The following document is released in conjunction with the EU-US Summit
in London on May 18, 1998.
Understanding with Respect to Disciplines for
the Strengthening of Investment Protection
The United States and the European Union (hereinafter, 'the participants').
Recalling the Understanding of April 11, 1997, which stated, inter
alia:
'The EU and the U.S agree to step up their efforts to develop agreed
disciplines and principles for the strengthening of investment protection,
bilaterally and in the context of the Multilateral Agreement on Investment
(MAI) or other appropriate international fora. Recognising that the standard
of protection governing expropriation and nationalisation embodied in
international law and envisioned in the MAI should be respected by all
States. These disciplines should inhibit and deter the future acquisition
of investments from any State which has expropriated or nationalised such
investments in contravention of international law, and subsequent dealings
in covered investments.'
Wish to confirm in this Understanding their intention to propose jointly
in negotiation of the Multilateral Agreement on Investment (MAI) the disciplines
reflected in Part 1 of this Understanding and to apply those disciplines
as a matter of policy, in accordance with Part II prior to entry into
force of the MAI.
I. DISCIPLINES
A. General disciplines
1. The participants reaffirm their commitment to strengthen the international
protection of property rights in the context of investment protection.
2. The participants will make joint or co-ordinated exhortations, diplomatic
efforts and declarations on the observance of international law standards
of expropriation. The importance of taking remedial action when such standards
have not been observed e.g. through restitution or the payment of prompt,
adequate and effective compensation) and the undesirability of investment
in property expropriated in contravention of international law, which
permits the expropriating state to benefit from measures that are illegal
and contrary to sound investment policy.
3. The participants will establish a Registry of claims that allege that
a state other than one of the participants has expropriated property in
contravention of international law (hereinafter 'the Registry'), in accordance
with Annex A. Inclusion of a claim in the Registry does not imply any
judgement as to the validity of the claim.
4. Each participant will assess and take appropriate account of information
that appears in the Registry, in considering requests for government support
or applications for commercial assistance with respect to covered transactions
in registered properties.
5. The participants will urge the adoption by international financial
institutions of policies and programmes that promote a favourable investment
climate by encouraging resolution of expropriation claims and discouraging
covered transactions in expropriated properties.
B. Specific Disciplines
1. Each participant will apply specific disciplines, described below,
to the following properties (herein called 'expropriated properties'):
(a) a property that is the subject of a decision of an international
arbitral tribunal or a final decision by a court of the expropriating
state establishing that a property has been expropriated in contravention
of international law;
(b) a property in respect of which it has been concluded in accordance
with modalities to be elaborated among the participants or under the MAI
that a claimant has a claim, well-founded in law and in fact, of expropriation
in contravention of international law and has not been afforded recourse
to an adequate judicial or arbitral remedy; or
(c) a property in respect of which is has come to the view, as provided
in paragraph I.B.3(d), that the property has been expropriated in contravention
of international law.
(Additional details are provided in Annex B.)
2. In the circumstances described above, each participant will apply
specific disciplines, as follows:
(a) joint or co-ordinated diplomatic representation to the expropriating
state;
(b) denial of government support for covered transactions in expropriated
properties;
(c) denial of government commercial assistance for covered transactions
in expropriated properties; and
(d) publication by each participant of an enumeration of expropriated
properties and public statements by each participant discouraging covered
transactions in the properties therein enumerated.
3. In addition, where a participant is of the view that, in a particular
country, there has been a record of repeated expropriations in contravention
of international law, and that therefore particular care is warranted:
(a) That participant will inform the other participant of this view and
provide information explaining the reasons for it, including, as appropriate,
information about specific claims. It will provide additional information
upon request or if supplemental information becomes available.
(b) The other participant will make that information available to (i)
the government agencies responsible for deciding on government commercial
assistance and government support and (ii) its investors who so request.
(c) The other participant will expeditiously evaluate and take fully
into account that information in reviewing individual requests for commercial
assistance for covered transactions and will give proper consideration
to the question whether there has been an expropriation in contravention
of international law before taking a decision on such requests.
(d) In cases where the other participant comes to the view that an individual
property has been expropriated in such a country in contravention of international
law, it will apply the disciplines described in paragraph I.B.2.
(e) Participants will keep closely in contact and will inform each other
of the actions which they have taken.1
4. With respect to future expropriations in contravention of internal
law, the participants will prevent, subject to applicable legal limitations,2
covered transactions in expropriated property within the scope of paragraph
1(a) or (b) of this chapter.
C. Existing Investments
Given that the participants agreed in the April 11, 1997 Understanding
to develop disciplines to inhibit and deter the future acquisition from
the expropriating state and subsequent dealings in covered investments,
the disciplines will not apply to:-
1. covered transactions related to an expropriated property or a right
to an expropriated property that an investor of one of the participants
acquired from the expropriating state before May 18, 1998, or
2. covered transactions by other investors of a participant that subsequently
acquire that property or perty right.3
D. Definitions
The definitions in Annex C will apply in implementing the disciplines.
II. MODALITIES
1. The United States and the EU may wish to invite other countries to
join them in applying these disciplines on a policy basis.
2. In addition, while this Understanding constitutes a political arrangement
reflecting the participants' intention to apply these disciplines on a
policy basis, the participants will make a joint proposal in the MAI,
which, upon entry into force, will be an agreement binding under international
law.
(a) This joint proposal will include institutional mechanisms necessary
to implement the disciplines on an MAI-wide basis and adaptations of the
existing MAI text.
(b) Even after entry into force of the MAI, it may be appropriate for
certain disciplines to continue to apply bilaterally.
3. The participants will review the implementation and assess the effectiveness
of the disciplines periodically or at any time at one of the participant's
request.
4. The US Administration will continue intensive consultations with
the Congress with a view to obtaining an amendment to Title IV of the Libertad Act that would provide authority for a waiver that would apply,
with respect to the EU, without a specific time limit, so long as this
Understanding is in effect. Application of the disciplines and exercise
of such waiver authority will be simultaneous.
5. The US Administration is prepared, in the light of the EU's developing
efforts to promote democracy and human rights in Cuba, to take soundings
of Congressional opinion and consult Congress with a view to obtaining
a Title III waiver provision that would have no specific time limit, so
long as these efforts continue and bearing in mind the duration of the
presumption of a Title III waiver in the April 1997 Understanding.
6. Taking into account paragraph 5(b) of Annex B, neither participant
will prevent the making of settlements with respect to property as to
which there is a claim of expropriation in contravention of international
law while this Understanding is in effect.
7. The participants will consider whether there should be future work
to further their objective of strengthening the international protection
of property rights in the context of investment protection.
Part III
Annex A
Registry of Claims Alleging Expropriation in Contravention
of International Law
1. A claim that alleges a contravention of international law would be
included in the Registry upon submission of all required information in
support of the allegation that the property was expropriated in contravention
of international law, including: the nationality of the claimant at the
time of the expropriation and at the present, the identification and location
of the property alleged to have been expropriated, proof of ownership
of the claimed property, the facts of the alleged expropriation (e.g.
the date of the alleged expropriation and a description of the measures
alleged to have constituted an expropriation), the value of the property,
any efforts by the claimant to exhaust local remedies or otherwise to
resolve the claim and whether the allegedly expropriating state has agreed
to compulsory and binding dispute settlement, such as pursuant to a contractual
arbitration clause, ad hoc agreement or a bilateral investment agreement.
2. A property would be removed from the Registry if the claimant failed
to provide annually updated information the parties settled the claim
or the state complied with an arbitral award or with a judicial decision
that was consistent with the international law of expropriation, with
respect to the subject property.
3. With respect to a property alleged to have been expropriated prior
to the effective date of the disciplines, the claimant would have one
year from the establishment of the Registry to submit information for
inclusion in the Registry.
4. Information regarding a particular registered claim would be made
available, upon request, to: investors or claimants, the participants
(including their respective commercial assistance entities) and other
interested governments.
5. The participants will need to address other details regarding the
Registry. For example, in the context of the proposed Registry to be administered
by the MAI Secretariat, the participants have contemplated that the Secretariat
would charge fees to cover the costs of administering the Registry. Similar
arrangements may be appropriate for a Registry that applies only between
the United States and the EU.
Annex B
Specific Disciplines
Upon entry into force of the MAI, and, prior to that, on a policy basis,
this Annex will provide additional guidance with respect to the implementation
of the specific disciplines, as follows:
1. The participants will apply the disciplines with respect to an arbitral
award or judicial decision described in paragraph (1)(a) of Part I.B if
the expropriating state fails to comply with the award or decision the
period specified by the award or decision or by an applicable international
agreement, applicable international instrument, or, if no such period
is specified, if the expropriating state's failure to comply is not legally
justified.
2. The participants will develop modalities for the application of paragraph
B.1(b) of Part I. Those modalities will be based on the use of all available
information and will address such matters as costs. Non-co-operation of
the expropriating state should not prevent a conclusion under paragraph
B.1(b) of Part I.
3. A participant, in informing another participant of its views on whether
there is an established record of repeated expropriation in contravention
of international law, as contemplated by paragraphs 3 of part B. will
take account of the following factors:
(a) whether there is a large number of value of claims of expropriate
in contravention of international law against a state, including inter
alia any claims that have been evaluated by an arbitral tribunal, the
judiciary of the expropriating state, or an administrative mechanism of
the state of the claimants' nationality;
(b) whether the expropriating state has offered compensation consistent
with international law, a domestic procedure offering compensation consistent
with international law, or international arbitration of the claims;
(c) whether the expropriations were carried out for a valid public purpose;
(d) whether the expropriations were discriminatory;
(e) whether the expropriations were carried out without due process.
4. Properties in respect of which the claim has been settled or where
the claimant's government advises that it is not actively pursuing the
claim or that the unsettled claim has been abandoned by the claimant,
are excluded from the scope of this Understanding.
5. The participants will stop applying the disciplines with respect to
an expropriated property:
(a) once the expropriating state has submitted the dispute to international
arbitration or international judicial settlement has made restitution
or has provided prompt, adequate and effective compensation to the claimant;
or
(b) upon request of the claimant.
Annex C
Definitions
1. Covered transactions
A 'covered transaction' means any future transaction related to property
expropriated by a state other than a participant4
insofar as it gives rise to:
(a) a direct ownership interest in such a property (e.g. purchase of
expropriated property, obtaining mineral rights (to the extent that these
were included in the expropriated property));
(b) control of all or part of an expropriated property (e.g. lease of
the expropriated property or a management or development contract);
(c) the acquisition of effective control or a determining interest in
an entity owning or controlling expropriated property under (a) or (b)
insofar as the property constitutes a significant proportion of the assets
of that entity or the expropriated property is a fundamental element of
the transaction.5
The term 'covered transaction' does not include transactions that are
limited to the purchase of goods or services produced on expropriated
property or to the provision of goods or services to the investor.6
2. Government commercial assistance
'Government commercial assistance' means assistance as equity participation,
loans, grants, subsidies, fiscal advantages, guarantees and insurance.
3. Government support
'Government support' means the forms of support normally performed by
embassies and commercial, foreign and trade ministries.
Annex D
London, 18 May 1998
Secretary of State Madeleine Albright
I have taken note of the information provided by the US on expropriations
of property in Cuba owned by United States nationals following the 1959
Cuban Revolution.
The Commission has discussed the matter with the United States, which
provided us with information related to the working methods of the US
Foreign Claims Settlement Commission (FCSC) and the historical record.
We have also examined information related to expropriations, provided
by the US in support of its view that there was an established record
of repeated expropriates in Cuba, including a small number of the 5911
claims certified by the FCSC.
In the course of these discussions, we were able to identify a number
of cases where, having regard to the discriminatory provisions on Cuban
Law 851, it appears that the expropriations were contrary to international
law.
Accordingly, in these cases it is reasonable to assume that the provisions
of paragraph I.B.2 agreed between the United States and the European Union
in the framework of the Understanding with Respect to Disciplines for
the Strengthening of Investment Protection, on 18 May 1998, would be applied.
If, as the United States indicates, the cases mentioned above are typical
of the other expropriations, in our view, it is reasonable to assume that,
if those other expropriations were reviewed, as provided for under paragraph
I.B.3, this would lead to a similar result.
[signed]
Sir Leon Brittan
Vice President of the European Commission
Understanding on Conflicting Requirements
The United States and the European Union, recalling the Understanding
of April 11, 1997, which stated, inter alia, that they would 'work together
to address and resolve through agreed principles, the issue of conflicting
jurisdictions, including issues affecting investors of another party because
of their investments in third countries', wish to confirm in this Understanding
their intention to propose jointly in negotiation of the Multilateral
Agreement on Investment the following article regarding conflicting requirements:
(1) 'In contemplating new legislation, action under existing legislation
or other exercise of jurisdiction which may conflict with the legal requirements
or established policies of another Contracting Party and lead to conflicting
requirements being imposed on investors or their investments, the Contracting
Parties concerned should:
(a) have regard to relevant principles of international law;
(b) endeavour to avoid or minimise such conflicts and the problems to
which they give rise by following an approach of moderation and restraint,
respecting and accommodating the interests of other Contracting Parties;
(c) take fully into account the sovereignty and legitimate economic law
enforcement and other interests of other Contracting Parties;
(d) bear in mind the importance of permitting the observance of contractual
obligations and the possible adverse impact of measures having a retroactive
effect.
(2) Contracting Parties should endeavour to promote co-operation as an
alternative to unilateral action to avoid or minimise conflicting requirements
and problems arising therefrom.
(3) Contracting Parties should on request consult with each other in
accordance with paragraph x of Article y (Consultations section of Dispute
Settlement provisions) and endeavour to arrive at mutually acceptable
solutions to such problems, it being understood that such consultations
would be facilitated by notification at the earliest stage practicable.
(4) If the consultations under paragraph 3 do not result in a mutually
satisfactory resolution of the claim either of the Contracting Parties
can bring the matter to the attention of the Parties Group. Pursuant to
Article XX (the Parties Group), the Parties Group will consider the matter
in the light of the agreed principles stated in paragraph 1, with a view
towards resolving the matter.
(5) The Parties Group may review in accordance with Article .. (Review)
the implementation and assess the effectiveness of this Article.'
NB: It is understood that nothing in the MAI excludes this provision
from MAI dispute settlement.
Notes:
1. The European Commission, on behalf of the EU, has
had the opportunity to examine certain information relating to the expropriation
of properties and the details of that examination and the conclusions
drawn therefrom are set out in Annex D.
2. With respect to these legal limitations, the United
States notes that, in connection with the introduction of legislation
amending Title IV of the Libertad Acted as contemplated in Part II, the
US Administration would propose legislation providing authority to implement
this provision. Such legislation would also address any other matters
in this Understanding as to which the US Administration determines that
additional legislation authority is appropriate. The EU notes that capital
movements to and from third countries are generally liberalized, but that
limitations on capital movements relating to foreign direct investment
can be imposed.
3. The disciplines will apply to covered transactions
after May 18, 1998 that are related to property that has been reacquired
by the expropriated state and to covered transactions after May 18, 1998
that are related to expropriated property in addition to those acquired
from the state prior to May 18, 1998. Thus, for example, the disclosures
would apply to the renewal of rights, or the acquisition of anew or upgraded
rights to expropriated property, if such renewal of rights or new or upgraded
right is additional to the rights acquired from the state prior to May
18, 1998.
4. A covered transaction is 'related to' an expropriated
property when it is specifically in support of the acquisition and constitutes
an indispensible part. In such circumstances, it extends to the financing,
guarantee or insurance of the acquisition.
5. In assessing whether a transaction gives rise to the
acquisition of a determining interest, participants will consider whether
the transaction gives rise to a direct investment relationship, in light,
inter alia, of criteria contained in the OECD's 1992 publication regarding
the benchmark definition of foreign investment.
6. In addition, recognizing that some commercial assistance
agencies support equity funds focused on particular regions or countries,
a transaction by such an equity fund in a portfolio of which expropriated
property is an evident asset should be considered a covered transaction
in the sense that the participants would refrain from providing loans,
grants, insurance or guarantees in such circumstances.
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