103D
CONGRESS 1st
Session
SENATE TREATY
Doc. 103-15
INVESTMENT TREATY WITH THE REPUBLIC OF
ECUADOR
MESSAGE
FROM
THE
PRESIDENT OF THE UNITED STATES
TRANSMITTING
THE
TREATY BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF ECUADOR
CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT,
WITH PROTOCOL AND A RELATED EXCHANGE OF LETTERS, SIGNED AT WASHINGTON ON
AUGUST 27,1993
September 10,
1993.--Treaty was read the first time and, together with the
accompanying papers, referred to the Committee on Foreign Relations and
ordered to be printed for the use of the Senate
U.S.
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1993
69-118
THE WHITE
HOUSE, September
10, 1993.
To the
Senate of the United States:
With a
view to receiving the advice and consent of the Senate to ratification,
I transmit herewith the Treaty Between the United States of America and
the Republic of Ecuador Concerning the Encouragement and Reciprocal
Protection of Investment, with Protocol and related exchange of letters,
signed at Washington on August 27, 1993. Also transmitted for the
information of the Senate is the report of the Department of State with
respect to this Treaty.
This is
the first bilateral investment treaty with an Andean Pact country, and
the second such Treaty signed with a South American country. The Treaty
is designed to protect U.S. investment and en-courage private sector
development in Ecuador, and support the economic reforms taking place
there. The Treaty's approach to dispute settlement will serve as a model
for negotiations with other Andean Pact countries.
The
Treaty is fully consistent with U.S. policy toward inter-national and
domestic investment. A specific tenet, reflected in this Treaty, is that
U.S. investment abroad and foreign investment in the United States
should receive fair, equitable, and nondiscriminatory treatment. Under
this Treaty, the Parties also agree to international law standards for
expropriation and compensation for expropriation, free transfers of
funds associated with investments, freedom of investments from
performance requirements, and the investors freedom to choose to resolve
disputes with the host government through international arbitration.
I
recommend that the Senate consider this Treaty as soon as possible, and
give its advice and consent to ratification of the Treaty, with Protocol
and related exchange of letters, at an early date.
WILLIAM
J. CLINTON.
LETTER OF
SUBMITTAL
S/S
9320385
DEPARTMENT OF STATE,
Washington, DC, September 7, 1993.
The
PRESIDENT
The
White House.
THE
PRESIDENT: I have the honor to submit to you the Treaty Between the
United States of America and the Republic of Ecuador Concerning the
Encouragement and Reciprocal Protection of In-vestment, with Protocol
and a related exchange of letters, signed at Washington on August 27,
1993. Irecommend this Treaty, with Protocol and exchange of letters, be
transmitted to the Senate for its advice and consent to ratification.
The
bilateral investment treaty (BIT) with Ecuador represents an important
milestone in the BIT program. It is the first bilateral investment
treaty signed with a member of the Andean Pact, and the second BIT
signed with a South American country. (A BIT was signed with Argentina
in 1991.) This Treaty will assist Ecuador in its efforts to develop its
economy by creating conditions more favorable for U.S. private
investment, helping to attract such investment and, thus, strengthening
the development of the private sector. It is U.S. policy, however, to
advise potential treaty partners during BIT negotiations that conclusion
of a BIT does not necessarily result in immediate increases in private
U.S. investment flows.
To date,
13 BITs are in force for the United States--with Bangladesh, Cameroon,
the Czech Republic, Egypt, Grenada, Morocco, Panama, Senegal, Slovakia,
Sri Lanka, Tunisia, Turkey, and Zaire. In addition to the Ecuador
Treaty, the United States has signed, but not yet brought into force,
BITs with Argentina, Armenia, Bulgaria, the Congo, Haiti, Kazakhstan,
the Kyrgyz Republic, Moldova, Romania, and Russia--and a business and
economic relations treaty with Poland, which contains the BIT elements.
The
Office of the United States Trade Representative and the Department of
State jointly led this BIT negotiation, with assistance from the
Department of Commerce, Treasury, and OPIC.
THE
U.S.-ECUADOR TREATY
The
Treaty with Ecuador satisfies the principal BIT objectives, which are:
--
Investments of nationals and companies of either Party in the territory
of the other Party (investments) receive the better of national
treatment or most-favored-nation (MFN) treatment both on establishment
and thereafter, subject to certain specified exceptions;
--
Investments are guaranteed freedom from performance requirements,
including requirements to use local products or to export goods;
--
Expropriation can occur only in accordance with international law
standards: for a public purpose; in a nondiscriminatory manner; under
due process of law; and upon payment of prompt, adequate, and effective
compensation;
--
Investments are guaranteed the unrestricted transfer of funds in a
freely usable currency; and
--
Nationals and companies of either Party, in investment disputes with the
host government, have access to binding international arbitration,
without first resorting to domestic courts.
The
U.S.-Ecuador Treaty eliminates Article VIII of the prototype text. This
language had excluded from the dispute settlement provisions of the BIT
those disputes arising under the export credit, guarantee or insurance
programs of the Export-Import Bank of the United States, as well as
those arising under any other such official programs pursuant to which
the Parties agreed to other means of settling disputes. The
Export-Import Bank, the Overseas Private Investment Corporation and
other relevant government agencies indicated prior to this negotiation
that they saw no need to maintain such a provision.
The
U.S.-Ecuador Treaty also differs from the prototype in that it includes
provisions at Article 1, paragraph 1 (f) and (g), and Article II,
paragraph 2, which clarify and extend the requirements of the Treaty
with respect to state enterprises. This new language is discussed in
further detail in the, article-by-article analysis of the Treaty below.
In
addition, the Treaty also includes minor clarifying changes to the text
of Article VI, paragraph 2; a provision to preserve contractual
arrangements made as part of any debt-equity conversion program in
Ecuador, in the Protocol; Ecuador's exceptions to the obligation to
provide national treatment, in the Protocol; and a related exchange of
letters. These elements are further described below.
The
following is an article-by-article analysis of the provisions of the
Treaty:
Preamble
The
Preamble states the goals of the Treaty. The Treaty is premised on the
view that an open investment policy leads to economic growth. These
goals include economic cooperation, increased flow of capital, a stable
framework for investment, development of respect for
internationally-recognized worker rights, and maximum efficiency in the
use of economic resources. While the Preamble does not impose binding
obligations, its statement of goals may serve to assist in the
interpretation of the Treaty.
Article
I (Definitions)
Article I
sets out definitions for terms used throughout the Treaty. As a general
matter, they are designed to be broad and inclusive in nature.
Investment
The
Treaty's definition of investment is broad, recognizing that investment
can take a wide variety of forms. It covers investments that are owned
or controlled by nationals or companies of one of the Treaty partners in
the territory of the other. Investments can be made either directly or
indirectly through one or more subsidiaries, including those of third
countries. Control is not specifically defined in the Treaty. Ownership
of over 50 percent of the voting stock of a company would normally
convey control, but in many cases the requirement could be satisfied by
less than that proportion.
The
definition provides a non-exclusive list of assets, claims and rights
that constitute investment. These include both tangible and intangible
property, interests in a company or its assets, "a claim to money
or performance having economic value, and associated with an investment,"
intellectual property rights, and any right conferred by law or contract
(such as government-issued licenses and permits). The requirement that a
"claim to money" be associated with an investment excludes
claims arising solely from trade transactions, such as a simple movement
of goods across a border, from being considered investments covered by
the Treaty.
Under
paragraph 2 of Article I, either country may deny the benefits of the
Treaty to investments by companies established in the other that are
owned or controlled by nationals of a third country if 1) the company is
a mere shell, without substantial business activities in the home
country, or 2) the third country is one with which the denying Party
does not maintain normal economic relations. For example, at this time
the United States does not maintain normal economic relations with,
inter alia, Cuba or Libya.
Paragraph
3 confirms that any alternation in the form in which as asset is
invested or reinvested shall not affect its character as investment. For
example, a change in the corporate form of an investment will not
deprive it of protection under the Treaty.
Company
The
definition of "company" is broad in order to cover virtually
any type of legal entity, including any corporation, company,
association, or other entity that is organized under the laws and
regulations of a Party. The definition also ensures that companies of a
Party that establish investments in the territory of the other Party
have their investments covered by the Treaty, even if the parent company
is ultimately owned by non-Party nationals, although the other Party may
deny the benefits of the Treaty in the limited circumstances set forth
in Article 1, paragraph 2. Likewise, a company of a third country that
is owned or controlled by nationals or companies of a Party. will also
be covered. The definition also covers charitable and non-profit
entities, as well as entities that are owned or controlled by the state.
National
The
Treaty defines "national" as a natural person who is a
national of a Party under its own laws. Under U.S. law, the term "national"
is broader than the term "citizen;" for example, a native of
America Samoa is a national of the United States, but not a citizen.
Return
"Return"
is defined as "an amount derived from or associated with an
investment," and the Treaty provides a non-exclusive list capital
gains; or other fees; provides breadth to the Treaty's transfer
provisions in Article IV.
Associated Activities
The
Treaty recognizes that the operation of an investment requires
protections extending beyond the investment to numerous related
activities. This definition provides an illustrative list of such
investor activities, including operating a business facility, borrowing
money, disposing of property, issuing stock and purchasing . These
activities are covered by Article II, paragraph 1, which guarantees the
better of national or MFN treatment for investments and associated
activities.
State Enterprise
"State
enterprise" is defined as an enterprise owned, or controlled
through ownership interests, by a Party.
Delegation
"Delegation"
is defined to include a legislative grant, government order, directive
or other act which transfers governmental authority to a state
enterprise or authorizes a state enterprise to exercise such authority.
The
definitions of "state enterprise" and "delegation"
are included to clarify the scope of the obligations of Article II,
paragraph 2, which provides that any governmental authority delegated to
a must be exercised in a manner consistent with the Party obligations
under the Treaty.
Article
II (Treatment)
Article
II contains the Treaty's major obligations with respect to the treatment
of investment.
Paragraph
1 generally ensures the better of MFN or national treatment in both the
entry and post-entry phases of investment. It thus prohibits both the
screening of proposed foreign investment on the basis of nationality and
non-discriminatory measures once the investment has been made, subject
to specific exceptions provided for in a separate Protocol. The
United-States and Ecuador have both reserved certain exceptions in the
Protocol to the Treaty, the provisions of which are discussed in the
section entitled "Protocol."
Paragraph
2 is designed to ensure that a Party cannot utilize state owned or
controlled enterprises to circumvent its obligations under the Treaty.
To this end, it requires each Party to observe its treaty obligations
even when it chooses, for administrative or other reasons, to assign
some portion of its authority to a state enterprise, such as the power
to expropriate, grant licenses, approve commercial transactions, or
impose quotas, fees or other charges. Paragraph 2 also supports
competitive equality for investments by requiring that a Party ensure
that state enterprises accord the better of national or MFN treatment in
the sale of its goods or services in the Party's territory.
Paragraph
3 guarantees that investment shall be granted "fair and equitable"
treatment. It also prohibits Parties from impairing, through arbitrary
or discriminatory means, the management, operation, maintenance, use,
enjoyment, acquisition, expansion or disposal of investment. This
paragraph also sets out a minimum standard of treatment based on
customary international law.
In
paragraph 3(c), each Party pledges to respect any obligations it may
have entered into with respect to investments. Thus, in dispute
settlement under Articles VI or VII, a Party would be foreclosed from
arguing, on the basis of sovereignty, that it may unilaterally ignore
obligations to such investments.
Paragraph
4 allows, subject to each Party's immigration laws and the entry of each
Party's nationals into the territory of the other for purposes linked to
investment and involving the commitment of a "substantial amount of
capital." This paragraph serves to render nationals of a BIT
partner eligible for treaty investor visas under U.S. immigration law
and guarantees similar treatment for U.S. investors.
Paragraph
5 guarantees companies the right to engage top managerial personnel of
their choice, regardless of nationality.
Under
paragraph 6, neither Party may impose performance requirements such as
those conditioning investment on the export of goods produced or the
local purchase of goods or services. Such requirements are major burdens
on investors.
Paragraph
7 provides that each Party must provide effective means of asserting
rights and claims with respect to investment, investment agreements and
any investment authorizations. Under paragraph 8, each Party must make
publicly available all laws, administrative practices. and adjudicatory
procedures pertaining to or affecting investments.
Paragraph
9 recognizes that under the U.S. federal system, States of the United
States may, in some instances, treat out-of-State residents and
corporations in a different manner than they treat in-State residents
and corporations. The Treaty provides that the national treatment
commitment, with respect to the States, means treatment no less
favorable than that provided to U.S. out-of-State residents and
corporations.
Paragraph
10 limits the Article's MFN obligation by providing that it will not
apply to advantages accorded by either Party to third countries by
virtue of a Party's membership in a free trade area or customs union or
a future multilateral agreement under the auspices of the General
Agreement on Tariffs and Trade (GATT). The free trade area exception in
this Treaty is analogous to the exception provided for with respect to
trade in the GATT.
Article
III (Expropriation)
Article
III incorporates into the Treaty the international law standards for
expropriation and compensation.
Paragraph
1 describes the general rights of investors and nationalization. These
rights also apply standards to direct or indirect state measures "tantamount
to expropriation or nationalization," and thus apply to "creeping
expropriations" that result in a substantial deprivation of the
benefit of investment without taking of the title to the investment.
Five
requirements are listed. Expropriation must be for a public purpose; be
carried out in a non-discriminatory manner; be subject to prompt,
adequate, and effective compensation; be subject to due process; and be
accorded the treatment provided in the standards of Article 11 (3).
(These standards guarantee fair and equitable treatment and prohibit the
arbitrary and discriminatory impairment of investment in its broadest
sense.)
The
second sentence of paragraph 1 clarifies the meaning of "prompt,
adequate, and effective compensation." Compensation must be
equivalent to the fair market value of the expropriated investment
immediately before the expropriatory action was taken or became known
(whichever is earlier); be paid without delay; include interest at a
commercially reasonable rate from the date of expropriation; be fully
realizable; be freely transferable; and be calculated in a freely usable
currency on the basis of the prevailing market rate of exchange.
Paragraph
2 entitles an investor claiming that an expropriation has occurred to
prompt judicial or administrative review of the claim in the host
country, including a determination of whether they conform to
international law. to the better of national or MFN losses related to
war or civil disturb, does not specify an absolute obligations to pay
compensation for such losses.
Article
IV (Transfers)
Article
IV protects investors from certain government exchange controls limiting
current account and capital account transfers.
In
Paragraph 1, the Parties agree to permit "transfers related to an
investment to be made freely and without delay into and out of its
territory." Paragraph 1 also provides a non-exclusive, list of
transfers that must be allowed, including returns (as defined in Article
1); payments made in compensation for expropriation (as defined in
Article III); payments arising out of an investment dispute; payments
made under a contract, "including the amortization of principle and
interest payments on a loan; proceeds from the liquidation of all or
part of an investment; and additional contributions to capital for the
maintenance or development of an investment.
Paragraph
2 provides that transfers are to be made in a "freely usable
currency" at the prevailing market rate of exchange on the date of
transfer with respect to spot transactions in the currency to be
transferred. "Freely usable" is a standard of the
International Monetary Fund; at present there are five such "freely
usable" currencies: the U.S. dollar, Japanese yen, German mark,
French franc and British pound sterling.
Paragraph
3 recognizes that notwithstanding these guarantees, Parties may maintain
certain laws or obligations that could affect transfers with respect to
investments. It provides that the Parties may require reports of
currency transfers and impose income taxes by such means as a
withholding tax on dividends. It also recognizes that Parties may
protect the rights of creditors and ensure the satisfaction of judgments
in adjudicatory proceedings through their laws, even if such measures
interfere with transfers. Such laws must be applied in an equitable,
nondiscriminatory and good faith manner.
Article
V (State-State, Consultations)
Article V
provides for prompt consultation between the Parties, at either Party's
request, on any matter relating to the interpretation or application of
the Treaty.
Article
VI (State-Investor Dispute Resolution)
Article
VI sets forth several means by which disputes between an investor and
the host country may be settled.
Article
VI procedures apply to an "investment dispute," a term which
covers any dispute arising out of or relating to an investment
authorization, or an agreement between the investor and the host
government or to rights granted by the Treaty with respect to an
investment.
When a
dispute arises, Article VI provides that the disputants should initially
seek to resolve the dispute by consultation and negotiation, which may
include non-binding third party procedures. Should such consultations
fail, paragraphs 2 and 3 set forth the investor's range of choices of
dispute settlement. The investor may make an exclusive and irrevocable
choice to: (1) employ one of the several arbitration procedures outlined
in the Treaty; (2) submit the dispute to procedures previously agreed
upon by the investment and the host country government in an investment
agreement or otherwise; or (3) submits the dispute to the local courts
or administrative tribunals of the host country. Paragraph 2 of Article
VI of the Ecuador BIT adds to the prototype BIT language a phrase
reiterating that the investor may choose among these three alternatives.
This addition does not alter the operation of this provision. Under the
Treaty, the investor can take an investment dispute to binding
arbitration after six months from the date that the dispute arises. The
investor may choose between the International Center for the Settlement
of Investment Disputes (ICSID) (if the host country has joined the
Centre--otherwise the ICSID Additional Facility is available) and ad hoc
arbitration using the Arbitration Rules of the United Nations Commission
on International Trade Law (UNCITRAL). The Treaty also recognizes that,
by mutual agreement, the parties to the dispute may choose another
arbitral institution or set of arbitral rules.
Paragraph
4 contains the consent of the United States and Ecuador to the
submission of investment disputes to binding arbitration in accordance
with the choice of investor.
Paragraph
5 provides that a non-ICSID arbitration shall take place in a country
that is a party to the United Nations Convention the Recognition and
Enforcement of Arbitral Awards. This requirement enhances the ability of
investors to enforce their arbitral awards. In addition, paragraph 6
includes a separate commitment by each Party to enforce arbitral awards
rendered pursuant to Article VI procedures.
Paragraph
7 provides that in any dispute settlement procedure, a Party may not
invoke as a defense, counterclaim, set-off or in any other manner the
fact that the company or national has received or will be reimbursed for
the same damages under an insurance or guarantee contract.
Paragraph
8 is included in the Treaty to ensure that ICSID arbitration will be
available for investors making investments in the form of companies
created under the laws of the Party with which in there is a dispute.
Article
VII (State-State Arbitration)
Article
VII provides for binding arbitration of disputes between the United
States and Ecuador that are not resolved through consultations or other
diplomatic channels. The article constitutes each Party's prior consent
to arbitration.
Article
VIII (Preservation of Rights)
Article
VIII clarifies that the Treaty is meant only to establish a floor for
the treatment of foreign investment. An investor may be entitled to more
favorable treatment through domestic legislation, other international
legal obligations, or a specific obligation assumed by a Party with
respect to that investor. this provision ensures that the Treaty will
not be interpreted to derogate from any entitlement to such more
favorable treatment.
Article
IX (Measures Not Precluded)
The first
paragraph of Article IX reserves the right of a Party to take measures
for the maintenance of public order and the fulfillment of its
international obligations with respect to international peace and
security, as well as those measures it regards as necessary for the
protection of its own essential security interests. These provisions are
common in international investment agreements.
The
maintenance of public order would include measures taken pursuant to a
Party's policy powers to ensure public health and safety. International
obligations with respect to peace and security would include, for
example, obligations for rising out of Chapter VII of the United
National Charter. Measures permitted by the provision on the protection
of a Party's essential security interests would include security-related
actions taken in time of war or national emergency; actions not an
arising from a state of war or national emergency must have a clear and
direct relationship to the essential security interest of the Party
involved.
The
second paragraph allows a Party to promulgate special formalities in
connection with the establishment of investment, provided that the
formalities do not impair the substance of any Treaty rights. Such
formalities would include, for example, U.S. reporting requirements for
certain inward investment.
Article
X (Tax Policies)
The
Treaty exhorts both countries to provide fair and equitable treatment to
investors with respect to tax policies. However, tax matters are
generally excluded from the coverage of the prototype BIT, based on the
assumption that tax matter are properly covered in bilateral tax
treaties.
The
Treaty, and particularly the dispute settlement provisions, do apply to
tax matters in three areas, to the extent they are not subject to the
dispute settlement provisions of a tax treaty, or, if so subject, have
been raised under a tax treaty's dispute settlement procedures and are
not resolved in a reasonable period of time.
The three
areas where the Treaty could apply to tax matters are expropriation
(Article III), transfers (Article IV) and the observance and enforcement
of terms of an investment agreement or authorization (Article VI (1) (a)
or (b)). These three areas are important for investors, and two of the
three expropriatory taxation and tax provisions contained in an
investment agreement or authorization are not typically addressed in tax
treaties.
Article
XI (Application to Political Subdivisions)
Article
XI makes clear that the obligations of the Treaty are applicable to all
political subdivisions of the Parties, such as provincial, state and
local governments.
Article
XII (Entry into Force, Duration and Termination)
The
Treaty enters into force thirty days after exchange of instruments of
ratification and continues in force for a period of ten years. From the
date of its entry into force, the Treaty applies to existing and future
investments. After the ten-year term, the Treaty will continue in force
unless terminated by either Party upon one year's notice. If terminated,
all existing investments would continue to be protected under the Treaty
for ten years thereafter.
Protocol
The
Treaty addresses debt-equity programs, under which an investor purchases
debt of a country at a discount and receives local currency in an amount
equivalent to the debt's face value. These programs normally require
that the investor postpone repatriating the investment made with the
local currency obtained in the conversion. Investors may choose to enter
into such programs because they obtain more local currency than they
otherwise would receive for a given amount of foreign exchange. The
treaty's Protocol provides that any deferral of transfers agreed to
under debt-equity conversion programs would not be superseded by the
treaty's guarantee of transfers without delay. This provision in the
Protocol was added at the suggestion of the United States. The United
States has been generally supportive of debt-equity conversion programs
as part of the overall solution to the debt problem and has considered
them to be an important element in commercial bank financing programs
which reduce debt and debt service.
U.S.
bilateral investment treaties allow for sectoral exceptions to national
and MFN treatment. The U.S. exceptions are designed to protect
governmental regulatory interests and to accommodate the derogations
from national treatment and, in some cases, MFN treatment in existing
federal law.
The U.S.
portion of the Protocol contains a list of sectors and matters in which,
for various legal and historical reasons, the federal government or the
states may not necessarily treat investments of nationals or companies
of the other Party as they do U.S. investments or investments from a
third country. The U.S. exceptions from national treatment are: air
transportation; ocean and coastal shipping; banking; insurance;
government grants; government insurance and loan programs; energy and
power production; local customhouse brokers; owners of real property;
ownership and operation of broadcast stations; ownership of shares in
the Communications Satellite Corporation; the provision of common
carrier telephone and telegraph services; the provision of submarine
cable services; use of land and natural resources; mining on the public
domain; maritime and maritime-related services; and, primary dealership
in U.S. government securities.
Ownership
of real property, mining on the public domain, maritime and
maritime-related services, and primary dealership in U.S. government
securities are excluded from MFN as well as national treatment
commitments. The last three sectors are exempted by the United States
from MFN treatment obligations because of U.S. laws that require
reciprocity. Enforcement of reciprocity provisions would deny both
national and MFN treatment.
The
listing of a sector does not necessarily signify that domestic laws have
entirely reserved it for nationals. Future restrictions or limitations
on foreign investment are only permitted in the sectors listed; must be
made on an MFN basis,, unless otherwise specified in the Protocol; and
must be appropriately notified. Any additional restrictions or
limitations which a Party may adopt with respect to listed sectors may
not affect existing investments. The Ecuador Treaty adds language to the
prototype BIT reiterating that listing an exception to national
treatment does not relieve the Parties from their obligations to accord
national and most-favored-nation treatment.
Because
the U.S. exceptions to national treatment and MFN treatment are based on
existing U.S. law, they are not altered during negotiations.
Ecuador's
exceptions to national treatment are: traditional fishing (which does
not include fish processing or aquaculture); and broadcast radio and
television stations. These exceptions were based on provisions of
investment measures consideration by the Government of Ecuador. Ecuador
has not received any sectoral exceptions to MFN treatment in the
Protocol.
Exchange
of Letters
In an
exchange of letters at the time the Treaty was signed, Ecuador
explicitly confirmed that the Treaty shall serve to satisfy a variety of
substantive and procedural requirements imposed on U.S. investors and
investments by Ecuadorian law. This understanding reflects the desire of
the Government of Ecuador that the Treaty should operate in and of
itself to reduce or eliminate certain bureaucratic practices identified
as impediments to investment.
The
exchange of letters clarifies, for example, that certain local training
nationality requirements for employment will be waived for U.S.
investors. The letters confirm that the Treaty shall satisfy any and all
authorizations necessary for issuing Ecuadorian visas for certain
executives and key personnel. Except where itemized in paragraph four of
the Protocol, investment is permitted in areas and enterprises that
would otherwise require special administrative or other foreign
investment authorizations. The Government of Ecuador state that this
would make automatic its discretion to permit foreign investment, inter
alia, along the border, on the coast, and in "non-traditional"
fisheries. The letters constitute an understanding between the
governments and are an integral part of the Treaty.
The other
U.S. Government agencies which negotiated the Treaty join me in
recommending that it be transmitted to the Senate at an early date.
Respectfully submitted,
Warren Christopher
TREATY
BETWEEN
THE
UNITED STATES OF AMERICA AND
THE
REPUBLIC OF ECUADOR
CONCERNING THE ENCOURAGEMENT
AND
RECIPROCAL PROTECTION OF INVESTMENT
The
United States of America and the Republic of Ecuador hereinafter the "Parties");
Desiring
to promote greater economic cooperation between them, with respect
reinvestment by nationals and companies of one Party in the territory of
the other Party;
Recognizing that agreement upon the treatment to be accorded such
investment will stimulate the flow of private capital and the economic
development of the Parties;
Agreeing
that fair and equitable treatment of investment is desirable in order to
maintain a stable framework for investment and maxim effective
utilization of economic resources;
Recognizing that the development of economic and business ties can
contribute to the well-being of workers in both Parties and promote
respect for internationally recognized worker rights; and
Having
resolved to conclude a Treaty concerning the encouragement and
reciprocal protection of investment;
Have
agreed as follows:
ARTICLE I
1. For
the purposes of this Treaty,
(a) "investment"
means every kind of investment in the territory of one Party owned or
controlled directly or indirectly by nationals or companies of the other
Party, such as equity, debt, and service and investment contracts; and
includes:
(i)
tangible and intangible property, including rights, such as mortgages,
lions and pledges;
(ii) a
company or shares of stock or other interests in a company or interests
in the assets thereof;
(iii) a
claim to money or a claim to performance having economic value, and
associated with an investment;
(iv)
intellectual property which includes, inter alia, rights relating to:
literary
and artistic works, including sound recordings;
inventions in all fields of human endeavor;
industrial designs;
semiconductor mask works;
trade
secrets, know-how, and confidential business information; and
trademarks, service marks, and trade names; and
(v) any
right conferred by law or contract, and any license and permits pursuant
to law;
(b) "company"
of a Party means any kind of corporation, company, association,
partnership, or other organization, legally constituted under the laws
and regulations of a Party or a political subdivision thereof whether or
not organized for pecuniary gain, or privately or governmentally owned
or controlled;
(c) "national"
of a Party means a natural person who is a national of a Party under its
applicable law;
(d) "return"
means an amount derived from or associated with an investment, including
profit; dividend; interest; capital gain; royalty payment; management,
technical assistance or other fee; or returns in kind;
(e) "associated
activities" include the organization, control, operation,
maintenance and disposition of companies, branches, agencies, offices,
factories or other facilities for the conduct of business; the making,
performance and enforcement of contracts; the acquisition, use,
protection and disposition of property of all kinds including
intellectual property rights; the borrowing of funds; the purchase,
issuance, and sale of equity shares and other securities; and the
purchase of foreign exchange for imports.
(f) "state
enterprise" means an enterprise owned, or controlled through
ownership interests, by a Party.
(g) "delegation"
includes a legislative grant, and a government order, directive or other
act transferring to a state enterprise or monopoly, or authorizing the
exercise by a state enterprise or monopoly, of governmental authority.
2. Each
Party reserves the right to deny to any company the advantages of this
Treaty if nationals of any third country control such company and, in
the case of a company of the other Party, that company has no
substantial business activities in the territory of the other Party or
is controlled by nationals of a third country with which the denying
Party does not maintain normal economic relations.
3. Any
alteration of the form in which assets are invested or reinvested shall
not affect their character as investment.
ARTICLE II
1. Each
Party shall permit and treat investment, and activities associated
therewith, on a basis no less favorable than that accorded in like
situations to investment or associated activities of its own nationals
or companies, or of nationals or companies of any third country,
whichever is the most favorable, subject to the right of each Party to
make or maintain exceptions falling within one of the sectors or matters
listed in the Protocol to this Treaty. Each Party agrees to notify the
other Party before or on the date of entry into force of this Treaty of
all such laws and regulations of which it is aware concerning the
sectors or matters listed in the Protocol. Moreover, each Party agrees
to notify the other of any future exception with respect to the sectors
or matters listed in the Protocol, and to limit such exceptions to a
minimum. Any future exception by either Party shall not apply to
investment existing in that sector or matter at the time the exception
becomes effective. The treatment accorded pursuant to any exceptions
shall, unless specified otherwise in the Protocol, be not less favorable
than that accorded in like situations to investments and associated
activities of nationals or companies of any third country.
2. (a)
Nothing in this Treaty shall be construed to prevent a Party from
maintaining or establishing a state enterprise.
(b) Each
Party shall ensure that any state enterprise that it maintains or
establishes acts in a manner that is not inconsistent with the Party's
obligations under this Treaty wherever such enterprise exercises any
regulatory, administrative or other governmental authority that the
Party has delegated to it, such as the power to expropriate, grant
licenses, approve commercial transactions, or impose quotas, fees or
other charges.
(c) Each
Party shall ensure that any state enterprise that it maintains or
establishes accords the better of national or most favored nation
treatment in the sale of its goods or services in the Party's territory.
3. (a)
Investment shall at all times be accorded fair and equitable treatment,
shall enjoy full protection and security and shall in no case be
accorded treatment less than that required by international law.
(b)
Neither Party shall in any way impair by arbitrary or discriminatory
measures the management, operation, maintenance, use, enjoyment,
acquisition, expansion, or disposal of investments. For purposes of
dispute resolution under Articles VI and VII, a measure may be arbitrary
or discriminatory notwithstanding the fact that a party has had or has
exercised the opportunity to review such measure in the courts or
administrative tribunals of a Party.
(c) Each
Party shall observe any obligation it may have entered into with regard
to investments.
4.
Subject to the laws relating to the entry and sojourn of aliens,
nationals of either Party shall be permitted to enter and to remain in
the territory of the other Party for the purpose of establishing,
developing, administering or advising on the operation of an investment
to which they, or a company of the first Party that employs them, have
committed or are in the process of committing a substantial amount of
capital or other resources.
5.
Companies which are legally constituted under the applicable laws or
regulations of one Party, and which are investments, shall be permitted
to engage top managerial personnel of their choice, regardless of
nationality.
6.
Neither Party shall impose performance requirements as a condition of
establishment, expansion or maintenance of investments, which require or
enforce commitments to export goods produced, or which specify that
goods or services must be purchased locally, or which impose any other
similar requirements.
7. Each
Party shall provide effective means of asserting claims and enforcing
rights with respect to investment, investment agreements, and investment
authorizations.
8.
Each Party shall make public all laws, regulations, administrative
practices and procedures, and adjudicatory decisions that pertain to or
affect investments.
9. The
treatment accorded by the United States of America to investments and
associated activities of nationals and companies of the Republic of
Ecuador under the provisions of this Article shall in any State,
Territory or possession of the United States of America be no less
favorable than the treatment accorded therein to investments and
associated activities of nationals of the United States of America
resident in, and companies legally constituted under the laws and
regulations of other States, Territories or possessions of the United
States of America.
10. The
most favored nation provisions of this Treaty shall not apply to
advantages accorded by either Party to nationals or companies of any
third country by virtue of:
(a) that
Party's binding obligations that derive from full membership in a free
trade area or customs union; or
(b) that
Party's binding obligations under any multilateral international
agreement under the framework of the General Agreement on Tariffs and
Trade that enters into force subsequent to the signature of this Treaty.
ARTICLE III
1.
Investments shall not be expropriated or nationalized either directly or
indirectly through measures tantamount to expropriation or
nationalization ("expropriation") except: for a public
purpose; in a nondiscriminatory manner; upon payment of prompt, adequate
and effective compensation; and in accordance with due process of law
and the general principles of treatment provided for in Article II(3).
Compensation shall be equivalent to the fair market value of the
expropriated investment immediately before the expropriatory action was
taken or became known, whichever is earlier; be calculated in a freely
usable currency an the basis of the prevailing market rate of exchange
at that time; be paid without delay; include interest at a commercially
reasonable rate from the date of expropriation; be fully realizable; and
be fully transferable.
2. A
national or company of either Party that asserts that all or part of its
investment has been expropriated shall have a right to prompt review by
the appropriate judicial or administrative authorities of the other
Party to determine whether any such expropriation has occurred and, If
so, whether such expropriation, and any associated compensation,
conforms to the principles of international law.
3.
Nationals or companies of either Party whose investments suffer losses
in the territory of the other Party owing to war or other armed
conflict, revolution, state of national emergency, insurrection, civil
disturbance or other similar events shall be accorded treatment by such
other Party no less favorable than that accorded tb its own nationals or
companies or to nationals or companies of any third country, whichever
is the most favorable treatment, as regards any measures it adopts in
rotation to such losses.
ARTICLE IV
1. Each
Party shall permit all transfers related to an investment, to be made
freely and without delay into and out of its territory. Such transfers
include: (a) returns; (b) compensation pursuant to Article III; (c)
payments arising out of an investment dispute; (d) payments made under a
contract, including amortization of principal and accrued interest
payments made pursuant to a loan agreement; (e) proceeds from the sale
or liquidation of all or any part of an investment; and (f) additional
contributions to capital for the maintenance or development of an
investment.
2.
Transfers shall be made in a freely usable currency at the prevailing
market rate of exchange on the date of transfer with respect to spot
transactions in the currency to be transferred.
3.
Notwithstanding the provisions of paragraphs 1 and 2, either Party may
maintain laws and regulations (a) requiring reports of currency
transfer; and (b) imposing income taxes by such means as a withholding
tax applicable to dividends or other transfers. Furthermore, either
Party may protect the rights of creditors, or ensure the satisfaction of
judgments in adjudicatory proceedings, throuqh the equitable,
nondiscriminatory and good faith application of its law.
ARTICLE V
The
Parties agree to consult promptly, on the request of either, to resolve
any disputes in connection with the Treaty, or to discuss any matter
relating to the interpretation or application of the Treaty.
ARTICLE VI
1. For
purposes of this Article, an investment dispute is a dispute between a
Party and a national or company of the other Party arising out of or
relating to (a) an investment agreement between that Party and such
national or company; (b) an investment authorization granted by that
Party's foreign investment authority to such national or company; or (c)
an alleged broach of any right conferred or created by this Treaty with
respect to an investment.
2. In the
event of an investment dispute, the parties to the dispute should
initially seek a resolution through consultation and negotiation. If the
dispute cannot be settled amicably, the national or company concerned
may choose to submit the dispute, under one of the following
alternatives, for resolution:
(a) to
the courts or administrative tribunals of the Party that is a party to
the dispute; or
(b) in
accordance with any applicable, previously agreed dispute-settlement
procedures; or
(c) in
accordance with the terms of paragraph 3.
3. (a)
Provided that the national or company concerned has not submitted the
dispute for resolution under paragraph 2 (a) or (b) and that six months
have elapsed from the date on which the dispute arose, the national or
company concerned may choose to consent in writing to the submission of
the dispute for settlement by binding arbitration:
(i) to
the International Centre for the Settlement of Investment Disputes ("Centre")
established by the Convention on the Settlement of Investment Disputes
between States and Nationals of other States, done at Washington, March
18, 1965 (IICSID convention"), provided that the Party is a party
to such Convention; or
(ii) to
the Additional Facility of the Centre, if the Centre is not available;
or
(iii) in
accordance with the Arbitration Rules of the United Nations Commission
on International Trade Law (UNCITRAL), or
(iv) to
any other arbitration institution, or in accordance with any other
arbitration rules, as may be mutually agreed between the parties to the
dispute.
(b) Once
the national or company concerned has so consented, either party to the
dispute may initiate arbitration in accordance with the choice so
specified in the consent.
4. Each
Party hereby consents to the submission of any investment dispute for
settlement by binding arbitration in accordance with the choice
specified in the written consent of the national or company under
paragraph 3. Such consent, together with the written consent of the
national or company when given under paragraph 3 shall satisfy the
requirement for:
(a)
written consent of the parties to the dispute for purposes of Chapter II
of the ICSID Convention (jurisdiction of the Centre) and for purposes of
the Additional Facility Rules; and
(b) an "agreement
in writing" for purposes of Article II of the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, done at New York, June 10, 1958 ("New York Convention").
5. Any
arbitration under paragraph 3(a)(ii), (iii) or (iv) of this Article
shall be held in a state that is a party to the New York Convention.
6. Any
arbitral award rendered pursuant to this Article shall be final and
binding on the parties to the dispute. Each Party undertakes to carry
out without delay the provisions of any such award and to provide in its
territory for its enforcement.
7. In any
proceeding involving an investment dispute, a Party shall not assert, as
a defense, counterclaim, right of set-off or otherwise, that the
national or company concerned has received or will receive, pursuant to
an insurance or guarantee contract, indemnification or other
compensation for all or part of its alleged damages.
8. For
purposes of an arbitration held under paragraph 3 of this Article, any
company legally constituted under the applicable laws and regulations of
a Party or a political subdivision thereof that, immediately before the
occurrence of the event or events giving rise to the dispute, was an
investment of nationals or companies of the other Party, shall be
treated as a national or company of such other Party in accordance with
Article 25(2)(b) of the ICSID Convention.
ARTICLE VII
1. Any
dispute between the Parties concerning the interpretation or application
of the Treaty which is not resolved through consultations or other
diplomatic channels, shall be submitted, upon the request of either
Party, to an arbitral tribunal for binding decision in accordance with
the applicable rules of international law. In the absence of an
agreement by the Parties to the contrary, the arbitration rules of the
United Nations commission on international Trade Law (UNCITRAL), except
to the extent modified by the Parties or by the arbitrators, shall
govern.
2. Within
two months of receipt of a request, each Party shall appoint an
arbitrator. The two arbitrators shall select a third arbitrator as
chairman, who is a national of a third State. The UNCITRAL Rules for
appointing members of three member panels shall apply mutatis
mutandis to the
appointment of the arbitral panel except that the appointing authority
referenced in those rules shall be the Secretary General of the Centre.
3. Unless
otherwise agreed, all submissions shall be made and all hearings shall
be completed within six months of the date of selection of the third
arbitrator, and the Tribunal shall render its decisions within two
months of the date of the final submissions or the date of the closing
of the hearings, whichever is later.
4.
Expenses incurred by the Chairman, the other arbitrators, and other
costs of the proceedings shall be paid for equally by the Parties. The
Tribunal may, however, at its discretion, direct that a higher
proportion of the costs be paid by one of the Parties.
ARTICLE VIII
This
Treaty shall not derogate from:
(a) laws
and regulations, administrative practices or procedures, or
administrative or adjudicatory decisions of either Party;
(b)
international legal obligations; or
(c)
obligations assumed by either Party, including those contained in an
investment agreement or an investment authorization, that entitle
investments or associated activities to treatment more favorable than
that accorded by this Treaty in like situations.
ARTICLE IX
1. This
Treaty shall not preclude the application by either Party of measures
necessary for the maintenance of public order, the fulfillment of its
obligations with respect to the maintenance or restoration of
international peace or security, or the protection of its own essential
security interests.
2. This
Treaty shall not preclude either Party from prescribing special
formalities in connection with the establishment of investments, but
such formalities shall not impair the substance of any of the rights set
forth in this Treaty.
ARTICLE X
1. With
respect to its tax policies, each Party should strive to accord fairness
and equity in the treatment of investment of nationals and companies of
the other Party.
2.
Nevertheless, the provisions of this Treaty, and in particular Article
VI and VII, shall apply to matters of taxation only with respect to the
following:
(a)
expropriation, pursuant to Article III;
(b)
transfers, pursuant to Article IV; or
(c) the
observance and enforcement of terms of an investment agreement or
authorization as referred to in Article VI (1) (a) or (b), to the extent
they are not subject to the dispute settlement provisions of a
Convention for the avoidance of double taxation between the two Parties,
or have been raised under such settlement provisions and are not
resolved within a reasonable period of time.
ARTICLE XI
This
Treaty shall apply to the political subdivisions of the Parties.
ARTICLE XII
1. This
Treaty shall enter into force thirty days after the data of exchange of
instruments of ratification. It shall remain in force for a period of
ten years and shall continue in force unless terminated in accordance
with paragraph 2 of this Article. It shall apply to investments existing
at the time of entry into force as well as to investments made or
acquired thereafter.
2. Either
Party may, by giving one year's written notice to the other Party,
terminate this Treaty at the end of the initial ten year period or at
any time thereafter.
3. With
respect to investments made or acquired prior to the date of termination
of this Treaty and to which this Treaty otherwise applies, the
provisions of all of the other Articles of this Treaty shall thereafter
continue to be effective for a further period of ten years from such
date of termination.
4. The
Protocol and Side Letter shall form an integral part of the Treaty.
IN
WITNESS WHEREOF,
the respective plenipotentiaries have signed this Treaty.
DONE in
duplicate at Washington on the twenty-seventh day of August, 1993, in
the English and Spanish languages, both texts being equally authentic.
FOR THE
UNITED STATES OF AMERICA:
FOR THE
REPUBLIC OF ECUADOR:
PROTOCOL
l. The
Parties note that the Republic of Ecuador may establish a debt-equity
conversion program under which nationals or companies of the United
States may choose to invest in the Republic of Ecuador through the
purchase of debt at a discount.
The
Parties agree that the rights provided in Article IV, paragraph 1, with
respect to the transfer of returns and of proceeds from the sale or
liquidation of all or any part of an investment, may, as such rights
would apply to that part of an investment financed through a debt-equity
conversion, be modified by the terms of a debt-equity conversion
agreement between a national or company of the United States and the
Government of the Republic of Ecuador or any agency or instrumentality
thereof.
The
transfer of returns and/or proceeds from the sale or liquidation of all
or any part of an investment shall in no case be on terms less favorable
than those accorded, in like circumstances, to nationals or companies of
the Republic of Ecuador or any third country, whichever is more
favorable.
2. The
United States reserves the right to make or maintain limited exceptions
to national treatment, as provided in Article 11, paragraph 1, in the
sectors or matters it has indicated below:
air
transportation; ocean and coastal shipping; banking; insurance;
government grants; government insurance and loan programs; energy and
power production; customhouse brokers; ownership of real property;
ownership and operation of broadcast or common carrier radio and
television stations; ownership of shares in the Communications Satellite
Corporation; the provision of common carrier telephone and telegraph
services; the provision of submarine cable services; use of land and
natural resources; mining on the public domain; maritime services and
maritime-related services; and primary dealership in United States
government securities.
The
treatment accorded pursuant to these exceptions shall, unless specified
in paragraph 3 of this Protocol, be not less favorable than that
accorded in like situations to investments and associated activities of
nationals or companies of any third country.
3. The
United States reserves the right to make or maintain limited exceptions
to most favored nation treatment, as provided in Article II, paragraph
1, in the sectors or matters it has indicated below:
ownership
of real property; mining on the public domain; maritime services and
maritime-related services; and primary dealership in United States
government securities.
4. The
Republic of Ecuador reserves the right to make or maintain limited
exceptions to national treatment, as provided in Article II, paragraph
1, in the sectors or matters it has indicated below:
traditional fishing (which does not include fish processing or
aquaculture); ownership and operation of broadcast radio and television
stations.
The
treatment accorded pursuant to these exceptions shall be not less
favorable than that accorded in like situations to investment and
associated activities of nationals or companies of any third country.
THE
UNITED STATES TRADE REPRESENTATIVE
Executive
Office of the President
Washington. D.C. 20506
27 August
1993
Dear Mr.
Minister:
I have
the honor to confirm receipt of your letter which reads as follows:
"I
have the honor to confirm the following understanding which was reached
between the Government of the Republic of Ecuador and the Government of
the United States of America in the course of negotiations of the Treaty
Concerning the Encouragement and Reciprocal Protection of Investment
(the "Treaty"):
With
respect to Article 11, paragraph 4, the Government of the Republic of
Ecuador confirms that the Treaty shall serve to satisfy the requirements
for any and all authorizations necessary under its laws for nationals of
the United States to enter and to remain in the territory of the
Republic of Ecuador or the purpose of establishing, developing,
administering or advising on the operation of an investment to which
they, or a company of the United States that employs them, have
committed or are in the process of committing a substantial amount of
capital or other resources. Such authorizations include those granted by
the Labor Ministry, such as to waive local training requirements
established as a condition to the entry of highly trained and specially
qualified employees that are essential to the company's operations.
Nationals of the United States, however, can be required to fulfill
limited formalities in connection with entry and sojourn in the Republic
of Ecuador, including the presentation of a visa application and
relevant documentation.
With
respect to Article II, paragraph 5, the Government of the Republic of
Ecuador confirms that the Treaty shall serve to satisfy the requirements
for any and all authorizations necessary under its laws for the
engagement of foreign nationals as top managers.
In
addition, the Government of the Republic of Ecuador indicates that under
the Ecuadorian Constitution, including Article 18, and the laws of the
Republic of Ecuador, foreign nationals and companies may need special
administrative or other authorizations that are specific to the
investments of foreign persons. The Government of the Republic of
Ecuador confirms that the Treaty shall serve to satisfy the requirements
for any and all such authorizations, except for those sectors or matters
in which the Republic of Ecuador may make or maintain limited exceptions
to national treatment, as provided in Article II, paragraph 1 and listed
in paragraph 4 of the Protocol.
I have
the honor to propose that this understanding be treated as an integral
part of the Treaty.
I would
be grateful if you would confirm that this understanding is shared by
your government.
His
Excellency
Diego
Paredes,
Minister
of Foreign Relations of the
Republic
of Ecuador,
Quito."
I have
the further honor to confirm that this understanding is shared by my
Government and constitutes an integral part of the Treaty.
Sincerely,
Rufus H.
Yerxa
Acting
United States Trade Representative
[TRANSLATION]
Washington, D.C., August 27, 1993
His
Excellency
Ambassador
Rufus Yerxa
Acting
United States Trade Representative
Washington,
D.C.
Mr.
Ambassador:
I have
the honor to confirm the following Understanding, which was reached
between the Government of Ecuador and the Government of the United
States of America in the course of negotiations of the Treaty Concerning
the Encouragement and Reciprocal Protection of Investment (the "Treaty)":
[For the
text of the understanding, see Ambassador Yerxa's letter immediately
preceding.]
I have
the honor to propose that this understanding by treated as an integral
part of the Treaty.
I would
be grateful if you would confirm that this understanding is shared by
your Government.
Accept,
Excellency, the assurances of highest consideration.
[s] Diego
Paredes
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