The head of Czech diplomacy will meet with his American counterpart Hillary Clinton on his U.S. tour. He intends to advocate changes in the mutual agreement on investment protection, which is unfavorably structured for the Czech Republic.

One of the most important points of today’s talks between Czech foreign minister Karel Schwarzenberg and U.S. Secretary of State Hillary Clinton will be the controversy over mutual Czech-American agreements on investment protection.

The Czech side expects that during Thursday’s talks Secretary Clinton could propose an American initial offer of changes in the treaty, from which the Czech Republic is considering withdrawing. The Czech Republic has been striving for a change in the agreement for a number of years. One of the main reasons is that in the present wording, signed in 1991, the treaty covers direct and indirect investments that an American investor owns through an entity located in a third country. In the case of arbitration proceedings, it gives the American investor the chance to call for parallel arbitration from the third country. An example of this scenario in practice was the arbitrage between the Czech Republic and the American company CME in the controversy over TV NOVA. CME Stockholder Ronald Lauder initiated proceedings through his Dutch branch of CME and in 2003, a Stockholm court ordered that damages be paid to him in the amount of 10 billion crowns.

The Czech Republic has been pressing the U.S. to negotiate a new treaty since then. But the Americans, according to the Czechs, have long ignored this request. The Finance Ministry, under Miroslav Kalousek, recommended withdrawing from the treaty at the beginning of this year. Cabinet discussion of the matter has been deferred twice, the first time in January in anticipation of the arrival of the new American ambassador to Prague, Norman Eisen. The second time was in May before Schwarzenberg’s trip to the U.S.

Several weeks ago, the very first Czech-American negotiation on the matter took place by means of a video conference in which the Czech Republic laid its requested treaty changes on the table. During today’s meeting between Schwarzenberg and Hillary Clinton, the Czech Republic is expecting an American response, and the Czech cabinet should revisit the whole subject in July.

Unfavorable situation for the Czech Republic

The volume of investment going into the Czech Republic is markedly higher — tens of billions of dollars — than the Czech investment in the U.S., which is only hundreds of millions. In the event of a treaty withdrawal, a ten-year term of notice would be in effect, which representatives of the Finance Ministry stress as an argument for a tough Czech stance if the Czech Republic is unable to proceed to appropriate lengthy negotiations. The American side, of course, has threatened that the term of notice would not apply to so-called investment visas, which make it considerably easier for Czech parties to gain access to the American market, but which would be immediately revoked in the event of a treaty withdrawal.

Additionally, it is unpleasant for the Czech side, and especially for the Foreign Ministry, that the controversy has sharpened just as the Czech Republic was trying to build relations with the U.S. on a new, preferably economic basis after the cancellation of the American radar project in Brdy. Unlike Poland, which should play a strong role in President Barack Obama’s new European anti-missile defense project, the Czech Republic is expected to have only a small military part in the early warning system.

It follows from Minister Schwarzenberg’s Wednesday statement that even this project has very unclear outlines. “I would instead expect that we will discuss other matters. The strategy debate is moving in a different direction,” Schwarzenberg responded in America yesterday to the question of whether Czech participation in the American missile defense project would be one of the points of Thursday’s talks with Hillary Clinton.