Scope of Application [Return to the top of the page]

DEFINITION OF INVESTMENT

Investment means:

1. an enterprise;
2. an equity security of an enterprise;
3. a debt security of an enterprise:

1. where the enterprise is an affiliate of the investor, or
2. where the original maturity of the debt security is at least three years, but does not include a debt security, regardless of original maturity, of a state enterprise;

4. a loan to an enterprise:

1. where the enterprise is an affiliate of the investor, or
2. where the original maturity of the loan is at least three years, but does not include a loan, regardless of original maturity, to a state enterprise;

5. an interest in an enterprise that entitles the owner to share in income or profits of the enterprise;
6. an interest in an enterprise that entitles the owner to share in the assets of that enterprise on dissolution, other than a debt security or a loan excluded from subparagraph (c) and (d);
7. real estate;
8. other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes;
9. interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory, such as under:

1. contracts involving the presence of an investor's property in the territory of the Party, including turnkey or construction contracts, or concessions, or
2. contracts where remuneration depends substantially on the production, revenues or profits of an enterprise; and

10. a loan granted to a financial institution or a debt security issued by a financial institution and is treated the same as capital for regulatory purposes in the territory of the Party where the financial institution is located.

But investment does not mean:

11. claims to money that do not carry the types of rights provided for in the subparagraphs on investment and that arise solely from:

1. commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of the other Party, or
2. the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph (d);

12. any other pecuniary claim that does not carry the types of rights provided for in the subparagraphs on the definition of investment. (Article 16-01).

Investment of an investor of a Party means an investment owned by an investor from a Party or controlled directly or indirectly by such an investor. (Article 16-01). (2)

DEFINITION OF INVESTOR

Investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment. (Article 16-01).

Application in Time (Entry into Force and Duration: Applicability to Investments made Prior to Entry into Force)

The Free Trade Agreement between Mexico and Nicaragua was signed on December 18, 1997, and entered into force on July 1, 1998.

Admission [Return to the top of the page]

Nothing in Article 16-03 shall be construed to prevent a Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments by investors of the other Party such as a requirement that investors be residents of the Party or that investments be legally constituted under the laws or regulations of the Party, provided that such formalities do not materially impair the protections afforded by a Party to investors of the other Party and investments of investors of the other Party pursuant to this Chapter. (Article 16-10(1)).

There is no separate clause on admission. The issue is dealt with in the treatment provisions. See section on Treatment.

Treatment [Return to the top of the page]

STANDARDS

Fair and Equitable Treatment

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Full Protection and Security

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Non-Discrimination

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National Treatment

Each Party shall grant investors of the other Party and investments of investors of the other Party treatment no less favorable than that it grants, in like circumstances, to its own investors and to investments of these investors. (Article 16-03(1)).

Most-Favored Nation Treatment

Each Party shall grant investors of the other Party and investments of investors of the other Party treatment that is no less favorable than that it grants, in like circumstances, to investors and investments of investors of the other Party or those of a third country, except as provided in subsection 2. (Article 16-04(1)).

Exceptions and Reservations

If one Party has accorded special treatment to investors from a third Party or to their investments by virtue of agreements that establish free-trade zones, customs unions, common markets, economic or monetary unions and similar institutions, and arrangements to avoid double taxation, said Party is not obligated to extend such special treatment to the investors of the other Party nor to investments of investors of the other Party. (Article 16-04(2)).

Articles 16-03 to 16-06 [Most-Favored-Nation Treatment; Performance Requirements; Performance Requirements; Senior Management and Boards of Directors] do not apply to any inconsistent measure maintained by a Party, whatever the level or order of government. Each Party shall list these measures in the Annex to this Article within no more than one year from the entry into force of this Agreement. No measure adopted by a Party in the future may be more restrictive than those in force at the time this Agreement enters into effect. (Article 16-07(1)).

Articles 16-03, 16-04, and 16-07 do not apply to:

1. procurement by a Party or a State enterprise; or
2. subsidies or contributions, including loans, guarantees and governmental insurance granted by a Party or by a State enterprise, except as provided in Article 16-03(2). (Article 16-07(3)).

The provisions contained in:

1. subparagraphs a), b) and c) of paragraph 1 and subparagraphs a) and b) of paragraph 2 of Article 16-05 do not apply to requirements for eligibility of the goods and services with respect to export-promotion programs;
2. subparagraphs b), c), f) and g) of paragraph 1 and subparagraphs a) and b) of Article 16-05 do not apply to procurement by a Party or a State enterprise; and
3. subparagraphs a) and b) of paragraph 2 of Article 16-05 do not apply to requirements imposed by an importing Party concerning the necessary content of goods for qualifying for preferential tariffs or quotas. (Article 16-07(3)).

Denial of Benefits

Subject to prior notification and consultation with the other Party, a Party may deny the benefits of this chapter to an investor from the other Party who is an enterprise of the Party and to investments of that investor, when investors from a non-Party country are majority owners or control the enterprise and it does not have substantial business activities in the territory of the Party under whose legislation it is established or organized. (Article 16-12).

OTHER ASPECTS

Performance Requirements

No Party may impose or require compliance with the following requirements or commitments, with respect to any investment in its territory:

1. to export a given level or percentage of goods and services;
2. to achieve a given level or percentage of domestic content;
3. to purchase, use or accord a preference to goods produced or services provided in its territory, or to acquire goods from producers or services from providers in its territory;
4. to relate in any way the volume or value of imports to the volume or value of exports, or to the amount of foreign exchange inflows associated with such investment;
5. to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or to the foreign exchange earnings;
6. to transfer technology, a production process or other proprietary knowledge to a person in its territory, except when the requirement is imposed by a court, administrative tribunal or a competent authority to remedy an alleged violation of competition or to act in a manner not inconsistent with the provisions of this Agreement; or
7. to act as the exclusive supplier of the goods it produces or the services it provides for a specific region or world market. This paragraph does not apply to any requirement other than the requirements set out in this paragraph. (Article 16-05(1)).

No Party may condition the receipt or continued receipt of an advantage in connection with an investor of the other Party in its territory on compliance with any of the following requirements:

1. to purchase, use or accord a preference to goods produced in its territory, or to purchase goods from producers in its territory;
2. to achieve a given level or percentage of domestic content;
3. to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment; or
4. restrict the sale of goods or services in its territory that such investment produce or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings. (Article 16-05(2)).

Nothing in this Article shall be construed to prevent a Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory, upon requirements concerning geographic location of production units, employment generation or labor training or performance of research and development activities. (Article 16-05(3)).

Others

Each Party shall grant to investors of the other Party, with respect to investments that have suffered losses in its territory due to armed conflicts or civil disturbances, accidentally or because of force majeure, non-discriminatory treatment with respect to any measure adopted or maintained in relation with these losses. (Article 16-03 (2)).

Limitations with respect to the number or share of foreigners that are allowed to work in a company or to perform administrative or management tasks in conformity with the laws of each Party may not hamper or prevent an investor from exercising control over his investment. (Article 16-06).

Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in observance of its environmental legislation. (Article 16-14(1)).

The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding any such encouragement. (Article 16-14(2)).

Transfers [Return to the top of the page]

TYPES OF PAYMENT

Each Party shall permit all transfers relating to an investment of an investor of the other Party in the territory of the Party to be made freely and without delay. Such transfers include:

1. profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance and other fees, returns in kind and other amounts derived from the investment;
2. proceeds from the sale of all or any part of the investment or from the partial or complete liquidation of the investment;
3. payments made under a contract entered into by the investor, or its investment;
4. payments made pursuant to Article 16-09; and
5. payments arising from the settlement of a dispute under Section B. (Article 16-08(1)).

CONVERTIBILITY, EXCHANGE RATES, AND TIMES OF TRANSFER

Each Party shall permit transfers to be made in a freely convertible currency at the exchange rate prevailing on the market on the date of transfer, for spot transactions of the currency to be transferred, without prejudice to the provisions of Article 13-18 (balance of payments and safeguards). (Article 16-08(2)).

Notwithstanding paragraphs 1 and 2, a Party may prevent a transfer through the equitable and non-discriminatory application of its laws relating to:

1. bankruptcy, insolvency or the protection of the rights of creditors;
2. issuing, trading or dealing in securities;
3. criminal or penal offenses;
4. reports of transfers of currency or other monetary instruments;
5. ensuring the satisfaction of judgments in adjudicatory proceedings; or
6. setting up the necessary instruments or mechanisms to ensure the payment of income taxes by such means as the withholding of the amount pertaining to dividends or other elements. (Article 16-08(4)).

Expropriation [Return to the top of the page]

CONDITIONS

Neither Party may directly or indirectly nationalize or expropriate an investment of an investor of the other Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except:

1. for a public purpose;
2. on a non-discriminatory basis;
3. in accordance with due process of law; and
4. on payment of compensation in accordance with paragraphs 2 through 4. (Article 16-09(1)).

COMPENSATION

Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place ("date of expropriation"), and shall not reflect any change in value occurring because the intended expropriation had become known earlier. Valuation criteria shall include the declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value. (Article 16-09(2)).

Compensation shall be paid without delay, be fully realizable and freely transferable. (Article 16-09(3)).

The sum paid shall not be less than the equivalent amount that would have been paid for compensation in a freely convertible currency in the international financial market on the date of expropriation, said currency being converted at the market rate on the valuation date, plus the interest that would have been generated at a reasonable commercial rate for that currency, chosen by the Party in accordance with international parameters, up to the date of payment. (Article 16-09(4)).

Settlement of Disputes between Contracting Parties
[Return to the top of the page]

Chapter XX on Dispute Settlement is applicable.

Settlement of Disputes between a Contracting Party and an Investor [Return to the top of the page]

PREARBITRAL CONSULTATIONS

The disputing parties should first attempt to settle a claim through consultation or negotiation. (Article 16-19).

ARBITRATION

Conditions

In accordance with this section, only an investor from one Party, acting for his own account or on behalf of an enterprise of the other Party that is a juridical person owned by him or under his direct or indirect control, may submit to arbitration a complaint the basis for which is that the other Party or an enterprise directly or indirectly controlled by that Party has allegedly violated an obligation specified in this chapter, provided the enterprise has suffered losses or harm due to the violation or as a result of it. (Article 16-18(1)).

The investor may not submit a complaint in accordance with this section if more than three years have elapsed since the date on which he become aware of or should have been aware of the alleged violation against his investment, and of the losses or harm suffered. (Article 16-18(2)).

When an investor submits a complaint on behalf of an enterprise that is a juridical person owned by him or under his direct or indirect control, and at the same time an investor who does not control an enterprise submits a complaint for his own account as a result of the same acts, or two or more complaints are submitted to arbitration on account of the same measure adopted by a Party, a consolidation tribunal shall examine these complaints jointly, except when that tribunal determines that the interests of one disputing party would suffer thereby. (Article 16-18(3)).

An investment may not make a claim under this Section. (Article 16-18(4)).

An investor of a Party, on its own behalf or on behalf of an enterprise, may submit a claim to arbitration only if:

1. in the case of an investor on his own behalf, the investor consents to arbitration in accordance with the procedures set out in this Agreement;
2. in the case of an investor on behalf of an enterprise, the investor and the enterprise consent to arbitration in accordance with the procedures set out in this Agreement; and,
3. the investor as well as an enterprise of the other Party waive their right to initiate proceedings before any administrative tribunal or court under the law of a Party, with respect to the measure that is alleged to be a breach under the provisions of this Article, except after the administrative means provided for under the law of the disputing Party and thereby available to the executing authorities of the measure presumably in breach have been exhausted (Article 16-22(1)).

Consent

Each Party consents to the submission of a claim to arbitration in accordance with the procedures and requirements set out in this Section. (Article 16-23(1)). The submission by a disputing investor of a claim to arbitration shall satisfy the requirement of:

1. Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the ICSID’s Additional Facility Rules for written consent of the parties;
2. Article II of the New York Convention for an agreement in writing; and
3. Article I of the Inter-American Convention for an agreement. (Article 16-23(2).

Forms of Arbitration

Provided that six months have elapsed since the events giving rise to a claim, a disputing investor may submit the claim to arbitration under:

1. the ICSID Convention, provided that both the disputing Party and the Party of the investor are parties to the Convention;
2. the Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or
3. the UNCITRAL Arbitration Rules. (Article16-21(1)).

ARBITRAL PROCEDURES

Constitution of the Tribunal

With the exception of the provisions of Article 16-27 (Consolidation) and without prejudice to the disputing parties agreeing on something different, the tribunal shall be made up of three arbitrators. Each disputing party shall appoint one arbitrator; the third arbitrator, who shall be president of the arbitration tribunal, shall be appointed by the disputing parties in mutual agreement, but shall not be a national of either Party. (Article 16-24).

The Secretary-General [of ICSID] shall serve as appointing authority for an arbitration under this Section. (Art. 16-25(1)).

If a Tribunal, other than a Tribunal established under Article 16-27, has not been constituted within 90 days from the date that a claim is submitted to arbitration, the Secretary-General [of ICSID], on the request of either disputing party, shall appoint, at his discretion, the arbitrator or arbitrators not yet appointed, except that the presiding arbitrator shall be appointed in accordance with paragraph 3. (Article 16-25(2))).

The Secretary-General [of ICSID] shall appoint the presiding arbitrator from the roster of presiding arbitrators referred to in paragraph 4, provided that the presiding arbitrator shall not be a national of the disputing Party or a national of the Party of the disputing investor. In the event that no such presiding arbitrator is available to serve, the Secretary-General shall appoint, from the ICSID Panel of Arbitrators, a presiding arbitrator who is not a national of either of the Parties. (Article 16-25(3)).

On the date of entry into force of this Agreement, the Parties shall establish, and thereafter maintain, a roster of five presiding arbitrators, none of whom may be a national of a Party, meeting the qualifications of the Convention and rules referred to in Article 16-21 and experienced in international law and investment matters. The roster members shall be appointed by mutual agreement regardless of their nationality. (Article 16-25(4)).

Consolidation

A consolidation tribunal established under this Article shall be established under the UNCITRAL Arbitration Rules and shall conduct its proceedings in accordance with those Rules, except as modified by this Section. (Article 16-27(1)).

Where a Tribunal is satisfied that claims have been submitted to arbitration under Article 16-22 have a question of law or fact in common, the Tribunal may, in the interests of fair and efficient resolution of the claims, and after hearing the disputing parties, by order:

1. assume jurisdiction over, and hear and determine together, all or part of the claims; or
2. assume jurisdiction over, and hear and determine one or more of the claims, the determination of which it believes would assist in the resolution of the others. (Article 16-27(2)).

A disputing party that seeks an order under paragraph 2 shall request the Secretary-General to establish a Tribunal and shall specify in the request:

1. the name and residence of the disputing parties against whom the order is sought;
2. the nature of the order sought; and
3. the grounds on which the order is sought. (Article 16-27(3)).

Paragraphs 4-8 of Article 16-27 contain rules regarding the constitution of the consolidation tribunal and procedures for the settlement of the dispute by the tribunal. (Article 16-27).

Applicable Law

Any Tribunal established under this Section shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law. (Article 16-33(1)).

An interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section. (Article 16-33(2)).

FINAL AWARD

Scope

Where a Tribunal established under this section makes a final award against a Party, the Tribunal may award only:

1. monetary damages and any applicable interest;
2. restitution of property, in which case the award shall provide that the disputing Party may pay monetary damages and any applicable interest in lieu of restitution. (Article 16-36(1)).

Where a claim is made on behalf of an enterprise:

1. an award of restitution of property shall provide that restitution be made to the enterprise;
2. an award of monetary damages and any applicable interest shall provide that the sum be paid to the enterprise. (Article 16-36(2)).

The award shall provide that it is made without prejudice to any right that a third person holding a legal interest may have under applicable domestic law in the relief for damages suffered. (Article 16-36(3)).

Finality and Enforcement

An award made by a Tribunal established under this Section shall have no binding force except between the disputing parties and in respect of the particular case. (Article 16-37(1)).

Subject to paragraph 3 and the applicable review procedure for an interim award, a disputing party shall abide by and comply with an award without delay. (Article 16-37(2)).

A disputing party may seek enforcement of a final award only if:

1. in the case of a final award made under the ICSID Convention:
   1. 120 days have elapsed from the date the award was rendered and no disputing party has requested revision or annulment of the award, or
   2. revision or annulment proceedings have been completed; and,
2. (b) in the case of a final award under the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules:
   1. three months have elapsed from the date the award was rendered and no disputing party has commenced a proceeding to revise, set aside or annul the award, or
   2. a tribunal of the disputing Party has dismissed or allowed an application to revise or annul the award that one of the disputing Parties has brought before the national tribunals in accordance with their legislation, and there is no further appeal. (Article 16-37(3)).

Each Party shall provide for the enforcement of an award in its territory. (Article 16-37(4)).

If a disputing Party fails to abide by or comply with a final award, the Commission, on delivery of a request by a Party whose investor was a party to the arbitration, shall establish a panel under Article XX (Dispute Settlement). The requesting Party may seek in such proceedings:

1. a determination that the failure to abide by or comply with the final award is inconsistent with the obligations of this Agreement; and,
2. a recommendation that the Party abide by or comply with the final award. (Article 16-37(5)).

A disputing investor may seek enforcement of an arbitration award under the ICSID Convention, the New York Convention or the Inter-American Convention regardless of whether proceedings have been taken under paragraph 5. (Article 16-37(6)).

A claim that is submitted to arbitration under this Section shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention and Article I of the Inter-American Convention. (Article 16-37(7)).