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

DEFINITION OF INVESTMENT

Investment means every kind of asset and rights of any kind defined in accordance with the legal framework of the host country, that have been acquired or are utilized for the purpose of economic gain or for other business ends, have been acquired with resources transferred to the territory of a Party, or reinvested therein, by investors from the other Party, as long as the investment has been carried out in accordance with the laws of the Party in whose territory the investment was made. The investment includes in particular but not exclusively:

1. shares and any other kind of economic participation, in any measure, in companies constituted or duly organized in accordance with the laws of the other Party;
2. claims to money or any other loan with an economic value directly linked to an investment;
3. movable and immovable property, as well as any other rights related to physical property (derechos reales) such as mortgages, securities, easement, and usufruct;
4. intellectual property rights as provided for in the domestic legislation of the Parties;
5. rights derived from concessions, or similar rights conferred by law or by virtue of a contract, or any other measure to perform commercial and economic activities, in accordance with the domestic law of each country.

The definition of investment does not include:

1. the obligation to make a payment or grant credit to the State or to a State enterprise;

2. pecuniary claims derived exclusively from:

1. commercial contracts for the sale of goods or services by an investor from one Party in the territory of that Party to an investor in the territory of another Party; or
2. the extension of credit in connection to a commercial transaction, such as trade financing, whose expiry date is less than one year. (Article 9.01). (3)

DEFINITION OF INVESTOR

Investor of a Party means a Party, or a company owned by it, a national under the legislation of each one of the Parties, or a company constituted in one of the Parties, that is completing the legal procedures with the aim of making an investment and is in the process of committing capital, or is making or has made an investment in the territory of another Party. (Article 9.01).

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

The Free Trade Agreement between Central America and the Dominican Republic was signed on April 16, 1998, and entered into force on January 1, 1999.

Admission [Return to the top of the page]

Each Party, subject to its general policy with respect to foreign investments, shall stimulate and create favorable conditions in its territory for the making of investments by investors of the other Party, and shall admit these investments in accordance with its legislation. (Article 9.16 (1)).

Nothing in Article 9.03 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 9.12(1)).

Treatment [Return to the top of the page]

STANDARDS

Fair and Equitable Treatment

Each Party shall guarantee treatment in accordance with international law, including fair and equitable treatment and full protection and security within its territory to investments of investors from the other Party. Article 9.03(1)).

Full Protection and Security

Each Party shall guarantee treatment in accordance with international law, including fair and equitable treatment and full protection and security within its territory to investments of investors from the other Party. Article 9.03(1)).

Non-Discrimination

Each Party shall comply with its commitments taken with respect to investments and shall not impair in any way, through the adoption of arbitrary and discriminatory measures, the direction, development, maintenance, utilization, usufruct, expansion or disposition of these investments. (Article 9.03 (2)).

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 9.04).

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 9.05(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 areas, 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 9.05(2)).

This chapter shall not apply to:

1. economic activities that each Party reserves for itself in accordance with its domestic legislation in force on the date of the subscription of this Agreement;
2. measures that a Party adopts to restrict the participation of investments of investors of another Party in its territory for reasons of national security or public order, protection of the cultural and environmental patrimony, and conservation of the environment. (Article 9.02 (2)).

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 9.14).

OTHER ASPECTS

Performance Requirements

The Parties may not impose any of the performance requirements stipulated in the Agreement on the Trade-Related Investment Measures under the WTO, with respect to allowing the establishment or the acquisition of an investment, or in connection with the subsequent regulation of that investment. (Article 9.07).

Others

Each Party shall accord to investors of the other Party, and to investments of investors of the other Party, non-discriminatory treatment by comparison to the treatment it accords to its own domestic investors or to those of a third party, with respect to measures it adopts or maintains relating to losses suffered by investments in its territory due to wars, armed conflict or civil strife, a state of national emergency or other similar events. (Article 9.06).

No Party may require that the company of one Party appoint individuals of a particular nationality to senior management positions, except as provided for in the legislation of each Party. (Article 9.09).

Each and every Party may adopt, maintaining or enforce 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 9.15).

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, in accordance with its domestic legislation. Such transfers include:

1. profits, dividends, interest, capital gains, royalty payments, and other amounts derived from the investment;
2. management fees;
3. proceeds from the sale of all or any part of the investment or from the partial or complete liquidation of the investment;
4. additional capital contributions for the maintenance or expansion of an investment;
5. payments made under a contract entered into by the investor, or its investment, including payments made pursuant to a loan agreement;
6. payments derived from compensation for expropriation; and
7. payments arising under the application of dispute settlement provisions contained in this Agreement. (Article 9.10(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, in accordance with each Party’s domestic legislation. (Article 9-10 (2)).

Similarly, each Party may request information and formulate requirements with respect to reporting currency transfers or other monetary instruments, based on the equitable and non-discriminatory application of its legislation. (Article 9.10 (3)).

Notwithstanding the provisions of this Article, each Party shall have the right, when experiencing serious or unusual balance of payments difficulties, to temporarily limit transfers, in an equitable and nondiscriminatory manner, in accordance with internationally accepted criteria. One Party shall be promptly notified by the other Party of the limitations it has adopted or maintained in accordance with this paragraph, as well as their elimination. (Article 9-10 (4)).

Expropriation [Return to the top of the page]

CONDITIONS

The investments of investors from the country of a Party in the territory of another Party shall not be subjected to nationalization, expropriation or any other measure having equivalent effects to nationalization or expropriation of such an investment ("expropriation"), unless the following conditions are fulfilled in accordance with the national legislation:

1. the measures are adopted for a public purpose (utilidad pública) in conformity with the provisions of the annex to this Article;
2. the measures are non- discriminatory;
3. the measures are accompanied by the payment of prompt, adequate, and effective compensation. (Article 9.11(1)).

With respect to the term “utilidad pública”, it means:

• Costa Rica: public interest;
• El Salvador: public use and social interest;
• Guatemala: collective use, social benefit or public interest;
• Honduras: public use and social interest; and
• the Dominican Republic: public use and social interest. (Annex to Article 9.11).

COMPENSATION

Compensation shall be equivalent to the fair price of the expropriated investment immediately before the expropriation took place, or before the imminence of the measure became public knowledge, whichever occurs first. The compensation must include the payment of interest calculated from the day of divestiture of the expropriated good and up to the date of payment. The interest must be calculated on the basis of a rate that is an average of the national banking system of the Party where the expropriation has taken place. The compensation must be promptly paid in convertible currency and shall be fully realizable and freely transferable. The amount of the compensation shall be determined in the following manner:

1. an expert opinion in accordance with the domestic legislation of each Party, which must include all the information necessary in order to individualize the good to be valued;
2. when the property is immovable, the opinion shall contain an independent valuation of the land, crops, buildings, rents (from tenants and land), commercial rights, deposits, and any other goods or rights susceptible to compensation;
3. with respect to movable property, each good shall be valued separately and the characteristics that determine its value shall be made clear;
4. the appraisals shall only include the permanent real damages. Future events that will affect the property shall not be included or taken into consideration. Increased value derived from the program that gives rise to the expropriation shall also not be acknowledged.
5. the expert opinions must indicate in an expanded and detailed manner the elements of the reasoning underlying the value assigned to the good, as well as the methodology utilized. (Article 9.11(2)).

In accordance with the domestic legislation of the Party executing the expropriation, the affected investor has the right to the prompt review of his case by the judicial authority or other competent and independent authority of the said Party, to determine if the expropriation and the valuation of the investment have been carried out in accordance with the principles set out in this Article. (Article 9.11(3)).

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

Chapter XVI 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 controversies that arise under this Agreement between one Party and an investor of the other Party that has undertaken investments in the former shall be resolved amicably through consultations wherever possible. (Article 9.20(1)).

ARBITRATION

Conditions

The choice of one procedure or the other shall be considered definitive once the investor has submitted the complaint to the appropriate national tribunal of the Party in whose territory the investment was undertaken or to an arbitral tribunal. (Article 9.20(3)).

Consent

Each Party grants its anticipated and irrevocable consent to submit any and all differences to such arbitration. (Article 9.20 (2)).

Forms of Arbitration

If a solution cannot be reached by way of consultations within five (5) months from the date when the request for settlement was submitted, the investor may submit the dispute to:

1. the appropriate tribunals of the Party in whose territory the investment was undertaken; or
2. to the national arbitration of the Party in whose territory the investment was made; or
3. to international arbitration:

1. to ICSID, provided that both Parties are parties to ICSID;
2. to the Additional Facility Rules for the administration of conciliation, arbitration and fact verification procedures under the ICSID Secretariat, when one Party is not a party to ICSID; or
3. to arbitration under the Rules of the United Nations Commision for International Trade Law (UNCITRAL), when neither Party is a party to ICSID. To this end, each Party grants its anticipated and irrevocable consent to submit any and all differences to such arbitration. (Article 9.20(2)).

ARBITRAL PROCEDURES

Constitution of the Tribunal

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Consolidation

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Applicable Law

The Tribunal shall decide based on:

1. the provisions of the present Agreement and of other Agreeements signed by the Parties;
2. the national laws of the Party in whose territory the investment has been made, including the terms of particular agreements that may have been signed in connection with the investment; and
3. universally accepted rules and principles of international law. (Article 9.20(4)).

FINAL AWARD

Scope

The arbitral awards shall be final and binding for the disputing Parties and shall be implemented in accordance with the domestic laws of the Party in whose territory the investement was made. (Article 9.20(5)).

Finality and Enforcement

The arbitral awards shall be final and binding for the disputing Parties and shall be implemented in accordance with the domestic laws of the Party in whose territory the investment was made. (Article 9.20(5)).

Until the relevant procedures have run their course, the Parties shall refrain from utilizing diplomatic channels to deal with matters that have been subjected to judicial procedures or arbitration as provided for in this Article, except where the other Party to the dispute has complied with the judicial decision or the decision of the arbitral tribunal under the terms set out in the verdict or the decision and in accordance with the domestic legislation. (Article 9.20(6)).