[Senate Treaty Document 104-12]
[From the U.S. Government Publishing Office]



   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




 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.
    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 investments. This 
paragraph 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 its obligations to 
such investments.
    Paragraph 4 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 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, regulations, 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.
    Paragraph 11 is designed to avoid problems that U.S. 
businesses may face in emerging market economies. This 
provision makes clear that nationals and companies of either 
Party receive the better of national or MFN treatment with 
respect to a detailed list of activities associated with their 
investments.

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 
obligations of the Parties with respect to expropriation and 
nationalization. These rights also apply 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 an investment without taking of the title to the 
investment.
    Paragraph 1 further bars all expropriations or 
nationalizations except those that are for a public purpose; 
carried out in a non-discriminatory manner; subject to 
``prompt, adequate, and effective compensation''; subject to 
due process; and accorded the treatment provided in the 
standards of Article II, paragraph 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 the expropriation and any compensation 
conform to international law.
    Paragraph 3 entitles investors to the better of national or 
MFN treatment with respect to losses related to war or civil 
disturbances, but, unlike paragraph 1, does not specify an 
absolute obligation 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 I); 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 principal and 
interest payments on a loan; proceeds from the liquidation or 
sale 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, an investment agreement, or to rights 
granted by the Treaty with respect to an investment.
    When a dispute arises, Article VI, paragraph 2, 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. Paragraph 2 permits the investor to: (1) 
employ one of the several arbitration procedures outlined in 
the Treaty; (2) submit the dispute to procedures previously 
agreed upon by the investor and the host country government in 
an investment agreement or otherwise; or (3) submit the dispute 
to the local courts or administrative tribunals of the host 
country.
    Under paragraph 3, if the investor has not submitted the 
dispute under the procedures in paragraph 2 and six months have 
elapsed from the date the dispute arose, the investor may 
choose among the International Centre for the Settlement of 
Investment Disputes (ICSID) Convention arbitration, or the 
ICSID Additional Facility (if Convention arbitration is not 
available), or ad hoc arbitration using the Arbitration Rules 
of the United Nations Commission on International Trade Law 
(UNCITRAL). Paragraph 3 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 
the Republic of Latvia to the submission of investment disputes 
to binding arbitration in accordance with the choice of the 
investor.
    Paragraph 5 provides that a 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 Foreign Arbitral Awards. This requirement 
expands the ability of investors to obtain enforcement of their 
arbitral awards aboard. 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 he 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 there is a dispute.

Article VII (State-State arbitration)

    Article VII provides for binding arbitration of disputes 
between the United States and the Republic of Latvia that are 
not resolved through consultations or other diplomatic 
channels. The article constitutes each Party's prior consent to 
arbitration. It provides for the selection of arbitrators, 
establishes time limits for submissions, and requires the 
Parties to bear the costs equally, unless otherwise directed by 
the Tribunal.
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)

    Paragraph 1 of Article IX reserves the right of a Party to 
take measures for the maintenance of public order and the 
fulfillment of its 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 police powers to ensure public 
health and safety. International obligations with respect to 
peace and security would include, for example, obligations 
arising out of Chapter VII of the United Nations 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 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)

    Paragraph 1 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 Treaty, based on the assumption that tax matters 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.
    Pursuant to paragraph 2, 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 the Treaty is 
terminated, all existing investments would continue to be 
protected under the Treaty for ten years thereafter.

Annex

    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 Annex 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, 
securities, and other financial services; government grants; 
government insurance and loan programs; energy and power 
production; custom house 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; and maritime and maritime-related 
services.
    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 could deny both national and MFN 
treatment.
    The United States 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 Annex; 
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.
    Because the U.S. exceptions to national treatment and MFN 
treatment are based on existing U.S. law, they are not altered 
during negotiations.
    The Republic of Latvia's exceptions to national treatment 
are: control of defense industries; manufacturing and sales of 
narcotics, weapons and explosives; control of newspapers, 
television and radio broadcasting stations, or news agencies; 
recovery of all renewable and non-renewable natural resources 
including resources found on the continental shelf; fishing; 
hunting; port management; banking; ownership and control of 
land; brokerage of real property; and gambling. These 
exceptions were based on provisions of investment measures 
currently in force or under active consideration by the 
Government of the Republic of Latvia. The Republic of Latvia 
has not reserved any sectoral exceptions to MFN treatment in 
the Annex.

Protocol

    In a Protocol to the Treaty, the two sides clarify that 
despite Latvia's inclusion of ``ownership and control of land'' 
in paragraph 3 of the Annex, current Latvian legislation 
permits foreign investors to own or control land in ``urban'' 
areas, as defined under Latvian laws.
    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,
                                                    Strobe Talbott.