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

DEFINITION OF INVESTMENT

Investment means:

Every kind of asset and rights of any kind, acquired with resources transfered to the territory of a Party, or reinvested therein, by investors from the other Party, such as:

• shares and any other kind of participation in companies established in accordance to the legislation of the other Party;
• rights derived from any type of investment made with the purpose of creating economic value (or claims to money or claims to performance having an economic value);
• movable and immovable property and any other property rights, such as mortgages, liens and pledges and other similar rights;
• intellectual property rights; and,
• rights conferred by law or contract to perform commercial and economic activities.

Investment does not include:

• a payment obligation in respect of a loan to the State or a state enterprise or the granting of same; nor
• monetary claims deriving exclusively from:

1. commercial contracts for the sale of goods or services by a national or an enterprise in territory of one Party to an enterprise in the territory of the other Party; or,
2. the granting of a loan in connection with a commercial transaction, the due date for which falls within less than three years, such as financing for trade. (Article 13-01 of the Free Trade Agreement between Costa Rica and Mexico).

Investment of an investor from a Party:

the investment owned or controlled by an investor from one Party in the territory of the other Party. In the case of a company, an investment is owned by an investor of a Party if said investor owns more than 49 % of its capital. An investment is under the control of an investor of a Party if said investor is entitled to appoint the majority of its directors or to manage in any other way its operations. (Article 13-01).

DEFINITION OF INVESTOR

Investor from a Party: a Party or a State enterprise of same, or a national or enterprise of that Party, which carries out the legal acts needed to make an investment, including the investment of an important amount of capital, or which makes or has made an investment in the territory of the other Party. (Article 13-01).

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

The Free Trade Agreement between Costa Rica and Mexico was signed on April 5, 1994 and entered into force on January 1, 1995.

Admission [Return to the top of the page]

Nothing in Article 13-03 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 another Party, such that investments be legally constituted under the laws or regulations of the Party, provided that such formalities do not impair in an important way the protection afforded by a Party pursuant to this Chapter. (Article 13-11(1)).

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

Treatment [Return to the top of the page]

STANDARDS

Fair and Equitable Treatment

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Full Protection and Security

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Non-Discrimination

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National Treatment

Each Party shall grant investors of the other Party and investments of investors of the other Party treatment no less favorable than that it grants, in like circumstances, to its own investors and to investments of these investors. (Article 13-03).

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 Article 13-04(2). (Article 13-04(1)).

Exceptions and Reservations

Articles 13-03, 13-04, 13-06 and 13-07 [National Treatment; Most-Favored-Nation Treatment; Performance Requirements; and Senior Management and Boards of Directors] do not apply to any inconsistent measure maintained by a Party in accordance with its legislation at the time this Agreement enters into force, whatever the level or order of government. Each Party shall list these measures in Annex 1 to this Article within no more than one year from the entry into force of this Agreement. No measure adopted by a Party  in the future may be more restrictive than those in force at the time this Agreement enters into effect. (Article 13-08(1)).

Treatment granted by a Party in accordance with Article 13-04 does not apply to the treaties or sectors listed within a period of no longer than one year from the entry into force of this Agreement. (Article 13-08(2)).

Articles 13-03, 13-04, and 13-07 do not apply to:

1. procurement by a Party or a State enterprise; or
2. subsidies or contributions, including loans, guarantees and governmental insurance granted by a Party or by a State enterprise, except as provided in Article 13-05(2). (Article 13-08(3)).

This Chapter does not apply to:

1. economic activities reserved for each Party, pursuant to its current legislation on the date of signature of this Agreement, which shall be listed within a period of no longer than one year from the entry into force of this Agreement;
2. measures adopted or maintained by a Party in the area of financial services; and
3. measures adopted by a Party to restrict the participation of investments of investors of the other Party in its territory for reasons of public order or national security. (Article 13-02(2)).

If a Party has granted special treatment to investors of a third country, or investments made by these investors, by virtue of agreements establishing free trade areas, customs unions, common markets, economic or monetary unions or similar arrangements, said Party shall not be obliged to grant the same treatment to investors or investments of the other Party (Article 13-04(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 of the other Party who is an enterprise of the Party and to the investments of this investor if investors of a country that is not a Party are owners or control the enterprise, under the terms indicated in the definition of “investment of an investor of a Party” in Article 13-01, and the enterprise does not have substantial business activities in the territory of the Party under whose legislation it is established or organized. (Article 13-13).

OTHER ASPECTS

Performance Requirements

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

1. to export a given level or percentage of goods and services;
2. to achieve a given level or percentage of domestic content;
3. to purchase, use or accord a preference to goods produced or services provided in its territory, or to acquire goods from producers or services from providers in its territory; and
4. to relate in any way the volume or value of imports to the volume or value of exports, or to the amount of foreign exchange inflows associated with such investment. (Article 13-06(1)).

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

1. to purchase, use or accord a preference to goods produced in its territory, or to purchase goods from producers in its territory;
2. to achieve a given level or percentage of domestic content;
3. to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment. (Article 13-06(2)).

Paragraph 1 and 2 do not apply to any requirement other than the requirements set out in these paragraphs. (Article 13-06(3)).

The provisions contained in:

1. subparagraphs a) , b) and c) of paragraph 1 and subparagraphs a) and b) of paragraph 2 of Article 13-06 do not apply to requirements for egilibility of the goods and services with respect to export-promotion programs;
2. subparagraphs b), and c) of paragraph 1 and subparagraphs a) and b) of Article 13-06 do not apply to procurement by a Party or a State enterprise; and
3. subparagraphs a) and b) of paragraph 2 of Article 13-06 do not apply to requirements imposed by an importing Party concerning the necessary content of goods for qualifying for preferential tariffs or quotas. (Article 13-06(4)).

Nothing in Article 13-06 shall be construed to prevent a Party from imposing requirements concerning geographic location of production units, employment generation or labor training or performance of research and development activities. (Article 13-06(5)).

In a case where, in the judgement of one Party, the imposition by the other Party of any of the following requirements negatively affects the flow of trade or constitutes a significant barrier to the investment of an investor of the other Party, the matter shall be considered by the Commission:

1. to restrict the sale of goods in its territory that such investment produces by relating such sales in any way to the volume or value of its exports or to the foreign exchange generated;
2. to transfer to a person in its territory, technology, processes or any confidential know-how, except when such requirement is imposed by a court, administrative tribunal or competent authority to remedy an alleged violation of the law concerning competition or to act in a manner not inconsistent with the other provisions of this Agreement; or,
3. to act as the exclusive supplier of the goods it produces for a specific regional or world market. (Article 13-06(6)).

If the Commission finds that, in fact, the requirement in question negatively affects the flow of trade or constitutes a significant barrier to the investment of an investor of the other Party, it shall adopt those provisions necessary to abolish the practice in question. The Parties shall consider these provisions as included in this Agreement. (Article 13-06(7)).

Others

No Party may require that an enterprise of that Party appoint to senior management positions individuals of any particular nationality. (Article 13-07(1)). A Party may require that the members of the administrative organs of an enterprise be of a particular nationality, provided such requirement does not substantially reduce an investor’s ability to exercise control over his investment. (Article 13-07(2)).

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. (Article 13-14(1)).

If a Party fails to comply with the provisions of Article 13-14(1), the Party where the investment is established may adopt such measures and take such steps as it deems necessary to nullify the effect of the legislation or measure concerned and the obstacles to trade resulting from such legislation or measure. (Article 13-14(2)).

Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to ecological or environmental concerns. (Article 13-15(1)).

The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party shall not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment. If a Party considers that another Party has offered such an encouragement, it may request consultations with the other Party. (Article 13-15(2)).

Transfers [Return to the top of the page]

TYPES OF PAYMENT

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

1. profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance, returns in kind and other amounts derived from the investment;
2. proceeds from the sale of all or any part of the investment;
3. payments made under a contract entered into by the investor, or its investment, including payments made pursuant to a loan agreement;
4. payments made pursuant to expropriation and compensation; and
5. payments arising out of a dispute. (Article 13-09(1)).

Notwithstanding paragraphs 1 and 2 of Article 13-09, a Party may prevent a transfer through the equitable and non-discriminatory application of its laws relating to:

1. bankruptcy, insolvency or the protection of the rights of creditors;
2. issuing, trading or dealing in securities;
3. criminal or penal offenses;
4. reports of transfers of currency or other monetary instruments;
5. ensuring the satisfaction of judgments in adjudicatory proceedings; and
6. 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 (Article 13-09(3)).

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. (Article 13-09(2)).

Notwithstanding the provision of Article 13-09, 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 13-09(4)).

Expropriation [Return to the top of the page]

CONDITIONS

No party may nationalize or expropriate, directly or indirectly, an investment of an investor from another Party in its territory, or adopt an equivalent measure (“expropriation”), except:

1. for reasons of public interest;
2. on a non-discriminatory basis;
3. on the basis of the principle of legality; and
4. with due compensation in accordance with paragraphs 2 to 4. (Article 13-10(1)).

COMPENSATION

The compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation measure is put into effect (“date of expropriation”), and shall not reflect any change in value due to the intention to expropriate having been known prior to the date of expropriation. The valuation criteria shall include the declared taxable value of tangible assets, together with such other criteria as are deemed appropriate for determining the fair market value. (Article 13-10(2)).

The payment of the compensation shall be made without delay and shall be fully realizable. (Article 13-10(3)).

The sum paid shall not be less than the equivalent amount that would have been paid for compensation in a freely convertible currency in the international financial market on the date of expropriation, said currency being converted at the market rate on the valuation date, plus the interest that would have been generated at a reasonable commercial rate for that currency, chosen by the Party in accordance with international parameters, up to the date of payment. (Article 13-10(4)).

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

Chapter XVII on Dispute Settlement is applicable.

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

PREARBITRAL CONSULTATIONS

The disputing parties shall first endeavor to settle disputes by means of consultation or negotiation. (Article 13-20).

ARBITRATION

Conditions

Except for the provisions included in the annex to this Article, and in accordance with this section, only an investor from one Party, acting for his own account or on behalf of an enterprise of the other Party that is a juridical person owned by him or under his direct or indirect control, may submit to arbitration a complaint the basis for which is that the other Party or an enterprise directly or indirectly controlled by that Party has allegedly violated an obligation specified in this chapter, provided the enterprise has suffered losses or harm due to the violation or as a result of it. (Article 13-19(1)).

The investor may not submit a complaint in accordance with this section if more than three years have elapsed since the date on which he become aware of or should have been aware of the alleged violation against his investment, and of the losses or harm suffered. (Artículo 13-19(2)).

The consent to arbitration of the disputing parties in accordance with this chapter will be deemed as a consent to said arbitration to the exclusion of any other mechanism. (Article 13-22(1)).

A Party may require that administrative remedies be exhausted as a condition for its consent to arbitration in accordance with this chapter. However, if six months have elapsed since the administrative procedures were initiated without the administrative authorities having arrived to a decision, the investor may submit the claim directly to arbitration, in accordance with this section. (Article 13-22(2)).

When an investor submits a complaint on behalf of an enterprise that is a juridical person owned by him or under his direct or indirect control, and at the same time an investor who does not control an enterprise submits a complaint for his own account as a result of the same acts, or two or more complaints are submitted to arbitration on account of the same measure adopted by a Party, the consolidation tribunal established in accordance with Article 13-28 shall examine these complaints jointly, except when that tribunal determines that the interests of one disputing party would suffer thereby. (Article 13-19(3)).

An investment or an enterprise may not submit a complaint to arbitration in accordance with this section. (Article 13-19(4)).

A disputing investor, acting for his own account or on behalf of an enterprise, may submit a claim to arbitration in accordance with this section, solely if:

1. in the case of the disputing investor acting for his own account, he consents to submit himself to arbitration according to the procedures laid down in this section;
2. in the case of the disputing investor acting on behalf of an enterprise, both the disputing investor and the enterprise consent to submit themselves to arbitration according to the procedures laid down in this section; and
3. both the investor and the enterprise of the other Party renounce their right to initiate proceedings before any judicial court of either Party with respect to the measure allegedly violating the provisions of this chapter, except the submission of appeals, provided for in the disputing Party’s legislation, to the executive authorities who are charged with implementing the measure causing the alleged violation. (Article 13-22(3)).

The consent and waiver required by this Article shall be expressed in writing, delivered to the disputing Party and shall be included in the submission of a claim to arbitration. (Article 13-22(4)).

Consent

Each Party consents to submit claims to arbitration with adherence to the procedures and requirements set forth in this section. (Article 13-24(1)). The submission of a claim to arbitration by a disputing investor shall satisfy the requirement of:

1. Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the Rules of the ICSID Additional Facility, which require the written consent of the Parties;
2. Article II of the New York Convention, which requires a written agreement; and
3. Article I of the Inter-American Convention, which requires an agreement. (Article 13-24(2)).

Forms of Arbitration

Provided six months have elapsed since the measure that prompted the claim, a disputing investor may submit the complaint to arbitration in accordance with:

1. the ICSID Convention, provided both the disputing party and the Party of the investor are member States of same;
2. the Rules of the ICSID Additional Facility, when the disputing Party or the Party of the investor, but not both, are States party to the ICSID Convention; or
3. the UNCITRAL Arbitration Rules, when the disputing Party or the Party of the investor are not party to the ICSID Convention. (Article 13-23(1)).

The rules selected in accordance with an arbitration procedure established in this chapter will be applicable except insofar as amended or modified by this section. (Article 13-23(2)).

ARBITRAL PROCEDURES

Constitution of the Tribunal

With the exception of the provisions of Article 13-28 and without prejudice to the disputing parties agreeing on something different, the tribunal shall be made up of three arbitrators. Each disputing party shall appoint one arbitrator; the third arbitrator, who shall be president of the arbitration tribunal, shall be appointed by the disputing parties in mutual agreement. (Article 13-25).

When a Party fails to appoint an arbitrator or the disputing parties are unable to agree on a presiding arbitrator, the Secretary-General [of ICSID] shall appoint the arbitrators in arbitration proceedings, in accordance with this section. (Article 13-26(1)).

When a tribunal, other than that established in accordance with Article 13-28, is not formed within 90 days of the date on which the claim is submitted to arbitration, the Secretary-General, at the request of either of the disputing parties, shall appoint, at his discretion, the arbitrator or arbitrators not yet appointed, but not the president of the tribunal, who shall be appointed in accordance with paragraph 3 of this article. In any case, the majority of the arbitrators cannot be nationals of a disputing party. (Article 13-26(2)).

The Secretary-General [of ICSID] shall appoint the president of the tribunal from among the arbitrators on the list referred to in paragraph 4, ensuring that the president of the tribunal is not a national of the disputing Party or a national of the party of the disputing investor. If there is no arbitrator on the list who is available to serve as president of the tribunal, the Secretary-General shall appoint the president of the tribunal from the ICSID Panel of Arbitrators provided he is of a nationality other than that of the disputing Party or of the Party of the disputing investor. (Article 13-26(3)).

Upon the entry into force of this Treaty, the parties shall establish and maintain a list of 15 arbitrators as possible presidents of the arbitration tribunal, who meet the criteria laid down in the ICSID Convention and who possess experience in international law and in matters concerning investments. The arbitrators who are placed on the list shall be designated by consensus without regard to nationality for a period of two years, renewable if the parties so agree by consensus. In case of death or resignation of a member of the list, the Parties will designate another person to replace him for the rest of the period for which he was appointed. (Article 13-26(4)).

Consolidation

A consolidation tribunal established in accordance with this article shall be installed with due observance of the UNCITRAL Arbitration Rules and shall proceed as specified in those rules, except when this section provides otherwise. (Article 13-28(1)).

When a consolidation tribunal determines that the claims submitted to arbitration in accordance with Article 13-22 raise common questions of fact and law, the consolidation tribunal, in the interest of fair and efficient settlement of such questions, and after having heard the disputing Parties, may assume jurisdiction, handle and settle:

1. all or part of the claims, on a joint basis; or
2. one or more of the claims on the grounds that this will contribute to the settlement of the others. (Article 13-28(2)).

A disputing party that wishes claims to be treated jointly as detailed in paragraph 2, shall request the Secretary-General to set up a consolidation tribunal and shall specify in its request: the name of the disputing Party or of the disputing investors against whom the consolidation of claims is sought;

1. the nature of the consolidation decision requested; and
2. the grounds on which the consolidation petition is based. (Article 13-28(3)).

Paragraphs 4 to 12 contain provisions related to the constitution of the consolidation tribunal as well as to the procedure and timing for the tribunal’s settlement of the dispute. (Article 13-28).

Applicable Law

Any tribunal established in accordance with this section shall settle the disputes submitted to it in accordance with this Treaty and with the applicable rules of international law. (Article 13-33(1)).

The interpretation given by the Commission of a provision of this Treaty shall be obligatory for any tribunal established in accordance with this section. (Article 13-33(2)).

FINAL AWARD

Scope

When a tribunal established in accordance with this section issues an award unfavorable to a Party, said tribunal may only grant: recover of monetary damages and of the relevant interest; or restitution of ownership, in which case the award shall specify that the disputing Party may pay the monetary damages, plus the relevant interest, instead of restitution. (Article 13-36(1)).

When the claim is made by an investor on behalf of an enterprise on the basis of Article 13-19: the award ordering restitution of ownership shall specify that restitution shall be to the enterprise;

1. the award that grants payment of monetary damages and the relevant interest shall specify that the sum of money shall be paid to the enterprise;
2. the award of monetary damages and any applicable interest shall provide that the sum be paid to the enterprise.

The award shall be issued without prejudice to the rights that any person with a legal interest in the matter may have to compensation for any damages they have suffered, under the applicable legislation. (Article 13-36(4)).

Finality and Enforcement

The award issued by any tribunal established in accordance with this section shall be obligatory only for the disputing parties and solely with respect to the concrete case. (Article 13-37(1)).

In accordance with paragraph 3 and with the review procedure applicable to a provisional award, a disputing party shall observe and comply with the award without delay. (Article 13-37(2)).

A disputing party may request execution of a final award provided that:

1. in the case of a final award issued in accordance with the ICSID Convention:

1. 120 days have elapsed since the date of issue of the award without any disputing party having requested review or cancellation of same; or
2. the review or cancellation procedures have been completed; and

2. in the case of a final award in accordance with the rules of the ICSID Additional Facility or the UNCITRAL Arbitration Rules:

1. three months have elapsed since the date of issue of the award without any disputing party having instituted proceedings to have it reviewed, dismissed or canceled; or
2. a tribunal has dismissed the award or admitted a request for reconsideration, dismissal or cancellation of the award and there is no appeal against this decision. (Article 13-37(3)).

Each Party shall provide for the enforcement of an award in its territory. The award shall be enforced in accordance with the rules on enforcement of awards in the territories where said enforcement is expected. (Article 13-37(4)).

When a disputing Party fails to comply with or does not observe a final award, the Commission, upon receipt of a request from a Party whose investor was a party in the arbitration proceedings, shall form a panel in accordance with Chapter XVII (Settlement of Disputes). The requesting Party may refer to those proceedings to obtain:

1. a determination to the effect that the failure to comply with or to observe the terms of the final award is contrary to the obligations assumed under this Treaty; and
2. a recommendation to the effect that the Party shall adhere to and observe the final award. (Article 13-37(5)).

The disputing investor may resort to execution of an arbitration award in accordance with the ICSID Convention, the New York Convention or the Inter-American Convention, regardless of whether the proceedings envisaged in paragraph 5 have been initiated or not. (Article 13-37(6)).

For the purposes of Article 1 of the New York Convention and of Article I of the Inter-American Convention, it shall be deemed that the claim submitted to arbitration in accordance with this section arises from a commercial relationship or transaction. (Article 13-37(7)).