WORLD TRADE
ORGANIZATIONWT/WGTI/6
9 December 2002
(02-6772)
REPORT (2002) OF THE WORKING GR OUP ON THE RELATIONSHIP BETWEEN
TRADE AND INVESTMENT TO THE GENERAL COUNCILWT/WGTI/6
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TABLE OF CONTENTS
Page
I. INTRO DUCTION ................................................................................................................. ...1
II. PROCEDURAL IN FORMATION..........................................................................................1
A. S OURCES AND MATERIALS USED IN THE GROUP 'S WORK ..........................................................1
B. M EETINGS HELD IN 2002 ............................................................................................................1
C. C OOPERATION WITH OTHER INTERGOVERNMENTAL ORGANIZATIONS ......................................1
III. WORK OF THE WORK ING GROUP IN 2002....................................................................1
A. T ECHNICAL ASSISTANCE ACTIVITIES PURSUANT TO PARAGRAPH 21 OF THE DOHA
MINISTERIAL DECLARATION ......................................................................................................2
B. C LARIFICATION OF ISSUES PURSUANT TO PARAGRAPH 22 OF THE DOHA MINISTERIAL
DECLARATION .............................................................................................................................3
2. Scope and definition......................................................................................................... .........3
(a) Definition of  "investment".................................................................................................. ........3
(i) Narrow de finition........................................................................................................... .............3
(ii) Broad de finition ........................................................................................................... ...............4
(iii) Hybrid approach ........................................................................................................... ..............5
(b) Definition of  "investor".................................................................................................... ...........6
(i) Natural  persons ............................................................................................................. ..............6
(ii) Legal entities............................................................................................................. ..................6
(iii) Potential  investors....................................................................................................... ................6
(c) Related  issues.............................................................................................................. ................7
(i) Investment-related definitions  in other WTO agreemen ts..........................................................7
3. Transparency ................................................................................................................. ...........7
(a) Possible transpar ency obligations........................................................................................... ....8
(i) Publication and notifi cation require ments ..................................................................................8
(ii) Enquiry  points............................................................................................................. ................8
(iii) Prior notifi cation and comment ............................................................................................ ......8
(iv) Administrative and judicial procedures ..................................................................................... .9
(v) Investor and home- country oblig ations .....................................................................................9
(vi) Confiden tiality ............................................................................................................ ................9
(b) Application of tran sparency ob ligations ..................................................................................... 9
(i) Clarifying the scope of transparency obligatio ns........................................................................9
(ii) Technical assist ance....................................................................................................... .............9
(iii) Tec hnology ................................................................................................................ ...............10
4. Development provisions ....................................................................................................... ..10WT/WGTI/6
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(i) Declaratory statement ....................................................................................................... ........11
(ii) Defini tions ................................................................................................................ ................11
(iii) Pre- and post-esta blishment tr eatment ..................................................................................... .12
(iv) Flexibility in the applica tion of general obligations .................................................................12
(v) Flexibility in undertaki ng specific commitmen ts......................................................................13
(vi) Flexibility in timefra mes for implem entatio n ...........................................................................13
(a) Specific i ssues ra ised ...................................................................................................... ..........13
(i) "Developmen t clause"........................................................................................................ .......13
(ii) Investor and home- country oblig ations ....................................................................................14
(iii) Scr eening ................................................................................................................. .................14
(iv) Performance requirements ................................................................................................... .....14
(v) Investmen t incen tives ....................................................................................................... ........14
(b) Technical assistance a nd capacity building ..............................................................................15
(i) Technical assistance and implemen tation .................................................................................15
5. Non-discrimination ........................................................................................................... ......15
(a) Pre- and post-establ ishment trea tment ......................................................................................1 6
(i) Pre-estab lishment........................................................................................................... ...........16
(ii) Post-est ablishment ......................................................................................................... ...........17
(b) Standards of  treat ment ...................................................................................................... ........18
(i) MFN tr eatment............................................................................................................... ...........18
(ii) National treatm ent......................................................................................................... ............18
(iii) Other standard s of treatment.............................................................................................. .......18
(c) Related  issues.............................................................................................................. ..............19
(i) Exceptions.................................................................................................................. ...............19
(ii) "Right to  regulate" ........................................................................................................ ............19
(iii) "Like" ci rcumstances ...................................................................................................... ..........19
(iv) Vested benefi ts............................................................................................................ ..............19
(v) Sub-nationa l enti ties ....................................................................................................... ..........19
6. Modalities for pre-establishment commitments based on a GATS-type positive
list approach .................................................................................................................. ..........20
(a) Positive versus ne gative list approach ...................................................................................... 20
(i) GATS approach ............................................................................................................... .........21
(ii) Market  access.............................................................................................................. ..............21
(iii) Progressive liberalization................................................................................................ ..........21
(b) Related  issues.............................................................................................................. ..............21
(i) Industrial cl assification ................................................................................................... ..........21
(ii) Methods for negotiation.................................................................................................... ........22WT/WGTI/6
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(iii) Modification of schedules................................................................................................. ........22
7. Exceptions and balance-of-payments safeguards.................................................................22
(i) General and secu rity exceptions ............................................................................................. ..22
(ii) Exceptions for regional in tegration arra ngements ....................................................................22
(iii) Balance-of-paym ents safeguards ............................................................................................ ..23
(iv) Broader safeguards ......................................................................................................... ..........24
(v) Safeguards on deve lopmental grounds .....................................................................................24
8. Consultation and the settlement  of disputes between members .........................................24
9. Relationship with other WTO agreements and IIAs ...........................................................27
10. FDI and the transfer of technology .......................................................................................27
ANNEX 1: TEXT OF THE DOHA MINISTERIAL DECLARATION
ANNEX 2: SUMMARY OF CONTRIBUTIONS RECEIVED IN THE
WORKING GROUP ON THE RELATIONSHIPBETWEEN TRADE AND INVESTMENT
ANNEX 3: TECHNICAL ASSISTANCE AND CAPACITY-BUILDING
ACTIVITIES HELD IN 2002WT/WGTI/6
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I. INTRODUCTION
1. The Working Group on the Relationship between Trade and Investment was established by a
decision taken at the WTO’s 1st Ministerial Conference in Singapore in 1996.  Between 1997 and
2001, work was based on a Checklist of Issues Suggested for Study which the Group took note of at
its meeting in June 1997.  At the 4th Ministerial Conference in Doha in 2001, the Working Group's
mandate was revised (Annex 1).1
II. PROCEDURAL INFORMATION
A. SOURCES AND MATERIALS USED IN THE GROUP 'S WORK
2. The work of the Working Group in 2002 has been based on written contributions by Members
and the Secretariat, and on statements by Members in the Group’s meetings.  This material has been
supplemented by information received from observer inter-governmental organizations.  A list of
written contributions provided to the Group in 2002 is attached (Annex 2).
B. MEETINGS HELD IN 2002
3. The Working Group held four meetings in 2002 under the Chairmanship of Ambassador
Seixas Corrêa (Brazil), on 18-19 April, 3-5 July, 16-18 September, and 3-4 December.  A full account
of the discussions can be found in the minutes of the meetings, contained in documents
WT/WGTI/M/17, 18, 19 and 20.  At its December meeting, the Group adopted its report to theGeneral Council, and discussed its programme of work for 2003.
2
4. The Working Group received regular updates on the Secretariat’s technical assistance
activities carried out under the Doha Ministerial Declaration, and focused on the items set out for
clarification in paragraph 22 of the Doha Ministerial Declaration.  The Group also discussed the issue
of FDI and the transfer of technology to developing countries.  Provision was made at the meetingsfor Members to continue their discussions on the Checklist of Issues Suggested for Study.
C. C
OOPERATION WITH OTHER INTERGOVERNMENTAL ORGANIZATIONS
5. The Doha Ministerial Declaration encouraged the WTO to work in cooperation with other
relevant inter-governmental organizations, particularly in providing enhanced support for technical
assistance and capacity building.  In this regard, all technical assistance activities carried out in 2002under Paragraph 21 of the Doha mandate have been undertaken jointly by the WTO and UNCTAD
secretariats, in some cases in co-operation also with the Agence pour la Francophonie, APEC,
IDB/INTAL, SADEC, Secretaria General de la Comunidad Andina, and Banco Centroamericano de
Integracion Economica.  The IMF, World Bank , UNCTAD, OECD and UNIDO were invited to
attend the Working Group's meetings in an observer capacity.  These organisations have kept
Members informed of their relevant activities and have contributed to the debate in the Group’s
meetings.  The Working Group is appreciative of the valuable contributions to its work made by theseinter-governmental organizations.
III. WORK OF THE WORKING GROUP IN 2002
6. This part of the report provides a summary of the discussions in the Working Group pursuant
to Paragraphs 20-22 of the Doha Ministerial Declaration.
                                                     
1 WT/MIN(01)DEC, paras. 20-22.
2 This Report covers the discussion that took place at the Group’s first three meetings in 2002.  A
summary of the substantive discussions that took place at its meeting in December 2002 will be included in the
Group’s next Report to the General Council.WT/WGTI/6
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A. TECHNICAL ASSISTANCE ACTIVITIES PURSUANT TO PARAGRAPH 21 OF THE DOHA
MINISTERIAL DECLARATION
7. The Secretariat prepared two overviews of its technical assistance activities in 2002,
circulated in WT/WGTI/W/135 and W/151.  The OECD provided a written contribution on its
capacity building activities in the field of investment which was circulated to the Working Group inWT/WGTI/W/116.  UNCTAD briefed the Group regularly on its activities in this field, many of them
conducted jointly with the WTO.
8. The central role that technical assistance and capacity building should play in enhancing
developing countries' understanding of the impli cations of a possible investment framework was
reaffirmed by the Working Group.  It was felt by many that it was only through enhanced technical
assistance and capacity building that developing countries could adequately determine their needs and
interests, make informed decisions at the 5
th Ministerial Conference, exercise their rights in any future
negations, and effectively implement whatever agreements might be reached. The programme should
be "demand-driven", as developing countries were best placed to identify their specific needs and to
clarify their national interests and objectives.  It wa s also felt that the programme needed to focus on
human and institutional capacity building, so that de veloping countries would be in a stronger position
to assess their interests and formulate appropriate policy.  The point was made that capacity buildingis very important for developing countries and that it would therefore be necessary to identify an
institution in each country jointly with the conc erned governments, for creating necessary capacity
relating to all issues connected with investment and money flows. The importance of co-operation
with other agencies – with UNCTAD in particular – in the delivery of technical assistance was
repeatedly underlined.
9. The view was widely shared that the programme should concentrate on three areas in
particular:  the issue-specific discussions in the Working Group; preparations for possible
negotiations; and the implementation of WTO rules.  One view was that the programme should be
expanded beyond technical and training issues, to encompass human and institutional capacity
building in developing countries, and the need to address policy analysis and development.  It wasimportant to tailor technical assistance and capacity building to each country's specific needs - in
collaboration with national governments and other stakeholders - and to identify factors in the area of
investment policy and promotion which act as obstacles to development.
10. The view was also expressed that an effective programme of technical assistance should not
be perceived as having a limited time horizon, but rather needed to be a sustained, long-term process
of engagement with developing countries if they were to understand - and take advantage of - the
implications of FDI for their economic developmen t.  For this reason, technical assistance and
capacity building in this area would entail an on- going commitment of financial and other resources
on the part of the WTO and other agencies lasting well beyond the 5
th Ministerial Conference.
11. It was noted that the Doha mandate had instructed the WTO to work in cooperation, where
possible, with other agencies, and in particular with UNCTAD.  Some made the point that UNCTAD
had a critical analytical role to play in assisting developing and least-developed countries tounderstand the development dimension of a possible investment framework, and that it was important
to guarantee that adequate financial resources were found to underwrite its collaboration with the
WTO.  Cooperation was also urged with other multilateral and regional agencies, such as the OECD
and APEC, to leverage each institutions' comparat ive advantage, and to avoid unnecessary duplication
and overlap.
12. In response to concerns that the technical assistance programme be systematically evaluated
in order to ensure that it remained both "demand-driven", reflecting the needs and concerns of
developing countries, and responsive to the Doha mandate, the WTO and UNCTAD Secretariats were
encouraged to carry out detailed assessments of each technical assistance activity based on writtenWT/WGTI/6
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comments by participants, and to adjust the programme of future events in light of the comments
received.
B. CLARIFICATION OF ISSUES PURSUANT TO PARAGRAPH 22 OF THE DOHA MINISTERIAL
DECLARATION
13. Some said that their statements in the Work ing Group were without prejudice to their doubts
regarding the propriety of WTO being the right forum for discussion of an issue whose relationship
with trade was only tenuous. In their view, considerab le work needed to be done before an informed
decision could be taken on whether to proceed with negotiations on modalities, as mentioned in the
Chairman’s statement at Doha.
2. Scope and definition
14. A Secretariat Note on this subject was circulated in WT/WGTI/W/108.  Written contributions
were received from Japan, Canada, Korea, the European Communities, the Separate CustomsTerritory of Taiwan, Penghu, Kinmen and Matsu, and the United States (WT/WGTI/W/111, W/113,
W/114, W/115, W/128, and W/142, respectively).
15. It was noted that the Doha mandate gave guidance in this area, by its reference to "long term
cross border investment, particularly foreign direct investment, that will contribute to the expansion of
trade".  On view, therefore, was that any discussions should focus on investment that was long termand that contributed to the expansion of trade.
16. In this context, one view was that once the developmental effects of different types of
investment were taken into account, consistent w ith the Doha mandate, green field investment would
be found to be the most development friendly because it did not crowd out domestic investment.
Besides, the definition should take into account the interests of home and host countries in a balancedmanner, including the issue of flow of funds. It was also suggested that in order to bring out the
development policy implications in relation to these parameters further, studies would have to be
undertaken. In this regard, some qualified their observations as preliminary and reserved their right to
come back on the issue as more study took place.
(a) Definition of "investment"
17. The definition of investment was seen to play an important role in shaping any overall
investment framework.  Discussion in the Work ing Group covered two main approaches to defining
investment – a narrow approach, such as the ente rprise-based or transaction-based definition, and a
broad approach, such as the asset-based definition with options for including or excluding various
categories of investment.
(i) Narrow definition
18. One view was that a narrow definition of inve stment, focused on FDI, captured most closely
the terms of the Doha mandate, and would establish clearly and predictably the parameters of any
eventual investment agreement from the outset.  This would make it unnecessary to further delineate
any agreement's scope and coverage through operative provisions.  It would allow any framework to
be focused on encouraging international flows of productive, long-term investment, which contributed
most directly and substantially to economic and technological development, employment and tradegrowth.  One suggestion made in this context was that a distinction should also be made between
different forms of FDI, since it was felt that greenfield FDI – in export-related activity in particular –
was generally more beneficial to host-country economies than FDI through merger and acquisition
activity.WT/WGTI/6
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19. It was felt that FDI was a more stable form of foreign capital flow than portfolio investment.
Concerns were expressed that a broad definition of investment would entail the liberalisation of all
forms of capital movement, and increase the risk of destabilising short-term flows.  These concerns
related primarily to the liberalisation of investment, but it also was noted that the stability of foreign
investment mattered at the post-establishment stage too, because of its link to incomes, employment,
and exports in a host country.  In that context, the need for host countries, particularly developing
countries, to maintain the right to regulate portfo lio investment, in particular speculative short-term
capital flows, was emphasised.  The best way of ensuring that, it was felt, would be to exclude these
investments altogether from the definition of cove red investment.  Also, including foreign portfolio
investment would complicate the process of delineating the parameters of a possible agreement, and
could lead to open-ended and unintended policy commitments.  A related point made was that the
issue of volatility of capital flows was the subject of ongoing work in other organisations, such as theIMF, and short-term portfolio investment should be excluded from further consideration in the WTO
until progress was made there on this issue.
20. It was felt also that there was a better understanding among WTO Members of the concept of
FDI than of other forms of foreign investment.  By narrowing the definition to FDI from the outset,
the negotiation and rule-making process would be easier and could be completed more quickly.  Anarrow definition would also make it easier to harmonise any eventual investment agreement with the
commercial presence provisions of the GATS,  which used an enterprise-based definition.
21. There was discussion of how best to arrive at objective criteria for defining investment as
only those assets which involved a "lasting or controlling interest" in an enterprise.  One point of
reference was the IMF's criteria for FDI, which wa s based on the degree of ownership in an enterprise
and used a 10 per cent threshold.  However, potential problems with the IMF approach – and the need
to explore alternative methodologies for defining long -term foreign investment – were also raised.  It
was suggested that there was a need to examine how portfolio investment that constituted less than 10
per cent of the equity in an enterprise, but nonetheless represented a long-term economic relationship
with a host country, could be accommodated.  It was also pointed out that that the concept of directinvestment transactions – as well as direct investment enterprises – needed to be included in any
concept of FDI in order to capture the capital f unds that moved between investors and enterprises.
One view was that it was best left to individual host countries to define what constituted FDI.
(ii) Broad definition
22. Another view was that the Doha  Ministerial mandate, while emphasising FDI, did not exclude
the possibility of including other categories of investment.  It was felt that a broad, asset-based
definition of investment, covering both FDI and por tfolio investment, would provide comprehensive,
rules-based protection and guarantee high standards of treatment for all categories of foreign
investment, thereby encouraging increased international investment flows and creating more efficient
international capital markets.  Both portfolio and sh ort-term capital also played a role in providing
foreign exchange and financing capital formation in a host country's economy.
23. Distinguishing between direct and indirect foreign investment was said to be increasingly
difficult in a world of complex financial transactions.  Attempts to define FDI in terms of imprecise
concepts such as a lasting interest or an owners hip threshold would interfere with the development of
clear substantive provisions, and was often not intrinsically meaningful.  Ownership of only a small
proportion of equity could still reflect a lasting interest in an investment, such as in the case of
mergers and acquisition activity, while ownership of a large equity stake did not necessarily imply along-term commitment, especially where institutional investors were concerned.  Other
methodological problems included whether it was necessary to meet an ownership threshold only at
the time an investment was made, throughout its existence, or at the point of divestment.WT/WGTI/6
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24. It was felt that a broad, asset-based definition of investment better reflected the evolving
nature of international financial flows and new forms of foreign investment, such as strategic
alliances, and using it from the outset in WTO would avoid the subsequent need to renegotiate any
framework in order to maintain its relevance.  It would also ensure consistency with most existing
international investment agreements (IIAs), particularly bilateral investment treaties, which usedasset-based definitions.
25. It was felt that taking a broad approach to the definition of investment in a possible
framework agreement did not imply necessarily less flexibility for host countries to treat different
categories of assets differently, for example in the way in which they regulated investment or made
liberalisation commitments.  Portfolio investment could still be treated differently from FDI.  The
eventual breadth and depth of scope of individual commitments made under an investment framework
would depend not only on the definition used but also on the framework’s substantive provisions,particularly provisions dealing with non-discrimination, pre-establishment commitments,
development, exceptions, and balance-of-payments safeguards.  Flexibility was best achieved not by
narrowing the definition of investment, but through an agreement's substantive provisions and the
structure of its specific commitments.  For example, concerns about destabilising capital flows could
be addressed through provisions that would permit certain restrictions on capital transfers for reasonsof balance-of-payments or the stability of financial systems.  It was noted, in this regard, that most
countries’ financial market regulations did not discriminate between foreign and domestic investors.
26. It was noted that under many, asset-based approaches used in IIAs, investment was defined to
cover "every kind of asset" and this was usually accompanied by an illustrative (non-exhaustive) list
of the categories of assets that were covered.  However, options existed for excluding certaincategories or sub-categories of assets.  Some IIAs explicitly excluded certain investment assets, such
as intellectual property, or certain types of transactions, such as capital movements that were mere
financial transactions for speculative purposes, commercial contracts for the sale of goods or services,
credits granted to a State, or loans that were not directly related to an investment.  Some others
implicitly excluded them by drawing up closed (exhaustive) lists of covered investments.
27. Different views were expressed on the value of an "open" or "closed" list of the assets to be
covered.  One suggestion was that using both a list of assets that were included and those that were
excluded could enhance clarity, which would be valuable in the context of any prospective dispute
settlement provisions and delineate more clearly the potential scope of the agreement.  Some doubts
were raised about the feasibility of this approach, questioning whether definitive lists could be created
in practice without overlap and ambiguity.  The point was also made that an article or provision on
"scope" – in addition to the definition of investment – could also help to delineate the coverage of apossible framework agreement.  The question was raised as to whether portfolio investment is already
addressed in the WTO rules by the GATS Annex on Financial Services.
(iii) Hybrid approach
28. One suggestion was the use of different definitions for the pre-establishment and post-
establishment stages of investment – a narrow approach for market access and investmentliberalization (pre-establishment), covering FDI only,  and a broad approach, covering a wide range of
assets, for the protection of investment once it had established locally (post-establishment).  One view
was that the option of using different definitions according to each element of a possible multilateral
framework might facilitate a consensus, and should be explored further.  Another view was that the
use of different definitions for the purpose of delineating different obligations could lead to complexdefinitions and difficulties of interpretation.WT/WGTI/6
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(b) Definition of "investor"
29. Various approaches to defining "investor" in IIAs were examined.  A general point was made
that the need to define an investor's "nationality" – or legal association with a Member – would be
relatively less important in a possible multilateral framework that included an MFN obligation, than in
preferential bilateral or regional IIAs where there was a need to exclude investors from third parties.Nonetheless, it could play a role, for example in the context of the rights of individual Members to
bring dispute settlement cases.  Several issues related to the definition of "investor" were felt to
require further consideration.
(i) Natural persons
30. It was noted that the term "natural persons" referred to individuals who invest directly in their
own private business, or through the placement of th eir own portfolio capital in a host country.  Their
legal association with a party to an IIA was typically  defined in terms of "nationality", by reference to
the domestic law of the parties concerns.  With regard to which categories of natural persons should
be covered, one view was that both national citizens and permanent residents should qualify, but that
for constitutional or other reasons country-specific reservations or exceptions might need to be
accommodated.  Another view was that permanent residents should not be included in the definition.
The question of the treatment of dual nationals was also raised.
(ii) Legal entities
31. It was noted that the term "legal entity" generally referred to companies.  Some IIAs explicitly
excluded certain forms of companies such as partnerships, joint ventures, not-for-profit organisations
or state-owned corporations from their definition of investor.  Determining a legal entity's association
with the party to an IIA could be complex.  Some IIAs required only that a company was incorporatedunder the laws of its home country.  Others specified that a company must also have its headquarters
and engage in real economies activities in the home country, or that the majority of a company's
shares be owned by home-country nationals.  Such qualifications were employed in part to prevent
companies from setting up "mail-box" operations in order to benefit from an IIA.  Several questions
were raised in this context:  whether all types of business entity recognised by applicable law shouldbe covered, including those not requiring formal registration;  the treatment of governmental and non-
profit organizations;  whether any enterprise formed under the law of a party should be considered an
investor of that party, regardless of the nationality of the ultimate ownership or control of the
enterprise;  whether a combination of place of incorporation, administrative seat, and nationality of
control or ownership should be used to determin e whether an enterprise should be considered an
investor of a party;   and the possible merits of a "denial of benefits" clause as provided for in GATS
Article XXVII.
(iii) Potential investors
32. The question was raised whether "potential inve stors or investments" should be covered by a
possible framework in the context of pre-establishment treatment.  One view was that any definition
of investor should be broad enough to cover an investor’s act of investing.  Specifically, an
agreement's provisions should apply to the process of investing – before and after the point in time atwhich an investment was made – as well as during the life of an investment.  Under this view, there
was an implicit analogy to trade in goods, whereby goods "seeking to enter" a jurisdiction, as well as
foreign goods already in the same jurisdiction, were understood to be covered by WTO agreements.
Another view was that any provisions should be li mited to regulating the actual entry of investment,
without conferring any rights to either potential investors or investors seeking entry.WT/WGTI/6
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(c) Related issues
(i) Investment-related definitions in other WTO agreements
33. The need to clarify the relationship between  the coverage of the terms "investment" and
"investor" in a possible investment framework and concepts used in existing WTO agreements,
particularly the GATS and the TRIPs agreement, was raised.
34. One view was that the GATS addressed policies which WTO Members applied, inter alia , to
the establishment of a "commercial presence" by foreign service suppliers, which corresponded
broadly to the concept of pre-establishment treatment for FDI.  The GATS approach to definition of
investment was narrower than the standard asset-based definition of investment used in most IIAs, but
resembled fairly closely an enterprise-based definition.  By contrast, the TRIPs agreement adopted a
limited, asset-based approach to defining its coverage, accompanied by a closed (exhaustive) list of
the intellectual property assets included.
35. Another view was that the GAT S did not cover investment per se , but ‘commercial presence’
which was only a mode of service delivery. The GATS did not include pre-establishment national
treatment, and national treatment under the GATS was qualified, unlike that under GATT.
3. Transparency
36. A Secretariat Note on this subject was circulated in WT/WGTI/W/109.  Written contributions
were received from the European Communities, Japan, and the Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu (WT/WGTI/W/110, W/112, and W/129, respectively).
37. The importance of transparency for creating a predictable, stable and secure climate for
foreign investment was underlined by many.  It was recalled that Ministers at Doha had emphasized
the concept of securing a "transparent" framework for foreign investment.  Several Members citednational surveys suggesting that increased transparen cy in national and international investment rules
was a main objective of their business communities.  It was also noted that transparency obligations
did not figure prominently in most existing IIAs, raising the possibility of an institutional "gap" that
might usefully be filled by the WTO.
38. The focus of discussion was not primarily on the benefits of transparency, but on the nature
and depth of transparency provisions and on the scope of their application.  It was felt that
"transparency" in international commercial trea ties involved two core requirements: to make
information on relevant laws, regulations, and other policies publicly available, and to notify
interested parties of relevant laws and regulations and changes to them.  There were differing views
on whether transparency also involved obligations to ensure that laws and regulations were
administered in a uniform, impartial, and reas onable manner.  The suggestion that transparency
provisions should address investors and home countries as well as host countries was put forwardforcefully by some.
39. It was noted that the scope for transparency in a possible investment framework depended not
just on transparency provisions themselves, but on the ambition and breadth of the agreement to
which these provisions applied.  An agreement with limited coverage and disciplines would involve
fewer transparency obligations.  The question of whether a "positive list" approach to schedulingcommitments was inherently more transparent than  a "negative list" approach was discussed.  The
point was made that investment was subject to a far broader range of domestic policies and
regulations than trade, which would extend the potential scope of transparency provisions in a
possible investment framework.WT/WGTI/6
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40.  Concerns were raised about the technical and resource capacities of developing countries to
meet new transparency requirements in the area of investment, given the difficulties they already
faced in complying with existing WTO requirements.  Many Members emphasised the need to strike
an appropriate balance between pursuing transparency and avoiding the imposition of burdensome
obligations on host country governments.  A recurring theme was the need to direct technicalassistance and capacity building towards host countr ies' efforts to make their domestic investment
regimes more transparent.  Another theme was the role that technology could play in enhancing the
transparency of investment regimes in a more cost-effective way.  What was important for many
Members was the need to delineate clearly and precisely the scope for transparency obligations
(perhaps in the form of an illustrative list) to avoid imposing open-ended and unrealistic commitments
on host countries.
41. It was felt that existing transparency provisions in the WTO - and especially the GATS -
offered a useful starting-point for examining the scope for transparency in a possible multilateral
investment framework.  Since GATS Article III applied to all measures of general application
pertaining to GATS rules – including measures relating to the establishment of a "commercial
presence" – it was suggested that the WTO already contained transparency obligations in regard to
FDI in the services sector.  Some felt that GATS Article III provided a useful model that should beexamined when considering transparency provisi on for foreign direct investment more generally.
  It
was also felt that the Working Group should take into account existing work on transparency issues in
the GATS Working Party on Domestic Regulation, to get a sense of where GATS provisions were –
and were not – working.
(a) Possible transparency obligations
(i) Publication and notification requirements
42. There was broad agreement that the basic publication and notification obligations found
across WTO agreements should be generally applicable to any investment framework.  GATT
Article X:1, TRIPS Article 63(1), and GATS Article III:1 each required WTO Members to publish, or
make publicly available, all relevant measures – which typically included laws, regulations, judicialdecisions and administrative rulings of general application.  The obligation to notify the WTO and
other Members of changes to laws and regulations was also present throughout most WTO
agreements, although this was generally more complex than the publication requirement.
(ii) Enquiry points
43. It was noted that many of the WTO agreements relating to trade in goods required Members
to respond promptly to requests for information and to establish enquiry points to make access to such
information easier.  Similar "access to informatio n" requirements could also be found in the GATS
(Article III:4).
(iii) Prior notification and comment
44. There was no common view on the applicability of prior notification and comment
requirements.  The observation was made that whil e most notification obligations in the GATT, the
GATS and the TRIPS Agreement came into play only after a measure had been formally adopted,there was also a variety of prior notification requirements in the WTO agreements – ranging from the
obligation to notify the WTO and other Members of proposed changes to laws and regulations, to
more complex obligations in the SPS and TBT Agreements to allow other Members the opportunity to
comment on proposed regulatory changes and to submit reverse notifications.  One view was that
prior notification – and the right comment – reduced uncertainty and discriminatory treatment in agiven market, as all parties had the opportunity to participate in the development of regulations, and
was therefore suited to be incorporated in any investment framework.  Another view was that theWT/WGTI/6
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rationale for prior notification and comment was specific to certain WTO agreements and should not
be applied to investment rules.  Some felt it would be too ambitious and administratively burdensome
for the majority of WTO Members.
(iv) Administrative and judicial procedures
45. There was no common view on whether the concept of transparency should apply to the way
investment rules were administered, as well as to the rules themselves.  It was noted that general and
specific obligations relating to the "uniform, reasonable and impartial" administration of rules and
regulations, including, in many instances, the right of appeal and review, could be found throughout
the WTO agreements, most obviously in GATT Article X and GATS Article VI.  Some felt that
transparency in the way that rules were administered  was directly related to the transparency of the
rules themselves, and that both aspects were equally important to creating a predicable and stable
investment climate.  Some others felt that the uniform, reasonable, and impartial administration oflaws and regulations, while important, did not fall within the purview of transparency as traditionally
defined in the WTO system.  Moreover obligations related to administrative or procedural
transparency would represent an unjustified intrusion into national sovereignty.
(v) Investor and home- country obligations
46. The question was raised as to whether transparency obligations in a possible investment
agreement should be extended to foreign investors and to home countries, as well as to host countries.
Support was expressed for the view that ensuring transparency in the operations of transnational
corporations and foreign investors themselves was an  important issue that should be addressed by the
Working Group.
(vi) Confidentiality
47. It was noted that the general and specific transparency provisions of WTO agreements
typically contained exceptions clarifying that Members were not required to disclose confidential
information which would impede law enforcement or otherwise be contrary to the public interest, or
which would prejudice legitimate commercial interests of particular enterprises, public or private.
Some felt that a similar confidentiality exception – based on a clear definition of the circumstancesunder which such an exception could be invoked – was applicable to investment.
(b) Application of transparency obligations
(i) Clarifying the scope of transparency obligations
48. It was acknowledged that the task of identifying and listing all domestic laws and regulations
that might be relevant to the operation of foreign investors could pose significant difficulties for many
Members.  One suggestion was to attach an illustrative list of laws and regulations to which
transparency provisions applied in order to clarify their coverage and scope.
(ii) Technical assistance
49. While it was felt that developing countries would benefit significantly from enhanced
transparency provisions in a possible investment framework, some expressed concerns that the
administrative costs of possible obligations could outw eigh any benefits in terms of attracting foreign
investors.  One suggestion was that special emphasis should be placed on transparency issues whenbudgeting for future technical assistance and capacit y building.  It was suggested that a multilateral
framework should include clear and detailed provisions for linking the implementation of
transparency obligations and procedural reform to technical assistance and capacity building.  ThereWT/WGTI/6
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was also a perceived need to assist countries to identify and publish comprehensive lists of all
domestic regulations and rules governing foreign investment.
(iii) Technology
50. Some suggested that transparency provisions could be applied more easily and at lower cost
by using new electronic information technologies – websites, electronic databases, and Email – andnational examples were given to illustrate possible applications.  One suggestion was that investment
laws and regulations could be made available on databases, contact addresses could be put on
websites, and public comment procedures could be run electronically.
4. Development provisions
51. A Secretariat Note on this subject was circulated in WT/WGTI/W/119.  Written contributions
were received from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Canada,
Switzerland, the European Communities, and India (WT/WGTI/W/126, W/131, W/133, W/140, andW/148, respectively).
52. The integration of development provisions into a prospective WTO investment framework
was viewed as a horizontal issue, cutting across the other subjects set out for clarification by the
Working Group, so that many of the key concepts addressed under this heading were also raised in the
discussion on other subjects.  The point was made that the seven issues listed for clarification inparagraph 22 did not exhaust the scope for development provisions, and that further discussion would
reveal whether certain items should be excluded from the list and whether new items (such as
performance requirements) should be added.
53. It was noted that any discussion on the issue of exceptions should fully take into account the
developmental needs of developing countries. One view was that certain important studies hadhighlighted cases where foreign investment might have lowered host-country welfare. Developing
countries needed to retain the ability to screen and channel foreign investment in accordance with
their domestic interests and priorities. Developing countries also should have the freedom to use
performance requirements. Referring to the statements by some to draw a parallel between mode 3 of
GATS and investment disciplines, it was note d that GATS did not impose any prohibition on
performance requirements.
54. The Group discussed ways in which "flexibility" for development purposes could be
integrated into a framework of transparent and predictable investment rules.  While views differed
over the nature of development provisions, there was wide agreement that such provisions should be
complements to, not substitutes for, policy disciplines.  There was a widely shared view that
development provisions should form an integral part of the legal structure, as well as the substantive
provisions, of any investment framework.
55. Much discussion focused on the way development issues were treated in the GATS, and
whether its structure and provisions provided a model for a possible investment framework.  One
view was that a GATS-type positive list approach to undertaking specific commitments was more
flexible and development-friendly than a negative list approach to scheduling specific exceptions to
general obligations, although some felt that flexibility for development was also a core element of thenegative list approach, since, subject to negotiations, sectoral or other exemptions, including for
unspecified future development measures, could also be accommodated.  The GATS allowed
countries not only to phase-in commitments regarding market access and national treatment according
to their individual needs and levels of development, but allowed them freedom to attach to these
commitments other possible conditions related to development objectives.  Attention was also drawnto GATS provisions recognizing the need to pay due respect to individual Members' national policy
objectives and their level of development in any process of liberalization.WT/WGTI/6
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56. Another view was to doubt the relevance, as well as the effectiveness, of the GATS approach
in the case of investment.  Some felt the GATS positive list and progressive liberalisation approach
would not translate into the kind of open and transparent investment environment that developing
countries needed in order to attract FDI.  Some felt that the GATS had presented developing country
negotiators with problems in a range of areas including MFN exemptions, industrial classifications,the scheduling of commitments, and regulatory issues.  Some felt that the GATS was a trade
agreement with limited relevance to the regulation of  capital flows, and as such could not provide the
flexibility needed by developing countries in the area of foreign investment.  Others felt that the
GATS approach, while based on selective and gradual liberalization, generated pressure on countries
to assume broader and deeper commitments over time, building on their initial obligations and
narrowing down the flexibility available to them.
57. It was suggested that the main areas where developing countries sought flexibility in a
possible investment agreement were in regulating the entry of foreign investment (through general
screening, selective restrictions, and conditions on entry) and in using policies to enhance the
contribution that foreign investment made to their economic and social development needs and
objectives (through performance requirements, investment incentives and preferences for domestic
investors).  In this regard, some felt on the other hand that performance requirements were a burdenfor investors and would therefore not necessarily contribute to development.
58. While it was acknowledged that there was no single model of development provisions and
that the issue needed to be considered on a count ry-specific basis according to each Member's needs,
various broad options for incorporating development provisions into a possible investment agreement
were discussed.
(i) Declaratory statement
59. One suggestion was to include a declaration of intent of the development objectives of a
possible investment agreement in its preamble which, while not granting any rights or obligations,
could serve as a basis for legal interpretation of whether the agreement's substantive provisions were
being applied in conformity with its development objectives.
   Attention was drawn to the preamble to
the GATS in this respect.
(ii) Definitions
60. The definition of investment was felt by some to have significant implications for developing
countries.  Following discussions in the Group on scope and definition, many reiterated the
importance for developing countries of a narrow definition of investment in order to limit any
agreement's coverage to long-term cross-border investment, particularly FDI, and to facilitate any
future negotiations.  Others felt that a broad, asset-based approach would be sufficiently flexible toallow those developing countries wishing to accept obligations across-the-board to do so, while
enabling others to limit their obligations though th e agreement's substantive obligations and specific
commitments.  Examples of this approach were to allow screening of the entry of foreign investment
to ensure that it complied with a host-country's development needs and objectives, or capital
restrictions to be imposed to safeguard the balance-of-payments.  In this respect, it was noted thatUNCTAD had concluded that development policy objectives and concerns were not necessarily
incompatible with a broad approach to definition, given the scope that existed to narrow the coverage
of an agreement through its substantive obligations and specific commitments.WT/WGTI/6
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(iii) Pre- and post-establishment treatment
61.  The issue of whether a possible investment framework should cover pre- as well as post-
establishment treatment of foreign investment was felt to be important for developing countries.  One
view was that developing countries should be allowed more flexibility at the pre-establishment stage
which impacted directly on their ability to regulate and place conditions upon the entry of foreigninvestment.  Examples mentioned were general screening, restrictions on certain kinds of entry (e.g.,
mergers and acquisitions), foreign ownership limitations, quantitative restrictions, compulsory joint
ventures, minimum capital requirements, and performance and other requirements.  Some felt that
developing countries should be exempted entirely from making pre-establishment commitments.
Some others felt the use of a positive list approach at the pre-establishment stage could ensure the
necessary flexibility.
(iv) Flexibility in the application of general obligations
62. The scope for exceptions to an agreement's gene ral obligations was felt to have an important
development dimension.  Exceptions relevant to development provisions were grouped into four
categories:  systemic exceptions, general exceptions (safeguard and escape clauses), balance-of-
payments exceptions, and country-specific exceptions that allowed individual countries to exempt
themselves from the agreement's rules of general application for particular activities, sectors ormeasures, sometimes with expectations that these exceptions would be reduced or eliminated over
time.   It was noted that while some of the exceptions that were available to all Members equally
could be invoked more flexibly by developing countries, others were available to developing
countries only.
63. Systemic exceptions: The flexibility to take permanent exceptions or "carve outs" from an
agreement's disciplines (as opposed to temporary safeguards or transitional mechanisms only) for
certain industries, sectors or measures was felt by some to be a key issue.  The option to take lower
obligations – or no obligations at all – was felt to be relevant to developing countries for a range of
investment-related policies including, among other things, general screening, investment incentives,
technology transfer and other performance requirements not covered by the TRIMs Agreement,employment policies, land and property ownership, and restrictions on – and conditions attached to –
the entry of FDI.
64. General exceptions:  Many felt that general exceptions in the WTO – for public interest and
security, and for regional integration – should be applicable in any investment agreement.  While
general exceptions were "general" in the sense that they could be invoked by all Members in well
defined circumstances, some flexibility was accorded  to developing countries in certain respects.  As
regards regional integration, for example, GATS Articl e V:3(a) allowed a flexible interpretation of the
conditions that needed to be met in order for develo ping countries to enter into regional agreements,
recognising that regional integration could be important to the capacity-building process of
developing countries.  In the case of an agreement involving only developing countries, Article V:3(b)
authorised more favourable treatment to be granted to juridical persons owned or controlled by natural
persons of the parties to such an agreement.
65. Balance-of-Payments exceptions: It was noted that both the GATT and GATS provided for
more flexible access to these safeguard measures for developing countries in recognition of their need
to maintain monetary reserves adequate to implement their programmes of economic development.
66. Country specific exceptions:  It was noted that the GATS and most IIAs, although not the
GATT, allowed individual exceptions to the rule of non-discrimination with regard to particular
sectors and/or measures.  While some felt that country-specific exceptions could be important in areas
such as education, training, employment and environmental protection, they were no substitute for
broader systemic exceptions or carve outs for developing countries.WT/WGTI/6
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(v) Flexibility in undertaking specific commitments
67. Scheduling country-specific commitments was considered a key issue in giving flexibility and
balance to a possible investment agreement for developing countries.  It was noted that this approach
could apply not only to market-access commitments, but also to one or more of an agreement's
substantive provisions, such as national treatment, where these were drafted as specific commitmentsrather than as rules of general application.
68. A positive list, "bottom up" approach to undertaking country-specific commitments was felt
by some to be a preferable way to integrate policy  flexibility for development into the basic structure
of an investment framework.  Some felt that a negative list, "top down" approach was preferable since
it would result in a more transparent and comprehensive framework of investment rules, and could
also be considered as flexible since subject to negotiations developing countries would have the
possibility of a greater number, as well as more comprehensive, reservations to specified provisions ofthe agreement, including with respect to the policy latitude necessary for future measures.
69. A related question was how specific commitments should be "phased-in" (or specific
exceptions "phased-out").  One view was that provisions could be introduced recognizing developing-
countries' right to open fewer sectors, to liberalise fewer types of transactions, and to be allowed a
grace period in which to make possible adjustments to lists of schedules.  GATS Article XIX:2 on"Progressive Liberalisation" was cited in this regard, as an example of how a positive list approach
could be structured in a development friendly way.  Another view was that in the case of any possible
investment agreement, developing countries should be exempt from any obligation to liberalise
progressively or phase-in greater specific commitments.
(vi) Flexibility in timeframes for implementation
70. Transitional mechanisms were examined as a way of providing developing and least-
developed countries with additional flexibility to phase-in commitments or to phase-out non-
conforming measures.  It was noted that such mechanisms were designed not to reduce a developing
country's general level of obligations or to create permanent rights, but to allow more time for policy
reform and for building up the human, institutional and infrastructural capacity necessary toimplement an agreement's obligations.  Examples cited from the WTO were the TRIMs, TRIPS and
SCM Agreements.  It was suggested that technical assistance could be linked to an agreement's
transitional mechanisms.  While many felt that the scope for transitional mechanisms should be
explored, subject to clear and precise criteria for their application, some emphasised that such
mechanisms should not be seen as a substitute for lower levels of obligations, technology transfer
requirements and more flexibile commitments for developing countries.
(a) Specific issues raised
(i) "Development clause"
71. One suggestion was to include a dedicated development provision in the substantive part of
any investment agreement, which would carry more weight than declaratory, preambular language,
and aim at ensuring that the agreement addressed broader development objectives along with its
primary commercial purpose.  Attention was drawn in this regard to GATS Article IV, wheredeveloping countries' liberalization commitments were linked closely to the strengthening of their
domestic services capacity, improvements in their access to distribution channels and information
networks, and the reciprocal liberalisation of market access in the sectors and  in modes of supplying
of interest to their exporters.
  Some felt that a "development clause" should create permanent carve-
out from the application of any agreement's substantive provisions so as to protect developmentobjectives.WT/WGTI/6
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(ii) Investor and home-country obligations
72. It was suggested that home-country and investor responsibilities should constitute one
element of the development dimension of any investment agreement.  All countries, but particularly
developing countries, had an interest in ensuri ng international standards of corporate conduct that
would produce more accountability, fairer competition, and greater social responsibility.  Some feltthat the OECD Guidelines on Multinational Enterprises provided a useful example in this regard of
how to ensure that multinational enterprises conducted their activities in a responsible manner and in
harmony with the policies of the countries in which they operated.  Other examples cited were the
OECD's Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions and the UN's Global Compact.  Some felt that there should be a binding code of conduct
for investors and multinational corporations, enforced by home countries through a set of precise
domestic laws that could be activated by host countries.
73. Another view was that the idea of extending multilateral obligations to investors and home
countries went in the wrong direction. Home countries were already free to regulate foreign investors,
subject to any international treaties they had entered into, and home countries were not well placed to
collect information on business practices outside their jurisdiction.  It was further noted that, as a
general rule, international agreements only applied dire ctly to states, not to enterprises.  Some felt that
the issue of state sovereignty, and the right to regulate, also warranted greater discussion in this
context.
74. Some felt that investor and home-country obligations were not included among the subjects
explicitly set out for clarification in paragraph 22 of the Doha Declaration, and their inclusion could
overload the agenda.  Some others disagreed with this point of view, noted that "home countries" werementioned in paragraph 22, and said that in any case in their view the list of issues cited there was
illustrative, not exclusive.
(iii) Screening
75. Concerns were expressed by some that pre-establishment commitments might limit
developing countries freedom to screen, regulate or channel the entry of foreign investment.  Oneissue raised was the compatibility of MFN and natio nal treatment standards with screening procedures
used by some host countries to evaluate the costs and benefits of particular foreign investment.  One
view was that exceptions – either systemic or country-specific – to pre-establishment commitments
would be needed to allow the continued use of screening mechanisms.  Another view was that, in
principle, screening mechanisms could be consistent with MFN treatment so long as they were based
on objective criteria and were applied in a transparent and non-discriminatory way.
(iv) Performance requirements
76. The specific subject of technology transfer was discussed in the context of policy-related
technical assistance, but the wider issue of performance requirements was also raised on several
occasions in the Group.  Differing views were expressed on this subject.  One view was that any
investment agreement could not be comprehensive without permitting the use of performance
requirements, especially in the context of its development provisions.  Performance requirements onemployment generation, technology transfer, export performance, manufacturing, and research and
development were key to developing countries' efforts to attract technology, increase employment,
and encourage industrial linkages upstream and downstream.  Another view was that performance
requirements were not efficient measures.  Besides, they were not included among the subjects
explicitly set out for clarification in the Doha Ministerial Declaration, and the issue was already beingaddressed elsewhere in the WTO, in the context of the review of the TRIMs Agreement.
(v) Investment incentivesWT/WGTI/6
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77. There were differing views on the inclusion of investment incentives as another element in a
prospective WTO investment agreement.  Flexibility in the definition and application of investment
incentives was considered a key development issue by some, which could help to create a more level
playing field in attracting and retaining FDI.  Others  felt that investment incentives did not constitute
an optimal policy instrument but rather were a second best solution, and that, like performancerequirements, the Working Group had no explicit mandate to discuss the issue.
(b) Technical assistance and capacity building
(i) Technical assistance and implementation
78. Technical assistance and capacity building were viewed as important to enable developing
and least-developed countries to put in place appropriate policy frameworks conducive to attracting
and managing foreign investment.  They could help build capacity in developing countries to identify
national interests and establishment investment priorities, to negotiate effectively, and to implementany agreements reached.  Related to this was the need to assist developing countries to improve
market conditions domestically for attracting and absorbing foreign investment.  With a view to
promoting developing countries as investment locations, technical assistance could also be directed at
improving awareness in home countries and at re-o rienting their investment promotion programmes.
5. Non-discrimination
79. A Secretariat Note on this subject was circulated in WT/WGTI/W/118.   In addition, written
contributions were received from the European Communities, Korea, Japan, the Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu, Canada, Mexico, and India (WT/WGTI/W/122,
W/123, W/124, W/127, W/130, W/132, and W/149, respectively).
80. It was noted that while the principle of non-discrimination was at the core of most
international commercial treaties, its application was typically subject to carefully defined conditions.
These could allow governments to give preferential treatment to domestic products, producers and
investors, or to certain of their commercial partners but not to others, or to pursue domestic policy
objectives that could not be realized without practising some degree of discriminatory treatment.  The
scope of the application of non-discrimination was also affected by the definition of "investment" inan agreement, the range of assets to which non-discriminatory standards applied, exceptions taken and
specific commitments made under the agreement's provisions.  It was felt that specific commitments,
in particular, could be crucial in qualifying the meaning and scope of application of non-
discrimination in any eventual agreement.
81. A distinction was drawn between the applic ation of non-discrimination – and national
treatment in particular – at the pre- and post-establishment phases of investment.  While many could
agree that standards of non-discrimination should  apply to investments and investors already
established in a market, subject to certain exceptions, the idea of extending a commitment of non-
discrimination to investment liberalisation was fo r some more problematic. Some felt that pre-
establishment commitments should not be part of a multilateral approach to investment at all.
82. A distinction was also drawn between MFN an d national treatment.  Many favoured MFN
treatment as a general rule of application for both pre- and post-establishment treatment, as a way ofguaranteeing equality of treatment for foreign inve stments, of creating a more transparent and uniform
system of investment rules, and of maintaining consistency with other WTO agreements, including
the GATS.  There was a difference of opinion on th e application of national treatment.  While some
felt that national treatment should be extended to all stages of investment – its entry, its operation
after establishment, and its liquidation – others felt that host countries, particularly developingcountries, needed to be able to differentiate in th eir treatment of domestic and foreign investors, andWT/WGTI/6
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in particular to retain the freedom to control, scre en and channel foreign investment in line with their
national policy objectives.
83. It was suggested that the issue of non-discrimination should be viewed in the context of
existing WTO agreements, which often used different approaches to core disciplines such as MFN
and national treatment.  One view was that any appr oach taken in the WTO in the field of investment
should be compatible with the GATS and should not call into question its basic approach.  Another
view was that attention needed to be paid to all of  the various approaches to non-discrimination in the
WTO, and how these could be made compatible under a possible investment framework.
(a) Pre- and post-establishment treatment
(i) Pre-establishment
84. A key issue was whether standards of non-discrimination should apply only to the post-
establishment stage of investment or to the pre-establishment stage as well.  It was noted that themajority of existing IIAs, and particularly bilateral investment treaties, applied MFN and national
treatment as rules of general application, but that most of them covered only the post-establishment
treatment of investment, leaving access to a host country and the pre-establishment treatment of
investment subject to its national laws and regulati ons.  The GATS was fairly unique in its treatment
of admission (market access) and national treatment as specific commitments as well as with respectto its bottom-up approach to scheduling.
85. One view was that the GATS did not deal with pre-establishment national treatment since the
obligations of Members were based on specific commitments and since national treatment under
GATS was subject to a number of qualifications.
86. The ability to control or place conditions upon the admission and entry of foreign investment
was a significant issue for some.  It was noted that no existing IIA offered absolute and unconditional
rights of entry and establishment.  Concerns were expressed that broad investment liberalization
commitments could expose developing countries to volatile capital flows and reduce their ability to
regulate foreign investment for macroeconomic and balance-of-payments reasons.  Another concern
was that binding commitments on pre-establishment treatment would diminish developing countries'discretion to screen foreign investment, and to channel FDI towards national industrial, economic or
development objectives.  Full non-discrimination at the pre-establishment stage would also prevent a
host country from reserving certain sectors or industries exclusively for national investors, or
attaching special conditions to foreign investment that were not applicable to national investment.
87. One view was that pre-establishment commitments were important to the creation of a
transparent and stable framework for the international flow of investment.  The fact that the GATS,
inter alia , dealt with pre-establishment treatment of foreign investment in the services sector meant
that there was a need for balance in the WTO rule s regarding the treatment of foreign investment in
the manufacturing sector.  It was also suggested that pre-establishment commitments were not
incompatible with developing countries’ freedom to screen foreign investment, to regulate for
prudential purposes, or to undertake commitments commensurate with domestic needs or levels of
development, particularly if a positive list approach to country-specific commitments were adopted.
88. One view was that it was not appropriate to compare "investment" as defined and dealt with
under GATS with "investment" as proposed for negotiation under the aegis of WTO. GATS followed
an "enterprise based definition" of investment and the definition was closely linked to the mode 3 of
service delivery (commercial presence) which, in the context of GATS, has no other purpose than to
facilitate service supply. One of the basic characteristics of service delivery in respect of certaincategories of services was the need for the "supplier" and the "receiver" of the service to be in contact.
Commercial presence was, therefore, the only mode of service delivery in the case of certain types ofWT/WGTI/6
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services, e.g. banking and insurance. Commercial presence was covered under the GATS only to the
extent that it facilitated the delivery of services – and that, too, was subject to various conditions and
exemptions. What was of importance was the co mmitment for market access for specific service
sectors undertaken by a Member.  Mistaking it as a commitment to "commercial presence" was
mistaking the medium for the message.
89. It was noted that a conceptual distinction between the pre- and post-establishment phases of
investment was not always easy to make in practice,  which raised difficulties when attempting to set a
lower standard of treatment for foreign investors entering a market than for those already established.
It could blur, for example, when the treatment app lied to investment at the pre-establishment stage
affected directly an investor’s post-establishment operations and activities.  Similar conceptual
problems could arise when an investment was expanded or diversified in the host country.
90. One view was therefore that it was important to provide non-discriminatory treatment to all
three phases in the life of an investment:  its  entry, its operation after establishment, and its
liquidation.  Entry was crucial, since it was the point at which governments could deny market access
altogether, or attach conditions to it, such as lo cal participation in the ownership and control of an
investment, or performance requirements.  The conditions that applied to market entry often remained
in force throughout the life of an investment.  To draw an a priori  distinction between pre- and post-
establishment treatment risked undermining the meaning of non-discrimination and market access.
91. One view was that traditionally in international law, control of entry and establishment had
been the prerogative of national governments. Conv entionally countries had treated as sovereign the
right to control entry and establishment. Only two countries (the United States and Canada) were
known to insist on pre-establishment national treatment provisions in their bilateral investmenttreaties. A very limited number of other bilateral agreements involving pre-establishment national
treatment were in the context of free trade arrangements or regional trading arrangements.
International investment agreements also, in general, did not envisage national treatment at the pre-
establishment stage. When certain international instruments envisaged pre-establishment national
treatment, they were non-binding. The OECD MAI envisaging pre-establishment national treatment
did not find favour with OECD countries and had to be abandoned. The question was, therefore, how
an agreement of this nature, envisaging national treatment and MFN provisions of a binding nature,
could be considered in a much more heterogeneous group like WTO.
(ii) Post-establishment
92. There was a widely shared view that the principle of non-discrimination should extend to
investment that had been admitted to a host country, incorporating at least the minimum standards of
investment protection found in bilateral investment  treaties, although some noted that governments
typically retained a measure of flexibility by subjecting this principle to a number of exceptions that
were either general in nature or that pertained to specific sectors.
93. Concerns were expressed by some that the full application of non-discrimination at the post-
establishment stage could restrict a host country's ability to subsidize or provide other benefits
exclusively to national investments, or to exercise stricter regulatory control over foreign investments
than over national investments.  It could affect many development-oriented policies, especially those
that aimed at placing performance conditions on foreign investors, or at providing preferential support
and protection to infant industries, national producers and investors.  Provisions attached to post- as
well as pre-establishment treatment should recognize developing countries' right to regulate, to enjoy
longer transition periods for adopting obligations and commitments, and to deviate from disciplines ina transparent manner when pursuing justified industrial, technological, and employment objectives.WT/WGTI/6
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(b) Standards of treatment
(i) MFN treatment
94. A key theme in the discussion was the distinction between MFN and national treatment.  Of
the two standards, MFN treatment was generally felt to be less controversial than national treatment,
as it did not impinge as directly on a host country's ability to provide support and protection todomestic investment and business interests.
95. One view was that MFN treatment should be a general rule of application at both the pre- and
post-establishment stages of investment, subject to any exceptions that a party might lodge.  The point
was made that MFN treatment was key to creating a level playing field among foreign investors and
to designing a more equitable, transparent and stable structure of international rules.  It was also noted
that MFN was a general rule of application in both the GATT and the GATS, so as a matter of
consistency in the WTO system it was felt that MFN treatment should be incorporated in a possibleinvestment agreement as a general obligation for all pha ses of investment.  In fact this approach could
be accommodated in a number of ways, depending on the structure of any prospective accord.
96. Some reservations were expressed about a commitment to full MFN treatment at the pre-
establishment stage of investment.  The suggestion was made that host countries might wish to
exercise selective controls over which foreign investments to admit, and on what terms they were tobe admitted.  The need to maintain flexibility to use screening policies on a case-by-case basis, in
order to select foreign investments considered compatible with domestic industrial policy, was noted.
Some also felt it important to preserve the option to offer certain foreign investors, but not others,
investment incentives and other benefits which could carry over into the post-establishment phase.
(ii) National treatment
97. It was widely noted that including the national treatment standard in a possible multilateral
investment framework raised more complex i ssues than the inclusion of MFN treatment.
98. The application of national treatment to the entry of foreign investment was highly sensitive
for many.  At the pre-establishment stage of investment, full national treatment would in principle
prevent a host-country government from reserving certain sectors or industries exclusively fornational investors, or attaching special conditions to foreign investment that were not applicable to
national investment.   In principle, it would mean a commitment to full openness to foreign
investment, which it was noted no jurisdiction to date had achieved.  It was suggested that GATS
practice should be taken into account in the design of a possible investment framework:  foreign
service suppliers were granted national treatment in the pre-establishment phase only if market access
commitments were scheduled by Members, and then specific conditions could still be attached.
99. It was also noted that the application of national treatment to the post-establishment phase of
an investment could limit a host country's ability to protect its domestic investors against foreign
competition through the differential application of laws and regulations. When applied in full, it
placed foreign investors on an equal footing with na tional investors, and removed to a large extent the
means that a host-country government had of supporting and protecting its own national investors.
For example, it would in principle prevent a host -country government from subsidizing or providing
other benefits exclusively to national investments, or from exercising stricter regulatory control over
foreign investments than over national investments in areas such as environment or employment.
(iii) Other standards of treatment
100. It was observed that many IIAs contained other standards of treatment, such as "fair and
equitable treatment", that could have a bearing on the application of the principle of non-WT/WGTI/6
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discrimination.  However some felt that, while such issues may need to be addressed in the future,
they lay outside the current mandate of the Working Group
(c) Related issues
(i) Exceptions
101. It was noted that most IIAs contained except ions to the rule of non-discrimination, usually
subject to carefully defined conditions.  These allowed governments to give preferential treatment to
domestic products, producers and investors, or to certain of their commercial partners but not others,
or to pursue domestic policy objectives that could not be realized without practising some degree of
discriminatory treatment.  During the discussion of "development provisions", the Group explored the
scope for – and possible application of – systemic, general, balance-of-payments and country-specific
exceptions.  Those mentioned were exceptions relating to screening procedures, national security,
development, regional integration, public order, privatization, the balance-of-payments, sectoral
reservations, performance requirements, and the movement of natural persons.  Similar issues were
also raised in the Group's discussion of "exceptions and balance-of-payments safeguards".
(ii) "Right to regulate"
102. Some suggested that the "right to regulate" should be explicitly recognized in a possible
investment framework as an exception to the principle of non-discrimination.  It was noted that thepreamble to the GATS recognized the right of Members to regulate "in order to meet national policy
objectives".  In some IIAs, the issue of the "rig ht to regulate" arose in the context of investor
protection, and the extent to which coverage for "indirect takings" or "regulatory takings" was
provided for under an agreement's expropriations provisions.  One question raised was whether the
concept could be interpreted beyond its original expropriation context (regulatory takings) to includealso development and other related concerns.
(iii) "Like" circumstances
103. It was noted that MFN and national treatment were comparative standards.  Some believed
that the context for comparison was implicit in the terms themselves, and considered that the words
"in like circumstances" were unnecessary and open to abuse.  Some others felt that the context ofcomparison should  be made explicit through inclusion of the phrase "in like circumstances".  It was
noted that some IIAs followed the practice of the GATT and the GATS in specifying that they applied
only between investments that were "like" or "similar".
(iv) Vested benefits
104. One issue raised was how MFN obligations should be applied in relation to investors or
investments that had been granted preferential standards of treatment prior to any negotiation of an
investment agreement in the WTO:  should the same favourable treatment should be extended to otherforeign investors on an MFN basis, or should prior benefits should be protected by taking an
exception to the MFN obligation through a "grandfather clause"?
(v) Sub-national entities
105. One question asked was whether treatment accorded to foreign investors by a sub-national
state or province would meet the national treatment test only if it were no less favourable than thetreatment accorded to the investors of the same state or province, or whether it would be sufficient to
accord treatment no less favourable than that accorded to the investors from any other state or
province.WT/WGTI/6
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6. Modalities for pre-establishment commitments based on a GATS-type positive list
approach
106. A Secretariat Note on this subject was circulated in WT/WGTI/W/120. Written contributions
were received from the European Communities, Korea, Japan, the Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu, India, and Canada (WT/WGTI/W/121, W/123, W/125, W/127,W130, and W/150, respectively).  This subject was raised also in the context of the discussion of
"non-discrimination", "scope and definition", "transparency", and "development provisions".
107. One view was that the GATS approach to scheduling market-access commitments and related
policy obligations represented a realistic and balanc ed way of approaching any eventual multilateral
negotiation in the area of investment.  It integrated policy discipline with flexibility for developing
countries, allowing Members to undertake commitments commensurate with their individual
development needs and circumstances and to pursue their national economic and social objectives.Some felt it would also make easier the eventual task of integrating a possible investment agreement
with the GATS.
108. Another view was that most existing IIAs that covered the pre-establishment stage of
investment used a full MFN/national treatment model, based on exemptions from, rather than
commitments to, market access and policy obligations.
109. A further view was that neither approach was desirable, given that developing countries were
not in a position to accept international policy disciplines over the pre-establishment treatment of
foreign investment.
(a) Positive versus negative list approach
110. The comparative merits of the "positive list" approach used in the GATS and the "negative
list" approach used in most IIAs were discussed.
111. One view was that the "positive list" approach allowed for selective liberalization of entry and
establishment in specific activities under defined conditions, giving host countries more control over
the liberalization and rule-making process.  It provided them, particularly developing countries, with
flexibility to pursue domestic development policies and to harness FDI in ways that contributed totheir economic development goals, thus conforming to the Doha Ministerial mandate that any
investment framework must allow Members to "undertake obligations and commitments
commensurate with their individual needs and circumstances".  It was also felt to minimise the risk of
making unforeseen mistakes when binding entry and establishment obligations.  Experience with the
GATS had shown that a positive-list approach was preferable when a new area was for the first time
the subject of liberalization at a multilateral level.
112. Another view was that full MFN/national treatment at the pre-establishment phase of
investment, subject to a "top down" or "negative list" of exceptions lodged by countries, was
preferable.  It was felt that the "positive list" approach considerably weakened the scope for market
access and the legal guarantee of non-discrimination, which could deter flows of foreign investment to
host countries.  The "positive-list" approach also required regular updating if it were to remain
relevant in an evolving world economy and to assist transparency.
113. One view was that GATS was a complex agreement. Safeguard measures in respect of
services had eluded evolution. Protection in respect of goods was possible through tariff and other
border measures, while certain modes of services were not amenable to such measures. Given the
complex nature of capital flows/investments, application of the non-discrimination principle as it
existed in goods and services could not be automatically applied to investment. This was why bilateralinvestment treaties were preferred by many.WT/WGTI/6
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(i) GATS approach
114. It was noted that the GATS was technically a "hybrid" approach, in that it relied on the use of
both "positive lists" of commitments and "negative lists" of exemptions for different purposes.
Subject to negotiations, it allowed each Member to set out what specific market-access commitments
it would undertake, and to schedule those commitments using a "positive-list" approach.  Other corepolicy disciplines of the GATS – notably to avoid certain trade-restricting measures and to apply
national treatment – were linked directly to a Member's market-access commitments.  Members could
then attach conditions and qualifications in their schedules using a "negative-list" approach, to both
their obligation to avoid certain restrictions and to apply national treatment in scheduled sectors.
115. It was noted that the GATS MFN obligation also had important implications for pre-
establishment treatment, and that this was a rule of general application.  Subject to any (in principle,
temporary) exemptions that Members listed on a "neg ative list" basis at the time of entry into force of
the Agreement, the GATS required a Member to grant MFN treatment unconditionally with respect to
any measures affecting trade in services in all sectors where it permitted the entry of foreign service
suppliers, regardless of whether it had scheduled the sectors as specific commitments.
(ii) Market access
116. One view was that any investment agreement should include a separate provision on "market
access", modelled on the GATS (Article XVI), dealing with certain restrictions applied to investors. It
was noted that the absence of similar provisions in a possible investment agreement could give rise to
inconsistencies with GATS schedules.  Another vi ew was that the scheduling of discriminatory and
non-discriminatory market access limitations in the GATS had already been the source of confusion
among Members – which raised doubts about replicating it in the context of investment.
(iii) Progressive liberalization
117. One view was that to the extent pre-establishment treatment in a possible investment
agreement was based on a "positive list" approach, it should include an obligation on progressive
liberalisation such as existed in the GATS.  Although in practice WTO Members engaged in similar
rounds of negotiations to liberalize trade under the GATT, they were under no obligation to do so.  Itwas noted in this context that the GATS allowed greater flexibility for individual developing-country
Members to open fewer sectors, liberalise fewer types of transactions, and progressively extend
market access in line with their development situation and, when making access to their markets
available to foreign service suppliers, to attach conditions aimed at increasing the participation of
developing countries in world trade.
118. Another view was that WTO Members, particularly developing countries, should be under no
obligation to further extend market-access commitmen ts in future negotiations in the area of
investment.
(b) Related issues
(i) Industrial classification
119. It was noted that a "positive list" approach to scheduling market access and related
commitments would give rise to the need to devi se a common approach to industrial (or sectoral)
classification.  One suggestion was to follow the GATS example of scheduling specific commitments
based on a detailed classification of activities, and in this regard to consider using the United Nations
Central Product Classification (CPC) system or the Harmonised Commodity Description and Coding
System (HS).WT/WGTI/6
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(ii) Methods for negotiation
120. Regarding the method for negotiating commitments, one suggestion was a "request and offer"
format as already used in the GATT and the GATS, and in other international investment agreements.
(iii) Modification of schedules
121. With regard to modifying schedules of market access commitments in a possible investment
framework, it was noted that the GATS contained rules in this area which could form the basis for
further discussion.
7. Exceptions and balance-of-payments safeguards
122. A Secretariat Note on this subject was circulated in WT/WGTI/W/137.  Written contributions
were received from Japan, Korea, the Separate Customs Territory of Taiwan, Penghu, Kinmen and
Matsu, Canada, and the European Communities (WT/WGTI/W/138, W/143, W/144, W/146, and
W/153, respectively).
123. The Working Group examined ways in which general, security, and regional integration
exceptions as well as balance-of-payments safeguards might be incorporated in a prospective WTO
investment framework.  The view was broadly shared  that similar formulations to the kind of general
and security exceptions found in the WTO were applicable to any future investment framework.  It
was affirmed that flexibility for governments to respond to public, security, or balance-of-paymentsconcerns needed to be an integral part of any investment framework, reflected in its basic structure as
well as its relevant provisions.  At the same time, as in the relevant GATT and GATS Articles, it was
felt there needed to be clear conditions attached to these provisions to ensure that they did not involve
arbitrary or unjustifiable discrimination, or create  disguised restrictions.  As in the GATT and the
GATS, additional flexibility should be provided to developing countries in meeting those objectives.
124. It was noted that exceptions and safeguards worked in combination with an agreement's
definitions, general obligations, and specific commitments to define its scope.
(i) General and security exceptions
125. It was noted that most IIAs – as well as the WTO itself – contained general exceptions that
were permanently available for any Party to use, subject to specific conditions.  In addition to nationalsecurity matters, these exceptions typically covered areas such as the protection of public safety and
health and certain environmental and cultural policy objectives.  Conditions were often set out for
applying measures in these areas, notably that the measures must not involve arbitrary or unjustifiable
discrimination or create disguised restrictions.  Many  felt that such general exceptions should also be
incorporated in any prospective investment framework, although some suggested that their scope or
parameters should not extend beyond what already existed in the WTO.
126. It was suggested that general exceptions should also be available for development purposes –
a point which had been raised previously in the context of development provisions.
(ii) Exceptions for regional integration arrangements
127. It was noted that exceptions for regional integration purposes were contained in the WTO and
were also a feature of many IIAs, particularly bilateral investment treaties, where typically the aim
was to prevent the MFN rule from disallowing IIA parties from conferring preferential benefits on oneanother.WT/WGTI/6
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128. One view was that the Group needed to look more closely at the relationship between bilateral
and regional agreements and a possible multilateral framework in order to identify the scope for
potential overlaps and conflicts, particularly as regards the issue of MFN obligations.  The models of
the GATT and the GATS were thought to provide a valuable reference point for that.  One suggestion
was that an article could be included in a prospective WTO investment framework allowing an MFNexception for agreements that achieved higher integration in terms of investment, so as to avoid the
problem of free riders.  Another view was that the Working Group needed to proceed cautiously with
regard to treating bilateral and regional investment agreements as exceptions.
(iii) Balance-of-payments safeguards
129. Balance-of-payments safeguards were widely considered to be a particularly important
element in any discussion of a possible investment  framework, as they touched directly on concerns
about short-term capital flows and exposure to financial volatility.  It was commonly understood thatrights and obligations accorded under both trade and investment agreements should not serve to
undermine or destabilise a country's balance of payments nor interfere with its obligations to the IMF.
At the same time, the point was made that an appropriate balance needed to be struck between the
rules guaranteeing the free transfer of investment and related payments, and governments' desire to
protect themselves from balance-of-payment difficulties.  While no common view on the precisenature and scope of balance-of-payments safeguards emerged from the discussions, it was widely
accepted that the subject warranted further examination, perhaps including contributions from
relevant agencies such as the IMF.  Some felt that the issue of balance-of-payments safeguards needed
to be viewed in the wider context of internationa l financial flows and concerns about the effects of
such flows on countries' macroeconomic stability . Several emphasised the need for compatibility
between a possible investment agreement in the WTO and the Articles of Agreement of the IMF.
130. The point was made that balance-of-payments issues in IIAs related to cross-border capital
transactions whereas balance-of-payments issues in the WTO relate to trade flows.  This explained the
prevalence of provisions in IIAs regarding the imposition of exchange controls and other instruments
of monetary policy that aimed at restricting capital account transactions and related current payments.In contrast, the WTO balance-of-payments provisions set out the conditions under which Members
could restrict imports.
131. It was noted that there was considerable divergence among IIAs in the way balance-of-
payments issues were addressed.  Most IIAs contained provisions guaranteeing that a host country
would permit current payments and transfers related to foreign investment.  Only a few contained
balance-of-payments safeguards per se , in part because most did not contain substantive provisions on
the admission of cross-border capital flows, leaving participating governments free to applyrestrictions as they saw fit, including for balance-of-payments purposes.
132. One view was that defining precisely the conditions under which balance-of-payments
safeguard measures could be invoked was a major concern, and needed to be examined further.
Particular attention needed to be paid to the precise formulation, procedures, conditions and
application of any safeguard provisions.  Inasmuch as such provisions identified precise conditionsthat needed to be met before a safeguard clause could be invoked, for example by stipulating prior
notification and/or approval from the competent organ or setting time limits, they defined the scope
for flexibility in dealing with economic emergency s ituations.  This related especially to the issue of
transfer of funds, and whether the provisions allowed for greater flexibility for developing countries.
133. The point was also made that among the provisions most directly affected by capital
restrictions imposed for balance-of-payments reasons were investment protection provisions broadly
defined, and especially those related to the free transfer of payments and expropriation.  It was felt
that the subject of balance-of-payments safeguards further highlighted the need to address related
issues such as expropriation and transfer pricing.WT/WGTI/6
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134. It was noted that an important factor influencing the need for – and role of – a balance-of-
payments safeguard provision in an IIA was the type of foreign investment covered by the agreement.
It was noted that most IIAs took as their startin g-point a comprehensive, asset-based definition of
investment.  Balance-of-payments safeguard provisions in such agreements allowed a host country to
react where a need arose to control inflows and ou tflows of investment, particularly short-term,
speculative capital flows, and to control outflows of transfers and payments associated with
established investment.
135. Many felt that any prospective WTO investment framework should exclude from its coverage
those categories of foreign investment – notably short-term, speculative capital flows – that could be
most problematic from a balance-of-payments point of  view, thus reducing the need for safeguards.
As noted in previous discussions, the difficulty then lay in defining which these were.
136. It was noted that one approach to dealing with concerns about the effects on the balance-of-
payments of short-term, speculative capital flows was illustrated by Chile's bilateral investment
treaties as well as its Free Trade Agreement with Canada.
137. One view was that serious balance-of-payments crises could not be resolved simply through
provisions related to the suspension of transfers.  There needed to be a balance-of-payments impact
analysis of foreign investment more generally, and the effects of large-scale capital inflows andoutflows on countries' economic stability.
138. It was also noted that the issue of potential balance of payments crises in the case of
liberalizing host countries was not very straightforward. It was more a question of preventing such
crises rather than damage control after they had taken place. Impending crises had their toll in the
form of general slack in economic activity and left a chilling effect on the overall economic outlook.In case the concerned country was not adequately equipped with the necessary policy tools to prevent
such impending balance-of-payment crises, there would be loss of confidence in its ability to survive
and it would inevitably slip into financial crisis.
(iv) Broader safeguards
139. While the Working Group's discussion focused on safeguards related to balance-of-payments
emergencies or crises, the question arose whether consideration should be given to other emergency
situations, beyond balance-of-payments, that might require safeguards – such as the equivalent of an
import surge in the investment area and concerns about the crowding out of domestic investors.
(v) Safeguards on developmental grounds
140. One view was that safeguards should be available to developing countries to address their
trade, financial and developmental needs.  Such safeguards should be objective and operationable.
8. Consultation and the settlement of disputes between members
141. A Secretariat Note on the subject was circulated in WT/WGTI/W/138.  Written contributions
were received from Japan, the European Communities, the Separate Customs Territory of Taiwan,
Penghu, Kinmen and Matsu, and Canada (WT/WGTI/W/139, W/141, W/145, and W/147).
142. One view was that at this stage it was difficult to determine the kind of provisions on dispute
settlement that could be applied to a prospective investment agreement since they would depend on itssubstantive provisions.
143. One view was that any prospective investment agreement should be anchored firmly in the
procedures, rules and structures of the WTO dispute settlement system.  It was noted that there was noWT/WGTI/6
Page 25
precedent in existing WTO agreements for conducting dispute settlement outside of the DSU.  If the
objective was to secure a "transparent, stable and predictable framework" for investment, it would be
counterproductive - and unnecessarily confusing - to establish a separate system for settling disputes
among parties to a prospective multilateral investment  framework.  Also, to the extent that existing
WTO agreements such as the GATS and the TRIMS Agreement included investment-relatedprovisions, the WTO provisions on dispute settlement were already applicable to investment.
Integrating a prospective investment framework into the existing dispute settlement system of the
WTO would help to ensure greater coherence in th e treatment of investment-related policies, and
avoid the need to draw arbitrary and artificial distinctions between services and manufacturing-related
investments.
144. The view was also expressed that the possibility of employing the existing WTO dispute
settlement mechanism was one of the main reasons for adopting a multilateral approach to investmentrules.  Compared with bilateral treaties, where the dispute settlement process was based on ad hoc
arbitration and could be easily influenced by the nature of the dispute or the relationship between the
two countries, supervision through a multilateral system, based on binding commitments and with
detailed procedural rules for the different phases of the settlement process, would help to ensure the
fairness and transparency of a dispute settlement process.  It was pointed out that the DSU included anumber of provisions on special and differential treatment for developing and least-developed
countries, although views differed as to whether these measures had proven to be effective.
145. It was suggested that an important task would be to explore how to strengthen consultation
mechanisms in the context of dispute resolution in the investment area so that it could serve home-
and host country interests.  Settlement through consultation was preferable to the formal adjudicationof disputes, which could entail high costs of litigation.  The WTO provided a good model in the form
of good offices, conciliation, and mediation.
146. Concerns were raised by some about the scope for non-violation cases were an investment
framework to be brought under the DSU.  Also, an important question was felt to be how provisions
on compensation and suspension of concessions should  apply to investment disputes.  The difficulty
of determining levels of compensation, particularly as regards non-violation complaints, was noted by
some.  For example, if an investor was denied admission and establishment in a sector where a
Member had undertaken pre-establishment commitments, assessing the level of compensation could
prove complex and difficult.  Others suggested that similar issues were being adequately dealt with in
the context of the GATS.
147. The view was also expressed that the implications of any binding multilateral framework on
investment on the fast moving ‘autonomous’ liberalization drive by developing countries and LDCshad to be taken into account. It was pointed out that international law on foreign investment contracts
did not exist at present because such contracts did not fall under the purview of international law. The
determination of the nationality of firms was another important issue. Even though regional and
bilateral treaties provided for international arbitr ation of foreign investment disputes,  two points
needed to be noted in this regard.  First, a number of sectors were exempted from the provisions of theagreements at regional levels, making such agreements partial.  Second, and more importantly, such
agreements were applicable only to investment duly approved by the host country, and in most cases
were subject to domestic laws and regulations, thus indicating in unequivocal terms that the control
rested with the host country as far as foreign investment was concerned. The investing firm was
aware, at the time of investment, of the level and extent of protection available to investment and tothe investor, as the case may be, and this was all the more reason why investment should be subject to
a mechanism that was controlled by the host state which determined whether or not the investment
was to be protected.  It was also suggested that the Working Group should deliberate on issues like the
incompatibility between possible international investment rules and the multilateral trade rules and the
unfeasibility and undesirability of aiming to work international investment rules on the platform of theWT/WGTI/6
Page 26
multilateral trading system, as well as the need for control over entry, establishment, promotion and
protection of foreign investment resting within the domain of host country jurisdiction.
148. Some expressed concern about the scope for cross-retaliation and cross-compensation in the
trade area in the case of investment related disputes.  Some others noted that this was already
applicable to investment-related disputes under the GATS and the TRIMs Agreement.
149. One issue raised was how compensation would be awarded if a prospective multilateral
framework included obligations related to investment protection and expropriation.  It was noted that
in the case of IIAs which included investor-to-State arbitration, if a host State was found to be in
breach of the agreement the tribunal was typically empowered to order that the investor be awarded
monetary damages and/or restitution of property with applicable interest.  The arbitral tribunal could
not, however, order a host State to revoke or modify an inconsistent measure or policy.  This situation
differed fundamentally from the WTO dispute sett lement system, where it was understood that neither
panels nor the Appellate Body could recommend the payment of monetary damages.
150. A related question was whether a prospective WTO investment framework should recognize
the right of individual investors to pursue claims ag ainst host States by incorporating investor-to-State
dispute settlement.  One view was that consideration should be given to provisions for investor-to-
State disputes, as well as for State-to-State disputes, as this was the model adopted in most IIAs;  thePreshipment Inspection (PSI) Agreement was a WTO precedent for the settlement of disputes
between private parties and governments.  Another view was that, given the inter-governmental nature
of the WTO, the introduction of investor-State dispute settlement provisions in a prospective
investment framework would require a fundamenta l change to the DSU that was unwarranted and
probably not feasible.  It was also felt that the case for changing the DSU was unconvincing as thesystem had proven itself capable of accommodating existing WTO investment-related agreements,
such as the TRIMs Agreement and the GATS.  More generally, some stated that providing for a right
of individual investors to pursue claims against host States would represent an unjustified intrusion
into national sovereignty.  In this regard, it was noted that the Doha Ministerial Declaration had
explicitly referred to disputes "between Members" as a subject for clarification.
151. The relationship between the application of WTO dispute settlement procedures in the context
of a multilateral investment framework, on the one hand, and the application of dispute settlement
provisions contained in existing bilateral and regional investment agreements on the other, was
viewed as a significant issue that warranted further discussion.  Some pointed out that the use of WTO
procedures should not preclude recourse to provisi ons of bilateral or regional investment agreements
if the parties to a dispute so decided.  In this re spect, it was suggested that there might be a need to
design specific rules to avoid inefficiency and duplication.  Others raised concerns about thedifficulties that could arise from "forum shopping", especially in cases where rules overlapped and
memberships differed.  Some noted that similar issues arose in the trading system without posing
insurmountable difficulties.
152. It was felt important to ensure not only that effective consultation and dispute settlement
mechanisms were provided for any prospective multil ateral framework, but also that Members could
make effective use of these means.  An important c onsideration in this respect was the difficulty that
many Members expressed in participating fully and effectively in existing WTO arrangements owing
to lack of adequately skilled personnel and resources.  To address such difficulties, it was felt that
special provisions should be made for technical and financial assistance.  In the same vein, it was
important to ensure full participation of developing-country experts in consultative and decision-making panels.WT/WGTI/6
Page 27
9. Relationship with other WTO agreements and IIAs
153. There was discussion of the relationship between a prospective WTO investment framework
and existing IIAs.  The observation was made that any eventual investment framework would need to
co-exist and interact with a number of other in vestment-related agreements, both within the WTO
system and outside it.  Relevant WTO agreements the Agreements on Trade-Related InvestmentMeasures, Trade-Related Aspects of Intellectual Property Rights, Subsidies and Countervailing
Measures, Government Procurement, and especially the GATS, all of which contained provisions that
to a greater or lesser extent also pertained to investment policy insofar as it was trade-related.
154. The point was made that while the WTO already contained important trade-related investment
provisions, the coverage was partial and incomplete.  In particular, the anomaly of having WTO rules
related to foreign investment in the services sector – as embodied in the GATS – but not the non-
services sector was emphasised.  Some saw inconsistency in the TRIMs agreement addressing trade-related investment measures for trade in goods, but not for trade in services.  Similar points were
made about the coverage of subsidies, safeguards, and other rules in the WTO system and their
relationship to investment issues.
155. It was felt by some that the existence of investment-related provisions in WTO agreements
raised important systemic questions about the purpose and scope of an investment framework – aswell as broader questions about how investment rules should be treated overall in the WTO system.
Would a WTO framework aim for common standards of treatment for investment across all sectors?
Or would certain sectors (i.e., services) and assets (i.e., intellectual property) be excluded from its
coverage?  And if these sectors were excluded, how to distinguish clearly whether an investment was
in one sector or another, given different standards of treatment that might apply?  A related questionwas whether WTO rules in areas such as TRIMs and subsidies would apply to a framework agreement
on investment.
156. Although the Working Group did not address these wider systemic questions in any detail,
some suggested that the scope of any framework could be limited to foreign investment in the primary
and secondary sectors, leaving investment in the services sector to be covered by the existingprovisions of the GATS.  Some others considered that a possible framework could seek to provide an
integrated approach to foreign investment rules across all WTO agreements and sectors.
157.  It was felt by the Working Group that the relationship between a possible WTO investment
framework and the existing network of bilateral and regional investment agreements needed to be
examined and clarified.  These existing agreements would, by necessity, shape and circumscribe the
architecture of a possible multilateral investment framework.  One issue in particular was the inter-
relationship between non-discrimination commitments – particularly MFN treatment – in  IIAs and apossible multilateral framework.
10. FDI and the transfer of technology
158. In response to a request from the Group, the Secretariat circulated a Note on "Foreign Direct
Investment and the Transfer of Technology" (WT/ WGTI/W/136).  The Note provided a synthesis of
the main themes arising from previous discussions of this subject in the Working Group and otherrelevant studies, and reviewed the treatment of technology-related policies in current investment
agreements (namely provisions on performance requirements related to the transfer of technology and
the conduct of research, and intellectual property rights).
159. Discussion focused on the different ways that technology was transferred by multinational
firms:  through internal transfers between a parent company and its foreign affiliate, external transfersfrom a multinational enterprise to a firm that it does not own or control, through licensing, minority
joint ventures or technical co-operation.  It was noted that the impact of FDI on technologicalWT/WGTI/6
Page 28
development depended not only upon the formal transfer of technology by multinational firms to its
affiliates or partners, but also upon the ability of economies to absorb technology as a result of various
types of knowledge "spillover effects".  In other words, the capacity of an economy to utilise
technology was critical to its transfer.
160. There was discussion of whether technology transfer requirements – and performance
requirements more generally – were a valid subject of discussion in the Working Group, in light of the
mandate set out in paragraphs 20-22 of the Doha Ministerial Declaration as well as the parallel
discussion in the context of the Article 9 Review of the TRIMs Agreement.WT/WGTI/6
Page 29
Annex 1
TEXT OF THE DOHA MINISTERIAL DECLARATION3
RELATIONSHIP BETWEEN TRADE AND INVESTMENT
20. Recognizing the case for a multilateral fram ework to secure transparent, stable and
predictable conditions for long-term cross-border investment, particularly foreign direct investment,
that will contribute to the expansion of trade, and the need for enhanced technical assistance and
capacity-building in this area as referred to in paragraph 21, we agree that negotiations will take place
after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicitconsensus, at that Session on modalities of negotiations.
21. We recognize the needs of developing and least-developed countries for enhanced support for
technical assistance and capacity building in this area, including policy analysis and development so
that they may better evaluate the implications of closer multilateral  cooperation for their developmentpolicies and objectives, and human and institutional development.  To this end, we shall work in
cooperation with other relevant intergovernmental organisations, including UNCTAD, and through
appropriate regional and bilateral channels, to provide strengthened and adequately resourced
assistance to respond to these needs.
22. In the period until the Fifth Session, further work in the Working Group on the Relationship
Between Trade and Investment will focus on the clarification of:  scope and definition;  transparency;
non-discrimination;  modalities for pre-establishment commitments based on a GATS-type, positive
list approach;  development provisions;  exceptions and balance-of-payments safeguards; consultation
and the settlement of disputes between Members.  Any framework should reflect in a balancedmanner the interests of home and host countries, and take due account of the development policies
and objectives of host governments as well as their right to regulate in the public interest.  The special
development, trade and financial needs of developing and least-developed countries should be taken
into account as an integral part of any framework, which should enable Members to undertake
obligations and commitments commensurate with their individual needs and circumstances.  Due
regard should be paid to other relevant WTO provisions.  Account should be taken, as appropriate, of
existing bilateral and regional arrangements on investment.
                                                     
3 WT/MIN(01)/DEC/1.WT/WGTI/6
Page 30
Annex 2
Summary of contributions received in the Working Group
on the Relationship between Trade and Investment in 2002
Symbol
(WT/WGTI/W/-)Member / Other
sourceTitle or Topic
W/108 Secretariat Scope and Definitions:  "Investment" and "Investor"
W/109 Secretariat Transparency
W/110 European
Community andmember StatesConcept Paper on Transparency
W/111 Japan Scope and Definition
W/112 Japan Transparency
W/113 Canada Scope and Definition
W/114 Korea Scope and Definitions of "Investment"
W/115 European
Community and
member StatesConcept Paper on the Definition of Investment
W/116 OECD OECD Activities in the Field of Investment Capacity Building
W/117 MexicoCommunication regarding APEC Seminar on Bilateral and Regional
Investment Rules and Agreements – Mérida, Mexico,17-18 June 2002
W/118 Secretariat Non-Discrimination – Most-Favoured-Nation Treatment and
National Treatment
W/119 Secretariat Development Provisions
W/120 Secretariat Modalities for Pre-Establishment Commitments based on a GATS-
Type, Positive List Approach
W/121 European
Community and
member StatesConcept Paper on Modalities of Pre-Establishment
W/122 European
Community andmember StatesConcept Paper on Non-Discrimination
W/123 Korea Non-Discrimination and GATS-Type Approach for Investment
W/124 Japan Non-Discrimination
W/125 Japan Modalities for Pre-Establishment Commitments
W/126 Separate Customs
Territory ofTaiwan, Penghu,
Kinmen and MatsuDevelopment Provisions
W/127 Separate Customs
Territory ofTaiwan, Penghu,Kinmen and MatsuNon-Discrimination and Pre-Establishment CommitmentWT/WGTI/6
Page 31
Symbol
(WT/WGTI/W/-)Member / Other
sourceTitle or Topic
W/128 Separate Customs
Territory of
Taiwan, Penghu,
Kinmen and MatsuScope and Definition of "Investment"
W/129 Separate Customs
Territory ofTaiwan, Penghu,Kinmen and MatsuEnsuring Transparency
W/130 Canada Modalities for Pre-Establishment Commitments Based on a GATS-
Type, Positive List Approach
W/131 Canada Development Provisions
W/132 Mexico Non-Discrimination
W/133 Switzerland Multilateral Framework for Investment:  An Approach to
Development Provisions
W/134 Secretariat Consultation and the Settlement of Disputes between Members
W/135 Secretariat Technical Assistance Activities Pursuant to Paragraph 21 of the Doha
Ministerial Declaration
W/136 Secretariat Key Issues Concerning Foreign Direct Investment and the Transfer
and Diffusion of Technology to Developing Countries
W/137 Secretariat Exceptions and Balance-of-Payments Safeguards
W/138 Japan Exceptions and Balance-of-Payments Safeguards
W/139 Japan Consultation and the Settlement of Disputes between Members
W/140 European
Community and
member StatesConcept Paper on Development Provisions
W/141 European
Community andmember StatesConcept Paper on Consultation and the Settlement
of Disputes between Members
W/142 United StatesCovering FDI and Portfolio Investment in a WTO Investment
Agreement
W/143 KoreaBalance-of-payment Safeguard Provisions in Investment Agreements
W/144 Separate Customs
Territory ofTaiwan, Penghu,
Kinmen and MatsuExceptions and Balance-of-Payments Safeguards
W/145 Separate Customs
Territory ofTaiwan, Penghu,Kinmen and MatsuDispute Settlement Mechanism
W/146 Canada Exceptions and Balance-of-Payments Safeguards
W/147 Canada Consultation and Dispute Settlement
W/148 India Development Provisions
W/149 India Non-DiscriminationWT/WGTI/6
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Symbol
(WT/WGTI/W/-)Member / Other
sourceTitle or Topic
W/150 India Views on Modalities for Pre-establishment Commitments based on a
GATS-type, Positive List Approach
W/151 SecretariatTechnical Assistance Activities in 2002 Pursuant to Paragraph 21
of the Doha Ministerial Declaration
W/152 China, Cuba, India,
Kenya, Pakistanand ZimbabweInvestors' and Home Governments' Obligations
W/153 European
Community andmember StatesConcept Paper on Balance-of-Payments SafeguardsWT/WGTI/6
Page 33Annex 3
Technical Assistance and Capacity-Building Activities held in 2002
TopicsDoha TC/CB
MandateActivity Cooperation with Dates Venue
Intensive Training Course for English-
speaking Africa21, 22 Training Course UNCTAD 18-29 March 2002 South Africa (Pretoria)
Regional Seminar for Asia 21, 22 Regional Seminar UNCTAD/Singapore 6-8 May 2002 Singapore
Trade and Investment 21, 22 National Workshop UNCTAD 13-14 May 2002 China (Beijing)
OECD Technical Workshop 21, 22 Technical Workshop OECD 15-20 May 2002 Hong Kong, China
Trade and Investment 21, 22 National Seminar UNCTAD 16 May 2002 Indonesia (Jakarta)
APEC Workshop on Regional and
Bilateral Investment Rules/Agreements21, 22 Technical Workshop APEC 17-18 May 2002 Mexico (Mérida)
Intensive Training Course for French-
speaking Africa21, 22 Training Course UNCTAD/Agence de
la Francophonie27 May-6 June
2002Egypt (Alexandria)
Regional Seminar for French-speaking
Africa21, 22 Regional Seminar UNCTAD 19-21 June 2002 Gabon (Libreville)
Regional Policy Seminar 21, 22 Regional Seminar Thailand 27 June 2002 Thailand (Bangkok)
Trade and Investment 21, 22 National Seminar Thailand 28 June 2002 Thailand (Bangkok)
Training for Geneva
Delegations/Officials visiting fromcapitals, coinciding with WGTImeeting21, 22 Technical Workshop
(English)UNCTAD 2 July 2002 Switzerland (Geneva)
Regional Seminar for Central America 21, 22 Regional Seminar UNCTAD / IDB 12-13 August 2002 Costa Rica (San José)WT/WGTI/6
Page 34TopicsDoha TC/CB
MandateActivity Cooperation with Dates Venue
Training for Geneva
Delegations/Officials visiting fromcapitals, coinciding with WGTImeeting21, 22 Technical Workshop
(French)UNCTAD 13 September 2002 Switzerland (Geneva)
Regional seminar for South America
and Intensive Training Course for LatinAmerica21, 22 Regional Seminar
andTraining CourseUNCTAD / IDB 7-8 October 2002
and9-18 October 2002Peru (Lima)
Trade and Investment 21, 22 National Seminar UNCTAD 24-25 October
2002Venezuela (Caracas)
Trade and Investment 21, 22 National Seminar UNCTAD 28-29 October
2002Guatemala (Ciudad de
Guatemala)
Trade and Investment 21, 22 National Seminar UNCTAD 21-22 November
2002Sri Lanka (Colombo)
Intensive Training Course for Asia and
the Pacific21, 22 Training Course UNCTAD 23 November –
4 December 2002India (New Delhi)
Training for Geneva
Delegations/Officials visiting from
capitals, coinciding with WGTImeeting21, 22 Technical Workshop
(Spanish)UNCTAD 29 November 2002 Switzerland (Geneva)
Workshop on the Relationship between
Trade and Investment for English-speaking African countries21, 22 Technical Workshop UNCTAD / JICA 1-2 December 2002 Switzerland (Geneva)
Trade and Investment 21, 22 National Seminar UNCTAD 19-20 December Tunisia (Tunis)
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