Government Agency for International Development insures, and in certain event pays for certain specified risks. It then assumes the rights that the American investor had vis-a-vis the other government, and in certain circumstances that are defined there is provision for a government to government arbitration.

Mr. FRASER. That encompasses that.

Mr. LOWENFELD. This is rather different. First of all, the risk might be quite different. It can be labor disputes, either side can be a plaintiff or defendant and it tries to take the dispute out of the government to government confrontation.

Also, this is not an insurance policy. The investment guarantee agreement we have been talking about costs money to the investor. He has to pay a premium for insurance.

Mr. FRASER. I am just thinking of the remedies that are open. Mr. LOWENFELD. They are different. To some extent an investor might want to decide which one he wishes to resort to or, if he wishes, to resort to both. But, the convention contemplates a private-togovernment arbitration.

Mr. FRASER. Thank you, Mr. Chairman.

Mr. FASCELL. And, in no way then does the treaty abrogate any of the rights that would accrue under an investment contract even though it originally is a private investor to a government dispute because the subrogee can be in no better position than the original

person.

Mr. LOWENFELD. That's right. However, the convention does provide, let's say the U.S. Government could not pay off a U.S. investor, then say I'm subrogated to your rights; now, I'm going to be a party to this arbitration. That is ruled out.

Mr. FASCELL. Mr. Rosenthal?

Mr. ROSENTHAL. Thank you, Mr. Chairman.

Why did you submit this legislation before 20 countries had ratified the convention?

Mr. LOWENFELD. We thought-perhaps you want to answer that. Mr. SMITH. Yes. Article 69 of the convention requires each contracting state to take whatever legislative measures are necessary for making the provisions of the convention effective in its territories. Also, we are anxious to have this come into effect as soon as possible while the process of signing and ratification on the part of other countries is proceeding. We would like very much to see this legislation enacted at this session of Congress. We feel that moving promptly in this way will be a further demonstration of the intent of the United States to go forward with this convention and that it will serve as a further impetus to the ratification process of other countries, especially those 35 countries which have already signed but not yet ratified the convention.

Mr. ROSENTHAL. One other question. As to procedure, how does this work? The President will nominate the panel members. I assume each of the ratifying countries will nominate the same number of panel members.

Mr. SMITH. Up to four each.

Mr. ROSENTHAL. Now, with regard to the disputes, do they have a choice as to which panel members they want under the terms of the

convention?

Mr. SMITH. Yes, sir, they do.

They select. However, the majority of the members of the panel may not be nationals of either party to the dispute. The Chairman, the President of the World Bank, also selects 10 members of the panel under the convention as well as each member country selecting 4, and those 10 must be from 10 different countries.

Mr. ROSENTHAL. And, the decisionmaking panel itself, how many members is that composed of?

Mr. SMITH. Well, it will be four times however many members ratify the convention.

Mr. ROSENTHAL. I mean to say the tribunal that is going to hear the dispute.

Mr. SMITH. Well, it can be any uneven number starting with one. For example, it can be three.

Mr. ROSENTHAL. And, the parties would have to agree as to the principal panel members?

Mr. SMITH. Yes, but if they can't agree, then the Chairman will select the panel.

Mr. LOWENFELD. I want to amplify that a little bit. If they cannot agree, each side picks one.

Mr. ROSENTHAL. Right.

Mr. LOWENFELD. And then they try to agree on a third, and if not, then the Chairman picks the third. I might say I have just been through an arbitration. We don't have too many. This was a government-to-government arbitration, an international air disputeUnited States against Italy, and we had a good deal of difficulty in agreeing on panel members. We finally did, but having at your disposal an agreed, acceptable list of persons to choose from makes it very much easier than just trying to get out the directories and going to the libraries and Who's Who and trying to figure out whom can we pick and what has he said, and what has he written and so on.

This is likely to facilitate the resort to arbitration and conciliation procedures.

Mr. ROSENTHAL. I have just one other question. In a practical sense, the legislation itself, not the convention, is the most useful to a U.S. national who has a claim against a foreign country where the foreign country has assets within the United States that would be subject to a district court?

Mr. LowENFELD. I wouldn't say that. I think maybe that is a possible use.

I think another use is the other way around. I think it may be that foreign government will say, Now, what happens if I win the award? What can I do against General Electric or Jersey Standard and so on, and the answer is, Well, it works both ways. We really don't think that the enforcibility of the award will be very complicated.

The anticipation is once you get to an award stage, you have taken it out of politics and you have had an international adjudication and impartial statement by a tribunal that by and large people will pay.

Mr. SMITH. If I can add one comment there, of course we are talking about a bill that relates to U.S. law and the implementation of this under our laws. My opinion is that since we are the greatest foreign investor, the number of cases and so on being brought into the courts will be likely to be very limited. This is more applicable probably around the world in the less developed countries where these

investments are taking place and where the need for arbitration might be greater.

Mr. ROSENTHAL. So that the advantage to the American investor situation is he won't have to go and try his case in a foreign court. He will merely sue under judgment of a foreign court.

Mr. SMITH. That is right.

Mr. FASCELL. Not only that, but he can reach the assets in a third country.

Mr. SMITH. Yes.

Mr. ROSENTHAL. Thank you, Mr. Chairman.

Mr. FASCELL. Any other questions?

Mr. GROSS. Yes, sir, Mr. Chairman.

Mr. FASCELL. Mr. Gross?

Mr. GROSS. What countries constitute the administration of the World Bank, a board or commission or what?

Mr. SMITH. It is a Board of Executive Directors and a Board of Governors. The Board of Governors is composed of one representative of each member country and it meets annually. The Board of Executive Directors-

Mr. GROSS. Is the Governor here this morning?

Mr. SMITH. The U.S. Governor is the U.S. Secretary of Treasury. The U.S. member on the Board of Governors of the World Bank is the Secretary of the Treasury.

Mr. GROSS. So, you represent the Governor?

Mr. SMITH. Yes.

Mr. GROSS. Is there a Board of Directors?

Mr. SMITH. The Board of Executive Directors-

Mr. GROSS. Who are they?

Mr. SMITH. They are the day-by-day governing body of the World Bank. The United States has a member and many countries are represented.

Mr. GROSS. Aren't they interested enough to appear here today or are we going to ignore them, Mr. Chairman?

Mr. FASCELL. We didn't ask them, Mr. Gross, because as far as the legisalation is concerned, they have no part in it.

Mr. GROSS. They don't have any part in it, the administrative functionaries for the World Bank?

Mr. FASCELL. Their responsibility, as I see it, is under the treaty or rather, the convention, it has nothing to do with this legislation. Mr. SMITH. They have issued a report and resolution.

Mr. GROSS. Why did they do that?

You mean in behalf of this bill and legislation?

Mr. SMITH. No, in behalf of the convention. They were in effect the sponsors of this convention, the World Bank.

Mr. GROSS. Was this legislation sponsored in the State Depart

ment or in Manhattan's Council for Foreign Relations?

Mr. SMITH. It was between Mr. Lowenfeld's office and my office.

Mr. GROSS. It didn't come out of the Council on Foreign Relations or whatever that exclusive club is called.

Mr. SMITH. No, sir.

Mr. GROSS. Well, I just wanted to know.

On

page 7 refer to the c-e-n-t-r-e. What is c-e-n-t-r-e?

you

Mr. SMITH. That is diplomatic spelling of c-e-n-t-e-r.

Mr. GROSS. Why don't you people over there use commonly accepted English? I guess my education has been neglected. I don't understand what c-e-n-t-r-e means used in connection with

Mr. LOWENFELD. Mr. Chairman, when we had one of the regional meetings that developed this convention, I raised that question with the Chairman who was the General Counsel of the World Bank and he pulled out the Oxford Dictionary and said that the preferred spelling under the Oxford Dictionary was that, and I said, that is all right. Mr. GROSS. Of course, we don't use the Oxford Dictionary around here. At least I don't. Maybe some of the rest of them do.

Mr. SMITH. The original draft of the convention was done by the General Counsel of the World Bank who is a national of the Netherlands, and he probably studied English in a British school.

Mr. GROSS. Let's continue to genuflect to them in the matter of a centre. I suppose it means the Center; is that right?

Mr. SMITH. Yes. I spelled it the other way in my statement, Mr. Gross.

Mr. GROSS. I am glad you did.

Mr. FASCELL. Gentlemen, thank you very much. There may be material that we may want to obtain from you, and Mr. Czarnecki may have some questions.

Thank you very much.

(Whereupon, at 11:45 a.m., the subcommittee proceeded with further business.)

APPENDIXES

APPENDIX I

CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES BETWEEN STATES AND NATIONALS OF OTHER STATES

(Submitted to Governments by the Executive Directors of the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT)

The Contracting States

PREAMBLE

Considering the need for international cooperation for economic development, and the role of private international investment therein;

Bearing in mind the possibility that from time to time disputes may arise in connection with such investment between Contracting States and nationals of other Contracting States;

Recognizing that while such disputes would usually be subject to national legal processes, international methods of settlement may be appropriate in certain

cases;

Attaching particular importance to the availability of facilities for international conciliation or arbitration to which Contracting States and nationals of other Contracting States may submit such disputes if they so desire;

Desiring to establish such facilities under the auspices of the International Bank for Reconstruction and Development;

Recognizing that mutual consent by the parties to submit such disputes to conciliation or to arbitration through such facilities constitutes a binding agreement which requires in particular that due consideration be given to any recommendation of conciliators, and that any arbitral award be complied with; and Declaring that no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration,

Have agreed as follows:

CHAPTER I. INTERNATIONAL CEntre for SETTLEMENT OF INVESTMENT DISPUTES

Article 1

SECTION 1. ESTABLISHMENT AND ORGANIZATION

(1) There is hereby established the International Centre for Settlement of Investment Disputes (hereinafter called the Centre).

(2) The purpose of the Centre shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention. Article 2

The seat of the Centre shall be at the principal office of the International Bank for Reconstruction and Development (hereinafter called the Bank). The seat may be moved to another place by decision of the Administrative Council adopted by a majority of two-thirds of its members.

Article 3

The Centre shall have an Administrative Council and a Secretariat and shall maintain a Panel of Conciliators and a Panel of Arbitrators.

Article 4

SECTION 2. THE ADMINISTRATIVE COUNCIL

(1) The Administrative Council shall be composed of one representative of each Contracting State. An alternate may act as representative in case of his principal's absence from a meeting or inability to act.