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

DEFINITION OF INVESTMENT

“Investment” refers to resources transferred to the national territory of one Party or reinvested therein by investors of the other Party, including:

1. any type of asset or right the purpose of which is to produce economic benefits;
2. equity interest, in any proportion, by the investors of one Party in companies constituted or organized under the laws of another Party;
3. enterprises owned or effectively controlled by an investor of that Party that have been constituted or organized in the territory of the other Party; and
4. any other resources considered an investment under the laws of that Party.

Investment shall not include credit or debt transactions, such as:

1. a debt security of the State or a State enterprise, or a loan to the State or to a State enterprise;
2. claims to money that arise solely from:

1. commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party; or
2. the extension of credit in connection with a commercial transaction, such as trade financing. (Article 17-01 of the Group of Three).

DEFINITION OF INVESTOR

The term “investor” refers to any of the following persons owning an investment in the territory of the other Party:

• the Party itself or any of its public entities or State enterprises;
• a natural person who is a national of that Party in accordance with its laws;
• an enterprise constituted, organized, or protected in accordance with the laws of that Party;
• a branch located in the territory of that Party that engages in commercial activities therein. (Article 17-01).

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

The Free Trade Agreement of the Group of Three was signed by Mexico, Colombia, and Venezuela on June 13, 1994, and came into effect on January 1, 1995.

Admission [Return to the top of the page]

Nothing in Article 17-03 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 as a requirement that investments be constituted under the laws and regulations of the Party, provided that such formalities do not materially impair the protections afforded by a Party in accordance with the provisions of this Chapter. (Article 17-09(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 accord to investors of another Party, and to their investments, treatment no less favorable than that it accords, in like circumstances, to its own investors and investments. (Article 17-03(1)).

Most-Favored Nation Treatment

Each Party shall grant investors of another Party, and to their investments, treatment no less favorable than that it accords, in like circumstances, to investors, and their investments, of another Party or of a non-Party. (Article 17-03(2)).

Exceptions and Reservations

Within eight months of the signature of the treaty, the Parties shall establish a Protocol containing four lists of the sectors and subsectors for which each Party may maintain measures not conforming with Articles 17-03 [National Treatment and MFN], 17-04 [Performance Requirements], and 17-05 [Employment and Enterprise Management], based on the following criteria:

1. with respect to the measures contained in list 1, no Party shall increase the level of non-conformity with those articles as of the date of signature of this Treaty. No amendment to any of those measures shall decrease the level of conformity of the measure, as it existed immediately before the amendment;
2. with respect to the measures contained in list 2, each Party may adopt or maintain new non-conforming measures or make such measures more restrictive;
3. list 3 shall contain the list of economic activities reserved for the State;
4. list 4 shall contain exceptions to Article 17-04(2), with regard to the bilateral or multilateral international treaties concluded or to be concluded by the Parties. (Article 17-06(1)).

In the negotiations to which list 2 in Article 17-06(1) refers, the Parties shall endeavor to reach agreements on the basis of reciprocity with a view to obtaining a comprehensive balance in the concessions granted. (Article 17-06(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 another Party that is an enterprise of such Party and to the investments of such investor, if investors of a non-Party are majority shareholders in or control the enterprise, and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized. (Article 17-11).

OTHER ASPECTS

Performance Requirements

No Party shall impose performance requirements by adopting investment-related measures that are mandatory or required for the establishment or operation of an investment, or for which compliance is necessary in order to obtain or maintain an advantage or incentive, or which prohibit:

1. the purchase or use by an enterprise of goods of national origin of that Party, or from its national sources, whether specified in terms of specific goods, in terms of volume or value of the goods, or as a proportion of the volume or value of its local production;
2. the purchase or use of imported goods by an enterprise from being limited to an amount related to the volume or value of the local goods exported by the enterprise;
3. restrictions on imports of goods used by an enterprise in its local production or related thereto, limiting access by the enterprise to foreign exchange to an amount related to the entry of foreign exchange imputable to said enterprise;
4. restrictions on the exportation or the sale for exportation of goods by an enterprise, whether specified in terms of the volume or value of the goods, or as a proportion of the volume or value of its local production. (Article 17-04(1)).

The provisions of:

1. Paragraph 1(a) and (d) shall not apply with respect to requirements for the qualification of goods for export promotion programs;
2. Paragraph 1(a) shall not apply with respect to purchase or use by a Party or by a State enterprise;
3. Paragraph 1(a) shall not apply with respect to the requirements imposed by an importing Party with respect to the content required for goods in order to qualify for preferential tariffs or duties. (Article 17-04(2)).

Nothing in the provisions of this Article shall be construed as preventing a Party from imposing, with regard to any investment in its territory, requirements to locate production, generate jobs, train workers, or carry out research and development. (Article 17-04(3)).

If, in the judgment of a Party, another Party imposes a requirement not stipulated in paragraph 1 that adversely affects the flow of trade or that constitutes a significant barrier to investment, the matter shall be considered by the Commission. (Article 17-04(4)).

If the Commission finds that the requirement in question adversely affects the flow of trade or constitutes a significant barrier to investment, it shall recommend to the Party in question that it suspend the requirement. (Article 17-04(5)).

Others

The provisions of paragraphs 1 and 2 shall extend to any measure adopted or maintained by a Party in relation to losses owing to armed conflict, civil strife, disturbances of the public order, acts of Gods or force majeure. (Article 17-03(3)).

Limits on the number or proportion of foreigners that may work in an enterprise or perform managerial or administrative duties under the laws of each Party may in no case prevent or hinder an investor from exercising control over its investment. (Article 17-05).

No Party shall eliminate domestic health, safety, or environmental measures, or shall undertake to waive the application thereof, as an encouragement for the establishment, acquisition, expansion, or retention in its territory, of an investment of an investor. If a Party considers that another Party has encouraged an investment in this way, it may request consultations with that other Party. (Article 17-13).

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 another Party in the territory of the Party to be made freely and without delay.

Such transfers include:

1. profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance, returns in kind, and other amounts derived from the investment;
2. proceeds from the sale or liquidation of the investment, in whole or in part;
3. payments made under a contract entered into by an investor or its investment;
4. payments derived from compensation for expropriation; and
5. payments derived from implementation of the provisions relating to the system for settling disputes. (Article 17-07(1)).

Each Party may maintain laws and regulations that impose income and additional taxes by such means as the withholding of taxes on dividends and other transfers, provided such measures are not discriminatory. (Article 17-07(5)).

CONVERTIBILITY, EXCHANGE RATES, AND TIMES OF TRANSFER

Each Party shall permit transfers to be made in a freely convertible currency at the market rate of exchange prevailing on the date of transfer with respect to spot transactions in the currency to be transferred, without prejudice to the provisions of Article 17-07(6). (Article 17-07(2)).

Notwithstanding paragraphs 1 and 2, each Party may, to the extent and for such time as may be necessary, prevent transfers through the equitable and non-discriminatory application of its laws with respect to:

1. bankruptcy, insolvency, or the protection of the rights of creditors;
2. issuing, trading, and dealing in securities;
3. criminal or administrative offenses; or
4. ensuring the satisfaction of judgments in adjudicatory proceedings. (Article 17-07(3)).

Moreover, each Party may, through the equitable and non-discriminatory application of its laws, request information and impose requirements concerning reports of transfers of currency or other instruments. (Article 17-07(4)).

The provisions of this Article notwithstanding, each Party shall be entitled, under circumstances of exceptional or serious balance-of-payments difficulties, to limit transfers temporarily in an equitable and non-discriminatory manner, in accordance with internationally accepted criteria. (Article 17-07(6)).

Expropriation [Return to the top of the page]

CONDITIONS

No party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take measures tantamount to nationalization or expropriation of such an investment, except: for a public purpose; on a non-discriminatory basis; in accordance with due process of law and in accordance with international law, including fair and equitable treatment and full protection and security; and, on payment of compensation. (Article 17-08(1)).

COMPENSATION

Compensation shall be equivalent to the fair market value of the investment at the time of expropriation, and shall not reflect any change in value owing to the fact that the intent to expropriate became known prior to the date of expropriation. Valuation criteria shall include declared tax value of tangible property and other criteria, as appropriate, to determine fair market value. (Article 17-08(2)).

Compensation shall be fully realizable and freely transferable under the terms of Article 17-07. (Article 17-08(3)).

Payment shall be made without delay. The time elapsing between the time the compensation is determined and the time payment is made shall not adversely affect the investor. As a result, the amount of compensation shall be sufficient to ensure that should the investor decide to transfer his payment, he can obtain, at the time of payment, an equal amount of the international currency normally used as a reference by the Party making the expropiation. Payment shall also include interest at the current market rate for the reference currency. (Article 17-08(4)).

Settlement of Disputes between Contracting Parties
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Provisions of Chapter XIX relating to “Dispute Settlement”, are applicable.

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

PREARBITRAL CONSULTATIONS

The dispute settlement mechanism is applicable to investment claims made by an investor of a Party (disputing investor) against a Party (disputing Party) with respect to the breach of an obligation set forth in Chapter XVII (Investment), from the date of entry into force of the Treaty. This does not exclude the disputing investor and the disputing Party (disputing parties) from attempting to settle the dispute through consultation or negotiation. (Article 17-16(2)).

ARBITRATION

Conditions

An investor of a Party may, on his own account or on behalf of an enterprise that it owns or effectively controls, submit to arbitration a claim that the other Party has breached an obligation under Chapter XVII (Investment), provided the investor has incurred loss or damage by reason of, or arising out of, such breach. (Article 17-17(1)).

An investor may not make a claim under this Section if more than three years have elapsed from the date on which it acquired, or should have acquired, knowledge of the alleged breach and of the loss or damage incurred. (Article 17-17(3)).

An enterprise that is an investment may not submit a claim to arbitration under this Section. (Article 17-17(2)).

An investor that initiates proceedings before any judicial tribunal with respect to the alleged breach of the provisions of this Chapter may not make a claim under this section, nor may it make a claim under this Section on behalf of an enterprise it owns or controls that has initiated a procedure before any judicial tribunal with respect to the same breach. This provision shall not apply to the exercise of administrative appeals, provided under the laws of the disputing Party, before the same authorities that implemented the measure allegedly in breach of the said provisions. (Article 17-17(4)).

An investor that makes a claim under this Section or an enterprise on whose behalf the claim is made may not initiate proceedings before any judicial tribunal with respect to the alleged breach. (Article 17-17(5)).

Consent

Each Party consents to the submission of a claim to arbitration in accordance with the procedures set out in the Agreement. (Article 17-18(4)).

Forms of Arbitration

Provided that 90 days have elapsed since the disputing investor notified the disputing Party of his intention to submit a claim to arbitration and six months have elapsed since the measures giving rise to the claim, a disputing investor may submit the claim to arbitration under:

1. the ICSID Convention, provided that both the disputing Party and the investor are parties to the Convention;
2. the ICSID Additional Facility Rules, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or
3. the UNCITRAL Arbitration Rules, provided the disputing Party and the Party of the investor are not parties to the ICSID Convention, or the latter cannot be availed of. (Article 17-18(2)).

ARBITRAL PROCEDURES

Constitution of the Tribunal

Except in respect to a Tribunal established under Article 17-19 (Consolidation), and unless the disputing parties otherwise agree, the tribunal shall comprise three arbitrators. Each of the disputing parties shall appoint one arbitrator; the third, who shall be the presiding arbitrator, shall be appointed by agreement of the disputing parties. (Rule 3, Annex to Article 17-16).

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 serve as appointing authority for an arbitration under this Section. (Rule 4(1), Annex to Article 17-16).

If a Tribunal, other than a Tribunal established under Article 1719 (Consolidation), has not been constituted within 90 days from the date that a claim is submitted to arbitration, the Secretary General [of ICSID], on the request of either disputing party, shall appoint, in his discretion, the arbitrator or arbitrators not yet appointed, except that the presiding arbitrator shall be appointed in accordance with paragraph 3. (Rule 4(2), Annex to Article 17-16).

The Secretary General [of ICSID] shall appoint the presiding arbitrator from the roster of presiding arbitrators referred to in paragraph 4, provided that the presiding arbitrator shall not be a national of the disputing Party or a national of the Party of the disputing investor. In the event that no such presiding arbitrator is available to serve, the Secretary General shall appoint, from the ICSID Panel of Arbitrators, a presiding arbitrator who is not a national of any of the Parties. (Rule 4(3), Annex to Article 17-16).

On the date of entry into force of the Agreement, the Parties shall establish, and thereafter maintain, a roster of 15 presiding arbitrators meeting the qualifications of the ICSID Convention. The roster members shall be appointed by consensus and without regard to nationality. (Rule 4(4), Annex to Article 17-16).

Consolidation

If a disputing party requests that claims arising out of the same event be accumulated, a Tribunal shall be established under the UNCITRAL Arbitration Rules and shall conduct its proceedings in accordance with those Rules, except as modified by this Section. The claims should be heard together, unless the Tribunal finds that the interests of a disputing party would be prejudiced thereby. (Article 17-19).

Where a Tribunal established under Article 17-19 (Consolidation) determines that claims have been submitted to arbitration under Article 17-17 that have a question of law or fact in common, the Tribunal may, in the interests of fair and efficient resolution of the claims, and after hearing the disputing parties, by order:

1. assume jurisdiction over, and hear and determine together, all or part of the claims; or
2. assume jurisdiction over, and hear and determine one or more of the claims, the determination of which it believes would assist in the resolution of the others. (Rule 6(1), Annex to Article 17-16).

A disputing party that seeks an order under paragraph 1 shall request the Secretary General [of ICSID] to establish a Tribunal and shall specify in the request:

1. the name of the disputing Party or disputing investors against which the order is sought;
2. the nature of the order sought; and
3. the grounds on which the order is sought. (Rule 6(2), Annex to Article 17-16).

Numerals 4 to 6 contain provisions related to the constitution of the Tribunal as well as to the procedure and timing to settle the dispute. (Rule 6, Annex to Article 17-16).

Applicable Law

Any tribunal constituted under Section B (Settlement of Disputes between a Party and an Investor of Another Party) shall decide the disputes submitted for its review in accordance with this Agreement and the applicable rules of international law. (Article 17-20 (1)).

An interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal constituted under Section B (Settlement of Disputes between a Party and an Investor of Another Party). (Article 17-20 (2)).

FINAL AWARD

Scope

Where a Tribunal makes a final award against a Party, the Tribunal may award only:

1. monetary damages and any applicable interest; or
2. restitution of property.

In such case, the award shall provide that the disputing Party may pay monetary damages and any applicable interest in lieu of restitution, and shall indicate the sum to be paid. (Article 17-21(1)).

Where a claim is made by an investor on behalf of an enterprise:

1. an award of restitution of property shall provide that restitution be made to the enterprise;
2. an award of monetary damages and any applicable interest shall provide that the sum be paid to the enterprise. (Articel 17-21(2)).

The award shall provide that it is made without prejudice to any right that any person may have in the relief under applicable domestic law. (Article 17-21(3)).

Finality and Enforcement

An award made a Tribunal in accordance with this section shall have no binding force except between the disputing parties and in respect of the particular case. (Article 17-23(1)).

A disputing party shall abide by and comply with an award without delay and shall provide due execution. (Article 17-23(2)).

If the Party whose investor was a party in the arbitration proceedings considers that the disputing Party has failed to abide by or comply with a final award, it may resort to Chapter XIX dispute settlement procedures in order to obtain a recommendation to the effect that the Party shall adhere to and observe the final award. (Article 17-23(3)).

The disputant 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 3 have been initiated or not. (Article 17-23(4)).