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The U.S.-Uruguay Bilateral Investment Treaty

The U.S.-Uruguay Bilateral Investment Treaty

Daniel S. Sullivan, Assistant Secretary for Economic and Business Affairs
Testimony before the Senate Committee on Foreign Relations
Washington, DC
June 16, 2006

Chairman Lugar, Ranking Member Biden, Members of the Committee and Staff: Thank you for the opportunity to testify before the Senate Foreign Relations Committee as the Administration seeks the advice and consent of the Senate to ratification of the U.S.-Uruguay Bilateral Investment Treaty.

The Administration strongly recommends that the Senate give its advice and consent to the U.S.-Uruguay Bilateral Investment Treaty (BIT). This Treaty, the first negotiated on the basis of the text of the new U.S. 2004 Model BIT, will protect the rights of U.S. investors in Uruguay. It will also serve to promote a more open investment and trade regime in the region and potentially more broadly in Latin America.

The United States, with over $2 trillion invested abroad as of 2004, has a major stake in extending protections to our investors and improving their access to foreign markets. The U.S. BIT program, which has enjoyed bipartisan support throughout its existence, is a key tool in that effort. Over the past 24 years, the BIT program has had the same basic objectives: protecting United States investment abroad; encouraging the adoption of market-oriented investment policies that treat private investment in an open, transparent, and non­discriminatory way; and supporting the development of international legal standards consistent with these policies.

The BIT program was initiated to promote and protect U.S. investors in other countries by building on the principles contained in earlier Treaties of Friendship, Commerce and Navigation (FCN). The program has helped to reinforce sound investment policy in a variety of developing nations and in economies that have undertaken the transition from central planning. By creating conditions more favorable to U.S. private investment, these treaties assist countries in their efforts to develop the private sector, thereby strengthening their economies. Furthermore, as more nations agree to conclude a BIT with the United States, the important investment principles they contain gain wider acceptance and contribute to the development of international law in directions consistent with U.S. interests.

Since the inception of the Bilateral Investment Treaty program in 1982, the United States has concluded 46 BITs, 39 of which have entered into force. We have active discussions underway with Pakistan and are exploring potential BITs with several other countries. The Department of State and the United States Trade Representative co-lead negotiations with the support of Commerce, Treasury, and other agencies.

BITs are negotiated on the basis of a model text that has been periodically updated. The most recent revision of the model BIT was completed in 2004, and, as noted earlier, is the model on which the U.S.-Uruguay Treaty is based. The 2004 Model text embodies the same basic investment principles as its predecessors. It is similar to the investment provisions of the North American Free Trade Agreement (NAFTA) and, in keeping with our policy of maintaining consistency across our agreements, is very similar to the investment chapters of our recently-concluded free trade agreements, including those with Chile, Singapore, five Central American countries and the Dominican Republic (CAFTA-DR), Morocco, Australia, Oman, Peru, and Colombia.

In addition to containing greater specificity than earlier model texts with respect to key provisions, our new model text contains several clarifications and procedural innovations designed to eliminate or deter frivolous claims and to make the investor arbitration process more efficient and transparent.

Our BIT with Uruguay conforms very closely with the new model and embodies the following core protections:

1. national treatment and most-favored nation treatment both before and after the establishment of an investment, which creates a level playing field for U.S. investors; 2. a minimum standard of treatment based on customary international law; 3. international law principles governing expropriation; 4. limitations on performance requirements, such as local content requirements; 5. the right to hire senior managers of their choice; 6. improved transparency with respect to investment-related laws and regulations; 7. a guarantee of free transfers of investment-related funds; and 8. binding international arbitration of investment disputes that can be invoked either by investors or by the Parties to the agreement.

Although Uruguay is a relatively small country, it has long been an important partner for the United States in the Americas. Our bilateral economic relationship has grown more important in recent years. In 1998, Uruguay sent over 55% of its exports to Mercosur countries.

By 2004, the United States had overtaken Mercosur as Uruguay's number one trading partner. The United States is also Uruguay's largest single source of foreign investment, with an accumulated stock of investment of over $600 million. Uruguay's GDP in 2005 was approximately $16.8 billion; its GDP growth in 2005 is estimated to be an impressive 6.6%, with export and investment growth rates of 16% and 20%, respectively. Uruguay's economy is projected to grow by 4.8% in 2006.

In 2004, the U.S.-Uruguay Joint Commission on Trade and Investment launched the negotiations that led to this BIT, and the Treaty was originally signed in Montevideo, just days before the election of the new Uruguayan President, Tabaré Vázquez, on October 31, 2004.

Following President Vázquez's inauguration in March 2005, his party began to examine the BIT and its options for proceeding. In September 2005, President Vázquez requested that the United States make several small changes to the text to accommodate Uruguayan concerns. The United States was able to agree to two of these proposed changes, and the text was altered and re-signed at the Summit of the Americas in Mar del Plata, Argentina, on November 5, 2005. The Uruguayan Parliament completed its domestic ratification procedures for the Treaty on December 27, 2005. President Bush transmitted the Treaty to the Senate on April 4, 2006.

The U.S.-Uruguay BIT differs in minor respects from the 2004 model BIT text. None of these differences represent departures from core BIT principles. The most important changes derived from Uruguay's desire to maintain flexible oversight of its financial sector. For example, one change prohibits all investor-state claims, except for discrimination, for negotiated sovereign debt restructurings carried out under collective action clauses and certain other processes. Another arbitration-related difference from the Model bars U.S. investors from submitting claims to investor-State arbitration if the investor or enterprise had previously alleged the same breach of a BIT obligation before a Uruguayan court or tribunal.

Other changes include relatively minor changes in defined terms, and other small, technical changes. A full description of each part of the Treaty text, including the departures from the model, has been included in the transmittal package, immediately following the end of the Treaty text. In conclusion, the U.S.-Uruguay BIT will help protect the rights of U.S. investors in Uruguay; create more opportunities for U.S. exports to Uruguay by stimulating our already strong bilateral economic ties; and promote growth, continued economic reform, and greater awareness of the benefits of open investment and trade regimes. In addition, the U.S.-Uruguay BIT is the first of what we expect will be a new series of BITs based on the 2004 Model text – BITs that will have more robust protections for U.S. investors than we have had in the past. These BITs will preserve the legitimate regulatory prerogatives of the United States and its negotiating partners, protect U.S. investors, and promote open and fair investment policies around the world. I thank the Committee for its consideration of this treaty and I will be glad to answer any questions.

Released on June 16, 2006


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