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T.Doc.104-13 INVESTMENT TREATY WITH GEORGIA ...
104th Congress 1st SENATE Treaty Doc. Session 104-12 _______________________________________________________________________ INVESTMENT TREATY WITH LATVIA __________ MESSAGE from THE PRESIDENT OF THE UNITED STATES transmitting THE TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF LATVIA CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PROTOCOL, SIGNED AT WASHINGTON ON JANUARY 13, 1995 <GRAPHIC NOT AVAILABLE IN TIFF FORMAT> July 10, 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, July 10, 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 Government of the United States of America and the Government of the Republic of Latvia Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol, signed at Washington on January 13, 1995. I transmit also, for the information of the Senate, the report of the Department of State with respect to this Treaty. The bilateral investment Treaty (BIT) with Latvia will protect U.S. investors and assist Latvia 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. The President: I have the honor to submit to you the Treaty Between the Government of the United States of America and the Government of the Republic of Latvia for the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol, signed at Washington on January 13, 1995. 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 Latvia is based on the view that an open investment policy contributes to economic growth. This Treaty will assist Latvia 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 Latvia, the United States has signed, but not yet brought into force, BITs with Albania, Armenia, Belarus, Ecuador, Estonia, Georgia, Haiti, Jamaica, Mongolia, 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.-LATVIA TREATY The Treaty with the Republic of Latvia 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 the Republic of Latvia 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. --Expropriation can occur only in accordance with international law standards, that is, for a public purpose; in a nondis- criminatory 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.-Latvia Treaty differs from the 1992 prototype in some minor respects. It eliminates Article VIII of the 1992 prototype text which 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.-Latvia Treaty also differs from the prototype in that it includes provisions in Article I, paragraph 1 (f) and (g), and Article II, paragraph 2, which clarify and extend the requirements of the Treaty with respect to state enterprises, and Article II, paragraph 11, which clarifies that investors should receive the better of national or MFN treatment with respect to activities associated with their investment. This additional language is discussed in further detail in the article-by-article analysis of the Treaty below. In addition, a Protocol clarifies that despite Latvia's inclusion of ownership of land in its exceptions to the Treaty's national treatment obligations in the Annex, foreign investors in Latvia can purchase land in urban areas. 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 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, inter alia, 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. In connection 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. 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 state enterprise by a Party must be exercised in a manner consistent with the Party's 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 discriminatory measures once the investment has been made, subject to specific exceptions provided for in a separate Annex. The United States and Latvia have both reserved certain exceptions in the Annex to the Treaty, the provisions of which are discussed in the section entitled ``Annex.'' 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.
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