[Senate Treaty Document 108-18]
[From the U.S. Government Publishing Office]



108th Congress                                              Treaty Doc.
                                 SENATE                     
 2d Session                                                      108-18
_______________________________________________________________________

                                     

 
         ADDITIONAL INVESTMENT PROTOCOL WITH THE CZECH REPUBLIC

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

ADDITIONAL PROTOCOL BETWEEN THE UNITED STATES OF AMERICA AND THE CZECH 
  REPUBLIC TO THE TREATY BETWEEN THE UNITED STATES OF AMERICA AND THE 
      CZECH AND SLOVAK FEDERAL REPUBLIC CONCERNING THE RECIPROCAL 
ENCOURAGEMENT AND PROTECTION OF INVESTMENT OF OCTOBER 22, 1991, SIGNED 
                    AT BRUSSELS ON DECEMBER 10, 2003




  March 12, 2004.--The Protocol was read the first time, and together 
  with the accompanying papers, referred to the Committee on Foreign 
     Relations and ordered to be printed for the use of the Senate
                         LETTER OF TRANSMITTAL

                              ----------                              

                                   The White House, March 12, 2004.
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 Additional 
Protocol Between the United States of America and the Czech 
Republic to the Treaty Between the United States of America and 
the Czech and Slovak Federal Republic Concerning the Reciprocal 
Encouragement and Protection of Investment of October 22, 1991, 
signed at Brussels on December 10, 2003. I transmit also, for 
the information of the Senate, the report of the Department of 
State with respect to this Protocol.
    I have already forwarded to the Senate similar Protocols 
for Romania and Bulgaria and now forward simultaneously to the 
Senate Protocols for the Czech Republic, Estonia, Latvia, 
Lithuania, Poland, and the Slovak Republic. Each of these 
Protocols is the result of an understanding the United States 
reached with the European Commission and these six countries 
that will join the European Union (EU) on May 1, 2004, as well 
as with Bulgaria and Romania, which are expected to join the EU 
in 2007.
    The understanding is designed to preserve U.S. bilateral 
investment treaties (BITs) with each of these countries after 
their accession to the EU by establishing a framework 
acceptable to the European Commission for avoiding or remedying 
present and possible future incompatibilities between their BIT 
obligations and their future obligations of EU membership. It 
expresses the U.S. intent to amend the U.S. BITs, including the 
BIT with the Czech Republic, in order to eliminate 
incompatibilities between certain BIT obligations and EU law. 
It also establishes a framework for addressing any future 
incompatibilities that may arise as EU authority in the area of 
investment expands in the future, and endorses the principle of 
protecting existing U.S. investments from any future EU 
measures that may restrict foreign investment in the EU.
    The United States has long championed the benefits of an 
open investment climate, both at home and abroad. It is the 
policy of the United States to welcome market-driven foreign 
investment and to permit capital to flow freely to seek its 
highest return. This Protocol preserves the U.S. BIT with the 
Czech Republic, with which the United States has an expanding 
relationship, and the protections it affords U.S. investors 
even after the Czech Republic joins the EU. Without it, the 
European Commission would likely require the Czech Republic to 
terminate its U.S. BIT upon accession because of existing and 
possible future incompatibilities between our current BIT and 
EU law.
    I recommend that the Senate consider this Protocol as soon 
as possible, and give its advice and consent to ratification at 
an early date.
                                                    George W. Bush.
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                   Washington, DC, January 7, 2004.
The President,
The White House.
    The President: I have the honor to submit to you the 
Additional Protocol Between the United States of America and 
the Czech Republic amending the Treaty Between the United 
States of America and the Czech and Slovak Federal Republic 
Concerning the Reciprocal Encouragement and Protection of 
Investment of October 22, 1991, signed at Brussels on December 
10, 2003. I recommend that this protocol be transmitted to the 
Senate for its advice and consent to ratification.
    This protocol is the result of an understanding that the 
United States reached with the European Commission and six 
countries that will join the European Union (``EU'') on May 1, 
2004 (the Czech Republic, Estonia, Lativa, Lithuania, Poland 
and the Slovak Republic), as well as with Bulgaria and Romania, 
which are expected to join the EU in 2007.
    The understanding is designed to preserve our bilateral 
investment treaties (``BITs'') with these countries after their 
accession to the EU by establishing a framework for avoiding or 
remedying present and possible future incompatibilities between 
our BITs with these eight countries and their future 
obligations of EU membership. In this regard, the understanding 
expresses the U.S. intent to conclude substantively identical 
amendments and formal interpretations of the BITs with each of 
these eight countries.
    In addition, the understanding establishes a framework for 
addressing any future incompatibilities that may arise as 
European Union authority in the area of investment expands and 
evolves in the future. It endorses the principle of protecting 
existing U.S. investments in these countries from any future EU 
measures that may restrict foreign investment in the EU, and 
also clarifies certain protections afforded to U.S. investments 
in individual member states of the EU under the Treaty 
Establishing the European Community (``EC Treaty'').
    Finally, the understanding calls for the United States and 
each BIT partner to interpret, through an exchange of letters, 
two BIT provisions: (1) the right of each BIT Party to take 
measures necessary for the protection of its own essential 
security interests, and (2) the BIT prohibition on performance 
requirements.
    Both interpretations were undertaken at the request of the 
European Commission to confirm the mutual understanding of the 
United States and the Czech Republic in the context of EU 
enlargement. For example, the interpretation of the BIT 
provision on essential security interests confirms that, for 
the Czech Republic, these interests may include interests 
deriving from the Czech Republic's membership in the EU. As 
concerns the BIT prohibition on performance requirements, many 
U.S. BITs include a provision explicitly stating that the 
prohibition on performance requirements does not extend to 
conditions for the receipt or continued receipt of an 
advantage. The interpretation relating to performance 
requirements makes this explicit with respect to the U.S.-Czech 
BIT. The two interpretations are enclosed for the information 
of the Senate.
    Investment by the United States has played an important 
role in the economic transformation of these eight countries, 
and the U.S. BITs have afforded important protections to U.S. 
investors. Prior to acceding to the EU, however, the European 
Commission has required that these countries terminate any 
international treaty containing incompatibilities with EU law. 
Without the understanding and the steps contemplated therein, 
including the specific amendments in this protocol, these 
countries would be required to terminate their U.S. BITs and 
the great majority of protections these treaties afford U.S. 
investors. Therefore, the understanding, together with the 
interpretations and specific amendments in the protocol, will 
preserve the benefits of these treaties and provide important 
additional protections for U.S. investors as the EU continues 
to evolve.

                        THE U.S.-CZECH PROTOCOL

    The United States champions EU enlargement and, at the same 
time, intends that this BIT will continue to mutually benefit 
U.S. and Czech investors. By undertaking these amendments of 
the BIT with the Czech Republic, which would be brought into 
force just prior to its accession, incompatibilities between 
BIT protections and EU law are eliminated, and any future 
problems in this respect are addressed through a framework for 
consultations. This action preserves our BIT with the Czech 
Republic after its accession to the EU, and is consistent with 
the policy of the United States to welcome market-driven 
foreign investment and to permit capital to flow freely to seek 
its highest return. The Czech Republic is one of the newly 
democratized countries in Europe transitioning to a market 
economy, and foreign direct investment into the Czech Republic 
is very much in both our countries' interests.Protection for 
investors facilitates investment activity, and thus directly supports 
U.S. policy objectives.
    The principal substantive articles of the protocol provide 
as follows.

          Article I: that the article of the BIT prohibiting 
        performance requirements does not limit the Czech 
        Republic's ability to impose, as necessary under EU 
        law, certain kinds of performance requirements in the 
        agricultural and audio-visual sectors;
          Article II: that the terms of the free trade area/
        customs union exception of the BIT shall apply, without 
        limitation, to all of a Party's obligations stemming 
        from its membership in an economic integration 
        agreement that includes a free trade area or customs 
        union, such as the EU;
          Article III: that the BIT Parties will consult 
        promptly whenever either Party believes that steps are 
        necessary to assure compatibility between the BIT and 
        the EC Treaty;
          Article IV: that, in certain specified sectors or 
        matters, the Czech Republic may take a reservation 
        against the national treatment and most-favored-nation 
        treatment obligations of the BIT, provided such 
        reservation is necessary to meet the Czech Republic's 
        obligations under EU law, and subject to the following 
        exception;
                  that, notwithstanding any such new 
                reservation, existing U.S. investments in the 
                Czech Republic shall remain protected under the 
                national treatment and most-favored-nation 
                treatment obligations of the BIT for at least 
                10 years from the date of the relevant EU law 
                necessitating the reservation; and finally,
                  that the United States reserves the right to 
                make or maintain limited exceptions to the 
                national treatment obligation in two new 
                sectors or matters, fisheries and subsidies, 
                and to the most-favored-nation treatment 
                obligation in one new sector, fisheries.

    With respect to future developments in EU law, the United 
States recognizes that the possibility exists that these 
amendments may not suffice to ensure compatibility, and that 
consultations would be necessary to avoid or eliminate any 
incompatibilities that may arise. As noted above, the United 
States and the Czech Republic expressly agree to such 
consultations in the protocol.
    I support this protocol to the U.S. BIT with the Czech 
Republic and I favor its transmission to the Senate at an early 
date.
    Respectfully submitted.
                                                   Colin L. Powell.
    Enclosures: As stated.
    
    
