Southern Common Market (MERCOSUR)
DECISIONS OF THE COUNCIL OF COMMON MARKET
MERCOSUR/CMC/DEC. Nº 11/94: PROTOCOL ON PROMOTION AND PROTECTION OF INVESTMENTS COMING
FROM NON-MERCOSUR STATE PARTIES
IN
VIEW OF: Art. 10 of the Treaty of Asuncion, Resolution No 39/94 of the Common
Market Group, and Recommendation No 9/94 of SGT No 4, on "Fiscal and
Monetary Policies Related to Trade."
WHEREAS:
The
creation of favorable conditions for (extra-zonal) investments in the
territory of the MERCOSUR State Parties will intensify economic cooperation.
The
promotion and protection of such investments will help to stimulate
individual economic initiative and to heighten development in the four State
Parties.
For
these purposes, it is fitting to establish a common legal framework for the
treatment to be accorded third states pertaining to promotion and protection
of investments.
THE COMMON MARKET COUNCIL
DECIDES:
Article
1
To
approve the "PROTOCOL ON PROMOTION AND PROTECTION OF INVESTMENTS COMING
FROM NON-MERCOSUR STATE PARTIES," on treatment to be accorded third
states pertaining to promotion and protection of investments, included as an Annex to this Decision.
ANNEX
PROTOCOL ON PROMOTION AND PROTECTION OF
INVESTMENTS COMING FROM NON-MERCOSUR STATE PARTIES
The
Argentine Republic, the Federative Republic of Brazil, the Republic of
Paraguay, and the Oriental Republic of Uruguay, hereinafter designated
"State Parties"
Taking
into account the Treaty of Asuncion signed on March 26, 1991, whereby the
State Parties decide to create the Common Market of the South (MERCOSUR);
Considering
the Colonia Protocol on Reciprocal Promotion and Protection of Investments
within MERCOSUR, approved by the Common Market Council Decision No 11/93, the
purpose of which is to promote investments by investors from the MERCOSUR
State Parties, within the scope of territorial application of the Treaty of
Asuncion;
Underscoring the need for reconciling the general legal principles to be applied by
each of the State Parties to investments coming from non- MERCOSUR states
(hereinafter designated "Third States")so as not to create differentiated conditions
that would distort the flow of investments;
Acknowledging that the promotion and protection of investments based on
agreements with Third States will help to stimulate individual economic
initiative and will increase the prosperity of the four States Parties;
Have agreed on the following:
Article 1
The State Parties are committed to grant the investments made by investors
from Third States a treatment no more favorable than that stipulated in this
Protocol.
Article 2
For the purpose indicated in the preceding, the general treatment
to be agreed upon by each State Party toward Third States shall not recognize
for the latter benefits and rights exceeding those recognized for the investor
upon the following regulatory bases:
A) DEFINITIONS
1) The term "investment", according to the laws and regulations
of the State Party in whose territory the investment is made, shall designate
all types of assets invested directly or indirectly by investors from a Third
State in the territory of the State Party, according to the latter's
legislation. It shall include in particular, but not exclusively:
a) personal and real property, as well as the other rights in rem, such as
mortages, surety, and collateral rights;
b) stock shares, partnerships shares, and any other type of share in
business firms;
c) credit instruments and rights to benefits having an economic value;
loans shall be included only when they are directly linked to a specific
investment;
d) intellectual or intangible property rights, including, especially,
copyrights, patents, industrial designs, trademarks, commercial names,
technical procedures, know-how, and good will value;
e) economic concessions conferred by law or by contract, including
concessions for prospecting, cultivation, extraction, or exploitation of
natural resources.
2) The term "investor" shall designate:
a) any natural person who is a national of a State Party or Third State,
according to their respective legislations. The provisions of the agreements to
be entered into shall not apply to investments made in the territory of a State
Party by natural persons who are nationals of Third States if such persons, on
the date of the investment, reside or are domiciled permanently in said territory, according to the
legislation in effect, unless it is proven that the funds relating to these
investments come from abroad.
b) any
juridical person established in accordance with the laws and regulations of a
State Party or Third State that has its headquarters in the territory where
it is established.
c) any
juridical person established in accordance with the legislation of any
country that is effectively controlled by natural or juridical persons
defined in a) and b) of this number.
3) The
term "profits" shall designate all the sums produced by an
investment, such as earnings, rents, dividends, interest, royalties, and
other current income.
4) The
term "territory" shall designate the national territory of each
State Party or Third State, including the maritime zones adjacent to the
external boundary of the national territorial sea over which the State Party
involved or the Third State may, according to international law, exercise
sovereign rights or jurisdiction.
B) PROMOTION OF INVESTMENTS
1) Each
State Party shall promote in its territory the investments of investors from
Third States, and shall accept said investments according to its laws and
regulations.
2)When
one of the State Parties has accepted an investment in its territory, it
shall grant the necessary authorization for its best implementation,
including the execution of contracts on licenses, commercial or
administrative assistance, and entry of the necessary personnel.
C) PROTECTION OF INVESTMENTS
1) Each
State Party shall ensure a fair and equitable treatment for the investments
of investors from Third States, and shall not damage their management,
maintenance, use, benefit, or disposition through unjustified or
discriminatory
measures.
2) Each
State Parties shall grant full protection for such investments, and may not
accord them a treatment less favorable than that granted to the investments
of its own national investors, or the investments made by investors from
other states.
3) The
State Parties shall not extend to investors from Third States the benefits of
any treatment, preference, or privilege resulting from:
a) their
participation or association in a free trade area, customs union, common
market, or similar regional agreement;
b) an international agreement totally or
partially related to tax matters.
D) EXPROPRIATIONS AND COMPENSATIONS
1) None
of the State Parties shall adopt nationalization or expropriation measures,
nor any other measure that may have the same effect against investments
located in their territory belonging to investors from Third States, unless
said measures are adopted for reasons of public utility or social benefit, on
a non-discriminatory basis, and subject to due legal process. The measures
shall be accompanied by provisions for the payment of a fair, adequate, and
prompt or timely compensation.
The
amount of said compensation shall correspond to the value of the expropriated
investment.
2) Investors
from a Third State who suffer losses in their investments in the territory of
the State Party, owing to war or other armed conflict, national state of
emergency, rebellion, insurrection, or rioting, shall receive, insofar as
restitution, indemnification, compensation, or other reparation is
concerned, a treatment no less favorable than that accorded its own investors
or the investors from other states.
E) TRANSFERS
1)Each
State Party shall grant the investors from a Third State the free transfer of
investments and profits, and particularly, although not exclusively, of:
a) the
capital and additional sums necessary for the maintenance and development of
the investments;
b) the benefits, earnings, rents, interest,
dividends, and other current income;
c) the
funds for reimbursement of loans, as defined in Article 2, letter a),
paragraph (1), (c);
d) the
royalties and fees, and any other payment relating to the rights specified in
Article 2, letter a), paragraph (1), d) and e);
e) the proceeds from a total or partial sale or
liquidation of an investment;
f) the
compensation, indemnification, or other payments specified in Article 2,
letter d);
g) the
salaries of the nationals of a Third State who have obtained authorization to
work in connection with an investment.
2)The transfers shall be made without delay,
in freely convertible currency.
F) SUBSTITUTION
1) If
a Third State or an agency designated by it makes a payment to an investor by
virtue of a guaranty or insurance to cover non-commercial risks that it has
contracted in connection with an investment, the State Party in whose
territory the investment was made shall recognize the validity of the
substitution in favor of the Third State or of one of its agencies, with
respect to any right or entitlement of the investor, for purposes of
obtaining the pertinent pecuniary compensation.
G) RESOLUTION
OF CONTROVERSIES BETWEEN A STATE PARTY AND A THIRD STATE
1) Controversies
that may arise between a State Party and a Third State relating to the
interpretation or application of the agreement that they enter into shall be
resolved through diplomatic channels insofar as possible.
2) If
said controversy cannot be settled in this manner within a reasonable period
of time, to be determined, it shall be subjected to international
arbitration.
H) RESOLUTION OF CONTROVERSIES BETWEEN AN INVESTOR FROM A THIRD STATE AND A
PARTY STATE RECEIVING THE INVESTMENT
1) Any
controversy relating to the interpretation or application of an agreement on
reciprocal promotion and protection of investments that may arise between an
investor from a Third State and a Party State shall be resolved through
friendly consultations insofar as possible.
2) If the controversy cannot be resolved
within a reasonable period of time after it has been posed by either of the
parties, at the investor's request it may be submitted:
a) either to the competent courts of the State Party in whose territory the
investment was made, or
b) to international arbitration under the conditions described in section 3.
Once
an investor has submitted the controversy to the jurisdiction of the State
Party involved, or to international arbitration, the selection of either of
these procedures shall be final.
3) In the event of an appeal for international
arbitration, the controversy may, at the discretion of the investor, be
subjected to an "ad hoc" court of arbitration or to an
international arbitration.
4) The arbitration body shall decide, based
on the provisions of the agreement entered into, the right of the State Party
involved in the controversy, including the rules relating to conflicts of
laws, and the terms of possible private agreements concluded in connection
with the investment, as well as based on the principles of international law
pertaining to the subject.
5) The arbitrator's decisions shall be
definitive and binding on the parties to the controversy. The State Party
shall execute them in accordance with its legislation.
I) INVESTMENTS AND CONTROVERSIES COVERED IN THE AGREEMENT
The
rules of the agreements to be entered into may be applied to all the
investments made before or after the date that they took effect, but shall
not apply to any controversy, claim, or dispute that may have arisen before
they took effect.
J) DURATION AND TERMINATION
The
minimum period of validity of the agreements shall be ten years. In the case
of those investments made before the expiration date of the agreement's
effective period, the State Party may decide that its provisions shall remain
in effect for a maximum period of 15 years beginning from that date forward.
Article
3
The
State Parties are obliged to exchange information on the future negotiations
and those in progress on agreements for reciprocal promotion and protection
of investments with Third States, and prior consultations shall be held
regarding any substantial amendment to the general treatment agreed upon in
Article 2 of this Protocol. For this purpose, the Commission on the
Promotion and Reciprocal Protection of Investments of the Common Market
Group, and any body which may eventually replace it, shall concern itself
with the consultations and the exchange of information pertaining to the
subject.
Article
4
This
Protocol is an integral part of the Treaty of Asuncion.
Accession
of a State to the Treaty of Asuncion shall imply, ipso jure, accession to
this Protocol.
This
Protocol shall go into effect 30 days after the date of deposit of the fourth
ratification instrument.
The
Government of the Republic of Paraguay shall be the depositary of this
Protocol and of the ratification instruments, and shall send a duly
authenticated copy thereof to the Governments of the other State Parties.
Executed
in the city of Buenos Aires on the fifth of August of 1994, in an original
copy, in the Spanish and Portuguese languages, both texts being equally
authentic.
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