[Senate Treaty Document 106-42]
[From the U.S. Government Publishing Office]

106th Congress                                              Treaty Doc.
 2d Session                                                      106-42









                     WASHINGTON ON JANUARY 14, 1998

 September 5, 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


79-188                      WASHINGTON : 2000

                         LETTER OF TRANSMITTAL


                                The White House, September 5, 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 Lithuania for the encouragement 
and Reciprocal Protection of Investment, with Annex and 
Protocol, signed at Washington on January 14, 1998. 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 Lithuania was 
the third such treaty signed between the United States and 
Baltic region country. The Treaty will protect U.S. investment 
and assist Lithuania 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 
    The Treaty furthers the objectives of 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 
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 at an early date.

                                                William J. Clinton.
                          LETTER OF SUBMITTAL


                                       Department of State,
                                        Washington, August 9, 2000.
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 Lithuania for the Encouragement 
and Reciprocal Protection of Investment, with Annex and 
Protocol, signed at Washington on January 14, 1998. 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 Lithuania was 
the third such treaty signed between the United States and a 
Baltic Region country. The Treaty is based on the view that an 
open investment policy contributes to economic growth. This 
Treaty will assist Lithuania 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, Morocco, Panama, Poland, Romania, Senegal, 
Slovakia, Sri Lanka, Trinidad & Tobago, Tunisia, Turkey, and 
Ukraine. In addition to the Treaty with Lithuania, the United 
States has signed, but not yet brought into force, BITs with 
Azerbaijan, Bahrain, Belarus, Bolivia, Croatia, El Salvador, 
Honduras, Jordan, Mozambique, Nicaragua, Russia, and 
    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.-lithuania treaty

    The Treaty with Lithuania is based on the 1992 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 Lithuania 
        are 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 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 an investment, 
        subject to exceptions for specified purposes.
  --Investment disputes with the host government may be brought 
        by investors, or by their investments, to binding 
        international arbitration as an alternative to domestic 
    The U.S.-Lithuania Treaty differs from the 1992 prototype 
in some respects. It eliminates Article VIII of the 1992 
prototype text, which had excluded from the dispute settlement 
provision of the BIT those disputes arising under the export 
credit, guarantee or insurance programs of the Export-Import 
Bank, the Overseas Private Investment Corporation, and other 
relevant government agencies. Those agencies indicated prior to 
this negotiation that they saw no need to maintain such a 
    The U.S.-Lithuania Treaty also differs from the 1992 
prototype in that it includes provisions in Article I(1)(f) and 
(g) and Article II(2) that clarify and extend the requirements 
of the Treaty with respect to state enterprises, and in Article 
II(11) that clarify that investors should receive the better of 
national or MFN treatment with respect to activities associated 
with their investment.
    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; 
stimulation of economic development; maximum effective 
utilization of economic resources; promotion of respect for 
internationally-recognized worker rights; and development of 
bilateral trade and investment relations. 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 V.

Article I (Definitions)

    Article I defines terms used throughout the Treaty.
    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, which applies to investment in the territory of one 
Party owned or controlled directly or indirectly by nationals 
or companies of the other Party. 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 Treaty provides an illustrative list of the forms an 
investment may take. These include both tangible and intangible 
property; interests in a company or its assets; ``a claim to 
money or a claim to performance having economic value, and 
associated with an investment''; intellectual property rights; 
any right conferred by law or contract; and any licenses and 
permits pursuant to law. The requirement that a ``claim to 
money'' be associated with an investment excludes claims 
arising solely from trade transactions, such as a transaction 
involving a sale of goods across a border, from being 
investments covered by the Treaty.
    Paragraph 3 makes explicit that any alteration in the form 
in which an asset is invested or reinvested will not affect its 
character as an investment. For example, a change in the 
corporate form of an investment will not deprive it of 
protection under the Treaty.
    The definition of ``company'' of a Party is broad, covering 
all types of entities legally constituted or organized under 
applicable laws and regulations of a Party, and includes a 
corporation, company, association, partnership, or other 
organization. The definition explicitly covers not-for-profit 
entities, as well as entities that are owned or controlled by 
the state.
    The broad nature of the definitions of ``investment'' 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 certain limited circumstances. Article I(2) preserves 
the right of each Party to deny the benefits of the Treaty to a 
company controlled by nationals of a third 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 
    Paragraph 2 also permits each Party to deny the benefits of 
the Treaty to a company of the other Party if the company is 
controlled by nationals of any third country and if the company 
has no substantial business activities in the territory of the 
other Party. Thus, the United States could deny benefits to a 
company that is a subsidiary of a shell company organized under 
the laws of Lithuania 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 Lithuania that 
maintains its central administration or principal place of 
business in the territory of, or has a real and continuous link 
with, Lithuania.
    The Treaty defines ``national'' of a Party as a natural 
person who is a national of the United States under its laws, 
or a citizen of Lithuania under itslaws. 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 
    ``Return'' is defined as ``an amount derived from or 
associated with an investment.'' The Treaty provides a non-
exclusive list of examples, including: profits; dividends; 
interest; capital gains; royalty payments; management, 
technical assistance, or other fees; and returns in kind.
            Associated Activities
    The Treaty recognizes that the operation of an investment 
requires protections extending beyond the investment to 
numerous related activities. The Treaty defines ``associated 
activities'' to include an illustrative list of such 
activities, including: operating a business facility; borrowing 
money; acquiring, using, and disposing of property; issuing 
stock; and purchasing foreign exchange for imports. Article 
II(11) lists additional activities included in the term 
``associated activities'', all of which are covered by the 
obligation in Article II(1) to provide the better of national 
or MFN treatment.
            State Enterprise and Delegation
    ``State enterprise'' is defined as an enterprise owned, or 
controlled through ownership interests, by a Party. Purely 
regulatory control over a company does not qualify it as a 
state enterprise.
    ``Delegation'' is defined to include a legislative grant 
and a government order, directive, or other act that transfers 
governmental authority to a state enterprise or monopoly or 
authorizes a state enterprise or monopoly to exercise such 
    The definitions of ``state enterprise'' and ``delegation'' 
are included to clarify the scope of the obligations of Article 
II(2)(b), which provides that any governmental authority 
delegated to a state enterprise by a Party must be exercised in 
a manner consistent with the Party's obligations under the 

Article II (Treatment)

    Article II contains the Treaty's major obligations with 
respect to the treatment of investment.
    Paragraph 1 generally ensures the better of national of MFN 
treatment in both the entry and post-entry phases of investment 
(national and MFN treatment). 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. National 
treatment means treatment no less favorable than that which a 
Party accords, in like situations, to investments or associated 
activities in its territory of its own nationals or companies. 
MFN treatment means treatment no less favorable than that which 
a Party accords, in like situations, to investments or 
associated activities in its territory of nationals or 
companies of a third country.
    Paragraph 1 also 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 such sector 
or matter but are to be kept to a minimum. (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, any future exception adopted under this provision does 
not apply to investment existing in that sector or matter at 
the time the exception becomes effective.
    Paragraph 2 requires each Party to ensure that any state 
enterprise that it maintains or establishes acts in a manner 
that is not inconsistent with the party's obligations under the 
Treaty wherever the enterprise exercises any regulatory, 
administrative, or other governmental authority that the Party 
has delegated to it, such as the power to expropriate, grant 
licenses, approve commercial transactions, or impose quotas, 
fees, or other charges. Paragraph 2 also supports competitive 
equality for investments by requiring that a Party ensure that 
its state enterprises accord national and MFN treatment in the 
sale of their goods or services in the Party's territory.
    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. The 
general reference to international law also implicitly 
incorporates otherfundamental rules of customary international 
law regarding the treatment of foreign investment. However, this 
provision does not incorporate obligations based on other international 
    In paragraph 3(b), the Parties agree not to in any way 
impair by arbitrary or discriminatory measures the management, 
operation, maintenance, use, enjoyment, acquisition, expansion, 
or disposal of investments.
    In paragraph 3(c), each Party pledges to observe any 
obligation it may have entered into with regard to investments. 
Thus, in dispute settlement under Articles VI or VII, a Party 
would be foreclosed from arguing, on the basis of sovereignty, 
that it may unilaterally ignore its obligations to such 
    Paragraph 4 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 an investment and involving the commitment 
of a ``substantial amount of capital or other resources.'' This 
paragraph serves to render nationals of Lithuania eligible for 
treaty-investor visas under U.S. immigration law. It also 
affords similar treatment for U.S. nationals entering 
Lithuania. The requirement to commit a ``substantial amount of 
capital or other resources'' is intended to prevent abuse of 
treaty-investor status; it parallels the requirements of U.S. 
immigration law.
    Paragraph 5 requires that each Party allow companies that 
are 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 laws.
    Paragraph 6 prohibits either Party from imposing specified 
performance requirements as a condition for the establishment, 
expansion, or maintenance of investments. Prohibited 
performance requirements are those which require or enforce 
commitments to export goods produced, or which specify that 
goods or services must be purchased locally, or which impose 
any other similar requirements. Such performance requirements 
are major burdens on investors and impair their 
    Paragraph 7 requires that each Party provide effective 
means of asserting claims and enforcing rights with respect to 
investments, investment agreements, and investment 
    Paragraph 8 ensures the transparency of each Party's 
regulation of investments.
    Paragraph 9 recognizes that under the U.S. federal system, 
States of the United States may, in some instances, treat out-
of-State residents and corporations in a different manner than 
they treat in-State residents and corporations. The Treaty 
provides that the national treatment commitment, with respect 
to the States, means treatment no less favorable than that 
provided by a State to U.S. out-of-State residents and 
corporations. Article XI makes clear that the obligations of 
the Treaty are applicable to all political and administrative 
subdivisions of the Parties, such as provincial, State, and 
local governments.
    Paragraph 10 limits the Article's MFN obligation by 
providing that it will not apply to advantages accorded by 
either Party to nationals or companies of third countries by 
virtue of a Party's membership in a free trade area or customs 
union or a future (i.e., after the Treaty was signed) 
multilateral agreement under the framework of the General 
Agreement on Tariffs and Trade (GATT).
    Paragraph 11 provides an additional illustrative list of 
``associated activities'' entitled to national and MFN 
treatment under Article II(1).

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 an 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 thateffectively amounts 
to an expropriation of an 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.''
    The balance of paragraph 1 more fully describes the meaning 
of ``prompt, adequate, and effective compensation.'' The 
guiding principle is that the investor should be made whole.
    Paragraph 2 entitles an investor claiming that an 
expropriation has occurred to prompt judicial or administrative 
review of the claim in the host Party, including a 
determination of whether the expropriation and any compensation 
conform to the principles of international law.
    Paragraph 3 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.

Article IV (Transfers)

    Article IV protects investors from certain government 
exchange controls that limit current and capital account 
transfers, as well as limits on inward transfers such as those 
imposed by screening authorities.
    In paragraph 1, each Party agrees to ``permit all transfers 
related to an 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 transfers are to be made in a 
``freely usable currency'' at the prevailing market rate of 
exchange on the date of transfer with respect to spot 
transactions in the currency to be transferred. ``Freely 
usable'' is a 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.
    Paragraph 3 recognizes that, notwithstanding the 
obligations of paragraphs 1 and 2, a Party may maintain certain 
laws or obligations that could affect transfers with respect to 
investments. It provides that the Parties may require reports 
of currency transfers and impose income taxes by such means as 
a withholding tax on dividends. It also recognizes that the 
Parties may protect the rights of creditors and ensure the 
satisfaction of judgments in adjudicatory proceedings through 
the equitable, nondiscriminatory, and good faith application of 
their laws.

Article V (State-to-State Consultations)

    Article V provides for prompt consultation between the 
Parties, at either Party's request, to resolve any disputes in 
connection with the Treaty, or to discuss any matter relating 
to the interpretation or application of the Treaty.

Article VI (Settlement of Disputes Between One Party and a National or 
        Company of the Other Party)

    Article VI 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 VI procedures apply to an ``investment dispute,'' 
which is any dispute arising out of or relating to an 
investment agreement, an investment authorization granted by 
the Party's foreign investment authority, or an alleged breach 
of rights conferred or created by the Treaty with respect to an 
    Article VI(2) provides that when a dispute arises the 
disputants should initially seek to resolve the dispute by 
consultation and negotiation. In the event that an investment 
dispute cannot be settled amicably, paragraph 2 gives an 
investor an exclusive 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.
    Under paragraph 3(a), if the investor has not submitted the 
dispute to a court or administrative tribunal or invoked a 
dispute resolution procedure previously agreed upon under the 
procedures inparagraph 2, and 6 months have elapsed from the 
date the dispute arose, the investor may chose to consent to binding 
arbitration of the investment dispute. 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.
    Paragraph 4 constitutes each Party's consent to the 
submission of investment disputes to binding arbitration in 
accordance with the choice of the investor from among those 
permitted under the Treaty.
    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 is included in the Treaty to ensure that ICSID 
arbitration will be available for investors making investments 
in the form of companies created under the laws of the Party 
with which there is a dispute.

Article VII (Settlement of Disputes Between the Parties)

    Article VII provides for binding arbitration of disputes 
between the United States and Lithuania 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 VIII (Preservation of Rights)

    Article VIII clarifies that the Treaty does not derogate 
from any obligation a Party might have to provide better 
treatment to the investment than is specified in the Treaty. 
Thus, the Treaty establishes a floor for the treatment of 
investments. An 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 

Article IX (Measures Not Precluded)

    The first paragraph of Article IX reserves the right of a 
Party to take measures for the maintenance of public order and 
the fulfillment of its obligations with respect to the 
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.
    The maintenance of public order would include measures 
taken pursuant to a Party's police powers to ensure public 
health and safety. International obligations with respect to 
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 the 
protection of a Party's essential security interests would 
include security-related actions taken in time of war of 
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 investments, provided that these 
formalities do not impair the substance of any Treaty rights. 
Such formalities could include reporting requirements for 
investments or for transfers of funds, or incorporation 

Article X (Tax Policies)

    Article X, excludes tax matters generally from the coverage 
of the BIT, on the basis that tax matters should be dealt with 
in bilateral tax treaties.
    Paragraph 1 exhorts both countries to provide fair and 
equitable treatment to investors with respect to tax policies.
    In matters of taxation, paragraph 3 expressly applies the 
provisions of the Treaty, in particular its dispute settlement 
provisions, only to tax matters concerning expropriation 
(Article III), transfers (Article IV), or the observance and 
enforcement of terms of an investment agreement or 
authorization under Article VI(1)(a) or (b). Paragraph 2 
further provides that the Treaty applies to such tax matters 
only to the extent that they are not subject to the dispute 
settlement provisions of a convention for the avoidance of 
double taxation between the two Parties, or have been raised 
under such settlement provisions and are not resolved within a 
reasonable period of time.

Article XI (Application to Political Subdivisions)

    Article XI makes clear that the obligations of the Treaty 
are applicable to all political and administrative subdivisions 
of the Parties, such as provincial, State, and local 

Article XII (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 
investments existing at the time of entry into force as well as 
to those established or acquired thereafter. The Protocol to 
the Treaty confirms the Parties' mutual understanding that the 
provisions of the Treaty do not bind either Party in relation 
to any act or fact 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. 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.
    Paragraph 3 provides that, if the Treaty is terminated, all 
investments covered by the Treaty on the date of termination 
(i.e., 1 year after written notice) continue to be protected 
under the Treaty for 10 years from that date.
    Paragraph 4 stipulates that the Annex and Protocol shall 
form an integral part of the Treaty.


    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 and generally permitted 
only in the sectors or matters listed in the Annex, pursuant to 
Article II(1), 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 Lithuania as they do U.S. investments or investments from a 
third country. Paragraphs 1 and 2 of the Annex list the sectors 
or matters subject to U.S. exceptions.
    The U.S. exceptions from its national treatment obligation 
are: air transportation; ocean and coastal shipping; banking, 
insurance, securities, and other financial services; government 
grants; government insurance and loan programs; energy and 
power production; custom house brokers; ownership of real 
property; ownership and operation of broadcast or common 
carrier radio and television stations; ownership of shares in 
COMSAT; the provision of common carrier telephone and telegraph 
services; the provision of submarine cable services; use of 
land and natural resources; mining on the public domain; 
maritime services and maritime-related services; and primary 
dealership in United States government securities.
    The U.S. exceptions from its MFN treatment obligation are: 
mining on the public domain; maritime services and maritime-
related services; one-way satellite transmissions of Direct-to-
Home (DTH) andDirect Broadcasting Satellites (DBS) television 
services and of digital audio services; and primary dealership in 
United States government securities.
    Paragraph 3 of the Annex lists Lithuania's exceptions from 
its national treatment obligation, which are: ownership of: 
land under the objects belonging to Lithuania by the right of 
exclusive ownership; land of national parks, national 
reservations, reserves, protective areas of the territory of 
biosphere monitoring; agricultural land; forestry land, with 
the exception of plots necessary for operation of buildings and 
facilities designated for economic activities which have been 
provided for in approved planning documents; land of 
recreational forests and forest shelter belts, rivers and other 
water bodies exceeding one hectare in size as well as their 
protective bank area; land of resorts and communal recreational 
territories, separate communal recreational areas and objects; 
land of state-protected natural carcass (geographic 
formations); monuments of nature, history, archaeology, and 
culture as well as the surrounding protective areas; land of 
territories reserved, according to design projects, under 
communal roads and engineering service lines; objects of 
infrastructure of communal use in towns or other localities, 
and for other common needs of the community; land under public 
roads, railway lines, airports, sea and river ports, main 
pipelines and other engineering service lines of communal use 
as well as land necessary for their operation; land allotted, 
in accordance with the procedure established by law, under the 
free trade (economic) zones territory; land of protected 
territories where deposits of mineral resources and other 
natural resources have been found, with the exception of land 
which, according to planning documents, has been directly 
allotted for the construction of buildings and facilities 
required for the mining or use of said mineral resources; land 
of the Curonian Spit, the fifteen-kilometer wide strip of 
coastal land of the Baltic Sea and the Curonian Lagoon, with 
the exception of towns that are not resorts; land assigned to 
the frontier; land of the territories assigned or reserved for 
the needs of the national defense as well as territories where 
land acquisition restrictions are established by laws or 
Government decrees for safety reasons; production and sale of 
narcotic drugs and psychotropic substances that are not used 
for legitimate medicinal purposes; growing, reproduction, and 
sale of cultures containing narcotic drugs or psychotropic 
substances that are not used for legitimate medicinal purposes; 
and organization of lotteries.
    Lithuania did not take any exceptions from its MFN 
treatment obligation.
    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(1), any 
additional restrictions or limitations that a Party may adopt 
with respect to a listed sector or matter do not apply to 
investment existing in that sector or matter at the time the 
exception becomes effective.
    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 investments 
in all sectors--even those listed in the Annex--all other 
rights conferred by the Treaty.


    As described under Article XII(1), the Protocol states that 
the Treaty does not apply retroactively. This clarification was 
added to the Treaty at the request of Lithuania.
    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.