IV. INVESTMENT PROTECTION
1. GENERAL TREATMENT 1
1.1. Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. In no case shall a Contracting Party accord treatment less favourable than that required by international law.
1.2. A Contracting Party shall not impair by [unreasonable or discriminatory] [unreasonable and discriminatory] measures the operation, management, maintenance, use, enjoyment or disposal of investments in its territory of investors of another Contracting Party.
2. EXPROPRIATION AND COMPENSATION
2.1. A Contracting Party shall not expropriate or nationalise directly or indirectly an investment in its territory of an investor of another Contracting Party or take any measure or measures having equivalent effect (hereinafter referred to as "expropriation") except:
a) for a purpose which is in the public interest, b) on a non-discriminatory basis, c) in accordance with due process of law, and d) accompanied by payment of prompt, adequate and effective compensation in accordance with Articles 2.2 to 2.5 below.
2.2. Compensation shall be paid without delay.
2.3. Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation occurred. The fair market value shall not reflect any change in value occurring because the expropriation had become publicly known earlier.
2.4. Compensation shall be fully realisable and freely transferable.
2.5. [Compensation shall include interest at a commercial rate established on a market basis for the currency of payment from the date of expropriation until the date of actual payment.]2
1Sweden proposed to delete Article 1.2 and revise Article l.l as follows:
"Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. Such treatment shall also apply to the operation, management, maintenance, use, enjoyment or disposal of such investments. In no such case shall a Contracting Party accord treatment less favourable than that required by international law."
2Drafting Group 3 identified four options for calculating compensation which are set out in the commentary.
2.6. Due process of law includes, in particular, the right of an investor of a Contracting Party which claims to be affected by expropriation by another Contracting Party to prompt review of its case, including the valuation of its investment and the payment of compensation in accordance with the provisions of this article, by a judicial authority or another competent and independent authority of the latter Contracting Party.
3. PROTECTION FROM STRIFE
3.1. An investor of a Contracting Party which has suffered losses relating to its investment in the territory of another Contracting Party due to war or to other armed conflict, state of emergency, revolution, insurrection, civil disturbance, or any other similar event in the territory of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or any other settlement, treatment no less favourable than that which it accords to its own investors or to investors of any third State, whichever is most favourable to the investor.
3.2. Notwithstanding Article 3.1, an investor of a Contracting Party which, in any of the situations referred to in that paragraph, suffers a loss in the territory of another Contracting Party resulting from
(a) requisitioning of its investment or part thereof by the latter's forces or authorities, or
(b) destruction of its investment or part thereof by the latter's forces or authorities, which was not required by the necessity of the situation,
shall be accorded by the latter Contracting Party restitution or compensation which in either case shall be prompt, adequate and effective and, with respect to compensation, shall be in accordance with Articles 2.1 to 2.5.
4.1. Each Contracting Party shall ensure that all payments relating to an investment in its territory of an investor of another Contracting Party may be freely transferred into and out of its territory without delay. Such transfers shall include, in particular, though not exclusively:
a) the initial capital and additional amounts to maintain or increase an investment;
c) payments made under a contract including a loan agreement;
d) proceeds from the sale or liquidation of all or any part of an investment;
e) payments of compensation under Articles 2 and 3;
f) payments arising out of the settlement of a dispute;
g) earnings and other remuneration of personnel engaged from abroad in connection with an investment.
3As defined in the Article on definitions.
4.2. Each Contracting Party shall further ensure that such transfers may be made in a freely convertible4 currency. [Freely convertible currency means a currency which is widely traded in international foreign exchange markets and widely used in international transactions.] or [Freely convertible currency means a currency which is, in fact, widely used to make payments for International transactions and is widely traded in the principal exchange markets].
4.3. Each Contracting Party shall also further ensure that such transfers may be made at the market rate of exchange prevailing on the date of transfer.
[4.4. In the absence of a market for foreign exchange, the rate to be used shall be the most recent exchange rate for conversion of currencies into Special Drawing Rights.]
4.5. Notwithstanding Article 4.1(b) above, a Contracting Party may restrict the transfer of a return in kind in circumstances where the Contracting Party is permitted under the GATT 1994 to restrict or prohibit the exportation or the sale for export of the product constituting the return in kind. Nevertheless, a Contracting Party shall ensure that transfers of returns in kind may be effected as authorised or specified in an investment agreement, investment authorisation, or other written agreement between the Contracting Party and an investor or investment of another Contracting Party.5
[4.6. Notwithstanding Articles 4.1 to 4.5, a Contracting Party may require reports of transfers of currency or other monetary instruments and ensure the satisfaction of Judgements in civil, administrative and criminal proceedings through the equitable, non-discriminatory, and good faith application of its laws and regulations. Such requirements shall not unreasonably impair or derogate from the free and undelayed transfer ensured by this Agreement.]
5.1. If a Contracting Party or its designated agency makes a payment under an indemnity, guarantee or contract of insurance6 given in respect of an investment of an investor in the territory of another Contracting Party, the latter Contracting Party shall recognise the assignment of any right or claim of such investor to the former Contracting Party or its designated agency and the right of the former Contracting Party or its designated agency to exercise by virtue of subrogation any such right and claim to the same extent as its predecessor in title.7
5.2. A Contracting Party shall not assert as a defence, counterclaim, right of set-off or for any other reason, that indemnification or other compensation for all or part of the alleged damages has been received or will be received pursuant to an indemnity, guarantee or insurance contract.
4US agreement in Article 4.2 on the deletion of "usable" and acceptance of the word "convertible" supposes agreement on its definition and on Article 4.6.
5Canada has difficulties with the obligations referred to in the second sentence.
6Mexico and Norway cannot agree to deletion of the words "non-commercial risks" at this stage.
7Mexico has difficulties with the obligations in this paragraph.
6. PROTECTING EXISTING INVESTMENTS
[This Agreement shall apply to investments made prior to its entry into force for the Contracting Parties concerned [consistent with the legislation of the Contracting Party in whose territory it was made] as well as investments made thereafter. This Agreement shall not apply to claims arising out of events which occurred, or to claims which had been settled, prior to its entry into force.] or [This Agreement shall apply to investments existing at the time of entry into force as well as to those established or acquired thereafter.]
7. PROTECTING INVESTOR RIGHTS FROM OTHER AGREEMENTS
ILLUSTRATIVE TEXTS (See Commentary)
Substantive Approach - Inclusive Respect Clause
Each Contracting Party shall observe any obligation it has entered into with regard to a specific investment of a national of another Contracting Party.
Procedural Approach - Limited Scope8 Dispute Settlement Clause
An investor of another Contracting Party may submit to arbitration in accordance with [the investor-state provisions of the MAI] any investment dispute arising under the provisions of this Agreement or concerning any obligation which the Contracting Party has entered into with regard to a specific investment of the investor through:
(a) an investment authorisation granted by its competent authorities specifically to the investor or investment, or
(b) a written investment agreement9 or contract granting rights with respect to natural resources or other assets or economic activities controlled by the national authorities,
and on which the investor has relied in establishing, acquiring, or significantly expanding an investment
8The choice of the precise method of limitation was not discussed in depth.
9The term "investment agreement" may require definition.