[Senate Executive Report 108-13]
[From the U.S. Government Publishing Office]


108th Congress                                               Exec. Rpt.
                                 SENATE
 2nd Session                                                     108-13

======================================================================



 
  PROTOCOLS AMENDING EXISTING BILATERAL INVESTMENT TREATIES WITH NEW 
                     EUROPEAN UNION MEMBER NATIONS

                                _______
                                

                  May 4, 2004.--Ordered to be printed

                                _______
                                

           Mr. Lugar from the Committee on Foreign Relations,
                        submitted the following

                              R E P O R T

[To accompany Treaty Docs. 108-13, 108-15, 108-17, 108-18, 108-19, 108-
                        20, 108-21, and 108-22]

    The Committee on Foreign Relations, to which was referred 
the 1) Additional Protocol to Investment Treaty with Romania 
(Treaty Doc. 108-13); 2) Protocol Amending the Additional 
Protocol Amending Investment Treaty with Bulgaria (Treaty Doc. 
108-15); 3) Investment Protocol with Estonia (Treaty Doc. 108-
17); 4) Additional Investment Protocol with the Czech Republic 
(Treaty Doc. 108-18); 5) Additional Investment Protocol with 
the Slovak Republic (Treaty Doc. 108-19); 6) Additional 
Investment Protocol with Latvia (Treaty Doc. 108-20); 7) 
Additional Investment Protocol with Lithuania (Treaty Doc. 108-
21); and 8) Additional Protocol Concerning Business and 
Economic Relations with Poland (Treaty Doc. 108-22) 
(collectively ``the Protocols'' or ``Additional Protocols''), 
having considered the same, reports favorably thereon and 
recommends that the Senate give its advice and consent to 
ratification thereof, as set forth in this report and the 
accompanying resolutions of ratification.

                                CONTENTS

                                                                   Page
  I. Purpose..........................................................2
 II. Background Summary...............................................2
III. Entry into Force and Termination.................................2
 IV. Committee Action.................................................2
  V. Committee Comments...............................................2
 VI. Explanation of the Additional Protocols..........................3
VII. Texts of the Resolutions of Ratification.........................3
VIII.Annex--Understanding and Annex A to the Understanding............5


                               I. Purpose

    The United States has Bilateral Investment Treaties (BITs) 
with six of the countries which joined the European Union (EU) 
on May 1, 2004. The U.S also has BITs with two other countries, 
Romania and Bulgaria, which are expected to join the EU in 
2007. These Additional Protocols seek to reconcile the 
obligations the European states will assume as a result of EU 
membership with their obligations to the United States under 
the existing Bilateral Investment Treaties. The Protocols also 
provide for the right of the parties to seek consultations in 
the future whenever potential conflicts arise between an 
investment treaty and EU obligations. The State Department has 
indicated that, unless these Protocols are approved, the new EU 
members would likely be pressured by the European Commission to 
terminate their Bilateral Investment Treaty with the United 
States.

                       II. Background and Summary

    The need for these Protocols to our existing BITs arose 
when these eight countries accepted formal invitations to join 
the EU. The Protocols are the result of an understanding 
reached through negotiations involving the United States, the 
European Commission, \1\ and the eight countries. This 
understanding is designed to establish a framework for avoiding 
and remedying any present or future complications and 
incompatibilities between our existing BITs and the future 
requirements and obligations that each of these countries will 
assume upon accession to the EU.\2\ The understanding also 
provides protection for U.S. investments in these countries 
should the EU, in the future, seek to restrict foreign 
investment. For example, the provisions of these Protocols are 
intended to preserve the benefits of direct foreign investment 
after each country's accession to the EU, and provide for the 
continued protection of investment facilities as well as 
investment activity.
---------------------------------------------------------------------------
    \1\ The European Commission is the policy initiating body of the 
European Union.
    \2\ The Understanding, and Annex A to the Understanding, are 
reprinted as an annex to this report.
---------------------------------------------------------------------------

                 III. Entry Into Force and Termination

    The Additional Protocols enter into force upon the exchange 
of instruments of ratification and remain in force as long as 
the underlying treaties remain in force.

                          IV. Committee Action

    The Committee on Foreign Relations held a public hearing on 
the proposed Additional Protocols on April 1, 2004. The hearing 
was chaired by Senator Lugar. The Committee considered the 
Additional Protocols on April 29, 2004 and ordered them 
favorably reported by voice vote, with the recommendation that 
the Senate give its advice and consent to ratification.

                         V. Committee Comments

    On balance, the Committee on Foreign Relations believes 
that the proposed Additional Protocols are in the interest of 
the United States and urges the Senate to act promptly to give 
advice and consent to ratification.

              VI. Explanation of the Additional Protocols

    Each of the Protocols contains six Articles, four of which 
are discussed below. Each of the eight Protocols is structured 
in exactly the same manner, utilizing similar language. The 
only differences are technical in nature and specific to the 
section or phrases in the underlying BIT. None of these 
differences affect the substance of the Protocols.
    Article I. The Article addresses requirements under EU law 
that each country will face upon accession. The Article 
interprets the appropriate section of the underlying BIT in 
such a way so as not to prohibit the country from imposing 
performance requirements, as necessary to comply with EU law, 
in both the agricultural and audio-visual sectors.
    Article II. Article II provides that the existing 
exceptions of the Treaties with respect to free trade areas and 
customs unions shall apply without limitation to all of the 
countries' obligations as a result of their accession to the 
EU.
    Article III. Article III requires that the Parties promptly 
enter into consultations with the United States to resolve any 
disputes in connection with the underlying Treaty, or discuss 
any matter relating to the interpretation or application of the 
Treaty. The Parties also agree to promptly consult whenever 
either party to the BIT believes that steps are necessary to 
ensure compatibility between a Party's EU obligations and a 
Party's BIT obligations.
    Article IV. To the extent necessary to comply with 
obligations under EU law, Article IV of each Protocol allows 
for the European states to make or maintain exceptions to the 
most-favored-nation and national treatment obligations of the 
BIT with respect to several sectors. These reservations, 
however, shall not apply to existing U.S. investments for a 
period of ten years from the date that the relevant law or 
regulation enters into effect, or twenty years from the date of 
entry into force of the underlying treaty, whichever date is 
later. Thus, existing U.S. investments will be protected for at 
least ten years. The United States may make or maintain limited 
exceptions to national treatment in the fisheries sector or 
with respect to subsidies, and a limited exception to the most-
favored-nation obligation with respect to the fisheries sector.

             VII. Texts of the Resolutions of Ratification


Romania

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the Government 
of the United States of America and the Government of Romania 
Concerning the Reciprocal Encouragement and Protection of 
Investment of May 28, 1992, signed at Brussels on September 22, 
2003 (T. Doc. 108-13).

Bulgaria

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the United 
States of America and the Republic of Bulgaria Amending the 
Treaty Between the United States of America and the Republic of 
Bulgaria Concerning the Encouragement and Reciprocal Protection 
of Investment of September 23, 1992, signed at Brussels on 
September 22, 2003 (T. Doc. 108-15).

Estonia

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Protocol Between the Government of the 
United States of America and the Government of the Republic of 
Estonia to the Treaty for the Encouragement and Reciprocal 
Protection of Investment of April 19, 1994, signed at Brussels 
on October 24, 2003 (T. Doc. 108-17).

Czech Republic

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of 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 (T. Doc. 108-18).

Slovak Republic

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the United 
States of America and the Slovak 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 
September 22, 2003 (T. Doc. 108-19).

Latvia

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the Government 
of the United States of America and the Government of the 
Republic of Latvia to the Treaty for the Encouragement and 
Reciprocal Protection of Investment of January 13, 1995, signed 
at Brussels on September 22, 2003 (T. Doc. 108-20).

Lithuania

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the Government 
of the United States of America and the Government of the 
Republic of Lithuania to the Treaty for the Encouragement and 
Reciprocal Protection of Investment of January 14, 1998, signed 
at Brussels on September 22, 2003 (T. Doc. 108-21).

Poland

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advises and consents to the 
ratification of the Additional Protocol Between the United 
States of America and the Republic of Poland to the Treaty 
Between the United States of America and the Republic of Poland 
Concerning Business and Economic Relations of March 21, 1990, 
signed at Brussels on January 12, 2004 (T. Doc. 108-22).

      VIII. Annex--Understanding and Annex A to the Understanding

                        Understanding Concerning
               Certain U.S. Bilateral Investment Treaties

    The United States (``U.S.''), the European Commission 
(``Commission''), and Acceding and Candidate Countries for 
accession to the European Union (``Acceding Countries'' and 
``Candidate Countries,'' respectively) identified in Annex A 
(collectively ``the Participants'') wish to confirm their 
intent to support enlargement of the European Union (``EU''), 
the economic integration of new EU members, and a positive 
framework for continued U.S. investment in Acceding and 
Candidate Countries as they move toward full membership in the 
EU and thereafter.

    The Participants recognize that bilateral investment 
treaties (``BITs'') between the U.S. and Acceding and Candidate 
Countries contribute to investor confidence and encourage U.S. 
investment in these countries.

    The Participants also recognize that U.S. investors will 
benefit from Acceding and Candidate Countries' accession to the 
EU and that long-term business relations will be fostered by EU 
enlargement.

    The Participants also acknowledge the importance of 
granting protection to existing foreign investments when 
measures at the community level are enacted that might affect 
the rights of foreign investors.

    At the same time, the Participants acknowledge that 
enlargement of the EU is based on the principle of full 
acceptance and implementation, upon the Acceding and Candidate 
Countries' accession, of the acquis communautaire, including 
obligations under Article 307 of the Treaty Establishing the 
European Community (``EC Treaty'').

    The Participants further recognize that, consequently, 
Acceding Countries have committed in Article 6.10 of the Act of 
Accession, and as a condition for the closure of chapter 26 of 
the negotiations (external relations), to take steps before 
accession to eliminate incompatibilities between the acquis and 
their agreements with third countries, and that similar 
commitments may be undertaken by Candidate Countries.

    Therefore, the Participants wish to express their intent to 
seek compatibility between the Acceding and Candidate 
Countries' obligations that arise from membership in the EU, 
and thereafter under EU law, and their obligations arising from 
their BITs with the U.S.

In furtherance of these objectives:

    1.  The U.S., the Commission and the Acceding and Candidate 
Countries have held a series of discussions and meetings since 
mid-2002;

    2.  The Commission has identified, to the extent possible, 
EU measures in certain sectors that raise questions of 
compatibility with respect to Acceding and Candidate Countries' 
obligations in U.S. BITs;

    3.  The U.S. has reviewed these measures, and the 
Commission's and Acceding and Candidate Countries' assessment 
of them, and concurs with their conclusion that it would be 
desirable to take steps in the interest of avoiding 
incompatibilities with respect to U.S. BITs with Acceding and 
Candidate Countries; and

    4.  The Participants have concluded that the possibility 
exists that decisions that may be taken by the EU in the future 
may raise both issues relating to the compatibility of EU 
obligations and U.S. BITs, and questions regarding the 
protection of existing U.S. investments.

    Therefore, the Participants: (a) express their intention to 
address the matters identified below by relying on 
interpretations and specific amendments to Acceding and 
Candidate Countries' BITs with the U.S., including specific 
sectoral exceptions, as well as consultations where 
appropriate; (b) intend that making the interpretations and 
specific amendments outlined in this Understanding will 
eliminate incompatibilities between obligations of the Acceding 
and Candidate Countries that arise as a result of membership in 
the EU and their obligations in their BITs with the U.S.; and 
(c) undertake the political commitment to make good faith 
efforts, as necessary, to seek to avoid or to remedy further 
incompatibilities.

I. Capital Movements

    A.  The EU is currently considering the relationship 
between the obligations of its Member States in international 
agreements to freely allow investment-related transfers and the 
authority of the EU Council of Ministers to restrict capital 
movements either by: (a) enacting temporary safeguard measures 
in exceptional circumstances involving serious difficulties in 
the operation of the economic and monetary union; or (b) 
imposing financial sanctions as a result of a common position 
or joint action in relation to a common foreign or security 
policy. See EC Treaty, arts. 59 and 60, respectively.

    B.  The Participants acknowledge that Acceding Countries, 
pursuant to Article 307 of the EC Treaty and Article 6.10 of 
the Act of Accession, as applicable, must take all appropriate 
steps to eliminate incompatibilities between the EC Treaty and 
their agreements with third countries, and that similar 
commitments may be undertaken by Candidate Countries.

    C.  The Participants concur that it is highly desirable to 
find, as soon as possible, a lasting solution that would avoid 
or remedy such incompatibilities and that would not subject 
U.S. BITs or U.S. investments to discriminatory treatment as 
compared to Member States' agreements with third countries or 
third countries' investments in Member States. The U.S. and the 
Commission will accordingly continue to consult on this matter 
in parallel with developments within the EU. In the absence of 
mutually satisfactory conclusions from the future consultations 
foreseen, the Participants acknowledge that the approach in 
this paragraph is without prejudice to the Commission's powers 
under Article 226 of the EC Treaty.

    D.  The Participants note that the general exception 
addressing essential security interests contained in U.S. BITs 
with Acceding and Candidate Countries protects the right of a 
BIT Party to apply measures that it considers necessary to 
protect its own essential security interests, and that good 
faith reliance on the essential security exception would afford 
protection to the BIT Parties. They also note that in the case 
of an Acceding or Candidate Country these essential security 
interests may include those deriving from interests of the EU. 
The U.S. and individual Acceding and Candidate Countries will 
reflect, by means of an interpretation through an exchange of 
letters, these understandings of the general exception 
provision contained in U.S. BITs. (Draft text of an 
interpretation is contained in Annex B.)

II. Performance Requirements

    A.  Because EU requirements in certain sectors may result 
in incompatibilities with Acceding and Candidate Countries' 
obligations with respect to performance requirements in their 
U.S. BITs, the U.S. and individual Acceding and Candidate 
Countries will take steps to amend their bilateral investment 
treaties to provide that the performance requirement provisions 
are without prejudice to EU measures in certain sectors. 
Participants note that an EU measure requiring the use of EU or 
European goods or services may be satisfied by the use of goods 
or services of any country in the EU or Europe, respectively; 
and that such a measure is distinct from a requirement to use, 
in whole or in part, goods or services exclusively from a 
specific Acceding or Candidate Country that is a Party to a 
U.S. BIT. (Draft text of an amendment is contained in Annex C.)

    B.  Furthermore, the U.S. and individual Acceding and 
Candidate Countries will interpret, by exchange of letters, the 
obligations with respect to performance requirements in U.S. 
BITs to clarify that such obligations do not extend to 
performance requirements that merely establish conditions for 
the receipt of an advantage. (Draft text of an interpretation 
is contained in Annex C.)

III. Measures in Sensitive Sectors or Matters

    Because there exist EU-wide measures in sensitive sectors 
that, upon implementation by Acceding and Candidate Countries 
when they become members of the EU, would conflict with the 
non-discrimination obligations (national and/or most-favored-
nation treatment) of their BITs with the U.S., the United 
States and individual Acceding and Candidate Countries will 
take steps, where appropriate exceptions do not exist, to amend 
the agreements as provided in the text in Annex D. (Draft text 
of amendment is contained in Annex D, paragraphs 1 and 2.) The 
Participants also acknowledge that the obligation in Acceding 
and Candidate Countries' BITs of a Party to notify the other 
Party of actions in a sector subject to annex exceptions 
pertains to actions by the BIT Party and not to EU measures.

IV. Obligations with Respect to Third Parties Arising from EU 
        Membership

    U.S. bilateral investment treaties with Acceding and 
Candidate Countries include a general exception to the non-
discrimination obligations for advantages accorded to the 
nationals or companies of any third country arising from either 
BIT Party's obligations as a member in a free trade area or 
customs union. Through an exchange of letters, the U.S. and 
individual Acceding and Candidate Countries will acknowledge 
that the exception covers advantages accorded to third-country 
nationals or companies pursuant to all obligations of a Party 
arising from its membership in an economic integration 
agreement, including the EU, that includes a free trade area or 
customs union. (Draft text of Protocol is contained in Annex 
E.)

V. Future Developments in EU Law

    A.  The Participants acknowledge that Acceding Countries, 
pursuant to Article 307 of the EC Treaty and Article 6.10 of 
the Act of Accession, as applicable, must take all appropriate 
steps to eliminate incompatibilities between the EC Treaty and 
their agreements with third countries, and that similar 
commitments may be undertaken by Candidate Countries. The 
Participants also recognize that the possibility exists that EU 
measures adopted in the future, whether under Article 57.2 of 
the EC Treaty or under any other provision, might not fall 
within the scope of the amendments or interpretations that will 
be made by the U.S. and the Acceding and Candidate Countries 
with respect to their BITs. The Participants further recognize 
that such measures might raise questions with respect to the 
compatibility of obligations arising from international 
agreements between the U.S. and current EU Member States.

    B.  In view of these possibilities, the U.S. and the 
Commission will consult through established means (e.g., 
informal contacts between Commission and U.S. officials 
responsible for investment, contacts through diplomatic 
channels and the U.S.-EU Senior Level Coordinating Group) when 
new EU measures affecting foreign investment are under 
consideration and may raise questions of compatibility with 
pre-existing international agreements between a Member State 
and the U.S. The purpose of such consultations will be to 
address, consistent with the objectives of this Understanding, 
any incompatibility that would arise from the adoption of any 
such measure. The U.S. and the Commission will make a good 
faith effort to take into account, in a manner similar to 
discussions leading to this Understanding, the views of 
Acceding and Candidate Countries, as well as Member States with 
international agreements with the U.S., that may be affected by 
the contemplated measure. In the absence of mutually 
satisfactory conclusions from the future consultations 
foreseen, the Participants acknowledge that the approach in 
this paragraph is without prejudice to the Commission's powers 
under Article 226 of the EC Treaty.

    C.  Furthermore, the United States and individual Acceding 
and Candidate Countries will acknowledge, in the respective 
exchange of instruments bringing into force the amendments 
contemplated in this Understanding, that pursuant to Article 
307 of the EC Treaty and Article 6.10 of the Act of Accession, 
as applicable, countries acceding to the EU must take all 
appropriate steps to eliminate incompatibilities between the EC 
Treaty and their agreements with third countries. In addition, 
they will amend the relevant provisions of their BITs for this 
purpose. (Draft text is contained in Annex F.)

VI. Article 48 ``European Companies''

    Because the operation of Article 48 of the EC Treaty is 
among the reasons that the Commission seeks clarification and 
modification of the non-discrimination commitments in U.S. BITs 
with Acceding and Candidate Countries, and because the 
protection afforded to U.S. investments is of particular 
importance to U.S. investors, the Participants take note of the 
significance of the explanation provided by the Commission 
describing the scope and operation of Article 48 of the EC 
Treaty. (Statement provided at Annex G.)

VII. Protecting Existing Investments

    A.  The Participants acknowledge the Acceding and Candidate 
Countries' obligation under their BITs with the U.S. not to 
apply new discriminatory measures otherwise permitted by these 
countries' exceptions to the non-discrimination commitments of 
their BITs with the U.S. to existing investments. With respect 
to the protection of existing investments in the new sectors 
and matters to be excepted by the amendments described above in 
Section III of this Understanding, the United States and 
individual Acceding and Candidate Countries will take steps to 
amend their BITs to define existing investments and to 
establish the period of protection of such existing investments 
for purposes of these new excepted sectors and matters. (Draft 
text of amendment is contained in Annex D, paragraph 3.)

    B.  Furthermore, given that the protection of existing 
investments is a question relevant both to the accession of new 
members to the EU and to the adoption of new EU measures 
restricting foreign investment, the consultations referred to 
in Section V will be undertaken whenever: (1) the accession of 
new members raises questions concerning the implementation or 
application by the new member of EU measures that would affect 
U.S. investments; or (2) the imposition of new EU measures 
restricting foreign investment within the EU raises questions 
regarding the impact on existing U.S. investments. The 
objective of such consultations will be to protect existing 
investment.

                         Concluding Provisions

    1.  This Understanding constitutes a political arrangement 
reflecting the Participants' intentions with regard to the 
matters it addresses and is not an agreement binding under 
international law.

    2.  The Participants acknowledge that certain matters 
addressed in this Understanding require approval of national 
legislatures. The Participants will inform one another should 
difficulties arise in this regard.

    3.  The Participants will act to complete the steps 
outlined in this Understanding to amend or interpret Acceding 
Countries' BITs with the United States as soon as possible, but 
no later than April 30, 2004, and Candidate Countries' BITs 
with the United States as soon as possible, but no later than 
the date established for accession in their accession agreement 
with the EU.

    4.  Participants acknowledge that enlargement negotiations 
may be launched between the EU and future candidates for EU 
membership that are also Parties to U.S. BITs on the principle 
of full acceptance and implementation upon their accession of 
the acquis communautaire, including obligations under EC Treaty 
Article 307, and that this Understanding may be useful in 
eliminating incompatibilities between the obligations of EU 
membership and obligations under U.S. BITs.


                        Understanding Concerning
               Certain U.S. Bilateral Investment Treaties

                                Annexes

                                ANNEX A

                LIST OF ACCEDING AND CANDIDATE COUNTRIES
              THAT ARE PARTICIPANTS TO THIS UNDERSTANDING

                          Acceding Countries:

                             CZECH REPUBLIC

                                ESTONIA

                                 LATVIA

                               LITHUANIA

                                 POLAND

                            SLOVAK REPUBLIC

                          Candidate Countries:

                                BULGARIA

                                ROMANIA

                                 
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