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T.Doc.104-11 EXCHANGE OF NOTES RELATING TO THE TAX CONVENTION WITH UKRAINE ...


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   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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