settlements-for example, assured access to sources of supply, preferential pricing, or new arrangements for the provision of technical or other services on a contractual basis-may in certain instances constitute elements of compensation. We believe that issues concerning valuation of expropriated property are best resolved by the parties themselves through negotiation, and stand ready to facilitate discussions between the parties aimed at achieving a mutually acceptable outcome. Since questions of valuation often pose complex and sensitive issues in cases of expropriation, we also support independent appraisal as a procedural method for resolving them. More broadly, we favor agreement in advance on dispute settlement mechanisms applicable to the full range of contentious issues capable of arising between host governments and foreign investors, and subsequent resort to them as required by the parties' legal obligations. In such cases, failure to meet such arbitral or other obligations of itself may constitute a denial of justice in violation of international law. We particularly encourage use of the facilities of the International Centre for the Settlement of Investment Disputes (ICSID), a member of the World Bank Group and the major existing international institution intended specifically to help resolve investment disputes. Our policy concerning valuation of expropriated property was most recently elaborated in a public statement on "Foreign Investment and Nationalization" issued by the Department of State on December 30, 1975. [See the 1975 Digest, pp. 488-489.] Now to the "why" of U.S. expropriation policy.. . . . Clearly, it is one of the most basic responsibilities of a government to seek to protect the lives and the property of its citizens whether at home or abroad. But this narrow answer based on our consular protection function does not net the whole story. There is a broader reason based on our view of the world and our aspirations for it that more fully explains the depth of our feelings regarding this issue. It has been a fundamental U.S. policy throughout the post-World War II period to seek to contribute to the ability of the developing countries to successfully meet their development goals. are convinced that substantial flows of private capital, with the technology, know-how, and management skills that accompany it, are essential to this development process. Government to government and multilateral aid also has a role, but it cannot substitute for these private resource transfers. Inadequately compensated expropriations constitute a major threat to these critical private investment flows. Private investors come from environments in which private property rights are recognized and assured and will not continue to put their assets at risk in countries in which these rights are not respected. Indeed, nearly 80 percent of all private direct foreign investment takes place among the developed countries and the indications are that this percentage is increasing. Unless the trend towards inadequately compensated expropriations is arrested, the prospects for the developing countries receiving the levels of investment, in energy resources or elsewhere, which they require in the era of capital shortage we are now entering, is not good. This is a major reason why the U.S. Government views the expropriation issue as such a serious one. Dept. of State File EB/IFD/OIA. 83 Claims Settlement Agreements The Governments of the United States and the Arab Republic of Egypt, on May 1, 1976, signed an agreement (ad referendum) providing for the payment of a lump sum of $10,000,000 in compensation of private claims of nationals of the United States. The agreement entered into force on October 27, 1976, upon an exchange of notes stating each Government's final approval (TIAS 8446; 27 UST). The lump sum under the agreement is to be paid in six semiannual installments, beginning on January 10, 1977, and is agreed to be in full settlement and discharge of all the claims of nationals of the United States against the Egyptian Government which are described in the agreement. These are specified in article II to be claims of nationals of the United States for "Property, rights and interests in Egypt affected by Egyptian measures of land reform, against such property, rights and interests, as well as financial and fiscal matters decreed by the Arab Republic of Egypt, which occurred since January 1, 1952, and before the entry into force of this Agreement." The distribution of the lump sum is declared to fall "within the exclusive competence of the Government of the United States in accordance with such methods of distribution as it may choose to adopt, without any responsibility arising therefrom for the Egyptian Government." An agreed minute, signed May 1, enumerates the official claims of the U.S. Government and the private claims of U.S. nationals which are excluded from the agreement because they were considered by Egypt to be outside the competence of the Joint U.S.-Egyptian Committee on Claims, whose jurisdiction was limited to consideration of claims of U.S. nationals for property, rights and interests affected by Egyptian measures of land reform, sequestration, expropriation, confiscation and other restrictive measures. The agreed minute states the intention of the U.S. Government to raise the enumerated claims for negotiations through diplomatic channels. The Department of State announcement of May 3, 1976, reporting signature of the agreement stated that the claim of the American Mission in Egypt (United Presbyterian Church in the U.S.A.) was covered by the agreement and was being settled to the Mission's satisfaction. Details concerning that claim were agreed upon in a related exchange of notes of May 1, 1976. Dept. of State File L/T. See also Dept. of State Bulletin, Vol. LXXV, No. 1932, July 5, 1976, p. 38. U.S.-Peru In a note dated June 11, 1976, presented to the Minister of Foreign Relations of Peru by the U.S. Ambassador in Lima, the United States protested charges brought by the Attorney General of Peru against the Star-Kist Corporation and two of its representatives. The charges appeared to be based on an interpretation by the Peruvian Attorney General, differing from the U.S. interpretation of certain aspects of the agreement between the United States and Peru of February 19, 1974, concerning claims arising out of the nationalization by the Government of Peru of certain investments of U.S. nationals (TIAS 7792; 25 UST 227). See the 1974 Digest, pp. 419-422. The Attorney General also charged former Peruvian Fisheries Minister Tantalean and two subordinates with fraud against the state for having given property of the state to Star-Kist without compensation, apparently on the assumption that the 1974 agreement covered all assets, not only fishmeal but also human consumption assets, and that when human consumption assets were turned back to Star-Kist, the Government of Peru was not paid for them. The U.S. note of June 11, 1976, stated, in relevant part: [I]t was clearly understood between our two Governments that the amount paid by the Government of Peru to the Government of the United States pursuant to the agreement did not include compensation for those assets of Compania Pesquera de Coishco, S.A. devoted to the production of fish products for human consumption. This mutual understanding was based on the fact that the rights of Star-Kist Overseas, Inc. with respect to those assets were confirmed by the Government of Peru prior to the date of the agreement. Accordingly, only the assets of the corporation involved in the production of fish meal, which assets had been taken by the Government of Peru, were compensated. This understanding that the human consumption assets of Star-Kist were not within the scope of the agreement was specifically recognized by the Government of Peru in a letter from Your Excellency to my predecessor, Ambassador Belcher, dated February 19, 1974. With respect to the amount of compensation actually received by the Star-Kist Corporation, it should be noted that pursuant to article III of the agreement, the distribution of the sums paid by the Government of Peru fell within the exclusive competence of the Government of the United States. Thus, it is not appropriate or relevant for the Attorney General of Peru to compare the amount actually received by Star-Kist to any valuation of the various assets of Compania Pesquera de Coishco, S.A. that the Government of Peru may have available. Nevertheless, it may be of interest to Your Excellency to note that in making its determinations as to the distribution of the total sum received pursuant to the agreement, the United States Government based its decisions with respect to the Star-Kist Corporation solely on its valuation of the fish meal production assets nationalized by the Government of Peru. No portion of the amount paid Star-Kist was in any way related to the assets devoted to the production of fish products for human consumption. My Government is deeply concerned over the recent actions of the Attorney General of the Government of Peru, which appear to call into question certain aspects of the agreement between our two Governments of February 19, 1974, and of the negotiations which resulted in that agreement. We expect Your Excellency will bring to the attention of the appropriate officials of the Government of Peru the mutual understanding of our Governments concerning the agreement, and that, accordingly, immediate action will be taken to discontinue the proceedings against Star-Kist and its officers and employees. My Government further expects that any future actions the Government of Peru may determine to take with respect to the interests of the Star-Kist Corporation will be fully in accord with the laws of Peru, international law, and applicable agreements. Dept. of State File No. P77 0019-412. On Jan. 6, 1977, Lima newspapers reported that the Supreme Court of Peru had confirmed a lower court's decision that no fraud against the Government had been committed and had ordered that the trial be halted and the accused declared innocent. The Department of State announced, on September 23, 1976, that the United States had reached a satisfactory agreement with the Government of Peru on compensation for the assets of the Marcona Mining Company that were nationalized by the Government of Peru in July 1975, . The agreement was signed on September 22, 1976, and entered into force on October 21, 1976 (TIAS 8417; 27 UST). The Department's announcement described the agreement in general terms as follows: The settlement consists of a cash payment to Marcona and a contract for sales of Peruvian iron ore in the United States that will increase Peru's foreign exchange earnings and provide Marcona with additional compensation. The aggregate value of this settlement constitutes just compensation within the meaning of the laws of both the United States and Peru. . . . In substance, the compensation consists of $37 million in cash and an ore sales contract at prices the Government of Peru estimates will provide Marcona an additional compensation of $22.44 million, but which, depending on market conditions, may ultimately produce more or less compensation than the valuation amount. Finally, Marcona will receive approximately $2 million in compensation from a previously concluded shipping contract. This agreement will have a broad and positive impact. It removes an obstacle to the constructive relations to which both governments are committed. Because it demonstrates that fair and equitable treatment for foreign capital can be assured within the Peruvian revolutionary process, the settlement constitutes a point of departure for increased private as well as public cooperation, and practical progress on a wide variety of fronts. Dept. of State Announcement, Sept. 23, 1976. The text of the agreement follows: The Governments of the United States of America and Peru, with the objective of arriving at a definitive settlement concerning just compensation for the expropriated assets of the Marcona Mining Company, whose mining metallurgical complex in Peru was nationalized in accordance with the stipulations of Decree Law 21228, have decided to conclude the following agreement: Article I In view of the differences arising in the valuation of the properties of the North American firm, the Marcona Mining Company, subject to expropriation by the Government of Peru, the Government of the United States of America extended its good offices so that relations between the two countries would not be affected by certain aspects of a matter which is governed by the laws of the expropriating country and by principles of international law. Within these principles and based on the reports of the Commissions designated by the Government of Peru for the valuation of the assets and liabilities and the determination of debts, the Government of Peru agrees to pay to the Marcona Mining Company as just compensation for its expropriated assets the sum of $61,440,000 (sixty-one million four hundred forty thousand U.S. dollars), in the following manner: A) $37 million (thirty-seven million U.S. dollars) in cash, by promissory note, which will be accepted by the Banco de la Nación in its capacity as financial agent of the State, and which will be paid on the date on which the necessary financing becomes available, under the terms and conditions fixed in the promissory note which reflects this obligation. B) $22,440,000 (twenty-two million four hundred forty thousand U.S. dollars), as partial payment through the sale exclusively in the United States market of 3,740,000 long tons (three million seven hundred forty thousand) of iron ore in the form of pellets, and that is calculated on the basis of the $6 (six U.S. dollars) per ton that it is estimated Marcona, Inc. should obtain above the sale prices fixed in the contract it will conclude with Minero Peru Comercial, which are as follows: $18 (eighteen U.S. dollars) per ton for the first 1.1 million tons, $20 (twenty U.S. dollars) per ton for the succeeding two million tons and $23 (twenty-three U.S. dollars) per ton for the final 640,000 tons. C) $2,000,000 (two million U.S. dollars) derived from the freight contract concluded between the Compañía Peruana de Vapores and Marcona Carriers on December 11, 1975, which remains in force until March 31, 1977, under competitive conditions, and which results from calculating $1.00 (one U.S. dollar) per long ton in the rates established under said contract. Article II The Government of the United States confirms that with the payment of the $37 million (thirty-seven million U.S. dollars) cash through a promissory note and the fulfillment of the contractual obligations that the Government of Peru assumes, for implementation by its pertinent public entities, as stipulated in Article I, all the responsibilities and obligations of the Government of Peru toward the Marcona Corporation, its subsidiaries, branches or affiliates arising out of the nationalization by Peru of the Peruvian branch of the Marcona Mining Company, including all of the obligations resulting from the off-loading of the cargo of the SS ELIZABETH LYKES at the port of Callao on August 5, 1975, which passed to the ownership of Hierro-Peru, will be satisfied. |