WORLD TRADE
ORGANIZATIONWT/WGTI/W/155
8 April 2003
(03-1923)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 7 April 2003, has been received from the Permanent
Mission of Canada.
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TRANSPARENCY
I. INTRODUCTION
1. This paper is submitted with a view to building upon the Working Group on the Relationship
between Trade and Investment (WGTI) discussion of transparency at its April and July 2002 meetings(summarised in WT/WGTI/M/17 and WT/WGTI/M/18), including the Secretariat paper on the
subject (WT/WGTI/W/109) and submissions from the EC (WT/WGTI/W/110), Japan
(WT/WGTI/W/112), and the Separate Customs Te rritory of Taiwan, Penghu, Kinmen and Matsu
(WT/WGTI/W/129).
2. Transparency underpins a stable and predictable economic environment that enables the flow
of productive capital.  A commitment to transparency-enhancing policies sends a positive signal to
investors about a government’s determination to cr eate an investment-friendly business environment.
Canada, therefore, believes that in order to maximize the benefits of foreign investment, transparency
is a necessary element in any prospective Multilateral Framework on Investment (MFI) in the WTO.
3. Discussion thus far has confirmed that along with non-discrimination, transparency is a
fundamental principle underlying the rules-based international trading system of the WTO.
Transparency manifests itself differently in various WTO agreements, as well as investment-relatedagreements elsewhere.  However, as noted in the 2002 WGTI Annual Report, transparency
obligations do not figure prominently in most exis ting International Investment Agreements (IIAs),
therefore, an MFI anchored in the WTO could indeed fill an institutional "gap."
1
4. The following submission is divided into three parts: The Case for Transparency;
Architectural Considerations and Provisions in a Multilateral Framework on Investment; andTechnical Assistance and Capacity Building.
                                                     
1 Report (2002) of the Working Group on the Relationship between Trade and Investment to the
General Council, WT/WGTI/6, p. 7, para. 37.WT/WGTI/W/155
Page 2
II. THE CASE FOR TRANSPARENCY
5. As noted in the executive summary of the Secretariat paper, transparency enables markets to
function efficiently and it underwrites the effectiveness and integrity of a treaty’s policy rules and
disciplines.2  It does this by providing information to economic actors on the laws and regulations
under which an economy functions and on the procedures for their administration.  Furthermore, arecent study by the Organization for Economic Cooperation and Development  (OECD) has observed
that lack of transparency can undermine the ability of interested parties – whether domestic or foreign
– to participate meaningfully in policy processes.
3
6. The importance of transparency to an effective trading system was recognized early, most
particularly in Article X of the GATT on "Publication and Administration of Trade Regulations",
which includes provisions on the publication of a broad range of laws and other measures affecting
trade in goods, as well as their administration.   GATS Article III applies similar provisions on tradein services.  More recently, leaders and heads of State and Government that met at the International
Conference on Financing for Development  in 2002 agreed that, in order "to attract and enhance
inflows of productive capital, countries need to continue their efforts to achieve a transparent , stable
and predictable investment climate."
4 (Emphasis added.)
7. Canada believes that a commitment to transparency benefits all countries regardless of their
level of development.  Investors, whether foreign or domestic, are more likely to invest where they
can readily ascertain the laws that will govern their investments.  As noted by the World Bank in
Global Economic Prospects 2003, "Case studies suggest companies may, for example, be willing to
invest in countries with legal and regulatory frameworks that would not otherwise be considered
"investor friendly" – provided the companies are able to obtain a reasonable degree of clarity aboutthe environment in which they will be operating."
5
8. In contrast, a non-transparent business environment raises information costs, diverts corporate
energies toward rent-seeking activities, and may give rise to other inefficiencies and distortions.  The
heightened risk of operating in such a business environment either translates into higher risk
premiums (in the case of pricing corporate assets) or imposes additional informational costs onenterprises.
6  Not surprisingly, a growing body of research finds a correlation (i.e., an inverse
relationship) between country risk and the rate of return on an investment.7
9. The submissions by the European Community (WT/WGTI/W/110) and Japan
(WT/WGTI/W/112) confirm that the absence of regula tory transparency is considered to be the most
serious obstacle to investment as seen through the eyes of prospective investors.  Canadian investors
have likewise signalled the importance of transparency to their investment decisions.8  Hence, for
                                                     
2 WT/W/WGTI/W/109, Executive Summary, para. 2.
3 See Joseph. E. Stiglitz, "On Liberty, the Right to Know, and Public Discourse:  The Role of
Transparency in Public Life", Oxford Amnesty Lecture, Oxford, UK, 27 Jan., 1999, as cited in "Transparency in
Domestic Regulation:  Practices and Possibilities", declassified OECD Trade Committee document no.
TD/TC/WP(2001)31/FINAL, available at:  http://www.oecd.org/ech .
4 Paragraph 21 of the United Nations Report of the International Conference on Financing for
Development. ( http://ods-dds-ny.un.org/doc/UNDOC/GE N/N02/392/67/PDF/N0239 267.pdf?OpenElement ).
5 Pg 124 of the World Bank Group publication Global Economic Prosp ects and the Developing
Countries, 2003 .
6 Chapter 4, pg 124 of "Global Economic Prospects and the Developing Countries, 2003" World Bank
Group.
7 Pg 9 of Joseph F. Francois, "Trade Policy Transparency and Investor Confidence – The Implications
of an Effective Trade Policy Review Mechanism." Tinberegen Institute and CEPR: November 1999.
8 See "Foreign Investment Barriers" – a report by  the Canadian Chamber of Commerce, Ottawa,
Canada, 31 March, 2000, at:  http://strategis.ic.gc.ca/pics/bi/barriers.pdf .WT/WGTI/W/155
Page 3
countries hoping to attract foreign direct investment, initiatives to increase regulatory transparency are
beneficial for both the country and the foreign investor.
10. Recent empirical evidence suggests that a stat e that takes steps to increase the degree of
transparency in its policies and institutions could be rewarded with significant increases in the level of
incoming foreign investment.9  Other studies find that, as efforts are made to foster an investment
climate that reduces the underlying risk premium for businesses, investors become willing to accept
projects that yield lower returns.  The resulting be nefit is an increase in investment levels and a
national income gain from the reduced risk premium.10
11. An important point worth mentioning is that the key policies to further both foreign and
domestic investment are in many respects identical11; in other words, a transparent investment
environment should benefit all investors regardless of their origin.  For these, and other reasons,
Canada is convinced that a commitment to transparency should be a central tenet of any prospectiveinvestment framework.
III. THE RELATIONSHIP BETWEEN TRANSPARENCY AND ARCHITECTURAL
CONSIDERATIONS AND PROVISIONS IN A MULTILATERAL FRAMEWORK ON
INVESTMENT
12. The Secretariat paper (WT/WGTI/W/109), specifically paragraph five of the executive
summary, suggests that the goal of transparency can be affected by the way in which other
obligations, commitments, and exceptions are worded in an agreement.
12  Members, therefore, need to
consider how best to structure a prospective MFI th at provides investors with a clear understanding of
those sectors that would, and would not, be open to foreign investment.  In addition, the structure
should be development friendly, accommodate flexibility, and be fully consistent with a government’sright to regulate in the public interest.
13. The administration of laws and regulatory systems has increasingly been the focus of
transparency obligations.  As paragraph 22 of the Secretariat note points out, detailed prior
notification and comment provisions are included in the SPS and TBT agreements.  Indeed, it could
be argued that underlying the subject matter of both  these agreements is transparency in so far as it
pertains to complex, technical issue areas in the regulatory regime affecting trade.
14. Likewise, the Agreement on Trade Related Investment Measures (TRIMS), the Agreement on
Trade-Related Aspects of Intellectual Property Ri ghts (TRIPS) and the GATS contain transparency
provisions.
                                                     
9  See Zdenek Drabek and Warren Payne, "The Impact of Transparency on Foreign Direct Investment",
WTO Staff Working Paper ERAD-99-02, available at:  http://www.wto.org/english/res_e/reser_e/erad-99-
02.doc .
10 Pg 9 of Joseph F. Francois, "Trade Policy Transparency and Investor Confidence – The Implications
of an Effective Trade Policy Review Mechanism." Tinberegen Institute and CEPR: November 1999.
11 Pg  33 Saskia K.S. Wilhelms "Foreign Direct Investment and its Determinants in Emerging
Economies." African Economic Policy Paper, Disc ussion Paper Number 9, July 1998 available at:
(www.eagerproject.com/discussion9.shtml ).
12  Paragraph 55 of the Secretariat paper states, "…a ‘positive list’ approach to reservations would in
principle result in a less ‘transparent’ investment regime, insomuch as it would not oblige parties to list all thenon-conforming measures that they wish to exclude from certain obligations."  In light of this example,Members are referred to Canada’s contribution on Non-Discrimination and Modalities For Pre-EstablishmentCommitments Based on a GATS-Type, Positive List Approach (WT/WGTI/W/130), specifically paragraphs 18,19 and 21, for a closer examination of transparency and the use of a negative-list approach to scheduling
substantive commitments.WT/WGTI/W/155
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15. TRIMS Article 6 reaffirms commitments with respect to Article X of the GATT, as well as
notification procedures, including the Ministeria l Decision on Notification Procedures adopted on 15
April 1994 (WTO document symbol LT/UR/D-1/5).  Under TRIPS Article 63, Members are required
to publish, inter alia , relevant laws and regulations to enable governments and right holders to
become acquainted with them.   As has been noted by several delegations, the GATS containscomprehensive transparency obligations that require Members to publish, or otherwise make publicly
available, laws and all relevant measures of general application that affect the operation of the
Agreement.  The most important of these are contained in Article III (Transparency) and Article VI
(Domestic Regulation).
16. The logic of three obligations related to transparency as identified in paragraph 15 of the
Secretariat paper (publication, notification and administration) are embodied in these articles.
17. If the objective of a prospective MFI is to foster a stable and predictable investment
environment that enables countries to maximize the benefits of long-term foreign investment, then
that framework should include transparency provisions at least as comprehensive as those affecting
trade-related investment measures under Arti cle X of the GATT (together with subsequent
understandings), as well as investment in services industries under the GATS.
18. Thus, whatever the scope and structure of any prospective multilateral framework on
investment, existing transparency obligations found in various WTO Agreements can serve as useful
models. As Canada has noted, transparency can also be furthered through the structure of the
agreement itself.
IV. TECHNICAL ASSISTANCE AND CAPACITY BUILDING
19. Transparency provisions, such as those found in the GATT, GATS, TRIMS, and TRIPS
Agreements have provided all Members with valuable "hands-on" experience with implementation
that could be transferable to a prospective MFI.
20. Canada recognizes the necessity of providing developing and least developed countries with
technical and capacity-building assistance to enable  these Members to implement, and thereby benefit
from, any prospective transparency obligations.   The European Community, in its "Concept Paper on
Transparency" (WT/WGTI/W/110), pointed to some of the areas and kinds of assistance that might be
required in order to increase transparency, including financing and training of human resources to
help countries identify and publicize domestic laws and regulations.
21. Canada believes that it is the developing and least developed countries that are best placed to
identify their technical assistance and capacity build ing needs, and in particular as they relate to
transparency.  Canada remains ready to contribute to a collective effort to address these needs with a
view to assisting developing and least-developed c ountries in attracting FDI that will contribute to
their development.
V. CONCLUSION
22. Canada is a proponent of a trading system with transparency provisions as a core principle.
This applies to the multilateral, regional, and bilateral investment contexts.  The WTO's general
transparency provisions - the obligation to publish, notify and impartially administer all relevant rulesand regulations - already apply to investment-related trade issues insofar as they are key provisions of
the GATS (specifically mode 3), the TRIPS Agreement, and the TRIMS Agreement.
23. In order to foster a stable and predictable investment environment that enables countries to
maximize the benefits of long-term foreign investment, a prospective MFI should includeWT/WGTI/W/155
Page 5
transparency provisions at least as comprehensive as those affecting trade-related investment
measures under Article X of the GATT (together with subsequent understandings), as well as
investment in services industries under the GATS.   Furthermore,  Canada is ready to support
developing and least developed countries with techni cal and capacity-building assistance to help those
Members maximize the benefits associated with any transparency commitments.
24. In Canada’s view, a commitment to undertake transparency-enhancing policies sends a strong
signal to domestic and foreign investors about a go vernment’s commitment to fostering a stable and
predictable investment climate.  In return, a coun try raises its profile as an investment-friendly
destination, leading to higher flows of investment.
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