U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

79–118

" ! SENATE 106TH CONGRESS

2d Session

TREATY DOC.

2000

106–28

INVESTMENT TREATY WITH EL SALVADOR

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES

OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF EL

SALVADOR CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX AND PROTOCOL, SIGNED AT SAN SALVADOR ON MARCH 10, 1999

MAY 23, 2000.—Treaty was read the first time, and together with the

accompanying papers, referred to the Committee on Foreign Relations

and ordered to be printed for the use of the Senate

(III)

LETTER OF TRANSMITTAL

THE WHITE HOUSE, May 23, 2000.

To the Senate of the United States:

With a view to receiving the advice and consent of the Senate to

ratification, I transmit herewith the Treaty Between the Government of the United States of America and the Government of the

Republic of El Salvador Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol, signed at

San Salvador on March 10, 1999. I transmit also, for the information of the Senate, the report of the Department of State with respect to this Treaty.

The bilateral investment treaty (BIT) with El Salvador is the

seventh such treaty with a Central or South American country. The

Treaty will protect U.S. investment and assist El Salvador in its

efforts to develop its economy by creating conditions more favorable

for U.S. private investment and thereby strengthening the development of its private sector.

The Treaty is fully consistent with U.S. policy toward international and domestic investment. A specific tenet of U.S. policy,

reflected in this Treaty, is that U.S. investment abroad and foreign

investment in the United States should receive national treatment.

Under this Treaty, the Parties also agree to customary international law standards for expropriation. The Treaty includes detailed provisions regarding the computation and payment of

prompt, adequate, and effective compensation for expropriation;

free transfer of funds related to investments; freedom of investments from specific performance requirements; fair, equitable, and

most-favored-nation treatment; and the investor’s freedom to

choose to resolve disputes with the host government through international arbitration.

I recommend that the Senate consider this Treaty as soon as possible, and give its advice and consent to ratification of the Treaty

at an early date.

WILLIAM J. CLINTON.

(V)

LETTER OF SUBMITTAL

DEPARTMENT OF STATE, Washington, April 24, 2000.

THE PRESIDENT: I have the honor to submit to you the Treaty Between the Government of the United States of America and the

Government of the Republic of El Salvador Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and

Protocol, signed at San Salvador on March 10, 1999. I recommend

that this Treaty, with Annex and Protocol, be transmitted to the

Senate for its advice and consent to ratification.

The bilateral investment treaty (BIT) with El Salvador is the

seventh such treaty signed between the United States and a Central or South American country. The Treaty is based on the view

that an open investment policy contributes to economic growth.

This Treaty will assist El Salvador in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thereby strengthening the development of its private sector. It is U.S. policy, however, to advise potential treaty partners

during BIT negotiations that conclusion of such a treaty does not

necessarily result in increases in private U.S. investment flows.

To date, 31 BITs are in force for the United States—with Albania, Argentina, Armenia, Bangladsh, Bulgaria, Cameroon, the Republic of the Congo, the Democratic Republic of the Congo (formerly Zaire), the Czech Republic, Ecuador, Egypt, Estonia, Georgia, Grenada, Jamaica, Kazakhstan, Kyrgyzstan, Latvia, Moldova,

Mongolia, Morocco, Panama, Poland, Romania, Senegal, Slovakia,

Sri Lanka, Trinidad & Tobago, Tunisia, Turkey, and Ukraine. In

addition to the Treaty with El Salvador, the United States has

signed, but not yet brought into force, BITs with Azerbaijan, Bahrain, Belarus, Bolivia, Croatia, Honduras, Jordan, Lithuania, Mozambique, Nicaragua, Russia, and Uzbekistan.

The Office of the United States Trade Representative and the

Department of State jointly led this BIT negotiation, with assistance from the Departments of Commerce and Treasury.

THE U.S.-EL SALVADOR TREATY

The Treaty with El Salvador is based on the 1994 U.S. prototype

BIT and satisfies the U.S. principal objectives in bilateral investment treaty negotiations:

—All forms of U.S. investment in the territory of El Salvador

are covered.

—Covered investments receive the better of national treatment or most-favored-nation (MFN) treatment both while they

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are being established and thereafter, subject to certain specified exceptions.

—Specified performance requirements may not be imposed

upon or enforced against covered investments.

—Expropriation is permitted only in accordance with customary international law standards.

—Parties are obligated to permit the transfer, in a freely usable currency, of all funds related to a covered investment,

subject to exceptions for specified purposes.

—Investment disputes with the host government may be

brought by investors, or by their covered investments, to binding international arbitration as an alternative to domestic

courts.

These elements are further described in the following article-byarticle analysis of the provisions of the Treaty:

Title and Preamble

The Title and Preamble state the goals of the Treaty. Foremost

is the encouragement and protection of investment. Other goals include economic cooperation on investment issues; the stimulation of

economic development; higher living standards; promotion of respect for internationally-recognized worker rights; and maintenance of health, safety, and environmental measures. While the

Preamble does not impose binding obligations, its statement of

goals may assist in interpreting the Treaty and in defining the

scope of Party-to-Party consultations pursuant to Article VIII.

Article I (Definitions)

Article I defines terms used throughout the Treaty.

Company, Company of a Party

The definition of ‘‘company’’ is broad, covering all types of legal

entities constituted or organized under applicable law, and includes

corporations, trusts, partnerships, sole proprietorships, branches,

joint ventures, and associations. The definition explicitly covers

not-for-profit entities, as well as entities that are owned or controlled by the state. ‘‘Company of a Party’’ is defined as a company

constituted or organized under the laws of that Party.

National

The Treaty defines ‘‘national’’ as a natural person who is a national of a Party under its own laws. Under U.S. law, the term ‘‘national’’ is broader than the term ‘‘citizen.’’ For example, a native of

American Samoa is a national of the United States, but not a citizen.

Investment, Covered Investment

The Treaty’s definition of investment is broad, recognizing that

investment can take a wide variety of forms. Every kind of investment is specifically incorporated in the definition; moreover, it is

explicitly noted that investment may consist or take the form of

any of a number of interests, claims, and rights.

The Treaty provides an illustrative list of the forms an investment may take. Establishing a subsidiary is a common way of makVerDate 11-MAY-2000 07:29 May 25, 2000 Jkt 079118 PO 00000 Frm 00006 Fmt 7633 Sfmt 6602 E:\HR\OC\TD028.XXX pfrm03 PsN: TD028
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ing an investment. Other forms that an investment might take include equity and debt interests in a company; contractual rights;

tangible, intangible, and intellectual property; and rights conferred

pursuant to law, such as licenses and permits. Investment as defined by the Treaty generally excludes claims arising solely from

trade transactions, such as a sale of goods across a border that

does not otherwise involve an investment.

The Treaty defines ‘‘covered investment’’ as an investment of a

national or company of a Party in the territory of the other Party.

An investment of a national or company is one that the national

or company owns or controls, either directly or indirectly. Indirect

ownership or control could be through other, intermediate companies or persons, including those of third countries. Control is not

specifically defined in the Treaty; ownership of over 50 percent of

the voting stock of a company would normally convey control, but

in many cases the requirement could be satisfied by less than that

proportion, or by other arrangements.

The broad nature of the definitions of ‘‘investment,’’ ‘‘company,’’

and ‘‘company of a Party’’ means that investments can be covered

by the Treaty even if ultimate control lies with non-Party nationals. A Party may, however, deny the benefits of the Treaty in the

limited circumstances described in Article XII.

State Enterprise, Investment Authorization, Investment

Agreement

The Treaty defines ‘‘state enterprise’’ as a company owned, or

controlled through ownership interests, by a Party. Purely regulatory control over a company does not qualify it as a state enterprise.

The Treaty defines an ‘‘investment authorization’’ as an authorization granted by the foreign investment authority of a Party to

a covered investment or a national or company of the other Party.

The Treaty defines an ‘‘investment agreement’’ as a written

agreement between the national authorities of a Party and a covered investment or a national or company of the other Party that

(1) grants rights with respect to natural resources or other assets

controlled by the national authorities and (2) the investment, national, or company relies upon in establishing or acquiring a covered investment. This definition thus excludes agreements with

subnational authorities (including U.S. States) as well as agreements arising from various types of regulatory activities of the national government, including, in the tax area, rulings, closing

agreements, and advance pricing agreements.

ICSID Convention, Centre, UNCITRAL Arbitration Rules

The ‘‘ICSID Convention,’’ ‘‘Centre,’’ and ‘‘UNCITRAL Arbitration

Rules’’ are explicitly defined to make the text brief and clear.

Article II (Treatment of Investment)

Article II contains the Treaty’s major obligations with respect to

the treatment of covered investments.

Paragraph 1 generally ensures the better of national or MFN

treatment in both the entry and post-entry phases of investment.

It thus prohibits, outside of exceptions listed in the Annex, ‘‘screenVerDate 11-MAY-2000 07:29 May 25, 2000 Jkt 079118 PO 00000 Frm 00007 Fmt 7633 Sfmt 6602 E:\HR\OC\TD028.XXX pfrm03 PsN: TD028
VIII

ing’’ on the basis of nationality during the investment process, as

well as nationality-based post-establishment measures. For purposes of the Treaty, ‘‘national treatment’’ means treatment no less

favorable than that which a Party accords, in like situations, to investments in its territory of its own nationals or companies. For

purposes of the Treaty, ‘‘MFN treatment’’ means treatment no less

favorable than that which a Party accords, in like situations, to investments in its territory of nationals or companies of a third country. The Treaty obliges each Party to provide whichever of national

treatment or MFN treatment is the most favorable. This is defined

by the Treaty as ‘‘national and MFN treatment.’’ Paragraph 1 explicitly states that the national and MFN treatment obligation will

extend to state enterprises in their provision of goods and services

to covered investments.

Paragraph 2 states that each Party may adopt or maintain exceptions to the national and MFN treatment standard with respect

to the sectors or matters specified in the Annex. Further restrictive

measures are permitted in each sector. (The specific exceptions are

discussed in the section entitled ‘‘Annex’’ below.) In the Annex, Parties may take exceptions only to the obligation to provide national

and MFN treatment; there are no sectoral exceptions to the rest of

the Treaty’s obligations. Finally, in adopting any exception under

this provision, a Party may not require the divestment of a preexisting covered investment.

Paragraph 2 also states that a Party is not required to extend

to covered investments national and MFN treatment with respect

to procedures provided for in multilateral agreements concluded

under the auspices of the World Intellectual Property Organization

relating to the acquisition or maintenance of intellectual property

rights. This provision clarifies that certain procedural preferences

granted under intellectual property conventions, such as the Patent

Cooperation Treaty, fall outside the BIT. This exception parallels

those in the Uruguay Round’s Agreement on Trade-Related Aspects

of Intellectual Property Rights (TRIPS) and the North American

Free Trade Agreement (NAFTA).

Paragraph 3 sets out a minimum standard of treatment based on

standards found in customary international law. The obligations to

accord ‘‘fair and equitable treatment’’ and ‘‘full protection and security’’ are explicitly cited, as is each Party’s obligation not to impair,

through unreasonable and discriminatory means, the management,

conduct, operation, and sale or other disposition of covered investments. The general reference to international law also implicitly incorporates other fundamental rules of customary international law

regarding the treatment of foreign investment. However, this provision does not incorporate obligations based on other international

agreements.

Paragraph 4 requires that each Party provide effective means of

asserting claims and enforcing rights with respect to covered investments.

Paragraph 5 ensures the transparency of each Party’s regulation

of covered investments.

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Article III (Expropriation)

Article III incorporates into the Treaty customary international

law standards for expropriation. Article III also includes detailed

provisions regarding the computation and payment of prompt, adequate, and effective compensation.

Paragraph 1 describes the obligations of the Parties with respect

to expropriation and nationalization of a covered investment. These

obligations apply to both direct expropriation and indirect expropriation through measures ‘‘tantamount to expropriation or nationalization’’ and thus apply to ‘‘creeping expropriations’’—a series of

measures that effectively amounts to an expropriation of a covered

investment without taking title.

Paragraph 1 further bars all expropriations or nationalizations

except those that are for a public purpose; carried out in a non-discriminatory manner; in accordance with due process of law; in accordance with the general principles of treatment provided in Article II(3); and subject to ‘‘prompt, adequate and effective compensation.’’

Paragraphs 2, 3, and 4 more fully describe the meaning of

‘‘prompt, adequate and effective compensation.’’ The guiding principle is that the investor should be made whole.

Article IV (Compensation for Damages Due to War and Similar

Events)

Paragraph 1 entitles investments covered by the Treaty to national and MFN treatment with respect to any measure relating to

losses suffered in a Party’s territory owing to war or other armed

conflict, civil disturbances, or similar events. Paragraph 2, by contrast, creates an unconditional obligation to pay compensation for

such losses when the losses result from requisitioning or from destruction not required by the necessity of the situation.

Article V (Transfers)

Article V protects investors from certain government exchange

controls that limit current and capital account transfers, as well as

limits on inward transfers made by screening authorities and, in

certain circumstances, limits on returns in kind.

In paragraph 1, each Party agrees to ‘‘permit all transfers relating to a covered investment to be made freely and without delay

into and out of its territory.’’ Paragraph 1 also provides a list of

transfers that must be allowed. The list is non-exclusive, and is intended to protect flows to both affiliated and non-affiliated entities.

Paragraph 2 provides that each Party must permit transfers to

be made in a ‘‘freely usable currency’’ at the market rate of exchange prevailing on the date of transfer. ‘‘Freely usable’’ is a term

used by the International Monetary Fund; at present there are five

‘‘freely usable’’ currencies: the U.S. dollar, Japanese yen, German

mark, French franc, and British pound sterling.

In paragraph 3, each Party agrees to permit returns in kind to

be made where such returns have been authorized by an investment authorization or written agreement between a Party and a

covered investment or a national or company of the other Party.

Paragraph 4 recognizes that, notwithstanding the obligations of

paragraphs 1 through 3, a Party may prevent a transfer through

X

the equitable, non-discriminatory, and good faith application of

laws relating to bankruptcy, insolvency, or the protection of the

rights of creditors; securities; criminal or penal offenses; or ensuring compliance with orders or judgments in adjudicatory proceedings.

Article VI (Performance Requirements)

Article VI prohibits either Party from mandating or enforcing

specified performance requirements as a condition for the establishment, acquisition, expansion, management, conduct, or operation of

a covered investment. The list of prohibited requirements is exhaustive and covers domestic content requirements and domestic

purchase preferences, the ‘‘balancing’’ of imports or sales in relation

to exports or foreign exchange earnings, requirements to export

products or services, technology transfer requirements, and requirements relating to the conduct of research and development in

the host country. Such requirements are major burdens on investors and impair their competitiveness.

The last sentence of Article VI makes clear that a Party may,

however, impose conditions for the receipt or continued receipt of

benefits and incentives.

Article VII (Entry, Sojourn, and Employment of Aliens)

Paragraph 1 requires each Party to allow, subject to its laws relating to the entry and sojourn of aliens, the entry into its territory

of the other Party’s nationals for certain purposes related to a covered investment and involving the commitment of a ‘‘substantial

amount of capital.’’ This paragraph serves to render nationals of El

Salvador eligible for treaty-investor visas under U.S. immigration

law. It also affords similar treatment for U.S. nationals entering El

Salvador. The requirement to commit a ‘‘substantial amount of capital’’ is intended to prevent abuse of treaty-investor status; it parallels the requirements of U.S. immigration law.

In addition, paragraph 1(b) prohibits labor certification requirements and numerical restrictions on the entry of treaty-investors.

Paragraph 2 prohibits either Party from requiring that an investment appoint to senior management positions individuals of any

particular nationality. This variation from the prototype BIT is

based on the corresponding provision in the NAFTA and was requested by El Salvador.

Article VIII (State-State Consultations)

Article VIII provides for prompt consultation between the Parties, at either Party’s request, on any matter relating to the interpretation or application of the Treaty or to the realization of the

Treaty’s objectives. A Party may thus request consultations for any

matter reasonably related to the encouragement or protection of

covered investment, whether or not a Party is alleging a violation

of the Treaty.

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

Article IX sets forth several means by which disputes brought

against a Party by an investor (specifically, a national or company

of the other Party) may be resolved.

Article IX procedures apply to an ‘‘investment dispute,’’ which is

any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the Treaty with respect to a covered investment.

In the event that an investment dispute cannot be settled amicably, paragraph 2 gives an investor an exclusive (with the exception in paragraph 3(b) concerning injunctive relief, explained

below) choice among three options to settle the dispute. These

three options are: (1) submitting the dispute to the courts or administrative tribunals of the Party that is a party to the dispute;

(2) invoking dispute-resolution procedures previously agreed upon

by the national or company and the host country government; or

(3) invoking the dispute-resolution mechanisms identified in paragraph 3 of Article IX.

Under paragraph 3(a), the investor can submit an investment

dispute to binding arbitration 90 after the dispute arises, provided

that the investor has not submitted the claim to a court or administrative tribunal of the Party or invoked a dispute resolution procedure previously agreed upon. The investor may choose among the

International Centre for Settlement of Investment Disputes

(ICSID) (Convention Arbitration), the Additional Facility of ICSID

(if Convention Arbitration is not available), ad hoc arbitration

using the Arbitration Rules of the United Nations Commission on

International Trade Law (UNCITRAL), or any other arbitral institution or rules agreed upon by both parties to the dispute.

Before or during such arbitral proceedings, however, paragraph

3(b) provides that an investor may seek, without affecting its right

to pursue arbitration under this Treaty, interim injunctive relief

not involving the payment of damages from local courts or administrative tribunals of the Party that is a party to the dispute for the

preservation of its rights and interests. This paragraph does not

alter the power of the arbitral tribunals to recommend or order interim measures they may deem appropriate.

Paragraph 4 constitutes each Party’s consent to the submission

of investment disputes to binding arbitration in accordance with

the choice of the investor.

Paragraph 5 provides that any non-ICSID Convention arbitration

shall take place in a country that is a party to the United Nations

convention on the Recognition and Enforcement of Arbitral Awards.

This provision facilitates enforcement of arbitral awards.

In addition, in paragraph 6, each Party commits to enforcing arbitral awards rendered pursuant to this Article. The Federal Arbitration Act (9 U.S.C. 1 et seq.) satisfied the requirement for the enforcement of non-ICSID convention awards in the United States.

The convention on the Settlement of Investment Disputes Act of

1966 (22 U.S.C. 1650–1650a) provides for the enforcement of ICSID

convention awards.

XII

Paragraph 7 ensures that a Party may not assert as a defense,

or for any other reason, that the investor involved in the investment dispute has received or will receive reimbursement for the

same damages under an insurance or guarantee contract.

Paragraph 8 provides that, for the purposes of this article, the

nationality of a company in the host country will be determined by

ownership or control, rather than by place of incorporation. This

provision allows a company that is a covered investment to bring

a claim in its own name.

Article X (Settlement of Disputes Between the Parties)

Article X provides for binding arbitration of disputes between the

United States and El Salvador concerning the interpretation or application of the Treaty that are not resolved through consultations

or other diplomatic channels. The article specifies various procedural aspects of such arbitration proceedings, including time periods, selection of arbitrators, and distribution of arbitration costs between the Parties. The article constitutes each Party’s prior consent to such arbitration.

Article XI (Preservation of Rights)

Article XI clarifies that the Treaty does not derogate from any

obligation a Party might have to provide better treatment to the

covered investment than is specified in the Treaty. Thus, the Treaty establishes a floor for the treatment of covered investments. A

covered investment may be entitled to more favorable treatment

through domestic legislation, other international legal obligations,

or a specific obligation (e.g., to provide a tax holiday) assumed by

a Party with respect to that covered investment.

Article XII (Denial of Benefits)

Article XII(a) preserves the right of each Party to deny the benefits of the Treaty to a company owned or controlled by nationals

of a non-Party country with which the denying Party does not have

normal economic relations, e.g., a country to which it is applying

economic sanctions. For example, at this time the United States

does not maintain normal economic relations with, among other

countries, Cuba and Libya.

Article XII(b) permits each Party to deny the benefits of the

Treaty to a company of the other Party if the company is owned

or controlled by non-Party nationals and if the company has no

substantial business activities in the Party where it is established.

Thus, the United States could deny benefits to a company that is

a subsidiary of a shell company organized under the laws of El Salvador if controlled by nationals of a third country. However, this

provision would not generally permit the United States to deny

benefits to a company of El Salvador that maintains its central administration or principal place of business in the territory of, or has

a real and continuous link with, El Salvador.

Article XIII (Taxation)

Article XIII excludes tax matters generally from the coverage of

the BIT, on the basis that tax matters should be dealt with in bilateral tax treaties. However, Article XIII does not preclude a naVerDate 11-MAY-2000 07:29 May 25, 2000 Jkt 079118 PO 00000 Frm 00012 Fmt 7633 Sfmt 6602 E:\HR\OC\TD028.XXX pfrm03 PsN: TD028
XIII

tional or company from bringing claims under Article IX that taxation provisions in an investment agreement or authorization have

been violated. In addition, the dispute settlement provisions of Article IX and X apply to tax matters in relation to alleged violations

of the BIT’s expropriation article.

Under paragraph 2, a national or company that asserts in a dispute that a tax matter involves expropriation may submit that dispute to arbitration pursuant to Article IX(3) only if (1) the investor

has first referred to the competent tax authorities of both Parties

the issue of whether the tax matter involves an expropriation, and

(2) the tax authorities have not both determined, within 9 months

from the time of referral, that the matter does not involve an expropriation. The ‘‘competent tax authority’’ of the United States is

the Assistant Secretary of the Treasury for Tax Policy, who will

make such a determination only after consultation with the InterAgency Staff Coordinating Group on Expropriations.

Article XIV (Measures Not Precluded)

The first paragraph of Article XIV reserves the right of a Party

to take measures that it considers necessary for fulfillment of its

international obligations with respect to maintenance or restoration of international peace or security, or for the protection of its

own essential security interests.

International obligations with respect to maintenance or restoration of peace or security would include, for example, obligations

arising out of Chapter VII of the United Nations Charter. Measures permitted by the provision on the protection of a Party’s essential security interests would include security-related actions

taken in time of war or national emergency. Actions not arising

from a state of war or national emergency must have a clear and

direct relationship to the essential security interests of the Party

involved. This Treaty makes explicit the implicit understanding

that measures to protect a Party’s essential security interests are

self-judging in nature, although each Party would expect the provisions to be applied by the other in good faith.

The second paragraph permits a Party to prescribe special formalities in connection with covered investments, provided that

these formalities do not impair the substance of any Treaty rights.

Such formalities could include reporting requirements for covered

investments or for transfers of funds, or incorporation requirements.

Article XV (Application to Political Subdivisions and State Enterprises of the Parties)

Paragraph 1(a) makes clear that the obligations of the Treaty are

applicable to all political subdivisions of the Parties, such as provincial, State, and local governments.

Paragraph 1(b) recognizes that under the U.S. federal system,

States of the United States may, in some instances, treat out-ofState residents and corporations in a different manner than they

treat in-State residents and corporations. The Treaty provides that

the national treatment commitment, with respect the States,

means treatment no less favorable than that provided by a State

to U.S. out-of-State residents and corporations.

XIV

Paragraph 2 extends a Party’s obligations under the Treaty to its

state enterprises in the exercise of any delegated governmental authority. This paragraph is designed to clarify that the exercise of

governmental authority by a state enterprise must be consistent

with a Party’s obligations under the Treaty.

Article XVI (Entry Into Force, Duration, and Termination)

Paragraph 1 stipulates that the Treaty enters into force 30 days

after exchange of instruments of ratification. The Treaty remains

in force for a period of 10 years and continues in force thereafter

unless terminated by either Party as provided in paragraph 2.

Paragraph 2 permits a Party to terminate the Treaty at the end

of the initial 10 year period, or at any later time, by giving 1 year’s

written notice to the other Party. Paragraph 1 also provides that

the Treaty applies to covered investment existing at the time of

entry into force as well as to those established or acquired thereafter. The Protocol to the Treaty, at paragraph 2, confirms the Parties’ understanding that the provisions of the Treaty do not bind

either Party in relation to any act of fact that took place or any

situation that ceased to exist before entry into force of the Treaty.

This provision thus explicitly states the standard under customary

international law that applies in the absence of the Parties’ express

intent to apply the treaty retroactively.

Paragraphh 3 provides that, if the Treaty is terminated, all investments that qualified as covered investments on the date of termination (i.e., 1 year after the date of written notice of termination) continue to be protected under the Treaty for 10 years from

that date as long as these investments qualify as covered investments. A Party’s obligations with respect to the establishment and

acquisition of investments would lapse immediately upon the date

of termination of the Treaty.

Paragraph 4 stipulates that the Annex and Protocol shall form

an integral part of the Treaty.

Annex

U.S. bilateral investment treaties allow for exceptions to national

and MFN treatment, where the Parties’ domestic regimes do not afford national and MFN treatment, or where treatment in certain

sectors or matters is negotiated in and governed by other agreements. Future derogations from the national treatment obligations

of the Treaty are generally permitted only in the sectors or matters

listed in the Annex, pursuant to Article II(2), and must be made

on an MFN basis unless otherwise specified therein.

Under a number of statutes, many of which have a long historical background, the U.S. federal government or States may not

necessarily treat investments of national or companies of El Salvador as they do U.S. investments or investments from a third

country. Paragraph 1 and 2 of the Annex list the sectors or matters

subject to U.S. exceptions.

The U.S. exception from its national treatment obligation are:

atomic energy; customhouse brokers; licenses for broadcast, common carrier, or aeronautical radio stations; COMSAT; subsidies or

grants, including government-supported loans, guarantees, and insurance; State and local measures exempt from Article 1102 of the

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North American Free Trade Agreement pursuant to Article 1108

thereof; and landing of submarine cables.

The U.S. exceptions from its national and MFN treatment obligation are: fisheries; air and maritime transport, and related activities; banking, insurance, securities, and other financial services;

and one-way satellite transmissions of Direct-to-Home (DTH) and

Direct Broadcast Satellite (DBS) television services and of digital

audio services.

Paragraph 3 of the Annex lists El Salvador’s exceptions from its

national treatment obligation, which are: small commerce, small industry, and small service providers, as defined in the Ley

Reguladora del Ejercicio del Comercio e Industria, as published in

Diario Oficial No. 23, February 4, 1970; traditional (artisan) fishing, whether in seas, lakes, or rivers; and commercial fishing.

Paragraph 4 of the Annex lists El Salvador’s exception from its

national and MFN treatment obligation, which is: notary public

services.

Paragraph 5 of the Annex ensures that national treatment is

granted by each Party in all leasing of minerals or pipeline rightsof-way on government lands. In so doing, this provision affects the

implementation of the Minerals Lands Leasing Act (MLLA) (30

U.S.C. 181 et seq.) and 10 U.S.C. 7435, regarding Naval Petroleum

Reserves, with respect to nationals and companies of El Salvador.

The Treaty provides for resort to binding international arbitration

to resolve disputes, rather than denial of mineral rights or rights

to naval petroleum shares to investors of the other Party, as is the

current process under the statute. U.S. domestic remedies, would,

however, remain available for use in conjunction with the Treaty’s

provisions.

The MLLA and 10 U.S.C. 7435 direct that a foreign investor be

denied access to leases for minerals on onshore federal lands,

leases of land within the Naval Petroleum and Oil Shale Reserves,

and rights-of-way for oil or gas pipelines across on-shore federal

lands, if U.S. investors are denied access to similar or like privileges in the foreign country.

El Salvador’s extension of national treatment in these sectors

will fully meet the objectives of the MLLA and 10 U.S.C. 7435. El

Salvador was informed during negotiations that, were it to include

this sector in its list of treatment exemptions, the United States

would (consistent with the MLLA and 10 U.S.C. 7435) exclude the

leasing of minerals or pipeline rights-of-way on Government lands

from the national and MFN treatment obligations of this Treaty.

The listing of a sector or matter in the Annex does not necessarily signify that domestic laws have entirely reserved it for nationals. And, pursuant to Article II(2), any additional restrictions

or limitations that a Party may adopt with respect to listed sectors

or matters may not compel the divestiture of existing covered investments.

Finally, listing a sector or matter in the Annex exempts a Party

only from the obligation to accord national or MFN treatment. Both

Parties are obligated to accord to covered investments in all sectors—even those listed in the Annex—all other rights conferred by

the Treaty.

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Protocol

Paragraph 1 of the Protocol clarifies that for Article III(3) and (4)

of the Treaty, the term ‘‘commercially reasonable rate’’ for a freely

usable currency may include a bank or government bond rate for

that freely usable currency that is commercially reasonable. This

provision was requested by EL Salvador to clarify that the term

‘‘commercially reasonable rate’’ may include bank or government

bond rates such as those specified in certain laws of El Salvador,

if those rates are commercially reaonsable.

Paragraph 2 restates a standard provision of Article XVI of the

Treaty, as described above. This clarifications was also added to

the Treaty at the request of El Salvador.

The other U.S. Government agencies that participated in negotiating the Treaty join me in recommending that it be transmitted

to the Senate at an early date.

Respectfully submitted.

MADELEINE ALBRIGHT.

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