Foreword

The success of market reforms in the 1990s has dramatically increased trade in goods, services and stimulated investment in Latin America and the Caribbean. Through unilateral actions, multilateral disciplines, and bilateral and regional accords, countries of the Western Hemisphere have moved deliberately and systematically to create conditions conducive to the negotiation of a Free Trade Area of the Americas (FTAA) by the year 2005.

The role of trade liberalization as a motor of growth in the Hemisphere was recognized by the Heads of State and Government when, at the Summit of the Americas in December 1994, they decided to establish the FTAA. At the first meeting of Trade Ministers, held in Denver in 1995, the countries "ask[ed] the Tripartite Committee -- the Organization of American States, the Inter-American Development Bank and the United Nations Economic Commission for Latin American and the Caribbean -- to provide analytical support, technical assistance, and relevant studies within their respective areas of competence, as may be requested by the working groups."

The publication Investment Agreements in the Western Hemisphere: A Compendium was prepared by the Trade Unit of the OAS for the FTAA Working Group on Investment. It covers the key provisions of 35 bilateral investment treaties signed between countries of the region; and the investment provisions included in the multilateral trade and integration arrangements in the Western Hemisphere (NAFTA, Group of Three, Mercosur, Andean Pact, and Caricom) and in three bilateral free trade agreements (Bolivia-Mexico, Costa Rica-Mexico, and Canada-Chile). This publication examines seven elements: scope of application, admission, treatment, transfers, expropriation, settlement of disputes between contracting parties, and settlement of disputes between a contracting party and an investor.

It is important to acknowledge the people who have made this particular publication possible. The members of the FTAA Working Group on Investment have supplied the information included in the publication. Along with the coordinators of the Working Group from Costa Rica's Foreign Trade Ministry --Anabel González (former) and Carlos Murillo (present)-- they have been instrumental in guiding the process and in attempting to make the information in the publication accurate and up-to-date. Within the OAS Trade Unit, Maryse Robert and Theresa Wetter, have been the liaison between the OAS and the FTAA Working Group on Investment, and have assumed direct responsibility for the preparation of this publication.

I. Introduction

The 1990s have witnessed an unprecedented growth in the number of agreements covering rules on foreign direct investment in the Americas. Countries have signed bilateral investment treaties (BITs), included investment chapters in their trade agreements, and negotiated investment protocols and decisions. Out of the 35 bilateral investment treaties examined in this Compendium, 32 were concluded after 1990. Although the first BITs originated in Europe in the late 1950s,1 it took more than 30 years before countries of the region started negotiating and concluding bilateral investment treaties with other countries of the Hemisphere. However, several countries such as Colombia, the Dominican Republic, Ecuador, El Salvador, Haiti, Honduras and Paraguay had signed BITs with the Federal Republic of Germany, France and Switzerland during the 1960s and the 1970s. The first BIT concluded within the region was between the United States and Panama in 1982. In fact, during the 1980s, only the United States was active in entering into bilateral investment treaties with other countries of the region. In addition to the treaty with Panama, the U.S. signed a BIT with Haiti in 1983 and one with Grenada in 1986.

An overwhelming majority of countries in the Hemisphere have signed at least one bilateral investment treaty. In fact, only three countries have not yet done so, while 24 have concluded at least one BIT with another country of the region.2 With the exception of Trinidad and Tobago, Barbados and Jamaica, most Caribbean countries have not entered into bilateral investment treaties with other countries of the Hemisphere. Most BITs signed by these countries were with the United Kingdom and Germany. However, Trinidad and Tobago concluded a bilateral investment treaty with the United States in 1994 and one with Canada in 1995, Barbados with Venezuela in 1994 and Canada in 1996, while Jamaica signed a BIT with the United States and another with Argentina, both in 1994.

The mid-1980s and the early 1990s brought sweeping economic reforms and trade liberalization to Latin America and the Caribbean. This also led to a substantial liberalization in the investment regime of most of these countries. These new investment regimes are intended to promote foreign investment through the granting of national treatment and the elimination of most restrictions on capital and profit remittances. They also allow countries to accept international arbitration as a means of solving disputes that might have arisen between the host State and foreign investors, reversing what had been the tradition of most Latin American countries based on the Calvo doctrine. According to this doctrine, a foreigner is required to "waive the diplomatic protection of [his] home state and rights under international law, and rely solely on local remedies. Foreigners may be treated as favourably as nationals but are not entitled to better treatment." 3 This new approach to foreign investment has eliminated a major impediment hampering the negotiation and signature of bilateral investment treaties between Latin American countries and capital exporting countries.

The surge in new investment treaties in the Western Hemisphere is also a trend present at the multilateral level with the elaboration of detailed investment provisions in the North American Free Trade Agreement (NAFTA). 4 and the Group of Three (G-3), 5 the liberalization of the Andean Pact's investment regime (Decision 291) 6 and the enactment of two Mercosur Protocols for the promotion and protection of investments: the Colonia Protocol 7 applicable to Mercosur's Member Countries, and the Buenos Aires Protocol 8 applicable to Non-member Countries. A number of free trade agreements (FTAs) containing investment provisions have also been negotiated between Bolivia and Mexico 9, Costa Rica and Mexico 10, and Canada and Chile 11, as well as other bilateral trade agreements between, on the one hand, Chile, and, on the other hand, Colombia, Ecuador, Mercosur, Mexico, and Venezuela, all containing provisions on investment. 12 More globally, three countries of the region (United States, Canada and Mexico) are involved in the MAI (Multilateral Agreement on Investment), which has been under negotiation at the OECD (Organisation for Economic Co-operation and Development) since September 1995.13

II. Investment Agreements In The Western Hemisphere: A Summary
The first section of this Compendium covers the key provisions of 35 bilateral investment treaties signed between countries of the region.14 The second section is devoted to the investment provisions included in the multilateral trade and integration arrangements found in the Western Hemisphere: NAFTA, G-3, the two Mercosur investment protocols, Decision 291 of the Andean Pact, and Caricom. The third section examines the investment provisions in the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs. Building on the methodology used by the International Centre for Settlement of Investment Disputes (ICSID), the Compendium covers seven elements: scope of application, admission, treatment, transfers, expropriation, settlement of disputes between Contracting Parties, and settlement of disputes between a Contracting Party and an investor. A detailed summary of each of these elements follows.

A. Scope of Application
The scope of application of investment treaties is determined by the definition of investments and investors which are covered by their provisions and thus enjoy the protection accorded by them. Recent BITs and the investment chapters of the trade and integration arrangements examined in the Compendium have a broader scope of application than traditional investment agreements. These new instruments have expanded their definition of covered investments to include new forms of transactions and are being applied to a more diverse group of investors. There is an important degree of uniformity in the type of language used to that effect.

The Compendium includes information on three important aspects related to the agreements' scope of application: definition of covered investment, definition of covered investor, and application in time.

1. Forms of Investment
When defining the covered forms of investment, the Colonia and Buenos Aires Protocols, the Costa Rica-Mexico FTA and most BITs refer to "every kind of asset" while U.S. BITs use the expression "every kind of investment." This general formulation is commonly illustrated by a non exhaustive list of examples. Typically, such a list includes: movable and immovable property and any related property rights, such as mortgages, liens or pledges; shares, stock, bonds or debentures or any other form of participation in a company, business enterprise or joint venture; money, claims to money, claims to performance under contract having a financial value, and loans directly related to a specific investment; intellectual property rights, including rights with respect to copyrights, patents, trademarks as well as trade names, industrial designs, good will, trade secrets and know-how; rights, conferred by law or under contract, to undertake any economic and commercial activity, including any rights to search for, cultivate, extract or exploit natural resources. 16

Investment chapters in NAFTA and the Canada-Chile FTA also have a very wide scope of application. The definition of investment encompasses a broad list of assets expressly linked to the activities of an enterprise, including: equity and debt securities of an enterprise (with terms of at least three years or, regardless of term, where the issuing enterprise is an affiliate of the investor); interests entitling sharing in an enterprise's assets on dissolution or income or profits; real estate and other tangible and intangible property acquired or used for business purposes; interests arising from commitment of capital such as turnkey or construction contracts; and contracts where remuneration depends on the production, revenues or profits of an enterprise. On the other hand, the definition of investment in the case of NAFTA, the Group of Three and the Bolivia-Mexico, Canada-Chile and Costa Rica-Mexico FTAs excludes claims to money that arise solely from commercial contracts as well as debt securities of a state enterprise.

2. Investors
Generally, BITs and investment chapters in trade and integration agreements define "investors" or "nationals" who are entitled to the benefits accorded by the Agreement. Typically, the definition covers: a) natural persons and, b) juridical persons or other legal entities.

a) Natural Persons

When defining "investors," all investment agreements include natural persons who are citizens of a Party to the agreement. Determination of the nationality is normally left to the Party?s internal nationality law. In most cases, citizenship is the only criterion used to determine if a natural person should be considered an "investor" under the agreement. It is the case of most BITs covered by the Compendium, the Group of Three, the Buenos Aires Protocol, the Bolivia-Mexico and the Costa Rica-Mexico FTAs. In other cases, the definition is broadened and not only citizens but also permanent resident are considered "investors." It is the approach used in NAFTA, 17 the Canada-Chile FTA, the Colonia Protocol,18 as well as in some bilateral investment treaties. 19

Residency is sometimes used to exclude natural persons from coverage of the agreements. In the case of most bilateral investment treaties between Argentina and other countries in the region and the BITs signed by Ecuador with Chile and El Salvador,20 the treaty does not apply to investments made by natural persons from the home country if they have been domiciled in the host country for more than two years, unless it is proved that the investment was admitted from abroad. Mercosur Protocols also include this limitation and refer to permanent residents regardless of the time they have resided in the host country.

The definition of natural persons takes two different forms in BITs. Some treaties use a single definition that applies to both Contracting Parties, while others include a different definition for each Party. This second approach is not used very frequently. Only two of the BITs included in the Compendium follow formulations along these lines: "The term 'national' means: a) in respect to the Republic of Chile: Chileans within the meaning of the Political Constitution of the Republic of Chile; b) in respect to the Republic of Argentina: Argentines within the meaning of the Argentine law." 21

b) Juridical Persons

Bilateral investment treaties and trade and integration agreements use different criteria to define the nationality of a company or legal entity in order to grant it the benefits of an "investor" under the agreement. These criteria include: the place of constitution; place of seat; and, nationality of controllers.

(i) Constitution

Countries with common law tradition use the place of incorporation of a company to determine its nationality. All BITs signed by the United States and Canada with countries of the region use the place of constitution as the sole criterion to define the companies covered by the agreement. NAFTA and the Canada-Chile FTA follow the same approach. Under NAFTA, to be an "investor of a Party" an enterprise 22 (and a branch of an enterprise) must be constituted or organized under the law of a Party. There is no requirement that the enterprise be controlled by nationals of a NAFTA country. However, if the enterprise is controlled by investors of a non-NAFTA country, benefits can be denied if the enterprise has no substantial business activities in the territory of the Party under whose laws it is constituted. Recently this criterion has been used in agreements between countries with civil law traditions. Under the Group of Three and the Bolivia-Mexico and Costa Rica-Mexico FTAs, an enterprise is considered an "investor of a Party" if it is constituted or organized (or protected in the case of the Group of Three) in accordance with the laws of that Party. The same applies to a branch located in the territory of that Party that engages in commercial activities therein.

(ii) Seat

Civil law countries traditionally rely instead on the place where the management or seat of the company is located. In the case of BITs signed between Latin American countries, this criterion is combined with the place of constitution and, in some cases, with the requirement that the company actually has effective economic activities in the home country.

(iii) Control

(iv) Combination of different criteria

Reference has already been made to BITs signed between Latin American countries which combine the seat criterion with the place of constitution and, in some cases, with the requirement that the company actually has effective economic activities in the home country. In other cases 25 the control of the company is used as an alternative to the seat or constitution criteria to determine the nationality of the company. Finally, the Colonia Protocol grants protection to "any legal person constituted under the laws and regulations of a Contracting Party, and having its seat in the territory of said Party;" and, to "any legal person constituted in the territory of the host country, and effectively controlled, directly or indirectly, by a natural or legal person" as defined in the Protocol. The Buenos Aires Protocol, on the other hand, includes in the definition of investor "any legal person constituted under the laws and regulations of a Party or of the Third State and having its seat in the territory of constitution;" and, "any legal person established under the law of any country effectively controlled by a natural o legal person," as defined in the Protocol.

3. Application in Time
BITs normally include provisions regarding the treaty's entry into force as well as its duration. With some variations, the most common formulation is to provide that the treaty enters into force one month from the date of exchange of instruments of ratification and remains in force for an initial period of 10 years, usually renewable according to procedures set out in detail in the agreement.

Increasingly, and departing from what was common in earlier agreements, BITs apply not only to investments made after the entry into force of the treaty but also to those made prior to that date. While in some cases this forms part of the definition of covered investments, in others, a separate provision to that effect is included in the section dealing with application in time of the treaty. This last approach is followed in all BITs signed by the United States with countries of the region. B. Admission Clauses
The section on Admission refers to the entry of investments and investors of a Contracting Party into the territory of the other Contracting Party. Two different approaches have been adopted with regard to this issue. Newer instruments such as the Colonia Protocol in Mercosur; NAFTA; the Group of Three; the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs; as well as bilateral investment treaties signed by the United States and new BITs signed by Canada, all call for national treatment and most-favored-nation (MFN) treatment as a condition for both the pre-establishment phase (admission) and the post-establishment phase. Other bilateral investment treaties require that these two standards be applied to investments of investors after admission of these investments, i.e. the national treatment and MFN treatment standards are only applied at the post-establishment phase.

With respect to investors and investments from Member Countries, the Colonia Protocol says that each Party shall admit investment of investors of the other Contracting Parties in a way that is no less favorable than that accorded to its own investors (national treatment) or investments of third States (MFN treatment). A list of limited exceptions is included in the Annex to the Protocol. In fact, the Colonia Protocol, like NAFTA; the Group of Three; the free trade agreements between Bolivia and Mexico, Costa Rica and Mexico, and Canada and Chile; U.S. BITs and the post-NAFTA investment treaties signed by Canada has been designed with the purpose of assuring the free entry of such investments -albeit with limited exceptions- into the territory of the host country. These instruments require national treatment and MFN treatment, and prohibit performance requirements as a condition for establishment. With the exception of the Colonia Protocol, they also mention that such treatment shall be for investments made in "like circumstances" (or in "like situations" in the case of U.S. BITs). Moreover, NAFTA; the Group of Three; the Bolivia-Mexico, Costa Rica-Mexico, and Canada-Chile FTAs; and U.S. BITs state that nothing in the article on national treatment 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 another Party such that investments be legally constituted under the laws or regulations of the Party, provided that such formalities do not materially impair the protection afforded by a Party. U.S. BITs also emphasize that treaties shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

The Buenos Aires Protocol, like most of the 35 bilateral investment treaties covered in the Compendium, follows the more traditional approach. Admission is generally dealt with in the provision on Promotion of Investment, or the provision on Promotion and Protection of Investment. The most representative clause reads as follows: Each Contracting Party shall promote, in its territory, investments of investors of the other Contracting Party and shall admit such investments in accordance with its laws and regulations. There is no explicit reference to domestic laws or requirements.

C. Treatment Clauses

1. Standards

a) Fair and Equitable Treatment and Full Protection and Security

All treaties as well as the two Mercosur Protocols, NAFTA and the Canada-Chile FTA include a fair and equitable treatment clause.This standard is generally combined with the principle of non-discrimination or that of full protection and security. In a few cases, these three principles are combined together. Moreover, NAFTA, the Canada-Chile FTA and some bilateral investment treaties 29 refer to international law by stating that fair and equitable treatment shall be in accordance with the principles of international law. Most treaties also require some form of protection. The bilateral investment treaties signed by Venezuela with Barbados and Brazil, and U.S. and Canadian BITs refer to full protection and security. Some BITs mention full legal protection (Argentina-Bolivia, Argentina-Ecuador, Argentina-El Salvador, Argentina-Jamaica, Argentina-Venezuela, Bolivia-Ecuador, Chile-Ecuador, Ecuador-El Salvador, Ecuador-Venezuela); and others only require full protection (Argentina-Chile, Bolivia-Peru). Colombia-Peru uses the phrase protection and security, while Bolivia-Chile, Brazil-Chile, Chile-Guatemala, Chile-Paraguay, Chile-Uruguay, Chile-Venezuela, Ecuador-Paraguay, El Salvador-Peru, and Paraguay-Peru refer to protection.

b) Non-Discrimination

Mercosur and almost all investment treaties prohibit discrimination against investments of investors of the other Contracting Party. The terms "unreasonable," "arbitrary" or "unjustified" are used with the word discriminatory to prohibit measures that impair the management, maintenance, use, enjoyment or disposal of investments of investors of the other Contracting Party. U.S. BITs state that "neither Party shall in any way impair by unreasonable and discriminatory measures the management, conduct, operation, and sale or other disposition of covered investments." In some cases, prohibited measures have to be both unreasonable (or arbitrary or unjustified) and discriminatory; in other cases, measures can either be unreasonable (or arbitrary or unjustified) or discriminatory.

c) National Treatment and MFN

All bilateral investment treaties; NAFTA; the Group of Three; the two Mercosur Protocols; and the free trade agreements between Bolivia and Mexico, Costa Rica and Mexico, and Canada and Chile provide for both national treatment and MFN treatment. The Andean Pact contains a provision for national treatment explaining that such treatment can be regulated according to the national laws of its members. Caricom is the only arrangement that recognizes preferential treatment with regard to investments of its nationals.

Most treaties state that each Contracting Party shall grant treatment no less favorable than that it accords to investments of its own nationals or companies, or those of third States (e.g., Argentina-Bolivia, Argentina-Chile, Argentina-Ecuador, Argentina-Jamaica, Argentina-Venezuela, Barbados-Venezuela, Bolivia-Ecuador, Brazil-Venezuela, Canada-Trinidad and Tobago, Chile-Ecuador, Colombia-Peru, Ecuador-El Salvador, Ecuador-Paraguay, Ecuador-Venezuela). Other treaties (Argentina-El Salvador, Bolivia-Chile, Bolivia-Peru, Chile-Guatemala, Chile- Paraguay, Chile-Uruguay, Chile-Venezuela, El Salvador-Peru, and Paraguay-Peru) also emphasize that a Contracting Party shall grant the MFN treatment to investors of the other Contracting Party if this treatment is more favorable than the one it accords to its own investors.

2. Exceptions

Most treaties and all the arrangements but Caricom provide for specific exceptions, especially with respect to national treatment and MFN treatment. The two most common exceptions, found in several bilateral investment treaties, the Buenos Aires Protocol, and the Bolivia-Mexico and Costa Rica-Mexico FTAs are those related to 1) privileges which either Contracting Party accords to investors of a third State because of its membership in, or association with, a free trade area, customs union, common market or regional agreement; and 2) preferences or privileges resulting from an international agreement related wholly or mainly to taxation. U.S. BITs list a series of exceptions to national treatment (also true for the Brazil-Chile BIT) and MFN treatment in the Protocol or Annex to the treaties. The Canada-Trinidad and Tobago and the Colombia-Peru BITs, and most trade arrangements and FTAs also specify a number of exceptions to both national treatment and MFN.

Other exceptions include general exceptions, which allow countries to exempt from treaty obligations actions such as the maintenance of national security, international peace and security, and public order. U.S. BITs; the Bolivia-Peru and Paraguay-Peru BITs; NAFTA; the Group of Three; the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs are the only treaties in the region that permit general exceptions. For instance, the Honduras-United States BIT states that "This Treaty shall not preclude a Party from applying measures necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests." 30 In this context, obligations with respect to the maintenance or restoration of international peace or security means obligations under the Charter of the United Nations. The Nicaragua-United States BIT mentions that "whether a measure is undertaken by a Party to protect its national security interests is self-judging," 31 which means that, according to the Parties, it is not subject to review by any international tribunal. The Peruvian BITs (with Bolivia and Paraguay) also provide for general exceptions. For instance, the Bolivia-Peru states that "Nothing in this Treaty shall prevent a Contracting Party from adopting measures, if not discriminatory, for reasons of internal and external national security, public or moral order." 32

Other exceptions are also found in some treaties. Bilateral investment treaties signed by the United States with Trinidad and Tobago, Honduras and Nicaragua include a provision where "Each Party reserves the right to deny to a company of the other Party the benefits of this Treaty if nationals of a third country own or control the company and: a) the denying Party does not maintain normal economic relations with the third country; or b) the company has no substantial business activities in the territory of the Party under whose laws it is constituted or organized." 33 NAFTA; the Group of Three; the free trade agreements between Bolivia and Mexico, Costa Rica and Mexico, and Canada and Chile have similar provisions.

3. Performance Requirements

U.S. and Canadian BITs; the El Salvador-Peru bilateral investment treaty; NAFTA; the Colonia Protocol; the Group of Three and the free trade agreements between Bolivia and Mexico, Costa Rica and Mexico, and Canada and Chile demand that no performance requirements (for instance, to achieve a particular level or percentage of local content; to limit imports and sales, and to transfer technology) shall be mandated or enforced as a condition for the establishment, acquisition, expansion, management, conduct or operation of a covered investment. The Andean Pact, on the other hand, establishes particular provisions for the performance of contracts for the license of technology, technical assistance, technical services, and other technological contracts under the national laws of each Member. Caricom is the only arrangement which requires investments to meet certain performance requirements, i.e., use of labor, raw materials, and financial resources.

4. Losses Due to War

Most treaties and arrangements state that nationals or companies of either Contracting Party whose investments suffer losses in the territory of the other Contracting Party due to war or other armed conflict, revolution, national emergency, civil disturbances or other similar events shall receive treatment, in regard to restitution, indemnification, compensation or other settlement, no less favorable than that accorded by the latter Contracting Party to its own investors or investors of any third State. Several treaties emphasize that these payments shall be transferable, others require the better of either national treatment or MFN treatment.

5. Other Aspects

Several treaties state that if the legislation of a Contracting Party or if the existing or future obligations of the Parties under international law or if an agreement between an investor and a Contracting Party include provisions granting investments of investors of the other Contracting Party a more favorable treatment, these provisions shall prevail. Moreover, U.S. BITs state that the treaties shall not derogate from any of the following that entitle covered investments to treatment more favorable than that accorded by the treaties: a) laws and regulations, administrative practices or procedures, or administrative or adjudicatory decisions of either Party; b) international legal obligations; and c) obligations assumed by either Party, including those contained in an investment agreement or an investment authorization. Many BITs also stipulate that each Contracting Party shall fulfill the obligations it has contracted with respect to the investments of nationals or companies of the other Contracting Party. U.S. BITs say that each Party shall observe any obligation it may have entered into with regard to investments.

U.S. BITs also provide that subject to the laws relating to the entry and sojourn of aliens, nationals of either Party shall be permitted to enter and to remain in the territory of the other Party for the purpose of establishing, developing, administering or advising on the operation of an investment to which they, or a company of the first Party that employs them, have committed or are in the process of committing a substantial amount of capital or other resources. The Canada-Trinidad and Tobago Treaty and the El Salvador-Peru BIT contain a similar provision. NAFTA, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs also state that no Party may require than an enterprise of that Party appoint to senior management positions individuals of any particular nationality. A similar clause is also included with respect to board of directors.

NAFTA, the Group of Three, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs, and the Canada-Trinidad and Tobago BIT mention that nothing shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with the Agreement, which it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to domestic health, safety, and environmental concerns.

Finally, the Bolivia-Mexico and Costa Rica-Mexico FTAs provide that with respect to the investments of its investors established and organized in accordance with the legislation of another Party, a Party may not exercise jurisdiction or adopt any measure that has the effect of extraterritorial application of its legislation or of obstructing trade between the Parties, or between a Party and a non-Party country.

D. Transfers Clauses

1. Types of Payments

All the bilateral investment treaties and trade arrangements, with the exception of Caricom, examined in the Compendium require the host country to guarantee to investors of the other Contracting Party the free transfer of funds related to investments. Although almost all treaties (the exceptions being Barbados-Venezuela and Panama-U.S. BITs) define in great detail which types of payments shall be included in the transfer clause, most treaties emphasize that the guarantee of transfers of funds is not limited to this list. Three types of payments are generally always included in the definition of transfers of funds that shall be guaranteed: returns (profits, interests, dividends, and other current incomes); repayments of loans; and proceeds of the total or partial liquidation of an investment. 34 In addition, other types of payments are often listed, for example: additional contributions to capital for the maintenance or development of an investment; bonuses and honoraria; wages and other remuneration accruing to a citizen of the other Contracting Party; compensation or indemnification; and payments arising out of an investment dispute.

2. Convertibility, Exchange Rates, and Time of Transfer

Most treaties stipulate that transfers shall be effected in a convertible currency. Some treaties specify that it could be the currency in which the investment was made or any other convertible currency. U.S. BITs often use the following terminology: transfers shall be made in a freely usable currency. 35 With respect to the exchange rate, treaties generally state that transfers shall be made at the normal rate applicable on the date of the transfer. Some treaties (such as Barbados-Venezuela, Bolivia-Chile, Bolivia-Ecuador, Chile-Guatemala, Chile-Paraguay, Chile-Uruguay) add that this transfer shall be in accordance with the laws and regulations of the Contracting Party. The Argentina-Chile BIT says that the exchange rate shall be equivalent to the most favorable exchange rate, while the Bolivia-Peru, Brazil-Chile, Brazil-Venezuela, Chile-Venezuela, Ecuador-Paraguay and Panama-U.S. BITs do not mention anything about the exchange rate.

Almost all treaties stress that transfers shall be effected without delay, the exceptions being the Bolivia-Ecuador and Panama-U.S. bilateral investment treaties. The Ecuador-El Salvador Treaty and the Chilean BITs are the only ones which define the concept "without delay," which means the "normal time" necessary to fulfill the formalities with respect to the transfer. This "normal time" shall not exceed 30 days (Bolivia-Chile, Chile-Paraguay, Chile-Uruguay), 60 days (Chile-Ecuador, Ecuador-El Salvador), one month (Chile-Guatemala), two months (Argentina-Chile, Chile-Venezuela), or six months (Brazil-Chile).

Some treaties allow for limitations or exceptions to transfers. For instance, the Barbados-Venezuela, Bolivia-Chile, Bolivia-Ecuador, Chile-Paraguay and Chile-Uruguay BITs underline that transfers shall be in accordance with the laws and regulations of the Contracting Party. The first U.S. BITs state that notwithstanding the provisions of the Treaty, either Party may maintain laws and regulations requiring reports of currency transfers, and imposing income taxes by such means as a withholding tax applicable to dividends or other transfers. Furthermore, either Party may protect the rights of creditors, or ensure the satisfaction of judgments in adjudicatory proceedings, through the equitable, nondiscriminatory and good faith application of its law. The most recent U.S. bilateral investment treaties (Trinidad and Tobago-United States, Honduras-United States, Nicaragua-United States) and the Group of Three stipulate that a Party may prevent a transfer through the equitable, non-discriminatory and good faith application of its laws relating to bankruptcy, insolvency or the protection of the rights of creditors; issuing, trading or dealing in securities; criminal or penal offenses; or ensuring compliance with orders or judgments in adjudicatory proceedings. The Canada-Trinidad and Tobago BIT adds a fifth element to this list: reports of transfers of currency or other monetary instruments, while the Costa Rica-Mexico FTA includes a sixth element: establishment of the instruments or mechanisms necessary to ensure the payment of taxes on income by such means as the retention of dividends or other charges. The Salvadorian BITs with Argentina and Peru do not include the second element but add unfulfillment of tax and labor obligations to this list. NAFTA, the Bolivia- Mexico and Canada-Chile FTAs have provisions similar to the Canada-Trinidad and Tobago BIT. In the Canada-Chile FTA, Chile reserves the right to maintain requirements and adopt measures for the purpose of preserving the stability of its currency. 36 Finally, in the BITs signed by Chile, transfers of capital are restricted for a period of one year.

The Colombia-Peru BIT, the treaties signed by El Salvador with Argentina and Peru, the Bolivia-Mexico and Costa Rica-Mexico FTAs and the Group of Three state that the Contracting Parties could establish restrictions with respect to the free transfer of payments related to an investment in the case of balance-of-payments difficulties. These restrictions shall be exercised for a limited period of time in an equitable way, in good faith and in a non-discriminatory manner.

E. Expropriation

Following what is generally accepted in international law, the BITs signed within the Western Hemisphere, Mercosur, NAFTA, the Group of Three, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs prohibit the expropriation of investments except when certain conditions are met. These agreements typically require that expropriations be done for a public purpose, in accordance with the law and on payment of compensation. The Compendium includes information on the way the different agreements deal with the definition of covered expropriatory measures and the conditions they require for the expropriation to be legal.

1. Definition of Expropriatory Measures

All bilateral investment treaties; Mercosur; NAFTA; the Group of Three; and, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs require that expropriations be done against compensation. Regarding the standard for this compensation, most agreements use the Hull formula, according to which compensation should be "prompt, adequate and effective." 37 Only in very few cases (Brazil-Venezuela, Ecuador-Paraguay, Peru-Paraguay BITs) is the more general expression "just compensation" used.

In relation to the value of the expropriated investment, most treaties use the term "market value" or "fair market value," while others use expressions such as "genuine value," immediately before the expropriatory action was taken or became known, thus protecting the investor from the reduction in value that may result as a consequence of the expropriation. Agreements also stipulate that compensation shall include interests and, in most cases, specify that it should be calculated at a normal commercial rate from the date of expropriation.

In general, agreements include the requirement that payments be fully realizable, freely transferable and made without delay. In some cases, they add that compensation should be transferable at the prevailing market rate of exchange on the date of expropriation. In most cases, however, exchange rates are not dealt with in the context of expropriation. Instead, general transfer provisions are applicable.

F. Disputes between Contracting Parties

Following traditional treaty practice, provisions for the settlement of disputes between Contracting Parties are included in both bilateral investment treaties and in regional trade arrangements containing provisions on investment.

In the case of NAFTA; the Group of Three; and, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs, disputes between Contracting Parties fall under the general dispute settlement mechanisms included in these agreements which are based on consultation and, failing resolution through consultation, panel review. In the Andean Group, state-to-state disputes are referred to the Andean Court of Justice. The Colonia Protocol provides for resolution of disputes concerning its interpretation or application through the disputes settlement procedures established in the Brasilia Protocol of December 17, 1991. When disputes involve a third state, the Buenos Aires Protocol refers them to ad hoc arbitration.

All bilateral investment treaties provide for disputes between States concerning the interpretation or application of the treaty to be submitted, at the request of either Party, to ad hoc arbitral tribunals. Arbitration, however, has to be preceded by consultations. All BITs require that disputes shall, whenever possible, be settled amicably through consultations or diplomatic channels. There are differences only in the time period BITs allow for the dispute to be solved through consultations before it is submitted to arbitration procedures. This time period varies between three, six and 12 months, while in some cases no limit is defined.

Typically, BITs set some rules for the constitution of the ad hoc tribunal. They generally provide that each Party appoint an arbitrator, usually within a two-month period. These arbitrators are required to select a national of a third State to serve as Chairman of the tribunal within a period that varies from 30 days to two, three or five months depending on the treaty, although a two-month period seems the most used formulation. The treaties also include procedures in those cases where agreement regarding appointments cannot be reached or other circumstances prevent the tribunal from being constituted.

Some general procedures to be followed by the arbitration tribunal are normally included in the agreement. The provisions in this regard state that decisions of the tribunal shall be taken by a majority of votes, be final and binding on both Parties. Apart from these basic indications, BITs leave it to the tribunal itself to determine its own procedures. Bilateral investment treaties entered into by the United States refer to UNCITRAL arbitration rules when agreement on procedures cannot be reached.

In most cases, BITs included in the Compendium do not set time limits for the arbitration tribunal to render its decision. In the case of U.S. bilateral investment treaties, provisions along the following lines are included to set a time limit for the decision to be rendered: "Unless otherwise agreed, all submissions shall be made and all hearings shall be completed within six months of the date of selection of the third arbitrator, and the arbitral panel shall render its decisions within two months of the date of the final submissions or the date of the closing of the hearings, whichever is later."

Finally, some treaties include a reference to the law arbitral tribunals are to apply. The typical provision states that the arbitral tribunal shall decide in accordance with the provisions of the Agreement and the principles of international law.

G. Disputes between a Contracting Party and an Investor

All bilateral investment treaties; Mercosur; NAFTA, the Group of Three; and, the Bolivia-Mexico, Costa Rica-Mexico and Canada-Chile FTAs include separate provisions dealing with disputes between a Contracting Party and an investor, generally known as investment disputes. All treaties provide for arbitration as a means for the settlement of this type of dispute. This constitutes a departure from traditional treaty practice in this field where no such mechanism was provided. Thus, a foreign investor was limited to bringing claim against the host state in a domestic court or having its home state assume his claim against the host state (diplomatic protection).

All of the aforementioned agreements include a reference to a specific institutional arbitration mechanism in contrast with what is normally found in relation to disputes between Contracting Parties where they are referred to ad hoc arbitral tribunals without pre-established procedures. They refer to arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) or under ICSID Additional Facility Rules where either the host or home State of the foreign investor is not an ICSID Contracting Party. 38 Following what is increasingly the practice in modern investment treaties, most agreements include alternative forms of arbitration. This might prove particularly relevant where ICSID arbitration is unavailable due to jurisdictional constraints. The vast majority refer to arbitration under UNCITRAL rules. 39 Only in the case of the Haiti-United States BIT reference is made to arbitration under the International Chamber of Commerce (ICC).

Most treaties require that the investor and the host state seek to solve the dispute amicably through consultations and negotiations before submitting it to arbitration. In some cases a certain period of time has to elapse before the dispute can be submitted to arbitration (three, six or 18 months, depending on the treaty).

A number of treaties, including U.S. BITs, provide for arbitration only if the investor has not first had recourse to local courts. At the same time, recourse to arbitration precludes recourse to local courts. A number of BITs signed between Latin American countries include the same principle ("fork-in-the-road") and state that election by the investor of either international arbitration or domestic remedies "shall be final."

Notes

1 The first bilateral investment treaty was signed between the Federal Republic of Germany and Pakistan on November 25, 1959. However, the first BIT to be ratified was signed by the Dominican Republic and the Federal Republic of Germany. See Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (The Hague/Boston/London: International Centre for Settlement of Investment Disputes/Martinus Nijhoff Publishers,1995), 267.

2 To our knowledge, only The Bahamas (Commonwealth of), St. Kitts and Nevism and Suriname have not signed BITs with other countries. Argentina, Barbados, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru, Trinidad and Tobago, United States, Uruguay and Venezuela have signed at least one BIT with another country of the Hemisphere.

3 Jon R. Johnson, The North American Free Trade Agreement: A Comprehensive Guide (Aurora, Ontario: Canada Law Book, 1994), 280. Johnson notes that "the general rule in customary international law is that a foreigner is obliged to exhaust local remedies as a prerequisite to international redress. [However,] Carlos Calvo, an Argentine jurist, took this rule a step further in a treatise published in 1868."

4 North American Free Trade Agreement (hereinafter NAFTA), December 17, 1992.

5 Free Trade Agreement of the Group of Three among Mexico, Colombia, and Venezuela (hereinafter the Group of Three), June 13, 1994.

6 Decision 291 of the Commission of the Cartagena Agreement. Common Code for the Treatment of Foreign Capital, Trademarks, Patents, Licenses, and Royalites (hereinafter Decision 291), March 21, 1991.

7 Protocol of Colonia for the Reciprocal Promotion and Protection of Investments in Mercosur (hereinafter Colonia Protocol), January 17, 1994, Mercosur/CMC / Dec. No. 11/93.

8 Protocol for the Promotion and Protection of Investments of third States (hereinafter Buenos Aires Protocol), August 5, 1994. According to Articles 1 and 2, Parties shall not grant to investments of investors of third countries more favorable treatment than the one established in this Protocol.

9 Free Trade Agreement between Bolivia and Mexico, September 10, 1994.

10 Free Trade Agreement between Costa Rica and Mexico, April 5, 1994.

11 Free Trade Agreement between Canada and Chile, December 5, 1996.

12 Bilateral Complementarity Agreements: Chile-Colombia (December 6, 1993); Chile-Ecuador (December 20, 1994); Chile-Mercosur (June 25, 1996); Chile-Mexico (September 22, 1991); and Chile-Venezuela (April 2, 1993).

13 Its objective is to achieve an agreement that would set high standards for the treatment and protection of investment; go beyond existing commitments to achieve a high standard of liberalization covering both the establishment and post-establishment phase with broad obligations on national treatment, standstill, roll-back, non-discrimination/MFN, and transparency, and apply disciplines to areas of liberalization not satisfactorily covered by the present OECD instruments; be legally binding and contain provisions regarding its enforcement; apply these commitments to all parties to the MAI at all levels of governments; deal with measures taken in the context of regional economic integration organizations; encourage conciliation and provide for effective resolution of disputes, taking into account existing mechanisms; and take account of Member countries' international commitments with a view to avoiding conflicts with agreements in the WTO such as GATS, TRIMS, and TRIPS; and with tax agreements; and similarly seek to avoid conflicts with internationally accepted principles of taxation. This Agreement would be a free-standing international treaty open to all OECD Members and the European Communities, and by accession to non-OECD Member countries. See Organisation for Economic Co-operation and Development, A Multilateral Agreement on Investment: Report by the Committee on International Investment and Multinational Enterprises (CIME) and the Committee on Capital Movements and Invisible Transactions (CMIT) (Paris: OECD/GD(95)65, 1995), 4-5.

14 Most bilateral investment treaties covered in this Compendium were signed between countries of the region as of September 1995. More BITs were enterend into in the Western Hemisphere in 1996 and 1997; for instance, Canada with Venezuela, Costa Rica with Chile, and Mexico with Argentina. 15 Apart from the aforementioned agreements signed during the 1990s, this study also covers the Caricom regime on foreign investment. In addition to the investment provisions in the Treaty of Chaguaramas which established the Caribbean Community and the Caribbean Common Market on July 4, 1973, Caricom countries also approved in 1982 a body of principles and guidelines dealing with investment issues. Principles and Guidelines on Foreign Investment approved by the Caricom Heads of Government Conference (hereinafter Guidelines), 1982.

16 This sample text is taken from: Agreement between the Government of Canada and the Government of Argentina for the Promotion and Protection of Investments, November 5, 1991, Art. I (a).

17 Investor of a Party means (...) a national (...) that seeks to make, is making or has made an investment." NAFTA, Article 1139 and Canada-Chile FTA, Article G-40. "National means a natural person who is a citizen or permanent resident of a Party (...)." NAFTA, Article 201 and Canada-Chile FTA, Article B-01.

18 The term investor includes: "any natural person who is a national of, permanently resides, or is domiciled in a Contracting Party in accordance with its laws," Colonia Protocol, Article 1(2).

19 Only two BITs include in their definition of investor not only natural persons possessing the citizenship of a Contracting Party but also those permanently residing therein. See Argentina-Canada BIT, Article I(b); and Canada-Trinidad and Tobago, Article I(g).

20 See Chile-Ecuador BIT, Art. 1(3); Ecuador-El Salvador BIT, Article 1 (2).

21 See Argentina-Chile BIT, Art. I (3); Canada-Trinidad and Tobago, Article I (g).

22 "Enterprise means any entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, sole proprietorship, joint venture or other association." NAFTA, Article201. See Canada-Chile FTA, Article B-01.

23 See Colombia-Peru BIT, Article I (3).

24 See section iv)Combination of different criteria infra.

25 Argentina-Bolivia, Brazil-Venezuela, Bolivia-Chile, Bolivia-Peru BITs.

26 Dolzer and Stevens, Bilateral Investment Treaties, 58.

27 These treaties provide for "the most constant protection and security."

28 Dolzer and Stevens, Bilateral Investment Treaties, 61.

29 Argentina-Canada, Argentina-United States, Argentina-Venezuela, Barbados-Venezuela, Brazil-Chile, Brazil-Venezuela, Canada-Trinidad and Tobago, Canada-Uruguay, Chile-Venezuela, Ecuador-United States, Ecuador-Venezuela, Grenada-United States, Haiti-United States, Honduras-United States, Jamaica-United States, Nicaragua-United States, Panama-United States, Trinidad and Tobago-United States.

30 See Honduras-U.S. BIT, Article XIV (1).

31 See Nicaragua-U.S. BIT, Paragraph 1 of the Protocol

32 See Bolivia-Peru BIT, Article 3 (5).

33 See, for Instance, Nicaragua-U.S. BIT, Article XII.

34 Argentina-Jamaica, Barbados-Venezuela, Colombia-Peru and Panama-United States do not list repayments of loans, while Barbados-Venezuela and Panama-United States do not specify proceeds of the total or partial liquidation of an investment.

35 The five currencies recognized by the International Monetary Fund as freely usable are the US dollar, German mark, Japanese yen, pound sterlling and French franc.

36 These measures are explained in Annex G-09.1 of the Canada-Chile FTA.

37 This standard was formulated by U.S. Secretary of State Cordell Hull who declared in 1938, in correspondence to the Government of Mexico, that "under every rule of law and equity, no government is entitled to expropriate private property, for whatever purpose without provisions for prompt, adequate and effective payment thereof." See Rudolph Dolzer, New Foundations of the Law of Expropriation of Alien Property, 75 AJIL 553 (1981).

38 The ICSID Convention came into force in 1966. See ICSID Doc. 15, ICSID Basic Documents (Jan. 1985). See ICSID Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings, ICSID Doc. 11, 1979.