[Senate Treaty Document 106-27]
[From the U.S. Government Publishing Office]



106th Congress                                              Treaty Doc.
                                 SENATE                     
 2d Session                                                   106-27
_______________________________________________________________________

                                     



 
                    INVESTMENT TREATY WITH HONDURAS

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 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




 May 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
79-118                     WASHINGTON : 2000

                         LETTER OF TRANSMITTAL

                              ----------                              

                                     The White House, 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 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. 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 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. The 
Treaty includes detailed provisions 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 performance 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 
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, May 1, 2000.
    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 Honduras Concerning the 
Encouragement 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 
Albania, Argentina; Armenia, Bangladesh, Bulgaria, Cameroon, 
the Republic of the Congo, the Democratic Republic of the Congo 
(formerly Zaire), the Czech Republic, Ecuador, Egypt, Estonia, 
Georgia, 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, Bahrain, Belarus, Bolivia, Croatia, El Salvador, 
Jordan, Lithuania, Mozambique, Nicaragua, Russia, 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.-honduras treaty


    The Treaty with Honduras is based on the 1994 U.S. 
prototype BIT and satisfies the U.S. principal objectives in 
bilateral investment treaty negotiations:
          --All forms of U.S. investment in the territory of 
        Honduras are covered.
          --Covered investments receive the better of national 
        treatment or most-favored-nation (MFN) treatment both 
        while they are being established and thereafter, 
        subject to certain specified exceptions.
          --Specified performance requirements may not be 
        imposed upon or enforced against covered investments.
          --Expropriation is permitted only in accordance with 
        customary international law standards.
          --Parties are obligated to permit the transfer, in a 
        freely usable 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 binding 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 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 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 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 if 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.
    The Treaty provides an illustrative list of the forms an 
investment may take. 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, such as 
licenses and permits. 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 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 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 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 
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 subnatural 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 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, ``screening'' on thebasis of nationality 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. 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 
explicitly 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 
exceptions 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, Parties 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 
preexisting 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 security'' 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 investments. The general 
reference to international law also implicitly incorporates 
other fundamental rules of customary international law 
regarding the treatment of foreign investment. However, this 
provision 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 investments.
    Paragrah 5 ensures the transparency of each Party's 
regulation of covered investments.

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, adequate, 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 expropriation through measures 
``tantamount to expropriation or nationalization'' 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-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 Damage Due to War and Similar Events)

    Paragraph 1 entitles investments covered by the Treaty to 
national and MFN treatment with respect to any measure relating 
to losses suffered in a Party'sterritory owing to war or other 
armed conflict, civil disturbances, or similar events. Paragraph 2, by 
contrast, creates an unconditional obligation to pay compensation for 
such losses 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, in certain circumstances, limits on 
returns in kind.
    In paragraph 1, each Party agrees to ``permit all 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 ``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 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 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 ensuring compliance with orders 
or judgments in adjudicatory proceedings.

Article VI (Performance Requirements)

    Article VI prohibits either Party from mandating or 
enforcing specified performance requirements as a condition for 
the establishment, acquisition, expansion, management, conduct, 
or operation of a covered investment. The list of prohibited 
requirements is exhaustive 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 requirements 
relating to the conduct of research and development in the host 
country. Such requirements are major burdens on investors 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 relating to the entry and sojourn of aliens, 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 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 
requirements 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 independently qualify for an appropriate visa for 
entry into the territory of the other party. Nor does this 
provision create an exception to U.S. equal employment 
opportunity law.

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 or application ofthe 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 
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 authorization, an investment agreement, or an 
alleged breach of rights conferred, created, or recognized by 
the Treaty with respect to a covered investment.
    In the event that an investment dispute cannot be settled 
amicably, paragraph 2 gives an investor 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; (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 paragraph 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 resolution procedure previously agreed upon. 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 arbitral 
institution 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 administrative 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 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 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 arbitral awards rendered pursuant to this Article. 
The Federal Arbitration Act (9 U.S.C. 1 et seq.) satisfies the 
requirement for the enforcement 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.
    Paragraph 7 ensures that a Party may not assert as a 
defense, or for any other reason, that the investor involved in 
the investment 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 application 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, selection 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 Treaty 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 benefits 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 Honduras 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 administration 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 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. In addition, the 
dispute settlement provisions of Article 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 
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 9 months from the time of referral, 
that the matter does not involve an expropriation. 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 expressed their understanding that international 
obligations with respect to maintenance or restoration of peace 
or security means obligations 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.'' 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.
    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 forcovered 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 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, 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 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)

    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 thereafter. 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 
respect 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 
investments that qualified as covered investments on the date 
of termination (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 acquisition of investments would lapse 
immediately upon the date of termination of the Treaty.
    Paragraph 4 stipulates that Annex and Protocol shall form 
an integral 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 afford national and MFN treatment, or where treatment in 
certain sectors or 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 Honduras 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, 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 U.S. exceptions from its national and MFN treatment 
obligation are: fisheries; and air and maritime transport, and 
related activities.
    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 limiting 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 Canada and Mexico in the 
North American Free Trade Agreement.
    Paragraph 4 of the Annex lists Honduras' exceptions from 
its national 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 periodicals and 
newspapers published in Honduras.
    Honduras has taken no exception to its MFN treatment 
obligation.
    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 privileges 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. 
Honduras 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.
    The listing of a sector or matter in the Annex does not 
necessarily signify that domestic laws have entirely reserved 
it for nationals. 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 investments.
    Finally, listing a sector or matter in the Annex exempts a 
Party only from the obligation to accordnational or MFN 
treatment. Both Parties are obligated to accord to covered investments 
in all sectors--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 exception to its national treatment obligation with respect 
to ``properties on cays, reefs, rocks, shoals or sandbanks or 
on islands or on any property located within 40 km of the 
coastline or land borders 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 decisions on the 
basis of nationality.
    As described under Article XIV, paragraph 3 states that, 
with respect 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 either 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 
negotiating the Treaty join me in recommending that it be 
transmitted to the Senate at an early date.
    Respectfully submitted.
                                                Madeleine Albright.


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