Comparative Guide Chile - U.S. FTA and DR - CAFTA - Chapter 10: Investment

A Comparative Guide to the Chile-United States Free Trade Agreement and the
Dominican Republic-Central America-United States Free Trade Agreement

A STUDY BY THE TRIPARTITE COMMITTEE


Chapter Ten: Investment

Matrix

Table of Contents


In the Chile-U.S. FTA and DR-CAFTA, the investment provisions are set forth in Chapter 10, which is divided into three sections, in addition to the annexes to the Chapter. Section A contains the substantive obligations of the Chapter, whereas Section B includes the investor-State dispute settlement procedures and Section C the Chapter’s definitions.

While both Chapters are very similar in terms of substance and structure, there are a few notable differences. Section A in the Chile-U.S. FTA contains thirteen Articles and in DR-CAFTA fourteen. Both Agreements include Articles on scope and coverage (Chile-U.S. FTA Art. 10.1 and DR-CAFTA Art. 10.1), national treatment (Chile-U.S. FTA Art. 10.2 and DR-CAFTA Art. 10.3), most-favored-nation (MFN) treatment (Chile-U.S. FTA Art. 10.3 and DR-CAFTA Art. 10.4), minimum standard of treatment (Chile-U.S. FTA Art. 10.4 and DR-CAFTA Art. 10.5), performance requirements (Chile-U.S. FTA Art. 10.5 and DR-CAFTA Art. 10.9), senior management and boards of directors (Chile-U.S. FTA Art. 10.6 and DR-CAFTA Art. 10.10), non-conforming measures (Chile-U.S. FTA Art. 10.7 and DR-CAFTA Art. 10.13), transfers (Chile-U.S. FTA Art. 10.8 and DR-CAFTA Art. 10.8), expropriation and consultation (Chile-U.S. FTA Art. 10.9 and DR-CAFTA Art. 10.7), special formalities and information requirements (Chile-U.S. FTA Art. 10.10 and DR-CAFTA Art. 10.14), denial of benefits (Chile-U.S. FTA Art. 10.10 and DR-CAFTA Art. 10.12), and investment and environment (Chile-U.S. FTA Art. 10.12. and DR-CAFTA Art. 10.11). DR-CAFTA also contains an Article entitled Relation to Other Chapters (Art. 10.2). This issue is covered under scope and coverage (Art. 10.1) in the Chile-U.S. FTA. DR-CAFTA also contains an Article on treatment in case of strife (Art. 10.6). This issue is covered in the Article on minimum standard of treatment (Art. 10.4) in the Chile-U.S. FTA. Finally, an Article on implementation is included in the Chile-U.S. FTA (Art. 10.13) but not in DR-CAFTA.

Section B contains thirteen Articles detailing the investor-State dispute settlement procedures. These Articles cover the following issues: consultation and negotiation (Chile-U.S. FTA Art. 10.14, and DR-CAFTA Art. 10.15), submission of a claim to arbitration (Chile-U.S. FTA Art. 10.15 and DR-CAFTA Art. 10.16), consent of each Party to arbitration (Chile-U.S. FTA Art. 10.16 and DR-CAFTA Art. 10.17), conditions and limitations on consent of each Party (Chile-U.S. FTA Art. 10.17 and DR-CAFTA Art. 10.18), selection of arbitrators (Chile-U.S. FTA Art. 10.18 and DR-CAFTA Art. 10.19), conduct of the arbitration (Chile-U.S. FTA Art. 10.19 and DR-CAFTA Art. 10.20), transparency of arbitral proceedings (Chile-U.S. FTA Art. 10.20 and DR-CAFTA Art. 10.21), governing law (Chile-U.S. FTA Art. 10.21 and DR-CAFTA Art. 10.22), interpretation of annexes (Chile-U.S. FTA Art. 10.22 and DR-CAFTA Art. 10.23), expert reports (Chile-U.S. FTA Art. 10.23 and DR-CAFTA Art. 10.24), consolidation (Chile-U.S. FTA Art. 10.24 and DR-CAFTA Art. 10.25), awards (Chile-U.S. FTA Art. 10.25 and DR-CAFTA Art. 10.26), and service of documents (Chile-U.S. FTA Art. 10.26 and DR-CAFTA Art. 10.27).

Section C on definitions (Chile-U.S. FTA Art. 10.27 and DR-CAFTA Art. 10.28) covers the following terms: Centre, claimant, disputing Parties, disputing party, enterprise, enterprise of a Party, freely usable currency, ICSID Additional Facility Rules, ICSID Convention, Inter-American Convention, investment, investment authorization, investor of a non-Party, investor of a Party, New York Convention, non-disputing Party, respondent, Secretary-General, tribunal, and UNCITRAL Arbitration Rules. The Chile-U.S. FTA also includes a definition of the term “monopoly,” whereas DR-CAFTA includes a definition of the term “protected information”.

The Chile-U.S. FTA contains eight annexes, whereas DR-CAFTA has seven. Both Agreements include annexes on customary international law, public debt, expropriation, submission of a claim to arbitration, service of documents on a Party under Section B, and appellate body or similar mechanism. The Chile-U.S. FTA also contains an annex on special dispute settlement provisions (Chile) and an annex on Chile’s investment law (Decreto Ley 600 de 1974), whereas DR-CAFTA has a special annex on treatment in case of strife for Guatemala.

Section A: Investment

Scope and Coverage and Relation to Other Chapters: while all elements of scope and coverage are addressed in one single provision, Article 10.1, in the Chile-U.S. FTA, DR-CAFTA contains scope-related issues in Article 10.1 on scope and coverage and Article 10.2 on relation to other Chapters. Both Agreements set in identical terms that the Investment Chapter applies to measures adopted or maintained by a Party relating to: investors of another Party, covered investments, and with respect to performance requirements and investment and environment all investment in the territory of the Party (Art. 10.1.1 in both texts). The provision on scope in the Chile-U.S. FTA and the provision on relation to other Chapters in DR-CAFTA also clearly state that in the case of a requirement by a Party that a service provider of another Party post a bond or other form of financial security as a condition “of providing a service into its territory” (Chile-U.S. FTA Art. 10.1.3) or “of the cross-border supply of a service” (DR-CAFTA Art. 10.2.2), the Investment Chapter will apply “to that Party’s treatment of the posted bond or financial security”(Chile-U.S. FTA Art. 10.1.3) or “to the extent that such bond or financial security is a covered investment” (DR-CAFTA Art. 10.2.2). Exempted from the scope of the Chapter are measures adopted or maintained by a Party to the extent that they are covered by the Chapter on Financial Services (Chile-U.S. FTA Art. 10.1.4 and DR-CAFTA Art. 10.2.3). The provision on scope also states that the Chapter does not bind any Party in relation to any act or fact that took place or any situation that ceased to exist before the date of entry into force of the Agreement (Chile-U.S. FTA ftnt. 1 and DR-CAFTA Art. 10.1.3). DR-CAFTA includes an additional provision in the provision on scope stating that a Party’s obligations under Section A shall apply to a state enterprise or other person when it exercises any regulatory, administrative, or other governmental authority delegated to it by that Party (DR-CAFTA Art. 10.1.2). The provision on scope in the Chile-U.S. FTA and the provision on relation to other Chapters in DR-CAFTA state that in the event of any inconsistency between the Investment Chapter and another Chapter, the other Chapter shall prevail to the extent of the inconsistency (Chile-U.S. FTA Art. 10.1.2 and DR-CAFTA Art. 10.2.1).

National Treatment: the provision is identical in both Agreements (Chile-U.S. FTA Art. 10.2 and DR-CAFTA Art. 10.3). It sets out the requirements to accord to investors of another Party and to covered investments “treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments…” National treatment is granted in all phases of an investment. With respect to a regional level of government, the treatment afforded is “no less favorable than the most favorable treatment accorded, in like circumstances, by that regional level of government to investors, and to investments of investors, of the Party of which it forms a part”.

Most-Favored-Nation (MFN) Treatment: the Chile-U.S. FTA Art. 10.3 sets out the requirements to accord to investors of another Party and to covered investments “treatment no less favorable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments…”. The wording of DR-CAFTA Art. 10.4 also covers other Parties and states the requirements to accord to investors of another Party and to covered investments “treatment no less favorable than that it accords, in like circumstances, to investments in its territory of investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments”. MFN treatment is granted in all phases of an investment.

Minimum Standard of Treatment: the provision on minimum standard of treatment is identical in both Agreements. It states that each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security (Chile-U.S. FTA Art. 10.4.1 and DR-CAFTA Art. 10.5.1). The provision prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The Agreements clarify that the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights (Chile-U.S. FTA Art. 10.4.2 and DR-CAFTA Art. 10.5.2). The Chapter also states that 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 (Chile-U.S. FTA Art. 10.4.3 and DR-CAFTA Art. 10.4.3). Both Agreements state that the Article on minimum standard of treatment shall be interpreted in accordance with the Annex on Customary International Law (Chile-U.S. FTA ftnt. 2 and DR-CAFTA ftnt. 1).

Treatment in Case of Strife: the treatment in case of strife is included in the provision on minimum standard of treatment in the Chile-U.S. FTA, whereas there is an Article on treatment in case of strife in DR-CAFTA (Art. 10.6). The text states that each Party shall accord to investors of another Party, and to covered investments, non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife (Chile-U.S. FTA Art. 10.4.4 and DR-CAFTA Art. 10.6.1). Exempted are existing measures relating to subsidies or grants (Chile-U.S. FTA Art. 10.4.6 and DR-CAFTA Art. 10.6.3).

Both Agreements call for restitution or compensation to the investor when he suffers a loss in the territory of another Party resulting from requisitioning of its covered investment or part thereof by the latter’s forces or authorities; or destruction of its covered investment or part thereof by the latter’s forces or authorities, which was not required by the necessity of the situation. The Chile-U.S. FTA states that compensation has to be “prompt, adequate, and effective” (Chile-U.S. FTA Art. 10.4.5), whereas DR-CAFTA states that it “shall be in accordance with customary international law” (DR-CAFTA Art. 10.6.2). Annex 10-D of DR-CAFTA sets out limitations for the submission to arbitration under Section B of a claim alleging a breach of paragraph 10.6.2. It states that no investor may submit to arbitration under Section B of the Investment Chapter a claim alleging that Guatemala has breached the Article on treatment in case of strife as a result of an armed movement or civil disturbance and that the investor has incurred loss or damage by reason of or arising out of such movement or disturbance. A similar provision exists for investors of Guatemala with respect to other Parties.

Performance Requirements: both Chapters (Chile-U.S. FTA Art. 10.5 and DR-CAFTA Art. 10.9) prohibit a list of seven performance requirements as a condition or requirement imposed on an investor of a Party or of a non-Party in all phases of an investment. Some of these performance requirements (requirements to locate production, supply a service, train or employ workers, construct or expand particular facilities or carry out research and development) may be allowed when they condition the conferral of an advantage.

The prohibition on requiring to transfer a particular technology, a production process, or other proprietary knowledge to a person in its territory does not apply when a Party authorizes use of an intellectual property right in accordance with Article 31 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, or to measures requiring the disclosure of proprietary information that fall within the scope of, and are consistent with, Article 39 of the TRIPS Agreement; or when the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal, or competition authority to remedy a practice determined after judicial or administrative process to be anticompetitive under the Party’s competition laws.

The Article on performance requirements in both Chapters provide that requirements to achieve given levels of domestic content or to purchase local goods and services are allowed, provided that they are not applied in an arbitrary or unjustifiable manner or do not constitute a disguised restriction, if these measures are necessary: to secure compliance with laws and regulations that are not inconsistent with the provisions of the Agreement; to protect human, animal or plant life or health; or for the conservation of exhaustible natural resources.

Finally, the provision on performance requirements does not apply to some of the prohibited requirements with respect to export promotion and foreign aid programs, procurement to a state enterprise, as well as the content of goods necessary to qualify for preferential tariffs or preferential quotas, in the case of an importing Party.

Senior Management and Boards of Directors: the text is identical in both Chapters (Chile-U.S. FTA Art. 10.6 and DR-CAFTA Art. 10.10) and states that no Party may require that an enterprise of that Party appoint to senior management positions natural persons of any particular nationality. These Agreements also mention that a Party may require that a majority of the board of directors of an enterprise that is an investment under the Agreement be of a particular nationality, provided that the requirement does not materially impair the ability of the investor to exercise control over its investment.

Non-Conforming Measures: the text is identical in both Agreements (Chile-U.S. FTA Art. 10.7 and DR-CAFTA Art. 10.13) and allows for the maintenance of existing non-conforming measures with respect to the core disciplines of the Investment Chapter as set out in the Articles on national treatment, MFN treatment, performance requirements, and senior management and boards of directors. Such non-conforming measures may be maintained at the central level of government, the regional level of government, and the local level of government. Existing non-conforming measures maintained at the first two levels of government must be specified in an annex to the Agreements (Annex I of Chile-U.S. and Annex I of DR-CAFTA). Future non-conforming measures (to which the Articles on national treatment, MFN treatment, performance requirements, and senior management and boards of directors do not apply) are set out in another annex to the Agreement (Annex II of Chile-U.S. and Annex II of DR-CAFTA). These latter measures that apply to sectors, sub-sectors or activities, effectively constitute permanent exceptions to the Agreement.

If an existing non-conforming measure set out in Annex I of Chile-U.S. or in Annex I of DR-CAFTA is made less non-conforming or eliminated, it cannot subsequently be amended by or replaced with a new measure that is more non-conforming (“ratcheting”).

Both Agreements also state that the Articles on national treatment, MFN treatment, and senior management and boards of directors do not apply to procurement, or subsidies or grants provided by a Party, including government-supported loans, guarantees, and insurance. Moreover, the Articles on national treatment and MFN treatment do not apply to any measure that is an exception to, or derogation from, the obligations under the Article on general provisions in the Chapter on Intellectual Property Rights.

Transfers: both Agreements (Chile-U.S. FTA Art. 10.8 and DR-CAFTA Art. 10.8) state that each Party shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory. Parties must allow transfers to be made in a freely usable currency (as defined in the IMF Articles of Agreement) at the market rate of exchange prevailing on the date of transfer. Both the Chile-U.S. FTA and DR-CAFTA allow for exceptions or limitations. Hence, a Party may prevent a transfer through the equitable, nondiscriminatory, and good faith application of its laws relating to: bankruptcy, insolvency, or the protection of the rights of creditors; issuing, trading, or dealing in securities, futures, or derivatives; criminal or penal offenses; financial reporting or record keeping of transfers when necessary to assist law enforcement or financial regulatory authorities; or ensuring compliance with orders or judgments in judicial or administrative proceedings (Chile-U.S. FTA Art. 10.8.5 and DR-CAFTA Art. 10.8.4). The Chapters permit returns in kind and the Chile-U.S. FTA allows for limitations to the transfers of returns in kind.

Expropriation and Compensation: both Agreements include a provision (Chile-U.S. FTA Art. 10.9 and DR-CAFTA Art. 10.7) that prohibits a Party from expropriating or nationalizing a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization except when done for a public purpose, in a non-discriminatory manner, on payment of a prompt, adequate, and effective compensation, and in accordance with due process of law. Compensation must: be paid without delay, be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place (“the date of expropriation”), not reflect any change in value occurring because the intended expropriation had become known earlier; and be fully realizable and freely transferable. The Article on expropriation and compensation does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation, or creation of intellectual property rights, to the extent that such revocation, limitation, or creation is consistent with the Chapter on Intellectual Property Rights. The Article on expropriation and compensation must also be interpreted in accordance with the Annex on Customary International Law and the Annex on Expropriation.

Special Formalities and Information Requirements: both Agreements (Chile-U.S. FTA Art. 10.10 and DR-CAFTA Art. 10.14) states that nothing in the Article on national treatment must be construed to prevent a Party from adopting or maintaining a measure that prescribes special formalities in connection with covered investments, such as a requirement that investors be residents of the Party or that covered 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 covered investments pursuant to the Investment Chapter. Moreover, notwithstanding the Articles on national treatment and MFN treatment, a Party may require an investor of another Party, or a covered investment, to provide information concerning that investment solely for informational or statistical purposes.

Denial of Benefits: both Agreements (Chile-U.S. FTA Art. 10.11 and DR-CAFTA Art. 10.12) state that a Party may deny the benefits of the Investment Chapter to an investor of another Party that is an enterprise of such other Party and to the investments of that enterprise if an investor of a non-Party owns or controls the enterprise and the denying Party does not maintain diplomatic relations with the non-Party; or adopts or maintains measures with respect to the non-Party or an investor of the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of the Investment Chapter were accorded to the enterprise or to its investments. Although the wording is a bit different, both Agreements state that a Party may deny the benefits of the Investment Chapter to an investor of another Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of any Party, other than the denying Party, and investors of a non-Party, or of the denying Party, own or control the enterprise.

Investment and Environment: both Agreements (Chile-U.S. FTA Art. 10.12 and DR-CAFTA Art. 10.11) state that nothing in the Investment Chapter is construed to prevent a Party from adopting, maintaining, or enforcing any measure otherwise consistent with the Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.

Implementation: the Chile-U.S. FTA (Art. 10.13) states that the Parties must consult annually to review the implementation of the Investment Chapter and consider any investment matter of mutual interest.

Section B: Investor-State Dispute Settlement Procedures

Consultation and Negotiation: in the event of an investment dispute, both Agreements (Chile-U.S. FTA Art. 10.14 and DR-CAFTA Art. 10.15) call for the claimant and the respondent to initially seek to resolve the dispute through consultation and negotiation.

Submission of a Claim to Arbitration: both Agreements (Chile-U.S. FTA Art. 10.15 and DR-CAFTA Art. 10.16) stipulate that in the event that a disputing party considers that an investment dispute cannot be settled by consultation and negotiation, the claimant may submit to arbitration under Section B of the Investment Chapter a claim that the respondent has breached a substantive obligation under Section A (or Annex 10-F in the Chile-U.S. FTA), an investment authorization, or an investment Agreement; and that the claimant has incurred loss or damage by reason of, or arising out of, that breach. The Chile-U.S. FTA (Art. 10.15.2) also states that a claimant may submit to arbitration under Section B a claim that the respondent has breached an obligation under Section A or Annex 10-F through the actions of a designated monopoly or a state enterprise exercising delegated government authority as described in Article 16.3.3(a) (Designated Monopolies) and Article 16.4.2 (State Enterprises), respectively.

At least 90 days before submitting any claim to arbitration under Section B, a claimant shall deliver to the respondent a written notice of its intention to submit the claim to arbitration (Chile-U.S. FTA Art. 10.15.4 and DR-CAFTA Art. 10.16.2). Provided that six months have elapsed since the events giving rise to a claim, both Agreements (Chile-U.S. FTA Art. 10.15.5 and DR-CAFTA Art. 10.16.3) state that a claimant may submit a claim: 1) under the ICSID Convention, provided that both the non-disputing Party and the respondent are Parties to the ICSID Convention; 2) under the ICSID Additional Facility Rules, provided that either the non-disputing Party or the respondent, but not both, is a party to the ICSID Convention; or 3) under the UNCITRAL Arbitration Rules. The Chile-U.S. FTA also states that if the disputing Parties agree, a claimant must submit his claim to any other arbitration institution or under any other arbitration rules (Chile-U.S. FTA Art. 10.15.4(d)).

Consent of Each Party to Arbitration: each Party consents to the submission of a claim to arbitration under Section B in accordance with the Agreement (Chile-U.S. FTA Art. 10.16 and DR-CAFTA Art. 10. 17).

Conditions and Limitations on Consent of Each Party: both Agreements (Chile-U.S. FTA Art. 10.17.1 and DR-CAFTA Art. 10.18.1) state that no claim may be submitted to arbitration under Section B if more than three years have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the alleged breach.

No claim may be submitted to arbitration under Section B unless the claimant consents in writing to arbitration in accordance with the procedures set out in the FTA; and the notice of arbitration is accompanied, by the claimant’s written waiver, of any right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach (Chile-U.S. FTA Art. 10.17.2 and DR-CAFTA Art. 10.18.2). However, a claimant may initiate or continue an action that seeks interim injunctive relief and does not involve the payment of monetary damages before a judicial or administrative tribunal of the respondent, provided that the action is brought for the sole purpose of preserving the claimant’s or the enterprise’s rights and interests during the pendency of the arbitration (Chile-U.S. FTA Art. 10.17.1 and DR-CAFTA Art. 10.18.3). DR-CAFTA (Art. 10.18.4) also stipulates that no claim may be submitted to arbitration for a breach of an investment authorization or of an investment Agreement if the claimant has previously submitted the same alleged breach to an administrative tribunal or court of the respondent, or to any other dispute settlement procedures, for adjudication or resolution.

Selection of Arbitrators: unless the disputing Parties otherwise agree, the tribunal comprises three arbitrators, one arbitrator appointed by each of the disputing Parties and the third, who will be the presiding arbitrator, appointed by Agreement of the disputing Parties (Chile-U.S. FTA Art. 10.18.1 and DR-CAFTA Art. 10.19.1). If a tribunal has not been constituted within 75 days from the date that a claim is submitted to arbitration under this Section, the Secretary-General of ICSID, on the request of a disputing party, must appoint, in his or her discretion, the arbitrator or arbitrators not yet appointed.

Conduct of the Arbitration: both Agreements (Chile-U.S. FTA Art. 10.19.1 and DR-CAFTA Art. 10.20.1) state that the disputing Parties may agree on the legal place of any arbitration under the applicable arbitral rules. If the disputing Parties fail to reach agreement, the tribunal must determine the place in accordance with the applicable arbitral rules, provided that the place is in the territory of a State that is a party to the New York Convention.

Submission of Amicus Curiae: both Agreements state that the tribunal has the authority to accept and consider amicus curiae submissions from a person or entity that is not a disputing party (Chile-U.S. FTA Art. 10.19.3 and DR-CAFTA Art. 10.20.3). The Chile-U.S. FTA (Art. 10.19.3) also stipulates that the submissions must be in both Spanish and English, and must identify the submitter and any Party, other government, person, or organization, other than the submitter, that has provided, or will provide, any financial or other assistance in preparing the submission.

Expedited Process: in the event that the respondent so requests within 45 days after the tribunal is constituted, the tribunal shall decide on an expedited basis any objection that the dispute is not within the tribunal’s competence (Chile-U.S. FTA Art. 10.19.5 and DR-CAFTA Art. 10.20.5).

Frivolous Claims: when it decides a respondent’s objection, the tribunal may, if warranted, award to the prevailing disputing party reasonable costs and attorneys’ fees incurred in submitting or opposing the objection. In determining whether such an award is warranted, the tribunal must consider whether either the claimant’s claim or the respondent’s objection was frivolous, and must provide the disputing Parties a reasonable opportunity to comment (Chile-U.S. FTA Art. 10.19.6 and DR-CAFTA Art. 10.20.6).

Transmission of Proposed Award: at the request of a disputing party, a tribunal must, before issuing an award on liability, transmit its proposed award to the disputing Parties and to the non-disputing Party. Within 60 days after the tribunal transmits its proposed award, only the disputing Parties may submit written comments to the tribunal concerning any aspect of its proposed award. The tribunal shall consider any such comments and issue its award not later than 45 days after the expiration of the 60-day comment period (Chile-U.S. FTA Art. 10.19.9 and DR-CAFTA Art. 10.20.9).

Transparency of Arbitral Proceedings: the following documents must be transmitted by the respondent to the non-disputing Party and make them available to the public in general: notice of intent; the notice of arbitration; pleadings, memorials, and briefs submitted to the tribunal by a disputing party and any written submissions; and minutes or transcripts of hearings of the tribunal (Chile-U.S. FTA Art. 10.20.1 and DR-CAFTA Art. 10.21.1).

Open Hearings: the tribunal must conduct hearings open to the public (Chile-U.S. FTA Art. 10.20.2 and DR-CAFTA Art. 10.21.2).

Confidential or Protected Business Information: it should be protected from disclosure, if such information is submitted to the tribunal (Chile-U.S. FTA Art. 10.20.2 - 10.20.5 and DR-CAFTA Art. 10.21.2 -10.21.5).

Governing Law: when a claim is submitted, the tribunal must decide the issues in dispute in accordance with the Agreement and applicable rules of international law (Chile-U.S. FTA Art. 10.21.1 and DR-CAFTA Art. 10.22.1).

Interpretation of a Provision by Trade Ministers: a decision of the Free Trade Commission declaring its interpretation of a provision of the Agreement is binding on a tribunal established under Section B, and any award must be consistent with that decision (Chile-U.S. FTA Art. 10.21.3 and DR-CAFTA Art. 10.22.3).

Interpretation of Annexes: where a respondent asserts as a defense that the measure alleged to be a breach is within the scope of Annex I of Chile-U.S. or  Annex I of DR-CAFTA (Existing Non-Conforming Measures) or Annex II of Chile-U.S. or Annex II of DR-CAFTA (Future Non-Conforming Measures), the tribunal must, on request of the respondent, request the interpretation of the Commission on the issue. The Commission must submit in writing any decision to the tribunal within 60 days of delivery of the request (Chile-U.S. FTA Art. 10.22.1 and DR-CAFTA Art. 10.23.1). A decision issued by the Commission is binding on the tribunal, and any award must be consistent with that decision. If the Commission fails to issue such a decision within 60 days, the tribunal shall decide the issue (Chile-U.S. FTA Art. 10.22.2 and DR-CAFTA Art. 10.23.2).

Expert Reports: without prejudice to the appointment of other kinds of experts where authorized by the applicable arbitration rules, a tribunal, at the request of a disputing party or, unless the disputing Parties disapprove, on its own initiative, may appoint one or more experts to report to it in writing on any factual issue concerning environmental, health, safety, or other scientific matters raised by a disputing party in a proceeding, subject to such terms and conditions as the disputing Parties may agree (Chile-U.S. FTA Art. 10.23 and DR-CAFTA Art. 10.24).

Consolidation: where two or more claims have been submitted separately to arbitration and the claims have a question of law or fact in common and arise out of the same events or circumstances, any disputing party may seek a consolidation order in accordance with the Agreement of all the disputing Parties sought to be covered (Chile-U.S. FTA Art. 10.24 and DR-CAFTA Art. 10.25).

Awards: where a tribunal makes a final award against a respondent, the tribunal may award, separately or in combination, only: (a) monetary damages and any applicable interest; (b) restitution of property, in which case the award shall provide that the respondent may pay monetary damages and any applicable interest in lieu of restitution. A tribunal may also award costs and attorneys’ fees in accordance with this Section and the applicable arbitration rules (Chile-U.S. FTA Art. 10.25.1 and DR-CAFTA Art. 10.26.1). No punitive damages are allowed (Chile-U.S. FTA Art. 10.25.3 and DR-CAFTA Art. 10.26.3).

Enforcement of Awards: each Party shall provide for the enforcement of an award in its territory (Chile-U.S. FTA Art. 10.25.7 and DR-CAFTA Art. 10.26.7). If the respondent fails to abide by or comply with a final award, a panel must be established under the State-to-State Dispute Settlement Mechanism of the Agreement. The requesting Party may seek in such proceedings a determination that the failure to abide by or comply with the final award is inconsistent with the obligations of this Agreement; and a recommendation that the respondent abide by or comply with the final award (Chile-U.S. FTA Art. 10.25.8 and DR-CAFTA Art. 10.26.8). A disputing party may also seek enforcement of an arbitration award under the ICSID Convention, the New York Convention, or the Inter-American Convention (Chile-U.S. FTA Art. 10.25.9 and DR-CAFTA Art. 10.26.9).

Appellate Body: both Agreements state that if a separate multilateral Agreement enters into force as between the Parties that establishes an appellate body for purposes of reviewing awards rendered by tribunals constituted pursuant to international trade or investment Agreements to hear investment disputes, the Parties shall strive to reach an Agreement that would have such appellate body review awards (Chile-U.S. FTA Art. 10.19.10 and DR-CAFTA Art. 10.20.10).

Section C: Definitions

Section C on definitions (Chile-U.S. FTA Art. 10.27 and DR-CAFTA Art. 10.28) covers the following terms: Centre, claimant, disputing Parties, disputing party, enterprise, enterprise of a Party, freely usable currency, ICSID Additional Facility Rules, ICSID Convention, Inter-American Convention, investment, investment authorization, investor of a non-Party, investor of a Party, New York Convention, non-disputing Party, respondent, Secretary-General, tribunal, and UNCITRAL Arbitration Rules. The Chile-U.S. FTA also includes a definition of the term “monopoly,” whereas DR-CAFTA includes a definition of the term “protected information.”

The terms “investment” and “investor of a Party” are the key elements of the scope of the Investment Chapter. They are the main parameters identifying which investment and which investor will benefit from the provisions of the Chapter. Both Agreements define “investment” as every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment. While the Chile-U.S. FTA states that some forms of debt, such as bonds, debentures, and long-term notes, are more likely to have the characteristics of an investment, and other forms of debt, such as claims to payment that are immediately due and result from the sale of goods and services, are less likely to have such characteristics (Chile-U.S. FTA ftnt. 10), DR-CAFTA states that claims to payment that are immediately due and result from the sale of goods and services are not investments (DR-CAFTA ftnt. 9). Both Agreements include the same definition for the term “investor of a Party,” which includes natural and juridical persons that attempt to make, are making, or have made an investment in the territory of another Party. Both Agreements also specify that a natural person who is a dual national must be deemed to be exclusively a national of the State of his/her dominant and effective nationality.

Annexes to the Investment Chapter

Customary International Law: the Parties confirm their shared understanding that “customary international law” generally, and as specifically referenced in the Articles on minimum standard of treatment and expropriation and compensation, results from a general and consistent practice of States that they follow from a sense of legal obligation. With regard to the Article on minimum standard of treatment, the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens (Chile-U.S. FTA Annex 10-A and DR-CAFTA Annex 10-B).

Public Debt: the rescheduling of debts of Chile and the Central American countries owed to the United States and the rescheduling of their debts to creditors in general are not subject to any provision of Section A, except national treatment and MFN treatment (Chile-U.S. FTA Annex 10-B and DR-CAFTA Annex 10-A).

Expropriation: the determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and the character of the government action. The Annex also states that except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations (Chile-U.S. FTA Annex 10-D and DR-CAFTA Annex 10-C).

Submission of a Claim to Arbitration: both Agreements state that an investor of the United States may not submit to arbitration under Section B a claim that Chile or a Central American country has breached an obligation under Section A (or Annex 10-F in the case of the Chile-U.S. FTA) if the investor or the enterprise, respectively, has alleged that breach of an obligation under Section A (or Annex 10-F in the case of the Chile-U.S. FTA) in proceedings before a court or an administrative tribunal of Chile (Chile-U.S. FTA Annex 10-E and DR-CAFTA Annex 10-E). The Chile-U.S. FTA includes the same wording in the case of an investment agreement or investment authorization (Chile-U.S. FTA Annex 10-E, 1.b). For greater certainty, both Agreements state that if an investor of the United States elects to submit a claim of the type described in the Annex on Submission of a Claim to Arbitration to a court or administrative tribunal of Chile, that election shall be definitive and the investor may not thereafter submit the claim to arbitration under Section B (Chile-U.S. FTA Annex 10-E, 2 and DR-CAFTA Annex 10-E, 2).

Appellate Body or Similar Mechanism: the Chile-U.S. FTA (Annex 10-H) states that within three years after the date of entry into force of this Agreement, the Parties shall consider whether to establish a bilateral appellate body or similar mechanism to review awards rendered in arbitrations commenced after they establish the appellate body or similar mechanism. DR-CAFTA (Annex 10-F) states that within three months of the date of entry into force of the Agreement, the Commission shall establish a Negotiating Group to develop an appellate body or similar mechanism to review awards rendered by tribunals under the Investment Chapter. Such appellate body or similar mechanism shall be designed to provide coherence to the interpretation of investment provisions in the Agreement. The Commission shall direct the Negotiating Group to take into account the following issues, among others: the nature and composition of an appellate body or similar mechanism; the applicable scope and standard of review; transparency of proceedings of an appellate body or similar mechanism; the effect of decisions by an appellate body or similar mechanism; the relationship of review by an appellate body or similar mechanism to the arbitral rules that may be selected; and the relationship of review by an appellate body or similar mechanism to existing domestic laws and international law on the enforcement of arbitral awards. The Commission shall direct the Negotiating Group to provide to the Commission, within one year of establishment of the Negotiating Group, a draft amendment to the Agreement that establishes an appellate body or similar mechanism.

Services of Documents on a Party under Section B: this Annex informs on the address where notices and other documents in disputes shall be served (Chile-U.S. FTA Annex 10-G and DR-CAFTA Annex 10-G).

Special Dispute Settlement Provisions: Annex 10-C of the Chile-U.S. FTA states that where a claimant submits a claim alleging that Chile has breached an obligation under Section A, other than the MFN obligation, that arises from its imposition of restrictive measures with regard to payments and transfers, Section B applies but under certain conditions. For instance, a claimant may submit a claim only after one year has elapsed since the events giving rise to the claim.

DL 600: Annex 10-F of the Chile-U.S. FTA states that an investor of the United States or a covered investment that is a party to an investment contract under Chile’s Estatuto de la Inversión Extranjera, Decreto Ley 600 de 1974 shall receive the better of the treatment requirement under the Agreement or the investment contract.

Treatment in Case of Strife: Annex 10-D of DR-CAFTA states that no investor may submit to arbitration under Section B of the Investment Chapter a claim alleging that Guatemala has breached the Article on treatment in case of strife as a result of an armed movement or civil disturbance and that the investor has incurred loss or damage by reason of or arising out of such movement or disturbance. A similar provision exists for investors of Guatemala with respect to other Parties.

 


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