As I have stated, the need for the legislation proposed here is limited to enforcement of arbitral awards. We have thought that such enforcement should be as simple as possible. Both parties to an arbitration should be entitled to rely on an award as dispositive of the dispute between them; where a monetary award is rendered and the party ordered to pay has funds in the United States, the prevailing party should be able to resort to U.S. courts to collect on the award, if that becomes necessary.

By making provision for the enforcement of awards in the United States, this bill would comply with the articles of the convention relating to recognition and enforcement of awards (arts. 53-55) and in particular with the obligation set forth in article 54, which Mr. Smith has read.

Subsection 3(a) of the draft bill does three things:

One, it provides that the pecuniary obligations imposed by an arbitral award rendered pursuant to the convention shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several states. Article 54(1) of the convention limits the obligation to enforce such an award to the monetary damages included in that award. In other words, if an award were to say that a country must reinstate certain employees that had been discharged wrongfully and that were somewhere else, not in the United States, you could not obtain specific performance of that part of the award in a U.S. court pursuant to this legislation. But, if there were an order to pay x dollars, that would be subject to enforcement pursuant to the legislation we are seeking here to implement the convention.

Mr. ROSENTHAL. If I may break in, Mr. Chairman. On page 8, that last sentence of the paragraph 4; in other words, if the arbitration award involved a Canadian company and, say, another country, Nigeria, do you mean that the U.S. courts would have jurisdiction to enforce that arbitration award?

Mr. FASCELL. Mr. Lowenfeld?

Mr. LOWENFELD. Yes; that is correct.

Mr. ROSENTHAL. Is that really our intention here?

Mr. LOWENFELD. Yes. This was discussed in some length, both in the preparatory work leading to the convention and in drafting this legislation. The idea would be that the awards rendered by the convention, by a tribunal pursuant to the convention, are final and binding, as to all parties to the convention. There might be some defense, but leaving those aside why should not such an award be treated like a judgment and accorded validity wherever the losing party can be found?

Mr. ROSENTHAL. The only reason I can see is that it would place

a burden on our courts.

Mr. SMITH. I might point out the plaintiff might be a Canadian subsidiary of a U.S. company.

Mr. ROSENTHAL. Aside from that, you are opening up our courts, the first time in my knowledge, to foreign nationals who otherwise would not have the right to come into that court.

Mr. LowENFELD. No. For example, let's suppose a British plaintiff has a claim against a Nigerian entity; forgetting about the Convention let's say he gets a judgment in London or Lagos. He could come with that judgment to the United States. It wouldn't have full faith and

credit but the forum would be open to him and he could seek to enforce it.

Now, the theory here is we have an international system of acceptable adjudication. That's accepted and if funds happen to be in the United States, why he could enforce it here.

It may also work the other way around. An American plaintiff, for example, might go to London where, let's say, Nigeria, would have some funds available. It is true that all the centers of international commerce Great Britain and the United States obviously being the leading ones will to some extent be available. But it makes it simpler to enforce, and the idea is that the principle will give maximum value to the award rendered pursuant to the convention.

Mr. FASCELL. In reference to Mr. Rosenthal's question, our courts are now open to foreign nationals under other existing laws, so it is still subject to the normal defenses that will accrue under international law.

Mr. GROSS. How about an American claim being settled in a Ghanaian court?

Mr. LOWENFELD. If an American claim is settled in a court in Ghana and he tries to collect it in the United States, then the Ghanaian judgment would not be entitled to full faith and credit. It would be entitled to limited recognition and there would be a number of defenses available, including the defense whether there was proper jurisdiction. But, if the claim of the U.S. investor, let's say, against the Ghanaian Government had been adjudicated pursuant to the convention here, then presumably all the issues of jursidiction and fairness, notice, and opportunity to present the case would have been decided.

Mr. FASCELL. Let's state that another way, if we can.

Mr. Smith, does the convention or the legislation change substantive law?

Mr. SMITH. I don't think the legislation changes the substance of the law. The convention may in the sense that the arbitral award is treated as a judgment which it might not be absent the convention. Mr. FASCELL. Any two parties can agree in a dispute that they are going to be bound, and this forces an effective judgment and therefore the substantive law is not changed.

Mr. LowENFELD. The substantive law, Mr. Chairman, if I may comment on Mr. Smith's answer, the substantive law, that is to say, the rights and obligations between an investor and a host government are not changed by this convention.

Mr. FASCELL. Thank you.

Would you proceed now with the rest of your statement?

Mr. LOWENFELD. As I was saying, the primary object of subsection 3(a) of the draft bill is to make an arbitral award rendered pursuant to the convention entitled to the same full faith and credit in a Federal court of the United States as that given a final judgment

of a State court.

Second. The award of an arbitral tribunal under the convention is to be given the status of a right arising under a treaty of the United States. Article III, section 2, clause I of the Constitution extend Federal judicial power to cases arising under the Constitution and laws of the United States and to treaties made under their authority. and this bill simply makes clear that actions on arbitral awards under

the convention fall into the latter category for purposes of Federal court jurisdiction.

Third. Finally, the bill provides that the Federal Arbitration Act shall not apply to enforcement of arbitral awards made under the convention. The Federal Arbitration Act, as we have heard Mr. Smith say, permits courts to vacate an award on grounds of corruption, fraud, partiality, misconduct, or other prejudicial conduct of an arbitrator, or where arbitrators exceed their powers. Under article 52 of the convention, however, such challenges to an award may be made only through the annulment proceedings provided for in the convention. Section 3 (a) of the bill, therefore, makes clear that the inconsistent provisions of the Federal Arbitration Act will not apply. Section 3(b) of the bill would give U.S. district courts exclusive jurisdiction over actions to enforce arbitral awards under the convention. Article 54(1) of the convention provides that a contracting state that is a federal state may meet its enforcement obligations through its federal courts. The United States suggested this provision in order to be able to provide in the United States for a uniform procedure for enforcement of awards rendered pursuant to the convention. Under the bill, jurisdiction of the Federal courts would therefore be "exclusive." The Federal district courts of the Panama Canal Zone, Guam, and the Virgin Islands are given jurisdiction of enforcement actions through reference to 28 U.S.C. 460, which includes those courts with the district courts of the 50 States.

Mr. Chairman, I can go very briefly over the other provisions of the bill. They are merely housekeeping provisions. The first section provides a statutory title, and the second relates to a provision in the convention under which member countries may appoint representatives to the Administrative Council and may designate four persons each to the Panel of Conciliators and the Panel of Arbi

trators.

Under section 2 of the bill, the President would make these appointments and designations.

That concludes my statement Mr. Chairman.

Let me just say that the Department of State urges the prompt enactment of the bill before you. We expect that this legislation will contribute to the expeditious settlement of those investment disputes which are submitted to arbitration under the World Bank Convention. Enactment of the legislation will be further testimony to the support by the U.S. Congress for orderly and judicial procedures for peaceful settlement of international disputes.

Mr. FASCELL. Gentlemen, who will pay the Panel members selected by each signatory country?

Mr. SMITH. They will not be salaried. They will be paid when they serve, and it is contemplated that a charge will be made among the parties to the conciliation or arbitration proceedings to cover the expenses.

Mr. FASCELL. In other words, office space and administrative overhead will be provided by the World Bank, and the participants, the arbitrators or the conciliators, will be paid out of a fee charged to the parties involved in the arbitration or the conciliation.

Mr. SMITH. That is correct.

Mr. FASCELL. Mr. Gross?

Mr. GROSS. In your conclusion, you urge prompt enactment of the bill because it is expected to contribute to expeditious settlement of investment disputes submitted to arbitration. Are you having any difficulty and, if so, what kind of difficulty? Do you have a record of disputes now? If so, what are some of them? Give us some examples of a dispute or two that you have.

Mr. LOWENFELD. Mr. Chairman, it is hard in the abstract to say whether any given dispute that we now know of would be solved if this convention were in force because in each case the government and the investor would have to agree, but certainly

Mr. GROSS. Let me put it another way.

What prompts the necessity for this legislation, unless you have some disputes that are not now being settled?

Mr. LowENFELD. We have a number of cases. For example, I could just refer briefly to the disputes that various American oil companies have had with the Argentine Government, for instance, Peru, and Iraq, American investors have had difficulties with the Governments of Ceylon and Indonesia. We have had-I think this committee is well aware of a number of instances.

Some of them are big and get the headlines and some of them are small. Some come into our embassies and some don't come to our attention at all.

Mr. GROSS. Well, have they been settled?

Mr. LOWENFELD. Some of them are in various processes of adjudication and negotiation. Some have been settled; for instance, I refer to Ceylon, the oil companies in Ceylon and the Government, the new Government of Ceylon have reached agreement for compensation; recently the rubber companies and new Government of Indonesia have reached settlements.

There are a good number of smaller disputes that are pending. I might say, Mr. Gross, that we are looking not just to existing problems that we know about and that are probably too late to come under the convention. We have noticed in the past few years that the flow of private investment to the less developed countries, which is essential to their development, has not been as fast as it might be, and it has been not only our judgment, but the judgment of the World Bank and international community in general that one of the reasons for this has been the fear that there might be not necessarily expropriation, but governmental actions that were uncalled for and there would be no satisfactory way for them to be settled. The hope is that through this convention investors and potential investors can in advance make provisions for orderly settlement of disputes that may arise.

The disputes may not all be one way. Sometimes host governments think, for instance, that investors don't fulfill their obligations to train local employees and put them into administrative positions, and

the like.

Mr. GROSS. You are not going into that field, are you?

Mr. LOWENFELD. Well, if a company, let's say, is contemplating investment in country x, it may want to work out an investment agreement that may involve certain land or power facilities. It may involve some tax rebates or forgiveness. On the other hand, the investor may agree to, let's say, employ a certain number of local employees or to give training, set up some schools, to produce

I

amount of the commodity for export, to provide housing, anything like that.

Now, any article in such an investment agreement obviously can be subject to misunderstanding or dispute. The question is how should such a dispute be settled? Either party may fail to fulfill such an obligation or may think the other one has failed, and the thought would be that here you have an impartial facility

Mr. FASCELL. Would you stop at that point and tell us what happens under the present law if the dispute arises under that hypothetical case?

Mr. GROSS. That's right. In other words, what is there that you can do with this legislation in the absence of which you cannot do? I'm not at all satisfied that I know what you can do with this legislation that you cannot do without it.

Mr. LOWENFELD. What Mr. Smith and I really have been talking about, Mr. Gross, is not so much the legislation as the convention itself. The legislation is simply a supporting actor in this play. The basic play is the convention itself which the United States has already ratified.

Mr. SMITH. Could I add a comment to that. I don't know whether this will be helpful. It seems to me ultimately that the U.S. investor is going to be reduced to taking the best deal he can make after the property has been taken over under the existing situation. really doesn't have any court of law that he can go to if he is unsatisfied with the award that he gets.

He

Now, in the same situation of a new investment where there was an agreement that could be covered by the convention, you could have an advance consent to submit any dispute to arbitration. Particularly in situations where the political atmosphere might be such that you couldn't have an objective and really amicable negotiation on the fair value for the property you would under the convention have gotten the thing into the hands of competent, independent arbitrators, who can come out with a fair award-fair to all parties concerned. I think that is something that can be done under this convention, which in situations that have arisen in the past wouldn't be done.

Mr. GROSS. Let me ask one question and then my time has expired,

I'm sure.

Is this one more step in the fatal road toward world government? Mr. SMITH. I would say not, sir, because it is fundamentally based on the consent of the parties.

Mr. LowENFELD. I would turn the question around, Mr. Gross: I'd say it is one more step in the direction of the development of international law.

Mr. FASCELL. The main thing that cannot be done under this convention, or rather that can't be done now, is for an investor to go into a new country and reach an agreement in advance where the country will be bound by arbitration under the original investment agreement. This an investor now cannot get, and therefore if he has a dispute with the host government, his only recourse is through a process of negotiation; isn't that true?

Mr. SMITH. Roughly, yes.

Mr. LOWENFELD. I don't want to sell short local courts.
Mr. FASCELL. Well, I'm not selling them short, either.

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THE UNIVE