AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF CROATIA AND THE FEDERAL GOVERNMENT OF THE FEDERAL REPULIC OF YUGOSLAVIA

AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF

CROATIA AND THE FEDERAL GOVERNMENT OF THE FEDERAL REPULIC OF

YUGOSLAVIA

ON THE RECIPROCAL PROMOTION AND PROTECTION OF INVESTMENTS

The Government of the Republic of Croatia and the Federal Government of the Federal

Republic of Yugoslavia (hereinafter the "Contracting Parties");

Desiring to promote greater economic cooperation between them, with respect to investment

by nationals and legal entities of one Contracting Party in the territory of the other

Contracting Party;

Recognizing that agreement upon the treatment to be accorded to such investment will

stimulate the flow of private capital and the economic development of the Contracting Parties;

Agreeing that a stable framework for investment will maximize effective utilization of

economic resources and improve living standards;

Having resolved to conclude the Agreement on the reciprocal promotion and protection of

investments;

Have agreed as follows:

ARTICLE 1

Definitions

For the purposes of the Agreement:

1. The term "investment" means every kind of assets invested by investors of one Contracting

Party in the territory of the other Contracting Party in accordance with its laws and regulations

and shall include in particular, though not exclusively:

a) movable and immovable property as well as any other rights in rem such as

mortgages, liens, pledges, ususfructus and similar rights;

b) stock, shares, debentures and other forms of participation in companies;

c) claims to money or to any performance having an economic value;

d) intellectual property rights, as defined in the multilateral agreements concluded

under the auspices of the World Intellectual Property Organisation, in as far as both

Contracting Parties are parties to them, including, but not limited to, industrial

property rights, copyrights and neighbouring rights, trademarks, patents, industrial

designs and technical processes, rights in plants varieties, know-how, trade secrets,

trade names and goodwill;

e) rights to engage in economic and commercial activities conferred by law or by

virtue of a contract, including concessions to search for, cultivate, extract or exploit

natural resources.

Any change of the form in which assets are invested or reinvested shall not affect their

character as an investment.

2. The term "investor" means in respect of either Contracting Party:

a) a natural person having the nationality of a Contracting Party who makes an

investment in the territory of the other Contracting Party;

b) a legal person incorporated, constituted or otherwise duly organised in accordance

with the laws and regulations of one Contracting Party, having its seat and performing

real business activity in the territory of that Contracting Party and making an

investment in the territory of the other Contracting Party;

3. The term "returns" means income deriving from an investment and includes, in particular

though not exclusively, profits, dividends, interests, capital gains, royalties, patents licence

fees, and other fees.

4. The term "without delay" shall mean such period as is normally required for the completion

of necessary formalities for the transfer of payments. The said period shall commence on the

day on which the request for transfer has been submitted and may on no account exceed one

month.

5. The term "freely convertible currency" shall mean any currency that the International

Monetary Fund determines, from time to time, as freely usable currency in accordance with

the Articles of Agreement of the International Monetary Fund and any amendment thereto.

6. The term „territory" means:

- with respect to the Republic of Croatia: the territory of the Republic of Croatia as well as

those maritime areas adjacent to the outer limit of the territorial sea including the seabed and

subsoil over which the Republic of Croatia exercises, in accordance with international law,

its sovereign rights and jurisdiction.

- with respect to the Federal Republic of Yugoslavia: the territory of the Federal Republic of

Yugoslavia as well as those maritime areas adjacent to the outer limit of the territorial sea

including the seabed and subsoil over which the Federal Republic of Yugoslavia exercises, in

accordance with international law, its sovereign rights and jurisdiction.

ARTICLE 2

Promotion and admission of investments

1. Each Contracting Party shall encourage and create favourable conditions for investors of

the other Contracting Party to make investments in its territory and shall admit such

investments in accordance with its laws and regulations.

2. In order to encourage mutual investment flows, each Contracting Party shall endeavour to

inform the other Contracting Party, at the request of either Contracting Party, on the

investment opportunities in its territory.

3. Each Contracting Party shall grant, whenever necessary, in accordance with its laws and

regulations, without delay, the permits required in connection with the activities of

consultants or experts engaged by investors of the other Contracting Party.

4. Each Contracting Party shall, subject to its laws and regulations relating to the entry, stay

and work of natural persons, examine in good faith and give due consideration, regardless of

nationality to requests of key personnel including top managerial and technical persons who

are employed for the purposes of investments in its territory, to enter, remain temporary and

work in its territory. Immediate family members of such key personnel shall also be granted

similar treatment with regard to the entry and temporary stay in the host Contracting Party.

ARTICLE 3

Protection of investments

Each Contracting Party shall extend in its territory full legal protection and security to

investments and returns of investors of the other Contracting Party. Neither Contracting Party

shall hamper, by arbitrary or discriminatory measures, the development, management,

maintenance, use, enjoyment, expansion, sale and if it is the case, the liquidation of such

investments. Either Contracting Party shall observe any other obligation it may have entered

into with regard to investments of investors of the other Contracting Party.

Investments or returns of investors of either Contracting Party in the territory of the other

Contracting Party shall be accorded fair and equitable treatment in accordance with

international law and provisions of this Agreement.

ARTICLE 4

National treatment and most favoured nation treatment

1. Neither Contracting Party shall accord in its territory to investments and returns of

investors of the other Contracting Party a treatment less favourable than that which it accords

to investments and returns of its own investors, or investments and returns of investors of any

other third State, whichever is more favourable to investors.

2. Neither Contracting Party shall accord in its territory to the investors of the other

Contracting Party, as regards management, maintenance, enjoyment, use or disposal of their

investment, a treatment which is less favourable than that which it accords to its own

investors or to investors of any third State, whichever is more favourable to investors.

3. The provisions of paragraph 1 and 2 of this Article shall not be construed so as to oblige

one Contracting Party to extend to the investors of the other Contracting Party the benefit of

any treatment, preference or privilege which may be extended by the former Contracting

Party by virtue of:

a) any existing or future customs union or economic union, free trade area or similar

international agreements to which either of the Contracting Party is or may become a

Party in the future;

b) any international agreement or arrangement, completely or partially related to

taxation.

ARTICLE 5

Expropriation

1. A Contracting Party shall not expropriate or nationalise directly or indirectly an investment

in its territory of an investor of another Contracting Party or take any measure or measures

having equivalent effect (hereinafter referred to as "expropriation") except:

a) for a purpose which is in the public interest,

b) on a non-discriminatory basis,

c) in accordance with due process of law, and

d) accompanied by payment of prompt, adequate and effective compensation.

2. Compensation shall be paid without delay.

3. Compensation shall be equivalent to the fair market value of the expropriated investment

immediately before the expropriation occurred. The fair market value shall not reflect any

change in value occurring because the expropriation had become publicly known earlier.

4. Compensation shall be fully realisable and freely transferable.

5. Due process of law includes, in particular, the right of an investor of a Contracting Party

which claims to be affected by expropriation by another Contracting Party to prompt review

of its case, including the valuation of its investment and the payment of compensation in

accordance with the provisions of this Article, by a judicial authority or another competent

and independent authority of the latter Contracting Party.

ARTICLE 6

Compensation for damages or loss

1. When investments made by investors of either Contracting Party suffer loss or damage

owing to war or other armed conflict, civil disturbances, state of national emergency,

revolution, riot or similar events in the territory of the other Contracting Party they shall be

accorded by the latter Contracting Party treatment, as regards restitution, indemnification,

compensation or other settlement, not less favourable than the treatment that the latter

Contracting Party accords to its own investors or to investors of any third State, whichever is

more favourable to investors.

2.Without prejudice to paragraph 1 of this Article, investors of one Contracting Party who in

any of the events referred to in that paragraph suffer damage or loss in the territory of the

other Contracting Party resulting from:

a) requisitioning of their property or part thereof by its forces or authorities;

b) destruction of their property or part thereof by its forces or authorities which was

not caused in combat action or was not required by the necessity of the situation,

shall be accorded a prompt restitution, adequate and effective compensation for the damage or

loss sustained during the period of requisitioning as a result of destruction of their property.

Resulting payments shall be made in freely convertible currency and be freely transferable

without undue delay.

ARTICLE 7

Transfers

1. Each Contracting Party shall ensure that all payments relating to an investment in its

territory of an investor of another Contracting Party may be freely transferred into and out of

its territory without delay. Such transfers shall include, in particular, though not exclusively:

a) the initial capital and additional amounts to maintain or increase an investment;

b) returns;

c) payments made under a contract including a loan connected with the investment;

d) proceeds from the sale or liquidation of all or any part of the investment;

e) payments of compensation under Articles 5, 6 and 8 of this Agreement;

f) payments arising out of the settlement of an investment dispute under Articles 10

and 11 of this Agreement;

g) earnings and other remuneration of personnel engaged from abroad in connection

with an investment.

2. Each Contracting Party shall ensure that the transfers under paragraph 1 of this Article are

made in a freely convertible currency at the official rate of exchange valid on the date of

transfer in the territory of the Contracting Party in which the investment is made.

3. Each Contracting Party shall ensure that the interest at LIBOR rate is calculated together

with compensation for the period starting from the occurrence of events under Articles 5, 6

and 8 until the date of transfer of payment and payment will be effected in accordance with

provisions of paragraphs 1 and 2 of this Article.

ARTICLE 8

Subrogation

1. If one Contracting Party or its designated Agency (for the purpose of this Article: the "First

Contracting Party") makes a payment under an indemnity given in respect of an investment in

the territory of the other Contracting Party (for the purpose of this Article: the "Second

Contracting Party"), the Second Contracting Party shall recognise:

a) the assignment to the First Contracting Party by law or by legal transaction of all

the rights and claims of the party indemnified; and

b) that the First Contracting Party is entitled to exercise such rights and enforce such

claims by virtue of subrogation, to the same extent as the party indemnified, and shall

assume the obligations related to the investment.

2. The First Contracting Party shall be entitled in all circumstances to:

a) the same treatment in respect of the rights, claims and obligations acquired by it, by

virtue of the assignment; and

b) any payments received in pursuance of those rights and claims,

as the party indemnified was entitled to receive it by virtue of this Agreement, in respect of

the investment concerned and its related returns.

ARTICLE 9

Application of other obligations

If the provisions of law of either Contracting Party or international obligations existing at

present or established thereafter between the Contracting Parties in addition to this

Agreement, contain a rule, whether general or specific, entitling investments by investors of

the other Contracting Party to a treatment more favourable than is provided for by this

Agreement, such rule shall to the extent that it is more favourable prevail over this

Agreement.

ARTICLE 10

Settlement of investment disputes between a Contracting Party and an investor of the

other Contracting Party

1. Any investment dispute between a Contracting Party and an investor of the other

Contracting

Party shall be settled by negotiations.

2. If a dispute under paragraph 1 of this Article cannot be settled within six (6) months of a

written notification, the dispute shall be upon the request of the investor submitted for

resolution:

a) to a competent court of the Contracting Party, or

b) to arbitration in accordance with this Article under:

(i) the Convention on the Settlement of Investment Disputes between States and Nationals of

other States ("ICSID Convention"), opened for signature in Washington on March 18th,

1965, if the ICSID Convention is available; or

(ii) the Additional Facility Rules of the International Centre for Settlement of Investment

Disputes ("ICSID Additional Facility"), if the ICSID Additional Facility is available; or

(iii) the Arbitration Rules of the United Nations Commission on International Trade Law

("UNCITRAL"); or

(iv) the Rules of Arbitration of the International Chamber of Commerce ("ICC").

3. The consent given by a Contracting Party under paragraph 2, together with either the

written submission of the dispute to resolution by the investor or the investor's advance

written consent to such submission, shall constitute the written consent and the written

agreement of the parties to the dispute to its submission for settlement for the purposes of

Chapter II of the ICSID Convention, the ICSID Additional Facility Rules, Article 1 of the

UNCITRAL Arbitration Rules, the Rules of Arbitration of the ICC and Article II of the

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards

(the "New York Convention").

4. The award shall be final and binding, it shall be executed according to the national law,

each Contracting Party shall ensure the recognition and enforcement of the arbitral award in

accordance with its relevant laws and regulations.

5. A Contracting Party which is a party to a dispute shall not, at any stage of conciliation or

arbitration proceedings or enforcement of an award, raise the objection that the investor who

is the other party to the dispute has received an indemnity by virtue of a guarantee in respect

of all or a part of its losses.

ARTICLE 11

Settlement of disputes between the Contracting Parties

1. Disputes between the Contracting Parties concerning the interpretation or application of

this Agreement shall be settled as far as possible by negotiations.

2. If a dispute according to paragraph (1) of this Article cannot be settled within six (6)

months it shall upon the request of either Contracting Party be submitted to an arbitral

tribunal.

3. Such arbitral tribunal shall be constituted ad hoc as follows: each Contracting Party shall

appoint one arbitral and these two arbitrals shall agree upon a national of a third State as their

chairman. Such arbitrals shall be appointed within two ( 2 ) months from the date one

Contracting Party has informed the other Contracting Party, of its intention to submit the

dispute to an arbitral tribunal, the chairman of which shall be appointed within two (2) further

months.

4. If the periods specified in paragraph 3 of this Article are not observed, either Contracting

Party may, in the absence of any other relevant arrangement, invite the President of the

International Court of Justice to make the necessary appointments. If the President of the

International Court of Justice is a national of either of the Contracting Parties or if he is

otherwise prevented from discharging the said function, the Vice-President or in case of his

inability the member of the International Court of Justice next in seniority should be invited

under the same conditions to make the necessary appointments.

5. The tribunal shall establish its own rules of procedure.

6. The arbitral tribunal shall reach its decision in virtue of the present Agreement and pursuant

to the rules of international law. It shall reach its decision by a majority of votes; the decision

shall be final and binding.

7. Each Contracting Party shall bear the costs of its own member and of its legal

representation in the arbitration proceedings. The costs of the chairman and the remaining

costs shall be borne in equal parts by both Contracting Parties. The arbitral tribunal shall

decide on the final payment of the costs, taking into account the adjudication of the dispute

and the responsibility for the occurrence of these costs.

ARTICLE 12

Application of the Agreement

This Agreement shall apply to investments made after its entry into force and shall by no

means be applied to the investments made prior to its entry into force.

ARTICLE 13

Duration and denunciation

1. This Agreement shall enter into force on the date of receipt of the latter notification through

diplomatic channels by which either Contracting Party notifies the other that its internal legal

requirements for the entry into force of this Agreement have been fulfilled.

2. This Agreement shall remain in force for a period of ten (10) years and shall be extended

thereafter for following ten years periods unless, one year before the expiration of the initial

or any subsequent period, either Contracting Party notifies the other Contracting Party of its

intention to denounce the Agreement. In that case, the notice of denunciation shall become

effective by the expiration of current period of ten (10) years.

3. In respect of investments made prior to the date when the notice of denunciation of this

Agreement becomes effective, the provisions of this Agreement shall continue to be effective

for a period of ten (10) years from the date of denunciation of this Agreement.

Done in Zagreb on 18

August 1998 in two original versions, in Croatian, Serbian and

English languages, all three texts being equally authentic. In a case of divergence of

interpretation, the English text shall prevail.

FOR THE GOVERNMENT

OF THE REPUBLIC OF CROATIA

FOR THE FEDERAL GOVERNMENT OF

THE FEDERAL REPUBLIC OF YUGOSLAVIA