TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF HONDURAS CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PROTOCOL, SIGNED AT DENVER ON JULY 1, 1995
106 TH C ONGRESS 2d Session
T REATY D OC .
INVESTMENT TREATY WITH HONDURAS
THE PRESIDENT OF THE UNITED STATES
TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF HONDURAS CONCERNING THE ENCOURAGEMENT AND RECIP- ROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PRO- TOCOL, SIGNED AT DENVER ON JULY 1, 1995
M AY 23, 2000.—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 : 2000
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LETTER OF TRANSMITTAL
T HE W HITE H OUSE , May 23, 2000.
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 Govern- ment of the United States of America and the Government of the Republic of Honduras Concerning the Encouragement and Recip- rocal Protection of Investment, with Annex and Protocol, signed at Denver on July 1, 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 Honduras is the fourth such Treaty with a Central or South American country. The Treaty will protect U.S. investment and assist Honduras in its ef- forts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthen the development of its private sector. The Treaty is fully consistent with U.S. policy toward inter- national 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. The Treaty includes detailed provi- sions regarding the computation and payment of prompt, adequate, and effective compensation for expropriation; free transfer of funds related to investments; freedom of investments from specified per- formance requirements; fair, equitable, and most-favored-nation treatment; and the investor’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 pos- sible, and give its advice and consent to ratification of the Treaty, with Annex and Protocol, at an early date. W ILLIAM J. C LINTON .
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LETTER OF SUBMITTAL
D EPARTMENT OF S TATE , Washington, May 1, 2000.
T HE P RESIDENT : I have the honor to submit to you the Treaty Be- tween the Government of the United States of America and the Government of the Republic of Honduras Concerning the Encour- agement and Reciprocal Protection of Investment, with Annex and Protocol, signed at Denver on July 1, 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 Honduras is the fourth such treaty signed between the United States and a Central or South American Country. The Treaty is based on the view that an open investment policy contributes to economic growth. This Treaty will assist Honduras in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thereby strengthening the development of its private sector. It is U.S. policy, however, to advise potential treaty partners during BIT negotiations that conclusion of such a treaty does not necessarily result in increases in private U.S. investment flows. To date, 31 BITs are in force for the United States—with Alba- nia, Argentina; Armenia, Bangladesh, Bulgaria, Cameroon, the Re- public of the Congo, the Democratic Republic of the Congo (for- merly Zaire), the Czech Republic, Ecuador, Egypt, Estonia, Geor- gia, Grenada, Jamaica, Kazakhstan, Kyrgyzstan, Latvia, Moldova, Mongolia, Morroco, Panama, Poland, Romania, Senegal, Slovakia, Sri Lanka, Trinidad & Tobago, Tunisia, Turkey, and Ukraine. In addition to the Treaty with Honduras, the United States has signed, but not yet brought into force, BITs with Azerbaijan, Bah- rain, Belarus, Bolivia, Croatia, El Salvador, Jordan, Lithuania, Mo- zambique, Nicaragua, Russia, and Uzbekistan. The Office of the United States Trade Representative and the Department of State jointly led this BIT negotiation, with assist- ance from the Departments of Commerce and Treasury. THE U . S .- HONDURAS TREATY The Treaty with Honduras is based on the 1994 U.S. prototype BIT and satisfies the U.S. principal objectives in bilateral invest- ment treaty negotiations: —All forms of U.S. investment in the territory of Honduras are covered. —Covered investments receive the better of national treat- ment or most-favored-nation (MFN) treatment both while they
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are being established and thereafter, subject to certain speci- fied exceptions. —Specified performance requirements may not be imposed upon or enforced against covered investments. —Expropriation is permitted only in accordance with cus- tomary international law standards. —Parties are obligated to permit the transfer, in a freely us- able currency, of all funds related to a covered investment, subject to exceptions for specified purposes. —Investment disputes with the host government may be brought by investors, or by their covered investments, to bind- ing international arbitration as an alternative to domestic courts. These elements are further described in the following article-by- article analysis of the provisions of the Treaty: Title and Preamble The Title and Preamble state the goals of the Treaty. Foremost is the encouragement and protection of investment. Other goals in- clude economic cooperation on investment issues; the stimulation of economic development; higher living standards; promotion of re- spect for internationally-recognized worker rights; and mainte- nance of health, safety, and environmental measures. While the Preamble does not impose binding obligations, its statement of goals may assist in interpreting the Treaty and in defining the scope of Party-to-Party consultations pursuant to Article VIII. Article I (Definitions Article I defines terms used throughout the Treaty. Company, Company of a Party The definition of ‘‘company’’ is broad, covering all types of legal entities constituted or organized under applicable law, and includes corporations, trusts, partnerships, sole proprietorships, branches, joint ventures, and associations. The definition explicitly cover not- for-profit entities, as well as entities that are owned or controlled by the state. ‘‘Company of a Party’’ is defined as a company con- stituted or organized under the laws of that Party. National The Treaty defines ‘‘national’’ as a natural person who is a na- tional of a Party under its own laws. Under U.S. law, the term ‘‘na- tional’’ is broader than the term ‘‘citizen.’’ For example, a native of American Samoa is a national of the United States, but not a cit- izen. Investment, Covered Investment The Treaty’s definition of investment if broad, recognizing that investment can take a wide variety of forms. Every kind of invest- ment is specifically incorporated in the definition; moreover, it is explicitly noted that investment may consist or take the form of any of a number of interests, claims, and rights. The Treaty provides an illustrative list of the forms an invest- ment may take. Establishing a subsidiary is a common way of mak-
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ing an investment. Other forms that an investment might take in- clude equity and debt interests in a company; contractual rights; tangible, intangible, and intellectual property; and rights conferred pursuant to law, such as licenses and permits. Investment as de- fined by the Treaty generally excludes claims arising solely from trade transactions, such as a sale of goods across a border that does not otherwise involve an investment. The Treaty defines ‘‘covered investment’’ as an investment of a national or company of a Party in the territory of the other Party. An investment of a national or company is one that the national or company owns or controls, either directly or indirectly. Indirect ownership or control could be through other, intermediate compa- nies or persons, 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, or by other arrangements. The broad nature of the definitions of ‘‘investment,’’ ‘‘company,’’ and ‘‘company of a Party’’ means that investments can be covered by the Treaty even if ultimate control lies with non-Party nation- als. A Party may, however, deny the benefits of the Treaty in the limited circumstances described in Article XII. State Enterprise, Investment Authorization, Investment Agreement The Treaty defines ‘‘state enterprise’’ as a company owned, or controlled through ownership interests, by a Party. Purely regu- latory control over a company does not qualify it as a state enter- prise. The Treaty defines an ‘‘investment authorization’’ as an author- ization granted by the foreign investment authority of a Party to be covered investment or a national or company of the other Party. The Treaty defines an ‘‘investment agreement’’ as a written agreement between the national authorities of a Party and a cov- ered 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, na- tional, or company relies upon in establishing or acquiring a cov- ered investment. This definition thus excludes agreements with subnatural authorities (including U.S. States) as well as agree- ments arising from various types of regulatory activities of the na- tional government, including, in the tax area, rulings, closing agreements, and advance pricing agreements. ICSID Convention, Centre, UNCITRAL Arbitration Rules The ‘‘ICSID Convention,’’ ‘‘Centre,’’ and ‘‘UNCITRAL Arbitration Rules’’ are explicitly defined to make the text brief and clear. Article II (Treatment of Investment) Article II contains the Treaty’s major obligations with respect to the treatment of covered instruments. Paragraph 1 generally ensure the better of national or MFN treatment in both the entry and post-entry phases of investment. It thus prohibits, outside of exceptions listed in the Annex, ‘‘screen-
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ing’’ on the basis of nationality during the investment process, as well as nationality-based post-establishment measures. For pur- poses of the Treaty, ‘‘national treatment’’ means treatment no less favorable than that which a Party accords, in like situations, to in- vestments in its territory of its own nationals or companies. For purposes of the Treaty, ‘‘MFN treatment’’ means treatment no less favorable than that which a Party accords, in like situations, to in- vestments in its territory of nationals or companies of a third coun- try. The Treaty obliges each Party to provide whichever of national treatment or MFN treatment is the most favorable. This is defined by the Treaty as ‘‘national and MFN treatment.’’ Paragraph 1 ex- plicitly states that the national and MFN treatment obligation will extend to state enterprises in their provision of goods and services to covered investment. Paragraph 2 states that each Party may adopt or maintain ex- ceptions to the national and MFN treatment standard with respect to the sectors or matters specified in the Annex. Further restrictive measures are permitted in each sector. (The specific exceptions are discussed in the section entitled ‘‘Annex’’ below.) In the Annex, Par- ties may take exceptions only to the obligation to provide national and MFN treatment; there are not sectoral exceptions to the rest of the Treaty’s obligations. Finally, in adopting any exception under this provision, a Party may not require the divestment of a pre- existing covered investment. Paragraph 2 also states that a Party is not required to extend to covered investments national and MFN treatment with respect to procedures provided for in multilateral agreements concluded under the auspices of the World Intellectual Property Organization relating to the acquisition or maintenance of intellectual property rights. This provision clarifies that certain procedural preferences granted under intellectual property conventions, such as the Patent Cooperation Treaty, fall outside the BIT. This exception parallels those in the Uruguay Round’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the North American Free Trade Agreement (NAFTA). Paragraph 3 sets out a minimum standard of treatment based on standards found in customary international law. The obligations to accord ‘‘fair and equitable treatment’’ and ‘‘full protection and secu- rity’’ are explicitly cited, as is each Party’s obligation not to impair, through unreasonable and discriminatory means, the management, conduct, operation, and sale or other disposition of covered invest- ments. The general reference to international law also implicitly in- corporates other fundamental rules of customary international law regarding the treatment of foreign investment. However, this provi- sion does not incorporate obligations based on other international agreements. Paragraph 4 requires that each Party provide effective means of asserting claims and enforcing rights with respect to covered in- vestments. Paragrah 5 ensures the transparency of each Party’s regulation of covered investments.
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Article III (Expropriation) Article III incorporates into the Treaty customary international law standards for expropriation. Article III also includes detailed provisions regarding the computation and payment of prompt, ade- quate, and effective compensation. Paragrah 1 describes the obligations of the Parties with respect to expropriation and nationalization of a covered investment. These obligations apply to both direct expropriation and indirect expro- priation through measures ‘‘tantamount to expropriation or nation- alization’’ and thus apply to ‘‘creeping expropriations’’—a series of measures that effectively amounts to an expropriation of a covered investment without taking title. Paragraph 1 further bars all expropriations or nationalizations except those that are for a public purpose; carried out in a non-dis- criminatory manner; in accordance with due process of law; in ac- cordance with the general principles of treatment provided in Arti- cle II(3); and subject to ‘‘prompt, adequate and effective compensa- tion.’’ Paragraphs 2, 3, and 4 more fully describe the meaning of ‘‘prompt, adequate and effective compensation.’’ The guiding prin- ciple is that the investor should be made whole. Article IV (Compensation for Damage Due to War and Similar Events) Paragraph 1 entitles investments covered by the Treaty to na- tional and MFN treatment with respect to any measure relating to losses suffered in a Party’s territory owing to war or other armed conflict, civil disturbances, or similar events. Paragraph 2, by con- trast, creates an unconditional obligation to pay compensation for such losses when the losses result from requisitioning or from de- struction not required by the necessity of the situation. Article V (Transfers) Article V protects investors from certain government exchange controls that limit current and capital account transfers, as well as limits on inward transfers made by screening authorities and, in certain circumstances, limits on returns in kind. In paragraph 1, each Party agrees to ‘‘permit all transfers relat- ing to a covered investment to be made freely and without delay into and out of its territory.’’ Paragraph 1 also provides a list of transfers that must be allowed. The list is non-exclusive, and is in- tended to protect flows to both affiliated and non-affiliated entities. Paragraph 2 provides that each Party must permit transfers to be made in a ‘‘freely usable currency’’ at the market rate of ex- change prevailing on the date of transfer. ‘‘Freely usable’’ is a term used by the International Monetary Fund; at present there are five ‘‘freely usable’’ currencies: the U.S. dollar, Japanese yen, German mark, French franc, and British pound sterling. In paragraph 3, each Party agrees to permit returns in kind to be made where such returns have been authorized by an invest- ment authorization or written agreement between a Party and a covered investment or a national or company of the other Party. Paragraph 4 recognizes that, notwithstanding the obligations of paragraphs 1 through 3, a Party may prevent a transfer through
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the equitable, non-discriminatory, and good faith application of laws relating to bankruptcy, insolvency, or the protection of the rights of creditors; securities; criminal or penal offenses; or ensur- ing compliance with orders or judgments in adjudicatory pro- ceedings. Article VI (Performance Requirements) Article VI prohibits either Party from mandating or enforcing specified performance requirements as a condition for the establish- ment, acquisition, expansion, management, conduct, or operation of a covered investment. The list of prohibited requirements is ex- haustive and covers domestic content requirements and domestic purchase preferences, the ‘‘balancing’’ of imports or sales in relation to exports or foreign exchange earnings, requirements to export products or services, technology transfer requirements, and re- quirements relating to the conduct of research and development in the host country. Such requirements are major burdens on inves- tors and impair their competitiveness. The last sentence of Article VI makes clear that a Party may, however, impose conditions for the receipt or continued receipt of benefits and incentives. Article VII (Entry, Sojourn, and Employment of Aliens) Paragraph 1 requires each Party to allow, subject to its laws re- lating to the entry and sojourn of aliens, the entry into its territory of the other Party’s nationals for certain purposes related to a cov- ered investment and involving the commitment of a ‘‘substantial amount of capital.’’ This paragraph serves to render nationals of Honduras eligible for treaty-investor visas under U.S. immigration law. It also affords similar treatment for U.S. nationals entering Honduras. The requirement to commit a ‘‘substantial amount of capital’’ is intended to prevent abuse of treaty-investor status; it parallels the requirements of U.S. immigration law. In addition, paragraph 1(b) prohibits labor certification require- ments and numerical restrictions on the entry of treaty-investors. Paragraph 2 requires that each Party allow covered investments to engage top managerial personnel of their choice, regardless of nationality. This provision does not require that such personnel be granted entry into a Party’s territory. Such persons must independ- ently qualify for an appropriate visa for entry into the territory of the other party. Nor does this provision create an exception to U.S. Article VIII provides for prompt consultation between the Par- ties, at either Party’s request, on any matter relating to the inter- pretation or application of the Treaty or to the realization of the Treaty’s objectives. A Party may thus request consultations for any matter reasonably related to the encouragement or protection of covered investment, whether or not a Party is alleging a violation of the Treaty. equal employment opportunity law. Article VIII (State-State Consultations)
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Article IX (Settlement of Disputes Between One Party and a Na- tional or Company of the Other Party) Article IX sets forth several means by which disputes brought against a Party by an investor (specifically, a national or company of the other Party) may be resolved. Article IX procedures apply to an ‘‘investment dispute,’’ which is any dispute arising out of or relating to an investment authoriza- tion, an investment agreement, or an alleged breach of rights con- ferred, created, or recognized by the Treaty with respect to a cov- ered investment. In the event that an investment dispute cannot be settled ami- cably, paragraph 2 gives an investor an exclusive (with the excep- tion in paragraph 3(b) concerning injunctive relief, explained below) choice among three options to settle the dispute. These three options are: (1) submitting the dispute to the courts or ad- ministrative tribunals of the Party that is a party to the dispute; (2) invoking dispute-resolution procedures previously agreed upon by the national or company and the host country government; or (3) invoking the dispute-resolution mechanisms identified in para- graph 3 of Article IX. Under paragraph 3(a), the investor can submit an investment dispute to binding arbitration 3 months after the dispute arises, provided that the investor has not submitted the claim to a court or administrative tribunal of the Party or invoked a dispute resolu- tion procedure previously agreed upon. The investor may choose among the International Centre for Settlement of Investment Dis- putes (ICSID) (Convention Arbitration), the Additional Facility of ICSID (if Convention Arbitration is not available), ad hoc arbitra- tion using the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or any other arbitral in- stitution or rules agreed upon by both parties to the dispute. Before or during such arbitral proceedings, however, paragraph 3(b) provides that an investor may seek, without affecting its right to pursue arbitration under this Treaty, interim injunctive relief not involving the payment of damages from local courts or adminis- trative tribunals of the Party that is a party to the dispute for the preservation of its rights and interests. This paragraph does not alter the power of the arbitral tribunals to recommend or order in- terim measures they may deem appropriate. Paragraph 4 constitutes each Party’s consent to the submission of investment disputes to binding arbitration in accordance with the choice of the investor. Paragraph 5 provides that any non-ICSID Convention arbitration shall take place in a country that is a party to the United Nations Convention on the Recognition and Enforcement of Arbitral Awards. This provision facilitates enforcement of arbitral awards. In addition, in paragraph 6, each Party commits to enforcing ar- bitral awards rendered pursuant to this Article. The Federal Arbi- tration Act (9 U.S.C. 1 et seq.) satisfies the requirement for the en- forcement of non-ICSID Convention awards in the United States. The Convention on the Settlement of Investment Disputes Act of 1966 (22 U.S.C. 1650–1650a) provides for the enforcement of ICSID Convention awards.
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Paragraph 7 ensures that a Party may not assert as a defense, or for any other reason, that the investor involved in the invest- ment dispute has received or will receive reimbursement for the same damages under an insurance or guarantee contract. Paragraph 8 provides that, for the purposes of this article, the nationality of a company in the host country will be determined by ownership or control, rather than by place of incorporation. This provision allows a company that is a covered investment to bring a claim in its own name. Article X (Settlement of Disputes Between the Parties) Article X provides for binding arbitration of disputes between the United States and Honduras concerning the interpretation or appli- cation of the Treaty that are not resolved through consultations or other diplomatic channels. The article specifies various procedural aspects of such arbitration proceedings, including time periods, se- lection of arbitrators, and distribution of arbitration costs between the Parties. The article constitutes each Party’s prior consent to such arbitration. Article XI (Preservation of Rights) Article XI clarifies that the Treaty does not derogate from any obligation a Party might have to provide better treatment to the covered investment than is specified in the Treaty. Thus, the Trea- ty establishes a floor for the treatment of covered investments. A covered investment may be entitled to more favorable treatment through domestic legislation, other international legal obligations, or a specific obligation (e.g., to provide a tax holiday) assumed by a Party with respect to that covered investment. Article XII (Denial of Benefits) Article XII(a) preserves the right of each Party to deny the bene- fits of the Treaty to a company owned or controlled by nationals of a non-Party country with which the denying Party does not have normal economic relations, e.g., a country to which it is applying economic sanctions. For example, at this time the United States does not maintain normal economic relations with, among other countries, Cuba and Libya. Article XII(b) permits each Party to deny the benefits of the Treaty to a company of the other Party if the company is owned or controlled by non-party nationals and if the company has no substantial business activities in the Party where it is established. Thus, the United States could deny benefits to a company that is a subsidiary of a shell company organized under the laws of Hon- duras if controlled by nationals of a third country. However, this provision would not generally permit the United States to deny benefits to a company of Honduras that maintains its central ad- ministration or principal place of business in the territory of, or has a real and continuous link with, Honduras. Article XIII (Taxation) Article XIII excludes tax matters generally from the coverage of the BIT, on the basis that tax matters should be dealt with in bi- lateral tax treaties. However, Article XIII does not preclude a na-
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tional or company from bringing claims under Article IX that tax- ation provisions in an investment agreement or authorization have been violated. In addition, the dispute settlement provisions of Ar- ticle IX and X apply to tax matters in relation to alleged violations of the BIT’s expropriation article. Under paragraph 2, a national or company that asserts in a dis- pute that a tax matter involves expropriation may submit that dis- pute to arbitration pursuant to Article IX(3) only if (1) the investor has first referred to the competent tax authorities of both Parties the issue of whether the tax matter involves an expropriation, and (2) the tax authorities have not both determined, within 9 months from the time of referral, that the matter does not involve an ex- propriation. The ‘‘competent tax authority’’ of the United States is the Assistant Secretary of the Treasury for Tax Policy, who will make such a determination only after consultation with the Inter- Agency Staff Coordinating Group on Expropriations. Article XIV (Measures Not Precluded) The first paragraph of Article XIV reserves the right of a Party to take measures for the fulfillment of its international obligations with respect to maintenance or restoration of international peace or security, as well as those measures it regards as necessary for the protection of its own essential security interests. Under paragraph 3 of the Protocol to the Treaty, the parties ex- pressed their understanding that international obligations with re- spect to maintenance or restoration of peace or security means obli- gations under the United Nations Charter. The pertinent portion of the Charter is Chapter VII ‘‘Action with Respect to Threats to the Peace, Breaches of the Peace, and Acts of Aggression.’’ Meas- ures permitted by the provision on the protection of a Party’s es- sential security interests would include security-related actions taken in time of war or national emergency. Actions not arising from a state of war or national emergency must have a clear and direct relationship to the essential security interests of the Party involved. Measures to protect a Party’s essential security interests are self-judging in nature, although each Party would expect the provisions to be applied by the other in good faith. The second paragraph permits a Party to prescribe special for- malities in connection with covered investments, provided that these formalities do not impair the substance of any Treaty rights. Such formalities could include reporting requirements for covered investments or for transfers of funds, or incorporation require- ments. Article XV (Application to Political Subdivisions and State Enter- prises of the Parties) Paragraph 1(a) makes clear that the obligations of the Treaty are applicable to all political subdivisions of the Parties, such as pro- vincial, State, and local governments. Paragraph 1(b) recognizes that under the U.S. federal system, States of the United States may, in some instance, treat out-of- State residents and corporations in a difference manner than they treat in-State residents and corporations. The Treaty provides that the national treatment committee, with respect to the States,
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means treatment no less favorable than that provided by a State to U.S. out-of-State residents and corporations. Paragraph 2 extends a Party’s obligations under the Treaty to its state enterprises in the exercise of any delegated governmental au- thority. This paragraph is designed to clarify that the exercise of governmental authority by a state enterprise must be consistent with a Party’s obligations under the Treaty. Article XVI (Entry Into Force, Duration, and Termination) Paragraph 1 stipulates that the Treaty enters into force 30 days after exchange of instruments of ratification. The Treaty remains in force for a period of 10 years and continues in force thereafter unless terminated by either Party as provided in paragraph 2. Paragraph 2 permits a Party to terminate the Treaty at the end of the initial 10 year period, or at any later time, by giving 1 year’s written notice to the other Party. Paragraph 1 also provides that the Treaty applies to covered investments existing at the time of entry into force as well as to those established or acquired there- after. The Treaty does not state an intention by the Parties to apply the Treaty’s provisions retroactively. Thus, under customary international law, the Treaty does not apply to disputes with re- spect to acts or facts which took place before the Treaty came into force or to any situation which ceased to exist before the date of entry into force of the Treaty. Paragraph 3 provides that, if the Treaty is terminated, all invest- ments that qualified as covered investments on the date of termi- nation (i.e., 1 year after the date of written notice of termination) continue to be protected under the Treaty for 10 years from that date as long as these investment qualify as covered investments. A Party’s obligations with respect to the establishment and acquisi- tion of investments would lapse immediately upon the date of ter- mination of the Treaty. Paragraph 4 stipulates that Annex and Protocol shall form an in- tegral part of the Treaty. Annex U.S. bilateral investment treaties allow for exceptions to national and MFN treatment, where the Parties’ domestic regimes do not af- ford national and MFN treatment, or where treatment in certain sectors or matters is negotiated in and governed by other agree- ments. Future derogations from the national treatment obligations of the Treaty are generally permitted only in the sectors or matters listed in the Annex, pursuant to Article II(2), and must be made on an MFN basis unless otherwise specified therein. Under a number of statutes, many of which have a long histor- ical background, the U.S. federal government or States may not necessarily treat investments of nationals or companies of Hon- duras as they do U.S. investments or investments from a third country. Paragraphs 1 through 3 of the Annex list the sectors or matters subject to U.S. exceptions. The U.S. exceptions from its national treatment obligation are: atomic energy; customhouse brokers; licenses for broadcast, com- mon carrier, or aeronautical radio stations; COMSAT; subsidies or grants, including government-supported loans, guarantees, and in-
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surance; State and local measures exempt from Article 1102 of the North American Free Trade Agreement pursuant to Article 1108 thereof; and landing of submarine cables. The U.S. exceptions from its national and MFN treatment obliga- tion are: fisheries; and air and maritime transport, and related ac- tivities. During negotiations, the United States informed Honduras that if Honduras undertook acceptable commitments with respect to all or certain financial services, the United States would consider lim- iting its exceptions with respect to its national and MFN treatment obligations in financial services. Honduras offered to take no exceptions to the treaty’s national or MFN treatment obligations with respect to banking, insurance, securities, and other financial services. Therefore in paragraph 3 of the Annex, the United States limited its exceptions with respect to banking, insurance, securities, and other financial services to afford treatment no less favorable than that accorded with respect to Can- ada and Mexico in the North American Free Trade Agreement. Paragraph 4 of the Annex lists Honduras’ exceptions from its na- tional treatment obligation, which are: properties on cays, reefs, rocks, shoals or sandbanks or on islands or on any property located within 40 km of the coastline of land borders of Honduras; small scale industry and commerce with total invested capital of no more than US $40,000 or its equivalent in national currency; ownership, operation and editorial control of broadcast radio and television; ownership, operation and editorial control of general interest peri- odicals and newspapers published in Honduras. Honduras has taken no exception to its MFN treatment obliga- tion. Paragraph 5 of the Annex ensures that national treatment is granted by each Party in all leasing of minerals or pipeline rights- of-way on government lands. In so doing, this provision affects the implementation of the Mineral Lands Leasing Act (MLLA) (30 U.S.C. 181 et seq.) and 10 U.S.C. 7435, regarding Naval Petroleum Reserves, with respect to nationals and companies of Honduras. The Treaty provides for resort to binding international arbitration to resolve disputes, rather than denial of mineral rights or rights to naval petroleum shares to investors of the other Party, as is the current process under the statute, U.S. domestic remedies, would, however, remain available for use in conjunction with the Treaty’s provisions. The MLLA and 10 U.S.C. 7435 direct that a foreign investor be denied access to leases for minerals on on-shore federal lands, leases of land within the Naval Petroleum and Oil Shale Reserves, and rights-of-way for oil or gas pipelines across on-shore federal lands, if U.S. investors are denied access to similar or like privi- leges in the foreign country. Honduras’ extension of national treatment in these sectors will fully meet the objectives of the MLLA and 10 U.S.C. 7435. Hon- duras was informed during negotiations that, were it to include this sector in its list of treatment exemptions, the United States would (consistent with the MLLA and 10 U.S.C. 7435) exclude the leasing of minerals or pipeline rights-of-way on Government lands from the national and MFN treatment obligations of this Treaty.
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The listing of a sector or matter in the Annex does not nec- essarily signify that domestic laws have entirely reserved it for na- tionals. And, pursuant to Article II(2), any additional restrictions or limitations that a Party may adopt with respect to listed sectors or matters may not compel the divestiture of existing covered in- vestments. Finally, listing a sector or matter in the Annex exempts a Party only from the obligation to accord national or MFN treatment. Both Parties are obligated to accord to covered investments in all sec- tors—even those listed in the Annex—all other rights conferred by the Treaty. Protocol Paragraph 1 of the Protocol clarifies that Honduras may restrict transfers under Article V(4)(a) through the application of portions of its labor laws designed to protect the rights of creditors so long as those laws are applied in an equitable, non-discriminatory, and good faith manner. In paragraph 2, Honduras clarified that, notwithstanding its ex- ception to its national treatment obligation with respect to ‘‘prop- erties on cays, reefs, rocks, shoals or sandbanks or on islands or on any property located within 40 km of the coastline or land bor- ders of Honduras,’’ in considering applications by U.S. nationals or companies to possess or acquire real property within urban zones of these areas, Honduras will not reject or unduly delay such deci- sions on the basis of nationality. As described under Article XIV, paragraph 3 states that, with re- spect to Article XIV, ‘‘obligations with respect to the maintenance or restoration of international peace or security’’ means obligations under the Charter of the United Nations. Paragraph 4 clarifies that nothing in Article XIV(1) authorizes ei- ther Party to take measures in the territory of the other Party with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests. The other U.S. Government agencies that participated in negoti- ating the Treaty join me in recommending that it be transmitted to the Senate at an early date. Respectfully submitted. M ADELEINE A LBRIGHT .
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THEATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF Al1ERICA il.ND THE GOVERNNENT OF THE REPUBLIC OF HONDURAS CONCERNING THE ENCOURAGEr,jENT AND RECIPROCAL PROTECTION OF INVESTNENT
The Government of the United States of America and the GOvernment of the Republic of Honduras (hereinafter the "Parties"); Desiring to promote greater economic cooperation between them, with to investment by nationals and companies of one Party in territory of the other Party;
treatmeat to be
the flow of private
ecoaomic development of the Parties;
reeing that a stable framework for investment will ze effective utilization of economic resources and
improve living standards;
Recognizing that the development of economic and business ties can promote respect fer internationally recognized worker rights;
Agreeing that these relaxing health, safety application; and
ectives can be achieved without environmental measures of general
Having resolved to conclude a Treaty concerning the encouragement and reciprocal protection of investment;
Have agreed as follows:
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For the purposes of this Treaty,
(a) "company· means any entity constituted or organized under applicable law, whether or not for profit, and whether privately or governmentally owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, branch, joint venture, association, or other organizationi
(b) "company of a Party" means a company constituted
or organized under the laws of that Party;
(cl "national" of a Party means a natural person who
is a national of that Party under its applicable law;
(d) "investment" of a national or company means every kind of investment owned or controlled directly or indirectly by that national or company, and includes investment consisting or taking the form of:
(i) a company;
(ii) shares, stock, and other forms of equity participation, and bonds, debentures, and other forms of debt interests, in a company; (iii) contractual rights, such as under turnkey, construction or management contracts, production or revenue-sharing contracts, concessions, or other simila contracts; (iv) tangible property, including real property; and intangible property, including rights, such as leases, mortgages, liens and pledges;
(v) intellectual property, including:
copyrights and related rights,
rights in plant varieties,
rights in semiconductor layout designs,
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trade secrets, including know-how and confidential business information,
trade and service marks, and
trade names; and
(vi) rights conferred pursuant to law, such as licenses and permits;
(e) "covered investment" means an investment of a national or company of a Party in the territory of the other Party;
(f) "state enterprise" means a company owned. or
controlled through ownership interests, by a Party;
(g) "investment authorization" means an authorization granted by the foreign investment authority of a Party to a covered investment or a national or company of the other Party; (h) "investment agreement" means a written agreement between the nationa: authorities of a Party and a covered investment or a national or company of the other Party that (i) grants rights with respect to natural resources or other assets controlled the national authorities and (ii) the investment, nationa or company relies upon in establishing or acquiring a covered investment. (i) "TCSID Convention" means the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, done at Washington, March 18, 1965; (j) ,"Centre" means the International Centre for Settlement of Investment Disputes Established by the reSID Convention; and (k) "UNCITRAL Arbitration Rules" means the arbitration rules of the united Nations Commission on International Trade Law.
1. With respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of covered investments, each Party shall accord treatment no less favorable than that it accords, in like situations, to investments in its territory of its own nationals or companies (hereinafter "national treatment") or to investments in its territory of nationals or companies of a
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third country (hereinafter "most favored nation treatment"), whichever is most favorable (hereinafter "national and most favored nation treatment"). Each Party shall ensure that its state enterprises, in the provision of their goods or services, accord national and most favored nation treatment to covered investments. (a) A Party may adopt or maintain exceptions to the Obligations of paragraph 1 in the sectors or with respect to the matters specified in the Annex to this Treaty. In adopting such an exception, a Party may not require the divestment, in whole or in part, of covered investments existing at the time the exception becomes effective. 2. (b) The obligations of paragraph 1 do not apply to procedures provided in multilateral agreements concluded under the auspices of the World Intellectual Property Organization relating to the acquisition or maintenance of intellectual property rights. (a) Each Party shall at all times accord to covered investments fair and equitable treatment and full protection and security, and shall in no case accord treatment less favorable than that required by international law. 3. (b) Neither Party shall in any way impair by unreusonable and discriminatory measures the management, conduct, opera~ion, and sale or other disposition of covered investments. 4. Each Party shall provide effective means of asserting claims and enforcing rights with respect to covered investments. 5. Each Party shall ensure that its laws, regulations, administrative practices and procedures of general application, and adjudicatory decisions, that pertain to or affect covered investments are promptly published or otherwise made publicly available.
1. Neither Party shall expropriate or nationalize a covered investment either directly or indirectly through measures tantamount to expropriation or nationalization ("expropriation") except for a public purpose; in a non- discriminatory 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) .
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sha I be paid without delay; be
equivalent the fair market value of the expropriated investment immediately before the expropriatory action was taken ("the date of expropriation"); and be fully realizable and freely transferable. The fair market value shall not reflect any change in value occurring because the expropriatory action had become known before'the date of expropriation.
If the fair mar~et value is denominated in a freely
usable currency, the compensation the fair market value on the date
id shall be no ·less than
expropriation, plus interest at a commercially reasonable rate for that currency, accrued from the date of expropriation until the date of payment. 4. If the fair market value is denominated in a currency that is not freely usable, the compensation paid -- converted into the currency of payment at the market rate of exchange prevailing on the date of payment -- shall be no less than: (a) the fair market value on the date of expropriation, converted into a freely usable currency at the market rate of exchange prevailing on that date, plus
(b) interest, at a commercially reasonable rate for
that freely usable currency, accrued from the date of Gxpropriation until the date of payment.
1. Each Party shall accord national and most f.avored nation treatment to covered investments as regards any measure relating to losses that investments suffer in its territory owing to war or other armed conflict, revolutirin, state of national emergency, insurrection, civil disturbance, or similar events. through 4 of Article III, in the event that covered investments suffer losses in its territory, owing to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance, or similar events, that result from: 2. Each Party shall accord restitution, or pay compensation in accordance with paragraphs
(a) requisitioning of all or part of such investments
by the Party's forces or authorities, or
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(b) destruction of all or part of such investments by the Party's forces or authorities that was not required by the necessity of the situation.
1. Each Party shall permit all transfers relating to a covered invest~ent to be made freely and without delay into and out of its territory. Such transfers include:
(a) contributions to capital;
(b) profits, dividends, capital gains, and proceeds from the sale of all or any part of the investment or from the partial or complete liquidation of the investment;
(c) interest, royalty payments, management fees, and
technical assistance and other fees;
(d) payments made under a contract, including a loan
(e) compensation pursuant to Articles III and IV, and
payments arising out of an investment dispute.
2. Each Party shall permit transfers to be made in a freely usable currency at the market rate of exchange prevailing on the date of transfer. 3. Each Party shall permit returns in kind to be made as authorized or specified in an investment authorization, investment agreement, or other written agreement between the Party and a covered investment or a national or company of the other Party. 4. Notwithstanding paragraphs 1 through 3, a Party may prevent a transfer through the equitable, non-discriminatory and good faith application of its laws relating to:
(a) bankruptcy, insolvency or the protection of the
rights of creditors;
(b) issuing, trading or dealing in securities;
(c) criminal or penal offenses; or
(d) ensuring compliance with orders or jUdgments in
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