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

DEFINITION OF INVESTMENT

The term “investment” means every kind of investment, owned or controlled directly or indirectly, including equity, debt, and service and investment contracts. This general definition is illustrated by a non exhaustive list of seven groups of specific rights, including:

• traditional property rights;

• rights in companies;

• monetary claims and titles to performance associated with an investment;

• intellectual property rights;

• licences and permits;

• any right conferred by law or contract; and,

• reinvested returns. (Article I (d)).

DEFINITION OF INVESTOR

Nationals

“National” of a Party means a natural person who is a national or citizen of that Party under its laws. (Article I (a)).

Companies

“Company” means any kind of juridical entity, including any corporation, company, association, or other organization, that is duly constituted, regardless of whether or not the entity is organized for pecuniary gain, privately or governmentally owned, or organized with limited or unlimited liability. “Company of a Party” means a company duly constituted under the applicable laws and regulations of a Party or political subdivision thereof in which natural persons who are nationals of such Party or such Party or a political subdivision thereof, have a substantial interest as determined by such Party. Each Party has reserved its right to deny the advantages of the Treaty to a company when it is controlled by nationals of any third country. (Article I (b)(c)).

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

Date of signature: October 27, 1982
Entry into force: May 30, 1991
Duration: 10 years.
Thereafter it shall remain in force until either Party notifies the other Party, a year in advance, of its decision to terminate the Treaty.
The Treaty shall apply to investments existing at the time of entry into force, as well as to investments made or acquired thereafter.

Admission [Return to the top of the page]

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

Yes. Investment of nationals and companies of either Party shall at all times be accorded fair and equitable treatment. (Article II (2)).

Each Party agrees to provide fair and equitable treatment to privately owned or controlled investment of nationals or companies of the other Party, where such investment is in competition, within the territory of the first Party or its agencies or instrumen-talities. In no case shall such treatment differ from that provided to any privately owned or controlled investment of nationals or companies of the first Party which is also in competition with investment owned or controlled by the Party or its agencies or instrumenta-lities. Article II (3)).

Full Protection and Security

Yes. Investment of nationals and companies shall enjoy full protection and security in the territory of the other Party. The treatment, protection and security of investment shall be in accordance with applicable national laws and international law. (Article II (2)).

Non-Discrimination

Yes. Neither Party shall in any way impair by arbitrary and discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investment made by nationals or companies of the other Party. (Article II (2)).

National Treatment

Yes. Article II on treatment requires the better of either national treatment or most-favored-nation treatment with respect to both pre-establishment and post-establishment investments.

Each Party shall maintain favorable conditions for investment in its territory by nationals and companies of the other Party. Each Party shall permit and treat such investment, and activities associated therewith, on a basis no less favorable than that accorded in like situations to investment or associated activities of its own nationals or companies of any third country, whichever is the more favorable, subject to the right of each Party to make or to maintain exceptions falling within one of the sectors or matters listed in the Annex to this Treaty or resulting from laws and regulations in effect on the date that this Treaty enters into force. Each Party agrees to notify the other Party before or on the date of entry into force of this Treaty of all such laws and regulations of which it is aware.

Moreover, each Party agrees to notify the other of any future exception with respect to the sectors or matters listed in the Annex, and to maintain the number of such exceptions to a minimum. Any exception, other than with respect to ownership of real property, shall be on a basis according treatment no less favorable than that accorded in like situations to investment, or associated activities, of nationals or companies of any third country. Moreover, any future exception by either Party shall not apply to investment of nationals or companies of the other Party existing in that sector at the time the exception becomes effective. (Article II (1)).

Each Party agrees to provide national treatment and most-favored-nation treatment to privately owned or controlled investment of nationals or companies of the other Party, where such investment is in competition, within the territory of the first Party or its agencies or instrumentalities. In no case shall such treatment differ from that provided to any privately owned or controlled investment of nationals or companies of the first Party which is also in competition with investment owned or controlled by the Party or its agencies or instrumentalities. (Article II (3)).

National treatment accorded under the provision of the Treaty to companies of Panama shall, in any State, Territory or possession of the United States, be the treatment accorded therein to companies incorporated, constituted or otherwise duly organized in other States, Territories or possessions of the United States. (Paragraph 6 of the Agreed Minutes).

With respect to Article II (1), associated activities include:

1. the establishment, control and maintenance of branches, agencies, offices, factories or other facilities for the conduct of business;
2. the employment of professional, technical and managerial personnel of their choice, regardless of nationality, for the particular purpose of rendering professional, technical and managerial assistance necessary for the planning and operation of an investment;
3. the organization of companies under applicable laws and regulations; the acquisition of companies or interests in companies or in their property; and the management, control, maintenance, use, enjoyment and expansion, and the sale, liquidation, dissolution or other disposition, of companies organized or acquired;
4. the making, performance and enforcement of contracts;
5. the acquisition (whether by purchase, lease or otherwise), ownership and disposition (whether by sale, testament or otherwise), of personal property of all kinds, both tangible and intangible;
6. the leasing of real property appropriate for the conduct of business;
7. the acquisition, maintenance and protection of copyrights, patents, trademarks, trade secrets, trade names, licenses and other approvals of products and manufacturing processes, and other industrial property rights;
8. the borrowing of funds from local financial institutions, as well as the purchase and issuance of equity shares in the local financial markets;
9. the use of means of communication, transport and public utilities; and
10. access to courts of justice, administrative tribunals and agencies, and the right of employment of persons by nationals or companies of the other Party, who otherwise qualify under applicable laws and regulations of the forum, regardless of nationality, for the purpose of asserting claims and enforcing rights, including those arising under the provisions of this Treaty, with respect to their investment and associated activities. (Paragraph 1 of the Agreed Minutes).

Most-Favored Nation Treatment

Yes. Article II on treatment requires the better of either national treatment or most-favored-nation treatment with respect to both pre-establishment and post-establishment investments.

Each Party shall maintain favorable conditions for investment in its territory by nationals and companies of the other Party. Each Party shall permit and treat such investment, and activities associated therewith, on a basis no less favorable than that accorded in like situations to investment or associated activities of its own nationals or companies of any third country, whichever is the more favorable, subject to the right of each Party to make or to maintain exceptions falling within one of the sectors or matters listed in the Annex to this Treaty or resulting from laws and regulations in effect on the date that this Treaty enters into force. Each Party agrees to notify the other Party before or on the date of entry into force of this Treaty of all such laws and regulations of which it is aware.

Moreover, each Party agrees to notify the other of any future exception with respect to the sectors or matters listed in the Annex, and to maintain the number of such exceptions to a minimum. Any exception, other than with respect to ownership of real property, shall be on a basis according treatment no less favorable than that accorded in like situations to investment, or associated activities, of nationals or companies of any third country. Moreover, any future exception by either Party shall not apply to investment of nationals or companies of the other Party existing in that sector at the time the exception becomes effective. (Article II (1)).

Each Party agrees to provide national treatment and most-favored-nation treatment to privately owned or controlled investment of nationals or companies of the other Party, where such investment is in competition, within the territory of the first Party or its agencies or instrumentalities. In no case shall such treatment differ from that provided to any privately owned or controlled investment of nationals or companies of the first Party which is also in competition with investment owned or controlled by the Party or its agencies or instrumentalities. (Article II (3)).

With respect to Article II (1), associated activities include:

1. the establishment, control and maintenance of branches, agencies, offices, factories or other facilities for the conduct of business;
2. the employment of professional, technical and managerial personnel of their choice, regardless of nationality, for the particular purpose of rendering professional, technical and managerial assistance necessary for the planning and operation of an investment;
3. the organization of companies under applicable laws and regulations; the acquisition of companies or interests in companies or in their property; and the management, control, maintenance, use, enjoyment and expansion, and the sale, liquidation, dissolution or other disposition, of companies organized or acquired;
4. the making, performance and enforcement of contracts;
5. the acquisition (whether by purchase, lease or otherwise), ownership and disposition (whether by sale, testament or otherwise), of personal property of all kinds, both tangible and intangible;
6. the leasing of real property appropriate for the conduct of business;
7. the acquisition, maintenance and protection of copyrights, patents, trademarks, trade secrets, trade names, licenses and other approvals of products and manufacturing processes, and other industrial property rights;
8. the borrowing of funds from local financial institutions, as well as the purchase and issuance of equity shares in the local financial markets;
9. the use of means of communication, transport and public utilities; and
10. access to courts of justice, administrative tribunals and agencies, and the right of employment of persons by nationals or companies of the other Party, who otherwise qualify under applicable laws and regulations of the forum, regardless of nationality, for the purpose of asserting claims and enforcing rights, including those arising under the provisions of this Treaty, with respect to their investment and associated activities. (Paragraph 1 of the Agreed Minutes).

EXCEPTIONS

Consistent with the provisions of Article II (1), the Annex states that each Party reserves the right to make or to maintain limited exceptions within each of the following sectors or matters.

For the United States: air transportation; ocean and coastal shipping; banking; insurance; government grants; government insurance and loan programs; energy and power production; use of lands and natural resources; custom house brokers; ownership of real estate; radio and television broadcasting; telephone and telegraph services; submarine cable services; and satellite communications.

For Panama: communications; representation of foreign firms; distribution and sale of imported products; retail trade; insurance; state companies; private utility companies; energy production; practice of liberal professions; custom house brokers; banking; rights to the exploitation of natural resources including fisheries and hydroelectric power production; and ownership of land located within 10 kilometers of the Panamanian border. Each Party will notify the other of the details of the exceptions mentioned above. (Annex).

This Treaty shall not preclude the application by either Party of any and all measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace and security, or the protection of its own essential security interests. (Article X (1)).

OTHER ASPECTS

Performance Requirements

Neither Party shall impose performance requirements as a condition for the establishment of investment owned by nationals or companies of the other Party, which require or enforce commitments to export goods produced, or which specify that goods or services must be purchased locally, or which impose any other similar requirements. (Article II (4)).

Others

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, directing, 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. (Article III (1)).

Nationals and companies of either Party, and companies which they own or control, shall be permitted to engage, within the territory of the other Party, top managerial personnel of their choice, regardless of nationality.

Moreover, subject to the employment laws of each Party, nationals and companies of either Party shall be permitted to engage, within the territory of the other Party, professional, technical and managerial personnel of their choice, regardless of nationality, for the particular purpose of rendering professional, technical and managerial assistance necessary for the planning and operation of their investment. (Article III (2)).

In referring to employment laws in Article III (2), the Parties mean all laws regulating the terms and conditions of employment, including equal employment opportunity laws, preferential hiring laws, and anti-discrimination laws as well as relating to the training of local employees in order to qualify them for all professional, technical, and managerial positions. Each Party recognizes the right of the other Party to maintain such laws and also agrees to apply its own laws on a non-discriminatory basis with respect to investment by nationals or companies of the other Party, consistent with the provisions of Article II (1). As for any laws requiring employment of its own nationals in certain positions or the employment of a certain percentage of its own nationals in position in connection with investment made in its territory by nationals or companies of the other Party, each Party agrees to administer such laws flexibly, taking into account, inter alia, the nature of investment, the requirements of the positions in question, and the availability of qualified nationals. (Paragraph 3 of the Agreed Minutes).

In the event that a national or a company of one of the Parties suffers a loss in its investment in the territory of the other Party because of war or other type or armed conflict, insurrection, state of national emergency, riot or terrorism, it shall not be treated less favorably, with regard to restitution, adjustments, indemnifications or other payments for such loss, in accordance with the laws of such Party, than nationals or companies of such other Party, or nationals or companies of any third country, whichever are treated most favorably. (Article V).

This Treaty shall not supersede, prejudice, or otherwise derogate from:

1. laws and regulations, administrative practices or procedures, or administrative or adjudicatory decisions of either Party;
2. international legal obligations; or
3. obligations assumed by either Party, including those contained in an investment agreement or an investment authorization, whether extant at the time of entry into force of this Treaty or thereinafter, that entitle investments, or associated activities, of nationals or companies of the other Party to treatment more favorable than that accorded by this Treaty in like situations. (Article IX (1)).

The Treaty shall not preclude either Party from prescribing special formalities in connection with the establishment of investments in its territory of nationals and companies of the other Party, but such formalities shall not impair the substance of any of the rights set forth in this Treaty. (Article X (2)).

Each Party shall observe any obligation it may have entered into with regard to investment of nationals or companies of the other Party. (Article II (2)).

With respect to the treatment of investment as set forth in Article II, Panama has incentive laws granting benefits to duly constituted companies which sign contracts with the government in which they agree to meet the requirements established therein. (Paragraph 2 of the Agreed Minutes).

Transfers [Return to the top of the page]

TYPES OF PAYMENT

Returns

Yes. Each Party agrees, with respect to investment made within its territory by nationals or companies of the other Party, that current and capital transactions shall remain unrestricted and that payments and other transfers with respect to such transactions shall continue to be free. (Article VI).            

Repayment of Loans

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Proceeds of the Total or Partial Liquidation of an Investment

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Licenses and Other Fees

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Other Categories of Payment

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CONVERTIBILITY, EXCHANGE RATES, AND TIMES OF TRANSFER

Currency

---

Exchange Rates

---

Time of Transfer

The Parties agree that Article VI does not preclude the United States from maintaining laws and regulations

1. requiring reporting of currency transfers into or out of the United States or
2. 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 litigants, or ensure the satisfaction of judgments in adjudicatory proceedings, through the equitable, non-discriminatory and good faith application of its laws. (Paragraph 5 of the Agreed Minutes).

Expropriation [Return to the top of the page]

DEFINITION

Covered Expropriatory Measures

Expropriation or nationalization (directly or indirectly through measures tantamount to expropriation or nationalization). (Article IV (1)).

CONDITIONS

Public Purpose and Non-Discrimination

Yes. (Article IV (1)).

Due Process of Law and Judicial Review

Yes. (Article IV (1)). The BIT does not include an independent requirement that expropriations be subject to judicial review. However, it has been argued that the international standard of due process includes such a requirement.

Other

Expropriation has to be made in accordance with the general principles of treatment provided for in Article II (2). (Article III (1)). See supra.

Compensation Standard; Form and Time of Payment

“Prompt, adequate and effective compensation”

Compensation shall:

• be equivalent to the full value of the expropriated investment immediately before the expropriatory action became known;
• include interests at a commercially reasonable rate;
• be made without delay;
• be fully realizable and freely transferable. (Article IV (1)).

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

PRE-ARBITRATION NEGOTIATIONS

Any dispute between the Parties concerning the interpretation or application of the Treaty should, if possible, be settled through consultations between representatives of the two Parties, and if this should fail, through other diplomatic channels. (Article VIII).

If it cannot be settled, and unless there is agreement between the Parties to submit the dispute to the International Court of Justice, the Parties agree to submit it, at the request of either Party, to an arbitral tribunal for decision. (Article VIII (2)).

ARBITRATION

Constitution of the Tribunal

An arbitral tribunal shall be constituted for each dispute.

• Within two months of the request of arbitration, each Party shall appoint an arbitrator. . The two arbitrators are required to select, within the next two months, a national of a third State who serves as Chairman of the tribunal. When agreement cannot be reached, the President of the International Court of Justice might be entrusted by either Contracting Party with the responsibility of making the appointments. There are also additional provisions to cover cases when the President is a national of either Party or is otherwise prevented from fulfilling this function, or when an arbitrator resigns or is unable to perform his duties.
• Regarding costs, each Party is required to bear the expenses of its own member of the tribunal and of its representation in the proceedings, while the costs related to the Chairman are to be paid for equally by the Parties. The Tribunal may, however, direct that a higher proportion of the costs be paid by one of the Parties. (Article VIII (3) (4) (5) (7)).

Procedural Rules of the Tribunal

Decisions of the tribunal shall be taken by a majority of votes and shall be binding on both Parties. The Parties may agree to specific arbitral procedures. In the absence of agreement by the Parties to the contrary, the Model Rules on Arbitral Procedures adopted by the United Nations International Law Commission in 1958, shall govern. 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 Tribunal 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. (Article VIII (2) (6) (7) (8)).

Applicable Law

Disputes shall be decided “in accordance with the applicable rules of international law.” (Article VIII (2)).

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

DEFINITION

An investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to:

1. the interpretation or application of an investment agreement between that Party and such national or company;
2. the interpretation or application of an investment authorization granted by that Party’s foreign investment authority to such national or company; or,
3. an alleged breach of any right conferred or created by the Treaty with respect to an investment. (Article VII(1)).

PREARBITRAL CONSULTATIONS AND DISPUTE SETTLEMENT MECHANISMS

The parties to the dispute should initially seek resolution through consultation and negotiation, which may include the use of non-binding, third-party procedures. If the dispute cannot be resolved through consultation and negotiation, it shall be submitted for settlement in accordance with applicable previously agreed to dispute settlement procedures. (Article VII(2)).

ARBITRAL SETTLEMENT OF DISPUTES

Conditions

Provided that the national or company has not submitted the dispute for resolution in accordance with any applicable previously agreed dispute settlement mechanism or before the courts of justice or administrative tribunals of the Party that is a party to the dispute, and six months have elapsed from the date on which the dispute arose, the national or company may choose to consent in writing to the submission of the dispute to the ICSID Additional Facility for settlement by conciliation or binding arbitration. (Article VII(3)(a)).

Consent

Consent set out explicitly in Article (Article VII(3)(b)).

Forms of Arbitration

The submission of the dispute for settlement by conciliation or binding arbitration may be made to the ICSID Additional Facility. (Article VII(3)).

Applicable Law

Conciliation or binding arbitration shall be done in accordance with the provisions of the Regulations and Rules of the ICSID Additional Facility. (Article VII(3)(c)).