CAFTA defines investment as any asset owned or controlled (directly or indirectly) by an investor that has the characteristics of an investment, including the characteristics of undertaking of capital or other resources, the expectation of gains and losses and assumption of risk. The chapter of Investments in the Treaty is applicable to financial institutions and investors of all signing parties, and their investments in financial institutions in the territories of all other signatories, as well as cross border commerce of financial services.
The chapter regulates national treatment and the treatment of the most favored nation and both principles are of general application either to cross border financial service providers or to the investment in financial services; however, the obligatory application of national treatment is only applicable in the period in which the investment is expanding. The Treaty also establishes that Consuetudinary International Law must be applied to national treatment and treatment of most favored nations.
CAFTA warrants access to markets of financial institutions if the procedures established by the other party are complied with. Furthermore the Treaty distinguishes access to cross border financial services markets and access to investments in financial services markets. With respect to cross border financial markets, the treaty focuses on a positive list, meaning that each party will allow the provider to supply services specified in the Treaty under the principle of national treatment. These include, but are not limited to:
- risk insurance in relation to maritime transportation
- commercial aviation, transport and space launch
- insurance of goods in international transit and services of reinsurances
- retrocession and auxiliary services provided by a service provider company.
With respect to access to markets in investments on financial services the Treaty focuses on a negative list. This includes outlining the rules and regulations to insurance companies, money exchange offices, banks, saving institutions, retirement fund administrators and stock markets. The majority of these rules and regulations refer to the proper and correct legal incorporation of these institutions in El Salvador, establishing percentages of participation with respect to the nationality of their shareholders and regulating the periods of admission of foreign branches for insurance companies. It is important to mention that this chapter demands the confidentiality of the information related to financial business and to the accounts of individual clients of financial services providers, as well as the relevant information for complying with the law or the commercial interest of the companies.
Some of the non-conformity issues established by El Salvador relating to this chapter are: a) The impossibility of owning real state, if this prohibition is also applicable to Salvadorans in the other party’s country; b) The impossibility of creating a small business (defined as a business with a capitalization of not more than two hundred thousand dollars of the United States of America); c) The requirement that at least seventy percent of the associates in a cooperative association must be of Salvadoran nationality; d) the restriction that only Salvadorans born in El Salvador and/or corporations formed pursuant to Salvadoran law may request a permit to establish a duty free store in the maritime ports of El Salvador (this prohibition includes companies whose capital is mostly owned by foreigners); e) The authorization of flying into Salvadoran air space is subject to reciprocity between the countries; f) Concessions or licenses for broadcast services are granted to Salvadorans or to corporations constituted according to the Salvadoran law in which at least 51% of their corporate capital is owned by of Salvadorans; g) The requirement for a special permit that must be requested to the correspondent authorities in order to perform several professional services in El Salvador, such as, medical, legal, veterinarian, paramedic, physiotherapist, psychological, teaching and customs (custom agents).
With respect to the alternative dispute resolution, the Treaty creates a Committee of Financial Services and the conclusions of their meetings will be reported to the Free Trade Commission. This Committee will intervene on all controversies raised between an investor and a signing party, however all controversies between the signing parties will be solved by a Court of Arbitrators or a jury. Negotiation and mediation will be the first step to the resolution of the conflict and if the parties wish for an arbitration process, then the solicitation of arbitration must be filed ninety days in advance. When arbitration is requested it is mandatory for the Signing Party to submit to such process, however the investor has the option of accepting or denying arbitration. The interpretation of the conflict given by the Free Trade Commission is obligatory to the Court of Arbitrators or jury, and their decisions will only be given in relation to the possible monetary damages raised by the conflict, court costs and restitution of property. The Treaty establishes that a mechanism or a form of appeal to these resolutions must be created within three months of the date of enforcement of the Treaty.
Finally, CAFTA establishes provisions that warrantee to the parties that they may adopt or maintain precautionary measures to secure the integrity of their own financial systems, such as monetary policy and exchange credit policy.