shipping companies established outside the European Union or Mexico and controlled by nationals of a Member State of the European Union or of Mexico, respectively, shall also be beneficiaries of the provisions of this Chapter, with the exception of Sections C (Investment Protection) and D (Resolution of Investment Disputes), if their vessels are registered in accordance with the law of a Member State of the European Union or of Mexico, as appropriate, and fly the flag of that Member State of the European Union or of Mexico;
(e) "establishment" means the setting up, including the acquisition (31), of an enterprise in the European Union or in Mexico;
(f) "investor of a Party" means a Party or natural person or an enterprise of a Party, other than a branch or representative office, that seeks to make, is making, or has already made an investment in the territory of the other Party;
(g) "investor of a third country" means an investor that seeks to make, is making, or has made an investment in the territory of a Party, that is not an investor of a Party;
(h) "operation" means the conduct, management, maintenance, use, enjoyment, sale or other disposal of an investment;
(i) "returns" means the amounts yielded by an investment and includes in particular, though not exclusively, profits, interest, dividends, capital gains, royalties, payments in connection with intellectual property rights, payments in kind, management fees and other fees derived from that investment. (32)
2. For the purposes of this Chapter "investment" means every kind of asset which is owned or controlled, directly or indirectly, by an investor and acquired in the expectation of, or used for the purposes of, economic benefit or other business purposes and that has the characteristics of an investment, including a certain duration, the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk. Forms that an investment may take include:
(a) an enterprise;
(b) shares, stocks and other forms of equity participation in an enterprise;
(c) bonds, debentures, loans and other debt instruments of an enterprise; (33)
(d) interests arising from:
(i) concessions, licenses, authorisations, permits and similar rights conferred pursuant to domestic law;
(ii) turnkey, construction, management, production, concession, or revenue-sharing contracts, and other similar contracts;
(e) intellectual property rights;
(f) other tangible or intangible, movable or immovable, property and related property rights, such as leases, liens and pledges; (34) or
(g) claims to money involving the kind of interests set out in subparagraphs (a) to (f), excluding claims to money that arise solely from:
(i) commercial contracts for the sale of goods or services by a natural person or enterprise in the territory of a Party to a natural person or enterprise in the territory of the other Party; or
(ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan under subparagraph (c).
"Investment" does not include an order or judgment entered in a judicial or administrative action.
Any alteration of the form in which assets are invested or reinvested shall not affect their character as investments provided that the form taken by any investment or reinvestment maintains its compliance with the definition of investment.
Article 10.2. Scope
1. This Chapter applies to measures adopted or maintained by: (35)
(a) the central, regional or local governments or authorities of that Party; and
(b) any person, including a state enterprise or any other non-governmental body in the exercise of powers delegated by central, regional, or local governments or authorities.
2. This Chapter does not apply to measures of a Party insofar as they are covered by Chapter 18 (Financial Services).
Article 10.3. Right to Regulate
The Parties affirm the right to regulate within their territories to achieve legitimate policy objectives, such as public health, social services, public education, safety, environment, public morals, social or consumer protection, privacy and data protection, the promotion and protection of cultural diversity, or competition.
Article 10.4. Relation to other Chapters
1. If an inconsistency arises between this Chapter and Chapter 18 (Financial Services), the latter shall prevail to the extent of the inconsistency.
2. A requirement by a Party that a service supplier of the other Party post a bond or other form of financial security as a condition for the cross-border supply of a service does not in itself make this Chapter applicable to measures adopted or maintained by the Party relating to that supply of the service. This Chapter applies to measures adopted or maintained by the Party relating to the posted bond or financial security, to the extent that such bond or financial security is a covered investment.
Section B. Liberalisation of Investments
Article 10.5. Scope
1. This Section applies to measures adopted or maintained by a Party affecting the establishment of an enterprise or the operation of an investment of an investor of the other Party in its territory.
2. This Section does not apply to:
(a) activities performed in the exercise of governmental authority within the territory of the respective Party;
(b) government procurement of a good or service purchased for governmental purposes, and not with a view to commercial resale or use in the production of a good or supply of a service for commercial sale, irrespective of whether that procurement constitutes a covered procurement within the meaning of Article 21.1 (Definitions);
(c) audio-visual services;
(d) national maritime cabotage; (36)
(e) air services, or related services in support of air services (37), other than the following:
(i) aircraft repair and maintenance services during which an aircraft is withdrawn from service;
(ii) selling and marketing of air transport services;
(iii) computer reservation system services; and
(iv) ground handling services.
3. Articles 10.6 to 10.8 do not apply to subsidies (38) or grants provided by a Party, including government-supported loans, guarantees and insurance.
4. Articles 10.6 to 10.10 do not apply to new services, as set out in Annex VII (Understanding on New Services Not Classified in the United Nations Provisional Central Product Classification 1991).
5. Without prejudice to Article 10.54, this Chapter does not bind a Party in relation to any act or fact that took place or any situation that ceased to exist before the date of entry into force of this Agreement.
Article 10.6. Market Access
In the sectors or subsectors where market access commitments are undertaken, a Party shall not adopt or maintain, with respect to market access through establishment or operation by investors of the other Party or by enterprises constituting covered investments, either on the basis of its entire territory or on the basis of a territorial subdivision, a measure (39) that:
(a) limits the number of enterprises that may carry out a specific economic activity, whether in the form of numerical quotas, monopolies, exclusive rights or the requirement of an economic needs test;
(b) limits the total value of transactions or assets in the form of numerical quotas or the requirement of an economic needs test;
(c) limits the total number of operations or the total quantity of output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;
(d) restricts or requires specific types of legal entity or joint venture through which an investor of the other Party may carry out an economic activity; or
(e) limits the total number of natural persons that may be employed in a particular sector or that an enterprise may employ and who are necessary for, and directly related to, the performance of an economic activity in the form of numerical quotas or the requirement of an economic needs test.
Article 10.7. National Treatment
1. Each Party shall accord to investors of the other Party and to their enterprises constituting covered investments treatment no less favourable than the treatment it accords, in like situations, to its own investors and to their enterprises, respectively, with respect to their establishment in its territory.
2. Each Party shall accord to investors of the other Party and to their covered investments, treatment no less favourable than the treatment it accords, in like situations, to its own investors and to their investments, respectively, with respect to their operation in its territory.
3. The treatment to be accorded by a Party pursuant to paragraphs 1 and 2 means, with respect to a regional level of government of Mexico, treatment no less favourable than the most favourable treatment accorded, in like situations, by that regional level of government to investors of Mexico, and to their investments in the territory of that regional government.
4. The treatment to be accorded by a Party pursuant to paragraphs 1 and 2 means, with respect to a government of or in a Member State of the European Union, treatment no less favourable than the most favourable treatment accorded, in like situations, by that government to its own investors, and to their investments in its territory.
Article 10.8. Most-Favoured-Nation Treatment
1. Each Party shall accord to investors of the other Party and to their enterprises constituting covered investments treatment no less favourable than the treatment it accords, in like situations, to investors and enterprises, respectively, of any third country with respect to their establishment in its territory.
2. Each Party shall accord to investors of the other Party and to their covered investments treatment no less favourable than the treatment it accords, in like situations, to investors and investments, respectively, of any third country with respect to the operation of investments in its territory.
3. Paragraphs 1 and 2 shall not be construed as obliging a Party to extend to the investors of the other Party the benefit of any treatment resulting from measures providing for recognition, including of the standards or criteria for the authorisation, licencing or certification of a natural person or enterprise to carry out an economic activity, or of prudential measures.
4. For greater certainty, the treatment referred to in this Article does not include treatment accorded to investors of a third country and their investments by provisions concerning the settlement of investment disputes provided for in this Agreement or other international agreements concluded between a Party and a third country. The substantive provisions in other international agreements do not in themselves constitute treatment as referred to in paragraphs 1 and 2, and thus cannot give rise to a breach of this Article. Measures applied pursuant to such provisions may constitute treatment under this Article.
Article 10.9. Performance Requirements
1. A Party shall not, in connection with the establishment of an enterprise or the operation of an investment of an investor of a Party or of a third country in the territory of that Party, impose or enforce any requirement or enforce any commitment or undertaking to: (40)
(a) export a given level or percentage of goods or services;
(b) achieve a given level or percentage of domestic content;
(c) purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from natural persons or enterprises in its territory;
(d) relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(e) restrict sales of goods or services in its territory that such investment produces or supplies by relating those sales in any way to the volume or value of its exports or foreign exchange earnings;
(f) provide access to or transfer a particular technology, a production process or other proprietary knowledge to a natural person or enterprise in its territory;
(g) supply exclusively from the territory of the Party to a specific regional or the world market, goods or services that such investment produces;
(h) locate the headquarters of that investor for a specific regional or the world market in its territory; or
(k) restrict the exportation or sale for export.
2. A Party shall not condition the receipt or continued receipt of an advantage, in connection with the establishment of an enterprise or the operation of an investment of an investor of a Party or of a third country in its territory, on compliance with any requirement to:
(a) achieve a given level or percentage of domestic content;
(b) purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods from natural persons or enterprises in its territory;
(c) relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(d) restrict sales of goods or services in its territory that such investment produces or supplies by relating those sales in any way to the volume or value of its exports or foreign exchange earnings; or
(e) restrict the exportation or sale for export.
3. Nothing in paragraph 2 shall be construed as preventing a Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment of an investor of a Party or of a third country, on compliance with a requirement to locate production, supply a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory.
4. Subparagraph 1(f) does not apply if:
(a) the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy a practice determined after a judicial or administrative process to be a violation of the Party's competition law; or
(b) a Party authorises use of an intellectual property right in accordance with Articles 31 and 31bis of the TRIPS Agreement, or to measures requiring the disclosure of proprietary information that fall within the scope of, and are consistent with, Article 39 of the TRIPS Agreement.
5. Subparagraphs 1(a), (b) and (c) and 2(a) and (b), do not apply to qualification requirements for goods or services with respect to participation in export promotion and foreign aid programmes.
6. Subparagraphs 2(a) and (b) do not apply to requirements imposed by an importing Party relating to the content of goods necessary to qualify for preferential tariffs or preferential quotas.
7. For greater certainty, paragraphs 1 and 2 do not apply to any commitment, undertaking or requirement other than those set out in those paragraphs.
8. This Article does not preclude enforcement of any commitment, undertaking or requirement between private parties other than a Party, where a Party did not impose or require the commitment, undertaking or requirement.
9. This Article is without prejudice to commitments of a Party made under the WTO Agreement.
Article 10.10. Senior Management and Board of Directors
1. A Party shall not require that an enterprise of that Party that is a covered investment appoint natural persons of any particular nationality to senior management positions.
2. A Party shall not require that the board of directors of an enterprise of the other Party that is a covered investment be composed of nationals or residents in the territory of the Party, or a combination thereof.
Article 10.11. Formal Requirements
Notwithstanding Articles 10.7 and 10.8, a Party may require an investor of the other Party or its covered investment to provide routine information concerning that investment solely for informational or statistical purposes. The Party shall protect that information which is confidential from any disclosure that would prejudice the competitive position of the investor or the covered investment. Nothing in this Article shall be construed as preventing a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its law.
Article 10.12. Non-Conforming Measures and Exceptions
1. Articles 10.7 to 10.10 do not apply to:
(a) an existing non-conforming measure that is maintained by a Party at the level of:
(i) the European Union, as set out in its List to Annex I (Reservations for Existing Measures);
(ii) a central government, as set out by that Party in its List to Annex I (Reservations for Existing Measures);
(iii) a regional government, as set out by that Party in its List to Annex I (Reservations for Existing Measures); or
(iv) a local government;
(b) the continuation or prompt renewal of a non-conforming measure referred to in subparagraph (a); or
(c) any amendment to a non-conforming measure referred to in subparagraph (a), to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 10.7 to 10.10.
2. Articles 10.7 to 10.10 do not apply to a measure that a Party adopts or maintains with respect to sectors, subsectors or activities as set out in its List to Annex II (Reservations for Future Measures).
3. A Party shall not, under a measure adopted after the date of entry into force of this Agreement and covered by its List to Annex II (Reservations for Future Measures), require directly or indirectly an investor of the other Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective.
4. Article 10.6 does not apply to a measure that a Party adopts or maintains with respect to committed sectors or subsectors as set out in its Schedule to Annex III (Market Access Commitments).
5. Articles 10.7 and 10.8 do not apply to any measure that constitutes an exception, exemption or waiver from Articles 3 or 4 of the TRIPS Agreement, as provided in Articles 3 to 5 of that Agreement.
6. Without prejudice to paragraphs 1 to 5, within five years after the date of entry into force of this Agreement, Mexico may notify to the European Union a draft Joint Council decision to modify Annexes I (Reservations for Existing Measures), II (Reservations for Future Measures) and III (Specific Commitments and Limitations on Market Access):
(a) in Appendix I-B-2 (List of Mexico. Reservations Applicable at Sub-Central Level) to Annex I (Reservations for Existing Measures) and Appendix III-B-2 (Schedule of Mexico. Limitations Applicable at Sub-Central Level) to Annex III (Specific Commitments and Limitations on Market Access) any existing non-conforming measures maintained at the sub-federal level of government; and
(b) in Appendix I-B-1 (List of Mexico. Reservations Applicable at Central Level) to Annex I (Reservations for Existing Measures) and Appendix II-B (List of Mexico. Reservations Applicable at Central Level) to Annex II (Reservations for Future Measures) its performance requirements.
The European Union shall review that draft within a period of three months and consult with Mexico any related issues. After consultation, the Joint Council shall adopt the modifications to the annexes referred to in this paragraph. The modified annexes shall apply as of the date of adoption of the modifications.
Section C. Investment Protection
Article 10.13. Scope
This Section applies to any measure adopted or maintained by a Party affecting:
(a) covered investments; or
(b) investors of a Party in respect of a covered investment.
Article 10.14. Investment and Regulatory Objectives and Measures
1. The provisions of this Section shall not be interpreted as a commitment of a Party not to change the legal and regulatory framework applicable in its territory, including in a manner that may negatively affect the operation of covered investments or the investor's expectations of profits.
2. For greater certainty, nothing in this Section shall be construed as preventing a Party from discontinuing the granting of a subsidy (41) or requesting its reimbursement, where such action has been ordered by a competent court, administrative tribunal or other competent authority, or as requiring that Party to compensate the investor therefor.
3. For greater certainty, a Party's decision not to issue, renew or maintain a subsidy or grant does not constitute a breach of this Section if that decision is made:
(a) in the absence of any specific commitment under law or contract to issue, renew or maintain that subsidy or grant;
(b) in accordance with any terms or conditions attached to the issuance, renewal or maintenance of the subsidy or grant; or
(c) in accordance with paragraph 2.
Article 10.15. Treatment of Investors and of Covered Investments
1. Each Party shall accord in its territory to covered investments of the other Party, and to investors with respect to their covered investments, fair and equitable treatment and full protection and security in accordance with the following paragraphs.
2. A Party breaches the obligation of fair and equitable treatment referred to in paragraph 1 if a measure or series of measures constitute: (42)
(a) denial of justice in criminal, civil or administrative proceedings;
(b) a fundamental breach of due process;
(c) manifest arbitrariness, including targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;
(d) harassment, coercion or abuse of power; or
(e) a breach of any additional elements of the fair and equitable treatment obligation which have been adopted by the Parties in accordance with paragraph 7.
3. A Party shall be considered to be in breach of the obligation of full protection and security referred to in paragraph 1 if a measure or series of measures constitutes a failure to provide physical security to investors and their covered investments.
4. When assessing an alleged breach under this Article, the Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated. The mere fact that a Party takes or fails to take an action that may be inconsistent with the legitimate expectations of an investor of a Party does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result.
5. A determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, does not establish, in or of itself, that there has been a breach of this Article.
6. The fact that a measure breaches the law of a Party does not, in and of itself, establish a breach of this Article. In order to ascertain whether the measure breaches this Article, the Tribunal shall consider whether a Party has acted inconsistently with paragraphs 1 to 4.
7. The Parties shall, at the request of a Party, review the content of the obligation to provide fair and equitable treatment. The Sub-Committee on Services and Investment established under Article 1.10 (Sub-Committees and Other Bodies of Part III of this Agreement) may develop analyses in this respect and submit them to the Joint Committee. The Joint Committee shall consider whether to recommend that the Agreement be amended, in accordance with Article 2.4 (Amendment) of Part IV of this Agreement.