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MERCOSUR
Southern Common Market


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

DEFINITION OF INVESTMENT

Members

“Investment” means any kind of asset invested either directly or indirectly by an investor of one Contracting Party in the territory of the other Contracting Party, in accordance with the latter’s laws and regulations. It includes in particular, though not exclusively:

  • movable and immovable property and any related property rights, such as mortgages, liens or pledges; shares, stock, and any other form of participation in a company;
  • claims to money and claims to performance having a financial value, and loans directly related to a specific investment;
  • intellectual property rights, including with respect to copyrights, patents, trademarks as well as trade names, industrial designs, know how;
  • concessions conferred by law or under contract to search for, cultivate, extract or exploit natural resources. (Article 1 (1) of the Colonia Protocol ).

Non-Members

"Investment” means any kind of asset invested either directly or indirectly by an investor of a Third Party in the territory of a Member State, in accordance with the latter’s laws and regulations. It includes in particular, though not exclusively:

  • movable and immovable property and any related property rights, such as mortgages, liens or pledges;
  • shares, stock, and any other form of participation in a company;
  • claims to money and claims to performance having a financial value, and loans directly related to a specific investment;
  • intellectual property rights, including with respect to copyrights, patents, trademarks as well as trade names, industrial designs, know how;
  • concessions conferred by law or under contract to search for, cultivate, extract or exploit natural resources. (Article 2 (A)(1) of the Buenos Aires Protocol).

DEFINITION OF INVESTOR

Members

The term “investor” includes:

  • any natural person who is a national of, permanently resides, or is domiciled in a Contracting Party in accordance with its laws. The Protocol does not apply to investments made in the territory of one Contracting Party by natural persons who are nationals of the other Contracting Party if they, by the date the investment is made, permanently reside or are domiciled in the host country, unless it is proved that the investment was admitted from abroad.
  • Any legal person constituted under the laws and regulations of a Contracting Party, and having its seat in the territory of said Party; and,
  • any legal person constituted under the laws of the host country but effectively controlled, directly or indirectly, by a natural or legal person as defined above. (Article 1(2) of the Colonia Protocol).

Non-Members

The term “investor” includes:

  • any natural person who is a national of a Contracting Party or a Third State in accordance with its laws. The Protocol does not apply to investments made in the territory of one Contracting Party by natural persons who are nationals of a Third State if they, by the date the investment is made, permanently reside or are domiciled in the host country, unless it is proved that the investment was admitted from abroad.
  • ny legal person constituted under the laws and regulations of a Contracting Party or a Third State, and having its seat in the territory where it was constituted. (Article 2 (A) (2) of the Buenos Aires Protocol).

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

Members

The Colonia Protocol for the Promotion and Protection of Investments in Mercosur was approved by the Decision No. 11/93 of the Common Market Council of January 17, 1994. The Protocol is in the process of ratification.

Non-Members

The Buenos Aires Protocol for the Promotion and Protection of Investments in Mercosur from Non-Member Countries was approved by Decision No. 11/94 August 5, 1994. The Protocol is in the process of ratification.

Admission [Return to the top of the page]

Members

Each Contracting Party shall promote investments of investors of the other Contracting Parties and shall admit these investments in its territory in a way that is no less favorable than that accorded to its own investors or investments of third States, taking into account the right of each Party to maintain limited exceptions [as listed in the Annex to this Protocol] for a transitory period of time. (Article 2(1) of the Colonia Protocol). See exceptions to national treatment at the admission phase in Section on Treatment.

Once a Contracting Party has admitted an investment in its territory, it shall grant the necessary authorizations for its development, including the execution of contracts of licensing, commercial or administrative assistance and income of the personnel. (Article 2(2) of the Colonia Protocol).

Non-Members

Each Member Party shall promote in its territory investments of investors of third States, and shall admit such investments in accordance with its laws and regulations. (Article 2(B)(1) of the Buenos Aires Protocol).

Once a Member Party has admitted an investment in its territory, it shall grant the necessary authorizations for its development, including the execution of contracts of licensing, commercial or administrative assistance and income of the personnel. (Article 2(B)(2) of the Buenos Aires Protocol).

Treatment [Return to the top of the page]

STANDARDS

Fair and Equitable Treatment

Members

Each Contracting Party shall at all times ensure fair and equitable treatment to investments of investors of another Contracting Party. (Article 3 (1) of the Colonia Protocol).

Non-Members

Each Member Party shall ensure fair and equitable treatment to investments of investors of third States. (Article 2 (C) (1) of the Buenos Aires Protocol).

Full Protection and Security

Members

Each Contracting Party shall grant full legal protection to investments of investors of another Contracting Party. (Article 3(2) of the Colonia Protocol).

Non-Members

Each Member Party shall grant full legal protection to investments of investors of third States. (Article 2(C)(2) of the Buenos Aires Protocol).

Non-Discrimination

Members

Each Contracting Party shall not impair the management, maintenance, use, enjoyment or disposal of investments of investors of another Contracting Party through unjustified or discriminatory measures. (Article 3(1) of the Colonia Protocol).

Non-Members

Each Member Party shall not impair the management, maintenance, use, enjoyment or disposal of investments of investors of third States through unjustified or discriminatory measures. (Article 2(C)(1) of the Buenos Aires Protocol).

National Treatment

Members

Each Contracting Party shall accord to investments of investors of another Contracting Party treatment which is no less favorable than that accorded to investments of its own investors. (Article 3(2) of the Colonia Protocol).

Non-Members

Each Member Party may accord to investments of investors of third States treatment no less favorable than that accorded to investments of its own investors. (Article 2 (C)(2) of the Buenos Aires Protocol).

Most-Favored Nation Treatment

Members

Each Contracting Party shall accord to investments of investors of another Contracting Party treatment which is no less favorable than that accorded to investments of third States. (Article 3(2) of the Protocol of Colonia).

Non-Members

Each Member Party may accord to investments of investors of third States treatment no less favorable than that accorded to investments of investors of other States. (Article 2(C)(2) of the Buenos Aires Protocol ).

Exceptions and Reservations

Members

The provisions of Article 3(2) shall not be construed as to oblige one Contracting Party to extend to investors of another Contracting Party the benefit of any treatment, preference, or privilege resulting from an international agreement relating wholly or mainly to taxation. (Article 3(3) of the Colonia Protocol).

From the Annex to the Protocol of Colonia: Exceptions to National Treatment at the admission phase (maintained for a transitory period of time):

Argentina:
  • real estate in the border areas;
  • air transportation;
  • shipbuilding;
  • nuclear energy centers;
  • uranium mining;
  • insurance; and
  • fishing.
Brazil:
  • exploration and mining of minerals;
  • development of hydraulic energy;
  • health care;
  • radio and television broadcasting and other telecommunication services;
  • leasing of rural property;
  • participation in the system of financial, insurance, social security and capitalization intermediation;
  • construction, ownership and coastal and interior shipping.
Paraguay:
  • real estate in border areas;
  • mass media instruments -
    print, radio and television;
  • air, sea and land transportation;
  • electricity, water and telephone;
  • hydrocarbon and strategic mineral development;
  • importing and refining of petroleum derivatives; and
  • postal service.
Uruguay:
  • electricity;
  • hydrocarbons;
  • basic petrochemicals;
  • atomic energy;
  • development of strategic minerals;
  • financial intermediation;
  • railroads;
  • telecommunications, broadcasting;
  • press and audiovisual instruments.

With respect to Article 3(2), Brazil reserves the right to maintain the exception with respect to Article 171 (government procurement) of its Constitution.

Notwithstanding Article 3(4) on performance requirements, Argentina and Brazil reserve the right to maintain for a transitory period of time performance requirements in the automotive sector.

Non-Members

Member Parties shall not extend to investors of third States the benefit of any treatment, preference or privilege resulting from:

  1. its participation or association in a free trade area, customs union, common market, or another regional agreement;
  2. an international agreement related wholly or mainly to taxation. (Article 2(C)(3) of the Buenos Aires Protocol).

OTHER ASPECTS

Performance Requirements

Members

Neither Party shall impose performance requirements as a condition of establishment, expansion or maintenance of investments, 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 3(4) of the Colonia Protocol).

Others

Members

Investors of a Contracting Party who suffered losses with respect to their investments in the territory of another Contracting Party due to war or other armed conflict, national emergency, revolt, insurrection or uprising, shall receive treatment, in regard to restitution, indemnification, compensation or other settlement, no less favorable than that accorded by the latter Contracting Party to its own investors or investors of any third State. (Article 4 (2) of the Colonia Protocol).

When the provisions of the legislation of either Contracting Party or obligations under international law existing at present or established hereafter or when an agreement between an investor of a Contracting Party and the other Contracting Party, in which territory the investment is made, contain rules entitling investments to a more favorable treatment than is provided in this Agreement, such rules shall, to the extent that they are more favorable, prevail over the present Agreement. (Article 7 of the Colonia Protocol).

Non-Members

Investors of a third State who suffered losses with respect to their investments in the territory of a Member State due to war or other armed conflict, national emergency, revolt, insurrection or uprising, shall receive treatment, in regard to restitution, indemnification, compensation or other settlement, no less favorable than that accorded by the latter Party to its own investors or investors of any third State. (Article (D)(2) of the Buenos Aires Protocol).

Transfers [Return to the top of the page]

TYPES OF PAYMENT

Members

Each Contracting Party shall grant investors of the other Contracting Party the free transfer of investments and returns, in particular, but not exclusively:

  1. capital and additional necessary for the maintenance and development of investments;
  2. benefits, profits, salaries, interests, dividends and other current incomes;
  3. funds for the reimbursement of loans;
  4. bonuses and honoraria and other types of payments related to intellectual or industrial property rights (Article 1(d)) or concessions (such as for natural resources, Article 1(e));
  5. proceeds of the total or partial liquidation of an investment;
  6. compensation, indemnization and other payments as provided in Article 4;
  7. remunerations of nationals of another Contracting Party that have obtained the authorization to work with respect to an investment made in that country. (Article 5(1) of the Colonia Protocol).

Non-Members

Each Member Party shall grant investors of third States the free transfer of investments and returns, in particular, but not exclusively:

  1. capital and additional necessary for the maintenance and development of investments;
  2. benefits, profits, salaries, interests, dividends and other current incomes;
  3. funds for the reimbursement of loans;
  4. bonuses and honoraria and other types of payments related to intellectual or industrial property rights (Article 2(A)(1)(d)) or concessions (such as for natural resources, Article 2(A)(1)(e));
  5. proceeds of the total or partial liquidation of an investment;
  6. compensation, indemnization and other payments as provided in Article 2(D);
  7. remunerations of nationals of a third State that have obtained the authorization to work with respect to an investment made in that country. (Article 2(E)(1) of the Buenos Aires Protocol).

CONVERTIBILITY, EXCHANGE RATES, AND TIMES OF TRANSFER

Members

Transfers shall be effected without delay in a freely convertible currency at the rate of exchange applicable on the date of transfer, in accordance with the procedures established by the Contracting Party in which territory the investment was made. Such procedures shall not impair the rights set forth in this Article. (Article 5(2) of the Colonia Protocol).

Non-Members

Transfers shall be effected without delay in a freely convertible currency. (Article 2(E)(2) of the Buenos Aires Protocol).

Expropriation [Return to the top of the page]

CONDITIONS

Members

Investments shall not be expropriated or nationalized or subject to any other measures of similar effect, except if it is done:

  • for a public purpose;
  • in a non-discriminatory manner;
  • in accordance with due process of law; and,
  • upon payment of prompt, adequate and effective compensation. (Article 4 of the Colonia Protocol).

Non-Members

Investments shall not be expropriated or nationalized or subject to any other measures of similar effect, except if it is done:

  • for a public purpose or social interest;
  • in a non-discriminatory manner;
  • in accordance with due process of law; and,
  • upon payment of just, adequate and prompt compensation. (Article 2(D) (1) of the Buenos Aires Protocol).

COMPENSATION

Members

Compensation shall be prompt, adequate and effective. It shall be equivalent to the real value of the expropriated investment immediately before the decision to expropriate became known; include interests until the date of payment or its value adjusted accordingly. (Article 4 of the Colonia Protocol).

Non-Members

Compensation shall be just, adequate, and prompt. It shall be equivalent to the value of the expropriated investment. (Article 2(D)(1) of the Buenos Aires Protocol).

Settlement of Disputes between Contracting Parties
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Members

Any dispute relating to the interpretation or application of this Protocol shall be submitted to the dispute settlement procedures established under the Protocol of Brasilia for settlement of disputes of December 17, 1991, or to the mechanisms that eventually be established within the framework of the Treaty of Asuncion. (Article 8 of the Protocol of Colonia).

Non-Members

Any dispute between a Contracting Party and a Third Party relating to the interpretation or application of the agreed convention shall be settled through diplomatic consultations. If such dispute could not be settled within a prudential period to be determined, it shall be submitted to international arbitration. (Article 2 G) of the Buenos Aires Protocol).

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

PRE-ARBITRAL CONSULTATIONS

Members

Any dispute relating to investments between an investor of one Contracting Party and the host Contracting Party will, to the extent possible, be settled amicably. If it is not possible to settle the dispute within a period of six months, it will be submitted, at the request of the investor, to one of the following mechanisms:

  1. to the competent tribunals of the host party; or
  2. to international arbitration in accordance with Article 9 (4); or
  3. to the permanent dispute settlement mechanism that eventually will be established within the framework of the Treaty of Asuncion.

Election by the investor of either one of these procedures shall be definitive. (Article 9 (1)(2)(3) of the Colonia Protocol).

Non-Members

Any dispute relating to investments between an investor of a Third State and Member State will, to the extent possible, be settled amicably. If it is not possible to settle the dispute within a reasonable period of time, it could be submitted, at the request of the investor, to the competent tribunals of the host party or to international arbitration in accordance with Article H (3). Election by the investor of either one of these procedures shall be definitive. (Article 2 (H)(1)(2) of the Buenos Aires Protocol).

ARBITRATION

Conditions

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Consent

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Forms of Arbitration

Members

In case of international arbitration the dispute may be submitted, at the election of the investor, to:

  1. ICSID, provided each Member State is a Party to the ICSID Convention. (For the interim period, each Contracting Party gives its consent to the submission of the Dispute to the ICSID Additional Facility Rules); or
  2. an ad hoc arbitration tribunal established under the UNCITRAL Arbitration Rules. (Article 9 (4) of the Colonia Protocol).

Non-Members

In case of international arbitration the dispute may be submitted, at the election of the investor, to an ad hoc arbitration tribunal or to an international arbitration institution. (Article 2 (H) (3) of the Buenos Aires Protocol).

ARBITRAL PROCEDURES

Constitution of the Tribunal

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Consolidation

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Applicable Law

Members

The arbitral tribunal shall decide the dispute in accordance with the provisions of the Protocol, with reference to the laws of the Contracting Party involved in the dispute, terms of any specific agreement concluded in relation to such an investment and principles of international law. (Article 9 (5) of the Colonia Protocol)).

Non-Members

The arbitral tribunal shall decide the dispute in accordance with the provisions of the Agreement, with reference to the laws of the State involved in the dispute, terms of any specific agreement concluded in relation to such an investment and principles of international law. (Article 2 (H)(4) of the Buenos Aires Protocol)).

FINAL AWARD

Scope

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Finality and Enforcement

Members

Awards are definitive and binding to the disputing parties. Each Contracting Party shall enforce it according to its legislation. (Article 9(6) of the Colonia Protocol).

Non-Members

Awards are definitive and binding to the disputing parties. Each Contracting Party shall enforce it according to its legislation. (Article H(5) of the Buenos Aires Protocol).

 

 
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