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T.Doc.104-11 EXCHANGE OF NOTES RELATING TO THE TAX CONVENTION WITH UKRAINE ...
104th Congress 1st SENATE Treaty Doc. Session 104-10 _______________________________________________________________________ INVESTMENT TREATY WITH MONGOLIA __________ MESSAGE from THE PRESIDENT OF THE UNITED STATES transmitting THE TREATY BETWEEN THE UNITED STATES OF AMERICA AND MONGOLIA CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PROTOCOL, SIGNED AT WASHINGTON ON OCTOBER 6, 1994 <GRAPHIC NOT AVAILABLE IN TIFF FORMAT> June 26, 1995.--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 LETTER OF TRANSMITTAL ---------- The White House, June 26, 1995. 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 Mongolia Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol, signed at Washington on October 6, 1994. Also transmitted for the information of the Senate is the report of the Department of State with respect to the Treaty, with Annex and Protocol. The bilateral investment Treaty (BIT) with Mongolia will protect U.S. investors and assist Mongolia in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthening the development of the private sector. The Treaty is fully consistent with U.S. policy toward international and domestic investment. A specific tenet of U.S. policy, reflected in this Treaty, is that U.S. investment abroad and foreign investment in the United States should receive national treatment. Under this Treaty, the Parties also agree to international law standards for expropriation and compensation for expropriation; free transfer of funds associated with investments; freedom of investments from performance requirements; fair, equitable, and most-favored- nation treatment; and the investor's or investment's 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 Annex and Protocol, at an early date. William J. Clinton. LETTER OF SUBMITTAL ---------- Department of State, Washington, June 16, 1995. The President, The White House. I have the honor to submit to you the Treaty Between the United States of America and Mongolia Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol, signed at Washington on October 6, 1994. I recommend that this Treaty, with Annex and Protocol, be transmitted to the Senate for its advice and consent to ratification. The bilateral investment treaty (BIT) with Mongolia is based on the view that an open investment policy contributes to economic growth. This Treaty will assist Mongolia in its efforts to develop its economy by creating conditions more favorable for U.S. private 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, twenty-one BITs are in force for the United States--with Argentina, Bangladesh, Bulgaria, Cameroon, the Congo, the Czech Republic, Egypt, Grenada, Kazakhstan, Kyrgyzstan, Moldova, Morocco, Panama, Poland, Romania, Senegal, Slovakia, Sri Lanka, Tunisia, Turkey, and Zaire. In addition to the Treaty with Mongolia, the United States has signed, but not yet brought into force, BITs with Albania, Armenia, Belarus, Ecuador, Estonia, Georgia, Haiti, Jamaica, Latvia, Russia, Trinidad and Tobago, Ukraine, and Uzbekistan. The Office of the United States Trade Representative and the Department of State jointly led this BIT negotiation, with assistance from the Departments of Commerce and Treasury, and the Overseas Private Investment Corporation. the u.s.-mongolia treaty The Treaty with Mongolia is based on the 1992 U.S. prototype BIT, and achieves all of the prototype's objectives, which are: --All forms of U.S. investment in the territory of Mongolia are covered. --Investments receive the better of national treatment or most-favored-nation (MFN) treatment both on establishment and thereafter, subject to certain specified exceptions. --Performance requirements may not be imposed upon or enforced against investments. --Exploration can occur only in accordance with international law standards, that is, for a public purpose; in a nondiscriminatory manner; in accordance with due process of law; and upon payment of prompt, adequate, and effective compensation. --The unrestricted transfer, in a freely usable currency, of funds related to an investment is guaranteed. --Investment disputes with the host government may be brought by investors, or by their subsidiaries, to binding international arbitration as an alternative to domestic courts. The U.S.-Mongolia Treaty adds to the provisions of the 1992 U.S. prototype text definitions for ``investment agreement'' and ``investment authorization'' as well as a Protocol clarifying that the national and MFN treatment obligations specified in Article II, paragraph 1, apply to the establishment and acquisition, as well as to the expansion, management, conduct, operation and sale or other disposition of investments. 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 international-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 a claim to 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 transaction involving only a cross- border sale of goods, 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, among other countries, Cuba or Libya. Paragraph 3 confirms that any alteration in the form in which an 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. Coupled with the definition of investment, this 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 I, 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 American 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.'' The Treaty provides a non- exclusive list of examples, including: profits; dividends; interest; capital gains; royalty payments; management, technical assistance or other fees; and returns in kind. The scope of this definition 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 foreign exchange for imports. These activities are covered by Article II, paragraph 1, which guarantees the better of national or MFN treatment for investments and associated activities. Investment authorization The Treaty defines an ``investment authorization'' as an authorization granted by the foreign investment authority of a Party to an investment or a national or company of the other Party. Investment agreement The Treaty defines an ``investment agreement'' as a written agreement between the national authorities of a Party and an investment or a national or company of the other Party that (1) grants rights with respect to natural resources or other assets controlled by the national authorities and (2) the investment, national, or company relies upon in establishing or acquiring a covered investment. This definition thus excludes agreements with subnational authorities (including U.S. States) as well as agreements arising from various types of regulatory activities of the national government, including, in the tax area, closing agreements, advance pricing agreements, and agreements which arise out of judicial or administrative rulings, such as consent decrees. 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 discriminatory measures once the investment has been made, subject to specific exceptions provided for in a separate Annex. The United States and Mongolia have both reserved certain exceptions in the Annex to the Treaty, the provisions of which are discussed in the section entitled ``Annex.'' Paragraph 2 guarantees that investment shall be granted ``fair and equitable'' treatment. It also prohibits Parties from impairing, through unreasonable or discriminatory means, the management, operation, maintenance, use, enjoyment, acquisition, expansion or disposal of investments. This paragraph sets out a minimum standard of treatment based on customary international law. In paragraph 2(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 its obligations to such investments. Paragraph 3 allows, subject to each Party's immigration laws and regulations, 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 or other resources.'' 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 4 guarantees companies the right to engage top managerial personnel of their choice, regardless of nationality.
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