[Senate Treaty Document 106-28]
[From the U.S. Government Publishing Office]
106th Congress Treaty Doc.
SENATE
2d Session 106-28
_______________________________________________________________________
INVESTMENT TREATY WITH EL SALVADOR
__________
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 EL SALVADOR CONCERNING THE ENCOURAGEMENT
AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PROTOCOL,
SIGNED AT SAN SALVADOR ON MARCH 10, 1999
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 El Salvador Concerning the
Encouragement and Reciprocal Protection of Investment, with
Annex and Protocol, signed at San Salvador on March 10, 1999. 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 El Salvador is
the seventh such treaty with a Central or South American
country. The Treaty will protect U.S. investment and assist El
Salvador 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.
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 customary 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
specific 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 at an early date.
William J. Clinton.
LETTER OF SUBMITTAL
----------
Department of State,
Washington, April 24, 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 El Salvador Concerning the
Encouragement and Reciprocal Protection of Investment, with
Annex and Protocol, signed at San Salvador on March 10, 1999. 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 El Salvador is
the seventh 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 El Salvador 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, Bangladsh, 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, Morocco, Panama, Poland, Romania, Senegal,
Slovakia, Sri Lanka, Trinidad & Tobago, Tunisia, Turkey, and
Ukraine. In addition to the Treaty with El Salvador, the United
States has signed, but not yet brought into force, BITs with
Azerbaijan, Bahrain, Belarus, Bolivia, Croatia, Honduras,
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.-el salvador treaty
The Treaty with El Salvador 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 El
Salvador 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 covers 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.
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 a 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 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 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
investments.
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 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 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.
Paragraph 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.
Paragraph 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 Damages 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's territory 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 El Salvador eligible
for treaty-investor visas under U.S. immigration law. It also
affords similar treatment for U.S. nationals entering El
Salvador. 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 prohibits either Party from requiring that an
investment appoint to senior management positions individuals
of any particular nationality. This variation from the
prototype BIT is based on the corresponding provision in the
NAFTA and was requested by El Salvador.
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 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 orprotection 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 90 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.) satisfied 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 El Salvador 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 toprovide 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 El Salvador 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 El Salvador that
maintains its central administration or principal place of
business in the territory of, or has a real and continuous link
with, El Salvador.
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 that it considers necessary for
fulfillment of its international obligations with respect to
maintenance or restoration of international peace or security,
or for the protection of its own essential security interests.
International obligations with respect to maintenance or
restoration of peace or 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. This Treaty
makes explicit the implicit understanding that 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 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 subdivisionsof 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 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 investment existing at the time of entry into force as
well as to those established or acquired thereafter. The
Protocol to the Treaty, at paragraph 2, confirms the Parties'
understanding that the provisions of the Treaty do not bind
either Party in relation to any act of fact that took place or
any situation that ceased to exist before entry into force of
the Treaty. This provision thus explicitly states the standard
under customary international law that applies in the absence
of the Parties' express intent to apply the treaty
retroactively.
Paragraphh 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 investments
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 the 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 national or companies
of El Salvador as they do U.S. investments or investments from
a third country. Paragraph 1 and 2 of the Annex list the
sectors or matters subject to U.S. exceptions.
The U.S. exception 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; air and maritime transport, and
related activities; banking, insurance, securities, and other
financial services; and one-way satellite transmissions of
Direct-to-Home (DTH) and Direct Broadcast Satellite (DBS)
television services and of digital audio services.
Paragraph 3 of the Annex lists El Salvador's exceptions
from its national treatment obligation, which are: small
commerce, small industry, and small service providers, as
defined in the Ley Reguladora del Ejercicio del Comercio e
Industria, as published in Diario Oficial No. 23, February 4,
1970; traditional(artisan) fishing, whether in seas, lakes, or
rivers; and commercial fishing.
Paragraph 4 of the Annex lists El Salvador's exception from
its national and MFN treatment obligation, which is: notary
public services.
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 Minerals 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 El Salvador. 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 onshore 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.
El Salvador's extension of national treatment in these
sectors will fully meet the objectives of the MLLA and 10
U.S.C. 7435. El Salvador 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 accord national 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 for Article
III(3) and (4) of the Treaty, the term ``commercially
reasonable rate'' for a freely usable currency may include a
bank or government bond rate for that freely usable currency
that is commercially reasonable. This provision was requested
by EL Salvador to clarify that the term ``commercially
reasonable rate'' may include bank or government bond rates
such as those specified in certain laws of El Salvador, if
those rates are commercially reaonsable.
Paragraph 2 restates a standard provision of Article XVI of
the Treaty, as described above. This clarifications was also
added to the Treaty at the request of El Salvador.
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.