Transatlantic Trade And Investment Partnership

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Commission draft text TTIP - investmentTransatlantic Trade and Investment PartnershipTRADE IN SERVICES, INVESTMENT AND E-COMMERCECHAPTER II - INVESTMENTThis is not a formal text proposal to the United States in the TTIP negotiations but an internaldocument of the European Union. The Commission will consult the EU’s Member States inthe Council and will discuss the proposal with the European Parliament before presenting aformal text proposal to the United States.NOTE:This is a draft text on provisions on investment protection and resolution of investmentdisputes and investment court system, to be included in the Title on trade in services,investment and e-commerce which is publically available here.Definitions specific to investment protectionFor purposes of this Title:(x1)'covered investment' means an investment which is owned, directly or indirectly, orcontrolled, directly or indirectly, by investors of one Party in the territory1 of the otherParty made in accordance with applicable laws, whether made before or after the entryinto force of this Agreement.(x2)'investment' means every kind of asset which has the characteristics of an investment,which includes a certain duration and other characteristics such as the commitment ofcapital or other resources, the expectation of gain or profit, or the assumption of risk.Forms that an investment may take include:a) an enterprise;b) shares, stocks and other forms of equity participation in an enterprise;c) bonds, debentures and other debt instruments of an enterprise;d) a loan to an enterprise;e) any other kinds of interest in an enterprise;f) an interest arising from:1 For greater certainty, territory shall include exclusive economic zone and continental shelf, as provided in theUnited Nations Convention on the Law of the Sea (UNCLOS).Page 1 of 39

Commission draft text TTIP - investmenti)a concession conferred pursuant to domestic law or under a contract,including to search for, cultivate, extract or exploit natural resources,ii)a turnkey, construction, production, or revenue-sharing contract, oriii)other similar contracts;g) intellectual property rights;h) any other moveable property, tangible or intangible, or immovable property andrelated rights;i) claims to money or claims to performance under a contract;For greater certainty, 'claims to money' does not include claims to money that arisesolely from commercial contracts for the sale of goods or services by a natural personor enterprise in the territory of a Party to a natural person or enterprise in the territoryof the other Party, domestic financing of such contracts, or any related order,judgment, or arbitral award.Returns that are invested shall be treated as investments and any alteration of the formin which assets are invested or reinvested shall not affect their qualification asinvestments.(x3)‘freely convertible currency’ means a currency which is widely traded in internationalforeign exchange markets and widely used in international transactions.(x4)'returns' means all amounts yielded by or derived from an investment or reinvestment,including profits, dividends, capital gains, royalties, interest, payments in connectionwith intellectual property rights, payments in kind and all other lawful income.Page 2 of 39

Commission draft text TTIP - investmentSection 2Investment ProtectionArticle 1ScopeThe provisions in this Section shall apply to:(i)(ii)covered investments;investors of a Party in respect of a covered investment as regards any treatmentthat may affect the operation of such investment.Article 2Investment and regulatory measures/objectives1. The provisions of this section shall not affect the right of the Parties to regulate withintheir territories through measures necessary to achieve legitimate policy objectives, suchas the protection of public health, safety, environment or public morals, social orconsumer protection or promotion and protection of cultural diversity.2. For greater certainty, the provisions of this section shall not be interpreted as acommitment from a Party that it will not change the legal and regulatory framework,including in a manner that may negatively affect the operation of covered investments orthe investor’s expectations of profits.3. For greater certainty and subject to paragraph 4, a Party’s decision not to issue, renew ormaintain a subsidy(a) in the absence of any specific commitment under law or contract to issue,renew, or maintain that subsidy; or(b) in accordance with any terms or conditions attached to the issuance, renewal ormaintenance of the subsidy,shall not constitute a breach of the provisions of this Section.4. For greater certainty, nothing in this Section shall be construed as preventing a Party fromdiscontinuing the granting of a subsidy2 and/or requesting its reimbursement, or asrequiring that Party to compensate the investor therefor, where such action has beenordered by one of its competent authorities listed in Annex III.2In the case of the EU, "subsidy" includes "state aid" as defined in the EU law.Page 3 of 39

Commission draft text TTIP - investmentArticle 3Treatment of Investors and of covered investments1. Each Party shall accord in its territory to covered investments of the other Party andinvestors with respect to their covered investments fair and equitable treatment and fullprotection and security in accordance with paragraphs 2 to 5.2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1where a measure or a series of measures constitutes:(a) denial of justice in criminal, civil or administrative proceedings; or(b) fundamental breach of due process, including a fundamental breach oftransparency and obstacles to effective access to justice, in judicial andadministrative proceedings; or(c) manifest arbitrariness; or(d) targeted discrimination on manifestly wrongful grounds, such as gender, race orreligious belief; or(e) harassment, coercion, abuse of power or similar bad faith conduct; or(f) a breach of any further elements of the fair and equitable treatment obligationadopted by the Parties in accordance with paragraph 3 of this Article.3. The Parties shall, upon request of a Party, review the content of the obligation to providefair and equitable treatment. The [ ] Committee (reference to article on Services andInvestment Committee) may develop recommendations in this regard and submit them tothe [ ] Committee (reference to article on Trade Committee). The [ ] Committee(reference to article on Trade Committee) shall consider whether to recommend that theAgreement is amended, in accordance with Article [relevant procedures for theamendment of the Agreement].4. When applying the above fair and equitable treatment obligation, a tribunal may take intoaccount whether a Party made a specific representation to an investor to induce a coveredinvestment, that created a legitimate expectation, and upon which the investor relied indeciding to make or maintain the covered investment, but that the Party subsequentlyfrustrated.5. For greater certainty, ‘full protection and security’ refers to the Party’s obligations relatingto physical security of investors and covered investments.6. For greater certainty, a breach of another provision of this Agreement, or of any otherinternational agreement, does not constitute a breach of this Article.Article 4Compensation for losses1. Investors of a Party whose covered investments suffer losses owing to war or other armedconflict, revolution, a state of national emergency, revolt, insurrection or riot in theterritory of the other Party shall be accorded by the latter Party, with respect to restitution,indemnification, compensation or other form of settlement, treatment no less favourablePage 4 of 39

Commission draft text TTIP - investmentthan that accorded by the latter Party to its own investors or to the investors of any nonParty, whichever is more favourable to the investor.2. Without prejudice to paragraph 1 of this Article, investors of a Party who, in any of thesituations referred to in that paragraph, suffer losses in the territory of the other Partyresulting from:(a)(b)requisitioning of their covered investment or a part thereof by the latter's armedforces or authorities; ordestruction of their covered investment or a part thereof by the latter's armed forcesor authorities, which was not required by the necessity of the situation;shall be accorded prompt, adequate and effective restitution or compensation by the otherParty. The amount of such compensation shall be determined in accordance with theprovisions of paragraph 3 of Article 5 [Expropriation], from the date of requisitioning ordestruction until the date of actual payment.Article 5Expropriation1. Neither Party shall nationalize or expropriate a covered investment either directly orindirectly through measures having an effect equivalent to nationalisation or expropriation(hereinafter referred to as 'expropriation') except:(a)(b)(c)(d)for a public purpose;under due process of law;in a non-discriminatory manner; andagainst payment of prompt, adequate and effective compensation.2. For greater certainty, this paragraph shall be interpreted in accordance with Annex I [onexpropriation].3. Such compensation shall amount to the fair market value of the investment at the timeimmediately before the expropriation or the impending expropriation became publicknowledge, whichever is earlier, plus interest at a normal commercial rate, from the dateof expropriation until the date of payment.4. Such compensation shall be effectively realisable, freely transferable in accordance withArticle 6 [Transfers] and made without delay.5. The investor affected shall have a right, under the law of the expropriating Party, toprompt review of its claim and of the valuation of its investment, by a judicial or otherindependent authority of that Party, in accordance with the principles set out in thisArticle.6. This Article does not apply to the issuance of compulsory licenses granted in relation tointellectual property rights, to the extent that such issuance is consistent with the Agreementon Trade-Related Aspects of Intellectual Property Rights in Annex 1C to the WTOAgreements ('TRIPS Agreement').Page 5 of 39

Commission draft text TTIP - investment7. For greater certainty, the revocation, limitation or creation of intellectual property rights to theextent that these measures are consistent with TRIPS and Chapter X (Intellectual Property) ofthis Agreement, do not constitute expropriation. Moreover, a determination that these actionsare inconsistent with the TRIPS Agreement or Chapter X (Intellectual Property) of thisAgreement does not establish that there has been an expropriation.Article 6Transfer1. Each Party shall permit all transfers relating to a covered investment to be made in afreely convertible currency, without restriction or delay and at the prevailing market rateof exchange applicable on the date of transfer to the currency to be transferred. Suchtransfers include:(a)(b)(c)(d)(e)(f)(g)contributions to capital, such as principal and additional funds to maintain,develop or increase the investment;profits, dividends, capital gains and other returns, proceeds from the sale of allor any part of the investment or from the partial or complete liquidation of theinvestment;interest, royalty payments, management fees, and technical assistance and otherfees;payments made under a contract entered into by the investor, or its investment,including payments made pursuant to a loan agreement;earnings and other remuneration of personnel engaged from abroad and workingin connection with an investment;payments made pursuant to Articles 5 [Compensation for Losses] and 6[Expropriation];payments of damages pursuant to an award issued by a tribunal under Section [Resolution of Investment Disputes and Investment Court System].2. Neither Party may require its investors to transfer, or penalise its investors for failing totransfer, the income, earnings, profits or other amounts derived from, or attributable to,investments in the territory of the other Party.3. Notwithstanding paragraphs 1 and 2, nothing in this article shall be construed to prevent aParty from applying in an equitable and non-discriminatory manner, and not in a way thatwould constitute a disguised restriction on trade and investment, its laws relating to:(a)(b)(c)(d)(e)(f)bankruptcy, insolvency, bank recovery and resolution, or the protection of therights of creditors, and the prudential supervision of financial institutions;issuing, trading, or dealing in financial instruments;financial reporting or record keeping of transfers where necessary to assist lawenforcement or financial regulatory authorities;criminal or penal offenses, deceptive or fraudulent practices;ensuring the satisfaction of judgments in adjudicatory security, public retirement or compulsory savings schemes.Page 6 of 39

Commission draft text TTIP - investmentNote:Additional provisions, e.g. on restrictions in case of balance of payments and externalfinancial difficulties or for the operation of the economic and monetary union, in the case ofthe European Union will be inserted in the general/horizontal part of the Agreement and willapply to this article.Paragraph 3 might be reviewed /deleted if it overlaps with provisions to be inserted in thegeneral/horizontal part of the Agreement and to be applied to this article.Article 7Observance of written commitmentsWhere a Party either itself or through any entity mentioned in Article X [Definition of‘'measures adopted or maintained by a Party’] has entered into any contractual writtencommitment3 with investors of the other Party or with their covered investments, that Partyshall not, either itself or through any such entity breach the said commitment through theexercise of governmental authority.Article 8SubrogationIf a Party, or an agency thereof, makes a payment under an indemnity, guarantee or contractof insurance it has entered into in respect of an investment made by one of its investors in theterritory of the other Party, the other Party shall recognize that the Party or its agency shall beentitled in all circumstances to the same rights as those of the investor in respect of theinvestment. Such rights may be exercised by the Party or an agency thereof, or by the investorif the Party or an agency thereof so authorises.Article 9Denial of benefitsA Party may deny the benefits of this Chapter to an investor of the other Party that is anenterprise of that Party and to investments of that investor if:(a)the investors of a non-Party owns or controls the enterprise; and(b)the denying Party adopts or maintains a measures with respect to the non-Partythat:(i)are related to the maintenance of international peace and security; andFor the purposes if this paragraph, a “contractual written commitment” means an agreement in writing, enteredinto by a Party, itself or through any entity mentioned in Article X [Definition of 'measures adopted ormaintained by a Party’], with an investor or a covered investment, whether in a single instrument or multipleinstruments, that creates an exchange of rights and obligations, binding on both Parties”.3Page 7 of 39

Commission draft text TTIP - investment(j)prohibit transactions with the enterprise or would be violated orcircumvented if the benefits of this Chapter were accorded to theenterprise or to its investments.NOTE:Additional provisions, e.g. Territorial application, Taxation, Security Exceptions,Termination or Relation to other Agreements will be inserted in the general/horizontal part ofthe Agreement and will apply to this Section.Page 8 of 39

Commission draft text TTIP - investmentANNEX I: ExpropriationThe Parties confirm their shared understanding that:1. Expropriation may be either direct or indirect:(a) direct expropriation occurs when an investment is nationalised or otherwise directlyexpropriated through formal transfer of title or outright seizure.(b) indirect expropriation occurs where a measure or series of measures by a Party has aneffect equivalent to direct expropriation, in that it substantially deprives the investorof the fundamental attributes of property in its investment, including the right to use,enjoy and dispose of its investment, without formal transfer of title or outright seizure.2. The determination of whether a measure or series of measures by a Party, in a specific factsituation, constitutes an indirect expropriation requires a case-by-case, fact-based inquirythat considers, among other factors:(a) the economic impact of the measure or series of measures, although the sole fact thata measure or series of measures of a Party has an adverse effect on the economicvalue of an investment does not establish that an indirect expropriation has occurred;(b) the duration of the measure or series of measures by a Party;(c) the character of the measure or series of measures, notably their object and content.3. For greater certainty, except in the rare circumstance when the impact of a measure orseries of measures is so severe in light of its purpose that it appears manifestly excessive,non-discriminatory measures of a Party that are designed and applied to protect legitimatepublic welfare objectives, such as the protection of public health, safety, environment orpublic morals, social or consumer protection or promotion and protection of culturaldiversity do not constitute indirect expropriations.ANNEX II: Public debt1. No claim that a restructuring of debt issued by a Party breaches an obligation underSection 2 [Investment Protection] may be submitted to, or if already submitted continuein, arbitration under Section 3 [Resolution of Investment Disputes and Investment CourtSystem] if the restructuring is a negotiated restructuring at the time of submission, orbecomes a negotiated restructuring after such submission.2. Notwithstanding [Article 6 Submission of a Claim, Section on Resolution of InvestmentDisputes and Investment Court System], and subject to paragraph 1 of this Annex, aninvestor of another Party may not submit a claim under Section 3 [Resolution ofInvestment Disputes and Investment Court System] that a restructuring of debt issued by aParty breaches Articles X [National Treatment] or X [Most-Favoured Nation] of Section 1[Liberalisation of Investments] or an obligation under Section 2 [Investment Protection],unless 270 days have elapsed from the date of receipt by the respondent of the writtenrequest for consultations pursuant to [Article 4 Consultations].3. For the purposes of this Annex, ‘negotiated restructuring’ means the restructuring orrescheduling of debt instruments issued by a Party that has been effected through (i) aPage 9 of 39

Commission draft text TTIP - investmentmodification or amendment of such debt instruments, as provided for under their termsand governing law, or (ii) a debt exchange or other similar process in which the holders ofno less than 66% of the aggregate principal amount of the outstanding debt under suchdebt instruments subject to restructuring, excluding debt held by that Party or by entitiesowned or controlled by it, have consented to such debt exchange or other process. Forgreater certainty, debt issued by a Party means debt issued by any administrative level of aParty including with respect to the European Union a government of or in a EuropeanMember State or its sub-federal level.ANNEX III: Competent authorities mentioned in article 2 paragraph 4In the case of the EU, the competent authorities entitled to order the actions mentioned inarticle 2 paragraph 4 are the European Commission or a court or tribunal of a Member Statewhen applying EU law on state aid.Page 10 of 39

Commission draft text TTIP - investmentSection 3 - Resolution of Investment Disputes and Investment Court SystemSUB-SECTION 1: SCOPE AND DEFINITIONSArticle 1Scope

formal text proposal to the United States. NOTE: This is a draft text on provisions on investment protection and resolution of investment disputes and investment court system, to be included in the Title on trade in services, investment and e-commerce which is publically available here.

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