THE CHAPTER ON INVESTMENT IN THE THIRD FTAA DRAFT AGREEMENT. CRITICAL
 ANALYSIS AND PROPOSALS

The purpose of this speech is to analyze the content of the FTAA Chapter on Investment in two ways: a) by gaining knowledge of the content of the main articles themselves, their interpretation and deficiencies and b) by comparing the articles of the Chapter on Investment with some of the articles contained in other chapters of the third Draft FTAA Agreement in order to similarly examine their interpretation and deficiencies in terms of their correlation with the other chapters of the aforementioned Draft Agreement.

The proposals we feel should form part of this Forum’s contribution are implicitly included in the analysis.

I feel that this article (Definitions) could be made even more concrete by annexing a list of the sectors each Party feels it could include in its reserved sectors.

We realize that the interpretation of the content of the Agreement is becoming increasingly important. This also applies to the Chapter of Investment should there be any incompatibility, SPECIFICALLY in the case of Article3 of the Chapter on Investment, with other chapters.

As far as National Treatment is concerned, there is a bracket in the last part that seems to contradict the general spirit of the articles on National Treatment.

With respect to Fair and Equitable Treatment, this paragraph of Article 9 states: “A determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, does not establish that there has been a breach of this Article.” This raises the question, however, what validity the determination of another international instrument may have as an establishment of a breach of the Article and the principle of fair treatment or the minimum standard of treatment having been adhered to, especially when there is no concordance with the contents of Article 9.

All of the paragraphs of the article on performance requirements are incompatible with the principle of fair treatment of smaller economies inasmuch as, from the outset, they favor the large investor corporations of the larger economies Parties because any obligatory measure or performance requirement they may wish to impose breach the Agreement and this article in particular.

When the article is analyzed paragraph by paragraph, we come across a series of elements that could turn out to be harmful to the economies of the Latin American Parties that are not international investors.

Moreover, how could we accept there not being performance requirements that might apply to Latin American economies, considering that the indiscriminate acceptance of any type and volume of imports and exports could have a negative effect on trade balances? On the other hand, with respect to paragraph 9.4, even in cases when the smaller economies do not violate norms when they apply an unfair and inequitable treatment to other even smaller economies, their actions or the application of performance requirements are deemed to be in violation when said unfair and inequitable treatment is applied to large and larger economies in the Hemisphere. This is in all respects more inequitable than the article itself, because it would mean that one would be acting in violation, because one would be acting unfairly by imposing requirements on stronger economies. From all angles, this is a regulation that favors the interests of the stronger economies and large corporate investors, which generally are from the stronger economies of Latin America and North America.

[10.3 Performance incentives:
[d) to restrict sales of goods or services in its territory that such investment produces or [provides] [supplies] by relating such sales in any way to the volume or value of its exports or foreign exchange earnings.]] The wording on exceptions and exclusions, as set forth below in the analysis of Exceptions and Exclusions, should be inserted in the Chapter on Investment.

It should also be included in Article 10.3 to avoid misinterpretations, because the Parties will inevitably have the right to prohibit certain investments or to make the entry of investments conditional upon the creation of a certain number of jobs, or to direct investment to areas that coincide best with the development plans of the national economy.

[Article 11.    [Key Personnel] [Senior Management and Boards of Directors]
[1 1.3. Smaller economies should be able to require in appropriate circumstances, that a certain percentage of key personnel at the executive and managerial levels be hired locally, since this could act as a form of technical training and transfer of know-how and organizational technology.]

At this point in time, given the competitiveness and levels of education and economic and international specialization, many of the national economies Parties to the Agreement have key personnel, which means the concept could be operated through rules and percentages for certain countries Parties as a condition imposed on investments made by stronger countries Parties. In this way, the professional labor force of the host country would be taken advantage of and jobs would be created.

Moreover and most importantly, this touches upon a significant social issue, because when one speaks of key personnel, one is speaking of human beings and skilled human resources, and failure to award these the fairest treatment and justice could easily lead to discriminatory practices.

Article 12. Transfers.
12.5 No Party may require its investors to transfer, or penalize its investors that fail to transfer, the income, earnings, profits or other amounts derived from, or attributable to, investments in the territory of another Party.]

Could investors themselves be obliged to transfer their income in accordance with the principle of solidarity?

Article 13. Expropriation and Compensation.
[13.7. Nothing in the provisions of this Agreement shall prevent, in accordance with the Law and to serve the public or social interest, the establishment of monopolies with the discretion to allocate revenue, subject to compensation of the investors that are deprived of their exercise of a licit economic activity. The provisions of this Article shall apply in such cases.]

This article allows for the existence of monopolies when these are justified upon the grounds of public or social interest.

Article 15.    Exceptions to National Treatment and Most-Favored-Nation Treatment
[15.2...
[In applying the most-favored-nation principle, subparagraph f of the General Principles in Annex I of the San José Ministerial Declaration shall be taken into account: “The FTAA can co-exist with bilateral and sub-regional agreements, to the extent that the rights and obligations under these agreements are not covered by or go beyond the rights and obligations of the FTAA”.]]

In this regard, we find that some subregional agreements can in fact exceed the FTAA obligations inasmuch as they can be more generous in terms of investor treatment; and it remains very unclear as to what will happen when this occurs.

Article 17. General Exceptions
17.1 Nothing in this Agreement shall prevent a Party from adopting or enforcing measures it deems necessary to:
a) Protect public morality;
b) Prevent crime and maintain public order;
c) Protect or maintain its essential security interests;
d) Protect human, animal and plant life;
e) Protect the balance of payments and react to balance of payments difficulties;
f) Secure compliance with laws or regulations relating to the prevention of deceptive and fraudulent practices and the effects of a default on contracts;

As this article on general exceptions shows, several of the critical situations detected in other articles of this Chapter are contemplated, as well as the lack of correlation with other chapters noted below. We therefore feel that it would be more useful for these general exceptions to be inserted in the articles whose content so merits to avoid double discourse and misinterpretations.

II. LACK OF CORRELATION BETWEEN THE FTAA CHAPTER ON INVESTMENT AND THE CONTENT OF OTHER CHAPTERS

There is a general lack of concrete correlation between the content of the Chapter on Investment and the content of the other chapters, which by their nature and subject-matter affect investments, investors, investor parties, etc. in connection with the entry, establishment, expansion, management, conduct,[or] operation [, sale or other disposition of] an investment in its territory of an investor of a Party, [or of a non-Party] in compliance with any of the performance or incentive requirements.

We propose first of all that the contents be correlated, and, secondly, that certain content from other chapters that is relevant to the Chapter on Investment be clarified in the articles or paragraphs of this Chapter, even if this seems repetitive.

CHAPTER V The treatment of differences in levels of development and size of the economies.
1.2 Without prejudice to the specific measures on special and differential treatment in each Chapter of this Agreement, the Parties undertake to support the Hemispheric Cooperation Program to ensure that effective advantage is taken of the advantages derived therefrom.

1.3 The differential treatment for countries with different levels of development and size of their economies is a fundamental principle of this Agreement. Both the Parties and the entities of the FTAA are obliged to abide by the provisions on the issue found in all chapters of the Agreement.

Caution: This flies in the face of the obligatory performance requirements because no clarifications are provided for the cases of smaller economies, performance requirements and incentives. In addition, the Agreement should indicate the criteria to be considered for countries that must receive differential treatment and therefore list such country Parties.

CHAPTER VI Environment Provisions.
2.1 A Party shall not fail to effectively enforce its environmental laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties, after the date of entry into force of this Agreement.
2.2 The Parties recognize that each Party retains the right to exercise discretion with respect to ….matters…
Article 7. e) Incentives to encourage protection of natural resources and the environment, including market-based mechanisms where appropriate, such as: financial incentives for conserving, restoring, or enhancing the environment; incentives for the exchange or trade of environment-related permits, credits, or other instruments that facilitate efficient achievement of environmental goals; and public recognition of facilities or companies that are superior environmental performers.

Chapter VII Labor Provisions and Non-Implementation Procedures
for Environment and Labor Provisions.
1.2 Recognizing the right of each Party to establish its own labor standards, and to adopt or modify its labor laws accordingly, each Party shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights set forth in Article 7.1. (Definitions) of this Chapter, and shall strive to improve those standards.

Chapter VIII Tariffs and Non-Tariff Measures.
Article 4. National Treatment.
4.2 For greater clarity, no Party may maintain or introduce legislation or practice relating to the sale, offering for sale, purchase, transportation, distribution or use of originating goods imported into the territory of that Party which accords greater protection to local distributors of local suppliers than to local distributors of foreign suppliers.
Article 12. Distinctive Products

Chapter IX Agriculture
Article 7 Elimination of Export Subsidies.
7.1 As of the date of entry into force of this Agreement, Parties shall eliminate and shall not introduce or reintroduce in any form export subsidies for agricultural products exported to other Parties. The Parties also agree not to apply new measures and practices having a similar effect or that involve circumvention of the established commitment.
Article 8 Treatment of Imports from Non Parties Benefiting From Export Subsidies
8.1 The provisions of the WTO shall apply in respect of the treatment of subsidized imports of agricultural products which do not come from the Parties.

Chapter XV Subsidies, Antidumping, and Countervailing Duties.
Article 13. Standards and Technical Barriers to Trade

Chapter XVI Services
[2.2 [This Chapter does not apply to:
[a) cross-border trade in financial services;]
b) [measures related to certain air transport services] [air services, including domestic and international air transportation services, whether scheduled or nonscheduled, and related services in support of air services, other than:
i) aircraft repair and maintenance services during which an aircraft is withdrawn from service;
[ii) specialty air services; and,
iii) computerized reservations systems.]]
c) government procurement by a Party or a state enterprise
[d)[subsidies or grants] [promotional or development measures] granted by one Party or by a State enterprise, including [government-supported] loans, guarantees, insurance[, grants and tax incentives]; [e…]…Article 16. Restrictions to Protect the Balance of Payments

[TEXT ON THE TEMPORARY ENTRY OF BUSINESS PERSONS
Article 1 General Principles
Article 2 General Obligations
Article 3 Authorization of Temporary Entry
Article 14 Domestic Regulation
Article 2 Banking and other financial services (excluding insurance)

CHAPTER XXIV Final Provisions
[4.1. This Agreement shall not be subject to reservations [or unilateral interpretative declarations] at the moment of its ratification.]
Article 9. Accession
8.1. This Agreement shall enter into force no later than on 31 December 2005 [for those Parties that have ratified it.]
As far as these final considerations at the end of the third Draft FTAA Agreement are concerned, I feel they contradict Article 5 of Amendments, as we all know that an amendment is the unilateral interpretation of an international treaty or agreement by one of the Parties, and Article 5.1 states: [ 5.1. When so agreed [by each Party] and approved in accordance with each Party’s corresponding legal procedures, the [modifications] and amendments shall constitute an integral part of this Agreement.]

In terms of the entry into force, I feel that considering this is a multilateral agreement among 34 States Parties, a certain percentage of ratifications could be used as a criterion for its entry into effect, and that it should not act exclusively by only entering into effect for those who have ratified it by the end of December 2005.