[Senate Treaty Document 104-13]
[From the U.S. Government Publishing Office]



   104th Congress 1st            SENATE              Treaty Doc.
         Session
                                                        104-13
_______________________________________________________________________



                                     



 
                     INVESTMENT TREATY WITH GEORGIA

                               __________

                                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 GEORGIA CONCERNING THE ENCOURAGEMENT 
     AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX SIGNED AT 
                      WASHINGTON ON MARCH 7, 1994




 July 10, 1995.--Treaty was read for 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 Georgia Concerning the 
Encouragement and Reciprocal Protection of Investment, with 
Annex, signed at Washington on March 7, 1994. 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 Georgia was the 
eighth such treaty between the United States and a newly 
independent state of the former Soviet Union. The Treaty is 
designed to protect U.S. investment and assist the Republic of 
Georgia in its efforts 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 
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 related 
to investments; freedom of investments from performance 
requirements; fair, equitable, and most-favored-nation 
treatment; and the investor of 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, at an early date.

                                                William J. Clinton.
  
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                         Washington, June 22, 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 Georgia Concerning the 
Encouragement and Reciprocal Protection of Investment signed at 
Washington on March 7, 1994. I recommend that this Treaty be 
transmitted to the Senate for its advice and consent to 
ratification.
    The bilateral investment treaty (BIT) with Georgia was the 
eighth such treaty between the United States and a newly 
independent state of the former Soviet Union. The United States 
had previously concluded BITs with Russia, Armenia, Belarus, 
Kazakhstan, Kyrgyzstan, Moldova and Ukraine; and has 
subsequently signed a treaty with Uzbekistan. The Treaty is 
based on the view that an open investment policy contributes to 
economic growth. This Treaty will assist the Republic of 
Georgia in its efforts to develop its economy by creating 
conditions more favorable for U.S. private investment and thus 
strengthen 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 doe 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 Georgia, the United States has signed, but not 
yet brought into force, BITs with Albania, Armenia, Belarus, 
Ecuador, Estonia, Haiti, Jamaica, Latvia, Mongolia, Russia, 
Trinidad and Tabago, 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.

                        the u.s.-georgia treaty

    The Treaty with the Government of the Republic of Georgia 
is based on the 1994 U.S. prototype BIT and satisfies the 
United States' principal objectives in bilateral investment 
treaty negotiations:
          --All forms of U.S. investment in the territory of 
        the Republic of Georgia are covered.
          --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 covered investments.
          --Expropriation can occur only in accordance with 
        international law standards: that is, for a public 
        purpose; in a nondiscriminatory manner; in accordance 
        with due process of law; and upon payment of prompt, 
        adequate, and effective compensation.
          --The unrestricted transfer, in a freely usable 
        currency, of funds related to a covered 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.-Georgia Treaty does not differ in any significant 
way from the 1994 prototype. The following is an 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 include economic cooperation on investment issues; 
the stimulation of economic development; higher living 
standards; promotion of respect for internationally-recognized 
worker rights; and maintenance 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 consultation procedures pursuant to Article VIII.
Article I (Definitions)

    Article I defines terms used throughout the Treaty. In 
general, the definitions are designed to be broad and inclusive 
in nature.
            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 covers charitable and 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 
constituted or organized under the laws of that Party.
            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.
            Investment, Covered Investment
    The Treaty's definition of investment is broad, recognizing 
that investment can take a wide variety of forms. Every kind of 
investment 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. Establishing a subsidiary is a common way of making an 
investment. Other forms that an investment might take include 
equity and debt interests in a company; contractual rights; 
tangible, intangible, and intellectual property; and rights 
conferred pursuant to law. Investment as defined 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 companies or persons, including those of 
third countries. Control is not specifically defined in the 
Treaty; ownership of over fifty 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 nationals. 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 
regulatory control over a company does not qualify it as a 
state enterprise.
    The Treaty defines an ``investment authorization'' as an 
authorization granted by the foreign investment authority of a 
Party to a covered investment or a national or company of the 
other Party. There is currently no such foreign investment 
authority in the Republic of Georgia.
    The Treaty defines an ``investment agreement'' as a written 
agreement between the national authorities of a Party and a 
covered investment or a national or company of the other Party 
that (1) grants rights with respect to natural resources or 
other assets controlled by the national authorities and (2) the 
investment, national, or company relies upon in establishing or 
acquiring a covered investment. This definition thus excludes 
agreements with subnational authorities (including U.S. States) 
as well as agreements arising from various types of regulatory 
activities of the national government, including, in the tax 
area, 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 investments.
    Paragraph 1 generally ensures 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, ``screening'' on the basis of nationally during the 
investment process, as well as nationality-based post-
establishment measures. For purposes of the Treaty, ``national 
treatment'' means treatment no less favorable than that which a 
Party accords, in like situations, to investments 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 
investments in its territory of nationals or companies of a 
third country. ``National and MFN treatment'' is defined as 
whichever of national treatment or MFN treatment is the most 
favorable. Paragraph 1 explicitly states that the national and 
MFN treatment obligation will extend to state enterprises in 
their sale of goods and services.
    Paragraph 2 states that the Parties may adopt or maintain 
exceptions to the national and MFN treatment standard with 
respect to the sectors or matters specified in the Annex. In 
principle, further restrictive measures are permitted in each 
sector. The careful phrasing and narrow drafting of these 
exceptions is therefore important. (The specific exceptions are 
discussed in the section entitled ``Annex'' below.) In the 
Annex, Parties may take exceptions only to the obligation to 
provide national and MFN treatment; there are no 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 preexisting covered investment.
    Paragraph 2 also states that a Party is not required to 
extend to covered investments national or 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 existing 
conventions, such as the Patent Cooperation Treaty, fall 
outside the BIT. This exception parallels the Uruguay Round's 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) 
agreement and the North American Free Trade Agreement (NAFTA). 
This provision complements the more specific IPR-related 
provisions contained in the U.S.-Georgia Bilateral Trade 
Agreement.
    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 security'' are explicitly cited, as in 
the Parties' obligation not to impair, through unreasonable and 
discriminatory means, the management, conduct, operation, and 
sale or other disposition of covered investments. The general 
reference to international law also implicitly incorporates 
other fundamental rules of international law: for example, that 
sovereignty may not be grounds for unilateral revocation or 
amendment of a Party's obligations to investors and investments 
(especially contracts), and that an investor is entitled to 
have any expropriation done in accordance with previous 
undertakings of a Party.
    Paragraph 4 requires that each Party provide effective 
means of asserting claims and enforcing rights with respect to 
covered investments.
    Paragraph 5 ensures the transparency of each Party's 
regulation of covered investments.

Article III (Expropriation)

    Article III incorporates into the Treaty 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 and obligations also apply to 
direct or indirect measures ``tantamount to expropriation or 
nationalization'' and thus apply to ``creeping 
expropriations''--a series of measures which effectively amount 
to an expropriation of a covered investment without taking 
title.
    Paragraph 1 further bars all expropriations or 
nationalization except those that are for a public purpose; 
carried out in a non-discriminatory manner; in accordance with 
due process of law; in accordance with the general principles 
of treatment provided in Article II(3); and subject to 
``prompt, adequate, and effective compensation.''
    Paragraphs 2, 3, and 4 more fully describe the meaning of 
``prompt, adequate, and effective compensation.'' The guiding 
principle is that the investor should be made whole.
Article IV (Compensation for Damages Due to War and Similar Events)

    Paragraph 1 entitles investments covered by the Treaty to 
the better of national or 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. The unconditional obligation to pay 
compensation for such losses only arises when the losses result 
from requisitioning or from destruction 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 limits on returns in kind.
    In paragraph 1, each Party agrees to permit ``transfers 
relating 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 intended 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 exchange prevailing on the date of transfer. ``Freely 
usable'' is a term used by 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.
    In paragraph 3, each Party agrees to permit returns in kind 
to be made where such returns have been authorized by an 
investment authorization or written agreement between a Party 
and a covered investment.
    Paragraph 4 recognizes that, notwithstanding the guarantees 
of paragraphs 1 through 3, a Party may prevent a transfer 
through the equitable, non-discriminatory and good faith 
enforcement of judicial orders and judgments, or application of 
laws relating to such matters as bankruptcy, securities, or 
criminal or penal offenses.

Article VI (Performance Requirements)

    Article VI prohibits either Party from mandating or 
enforcing performance requirements in connection with a covered 
investment. The list of prohibited requirements includes the 
use of local goods, the export of goods or services, the 
``balancing'' of imports and exports, the transfer of 
technology, or the conduct of research in the host country. 
Such requirements are major burdens on investors and impair 
their competitiveness.
    A Party may, however, impose conditions for receipt, or 
continued receipt, of an advantage--e.g., eligibility for 
programs maintained by the U.S. Export-Import Bank and other 
similar institutions.

Article VII (Entry, Sojourn and Employment of Aliens)

    Paragraph 1 requires each Party to allow, subject to its 
immigration laws and regulations, the entry into its territory 
of the other Party's nationals for certain purposes related to 
a covered investment and involving the commitment of a 
``substantial amount of capital.'' This paragraph serves to 
render nationals of Georgia eligible for treaty-investor visas 
under U.S. immigration law. It also guarantees similar 
treatment for U.S. nationals entering the Republic of Georgia. 
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 
requirements and numerical restrictions on investor-visas.
    Paragraph 2 requires that each Party allow covered 
investments to engage top managerial personnel of their choice, 
regardless of nationality.

Article VIII (State-State Consultations)

    Article VIII provides for prompt consultation between the 
Parties, at either Party's request, on any matter relating to 
the interpretation 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.
Article IX (Settlement of Disputes Between One Party and a National or 
        Company of the other Party)

    Article IX sets forth several means by which disputes 
between an investor and a Party may be settled.
    Article IX procedures apply to an ``investment dispute,'' 
which covers any dispute arising out of or relating to an 
investment authorization, an investment agreement, or an 
alleged breach of rights granted or recognized by the Treaty 
with respect to a covered investment.
    Paragraph 2 gives a national or company an exclusive (with 
the exception 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 administrative tribunals of the Party that is a 
party to the dispute; \1\ (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 provided for in paragraph 3 of Article 
IX.
    Under paragraph 3(a), the investor can submit an investment 
dispute to binding arbitration three 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 resolution procedure previously agreed upon in an 
investment agreement. The investor may choose among the 
International Centre for Settlement of Investment Disputes 
(ICSID) (Convention Arbitration), the Additional Facility of 
ICSID (if Convention Arbitration is not available), ad hoc 
arbitration using the Arbitration Rules of the United Nations 
Commission on International Trade Law (UNCITRAL), or any other 
arbitration institution or rules agreed upon by both parties to 
the dispute.
    Before or during such arbitral proceedings, however, 
paragraph 3(b) provides that a national or company many seek, 
without affecting its right to pursue arbitration under this 
Treaty, interim injunctive relief not involving the payment of 
damages from local courts or administrative tribunals for the 
preservation of its rights and interests. This paragraph does 
not alter the power of the arbitral tribunals to recommend or 
order interim 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 national or company.
    Paragraph 5 provides that any non-ICSID 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 expands the ability of investors to 
obtain enforcement of arbitral awards.
    In addition, in paragraph 6, each Party commits to 
enforcing arbitral awards rendered pursuant to this Article. 
The Federal Arbitration Act (9 U.S.C. 1 et seq.) satisfies the 
retirement for the enforcement of non-ICSID 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 awards.
    Paragraph 7 ensures that a Party may not assert as a 
defense, or for any other reason, that the company or national 
involved in the investment dispute has received or will receive 
reimbursement for the same damages under an insurance or 
guarantee contract.
    Paragraph 8 ensures that for any arbitration, including 
ICSID Convention Arbitration, the nationality of a company in 
the host country will be determined by ownership or control, 
rather than by place of incorporation. This ensures that a 
claim may be brought by an investor's subsidiary in the host 
country.

Article X (Settlement of Disputes Between the Parties)

    Article X provides for binding arbitration of disputes 
between the United States and the Republic of Georgia that are 
not resolved through consultations or other diplomatic 
channels. The article constitutes each Party's prior consent to 
arbitration.

Article XI (Preservation of Rights)

    Article XI clarifies that the Treaty does not derogate form 
any obligation a Party might have to provide better treatment 
to the covered investment than is specified in the Treaty. 
Thus, the Treaty establishes a floor for the treatment of 
covered investments. An investor 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 investor.
Article XII (Denial of Benefits)

    Article XII(a) preserves the right of each Party to deny 
the benefits of the Treaty to firms 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 or 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 which is a subsidiary of a shell company organized 
under the laws of the Republic of Georgia but controlled by 
nationals of a third country. However, this provision would not 
generally permit the United States to deny benefits to an 
investment of the Republic of Georgia that maintains its 
central administration or principal place of business in the 
territory of, or has a real and continuous link with, the 
Republic of Georgia.

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 bilateral tax treaties. However, Article XIII 
does not preclude a national or company from bringing claims 
under Article IX that taxation provisions in an investment 
agreement or authorization have been violated, or that tax 
matters resulted in, or constituted, an expropriation of a 
covered investment.
    Under paragraph 2, a national or company that asserts in a 
dispute that a tax matter involves expropriation may submit 
that dispute 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 nine months from the time of referral, 
that the matter does not involve expropriation. The ``competent 
tax authority'' of the United States is the Assistant Secretary 
of the Treasury for International Tax Policy, who will make his 
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 international peace and security, 
as well as those measures it regards as necessary for the 
protection of its own essential security interests.
    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 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. These provisions are common in international 
investment agreements.
    The second paragraph permits a Party to prescribe special 
formalities 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 requirements.

Article XV (Application to Political Subdivisions and State Enterprises 
        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 provincial, State and local governments.
    Paragraph 1(b) 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 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 
authority. 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)

    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 all activities of both Parties with respect to 
preexisting and newly established investments alike. After this 
ten-year term, the Treaty will continue in force unless 
terminated. If the Treaty is terminated, all investments that 
qualified as covered investments on the date of termination 
(i.e., one year after written notice) continue to be protected 
under the Treaty for ten years from that date as long as these 
investments qualify as covered investments. Such coverage would 
continue to extend fully to such an investment as it grew--
whether by reinvestment, expansion, or merger.
    A Party's obligations to accord the right to establish or 
acquire investments would lapse immediately upon the date of 
termination of the Treaty.
    Paragraph 4 stipulates that the Annex shall form an 
integral part of the Treaty.

Annex

    U.S. bilateral investment treaties allow for exceptions to 
national and MFN treatment because the Parties' domestic 
regimes may provide for derogations from national and MFN 
treatment, and because treatment in certain sectors and matters 
is negotiated in and governed by other agreements. 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 
historical background, the U.S. federal government or States 
may not necessarily treat investments of nationals or companies 
of Georgia as they do U.S. investments or investments from a 
third country. Paragraph 1 through 3 of the Annex list the 
sectors or matters affected by such statutes.
    The U.S. exceptions from its national treatment commitments 
are: atomic energy; customhouse brokers; licenses for 
broadcast, common carrier, or aeronautical radio stations; 
COMSAT; subsidies or grants, including government supported 
loans, guarantees, and insurance; 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 United States excludes fisheries; air and maritime 
transport, and related activities; and banking, insurance, 
securities, and other financial services from its most-favored-
nation and national treatment commitments.
    Paragraph 3 of the Annex lists Georgia's exceptions to 
national treatment, which are: fisheries; air and maritime 
transport, and related activities; ownership of broadcast, 
common carrier, or aeronautical radio stations; communications 
satellites; government-supported loans, guarantees, and 
insurance; landing of submarine cables; and for three years 
from the date of entry into force of this Treaty, banking, 
insurance, securities, and other financial services. While 
Georgia has, and will maintain for up to three years after the 
Treaty enters into force, national treatment exceptions in 
financial services, it has undertaken in the BIT to remove such 
barriers to U.S. investment after that time. These exceptions 
are based on current Georgian law or regulations. The Republic 
of Georgia has not reserved any sectoral exceptions to MFN 
treatment in the Annex.
    Paragraph 4 of the Annex ensures that reciprocal national 
treatment is granted in all leasing of minerals or pipeline 
rights-of-way on Government lands. In creating this positive 
right to reciprocal national treatment, this provision affects 
the implementation of the Mineral Lands Leasing Act (MLLA) and 
10 U.S.C. Sec. 7435, with respect to nationals and companies of 
the Republic of Georgia. The Treaty provides for resort to 
binding international arbitration to resolve disputes, rather 
than denial of mineral rights and 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. Sec. 7435 direct that if a foreign 
country does not grant national treatment to U.S. investors in 
leases for minerals on on-share 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, 
investors from that country may not be granted national 
treatment.
    Georgia's extension of national treatment in these sectors 
will fully meet the objectives of the MLLA and 10 U.S.C. 
Sec. 7435. Georgia 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. 
Sec. 7435) exclude the leasing of minerals or pipeline rights-
of-way on Government lands from the national and MFN treatment 
obligations of this Treaty.
    The listing of a sector does not necessarily signify that 
domestic laws have entirely reserved it for nationals. And, 
pursuant to Article II(2)(c), any additional restrictions or 
limitations which a Party may adopt with respect to listed 
sectors or matters may not compel the divestiture of existing 
covered investments.
    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 sectors--even those listed in the Annex--all 
the other rights conferred by the Treaty.
    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,

                                                Warren Christopher.