INVESTMENT TREATY WITH UZBEKISTANSenate Consideration of Treaty Document 104-25
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[Senate Treaty Document 104-25] [From the U.S. Government Publishing Office] 104th Congress Treaty Doc. SENATE 2d Session 104-25 _______________________________________________________________________ INVESTMENT TREATY WITH UZBEKISTAN __________ MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING THE TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF UZBEKISTAN CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT, WITH ANNEX, SIGNED AT WASHINGTON ON DECEMBER 16, 1994 February 28, 1996.--Agreement was read the first time and, together with the accompanying papers, referred to the Committee on Foreign Relations and ordered to be printed for the use of the Senate. LETTER OF TRANSMITTAL ---------- The White House, February 28, 1996. To the Senate of the United States: With a view to receiving the advice and consent of the Senate to ratification, I transmit herewith the Treaty Between the Government of the United States of America and the Government of the Republic of Uzbekistan Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, signed at Washington on December 16, 1994. I transmit also, for the information of the Senate, the report of the Department of State with respect to this Treaty. The bilateral investment treaty (BIT) with Uzbekistan is designed to protect U.S. investment and assist the Republic of Uzbekistan in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthen the development of its private sector. The Treaty is fully consistent with U.S. policy toward international and domestic investment. A specific tenet of U.S. policy, reflected in this Treaty, is that U.S. investment abroad and foreign investment in the United States should receive national treatment. Under this Treaty, the Parties also agree to international law standards for expropriation and compensation for expropriation; free transfer of funds related to investments; freedom of investments from performance requirements; fair, equitable, and most-favored-nation treatment; and the investor's or investment's freedom to choose to resolve disputes with the host government through international arbitration. I recommend that the Senate consider this Treaty as soon as possible, and give its advice and consent to ratification of the Treaty, with annex, at an early date. William J. Clinton. LETTER OF SUBMITTAL ---------- Department of State, Washington, January 31, 1996. The President, The White House. I have the honor to submit to you the Treaty Between the Government of the United States of America and the Government of the Republic of Uzbekistan Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, signed at Washington on December 16, 1994. I recommend that this Treaty, with Annex, be transmitted to the Senate for its advice and consent to ratification. The bilateral investment treaty (BIT) with Uzbekistan is based on the view that an open investment policy contributes to economic growth. This Treaty will assist the Republic of Uzbekistan in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthen the development of its private sector. It is U.S. policy, however, to advise potential treaty partners during BIT negotiations that conclusion of such a treaty does not necessarily result in immediate increases in private U.S. investment flows. To date, twenty-one BITs are in force for the United States--with Argentina, Bangladesh, Bulgaria, Cameroon, the Congo, the Czech Republic, Egypt, Grenada, Kazakstan, Kyrgyzstan, Moldova, Morocco, Panama, Poland, Romania, Senegal, Slovakia, Sri Lanka, Tunisia, Turkey, and Zaire. In addition to the Treaty with Uzbekistan, the United States has signed, but not yet brought into force, BITs with Albania, Armenia, Belarus, Ecuador, Estonia, Georgia, Haiti, Honduras, Jamaica, Latvia, Mongolia, Nicaragua, Russia, Trinidad and Tobago, and Ukraine. The Office of the United States Trade Representative and the Department of State jointly led this BIT negotiation, with assistance from the Departments of Commerce and Treasury. the united states-uzbekistan treaty The Treaty with the Government of the Republic of Uzbekistan is based on the 1994 U.S. prototype BIT and satisfies the United States' principal objectives in bilateral investment treaty negotiations: --All forms of U.S. investment in the territory of the Republic of Uzbekistan are covered. --Covered investments receive the better of national treatment or most-favored-nation (MFN) treatment both on establishment and thereafter, subject to certain specified exceptions. --Performance requirements may not be imposed upon or enforced against covered investments. --Expropriation can occur only in accordance with international law standards, that is, for a public purpose; in a nondiscriminatory manner; in accordance with due process of law; and upon payment of prompt, adequate, and effective compensation. --The unrestricted transfer, in a freely usable currency, of funds related to a covered investment is guaranteed. --Investment disputes with the host government may be brought by investors, or by their subsidiaries, to binding international arbitration as an alternative to domestic courts. The United States-Uzbekistan Treaty does not differ in any significant way from the 1994 prototype. The following is an article-by-article analysis of the provisions of the Treaty: Title and Preamble The Title and Preamble state the goals of the Treaty. Foremost is the encouragement and protection of investment. Other goals include economic cooperation on investment issues; the stimulation of economic development; higher living standards; promotion of respect for internationally-recognized worker rights; and maintenance of health, safety, and environmental measures. While the Preamble does not impose binding obligations, its statement of goals may assist in interpreting the Treaty and in defining the scope of Party-to- Party consultation procedures pursuant to Article VIII. Article I (Definitions) Article I defines terms used throughout the Treaty. In general, the definitions are designed to be broad and inclusive in nature. Company, Company of a Party The definition of ``company'' is broad, covering all types of legal entities constituted or organized under applicable law, and includes corporations, trusts, partnerships, sole proprietorships, branches, joint ventures, and associations. The definition explicitly covers charitable and not-for-profit entities, as well as entities that are owned or controlled by the state. ``Company of a Party'' is defined as a company constituted or organized under the laws of that Party. National The Treaty defines ``national'' as a natural person who is a national of a Party under its own laws. Under U.S. law, the term ``national'' is broader than the term ``citizen.'' For example, a native of American Samoa is a national of the United States, but not a citizen. Investment, Covered Investment The Treaty's definition of investment is broad, recognizing that investment can take a wide variety of forms. Every kind of investment is specifically incorporated in the definition; moreover, it is explicitly noted that investment may consist or take the form of any of a number of interests, claims, and rights. Establishing a subsidiary is a common way of making an investment. Other forms that an investment might take include equity and debt interests in a company; contractual rights; tangible, intangible, and intellectual property; and rights conferred pursuant to law. Investment as defined by the Treaty generally excludes claims arising solely from trade transactions, such as a sale of goods across a border that does not otherwise involve an investment. The Treaty defines ``covered investment'' as an investment of a national or company of a Party in the territory of the other Party. An investment of a national or company is one that the national or company owns or controls, either directly or indirectly. Indirect ownership or control could be through other, intermediate companies or persons, including those of third countries. Control is not specifically defined in the Treaty; ownership of over fifty percent of the voting stock of a company would normally convey control, but in many cases the requirement could be satisfied by less than that proportion, or by other arrangements. The broad nature of the definitions of ``covered investment,'' combined with the definitions of ``investment,'' ``company,'' and ``company of a Party'' means that investments can be covered by the Treaty even if ultimate control lies with non-Party nationals. A Party may, however, deny the benefits of the Treaty in the limited circumstances described in Article XII. State Enterprise, Investment Authorization, Investment Agreement The Treaty defines ``state enterprise'' as a company owned, or controlled through ownership interests, by a Party. Purely regulatory control over a company does not qualify it as a state enterprise. The Treaty defines an ``investment authorization'' as an authorization granted by the foreign investment authority of a Party to a covered investment or a national or company of the other Party. The Treaty defines an ``investment agreement'' as a written agreement between the national authorities of a Party and a covered investment or a national or company of the other Party that (1) grants rights with respect to natural resources or other assets controlled by the national authorities; and (2) the investment, national, or company relies upon in establishing or acquiring a covered investment. This definition thus excludes agreements with subnational authorities (including U.S. States) as well as agreements arising from various types of regulatory activities of the national government, including, in the tax area, rulings, closing agreements, and advance pricing agreements. ICSID Convention, Centre, UNCITRAL Arbitration Rules The ``ICSID Convention,'' ``Centre,'' and ``UNCITRAL Arbitration Rules'' are explicitly defined to make the text brief and clear. Article II (Treatment of Investment) Article II contains the Treaty's major obligations with respect to the treatment of covered investments. Paragraph 1 generally ensures the better of national or MFN treatment in both the entry and post-entry phases of investment. It thus prohibits, outside of exceptions listed in the Annex, ``screening'' on the basis of nationality during the investment process, as well as nationality-based post- establishment measures. For purposes of the Treaty, ``national treatment'' means treatment no less favorable than that which a Party accords, in like situations, to investments in its territory of its own nationals or companies. For purposes of the Treaty, ``MFN treatment'' means treatment no less favorable than that which a Party accords, in like situations, to investments in its territory of nationals or companies of a third country. ``National and MFN treatment'' is defined as whichever of national treatment of MFN treatment is the most favorable. Paragraph 1 explicitly states that the national and MFN treatment obligation will extend to state enterprises in their sale of goods and services. Paragraph 2 states that the Parties may adopt or maintain exceptions to the national and MFN treatment standard with respect to the sectors or matters specified in the Annex. In principle, further restrictive measures are permitted in each sector. The careful phrasing and narrow drafting of these exceptions is therefore important. (The specific exceptions are discussed in the section entitled ``Annex'' below.) In the Annex, Parties may take exceptions only to the obligation to provide national and MFN treatment; there are no sectoral exceptions to the rest of the Treaty's obligations. Finally, in adopting any exception under this provision, a Party may not require the divestment of a preexisting covered investment. Paragraph 2 also states that a Party is not required to extend to covered investments national or MFN treatment with respect to procedures provided for in multilateral agreements concluded under the auspices of the World Intellectual Property Organization relating to the acquisition of maintenance of intellectual property rights. This provision clarifies that certain procedural preferences granted under existing conventions such as the Patent Cooperation Treaty fall outside the BIT. This exception parallels one in the Uruguay Round's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and the North American Free Trade Agreement (NAFTA). This provision complements the more specific IPR-related provisions contained in the United States-Uzbekistan Bilateral Trade Agreement. Paragraph 3 sets out a minimum standard of treatment based on standards found in customary international law. The obligations to accord ``fair and equitable treatment'' and ``full protection and security'' are explicitly cited, as is the Parties' obligation not to impair, through unreasonable and discriminary means, the management, conduct, operation, and sale or other disposition of covered investments. The general reference to international law also implicitly incorporates other fundamental rules of international law: for example, that sovereignty may not be grounds for unilateral revocation or amendment of a Party's obligations to investors and investments (especially contracts), and that an investor is entitled to have any expropriation done in accordance with previous undertakings of a Party. Paragraph 4 requires that each Party provide effective means of asserting claims and enforcing rights with respect to covered investments. Paragraph 5 ensures that transparency of each Party's regulation of covered investments. Article III (Expropriation) Article III incorporates into the Treaty international law standards for expropriation and compensation. Paragraph 1 describes the general rights of investors and obligations of the Parties with respect to expropriation and nationalization. These rights and obligations also apply to direct or indirect measures ``tantamount to expropriation or nationalization'' and thus apply to ``creeping expropriations''--a series of measures which effectively amount to an expropriation of a covered investment without taking title. Paragraph 1 further bars all expropriations or nationalizations except those that are for a public purpose; carried out in a non-discriminatory manner; in accordance with due process of law; in accordance with the general principles of treatment provided in Article II(3); and subject to ``prompt, adequate, and effective compensation.'' Paragraphs 2, 3, and 4 more fully describe the meaning of ``prompt, adequate, and effective compensation.'' The guiding principle is that the investor should be made whole. Article IV (Compensation for Damages Due to War and Similar Events) Paragraph 1 entitles investments covered by the Treaty to the better of national or MFN treatment with respect to any measure relating to losses suffered in a Party's territory owing to war or other armed conflict, civil disturbances, or similar events. The unconditional obligation to pay compensation for such losses only arises when the losses result from requestioning or from destruction not required by the necessity of the situation. Article V (Transfers) Article V protects investors from certain government exchange controls that limit current and capital account transfers, as well as limits on inward transfers made by screening authorities and limits on returns in kind. In paragraph 1, each Party agrees to permit ``transfers relating to a covered investment to be made freely and without delay into and out of its territory.'' Paragraph 1 also provides a list of transfers that must be allowed. The list is non-exclusive, and is intended to protect flows to both affiliated and non-affiliated entities. Paragraph 2 provides that each Party must permit transfers to be made in a ``freely usable currency'' at the market rate of exchange prevailing on the date of transfer. ``Freely usable'' is a term used by the International Monetary Fund; at present there are five such ``freely usable'' currencies: the U.S. dollar, Japanese yen, German mark, French franc and British pound sterling. In paragraph 3, each Party agrees to permit returns in kind to be made where such returns have been authorized by an investment authorization or written agreement between a Party and a covered investment. Paragraph 4 recognizes that, notwithstanding the guarantees of paragraphs 1 through 3, a Party may prevent a transfer through the equitable, non-discriminatory and good faith enforcement of judicial orders and judgments, or application of laws relating to such fields as bankruptcy, securities, or criminal or penal offenses. Article VI (Performance Requirements) Article VI prohibits either party from mandating or enforcing performance requirements in connection with a covered investment. The list of prohibited requirements includes the use of local goods, the export of goods or services, the ``balancing'' of imports and exports, the transfer of technology, or the conduct of research in the host country. Such requirements are major burdens on investors and impair their competitiveness. A Party may, however, impose conditions for receipt, or continued receipt, of an advantage--e.g., eligibility for programs maintained by the U.S. Export-Import Bank and other similar institutions. Article VII (Entry, Sojourn and Employment of Aliens) Paragraph 1 requires each Party to allow, subject to its immigration and employment laws and regulations, the entry into its territory of the other Party's nationals for certain purposes related to a covered investment and involving the commitment of a ``substantial amount of capital.'' This paragraph serves to render nationals of Uzbekistan eligible for treaty-investor visas under U.S. immigration law. It also guarantees similar treatment for U.S. nationals entering the Republic of Uzbekistan. The requirement to commit a ``substantial amount of capital'' is intended to prevent abuse of treaty-investor status; it parallels the requirements of U.S. immigration law. In addition, paragraph 1(b) prohibits labor certification requirements and numerical restrictions on investor-visas. Paragraph 2 requires that each Party allow covered investments to engage top managerial personnel of their choice, regardless of nationality. Article VIII (State-State Consultations) Article VIII provides for prompt consultation between the parties, at either Party's request, on any matter relating to the interpretation of the Treaty or to the realization of the Treaty's objectives. A Party may thus request consultations for any matter reasonably related to the encouragement or protection of covered investment, whether or not a Party is alleging a violation of the Treaty. Article IX (Settlement of Disputes Between One Party and a National or Company of the Other Party) Article IX sets forth several means by which disputes between an investor and a Party may be settled. Article IX procedures apply to an ``investment dispute,'' which covers any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights granted or recognized by the Treaty with respect to a covered investment. In the event that an investment dispute cannot be settled amicably, paragraph 2 gives a national or company an exclusive (with the exception in paragraph 3(b) concerning injunctive relief, explained below) choice among three options to settle the dispute \1\; (2) invoking dispute-resolution procedures previously agreed upon by the national or company and the host country government; or (3) invoking the dispute-resolution mechanisms provided for in paragraph 3 of Article IX. \1\ Like the treaties of Friendship, Commerce and Navigation (FCN), which preceded them (the BIT program is a successor to the FCN program), BITs provide a basis for nationals and companies of the other Party to allege Treaty violations in courts of the United States. --------------------------------------------------------------------------- Under paragraph 3 (a), the investor can submit an investment dispute to binding arbitration three months after the dispute arises, provided that the investor has not submitted the claim to a court or administrative tribunal of the Party or invoked a dispute resolution procedure previously agreed upon in an investment agreement. The investor may choose among the International Centre for Settlement of Investment Disputes (ICSID) (Convention Arbitration), the Additional Facility of ICSID (if the Convention Arbitration is not available), ad hoc arbitration using the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or any other arbitration institution or rules agreed upon by both parties to the dispute. Before or during such arbitral proceedings, however, paragraph 3(b) provides that a national or company may seek, without affecting its right to pursue arbitration under this Treaty, interim injunctive relief not involving the payment of damages from local courts or administrative tribunals for the preservation of its rights and interests. This paragraph does not alter the power of the arbitral tribunals to recommend or order interim measures they may deem appropriate. Paragraph 4 constitutes each Party's consent to the submission of investment disputes to binding arbitration in accordance with the choice of the national or company. Paragraph 5 provides that any non-ICSID arbitration shall take place in a country that is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This provision expands the ability of investors to obtain enforcement of arbitral awards. In addition, in paragraph 6, each Party commits to enforcing arbitral awards rendered pursuant to this Article. The Federal Arbitration Act (9 U.S.C. Sec. Sec. 1 et seq.) satisfies the requirement for the enforcement of non-ICSID awards in the United States. The Convention on the Settlement of Investment Disputes Act of 1966 (22 U.S.C. Sec. Sec. 1650, 1650a) provides for the enforcement of ICSID awards. Paragraph 7 ensures that a Party may not assert as a defense, or for any other reason, that the company or national involved in the investment dispute has received or will receive reimbursement for the same damages under an insurance or guarantee contract. Paragraph 8 ensures that for any arbitration, including ICSID Convention Arbitration, the nationality of a company in the host country will be determined by ownership or control, rather than by place of incorporation. This ensures that a claim may be brought by an investor's subsidiary in the host country. Article X (Settlement of Disputes Between the Parties) Article X provides for binding arbitration of disputes between the United States and the Republic of Uzbekistan concerning the interpretation or application of the Treaty that are not resolved through consultations or other diplomatic channels. The article constitutes each Party's prior consent to arbitration. Article XI (Preservation of Rights) Article XI clarifies that the Treaty does not derogate from any obligation a Party might have to provide better treatment to the covered investment than is specified in the Treaty. Thus, the Treaty establishes a floor for the treatment of covered investments. An investor may be entitled to more favorable treatment through domestic legislation, other international legal obligations, or a specific obligation (e.g., to provide a tax holiday) assumed by a Party with respect to that investor. Article XII (Denial of Benefits) Article XII(a) preserves the right of each Party to deny the benefits of the Treaty to firms owned or controlled by nationals of a non-Party country with which the denying Party does not have normal economic relations; e.g., a country to which it is applying economic sanctions. For example, at this time the United States does not maintain normal economic relations with, among other countries, Cuba or Libya. Articl XII(b) permits each Party to deny the benefits of the Treaty to a company of the other Party if the company is owned or controlled by non-Party nationals and if the company has no substantial business activities in the Party where it is established. Thus, the United States could deny benefits to a company which is a subsidiary of a shell company organized under the laws of the Republic of Uzbekistan if controlled by nationals of a third country. However, this provision would not generally permit the United States to deny benefits to an investment of the Republic of Uzbekistan that maintains its central administration or principal place of business in the territory of, or has a real and continuous link with, the Republic of Uzbekistan. Article XIII (Taxation) Article XIII excludes tax matters generally from the coverage of the BIT, on the basis that tax matters should be dealt with in bilateral tax treaties. However, Article XIII does not preclude a national or company from bringing claims under Article IX that taxation provisions in an investment agreement or authorization have been violated, or that tax matters resulted in, or constituted, an expropriation of a covered investment. Under paragraph 2, a national or company that asserts in a dispute that a tax matter involves expropriation may submit that dispute to arbitration pursuant to Article IX(3) only if (1) the investor has first referred to the competent tax authorities of both Parties the issue of whether the tax matter involves an expropriation, and (2) the tax authorities have not both determined, within nine months from the time of referral, that the matter does not involve expropriation. The ``competent tax authority'' of the United States is the Assistant Secretary of the Treasury for International Tax Policy, who will make this determination only after consultation with the Inter- Agency Staff Coordinating Group on Expropriations. Article XIV (Measures Not Precluded) The first paragraph of Article XIV reserves the right of a Party to take measures for the fulfillment of its international obligations with respect to international peace and security, as well as those measures it regards as necessary for the protection of its own essential security interests. International obligations with respect to peace and security would include, for example, obligations arising out of Chapter VII of the United Nations Charter. Measures permitted by the provision on the protection of a Party's essential security interests would include security-related actions taken in time of war or national emergency. Actions not arising from a state of war or national emergency must have a clear and direct relationship to the essential security interests of the Party involved. Measures to protect a Party's essential security interests are self-judging in nature, although each Party would expect the provisions to be applied by the other in good faith. These provisions are common in international investment agreements. The second paragraph permits a Party to prescribe special formalities in connection with covered investments, provided that these formalities do not impair the substance of any Treaty rights. Such formalities could include reporting requirements for covered investments or for transfers of funds, or incorporation requirements. Article XV (Application to Political Subdivisions and State Enterprises of the Parties) Paragraph 1(a) makes clear that the obligations of the Treaty are applicable to all political subdivisions of the Parties, such as provincial, State and local governments. Paragraph 1(b) recognizes that under the U.S. federal system, States of the United States may, in some instances, treat out-of-state residents and corporations in a different manner than they treat in-State residents and corporations. The Treaty provides that the national treatment commitment, with respect to the States, means treatment no less favorable than that provided by a State to U.S. out-of-State residents and corporations. Paragraph 2 extends a Party's obligations under the Treaty to its state enterprises in the exercise of any delegated authority. This paragraph is designed to clarify that the exercise of governmental authority by a state enterprise must be consistent with a Party's obligations under the Treaty. Article XVI (Entry Into Force, Duration, and Termination) The Treaty enters into force thirty days after exchange of instruments of ratification and continues in force for a period of ten years. From the date of its entry into force, the Treaty applies to all activities of both Parties with respect to preexisting and newly established investments alike. After this ten-year term, the Treaty will continue in force unless terminated. If the Treaty is terminated, all investments that qualified as covered investments on the date of termination (i.e., one year after written notice) continue to be protected under the Treaty for ten years from that date as long as these investments qualify as covered investments. Such coverage would continue to extend fully to such an investment as it grew-- whether by reinvestment, expansion, or merger. A Party's obligations to accord the right to establish or acquire investments would lapse immediately upon the date of termination of the Treaty. Paragraph 4 stipulates that the Annex shall form an integral part of the Treaty. Annex U.S. bilateral investment treaties allow for exceptions to national and MFN treatment because the Parties' domestic regimes may provide for derogations from national and MFN treatment, and because treatment in certain sectors and matters is negotiated in and governed by other agreements. Future derogations from the national treatment obligations of the Treaty are generally permitted only in the sectors or matters listed in the Annex pursuant to Article II, paragraph 2, and must be made on an MFN basis unless otherwise specified therein. Under a number of statutes, many of which have a long historical background, the U.S. federal government or States may not necessarily treat investments of nationals or companies of Uzbekistan as they do U.S. investments or investments from a third country. Paragraphs 1 through 3 of the Annex list the sections or matters affected by such statutes. The U.S. exceptions from its national treatment commitments are: atomic energy; custom house brokers; licenses for broadcast, common carrier, or aeronautical radio stations; COMSAT; subsidies or grants, including government supported loans, guarantees, and insurance; State and local measures exempt from Article 1102 of the North American Free Trade Agreement pursuant to Article 1108 thereof; and landing of submarine cables. In paragraph 2 of the Annex, the United States excludes fisheries; air and maritime transport, and related activities; and leasing of pipeline rights-of-way on Government lands from its most-favored-nation and national treatment commitments. During negotiations, the United States informed Uzbekistan that if Uzbekistan undertook acceptable commitments with respect to all or certain financial services, the United States would consider limiting its exceptions with respect to national and most-favored-nation treatment in financial services. Uzbekistan's offer to take no exceptions to the treaty's national or most-favored-nation treatment obligations with respect to financial services was judged acceptable. Therefore, in Paragraph 3 of the Annex, the United States has limited its exceptions with respect to financial services to afford treatment no less favorable than that accorded with respect to Canada and Mexico in the North American Free Trade Agreement. Paragraph 4 of the Annex lists Uzbekistan's exceptions to national treatment, which are: production, processing, sale and storage of uranium and other fissionable materials; air and railway transport, and related activities; customhouse brokers; subsidies or grants, including government-supported loans, guarantees and insurance; broadcasting, including radio and television. These exceptions are based on current Uzbeki law or regulations. Paragraph 5 lists Uzbekistan's exclusions from its obligations to provide most-favored-nation treatment: production and sale of hardware, ammunition, poisonous substances and toxic substances, for military use; and planting, cultivation, processing, production and sale of crops containing narcotic substances. Paragraph 6 of the Annex ensures that reciprocal national treatment is granted in leasing of minerals on Government lands. In creating this positive right to reciprocal national treatment, this provision affects the implementation of the Mineral Lands Leasing Act (MLLA) and 10 U.S.C. Sec. 7435, with respect to nationals and companies of the Republic of Uzbekistan. The Treaty provides for resort to binding international arbitration to resolve disputes, rather than denial of mineral rights to investors of the other Party, as is the current process under the statute. U.S. domestic remedies would, however, remain available for use in conjunction with the Treaty's provisions. The MLLA and 10 U.S.C. Sec. 7435 direct that if a foreign country does not grant national treatment to U.S. investors in leases for minerals on on-shore federal lands, leases of land within the Naval Petroleum and Oil Shale Reserves, and rights- of-way for oil or gas pipelines across on-shore federal lands, investors from the country may not be granted national treatment. Uzbekistan's extension of national treatment in leasing of minerals on Government lands partially meets the objectives of the MLLA and 10 U.S.C. Sec. 7435. Uzbekistan was informed during negotiations that, since it could not explicitly commit to granting national treatment in leasing of pipeline rights- of-way on Government lands, the United States would not (consistent with the MLLA and 10 U.S.C. Sec. 7435) grant most- favored-nation treatment to the leasing of pipeline rights-of- way on Government lands. Thus, the United States has included leasing of pipeline rights-of-way on Government lands on its Annex list of exceptions to national and most- favored-nation treatment. The listing of a sector does not necessarily signify that domestic laws have entirely reserved it for nationals. And, pursuant to Article II, paragraph 2(a) of the Treaty, any additional restrictions or limitations which a Party may adopt with respect to listed sectors or matters may not compel the divestiture of existing covered investments. Finally, listing a sector or matter in the Annex exempts a Party only from the obligation to accord national or most- favored-nation treatment. Both Parties are obligated to accord to covered investments in all sectors--even those listed in the Annex--all other rights conferred by the Treaty. The other U.S. Government agencies which negotiated the Treaty join me in recommending that it be transmitted to the Senate at an early date. Respectfully submitted, Warren Christopher.