RESTRICTED
WORLD TRADE WT/WGTI/M/1
2July1997
ORGANIZATION(97-2760)
Working Group ontheRelationship
between Trade andInvestment
REPORT ONTHE MEETING OF2AND 3JUNE 1997
Note bytheSecretariat
1. TheWorking Group ontheRelationship between Trade andInvestment helditsfirstmeeting
under thechairmanship ofAmbassador Krirk-Krai Jirapaet.
2. TheWorking Group invited theUNCTAD andtheOECD toattend themeeting. TheIMF
andtheWorld Bankattended themeeting inanobserver capacity pursuant tothecooperation agreements
concluded between theWTO andthese Organizations.
3. Theagenda forthismeeting consisted ofthefollowing items: (i)existing international activities
andinitiatives;(ii)generalstatements;(iii)organizationofwork;and(iv)arrangementsforcooperation
withUNCTAD andother appropriate intergovernmental fora.
Existing international activities andinitiatives
(a) Presentations byrepresentatives ofinternational organizations
4. Presentations weremade byrepresentatives oftheUNCTAD, theOECD andtheWorld Bank
onrelevant activities oftheir Organizations. These presentations, together with supplementary
information made available, havebeencirculated indocuments WT/WGTI/W/6, WT/WGTI/W/4 and
WT/WGTI/W/5, respectively. Delegations expressed theirappreciation forthese presentations and
underlined theneed fortheWorking Group totakedueaccount ofwork inother organizations.
Particular mention wasmade inthisregard ofthecomplementarity between thework ofthisWorking
Group andtheactivities ofUNCTAD. Annex 1tothisnoterecords thespecific comments made and
questions raised withregard tothese presentations andtheanswers provided bytherepresentatives
oftheOrganizations.
(b) Activities andinitiatives inother fora
5. TheWorking Group hadbefore itaninformal noteprepared bytheWTO Secretariat,
"Information onOther International Activities andInitiatives" (document No.2843), describing certain
ongoing activities inthecontext oftheAPEC, ASEAN, theEnergy Charter Treaty, theFreeTrade
AreaoftheAmericasinitiative,theIMFandtheUnitedNations.TheChairmannotedthattheSecretariat
intended tocirculate addenda tothisinformal notetoprovide information onactivities andinitiatives
notdealtwithinthenote. Suggestions made bysome delegations regarding activities tobeincluded
insuchaddenda related toinitiatives inthecontext oftheASEM (Asia-Europe Meeting), theLomé
Convention andMERCOSUR. Aquestion wasraised regarding therelationship ofthebilateral
investment agreements referred tointheSecretariat 'snoteandthemost-favoured-nation obligation
contained inArticle IIoftheGATS. Therepresentative oftheSecretariat noted thatthismatter had
beenthesubject ofsome inconclusive discussion inthecontext oftheGATS (document S/C/1).WT/WGTI/M/1
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(c) WTO provisions onmatters related toinvestment
6. TheWorking Group considered WTO provisions onmatters related toinvestment onthebasis
ofaninformal notebytheSecretariat (document No.2988). Delegations indicated thattheircomments
wereofapreliminary nature asthenotehadbeendistributed onlyveryrecently andthattheywished
tohaveanopportunity torevert toitatthenextmeeting. Some delegations stated thatthenotewent
beyond afactual description ofrelevant WTO provisions bymaking certain interpretative observations
andthatitdidnotinclude references toprovisions ondeveloping countries intheGATS andtheTRIPS
Agreement. With regard tothelastsection ofthenote, itwassuggested thattheSecretariat prepare
anaddendum containing relevant information available fromthework intheCommittee onRegional
Trade Agreements andtheTrade Policy Review Mechanism. Another point made wasthatthenote
wasuseful inproviding acomprehensive overview ofinvestment-related provisions oftheWTO in
thecontext ofthehistorical evolution oftheGATT/WTO system, while atthesame timehighlighting
thedifferences inscope andobjectives between these provisions andthedisparity inthetreatment of
investment matters between, ontheonehand, therulesintheareaofservices andintellectual property
and,ontheother, rulesintheareaoftradeingoods. Withreference todiscussions ontheimplications
oftheMFN clause inArticle IIoftheGATS intheongoing negotiations onaMultilateral Agreement
onInvestment ("MAI"), asuggestion wasmade thattheWorking Group examine thequestion ofwhether
theMAI could beconstrued asaneconomic integration agreement within themeaning ofArticle V
oftheGATS.
General statements
7. Delegations stated theirviews ontheimplications forthework oftheWorking Group ofthe
mandate contained intheSingapore Ministerial Declaration. Many delegations stressed theeducational
nature ofthismandate andtheneedtoconduct thework intheGroup inabalanced andcomprehensive
manner reflecting thewide-ranging nature andcomplexity ofthesubject andwithout preconceptions
astopossible future work. Thedevelopment dimension wasmentioned asacoreelement which should
inform allaspects ofthework ofthisGroup andmention wasalsomade ofthespecial situation of
small countries. Attention wasdrawn totheneedtotakeintoaccount ongoing work inUNCTAD
andother foraandintheWorking Group ontheInteraction between Trade andCompetition Policy
andtotheprovision intheSingapore Ministerial Declaration onexisting WTO provisions onmatters
related toinvestment andthebuilt-in agenda, including intheTRIMs Agreement. Theneedforactive
contributions fromMembers inorder toensure theMember-driven nature ofthework inthisGroup
wasstressed.
8. Manygeneralstatementshighlightedthesystemicimportanceofaconsiderationoftherelationship
between tradeandinvestment intheWTO. Inthiscontext, many delegations pointed tothesignificant
growth offoreign direct investment flows, theroleofforeign direct investment ineconomic growth
anddevelopment,changesinnationalpoliciestowardsforeigninvestmentandtheincreasinginseparability
oftradeandinvestment decisions ofbusinesses, asevidenced by,forexample, theimportance ofintra-
firmtransactions inworld trade. Thiscloser integration oftrade andinvestment resulted from the
roleofforeign direct investment asameans ofsecuring market access through market presence -not
onlyforservices butalsoforgoods -andasameans ofsecuring access toefficient factors ofproduction.
Itwasobserved thatthese developments called forgreater coherence inrespect ofbothnational trade
andinvestment policies andinternational trade andinvestment arrangements. Thepoint wasmade
thattheWTO hadaunique roletoplayasaforum foraconsideration ofthese matters.
9. Delegations alsoidentified specific issues forstudy intheWorking Group. These issues formed
thebasisfortheconsideration bytheGroup oftheorganization ofitsfuture work under thenextitem
oftheagenda.WT/WGTI/M/1
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Organization ofwork
10. TheWorking Group tooknoteofaChecklist ofIssues Raised forStudy which hadbeenprepared
bytheChairman onthebasis oftheissues forstudy identified inthegeneral statements made under
thepreceding agenda itemandwhich hadbeendiscussed during aninformal session oftheWorking
Group. AcopyofthisChecklist, revised inlightofthecomments made during theinformal session,
isattached atAnnex 2.
11. Onthebasis ofthediscussion attheinformal session, theChairman proposed thefollowing
regarding theorganization ofthework oftheGroup. Twomeetings would beheldintheremainder
of1997, thefirstinSeptember andthesecond inNovember orearly December. Theprecise dates
ofthese meetings would depend upon thetiming ofrelevant meetings intheWTO andUNCTAD.
Regarding Item IoftheChecklist, implications oftherelationship between trade andinvestment for
growth anddevelopment, theWTO Secretariat would prepare, withthecooperation ofUNCTAD and
other organizations, apaper forconsideration atthemeeting inSeptember which would present the
results ofwork undertaken inother organizations onthesematters. Thiswould helptheGroup identify
what specific aspects itneeded tostudy further. OnItemII,therelationship between trade and
investment, theWTO Secretariat would prepare forconsideration atthemeeting inSeptember apaper
onthefirsttwoindents (thedegree ofcorrelation between trade andinvestment flows andthe
determinants oftherelationship between trade andinvestment flows) and,totheextent thattime
permitted, onthetwoindents concerning theimpact oftradepolicies andmeasures oninvestment flows
andofinvestment policies andmeasures ontrade. Regarding ItemIII,theWorking Group would revert,
atitsmeeting inSeptember, totheissue ofWTO provisions onmatters related toinvestment andto
activities andinitiatives inother international foraonthebasis ofthematerial made available atthis
meeting. Atitsmeeting inNovember orDecember, theWorking Group would decide onhowtotake
upissues under ItemIVoftheChecklist atitsfirstmeeting in1998. TheWorking Group agreed
toproceed assuggested bytheChairman.
12. TheChairman encouraged delegations tosubmit written contributions.
Arrangements forcooperation withUNCTAD andother appropriate intergovernmental fora
13. TheWorking Group agreed toinvite UNCTAD toattend itsfuture meetings, noted thatthe
IMFandtheWorld Bank hadobserver status inthisWorking Group pursuant tothecooperation
agreements concluded bytheWTO withtheseorganizations andagreed thatrequests forobserver status
fromotherintergovernmentalorganizationswouldbeconsideredinaccordancewiththenormalguidelines
forobserver status forinternational intergovernmental organizations intheWTO (document WT/L/161,
Annex 3).TheChairman noted thatarequest forobserver status hadalready beenreceived fromSELA.WT/WGTI/M/1
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ANNEX 1
Comments made andQuestions Raised inRespect ofthePresentations made bythe
Representatives ofUNCTAD, theOECD andtheWorld Bank
UNCTAD
1. Aquestion wasraised astowhether anyworkwasunder wayinUNCTAD toupdate theanalysis
intheWorld Investment Report 1996 oftherelationship between trade andinvestment. The
representative ofUNCTAD responded thattheanalysis ofthetrade andinvestment linkages inthe
WIR reflected research specifically undertaken forthepurpose ofthatreport. Rapidly changing
determinants offoreign direct investment wereobviously oneimportant factor which would needto
betaken intoaccount inbringing thisanalysis uptodate.
2. Onedelegation noted that,atarecent UNCTAD expert meeting onbilateral investment treaties,
noconclusion hadbeenreached astotheactual impact ofsuchtreaties oninvestment flows andagainst
thisbackground wondered whyUNCTAD intended toundertake anexamination ofregional and
multilateral investment agreements, given thatthisexamination waslikely tobeequally inconclusive
astotheimpact ofsuchagreements oninvestment flows. Therepresentative ofUNCTAD responded
thattherecent meeting onbilateral investment treaties hadnotfocused ontheactual effect ofbilateral
investment treaties oninvestment flows butonthelessons thatmight belearned, fromadevelopment
perspective, fromtheexperience withsuchtreaties forpossible work onamultilateral framework on
investment.Likewise,theproposalforanexaminationofregionalandmultilateralinvestmentagreements
wasnotprimarily motivated bythequestion oftheireffect oninvestment flows. Thus, onekeyquestion
tobeaddressed inthiscontext wasthedifference inobjectives andscope between regional and
multilateral investment agreements andbilateral investment treaties andwhatwecanlearn fromthem
fromadevelopment perspective. UNCTAD intended todofurther empirical work ontheimpact of
bilateral investment treaties oninvestment flows.
3. Inresponse toaquestion whether UNCTAD haddoneanyanalysis offoreign direct investment
inrelation toprivatization andontherelationship between foreign direct investment andcompetition,
therepresentative ofUNCTAD noted that,although UNCTAD hadnotundertaken asystematic study
offoreign direct investment inthecontext ofprivatization, ithadreported onthismatter inits
publications. Forexample, ithadfound thatasignificant partofrecent inflows offoreign direct
investment toLatin America were attributable toprivatization operations. Thequestion offoreign
direct investment andcompetition policy would bethespecial focus oftheWIR1997.
OECD
4. Inresponse toaquestion howtheMAI would dealwithquestions relating todevelopment,
therepresentative oftheOECD indicated thatnospecific provisions ondevelopment wereenvisaged.
Thebasic ideawastohave uniform rules applicable toallcountries, subject tothepossibility of
country-specific reservations totakeaccount ofthespecific, social, political endeconomic circumstances
ofindividual countries, whether developed ordeveloping. Thelistsofcountry-specific reservations
tabled sofarbyOECD members showed wide differences anditwaslikely thatsome non-OECD
members would beinaposition toadhere totheMAI withfewer reservations thansome OECD
members. Inresponse toaquestion regarding thecriteria forparticipation inevents organized bythe
MAI Negotiating Group withnon-member countries, heexplained thatthiswasamatter primarily
forthebureau oftheNegotiating Group, andthehostcountry forevents heldoutside Paris. Information
provided atthese events hadbeenmade widely available. Ameeting would beheldinSeptember in
Paris todiscuss specific issues relating totheMAI withnon-member countries.WT/WGTI/M/1
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5. AquestionwasaskedwhetheracountryaccedingtotheOECDcouldmakereservationsregarding
theentry offoreign investment. Therepresentative oftheOECD stated thattheNational Treatment
Instrument adopted in1976 withrespect tothetreatment offoreign-owned orcontrolled enterprises
inthepost-establishmentphasewasapoliticalcommitment.Inpractice,however,countrieshadrespected
thiscommitment,subjecttoexceptionswhichtheyhadbeenallowedtolodgeandwhichhadbeenreduced
overtheyears unilaterally orasaresult ofpeerpressure. Inrespect ofthelegally binding Code of
Liberalization ofCapital Movements, which in1984 hadbeen extended toinclude theright of
establishment, newly acceding countries wereexpected tomeetthose obligations butcould negotiate
specific reservations.
6. Onedelegation asked whether there wereanyspecific criteria agreed intheMAInegotiations
regarding thelodging ofcountry-specific reservations andwhether theMAI would contain aclause
ontheavoidance ofdouble taxation. Therepresentative oftheOECD explained thattherewasagreement
ona"topdown" approach, which meant that,forexample theobligation toaccord national treatment
would inprinciple apply comprehensively toallsectors andallphases ofaninvestment, except inthose
areas inwhich countries hadmade specific reservations. There werenofixed criteria forthelodging
ofcountry-specific reservations andthescope ofsuchreservations would essentially bedetermined
through negotiations. While therewasariskthattooextensive reservations could undermine thevalue
oftheMAI, theexperience withthereservations tabled sofarwaspositive astheywere mostly of
astandstill nature. Thetreatment oftaxation intheMAI wasasensitive andimportant matter and
wasstillunder consideration. There wasagreement onaprovision which would contain ageneral
ruleexcluding taxation fromtheMAIbutwhich would make certain provisions applicable totaxation.
However, theexactscope ofthis"carve-in" wasstillunder debate. Withalimited "carve-in" fortaxation
measures, questions relating todouble taxation would continue tobedealt withunder bilateral
agreements.
World Bank
7. Onedelegation observed thatArticle 27oftheICSID Convention precludes aContracting
Statefrominitiating adispute settlement proceeding onbehalf ofaninvestor iftheinvestor hassubmitted
thesamedispute toarbitration under thatConvention. Astherewasnolimitation ontherightofWTO
Members toinitiate dispute settlement proceedings under theWTO, theremight beaconflict between
thisprovision oftheICSID Convention andtheWTO.WT/WGTI/M/1
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ANNEX 2
3093
Working Group ontheRelationship 4June1997
between Trade andInvestment
CHECKLIST OFISSUES SUGGESTED FOR STUDY
Non-Paper bytheChair
Revision
Itwaswidely recognized thattheWorking Group 'swork programme should beopen, non-
prejudicial andcapable ofevolution asthework proceeds. Itwasalsoemphasized thatallelements,
notonlycategory I,should bepermeated bythedevelopment dimension. Particular attention should
bepaidtothesituation ofleast-developed countries. Inpursuing theitems ofitswork programme,
theWorking Group should avoid unnecessary duplication ofwork done inUNCTAD andother
organizations.
_______________
I. Implications oftherelationship between trade andinvestment fordevelopment andeconomic
growth, including:
- economic parameters relating tomacroeconomic stability, suchasdomestic savings,
fiscal position andthebalance ofpayments;
- industrialization, privatization, employment, income andwealth distribution,
competitiveness, transfer oftechnology andmanagerial skills;
- domestic conditions ofcompetition andmarket structures.
Inthiswork, theWorking Group should seektobenefit from theexperience ofMembers at
different stages ofdevelopment andtakeaccount ofrecent trends inforeign investment flows
andoftherelationship between different kinds offoreign investment.
II. Theeconomic relationship between trade andinvestment:
- thedegree ofcorrelation between trade andinvestment flows;
- thedeterminants oftherelationship between trade andinvestment;
- theimpactofbusinessstrategies,practicesanddecision-makingontradeandinvestment,
including through casestudies;
- therelationship between themobility ofcapital andthemobility oflabour;WT/WGTI/M/1
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- theimpact oftrade policies andmeasures oninvestment flows, including theeffect
ofthegrowing number ofbilateral andregional arrangements;
- theimpact ofinvestment policies andmeasures ontrade;
- country experiences regarding national investment policies, including investment
incentives anddisincentives;
- therelationship between foreign investment andcompetition policy.
III. Stocktaking andanalysis ofexisting international instruments andactivities regarding trade
andinvestment:
- existing WTO provisions;
- bilateral, regional, plurilateral andmultilateral agreements andinitiatives;
- implications fortrade andinvestment flows ofexisting international instruments.
IV. Onthebasis ofthework above:1
- identification ofcommon features anddifferences, including overlaps andpossible
conflicts, aswellaspossible gapsinexisting international instruments;
- advantages anddisadvantages ofentering intobilateral, regional andmultilateral rules
oninvestment, including from adevelopment perspective;
- therightsandobligationsofhomeandhostcountriesandofinvestorsandhostcountries;
- therelationship between existing andpossible future international cooperation on
investment policy andexisting andpossible future international cooperation on
competition policy.
1Thequestion ofthetiming ofwork under section IVwasthesubject ofadecision taken bytheWorking
Group atitsmeeting of2-3June 1997.