred to two other criteria found in multiple Spanish renewable awards: the regulatory change must be “disproportionate”[25] in relation to the objective pursued and “unjustified”[26] with regard to the legitimate public interest.[27]
Regarding the U.S. tariffs, it could be argued that foreign investors relied on the regulatory framework in the U.S. at the time of the investment. On the one hand, a foreign investor could argue that since 1974, the average import tariff rate fell from 3.8% to 1.4% in 2017.[28] On the other hand, the U.S. may argue that since 2018, the average import tariff rate increased from 1.8% to 2.5% in 2024.[29] In addition, the U.S. may advance that during the first Trump administration, the country embarked on the first trade war on steel and aluminum with an increased import tariff of 25%.[30] Moreover, during the 2024 presidential campaign, President Trump announced that an import tariff increase would occur during his second term.[31] Therefore, higher import tariffs were expected. However, foreign investors could argue that they did not expect an average import tariff of 11.5%, or 145% on Chinese products, during the first year of President Trump’s second term. In particular, foreign investors could focus on the fact that the objective behind the U.S. foreign trade policy is not valid. In this sense, they may argue that economic security should not be considered as a national security issue.[32] Then, foreign investors may argue that even if economic security could be considered a legitimate objective, the increased import tariff rates are “disproportionate” in relation to their objective as foreign investors use goods from China in their daily operations. In this way, foreign investors may argue that this measure should be considered “unjustified” regarding public interest as it will affect the entire economy of the U.S.[33]
Conclusion
Seen in the larger context, the new raise on import tariffs approved by the U.S. administration has caused a lot of concern worldwide. Most of the debate has focused on international trade law as import tariffs are the most common trade measure. However, a discussion behind the curtains relates to how likely foreign investors could prevail in investor-State disputes if they were to challenge this trade policy. In this sense, it has been demonstrated that arguing the violation of national treatment obligation will be unsuccessful as import tariffs are border measures and national treatment applies to internal measures only. Regarding the MFN standard, the problem will relate to demonstrating that the measure discriminates between foreign investors, which the measure does not. In respect of indirect expropriation, the U.S. import tariff policy could be considered as a measure that is taking the investment away from foreign investors in the U.S. However, it will be difficult to argue that such measure amounts to an illegal expropriation as the U.S. government has never expressed any guarantee that the import tariffs would remain at a low level. Finally, regarding the FET standard, the big challenge for foreign investors will be to demonstrate that they had legitimate expectations at the moment the investment occurred and that economic security should not be considered national security. Even if foreign investors succeed on these requirements, they will have to argue that the measure is disproportionate as it will hit the U.S. economy in the short term. Every challenge in the investment arena will need to be tested under the applicable BIT or FTA, as well as in consideration of the impact of the import tariff policy on the relevant industry.
[1] Chad P. Bown, US-China Trade War Tariffs: An Up-to-Date Chart, Peterson Institute for International Economics: Pie Charts (Aug. 27, 2025), https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart#main.
[2] Dentons, United States Imposes New Tariffs on Canada, Mexico, and China Citing National Emergency Under the International Emergency Economic Powers Act (IEEPA) (Mar. 4, 2025), https://www.dentons.com/en/insights/alerts/2025/march/4/united-states-imposes-new-tariffs-on-canada.
[3] ST&R, Section 232 Tariffs on Steel & Aluminum, https:/www.strtrade.com/trade-news-resources/tariff-actions-resources/section-232-tariffs-on-steel-aluminum (last visited Sept. 24, 2025).
[4] Ana Swanson, Jack Ewing & Tony Romm, Trump Announces 25% Tariffs on Imported Cars and Car Parts, N.Y. Times (Mar. 31, 2025), https://www.nytimes.com/2025/03/26/us/trump-tariffs-auto-cars.html.
[5] Bown, supra note 1.
[6] See, Fact Sheet: President Donald J. Trump Increases Section 232 Tariffs on Steel and Aluminum, The White House: Fact Sheets (June 3, 2025) https://www.whitehouse.gov/fact-sheets/2025/06/fact-sheet-president-donald-j-trump-increases-section-232-tariffs-on-steel-and-aluminum/ (last visited Sept. 24, 2025).
[7] See e.g., Which Foreign Investors Could Sue Trump’s United States in Arbitration?, Aceris Law LLC (Feb. 2, 2025) https://www.acerislaw.com/which-foreign-investors-could-sue-trumps-united-states-in-arbitration/.
[8] Treaty between The Government of the Unite States of America and The Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment, art. 3, Feb. 19, 2008.
[9] U.S.-Peru Trade Promotion Agreement, Peru-U.S., art. 1.3, Feb. 1, 2009, Office of the U.S. Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/final-text.
[10] Peter Van den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organization: Text, Cases, and Materials, at 346-347 (Cambridge University Press, second edition, 2008).
[11] U.S.-Peru Trade Promotion Agreement, Peru-U.S., art. 1.3, Feb. 1, 2009, Office of the U.S. Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/final-text.
[12] Pope & Talbot Inc v. Government of Can., Interim Award, ¶ 98 (UNCITRAL, Jun. 26, 2000). See also Jan Paulsson and Zachary Douglas, Indirect Expropriation in Investment Treaty Arbitrations, in 19 Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects, Studies in Transnational Economic Law 145, 153 (Norbert Horn and Stefan Michael Kroll eds., Kluwer Law International 2004).
[13] See Pope & Talbot, supra note 12, ¶ 96. See also Paulsson & Douglas, supra note 12.
[14] See, Fact Sheet: President Donald J. Trump Increases Section 232 Tariffs on Steel and Aluminum, The White House: Fact Sheets (June 3, 2025) https://www.whitehouse.gov/fact-sheets/2025/06/fact-sheet-president-donald-j-trump-increases-section-232-tariffs-on-steel-and-aluminum/ (last visited Sept. 24, 2025).
[15] Antoine Goetz and others v. Republic of Burundi, ICSID Case No. ARB/95/3, Sentence [Settlement Award], ¶ 512-513 (Feb. 10, 1999).
[16] Id. ¶ 512.
[17] Average tariff rate on all imports in the United States from 1821 to 2024, with estimated rate for 2025 under Trump’s proposals, Tax Foundation, Statista (Apr. 2025), https://www.statista.com/statistics/
1557485/average-tariff-rate-all-imports-us/.
[18] Paulsson & Douglas, supra note 12 at 148.
[19] Máté Csernus, Indirect Expropriation, Wiki Notes ¶ 12 (Anastasiya Ugale ed., Jus Mundi) (Sept. 11, 2025) https://jusmundi.com/en/document/publication/en-indirect-expropriation; Saluka Investments BV v. Czech Republic, PCA Case No. 2001-04, Partial Award, ¶ 262 (Mar. 17, 2006).
[20] Csernus, supra note 19; Methanex Corporation v. U.S., Final Award of the Tribunal on Jurisdiction and Merits, ¶ 7 (UNICTRAL Aug. 3, 2005).
[21] Csernus, supra note 19, ¶ 13; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, ¶¶ 46 (May 29, 2003) [hereinafter Tecmed v. Mexico].
[22] Ioana Knoll-Tudor, Legitimate Expectations, Wiki Notes ¶ 5 (Anastasiya Ugale ed., Jus Mundi) (Sept. 3, 2025) https://jusmundi.com/en/document/publication/en-legitimate-expectations; Tecmed v. Mexico, supra note 21, ¶ 46 (May 29, 2003).
[23] Issiaka Guindo, Clarification of the legitimate expectations of investors in relation to the stability of regulatory frameworks, International Institute for Sustainable Development: Investment Treaty News (Jul. 2, 2024) www.iisd.org/itn/2024/07/02/clarification-of-the-legitimate-expectations-of-investors-in-relation-to-the-stability-of-regulatory-frameworks/; Scholz Holding GmbH c. Royaume du Maroc, Affaire CIRDI ARB/19/2, Sentence [Scholz Holding GmbH v. Kingdom of Morocco, ICSID Case No. ARB/19/2, Award],
¶ 262 [hereinafter Scholz Holding v. Morocco].
[24] Guindo, supra note 23; Scholz Holding v. Morocco, supra note 23, ¶ 273.
[25] Isolux Infrastructure Netherlands, B.V c. Reino de España, Arbitraje SCC V2013/153, SCC, ¶ 117 (July 12, 2016).
[26] Los Inversores PV c El Reino de España, Caso CPA N° 2012-14, PCA, ¶ 156 (Feb. 20, 2020).
[27] Guindo, supra note 23; Scholz Holding v. Morocco, supra note 23, ¶ 280.
[28] Tax Foundation, supra note 17.
[29] Id.
[30] Sandler, Travis & Rosenberg, P.A, supra note 7.
[31] James Oliphant, What are Donald Trump’s proposed policies as president?, Reuters (Jan. 20, 2025) https://www.reuters.com/world/us/factbox-what-trump-20-would-mean-trade-migrants-climate-change-electric-cars-2024-11-06/.
[32] See, Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security, The White House: Fact Sheets (Apr. 2, 2025) https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/?utm_source=wh_social_share_button.
[33] Tariffs will harm America, not induce a manufacturing rebirth, The Economist: Leaders (Jan. 21, 2025) https://www.economist.com/leaders/2025/01/21/tariffs-will-harm-america-not-induce-a-manufacturing-rebirth?utm_medium=cpc.adword.pd&utm_source=google&ppccampaignID=17210591673&ppcadID=&utm_campaign=a.22brand_pmax&utm_content=conversion.direct response.anonymous&gad_source=1&gbraid=0AAAAADBuq3LKIcpCuEs-x26G3tetVsjds&gclid=Cj0KCQjw5azABhD1ARIsAA0WFUEQqgDvBLpw8Hsa0IXExbL3tiwQKslDnUXDFKjVTT37IJRLrQygrR4aAtMdEALw_wcB&gclsrc=aw.ds.
*Jorge Luis Manrique de Lara Seminario is an LL.M. graduate at Columbia University. He is a Peruvian lawyer with a Master’s in Advanced Studies in International Law and Economics from the World Trade Institute (University of Bern). Jorge is also a former negotiator of the dispute settlement chapters in Peru’s Free Trade Agreements and former professor of international law at PUCP and UPC universities.