RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/WGTI/M/19 
3 December 2002 
 (02-6664) 
Working Group on the Relationship  
between Trade and Investment  
 
  
REPORT ON THE MEETING HELD ON 16-18 SEPTEMBER 2002 
 
Note by the Secretariat
 
 
 
1. The Working Group on the Relationship between Trade and Investment met on 16 to 
18 September 2002 under the Chairmanship of Amba ssador de Seixas Corrêa (Brazil).  The Working 
Group adopted the agenda contained in WTO/AIR/1886. 
2. The Chairman  stated that the purpose of the meeting wa s three-fold:  (i) to receive an update 
from the Secretariat and other agencies on technical assistance, and to outline the events scheduled for 
the coming months;  (ii) to begin consideration of the issues of "exceptions and balance-of-payments 
safeguards" and "consultation and the settlement of disputes betw een Members" as identified in 
paragraph 22 of the Doha Ministeria l Declaration, and to invite the Group to continue its discussion of 
the other subjects set out in paragraph 22;  and (iii)  to give the Working Group – if it wished – an 
opportunity to continue discussion of other issues that had been raised in the course of the Group's 
work so far.   
A. PARAGRAPH 21 OF THE DOHA MINISTERIAL DECLARATION  
(i) Technical assistance and capacity-building 
3. The Secretariat  introduced its third report (WT/WGTI /W/135) on investment-related technical 
assistance and capacity-building, following on fr om the report it had presented at the Working 
Group's meeting in July, and briefed delegations on the future schedule of activities. As explained in 
paragraph 4 of the Note, four types of events had been held so far, namely, workshops, regional and 
national seminars and training courses.  He em phasised that although the WTO’s share of the 
programme had been adequately financed, the UNCTAD Secretariat had experienced financial 
difficulties which, while significant, had not so far af fected the joint plan of activities for the current 
year. 
4. Since the Group's last meeting, the first regi onal seminar for Central American countries, 
organized jointly by the WTO and the Inter-America  Development Bank (IBD), had been held on 12-
13 August in San José, Costa Rica.  The programme of activities for the remainder of the year 
included a regional seminar for South America and Me xico, organized in conjunction with the IDB, to 
be held in Lima, Peru; a regional seminar for English-speaking African countries to be held in Gaborone, Botswana; UNCTAD training courses for Latin America, and Asia and the Pacific to be 
held in Lima, Peru and New Delhi, India; and national seminars for Venezuela, Guatemala, Sri Lanka, 
and Tunisia. 
5. The Secretariat noted that it had also held its  second Workshop for French-speaking Geneva-
based officials on 13 September, and that this exercise would be repeated on 29 November, for 
Spanish-speaking delegates.  In addition, in colla boration with the Japanese Government, a two-day 
workshop would be held in Geneva in November  for English-speaking African Countries for which 
participation by capital-based officials would be fi nanced.  The Secretariat also hoped to organise 
another such seminar for the first quarter of 2003 for French-speaking African countries. WT/WGTI/M/19 
Page 2  
 
6. As regards technical assistance activities for 2003, for which the Secretariat had received 
several requests, the Secretariat wish ed to reiterate that priority woul d be given to regional seminars.  
Where possible, national seminars would be organized  back-to-back with regional seminars in order 
to utilise to the best effect WTO and UNCTAD secretariat resources.  On the basis of requests that 
had been received so far, further regional events were planned for Africa, Asia, the Caribbean, Central 
and Eastern Europe, Latin America and the Middle East.  The Secretariat would also be participating 
in UNCTAD training courses for English-speaki ng and French-speaking African countries.  In 
addition to these events, a number of workshops fo r Geneva-based and capital- based officials had also 
been included in the programme.  The Secretariat no ted that a final list of activities would be included 
in the WTO's overall technical assistance programm e for 2003 that would be circulated to delegations 
in due course.   
7. Regarding assessment of technical assistance act ivities – addressed in Section IV of the Note 
– it was pointed out that the Secretariat did not have  an institutional structure for assessment which 
allowed it to analyze further the information that was provided to the WTO and UNCTAD secretariats 
by each participant.  However, since last year, the Technical Cooperation Audit had already been 
carrying out an evaluation of all the technical assist ance activities according to parameters that had 
been agreed by Members.  The specific technical assistance activities under paragraph 21 of the Doha 
Declaration would be included in the next Aud it to be undertaken at the beginning of 2003. 
8. The observer representative of UNCTAD
 noted that, since the last meeting of the Working 
Group, the joint UNCTAD and WTO technical assist ance programme on the relationship between 
investment and trade had progresse d.  A regional seminar had been held in Costa Rica in August 
2002, jointly organised with the IDB and the Central American Bank for Economic Integration.  It was 
attended by 22 senior government officials from 9 countries of the region.  As with past events, 
participants were asked to evaluate the usefulness /benefits of the seminar.  The results of this 
evaluation were overwhelmingly positive and were  available to the Work ing Group.  Also, the 
Geneva workshop series had continued with an event for French-speaking Member countries on 13 September – the report of which, including its evaluation, would be made available shortly.  He noted that UNCTAD's overall work programme on capacity-building in developing countries on 
issues in international investment agreements was subject to an independent external evaluation that 
had begun in August and would be finalised in January 2003. 
9. Together with the WTO and the IDB, UNCTAD was participating in the forthcoming events 
in Latin America – i.e.,  the regional seminar for South America and Mexico on 7-8 October and the intensive training course for Latin America on 9-18 Oc tober in Lima, Peru.  In as far as future events 
were concerned, he noted that, upon the request of several LDC Members, UNCTAD would organise 
another round of bilateral investment treaties (BIT s) negotiations between LDCs and capital-exporting 
countries.  This round was scheduled to take place in Geneva from 11-20 November.  Finally, he drew 
Member’s attention to the UNCTAD Expert Group Meeting on the development dimension of foreign 
direct investment (FDI) which was scheduled for 6-8 November in Geneva.  The terms of reference of 
the meeting identified four specific questions that were of potential relevance to the Working Group’s 
discussions:  (i) how could host-country policies encourage a synergy betw een FDI and domestic 
enterprises, to support the competitiveness of the latter, in the national an d international context;  
(ii) what were the home-country measures that contributed to such an outcome;  (iii) how could 
safeguards be introduced to ensure that domestic enterprises were not adversely affected;  and (iv) 
how to reflect in a balanced manner the interest s of home and host countries, taking into account the 
development policies and objectives of host Governments as well as their right to regulate in the 
public interest. 
10. Regarding the financial difficu lties that UNCTAD faced in terms of implementing its part of 
the joint WTO/UNCTAD technical assi stance programme, he reported that progress had been made 
and that several donor countries had pledged support.  In particular, Sweden had pledged its support during the UNCTAD/ICC Investment Advisory Council meeting on the occasion of the World  WT/WGTI/M/19 
 Page 3 
 
 
Summit on Sustainable Development in Johannesburg in September.  This meant that UNCTAD 
could lend its full support to the pursuit of th e Doha mandate for the remainder of the year, 
particularly as far as policy analysis and research was concerned.  It would also enable UNCTAD to 
undertake all operational activities scheduled for the year.  As regards the intensive schedule of 
activities that was planned for 2003,  UNCTAD would again be looking forward to further support.  In 
this context, he mentioned that the UNCTAD S ecretariat had written to the WTO Secretariat to 
explore the possibility that the joint UNCTAD/WTO activities in the area of investment for 2003 
might be financed from the WTO Doha trust fund. Lastly he underlined the excellent cooperation that 
existed between the WTO and UNCTAD. 
11. The representative of Costa Rica  thanked the WTO and UNCTAD Secretariats, as well as the 
IDB, for the recent investment seminar in Costa Rica on 12-13 August entitled "Implications of a 
Closer Multilateral Cooperation for Developing Countries".  This seminar had been held in 
collaboration with the Integration of Latin Americ a and the Caribbean (INTAL), the IDB Department 
of Integration and Regional programmes jointly w ith the Programme of Human  Resource Training of 
the Centroamerican Integration (PROFICA), the Central American Bank for Economic Integration 
(BCIE), and with UNCTAD and the WTO.  Over tw enty delegates participated in the seminar 
representing Belize, Costa Rica, Cuba, El Salvador, Guatemala, Honduras, Nicaragua, Panama and 
the Dominican Republic.  The seminar had addressed the following topics:  international investment;  
bilateral and regional ag reements; paragraph 22 of the Doha Declaration, including scope and 
definition, transparency, non-discrimination, moda lities for pre-establishment treatment based on a 
GATS-type positive list approach, exceptions and ba lance-of-payments safeguards, consultation and 
settlement of disputes between Members, and deve lopment provisions.  The event had helped to 
create a better understanding of concepts that co uld be included in a multilateral agreement on 
investment and that formed part of the discussions in this Working Group, helping Members to 
evaluate better the implications of a closer mu ltilateral cooperation in the field of trade and 
investment, in particular with respect to its rela tion to national development policies and objectives.  
Likewise, it strengthened Members institutional frame work in the areas of investment for parallel 
negotiations with other countries in  bilateral and regional contexts.   
12. Having participated in the recent Workshop for French-speaking Geneva-based officials, the 
representative of Djibouti  shared the view that the Secretariat should be encouraged to continue these 
activities in the future, and to arrang e even more of them.  He added that as important as it was to hold 
seminars and workshops, it was equally important to undertake evaluations and follow-ups.  In this regard, he asked if there was any mechanism to  verify whether these activities were meeting 
Members’ needs – and if so, how was it being carried out?  He underlined the importance of 
UNCTAD’s  cooperation as it had more experience, more expertise and more knowledge in the 
investment area. 
13. The representative of the European Communities
 was pleased to hear from the Secretariat the 
positive, if preliminary, evaluation of the activities th at had been organized so  far in cooperation with 
UNCTAD and other international organizations.  He was also pleased to hear from UNCTAD about 
the positive evaluations it had received from participants in these seminars and these events.  Signals 
that, at least for the current year, UNCTAD now had adequate funding to carry out its share of the 
joint Doha-related activities were also  positive – thanks to recent ple dges from Sweden, for example.  
He wished to add that Portugal had also announc ed its decision to pledge $US80,000 for UNCTAD 
investment-related activities.  While his delegation realised that a lot of work still needed to be done, it was encouraging that a good start had already been made in fulfilling the Doha mandate outlined in 
paragraph 21.   It was particularly important, as other delegations had noted, to continue the current 
work on policy analysis as this was key to preparing for negotiations, conducting negotiations, and 
implementing any agreements that might be reached.   
14. The representative of Japan
 was also pleased to hear the positive reports regarding the 
technical assistance programme so far.  His delegation also took note of the Secretariat's current WT/WGTI/M/19 
Page 4  
 
efforts to assess its Doha-related technical assistance programme, and urged that these assessments 
continue and that the results be  fed back to the Working Group so that the programme might be 
further improved.  He reminded delegations that Japan had placed particular emphasis on the 
capacity-building aspect of the programme.  At the regional level, Japan had been conducting 
confidence-building activities in the context of the APEC-ASEAN economic cooperation forum.  In 
May, Japan had led a session on investment issues at the APEC Senior Officials Meeting in Mexico.  
Based on the success of that meeting, Japan conf irmed that similar confidence-building activities 
would be continued and strengthened in APEC – wh ich would in turn enhanc e capacity-building at a 
global level.   
15. As regards bilateral capacity building, Japa n was designing three major programmes with 
African countries.  First, Japa n and the WTO Secretariat, in co operation with UNCTAD, would be 
hosting a workshop on the relations hip between trade and investment before the next meeting of the 
Working Group.  The main purpose of the work shop was give anglophone African countries an 
opportunity to deepen their understanding of these issues.   Second, Japan and the OECD Secretariat 
were organizing an international conference on trade and investment entitled "Maximising the 
Benefits of Globalisation for Africa" to be held in Senegal in January 2003.  Its objective was to bring 
together African leaders from the private and public s ectors to discuss relevant issues related to trade, 
development and investment promotion.  Third, Japan was currently discussing with the Egyptian 
Government to organize a WTO capacity-building seminar for senior government officials from all 
African countries to be held in February 2003.  
16. The representative of Korea
 noted that his delegation shared the generally positive assessment 
of the technical assistance activitie s so far.  Korea also shared the view that seminars and workshops 
needed to be of a sufficient duration to be productive.  In assessing the technical assistance 
programme at the current stage in the process, his de legation emphasised three points.  First the need 
to include more references to specific national experiences regarding FDI.  In this context, he drew 
delegations’ attention to two previous papers that  Korea had submitted to the Working Group: one on 
the effect’s of FDI on Korea’s economic developm ent and trade (1997), and another on the impact of 
the Asian financial crisis on Korea's FDI flows. Second, he emphasised the importance of advance 
planning of seminars and workshops.  While expressing his delegation’s appreciation of the 
Secretariat’s planning, he felt that the Secretariat’s efforts alone would not be sufficient to achieve the 
desired results.  Cooperation from all Members was eq ually important.  In this  regard, his delegation 
reiterated its intention to cooperate closely with the Secretariat in planning activities for 2003.  
Specifically, discussions were underway to increase the number of regional seminars in Korea under 
the auspices of the Korea International Cooperation Agency. Finally, Korea agreed wholeheartedly 
with a previous speaker about the importance of evaluation and follow-up.  Self-assessment was 
important, and he urged that such information be pass ed on to the Secretariat at the end of the year.   
17. The representative of Zambia  expressed his delegation’s satisfaction that UNCTAD’s 
financial difficulties seemed to have been resolved for the moment.  He  also noted that his delegation 
would be submitting to the WTO Secretariat a cons olidated technical assistance capacity-building 
needs assessment – which Kenya had already communicated, to UNCTAD.  His delegation 
encouraged the two Secretariats to work even more closely together. 
18. The representative of Canada  expressed her delegation’s sa tisfaction with the intensive 
calendar of high quality initiatives that the WTO Secr etariat had undertaken so far, and those which it 
had programmed for the future.  Her delegation ag reed with Korea that a collective effort was 
required to meet technical assist ance and capacity-building needs of least-developed countries.  
Seminars such as those being planned by Japan in collaboration with Members such as Egypt, and 
with other institutions such as the OECD, would co ntribute significantly to this effort.  Canada 
continued to believe that it was developing and le ast-developed countries who were best placed to 
identify their needs in this area, including any follow-up sessions and programmes that might be required.  Canada remained ready to contribute to  the collective efforts to address these needs.    WT/WGTI/M/19 
 Page 5 
 
 
19. The representative of Switzerland  commended the WTO and UNCTAD Secretariats for their 
useful presentations at the recent Workshop fo r French-speaking Geneva-based delegations.  He 
suggested that at future workshops thought might be given to basing the presentations on questions 
posed in advance by Members so that the participants could deepen their understanding of – and 
clarify – those points which they believed to be useful. 
20. The representative of India  looked forward to two forthcoming UNCTAD papers, one on 
investor-to-State dispute settlement, and another on St ate-to-State dispute settlement.  He noted that 
the focus on the WTO's technical assistance activ ities so far had been on organizing seminars and 
workshops which were useful for understanding the issues.  However, his delegation believed that 
what Ministers intended in paragraph 21 went beyond that. In fact, the focus should be on the implications of a multilateral framework for the policy flexibility of developing countries.  This 
should form an essential part of the technical coop eration being extended to developing countries.  
His delegation saw the seminars and workshop s as a first step in this direction. 
21. The representative of Australia
 was encouraged by the positive reports on the range of 
technical assistance activities undertaken by the WTO and UNCTAD through workshops, seminars and training courses.  His delegation believed that developing and least-devel oped countries were best 
placed to assess their own technical assistance and capacity-building needs.  Developing countries 
were encouraged to communicate their specific need s and priorities to both the Secretariat and the 
Working Group, as they were doing at this m eeting.  Australia supported the list of activities 
undertaken by the Secretariat to date in conjunc tion with UNCTAD and the priority that had been 
given to least-developed country Members.  This  programme reflected an appropriate geographical 
spread and his delegation hoped that as many representatives as possible from least-developed 
countries could participate in the programme.  Aust ralia also believed that technical assistance should 
stay focused on WTO-specific issues, and in particular on enhancing Members’ understanding of the 
implications of a multilateral framework on investment.  It needed to assist the Working Group to 
remain clearly focused on issues directly related to decisions that would be taken at the 5
th Ministerial 
Conference.   
22. The representative of Malaysia  suggested that, in evaluati ng the technical assistance 
programme, it would be useful to focus on three is sues: first, improving the mode of training and 
delivery; second, including resource-speakers and practitioners in the field of investment from 
developing countries; and third, due to limited resources and abundant requests, considering the 
possibility of other regional organizations complemen ting the efforts.  In th is regard, his delegation 
requested that an evaluation of the technical assist ance programme be undertaken by the Chairman in 
consultation with a selected group of delegations.   
23. The representative of Morocco  believed that the recent Wo rkshop for French-speaking 
Geneva-based officials was particularly interes ting because it had enabled Members to clarify a 
certain number of complex questions linked to the po ssible conclusion of a multilateral agreement, in 
particular the issue of the development dimensi on and its principle constituent.  His delegation 
believed that the seminar tied in well with the Doha mandate to assist developi ng countries to clarify 
key questions so that they would be  in a position to take a final decision on this subject.  Morocco 
encouraged the Secretariat to undertake similar wo rkshops in the future, and his delegation awaited 
the report to be published on this subject. 
24. The observer representative of UNCTAD  noted that the current feedback from Members on 
the technical assistance programme was of great importance to both Secretariats in their efforts to 
adapt and improve such events.   
25. The Secretariat  referred to several issues raised by delegations.  Regarding the possibility of 
including more developing-country speakers, he agreed that it was a good idea that should be 
explored although it might entail additional costs. On the subject of policy analysis, he suggested that WT/WGTI/M/19 
Page 6  
 
this aspect of technical assistance would need to be examined as soon as delegations had completed 
their initial examination of the seven issues set out for clarification in paragraph 22.  He added that a 
feature of recent national seminars was to devote the final afternoon to a discussion of how 
participants saw the development dimension being in corporated into an exercise of this nature. 
(ii) "Transfer of technology" 
26. The Chairman
 recalled that at an earlier meeting of  the Group, the delegation of Brazil – 
supported by others – had asked the Secretariat to prepare a background note on foreign direct 
investment and the transfer of technology.  Th is note had been circulated in WT/WGTI/W/136. 
27. The Secretariat  introduced its background Note on fore ign direct investment and the transfer 
of technology.  He noted that the aim of the paper wa s two-fold: first, to offer a synthesis of the main 
themes arising from previous discussions of this subject in the Working Group and other relevant 
studies; and, second, to review the treatment of technology-related policies in current investment 
agreements.  The paper was not intended – nor did it attempt – to draw any conclusions about the 
relationship between FDI and the transfer of techno logy.  Instead it tried to  highlight some of the 
factors that might help the Working Group to bette r understand the complexities of the relationship. 
28. There were three main themes.  First, the pape r discussed the different ways that technology 
was transferred by multinational firms – i.e., whether it was transferred internally, between a parent of 
a multinational enterprise and its foreign affiliate , or whether it was transf erred externally, from a 
multinational enterprise to a firm that it did not ow n or control, through the licensing, minority joint 
ventures or technical cooperation.  Second, the paper noted that the impact of FDI on technological 
development depended not only upon the formal transf er of technology by multinational firms to its 
affiliates or partners, but also upon the diffusion of technology within an economy as a result of 
various types of knowledge "spill-over effects".  In ot her words, the capacity of an economy to absorb 
and utilise technology was critical to its transfer.  Lastly, the paper looked at the treatment of 
technology-related matters in international in vestment agreements – namely provisions on 
performance requirements related to the transfer of technology and the conduct of research, and 
intellectual property rights.   
29. The representative of Brazil  recalled that paragraph 21 of the Doha Ministerial Declaration 
emphasised that the WTO’s programme of technical assistance should include “policy analysis and 
development” so that developing and least-developed countries could “better ev aluate the implications 
of closer multilateral cooperation for their developm ent policies and objectives”.  This was the context 
within which the Secretariat Note on FDI and the tr ansfer of technology should be discussed.  His 
delegation wished to make three points.  First, he dr ew attention to the empirical studies, cited in the 
Secretariat Note, which underlined the asymmetry between developed and developing countries as 
regards the generation of technology.  Reference was made to the important role played by host-
country policies, including trade and investment polic ies, in contributing to the generation and transfer 
of technology from affiliated companies of multinational corporations.  It was his delegation’s view that a government’s autonomy to adopt and implem ent policies aimed at regulating the entry of FDI 
and the acquisition of technology – both in the “internalised” and “externalised” modes – could be 
seriously reduced by any possible investment fram ework that contained restrictions on performance 
requirements related to the transfer  and diffusion of technology by foreign companies.  Section III.A 
of the Note pointed out that this restrictive approach had already been applied in the context of some regional trade agreements, notably the NAFTA, and also in bilateral investment agreements.  He 
reminded delegations that the failed OECD MAI also had a similar, if not identical, approach to the 
prohibition of performance requirements other than those that were already disciplined in the TRIMs 
Agreement.  In this scenario, the examples menti oned in paragraph 10 of the Secretariat Note would  
simply be prohibited.  WT/WGTI/M/19 
 Page 7 
 
 
30. Furthermore, paragraph 20 of the Note pointed  out that multinational corporations might, 
depending on the circumstances, transfer “outdated”  technology to their aff iliated companies in a host 
country.  In such circumstances, host countries should be prepared to adopt trade policies, as 
mentioned in paragraph 20, designed to determine the kind of technology they considered important 
to attract. 
31. As a last point, his delegation wished to stress the importance for the Working Group’s 
deliberations of the ongoing discussions on this issue in the context of the Working Group on Trade 
and Transfer of Technology.  In this connection, he emphasised the relevance of looking at the role 
played by subsidies granted by developed countries to finance corporate research and development, 
and the distortive effects these subsidies had on th e capacity of developing countries to develop 
technological and innovation capacity as well as on the patterns of trade and investment flows.  In 
Section III.A of the Secretariat Note (Treatment of  the Issue in International Investment Agreements) 
his delegation would have liked to have seen more diversity in the examples used. For example, no 
mention was made of provisions on FDI and the tran sfer of technology contained in EC treaty or the 
EC free trade or investment agreements.   
32. The representative of India  observed that one of the main conclusions of the Secretariat Note 
was the strong concentration of innovation activit y in a relatively small number of developed 
countries while the share of developing countri es in global research and development (R&D) 
expenditures had actually declined from nearly 6 per cent in 1980 to 4 per cent in the early 1990s.  It 
was also significant that, at the country level, inno vation activity was concentrated in individual firms 
with the bulk of R&D expenditure being accounted for by a relatively small number of companies.  
These firms, generally multinational enterprises, tended to concentrate innovation activity in home 
countries.  One consequence was that the existing di sparities in technology levels between developed 
and developing countries had widened still further and wo uld continue to widen. 
33. His delegation noted that in paragraph 10 of the Note a number of specific policy measures 
had been identified which were designed to promot e greater involvement of multinational enterprises 
in the local generation of technology in developing countries.  He recalled that the Doha Ministerial 
Declaration was essentially about speeding up develo pment, particularly in the poorer regions of the 
world.  Therefore, the Working Group needed to examine concrete measures that would narrow the 
existing disparities in technology as part of its overall work programme. 
34. He suggested that another significant conclusion of the Secretariat Note related to FDI and the 
transfer of technology.  Internalised transfers of technology by multinational enterprises had increased 
while externalised transfers had declined in importan ce.  While externalised transfers were in greater 
use in the 1960s and 70s, the trend today was towards intra-corporate transfers of technology, 
meaning that a growing proportion of technologies were now unavailable to developing countries on 
the market place.  This tended to fu rther accentuate th e technology gap. 
35. Regarding the diffusion of technology and the incidence of knowledge spill-overs arising 
from FDI, the evidence was not clear.  The Venezuelan and Czech examples cited in the Secretariat Note seemed to indicate that FDI had negatively  impacted on the performance of domestic firms – 
primarily as a result of a crowding out effect – wh ile there had been a pos itive relationship between 
FDI and productivity in Mexico during the period  1965-1982.  More detailed study of the spill-over 
effects on productivity and growth of domestic in dustry with specific reference to developing 
countries, therefore, appeared necessary. 
36. He went on to suggest that the overall picture evoked concern.  Technological innovation was 
increasingly concentrated in a handful of countrie s and, within those countries, in a handful of 
enterprises.  These enterprises tended to monopo lise technological innovation within their own units, 
thus leading to a further concentration of economic power.  It was universally recognised that the 
contours of the future would be shaped by techno logy.  Under such circumstances, the concentration WT/WGTI/M/19 
Page 8  
 
of economic power through concentration of technol ogy could have dangerous consequences.  For the 
benefit of the current discussion, he drew the atte ntion of the Working Group to the paper presented 
by India in June 2001 that had been circulated in WT/WGTI/W/105.  The paper highlighted the fact 
that the issue of technology transfer was at the core of the development de bate.  Development on a 
self-sustaining basis had as its essential pre-cond ition development of technological capabilities.  The 
transformation of developing countries from a st age of low technological development to a higher 
stage would not be possible except through the transfer of technology.  However, documented 
evidence suggested that market forces alone would not ensure technology transfer to, and absorption 
by, developing countries.  While the last decade witnessed a veritable explosion in cross border FDI 
flows, the lion's share of such flows was accounted for by mergers and acquisitions (M&As) as compared to greenfield investment. 
37. The major reason why countries, especially developing countries, sought FDI was the 
expectation of receiving much needed state-of- the-art technology.  M&As did not always augment 
the stock of productive physical capital in the host country.  At the same time, while greenfield 
investment increased competition by introducing new entrants into a market, M&As most often led to 
increases in economic concentration by reducing the number of active players.  The effect of M&As on technology transfer – either directly or through linkages and spill-overs – also depended on 
whether the investment was natural-resource-seeking, market-seeking, efficiency–seeking or created 
asset seeking.  The motive behind M&A investment  had an important bearing on the type and quality 
of the technology transferred.  India's paper, th erefore, urged that it was important for developing 
countries not only to ensure whether technology was in fact being transferred, but also to ascertain the nature of such transfers. 
38. The paper also highlighted the fact that FDI growth rates in the past few years had been 
greater than the growth in technology transfer payments, which indicated that the recent spurt in FDI 
flows might not have been accompanied by a simultan eous transfer of technology.  More particularly, 
as the share of developing countries in FDI flows had increased, their shar e in technology transfers 
had decreased. 
39. Reference was also made in the paper to th e distinction drawn between the "know how" and 
"know-why" of technology transfer, and the findi ng that technology transfers within MNCs were 
efficient for transferring know-how, but less so fo r transferring know-why. Evidence in the literature, 
especially with reference to the experience of Korea, suggested that M&A-type FDI had transferred a 
high level of "operating and organisational" technolo gy, which was very different from a high level of 
"production technology".  Referring to the experience  of South-East Asian countries, the paper stated 
that low technological capability might co-exist with a capability to successfully use new 
technologies.  The simple act of high technology production in any given country did not imply that efficient learning had occurred, as the latter depe nded on a host of factors other than technology 
transfer per se .  Quoting the World Investment Report, the paper underlined the fact that developing 
countries attracted only marginal shares of foreign af filiate research, and much of what they received 
related to production, adaptation and technical supp ort (which was in the form of know-how) rather 
than relating to innovation (know-why). 
40. In conclusion, his delegation felt that it was abso lutely essential to devise ways in which the 
transfer of technology became a necessary and mand ated element in any FDI-related arrangement.  
Obviously, the prohibition of performance requ irements, including requirements concerning the 
transfer of technology, mentioned in Section III of the Secretariat Note, was clearly not in accordance 
with the development-oriented Doha mandate.  His de legation wished to associate itself with Brazil’s 
comments regarding the need to look at subsidies and to examine technology-related provisions in a 
broader range of international investment agre ement (IIA)/regional trade agreements (RTA) in 
Section III of the Note.  His delegation would study  the issue in greater deta il and express its further 
views on a later occasion.  WT/WGTI/M/19 
 Page 9 
 
 
41. The representative of Japan  shared the view that the re lationship between FDI and the 
diffusion and transfer of technology was complex, influenced by a number of factors.  Given that the 
FDI had a significant positive impact on the development of host-country economies, Japan felt that 
the question was not whether FDI contributed to th e transfer of technology, but rather how the 
environment for facilitating technology transfers co uld be improved.  As mentioned in paragraph 27 
of the Secretariat Note, each country’s circumstances  were unique and it was difficult to replicate the 
success story of one country in another. However, Japan's experience suggested that technology 
transfer requirements were not a particularly  effective means of enhancing technological 
development.  Rather, as suggested in paragraph 21 of the Secretariat Note, it was more beneficial for 
host countries to focus on improving the competiti ve environment for – and the development of – 
local industries so that the transfer of critical technologies could be accelerated. 
42. His delegation also found the Note’s analysis  of performance requir ements and intellectual 
property provisions in trade and investment agreem ents extremely useful.  In general, Japan believed 
that performance requirements were  not constructive to the promotion of the investment, although 
there were certain exceptions.  In that regard, Japan shared the view expressed by Korea at the 
Group's previous meeting that greater investment libe ralization would lead most directly to a greater 
transfer of technologies.  In any case, Japan agre ed that the Working Group should study further the 
issue of performance requirements as well as intellectual property rights – bearing in mind that the 
issue was also directly related to other WTO agreements such as TRIMs and TRIPS.   
43. The representative of the United States  said that her delegation shared Japan's view that 
foreign investment served as a mode of delivery for technology transfer.  She suggested that attention 
should be paid above all to a host country's domes tic policies, particularly as they pertained to 
intellectual property protection, do mestic capacity to contribute to innovation, and the ability to 
absorb the transfer of technology.  Several elements found in Section III of the Secretariat Note were 
important to consider in this regard.   Her delega tion agreed with the point that technology transfers 
were more likely to occur in countries that allowed for flexible corporate structures, permitting 
internalised transfers of technology, and that im plemented and enforced intellectual property rights. 
44. With respect to any linkages with the Wo rking Group on Trade and the Transfer of 
Technology, she recalled certain points her delegation  had made on the transfer of technology in the 
context of discussions on a Secretariat paper prepared  for that Working Group.  She also reiterated 
that while the United States was interested in delegations' views on this subject, the Investment 
Working Group was not mandated to study the transfer of technology per se.   Although the United 
States recognized that there were linkages between the subjects covered by the two Groups, her delegation wished to express some caution on how the work proceeded in the two different bodies.  
She added that specific proposals had been made in the Working Group on Trade and the Transfer of 
Technology which the United States had expressed certain views.  She wished, therefore, to cross-
reference those expressions for the Investment Working Group. 
45. The representative of China  observed that technological development was an important factor 
for advancing the development process in addition to, inter alia , appropriate national development 
policies and objectives, and necessary financial and human resources.  However, most developing 
countries lacked sufficient technological capacities and relied instead on the transfer and diffusion of 
technologies from outside.  Transnational corporations could certainly play a major role in this regard.  
46. He noted that discussions in the Working Group constituted part of a broader work 
programme within the framework of the Doha De velopment Agenda, a central focus of which was 
development.  His delegation believed that, subject  to reaching an explicit consensus on modalities for 
negotiations, the transfer of technology must be an integral element in any possible negotiations to be 
launched on an international legal instrument for in vestment after the Cancún Ministerial Conference.  
Paragraph 14 of the Secretariat Note refered to some aspects of host-coun try policies regarding FDI 
and transfer of technology which his delegati on believed were necessary.  Host countries' WT/WGTI/M/19 
Page 10  
 
governments clearly had a responsibility to provide as favourable an environment as possible – both 
in terms of "software" and "hardw are" infrastructure – for investor s and their ability to transfer of 
technology.
 
47. Regarding home-country policies and the transfer  of technology, his delegation felt that the 
Secretariat Note did not explore and analyse the issues  in sufficient depth.  China believed that home-
country governments had a role to play – either positive or negative – in influencing transnational 
corporations to transfer technology to host countries.  Strict restriction and control of the export of 
technologies was an example of the kind of negative influence they could exert.  He recalled that a 
Draft Code of Conduct on the Transfer of Technol ogy was negotiated in the United Nations from the 
mid-1970s to the early 1980s.  Some twenty years had past since then.  While certain viewpoints reflected in that draft might be outdated, most of th e basic problems and issues were still relevant.  He 
proposed that the relevant content of that draft be taken up as a point for reference in both the 
exploratory discussion – and possible negotiation – of transfer of technology provisions in any 
prospective international agreement on investment.  
 
48. The representative of Canada  wished to share some of Canada’s experiences with regard to 
the transfer of technology.   He noted that Canada  represented 0.5 per cent of the world's population 
and 4 per cent of the world's scientific knowledge.  However, Canada also imported 65 per cent of its 
new technology, the highest percentage among the G7  countries, making Canada's interest in this 
issue a current and important one.  Recent research in Canada had confirmed that FDI led to 
technology transfer and positive economic spill-overs for the Canadian economy.1  This conclusion 
was not necessarily surprising, since in addition to being more export oriented than domestic firms, 
foreign firms also tended to have access to – and ad opt – advanced technology more readily than their 
domestic counterparts.  Given these characteristics, Canada continued to refine its policies affecting 
technology transfer and related is sues.  Above all, Canada's econ omic framework policies had been 
designed to assist in facilitating this transfer.  One of the main means of doing so was through 
encouraging FDI, subject of course to limited re strictions in specified sectors.  In Canada's 
experience, the link between FDI and technology transfer was strong.  While there might be nuances 
with respect to how this was done (e.g. through licensing, joint ventures, or even when protected in 
intra-firm activity through "interna lised" transfer), Canada's experience was that over time diffusion 
and spill-overs took place, particularly when FDI was on a large scale. 
49. He recalled that all industries, including those not necessarily traditionally viewed as highly 
technologically intensive, embodied high technology in  products and processes.  The mining industry 
and government services were two examples of se ctors that had been transformed recently through 
enhanced technological intensity in the performance of their work.  Again, openness to trade and FDI 
had contributed to the adoption of new, and fore ign, technologies, as well as to spill-overs as 
Canadian firms became technology users and exporter s in their own right.  As Canada's technological 
development evolved, complementary policies had been  enacted in order to maximize the benefits of 
FDI and technology transfer.  These included increa sed investment in the research capacity of  
universities, accelerating the commercialization of research discoveries, a nd supporting collaborative 
international research at the "fr ontiers of knowledge".  All these policies featured among Government 
priorities as indicated to the Cana dian Parliament in January 2001. 
50. Moreover, as Canada's absorption capacity was enhanced with respect to FDI, technological 
spill-overs had increased.  Framework policies, incl uding those Canada advocated internationally, 
were therefore complemented by development assistance with this in mind.  A recognition of market 
failure in some instances was evident in this approach.  One of Canada's goals in international 
cooperation with developing countries was assis ting in capacity building, as well as technology 
transfer, and the development of skills and management capacity, including local and indigenous 
                                                      
1  J. Tang and S. Rao, "R&D Propensity and Productivity Performance of Foreign-Controlled Firms in 
Canada", Industry Canada Working Paper No. 33, March 2001.  WT/WGTI/M/19 
 Page 11 
 
 
knowledge.  Canada was not unique among developed countries in recognizing this in its aid and 
development policies.  In noting Canada's recent  experience and policy developments involving 
technology and the development of technologica lly sophisticated industries and exports, his 
delegation acknowledged that this experience was peculiar to Canadian circumstances.  Nonetheless, 
he felt the issues involved were of relevance to th e work of the Group.  He noted that Canada would 
have more to say on this subject in the Working Group on Trade and the Transfer of Technology.   
51. The representative of Mexico  noted that FDI had been an important means of diffusing 
technology in Mexico's domestic manufacturing sector, thanks to the integration processes undertaken 
by many multinational companies.  She noted that Mexico fostered such capitalization of technology 
through FDI by means of clear rules that provided cert ainty and security to foreign investors.  One of 
these rules had been the non-im position of performance requirements, as mentioned in the 
Secretariat's Note, as Mexico had concluded that such measures had not always been the most 
effective. 
52. While the Secretariat Note was a good st art to examining the link between FDI and 
technological development, Mexico nevertheless believed that some aspects of the matter required 
more in-depth study to arrive at a broader overview of the subject.  It would be interesting, for instance, to expand on the content of the Note as regards issues such as FDI versus other forms of 
technological transfer such as licensing, or imports themselves.  Similarly, Mexico would like to hear 
more about how technology was disseminated by various means emerging from FDI such as vertical 
integration, horizontal integration and the movement of persons, amongst others.  Regarding these and 
many other aspects of the relationship between FDI and technological development, meaningful 
contributions had been made by various internationa l organizations in addition to those cited in the 
Secretariat Note and her delegation believed these would constitute invalu able sources of information.  
The OECD, for example, had conducted exhaustive studies on this relationship, and these could 
provide the Working Group with additional food for thought.  The general idea was for Member 
governments to have tools that would enhance nation al capacities ultimately to assess the significance 
of closer international cooperation in the field of FDI. 
53. With respect to the debate over external or inte rnal transfers of technology, the representative 
of Korea
 was convinced that there was no single co rrect answer.  Korea had initially focused on 
externalised modes, as the Secretariat Note had pointed out.  However, since Korea's financial crisis 
in 1997, his country had moved towards attracting more FDI – and as a result of these policies, 
internalised transfers of techno logy had sharply increased.  Moreover Korea was now shifting its 
policy focus from receiving technology transf ers through FDI towards developing its own 
technological capacity by increasing R&D projects  and resources.   In addition, his delegation 
believed that other supporting measures and policies were equally important to maximizing the benefits of FDI and technology transfers.  For instan ce, countries needed to have a solid foundation of 
general education, so that the technology spill-ove rs from FDI could be absorbed and utilised.   
54. His delegation believed that if technology transf er requirements were over-emphasised, they 
could actually discourage FDI – as also noted by the United States and Japan.  With regard to 
performance requirements, he reminded the Workin g Group of the paper which Korea had submitted 
(WT/WGTI/W/82) which suggested that pro-technolog y transfer policies should not go as far as 
imposing technology transfer requirements on fore ign investors.  Korea's experience was that a 
market-based approach – relying on  the training of local staff to facilitate the natural diffusion of 
technology – had proven more efficient and effective than imposing technology transfer requirements.   All in all, Korea believed that the Working Group sh ould look for ways to enhance both FDI and the 
transfer of technology. 
55. The representative of Chinese Taipei
 noted that Chinese Taipei's experience was similar to 
that of many others, in that FDI had been acco mpanied by useful technologies which had in turn 
contributed to economic development.  Chinese Taipei's experience had also suggested that WT/WGTI/M/19 
Page 12  
 
mandatory technology transfer requirements were not  particularly useful in encouraging the diffusion 
of high-quality technology, in part because foreign firms could always find ways around such 
requirements, but more generally because mandatory performance requ irements tended to discourage 
foreign investors.  He also suggested that there were other, more effective, policies that could be 
implemented by host countries to encourage the transf er of technology, such as subsidies, leading him 
to suggest that the WTO SCM and TRIPs agreements sh ould be included as subjects for discussion.  
Finally his delegation suggested that while the linkage between FDI and technology transfer was 
frequently mentioned, it was also important to discuss the relationship between certain forms of 
portfolio investment (e.g., contractual righ ts) and the diffusion of technology.    
56. The representative of Switzerland
 highlighted four points from the Secretariat Note which his 
delegation found particularly telling.  The first was the high concentration of FDI in certain 
companies and indeed in certain countries.  Some 85 per cent of R&D activity in the developing 
world was accounted for by four countries, while 83 per cent of R&D in the developed world took 
place among ten countries.  However, he also wanted  to highlight the fact that over 95 per cent of 
companies were SMEs many of which also conduc ted important research and development activities 
– therefore the picture might be a bit more nuanced than these numbers might suggest.  A second point was the Note's discussion of other policy meas ures besides technology transfer requirements 
that countries could implement – such as encouraging linkages between R&D and local firms and 
universities.  The third point related to the difference  between internalised and externalised transfer of 
technology, and how these processes depended on  a number of factors – on the one hand, host 
countries' characteristics, and on the other hand, host countries' policies.  The capacity to absorb technology was a particularly important factor.  The point that the impact of FDI on technology 
transfer also depended on whether the investment  was import substituting or export promoting was an 
important one.  Finally, Switzerland felt that the No te usefully highlighted the complexity of the 
relationship between foreign investment and transfer of technology, that there was no "one-size-fits-
all" approach, and that the domestic context was of  paramount importance (e.g., the enforcement of 
intellectual property law). 
57. The representative of Indonesia
 recalled that his delegation had consistently stated that it 
considered the issue of technology transfer an extremely important one which should be taken into 
account in all aspects of the Working Group's discus sion.  FDI was potentially an effective means for 
transferring and diffusing technologies and managerial  skills in developing countr ies.  However, at the 
same time, the monopolist owners of technology tended to restrain its transfer to developing 
countries.  It was also true that the cost of tr ansferring technology from multinational enterprises was 
often too expensive, placing additional strains on th e recipient countries' balance of payments.  The 
conventional theory was that technology was availabl e in the public domain for those able to acquire 
it at prevailing market prices.  In practice, however , high technology was not so readily available and 
access remained in the hands of a limited few.  
58. In previous Working Group discussions on th e subject, various studies had been cited 
explaining the role of FDI in transferring intangible  assets, notably in the field of technology.  While 
traditional theory assumed that FDI promoted technol ogy transfers, various studies had stressed that 
countries at low levels of development were likely to be able to induce FDI only into low-technology 
activities.  Therefore, to ensure that transfer of  technology, particularly new technology, actually 
occurred, national policy in tervention might be a necessary prer equisite for developing a positive 
correlation between FDI and the transfer of much  needed technology, while still ensuring that 
intellectual property rights were duly protected.  As Members were aware, there was still a distinct 
competitiveness gap between dome stic companies in developing countries and multinational 
enterprises.  Developing economies were also aw are that FDI and technology were of paramount 
importance to their growth and de velopment.  With these factors in minds and with a view to 
enhancing the domestic capacities of host countr ies, Indonesia was of the view that developing 
countries, as recipients of FDI, should be allowed the flexibility to attain access to technology 
transfers at fair and favourable terms, and at affordab le prices.  To this end, host countries should not  WT/WGTI/M/19 
 Page 13 
 
 
be prevented from implementing any measures aimed at augmenting the transfer of technology – such 
as incentives and performance requirements – commensurate with  their national developmental 
objectives.  As in the context of international investment agreements, exceptions in these areas should 
be permissible.  As regards technology transfer, sp ecial and differential treatment was a necessity to 
ensure that developing countries had a fair share of technological development. 
59. This issue was particularly pe rtinent to the Working Group's discussions since one of the 
elements in paragraph 22 of the Doha Ministerial Declaration concerned development provisions.  In 
his delegation's view, the issue of how to facilitate  the transfer of technology was one of the most 
important development provisions.  Regardless of whether technology was transferred externally or 
internally, the point his delegati on wished to underline was that investment arrangements must 
provide sufficient freedom and flexibility to host countries for them to pursue their own development 
needs.  The ability of host developing countries to enhance their industrial and technological 
capabilities was dependent upon their freedom and flexibility to regulate capital flows.  Although 
many have applauded the role of FDI as an engine of growth in supporting development efforts, the 
obligations of investors should not be ignored.  In the event that WTO Members might, by explicit consensus, decide to discuss a multilateral arrang ement on investment, Indonesia believed that a win-
win solution should be explored, balancing the needs of developing countries for technology transfer 
and the rights and oblig ations of investors. 
60. The representative of Hungary
 noted that the transfer and diffusion of technology had the 
potential to be one of the key benefits of FDI fo r developing countries as well as for all other WTO 
Members.  The Working Group had had many in-depth  and useful discussions on this subject over the 
past few years, and it seemed to be agreed that openness to investment in itself did not guarantee that 
technology transfer would take place or that the technologies transferred would be the ones which a 
Member government might desire.  The relevant question was what could and should governments do 
to encourage the transfer and diffusion of technology , and what tools did they have at their disposal.  
One general observation was that technology transfer and diffusion seemed to depend to a large extent on the absorption capacity of the host country.  Hungary also agreed with the observation in the Secretariat Note that the nature and extent of te chnology transfer was greatly influenced by the 
competitive environment in which a given enterprise operated. 
61. Although Hungary was not classified as a developing country, its indices of development 
were comparable to many such countries.  Agains t this background, his delegation wished to briefly 
share with the Working Group some of the experiences Hungary had had with FDI and technology transfer over the past years.  His delegati on had submitted a paper to the Working Group 
(WT/WGTI/W/83) detailing Hungary's recent experi ences which he wished to update.  In relative 
terms, the share of FDI in the Hungarian econ omy was the highest in the region.  Steady and 
substantial flows of FDI – some 4 per cent of GD P per year – had entered Hungary contributing to a 
significant increase in productivity, which in turn had resulted in a shift in manufacturing towards 
higher value-added activities and products.  This surge in FDI inflows also coincided with a significant growth in Hungarian exports – well above the average growth rates for the world – with 
the result that in a period a little over 10 years Hungary doubled its share in world trade.  Apart from 
the quantitative increase in exports, there was a major improvement in their composition.   Whereas 
Hungary's exports had traditionally been composed la rgely of commodities and industrial products of 
a low level of processing, last year over 90 per cent of exports were made up of highly processed 
industrial products.  None of this would have been  possible without the transfer of technologies and a 
major increase in overall technology levels in the country. 
62. The question was which policies had proven effec tive.   Hungary had f ound that the creation 
and maintenance of an FDI-friendly environment was quite important – including the creation of a 
stable, predictable and transparent regulatory fram ework to encourage investors to import their know-
how and technology.  This involved a host of policies including macroeconomic policies.  His 
delegation also shared the view that the adequate protection of intellectual property rights (IPR) was WT/WGTI/M/19 
Page 14  
 
an important element in creating this investment  and technology-friendly environment.  Other 
elements of the policy mix related to the techno logy absorption capacity of an economy, through 
education and training, re-training, and the development of research and development capacities.  
Incentives also played a certain role in encourag ing FDI inflows.  To sum up, Hungary found that a 
supportive environment – together with certain meas ures aimed at creating conditions that encouraged 
inflows of high-technology FDI – were important. 
63. Finally, his delegation expressed some doubts about the effectiveness of any mandatory 
approach to transferring technology.  Hungary had briefly tried some kind of screening mechanism – 
or selecting among investment proposals accordi ng to levels of the technology involved – but 
Hungary had found that such policies did not have the desired effect; on the contrary, they tended to discourage some investors.  As Members were aw are, the world economy had changed significantly 
even in the past decade.  There were now multiple demands for FDI.  Many countries had opened up 
to FDI and were actively competing for investors and the investments.  As a result, investors now had 
a large choice of markets and w ould weigh mandatory requirements in  their investment decisions.  
Hungary also had some questions regarding the possibility and scope of home-country regulations, as 
has been mentioned by some delegations.  Due to the growing global demand for FDI, there was competition not just among traditiona l capital importing countries, but also among traditional capital-
exporting country governments who were not always happy to see major outflows of investment and 
the jobs that accompanied them.  In this atmosphe re, it might be unrealistic to expect home countries 
to accept regulations that would in effect atte mpt to increase the technology content of foreign 
investors.   
64. The representative of the European Communities
 observed that the topic of technology 
transfer was an extremely important one to whic h the Working Group had probably devoted more 
attention any other subject.  His delegation believed that technology transfer was a horizontal issue, 
that included but also extended beyond FDI po licies.  For this reason, the Working Group's 
discussions should definitely be integrated in the more general work of the Working Group on Trade and Transfer of Technology.  The European  Communities had already submitted a written 
communication (WT/WGTTT/1) to that Group, in which they had encouraged the Working Group to 
focus on three issues:  first, the need for a common understanding of the definition of technology 
transfer; second, to identify the various channels through which technology was transferred;  and 
third, to examine the conditions under which those ch annels operated most effectively.  On the basis 
of that work, his delegation believed that possible recommendations could be made on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries. 
65. He suggested that it was undisputed that FDI was one of the main channels through which 
technology was transferred to both developing and developed countries.  Thus conditions and policies 
which facilitated FDI would tend also to increase the transfer of technology.  The key question was 
how to increase the capacity of developing countr ies to attract and absorb both FDI and high-quality 
technology.  In the absence of the right conditions – i.e., a skilled-labour force, appropriate 
infrastructure, a stable and credible domestic po licy framework, the enforcement of intellectual 
property rights – his delegation believed that no regulatory controls or performance requirements 
would ever succeed in attracting technology.  The best approach was to tackle basic structural 
deficiencies, rather than to adopt second-best measures such as performance requirements – requirements that were often counterproductive and welfare reducing according to most of the 
existing studies and literature, in cluding some of the studies cited in the Secretariat Note. 
66. The more immediate question was how did the issue of technology transfer relate to a 
prospective multilateral framework on investment.  Wh ile some delegations stressed that disciplines 
on performance requirements would reduce the capac ity of developing countries to adopt policies 
designed to maximize technology transfers, the Eu ropean Communities was not sure that this issue 
was entirely relevant to the current discussion.  Hi s delegation was not aware of any proposals in the  WT/WGTI/M/19 
 Page 15 
 
 
Working Group involving disciplines on performance requirements.  He also drew attention to the 
Secretariat Note which pointed out that most exis ting international investment agreements did not 
include disciplines on performance requirements.  Finally, some delegations had called for proactive 
policies from home countries regarding technology tr ansfers.  Again, his delegation was not sure this 
issue was entirely relevant to the kind of multilate ral framework that Ministers had envisaged in the 
Doha Ministerial Declaration. 
67. The representative of Argentina  highlighted several points that his delegation considered to be 
of relevance.  He noted that development was a ho rizontal issue, cutting across all WTO negotiations 
in all areas.  Paragraph 22 of the Doha Minister ial Declaration, in particular, had specifically 
instructed the Working Group to take into account  the development policies and objectives of the host 
governments.  One important development objective, which needed to be examined very closely, was 
the transfer of technology.  With regard to technol ogy transfer requirements, his delegation wanted to 
avoid extreme positions.  While it was clear that performance requirements did not necessarily 
guarantee the transfer of technology, it was equally clear that market forces alone did not solve the 
problem.  Argentina shared the concern expressed by Brazil about the relatively few models that had 
been included in the Secretariat Note.  While the NAFTA was important, it was not the only model.  
His delegation had consulted the interesting inventory of models compiled by UNCTAD, and 
highlighted the example of ASEAN – among others – as providing useful guidance on this issue.  The 
point he wanted to make was that the Working Group should be discussing the level at which 
technology transfer requirements should apply – not simply whether requirements should or should 
not exist.  Argentina believed that when analysin g the experiences of developing countries – and the 
problems such countries encountered in attractin g investment or transferring technology – the 
Working Group should focus more on the impediments and disadvantages these countries faced to see 
whether an appropriate balance could be struck.  Ar gentina also agreed with Indonesia about the need 
also to strike an appropriate balance between the rights granted to investors and their obligations. 
68. The representative of Brazil  agreed with many of the remark s that had been made, especially 
Japan’s reference to the fact that there could be no "one-size-fits-all" appr oach to the issue.   
Discussions had shown that this issue was important to  many delegations.  In that regard, even though 
the topic of FDI and the transfer of technology was not part of the list of seven issues mentioned in 
paragraph 22 of the Doha Ministerial Declaration, it was a topic that bore a clear relationship to many 
of those issues, such as, for example, development provisions.  For this reason, and also bearing in 
mind the objectives set out in paragraph 21 in te rms of enabling developing and least-developed 
countries to better evaluate the implications of cl oser multilateral cooperation on investment for their 
development policies and objectives, his delegation believed it was appropriate to continue to discuss 
the issue of FDI and transfer of technology at the next meetings of the Working Group.  For that 
purpose, he wondered whether UNCTAD could do some follow-up on the issue, for example, by 
elaborating further on this topic taking into acco unt the views expressed by Members in the current 
debate.  
69. Responding to Brazil's question, th e observer representative of UNCTAD  referred for the 
time being to the 2002 World Investment Report which, in its special topic on transnational 
corporations and export competitiveness, focused on the subject under consideration.  He also noted 
that UNCTAD was prepared to follow-up on further issues related to technology transfer as well as on 
other matters not listed in paragraph 22 of  the Doha Ministerial Declaration.   
70. The Working Group took note  of the statements. WT/WGTI/M/19 
Page 16  
 
B. P
ARAGRAPH 22 OF THE DOHA MINISTERIAL DECLARATION  
71. The Chairman  recalled that at the Working Group's last meeting it had been agreed to focus 
discussion on "exceptions and balance-of-payments safeguards" and "consultation and the settlement 
of disputes between Members" which were the si xth and seventh items liste d for clarification in 
paragraph 22 of the Doha Ministerial Declaration. 
(i) Exceptions and balance-of-payments safeguards 
72. The Chairman  drew Members' attention to the background Note that had been prepared by the 
Secretariat on "exceptions and balance-of-payments safeguards" (WT/WGTI/W/137), as well as to 
written contributions on this subject that had be en received from Japan (WT/WGTIW/138), Korea 
(WT/WGTIW/W143), the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu 
(WT/WGTI/W/144), and Canada (WT/WGTI/W/146). 
73. The representative of Japan  introduced its submission (WT/ WGTI/W/138).  In preparing its 
paper on exceptions and balance-of-payments safeguards, Japan was guided by the belief that this 
element was key to making the prospective multila teral investment framework more effective.  
Regarding exceptions, his delegation noted that three points were relevant to any future investment 
rules.  First it was important to emphasise the uni versality of general exceptions.  Exceptions should 
not reflect country-specific circumstances, but rather  should have certain universal features applicable 
to all countries.  Japan believed that the development dimension should not feature in the design of 
general exceptions.  Instead, it should be discussed in the context of an agreement's specific 
reservations and commitments, taking into a ccount developing countries' particular needs, 
circumstances, priorities, and levels of development.  Second the balance between disciplines and 
exceptions needed to be highlighted.  It was cruc ial to ensure that individual exceptions did not 
undermine an agreement's rules and disciplines.  Third it was important to strike an appropriate 
balance between exceptions in any prospective investment framework and existing exceptions in other 
WTO agreements.  In light of these points, Japan felt that the appropriate starting-point for any 
discussion of general and security exceptions wa s with reference to exis ting WTO rules such as 
GATT and GATS.  Obviously, further consideration would be required to determine whether any special exceptions – beyond what were found in the GATT and GATS – were necessary for an 
investment agreement. 
74. As regards balance-of-payments safeguards and investment rules, Japan's paper made three 
points.  First it drew attention to the different nature of goods and services, on the one hand, and 
investment, on the other hand, in terms of balance-of -payments.  Import restrictions on either goods or 
services lead to an improvement of the current ac count balance, and was consistent with the goal of 
protecting balance-of-payments.  However, restricting investment itself could mean restricting pre-
establishment investment, which could in turn cau se a deterioration of the current account and 
balance-of-payments. From the pe rspective of balance-of-payments protection, encouraging – rather 
than discouraging – investment inflows was essen tial.  The second point related to balance-of-
payments restrictions on post-establishment investme nt activities.  One exampl e involved restrictions 
on transfers and payments for the purpose of prot ecting the balance-of-payments. Such restrictions 
were permitted under GATS and similar provisions might serve as a reference point for investment 
rules.  There were, however, some points that host countries should consider.  Even for the purpose of 
balance-of-payments protection, frequent use of su ch restrictions would send a negative signal to 
investors and that could inhibit future inflows of investment.  The third point  related to balance-of-
payments safeguards measures on investment outflow.  When a country encountered balance-of-
payments problems, the withdrawal of investment could provoke a further deterioration of its balance-
of-payments, in principle justif ying restrictions on such withdrawals for balance-of-payments 
protection.  In reality, Members had seen that direct  investment flows remained stable even during the 
1997 Asian financial crisis suggesting that FDI co uld actually help to prevent balance-of-payments 
deterioration.  Nevertheless, his delegation felt it was understandable that host countries might be  WT/WGTI/M/19 
 Page 17 
 
 
concerned about possible withdrawals of foreign inve stment, providing a further rationale for balance-
of-payments safeguards. 
75. For all of these reasons, Japan felt it was necessary to incorporate balance-of-payments 
safeguards in a prospective investment framework.  However, he suggested that further consideration 
might be given to the following issues.  First, it was necessary to consider the relationship between 
investment activities broadly define d and balance-of-payments concerns.  Investment was a long-term 
economic activity with various impacts – both s hort and long-term – on the balance-of-payments.  
Safeguards, on the other hand, were temporary measures desi gned to address exceptional or 
emergency situations;  they could not be expected to  solve structural payments imbalances.  Second, it 
was necessary to clarify the specific rules and procedures for exercising balance-of-payments safeguards.   He suggested that these measures shou ld be taken only in cases of necessity and should 
be removed promptly once that necessity had disapp eared, so as not to undermine the agreement's 
disciplines and rules.  In this respect, GATS Ar ticle XII could provide a valuable reference for 
designing safeguard provisions for a multilateral investment framework.   Third, he emphasised the 
importance of recognizing the special circumstance s and needs of developing countries – as was 
already done in the GATT and GATS.   
76. The representative of Korea
 introduced its submission (WT/WGTI/W/143).  He noted that 
Korea shared many of the same views as Japan on exceptions and balance-of-payments safeguards.  
The paper his delegation had submitted was on bala nce-of-payments safeguards  and on the practical 
challenge of adapting such safeguards to an investment agreement.  He noted that the two main 
purposes of an international investment agreem ent were to liberalize and to protect foreign 
investment.  Without the guaranteed transfer of  funds however, the liberalization of foreign 
investment was meaningless.  On the other hand, it was important for international investment 
agreements to strike an appropriate balance betw een a home country's desire to obtain guarantees 
regarding the free transfer of in vestments and related payments, and a host country's desire to avoid 
balance-of-payments difficulties arising from the sudden repatriation of funds. 
77. Regarding the free transfer of payments, Korea's paper emphasized that provisions 
guaranteeing the free transfer of payments represen ted a core element in any prospective multilateral 
investment agreement.  His delegation believed th at an investment could hardly be considered 
protected without such guarantees.  The relevant prov isions in most IIAs generally stipulated that all 
payments into and out of host countries related to  an investment could be freely transferred without 
delay at the prevailing market rate of exchange.  Such provisions were normally accompanied by an illustrative list of the types of payments that were covered.  In addition, most IIAs stipulated that currencies must be freely convertable. 
78. Chapter 3 of the paper looked at capital controls  and FDI.  Capital control in a balance-of-
payments crisis included restrictions not only on th e inflow of capital, but more importantly on the 
outflow in exceptional circumstances.  These controls were designed to provide a temporary breathing space to allow a host country to implement required  adjustment policies.  However, his delegation 
noted that the effectiveness of capital controls re mained unclear.  Even with strict enforcement of 
capital controls, it was difficult to insulate th e domestic financial market completely from 
international financial markets, as private actors, using sophisticated financial engineering techniques, 
could find ways to circumvent restrictions.  More over, capital controls could also damage market 
confidence which would adversely affect a host-country economy in the long run. 
79. His delegation believed that the challenge was to find an appropriate balance between giving 
host countries "breathing room" in emergency situations without hampering inflows of FDI.  To 
achieve this, safeguard provisions should be designed in such a way as to apply only in exceptional 
circumstances and subject to strict conditions – notably that they must be temporary measures, 
phased-out as the situation improved, and that they must not exceed what was necessary to address the 
balance-of-payments problem. WT/WGTI/M/19 
Page 18  
 
80. The representative of Chinese Taipei
 introduced its submission (WT/WGTI/W/144).  He then 
read excerpts from the paper. 
81. The representative of Canada  introduced its submission (WT/WGTI/W/146).  He noted that 
Canada's intervention on this topic, as on all topi cs, was based on a belief in the utility of focusing on 
a general approach  to issues that Ministers asked the Working Group to consider at Doha to assist in 
clarifying concepts.  Thus Canada's paper concentrated on broad issues with respect to exceptions and 
balance of payments safeguards.  His delegation was also motivated partly by considering how any 
provisions within a prospective IIA would interact w ith each other, as well as with other provisions 
within the WTO system that had a bearing on international investment.  Conclusions on any these 
issues were premature at this stage but it was alre ady interesting to note in how the Doha "paragraph 
22 issues" potentially affected and interacted with each other. 
82. His delegation wished to offer some preliminary conceptual considerations.  First, exceptions 
should be fully consistent with – and contribute to – the flexibility advocated by Canada and others 
delegations in designing a comprehensive investment agreement in the WTO.  Indeed exceptions, 
whether for balance-of-payments or other purposes, were an integral component of international investment agreements, including those based on th e structure that Canada had addressed in its 
submission on non-discrimination and related issu es (WT/WGTI/W/130).  As Section V of the 
Secretariat Note pointed out, exceptions facilita ting temporary balance-of-payments safeguards 
existed in many trade and investment agreements.  Even when they were not explicitly articulated, it 
was commonly understood that rights accorded unde r international trade and investment arrangements 
should not serve to unduly destabilize a country’s bala nce of international payments, nor international 
monetary obligations under the IMF Articles of Agreement.  Canada therefore proposed that the 
specifics of a relevant balance-of-payments provision  be discussed separately as the Working Group's 
discussions progressed.  At that time, it would be necessary to ask financial services and international 
monetary experts to participate in this discussion. 
83. He noted that exceptions effectively served to limit the scope of the agreement through 
accommodating sectors, issue areas, or circumst ances where provisions of the agreement did not 
apply.  Consistent with the Doha mandate, the flexibility to encompass developing country priorities 
might figure among these.  In its examination of II As, paragraph 29 of the Secretariat Note identified 
exceptions in the investment chapter of the NAFTA that were also addressed in the GATT and GATS.  
However, these were not the only exceptions that featured in Canadian international agreements 
negotiated with its trade and investment partners.  In the Canada-Chile FTA, for example, provisions 
allowed for the non-application of a number of measures with respect to the TRIPS agreement, as well 
as procurement or subsidies by a Party or state ente rprise in certain circumstances.  In addition, a 
provision allowed for exceptions to MFN in specified  sectors, including aviation, fisheries, maritime 
matters, and certain telecommunications sub-sectors not covered in the telecommunications chapter of 
the agreement, as well as foreign aid programmes promoting economic development.  Canada’s comprehensive trade agreements also included exceptio ns that did not apply solely to the investment 
provisions of the agreement.  These were often c ontained in a separate chapter devoted to exceptions 
to the whole agreement.  In the Canada-Chile FTA, the chapter on exceptions began with an article on 
"general exceptions" that included a provision deferr ing to GATT Article XX with respect to trade in 
goods.  There then follow six addition al articles, five of which to a gr eater or lesser degree comprised 
exceptions on the following issues:  national securi ty, taxation, balance of payments, disclosure of 
information, and cultural industries.  For the purpos es of the current discussion in the Working Group, 
he suggested that it was premature at this stage to  examine the prospective contents of each exception 
until an agreement began to take shape.  While the Working Group was approaching that point, at this 
stage it was nonetheless useful to illustrate that exceptions were an integral component of many 
countries’ international trade and investment agreem ents.  They assisted in providing the policy space 
for conduct that could otherwise be considered as contravening commitments in the agreement.  WT/WGTI/M/19 
 Page 19 
 
 
84. He offered two broad observations with respect to how a balance-of-payments provision in an 
investment agreement was dealt with.  First, as no ted in Canada’s paper on "scope and definitions", 
the broad, asset-based definition of investment th at Canada believed was best suited to anchor any 
meaningful international investment agreement in  the WTO would be consistent with balance-of-
payments safeguards.  This position was fully consis tent with Canada's support for the compatibility 
between a prospective international investment ag reement and the IMF Articles of Agreement, based 
partly on the principle that a country should be able to carry out an IMF adjustment plan without 
being in conflict with its obligations under such an  agreement.  Second, he noted that balance-of-
payment safeguards were most relevant to a discussi on of investment agreements in conjunction with 
investment protection provisions.  In IIAs it was w ith respect to  investment protection provisions 
(e.g., transfers, expropriation, an d dispute settlement) that facilitation of capital movements linked to 
an investment, and complementary restrictions on these movements in extremis  (i.e., balance-of-
payments safeguards) were most justified.  In fa ct, balance-of-payments exceptions in Canadian free 
trade agreements applied to more than investment provisions.  Canada favoured returning to this issue 
in the Working Group as discussions intensified.   
85. He concluded by suggesting that there was little doubt that exceptions should feature in any 
prospective investment agreement in the WTO; inde ed a precedent of sorts already existed in the 
GATS with respect to MFN exceptions under Article II.  One of the principles behind exceptions was 
that they were usually (but not always) generic a nd applied to all parties.  Exceptions might be 
incorporated in different ways in an international trade and/or investment agreement:  they might be 
incorporated as a provision itself, in a separate chap ter, or in an annex with respect to an individual 
chapter or the agreement as a whole.  Flexibility – whether it was with respect to the structure of 
exceptions or the broader question of how to enco mpass differing country pr iorities, including with 
respect to development – was thus implicitly embodi ed in the manner in which exceptions could be 
addressed in an investment agreement in the WTO.  The specific conditions that applied to exceptions 
would be part of the discussion on the specifics of each, whether it was for balance-of-payments, 
taxation, national security, or other purposes.  But exceptions, like reservations, were a fundamentally 
important concept that essentially defined th e scope of any international agreement.  
86. The Secretariat  introduced its background Note on exceptions and balance-of-payments 
safeguards (WT/WGTI/W/137).  The Secretariat Note  reviewed the way in which general, security 
and regional integration exceptions and balance-of-p ayments safeguard provisions were treated in the 
GATT, the GATS and in IIAs. These constituted one of the topics to be clarified by the Working 
Group under paragraph 22 of the Doha Ministerial D eclaration, which also required Members to take 
into account, in any multilateral framework on inve stment, exceptions for governments to regulate in 
the public interest and to participate in regional trade and economic integration agreements.  General 
and security exceptions to GATT and GATS rules provided room for WTO Members to regulate in 
the public interest in ways that would otherwis e be inconsistent with their WTO obligations, in 
particular Article III.  In addition to national security matters, these exceptions covered areas such as 
the protection of public safety and health and certa in environmental and cultural policy objectives. 
However, the relevant GATT and GATS Articles, confirmed by the jurisprudence of the Dispute 
Settlement Body, had set out strict conditions for ap plying measures in these areas, notably that the 
measures must not involve arbitrary or unjustifiable discrimination or create disguised restrictions to 
trade.  Exceptions allowing Members to participate in regional trade agreements were also available 
under the GATT and the GATS, and were also subject to conditions, both substantive and procedural. 
Substantive conditions attached to the exceptions were that a regional agreement should involve the 
elimination of trade restrictions and discriminatory  measures on substantially all trade between the 
parties of the agreement, and that it should not involve an increase in trade barriers against non-
parties. Flexibility was provided to devel oping countries in meeting those conditions. 
87. The Secretariat noted that general and security  exceptions were not usual features of many 
IIAs, in particular because most of them did not ci rcumscribe the extent to which host countries could 
apply domestic laws to regulate FDI for public interest purposes. Exceptions for regional integration WT/WGTI/M/19 
Page 20  
 
were a feature of many IIAs, in order to prevent the MFN rule from conferring on participants the 
benefits that one participant wished to reserve fo r its partners in a separate regional integration 
agreement. 
88. As regards balance-of-payments safeguards, both the GATT and the GATS allowed Members 
to restrict imports so as to safeguard their external financial position and balance-of-payments.  
Conditions for doing so were that the measures sh ould be non-discriminatory, temporary and subject 
to a time-schedule for removal, the least-trade di sruptive with a strong preference for price-based 
measures instead of quantitative restrictions, that th ey affected the general level of imports and were 
not sector-specific and did not exceed what was necessary to redress the balance-of-payments. 
Provision was made for a more flexible access to these measures for developing countries (particularly in the GATS) in recognition of their ne ed to maintain a level of reserves commensurate 
to their development needs. 
89. Most IIAs contained provisions guaranteeing that host countries would permit current 
payments and transfers related to FDI, and very few contained balance-of-payment safeguards. This 
was partly explained by the fact that most IIAs di d not contain provisions regarding the admission of 
capital flows, leaving governments free to apply fore ign exchange controls, in particular for balance-
of-payments reasons. Another explanation was that parties to IIAs were bound by IMF obligations on 
current payments and transfers, when they were me mbers of that institution. Nevertheless, balance-of-
payments concerns in relation to certain categories of capital flows had been raised by many 
participants in the Working Group. This, coupled with the fact that the GATS contained balance-of-
payments safeguard provisions, suggested that the issue might be more relevant at the multilateral 
level than at the bilateral level. If  so, the Secretariat suggested that careful attention would need to be 
paid to ensuring consistency with WTO's Memb ers' obligations under the IMF's Articles of 
Agreement, an issue that was addressed in a preliminary manner in the Secretariat Note.   
90. The observer representative of UNCTAD
 highlighted certain key concerns from a 
development perspective that might arise with respect to the issue of exceptions and balance-of-payments safeguards in the context of IIAs.  His specific comments were based on the findings of the recent UNCTAD Expert Group meeting on "Experien ces with bilateral and regional approaches to 
multilateral cooperation in the are of long-term cros s-border investment, particularly foreign direct 
investment", held in June 2002, and the UNCTAD Secr etariat's research in this area, most notably the 
UNCTAD Series on Issues in Interna tional Investment Agreements .   
91. As indicated in earlier discussions on the issues of scope and definition, development 
provisions, non-discrimination and pre-establishmen t commitments, exceptions could play a crucial 
role in providing for the kind of flexibility that might be required to bridge the gap between the 
disciplines of international obligations arising out of an IIA and the need to preserve national policy 
space for the pursuit of national development-related objectives.  As initial qualifications, exceptions 
limited the extent to which particular principles of an IIA applied and, thereby, the obligations undertaken by countries participating in IIAs.  From  a developing-country point of view, three kinds 
of possible exceptions merited special consideration.   The first category were general exceptions 
which limited the operations of an agreement with respect to considerations of a public character – 
typically issues related to public health, order, mo rals and national security.  In addition, such 
exceptions were known in the context of regional economic integration.  General exceptions could, 
however, also be interpreted to cover issues related to national development objectives.  Such 
interpretation had indeed been discussed in  the context of the World Bank Guidelines. 
92. The second category related to subject-specific exceptions.  These exem pt specific matters 
from the application of individual treaty provisions.  As the Group's past discussions had shown, this 
was of relevance not only to limiting the scope and definition of an IIA's application, but also to 
limiting the extent of its substantive obligations , such as, for example, in the area of non-
discrimination.  Based on various considerations – e.g., those aimed at protecting local entrepreneurs  WT/WGTI/M/19 
 Page 21 
 
 
or specific sectors – such exceptions could encompass the exclusion of an investment that was based 
on its size, legal form or nature, postponements of ap plicability (the matter of transitional periods was 
of relevance here), and the granting of privileges an d preferential treatment on the basis of special 
consideration. 
93. The third category related to country-specific exceptions.  These identified industries and 
measures that could be exempted (temporarily or not) from the operation of an IIA.  This would entail 
a priori  (i.e. negative list) or ad-hoc  (i.e. positive list) identification of sectors and industries that 
countries might wish to exclude from treaty coverage .  A point that should not be forgotten in this 
context was that, however exceptions were formulat ed, their identification and administration in treaty 
practice was difficult, particularly for developing econ omies.  From a developing country perspective, 
it might also be necessary to consider whether cer tain generic categories of measures should be 
entirely excluded from the application of an agreement or from specific provisions.  Measures relating 
to taxation and short-term capital movements were  prominent examples of issues meriting careful 
analysis in this regard. 
94. Finally, the issue of exceptions could also be considered as part of the broader context of 
paragraph 22 of the Doha Declaration, namely the issu e of the right to regulate in the public interest.  
The question arose as to whether this concept could be interpreted beyond its original expropriation 
(regulatory takings) context to also include developm ent-related issues – a question that was raised in 
the UNCTAD Expert Group Meeting in June referred to earlier. 
95. Regarding balance-of-payments safeguards, he noted that such safeguards – or "escape 
clauses" – were provisions included in an agreemen t that allowed parties to take actions otherwise not 
permitted, in order to cope with unforeseen events arising after the adoption of the instrument.  They 
usually related to balance-of-payments crisis or  emergency economic situations. Such safeguards 
were important and were indeed generally accepted in international agreements, especially in as far as 
they related to trade.  While also common in IIAs, a question that the Working Group might also want 
to consider related to the issue of what else coul d constitute an emergency situation that would trigger 
such safeguards – in addition to the traditional ba lance-of-payments context.   What, for example, 
would be the equivalent of an import surge in the investment context, and how would one address 
emergency situations arising, for example, out of  the "crowding out" of small- and medium-sized 
enterprise? 
96. As far as treaty provisions on balance-of-payments safeguards were concerned, an issue that 
deserved special attention from a development pe rspective related to th e precise formulation, 
procedures, conditions and application of such clau ses set out in an IIA.  In as much as treaty 
provisions identified precise conditions that needed to be met before a safeguard clause could be 
invoked, as where they stipulated prior notifica tion and/or approval from the competent organ, or 
where they set definite limits of time and substantive measures to the action to be taken through such 
an invocation, they could delimit treaty partne r flexibility in dealing with economic emergency 
situations.  This related especially to the issue of  transfer of funds, and whether treaty provisions 
allowed for a development-friendly application of such clauses.   
97. The representative of the Czech Republic  suggested that the Workin g Group should approach 
the issue of exceptions and balance-of-payments sa feguards with some caution.  First, Members did 
not know yet what would be the scope, definition an d applicable rules for which the exceptions would 
apply.  Second, the exceptions were important to ad dressing concerns related to national sovereignty 
and any prospective investment framework.  Third, the Working Group must not lose sight of the fact 
that Members were looking towards a GATS- type model for scheduling country-specific 
commitments in a WTO investment framework – whic h by definition meant that many issues would 
be addressed through a flexibile approach to negotia ting the pace and direction of liberalization rather 
than through a complex system of exceptions, be they country-specific or ad hoc . WT/WGTI/M/19 
Page 22  
 
98. Having said this, the Czech Republic believed th at some exceptions of a general nature would 
be required in any multilateral framework.  Her de legation envisaged a system which was similar to 
that embodied in the GATT and GATS rules, as well as in other investment-rated international 
instruments.  The Czech Republic supported the in clusion of such exceptions to rules of general 
application that would allow Members to take any action necessary to mainta in public health and 
safety, to protect essential security interests and to  fulfil obligations related to the maintenance of 
international peace and security.  She noted that paragraph 22 of the Doha Ministerial Declaration 
stipulated that account should also be taken of regional arrangements on investment.  Her delegation 
was also open to any discussion on how to that regi onal trade and economic integration agreements in 
any multilateral framework on investment – with the ca veat that she would feel uneasy with the idea 
of considering them as an exception per se .  Her delegation would envisage the same approach as 
applied in GATT and GATS rules.  The Czech Republic also expected that any multilateral 
framework would provide the possibility of applying re strictions in order to safeguard the balance-of-
payments provided internationally-recognized rules were respected.  Her delegation approached the 
discussion on exceptions and balance-of-payments safeguards with an open mind and spirit of 
understanding.  At the same time, she wished to make as clear as possible the importance her delegation was attaching to the ne ed to lay down the basic conditions under which the exception 
provisions could be invoked, thus minimizing the possibility of abusing them for protectionist 
purposes and creating a source of arbitrary discrimination.   
99. The representative of India
 reiterated the reservation it had expressed on earlier occasions 
about the need, utility and relevance of any multi lateral framework of investment in the WTO, 
particularly from the point of view of developing countries.  The views expres sed by his delegation on 
this subject were without prejudice to this basi c position.  He again made the observation that 
investment relates to financial flows.  Financia l flows in no way resembled flows of goods and 
services, and it was interesting to note that a similar view had been expressed in the papers submitted 
by Japan and Korea.  There was no tangible, direct  linkage between buyers and sellers.  Money by its 
very nature was more fluid and less transparent in its movement.  His delegation had indicated before, 
in previous interventions, the tendency of financia l resources to move in various ways and through 
different channels.  His delegation had also pointed out that foreign direct investment could not in all 
cases be said to be free of problems arising from such flows.  He had quoted J.A. Craigell, Professor 
of Economics of the University of Bologna, who ha d said that "an investor can continue to own the 
bricks and mortar without retaining the foreign curren cy risks, foreign exchange risks, etc., associated 
with an investment of a permanent immobile nature".  His delegation therefore stated once again its view that investment, like other financial flows, was beyond the purview of trade negotiators and 
should be dealt with by others who are responsible fo r control of money flows in different countries.  
That, which was beyond the purview of trade negoti ators, was obviously not within the ambit of the 
WTO. 
100. The Working Group must bear in mind the inten tions of Ministers as ar ticulated in the Doha 
Ministerial Declaration.  While discussing the issue of exceptions and balance-of-payments 
safeguards, the Ministers had indi cated that "any framework should reflect in a balanced manner the 
interests of home and host countries, and take due account of the development policies and objectives 
of host governments, as well as the right to regulate in the public interest."  The Ministers had also 
stipulated that "the special differential trade an d financial needs of developing and least-developed 
countries should be taken into ac count as an integral part of any framework which should enable 
Members to undertake obligations and commitments commensurate with their individual needs and 
circumstances."  It was therefore quite clear that one objective was to seek to maximize the positive 
effects of FDI on development and reflect the ne eds and problems of developing countries.  The 
objective was not to design investment rules intended to maximize foreign investors' rights. 
101. In order to maximize the authority, rights, and policy space of developing-country 
governments, it was necessary to provide each countr y with the flexibility and space to adopt policies 
that could deal with a range of issues such as: th e possible effects on balance-of-payments, especially  WT/WGTI/M/19 
 Page 23 
 
 
increased imports and outflows of investment income which had to be balanced by export earnings 
and new capital inflows; the possible "crowding out" effects of FDI, negatively impacting the 
competitiveness and viability of local enterprises; the possible effects of  corporate dominance, 
worsening the imbalance between local and foreign ownership and participatio n in the economy; the 
possible adverse affects of increased economic volat ility and instability.  It was evident that these 
factors could not be taken on board and integrated into a multilateral framework through the device of 
exceptions.  A developing country should be fully capable of formulating its own policies regarding 
the regulation of inflows and outflows of funds at all types, including credit, loans, portfolio 
investment and FDI.  Any international investment framework must have flexibility for policy 
autonomy and maximization of policy options for de veloping countries as its core element.  This 
strategic approach was important instead of the alternate or opposite approach of establishing an inappropriate rule or principle and then building in exceptions to it. 
102. Turning to the issue of balance-of-payments sa feguards, his delegation recognized that both 
GATT Article XII and Article XIII:B and GATS Article XII provided for balance-of-payments 
exceptions.  However, the special dispensations available to developing countries under Article 
XVIII:B had not been effectively operationalised.  Th is issue had been raised by developing countries 
in the form of implementation issues and remained unresolved, even though it was recognized that 
developing-country Members might need to use trade restrictions in order to ensure the maintenance 
of the level of financial reserves  adequate for their economic development needs.  In practice it had 
been noticed that there were no serious efforts to take into account the development angle while 
assessing the adequacy of reserves.  Objective and effective criteria needed to be created.  The important point was that investment flows had bo th positive and negative effects on balance-of-
payments as several studies had indicated.  Th e positive effects included inflow foreign capital, 
increased export earnings and savings from reduce d imports.  The negative e ffects included outflow 
of profit, royalties and revenues and incomes, increas ed imports of capital goods, increased imports of 
intermediate goods, and increased imports of consumer goods.  So, as long as inflows of foreign 
investment exceeded outflows, the effect on the bala nce-of-payments would be positive.  As the stock 
of foreign capital increased, the te ndency towards decapitalization grew. 
103. In a study by Dr. Gazili Attan on the effect of FDI in Malaysia, it was concluded that for FDI 
to be used successfully with net overall benefits, several conditions needed to be met.  First, foreign 
capital inflows should not displace domestic savings since successful growth in developing countries 
depended essentially on raising do mestic savings to a high level, and then productively investing 
them.  Second, payment costs must be minimized and prudently managed.  Third, joint ventures 
should be encouraged so that part of the remittance accrued to locals and was retained by the local 
economy.  Fourth, foreign firms should list themse lves on local markets.  Fifth, FDI should be 
concentrated in the tradeable sector especially in  export-based activities.  Sixth, content of output 
should be raised over time to improve the trade effe ct.  Seventh, the growth of domestic investment 
should exceed FDI growth.  Eighth, developing co untries should increase their savings rate and 
maintain sound economic and political conditions. 
104. India was of the view that a pre-condition for effective and beneficial use of FDI by 
developing countries was the availability of adequate policy autonomy and space for ensuring that it 
was used in such manner that its positive effects were maximized.  This could not be achieved 
through balance-of-payments safeguards.  Serious ba lance-of-payments crises could not be resolved 
solely by providing for suspension of repatriation of capital, interest, payments, and so on, which were 
the results of investments already affected.  There needed to be a balance-of-payments impact analysis 
in respect of foreign investment proposals involving large capital inflows and in sectors that were 
capable of triggering balance-of-payments problems in a host country.  It was extremely important 
also that countries put in place devices such as performance requirements, inclusive of local content 
and trade balancing requirements, in order to offset the decapitalization effect of foreign investment.  
It was necessary therefore that developing and least-developed co untries be exempted from the 
prohibition on domestic content requirements and trad e balancing requirements as stipulated under the WT/WGTI/M/19 
Page 24  
 
TRIMS Agreement.  In order to pr event crisis, rather than control damage after it had occurred, it was 
important that developing countries retained full policy flexibility.  In the context of investment, 
moreover, the issue of safeguards could not be confined to balance-of-payments safeguards alone.  
The entire issue of safeguards to the domestic indu stry in relation to foreign investment needed 
detailed analysis in the Working Group.  In the context of GATS, after ye ars of deliberation by 
Members, this issue remained unresolved. 
105. The representative of Egypt
 recalled that the subject of exceptions had been addressed in 
almost all WTO agreements reflecting the fact that  it was not only the libera lization of trade that 
mattered, but also the protection of social, moral, security and public values.  Even more important 
were the exceptions designed to integrate developi ng countries in the international trading system.  
GATT Articles XII and XVIII and the GATS Article XII recognized the importance of Members 
retaining some measures to safeguard their bala nce-of-payments position.  In particular, GATT 
Article XVIII recognized that a Member in th e process of economic development or economic 
transition might need to use such restrictions in order to ensure inter alia  the maintenance of a level of 
financial reserves adequate for implementing its programme of economic development or economic 
transition.  Turning to the issue of exceptions in  relation to FDI, his delegation believed that, in 
addition to general and security  exceptions (as per GATS Article s XX, XXI and XVII) the Working 
Group should examine the case for additional exceptions for developing countries to provide 
protection against any negative effects of investment .  Such additional exceptions should respond to 
the unique circumstances of different countries, and be tailored to their development needs.  Since 
domestic production was the engine of economic  growth, it was Egypt's view that developing 
countries should be able to use exceptions to safe guard against possible "crowding out" effects of FDI 
on domestic industries, especially the small-and-me dium-sized enterprises (SMEs).  Exceptions could 
also be allowed to protect or "c arve out" specific sectors or industries.  Exceptions were also 
important to facilitate the establ ishment of domestic industries. 
106. With respect to balance-of-payments safeguards , his delegation pointed out that a country's 
monetary and financial situation was directly related to  its credibility in the eyes of foreign investors.  
If the country experienced frequent financial inst ability, potential investors would obviously be 
discouraged from investing. One of the issues that should be addressed in Working Group in the 
context of balance-of-payments sa feguards was financial instability,  the adverse effects of rapid 
capital outflows, and implications for host-country balance-of-payments.  No one denied the positive 
impact that FDI could have on the balance-of-payments.  But the opposite could also be true.  An excess of total domestic spending over total national disposal of in come was usually expressed in a 
deficit on the current account of the balance-of-pay ments.  This imbalance created the need for large 
inflows of international capital.  But the persisten ce of such imbalances – sometimes exacerbated by 
FDI inflows and rising national consumption – could also lead to financial uncertainty, downward 
pressure on exchange rates, and ultimately capital flight. 
107. There were many ways in which countries, especially the developing countries, could 
safeguard their balance-of-payments against capital outflows.  For example, exchange controls or 
restrictions could be applied to limit the convers ion between domestic and foreign currencies, and to 
guard against a sudden depletion of national reserves . In developing countries,  particularly vulnerable 
to the economic and social cost of financial instability, controls or restrictions should be related to 
both outflows and inflows of capital.  His delegation emphasised that any of the above-mentioned restrictions or exceptions should not  be interpreted as restrictions against investment inflow, but rather 
as safety valves that could be used by developing countries to secure a stable economic environment.  
In this context the relationship between the IMF Articles of Agreement and any prospective 
agreement on investment should be examined. It also was Egypt's view that any prospective 
agreement on investment should be complemented by a restructured international financial 
architecture – one that responded directly and effe ctively to financial instability, and underpinned the 
credit worthiness of developing countries as destin ations for FDI.  More immediately, this Group's  WT/WGTI/M/19 
 Page 25 
 
 
current discussions of balance-of-payments safeguard s should be linked to the ongoing work of the 
Working Group on Trade, Debt and Finance.  
108. The representative of Mexico  shared the view that an ev entual multilateral framework on 
investment must contain general exceptions that allow governments some flexibility to regulate in the 
public interest.  Nevertheless, her delegation also believed that it was important – as stated at the July 
meeting – to consider a provision similar to that contained in GATS Article V, that would enable any 
prospective WTO investment agreement to eliminate a possible problem of "free riders".  Leaving out 
an exception for regional integration could resu lt in Members undertaking very low levels of 
commitments in the multilateral context.  As re gards possible balance-of-payments safeguards, her 
delegation recognized that such provisions were impo rtant for many countries and, especially so for 
the least-developed.  Neve rtheless, at this stage in the discussions, it was difficult to gauge the full 
scope of – and need for – a balance-of-payments clause, as it would depend on the definition of 
investment that was agreed on.  The broader the definition of investment, the greater would be the 
need to negotiate a more complex provision.   
109. The representative of Norway  observed that both the GATT and GATS contained general and 
security exceptions to the obligations in the agreem ents giving countries the possibility to regulate in 
the public interest. These covere d well known items such as nati onal security, protection of public 
safety and health and environmental and cultural poli cy objectives.  As Canada had pointed out in its 
submission, exceptions, like reservations, were a fundamentally important concept that essentially 
defined the scope of any internat ional agreement.  Norway theref ore believed that a multilateral 
investment framework agreement in the WTO should also contain the possibility for general exceptions covering the same policy objectives as the GATT and GATS. Norway subscribed to the 
view that such exceptions should be subject to strict conditions for application based on non-
discrimination and avoiding disguised restrictions to trade.  FDI was an important factor in long-term  
efforts to reduce the risk of future balance-of-payments problems because FDI was more stable than 
portfolio investment and because FDI and exports were normally positively correlated. Paragraph 12 
in the Secretariats Note summed up such points ve ry well.  On the question of safeguards for balance-
of-payments difficulties, Norway's point of depa rture was that a safeguard mechanism for such 
problems would seem to be necessary on the condition that they were subject to strict disciplines and 
in conformity with IMF obligations.  
110. The representative of Pakistan  reiterated that his delegation remained unconvinced of the 
need for a multilateral framework on investment.  In Pa kistan's view, the discussions of issues related 
to exceptions and balance-of-payments safeguards in  the context of FDI should be seen from a wider 
developmental perspective.  There was no doubt that foreign investment could have extremely 
significant effects for developing countries, both negative and positive.  The question for developing 
countries was obviously how to minimize the negative effects and maximize the positive effects.  In 
his delegation's view, the answer lay in creating an international policy environment that ensured that 
developing countries had maximum national policy fl exibility and autonomy in areas relating to FDI.  
It was therefore important that developing countries had the autonomy to adopt the appropriate set of 
parameters, principles and policies relating to FD I, and to pursue developmental policy objectives 
according to their national priorities.  Attempts to create a framework which maximized foreign 
investors rights while minimizing the authority, rights and policy space of developing countries 
should be avoided.  The result of such an approa ch to an investment framework would be:  (i) 
constraints on policy-making in economic, social and political fields;  (ii) reduced ability to plan in 
relation to local participation and ownership;  (iii) in ability to build up the capacity of local firms and 
sectors;  and (iv) a weakened negotiating position of developing countries vis-à-vis  the investors.  
111. The representative of India had referred to various studies, and in particular one by 
Dr. Gazali. Pakistan also support his view.  His de legation was of the view that the empirical evidence 
– which was substantiated by a number of studies – showed that FDI had a tendency to cause a net WT/WGTI/M/19 
Page 26  
 
negative effect on the balance-of-p ayments of developing countries due to high payments of profits, 
royalties and licencing fees.  High imports of capital and intermediate goods associated with FDI also 
tended to have negative effects.  If FDI was in the non-export sector, the negative effect on the 
balance-of-payments could be further exaggerated.  If FDI was export oriented, however, the negative 
effects might be offset to some extent.  Balance-of-payments difficulties could result in enhancing a 
country's external debt burden as well.  Deterior ating balance-of-payments conditions might result in 
an erosion of investor confidence, and therefore lead to both foreign and local investor flight.
 
112. In Pakistan's view, it was important for develo ping countries to adopt policies that managed 
and protected their balance-of-payments situation.  In this regard, developing countries must have the 
option of pursuing policy measures that limited the factors which caused adverse balance-of-payments 
effects.  Therefore, appropriate policy autonomy in this regard therefore must be made available to 
them.  Developing countries also needed to have  appropriate flexibility to encourage those factors 
related to FDI that resulted in positi ve effects.  Both types of measur es needed to be built into each 
stage of the FDI process.  This meant, among others  options, the ability to approve or select suitable 
kinds of FDI, to choose appropriate conditions a ccompanying that approval, and to regulate the 
operation of FDI once established.  
113. It was only against this background that hi s delegation was in a position to talk about 
exceptions and safeguards.  The first question wa s what should be the objective of an investment 
framework.  Obviously, it should be to assist the development of less developed countries.  Therefore, 
developmental objectives, concerns and principles should be the core aspect of any multilateral 
framework on investment.  Developing countries should have the right to retain their options, 
flexibility and regulations in relation to foreign investment.  Any multilateral framework should not limit the right to regulate the flows of differe nt types of investments, to impose performance 
requirements, to encourage and suppo rt local firms, and lastly, to protect balance-of-payment stability 
and promote development.  In any possible mu ltilateral framework, the flexibility for policy 
autonomy for developing countries should be recogniz ed as a core principle.  His delegation would 
therefore consider as inadequate any approach whic h established a general principle or rule, and then 
set out exceptions to such a general rule.  If a framework incorporated adequate flexibility and the 
right to regulate the entry and performance of FD I, it would not need exceptions or balance-of-
payments safeguards.  He noted, by way of example, that the existing GATT provisions for balance-
of-payments safeguards had proved to be inadequate  in Pakistan's view.  Developing countries were 
already encountering problems invoking balance-of-payments safeguards – even when confronted 
with genuine balance-of-payments problems – and the situation would be even worse if this approach were used in an international investment framework .  Pakistan also supporte d the view expressed by 
Egypt that the debate on balance-of-payments safegua rds in this Group should also be linked to the 
debate in the Working Group on Trade, Debt and Finance.  
 
114. The representative of Indonesia  expressed the view that, as a general rule, governments 
should be granted flexibility in applying domestic policies aimed at protecting the public interest and  
furthering development needs.  His delegation believe d that exceptions should be treated seriously in 
the deliberation in the Working Group.  He recalled that the Doha Ministerial Declaration stressed the 
importance of the right of host countries to regulate in the public interest. 
115. His delegation believed that general and security exceptions should be taken into account in 
the event that Members decided, by explicit consensus, to discuss a framework for trade-related 
investment.  In this regard, Indonesia was of the vi ew that safety, moral, health, environmental and 
cultural objectives, among others, were relevant a nd important issues that required recognition in any 
prospective multilateral framework and should form part of the exceptions to the agreement's rules. In 
addition, his delegation wished to stress that di scussions should not be confined to general and 
security exceptions, but should also extend to other exceptions that developing countries might 
require to meet their development priorities.  His delegation was also of the view that the Working  WT/WGTI/M/19 
 Page 27 
 
 
Group should study further the issue of exceptions wi th regard to regional tr ade arrangements before 
deciding on this matter. 
116. As regards balance-of-payment safeguards, he noted that international investment could be 
divided into FDI and portfolio investment.  To genera lize about the effect of  international investment 
on a country's balance-of-payments was difficult due to several reasons. From various studies noted in 
the course of the Working Group deliberations, it could safely be concluded that there were many 
factors affecting a host-country’s balance-of-payment.  Indonesia was therefore of the view that a 
comprehensive study was needed to examine the impact of FDI on balance-of-payments in order to 
better understand its implications – mainly for developing countries’ economic and development 
policies.  In previous discussions of the Working Group, some Members had expressed the view that, in time of financial crisis, outflows of capital as sociated with FDI could place additional burdens on 
the current accounts of crisis-hit countries.   Indonesia believed that this was also an important issue 
that needed to be discussed further since it rela ted closely to the need to safeguard balance-of-
payments.  He also pointed out that among the several regional investment agreements of which 
Indonesia was a party, there were provisions for sa feguarding the balance-of-p ayments. In a situation 
where a developing country faced balance-of-payme nts problems, the government should have the 
flexibility to deviate temporarily from specific WTO ob ligations (e.g., as stip ulated in GATT 1994, 
Article XVIII B). Finally, in the Working Group's future discussions on the issue of balance-of-
payments safeguards, the focus should be on FDI fl ows, not portfolio investment, as it fell within the 
Doha mandate.  
117. The representative of th e European Communities
 largely shared the views expressed by Japan 
and Korea in their papers, particularly their focus on the GATS, and its usefulness as a starting-point 
for discussion of exceptions and balance-of-payment s safeguards.  His delegation also shared the view 
that these general exceptions and the balance-of-p ayments safeguards measures should be strictly 
interpreted, temporary in their app lication, non-discriminatory, and fully consistent with the IMF.   
The European Communities also fully recognized the right of Members to regulate in order to meet 
national policy objectives, and believed that this right should be explicitly recognized in any multilateral investment framework.  His delegation also acknowledged the need for exceptions to 
accommodate security, moral, public order and cons umer concerns, as well as balance-of-payments 
safeguards. 
118.  More generally, he noted that the European Communities had consistently argued that 
flexibility should be the core element in the structure of any multilateral investment framework.  This was why his delegation had proposed a positive list approach to scheduling specific commitments, based on the GATS model.  His delegation agreed w ith India and Pakistan that the aim should not be  
uniform rule from which exceptions were taken, but rather the reverse.  The GATS-type approach was precisely this – commitments were taken in accorda nce with an individual country's needs and level 
of development, and with conditions and requir ements, regarding nationa l treatment and other 
measures, that could be added to these commitments. 
119. The representative of Chile
 noted that any multilateral framework on investment should 
provide for exceptions.  The issue of exceptions was dealt with in part during the discussion of non-
discrimination, so her delegation felt that the focus now should be on general exceptions and balance-
of-payments safeguards.  Her delegation agreed with Japan and the EC that the existing GATS and 
GATT approaches offered a good starting-point for the discussion of possible exception provisions in a multilateral framework on investment, especially given that mode 3 of the GATS already included 
investment flows for the services sector.  The bilate ral agreements signed by Chile – which applied to 
the post-establishment phase – all made provision for exceptions, in particular in relation to 
integration agreements and taxation.  No balance-o f-payment exceptions had been included in Chile's 
agreements.  However, as mentioned in point 53 of the Secretariat Note, all of Chile's bilateral 
agreements (currently totalling more than fifty) included, either by way of a Protocol to the Agreement or in the Article on freedom of transfer of funds, an exception restricting the transfer of WT/WGTI/M/19 
Page 28  
 
capital for a period of one year after the date of en try into national territory.  Similarly, Chile's FTAs 
with Mexico, Canada and the European Union, whic h included rules on investment and – unlike the 
bilateral agreements – regulated all investment phas es, also included another type of measure for the 
purposes of preserving currency stability.  Such  measures were independent of those defined as 
balance-of-payment safeguards or exceptions which had to be justified and applied in the event of 
serious balance-of-payment difficulties. She noted that  Chile's general policy had been to maintain the 
possibility of applying this kind of measure to prevent possible future crises.  Its recently signed 
agreement with the EU included such Chilean re servations, in addition to balance-of-payment 
exceptions and bilateral safeguard measures. 
120. The representative of the United States
 noted that the United States had historically taken 
only a single general exception in its investment agreements for essential security.  Her delegation 
disagreed with what was implied in the Secretar iat Note that Article 1114 of the NAFTA was a 
general exception for environmental measures.  Key to understanding the provision was the phrase in 
the NAFTA provision "otherwise consistent with this chapter".  That phrase indicated that there was  
no inconsistency between environmental measures a nd the substantive obligations found in Chapter 
11 of NAFTA.   Her delegation also wished to correct another point – in paragraph 44 of the Note – referring to balance-of-payments ar ticles in the US-Jordan Bilateral In vestment Treaty.  There was no 
such provision in the treaty.  Its free transfer s article was not subject to balance-of-payments 
exceptions.  Her delegation was also concerned, listening to the discussion, that the Working Group 
was moving in the direction of coming up with as many exceptions as could be imagined, to the point 
of reducing a prospective WTO framework to a non- agreement.  In reference to the remarks by 
Indonesia, she reiterated her delegation's view that  there was nothing in paragraph 22 of the Doha 
Ministerial Declaration which prevented the Workin g Group from considering portfolio investment – 
and her delegation did not understand what was mean t by portfolio investment of a long-term nature. 
Furthermore, her delegation felt that any substantiv e discussion of the issues related to safeguards 
must include the discussion of the need to safeguar d the right to free transfer of capital related to an 
investment.  The discussion of a balance-of-p ayments safeguard only makes sense under the 
assumption that countries were obligated in the agr eement to allow the free movement of capital.   
121. With respect to balance-of-payments exceptions, the United States believed that the right of 
free transfers was key to promotin g foreign investment in an environment in which countries must 
compete for scarce capital resources.  If a country wa nted investors to bring capital into its market, it 
must guarantee that the capital could be taken out of  that country as well.  Her delegation understood 
that some Members might favour an exception to the free transfers articles for balance-of-payments problems or inward movements of capital which could cause serious difficulties from macro-
economic management perspective.  The United States argued that restricting transfers in that way 
was likely to prove a self-defeating strategy.  It might cause a short-term improvement in the balance-
of-payments.  However over the longer term, restrictions discouraged investors from new investment 
and re-investment.  She suggested that sound ma cro-economic policies and a strong, consistent 
regulatory environment were first best policies to help countries avoid fina ncial crisis and recover 
promptly when turbulence did occur.  She felt that this view was widely shared.  As noted by the 
Secretariat, most bilateral investment treaties contai ned free transfers provisions that were relatively 
protective of repatriation rights.  Moreover, as UNCTAD had stated, only a small proportion of the 
1800 new bilateral investment treaties in existen ce specifically allowed for temporary balance-of-
payments derogations.  Given these findings, her de legation was puzzled somewhat by the statement 
in paragraph 37 of the Secretariat Note to the effe ct that most bilateral investment treaties were not 
aimed at the removal of impediments to cross-boarder capital flows.  The standard inclusion of free 
transfers provisions in bilateral investment agre ements around the world demonstrated the importance 
attached to removing existing barriers to the cros s-boarder movement investment capital and, just as 
significantly, to preventing the creation of new barriers. 
122. The Secretariat Note raised the argument made  by some delegations that their economies 
were vulnerable to destab ilizing flows of short-term , or so-called speculative capital, and that one way  WT/WGTI/M/19 
 Page 29 
 
 
to protect against such risks was to exclude shor t-term capital from covera ge under an investment 
treaty.  Her delegation believed that an investment  agreement that distinguished between short and 
long-term portfolio investment would be problematic for several reasons.  As pointed out by the 
Secretariat, even determining which investments would be considered "short-term" was difficult; and 
even if it were possible to develop a commercially  relevant distinction between short and long-term 
investment, such an approach would be arbitrary.  As the United States pointed out in its paper 
(WT/WGTI/W/142), placing restrictions on short-term  or portfolio capital flows to capital starved 
countries was not a long-term solution to financial instability.  Her delegation argued that financial 
liberalization should be backed by supportive macro-ec onomic instructional policies, in particular by 
improved bank regulation, prudential standards, and other safeguards.  The empirical evidence of the benefits to countries with sound supportive policie s argued against the arbitrary exclusion of short-
term investment from coverage and against a derogation from the principle of free transfers.   
123. The representative of Switzerland
 pointed out that talking about exceptions also meant talking 
about definitions, development provisions, and the GATS-type approach to pre-establishment.  
Regarding exceptions, his delegation first agreed with including the kind of general exceptions found both in GATT Article XX and GATS Article XIV (covering public morals, life or health, and 
measures related to compliance with laws or re gulations which were not inconsistent with the 
Agreements).  His delegation also supported including the kind of security exceptions found in GATT 
Article XXI and GATT Article XIV:2.  His delegation also agreed with Japan regarding the 
universality of exceptions and treating country sp ecific circumstances as a different subject. 
124. With regard to balance-of-payments safeguards, he made several points:  First, there was a 
close link between the definition of investment a nd the required balance-of-p ayment safeguard – and 
the form and scope of a balance-of-payment prov ision would depend significantly on the chosen 
definition of investment.  Second, regarding the deta ils of the provisions, his delegation believed that 
the GATS offered a useful model for further discussion on the subject, particularly its Articles XI and 
Article XII.  Switzerland agreed w ith the point in Canada's paper re garding the need for compatibility 
between any prospective investment agreement and the IMF Articles of Agreement.  Indeed a Member should be able to carry out an IMF adjustment programme without being in conflict with 
obligations under the proposed agreement. 
125. Referring to remarks regarding the distinction be tween trade and finance, he wished to make 
several points.  While investment was obviously a fi nancial flow, he felt it was important to stress the 
many ways in which trade was closely linked to fina nce.  Most obviously international trade could not 
take place without an accompanying international fi nancial system to pay for it.  The fact that 
importers paid when goods left its harbour or airport – sometimes several months in advance – 
demonstrated a tangible link to finance.  The purcha se of important capital goods, such as airplanes or 
large engineering projects, was even more tied to sophisticated financing packages – often spanning 
several years and hedged against exchange rate fluctu ations.  In some instances the seller of such a 
good might also become an investor in the project,  further reinforcing the inter-linkages between trade 
and finance.  Finally, there were many instances when the seller of a good was also financing the 
purchase by the purchaser.  In that respect, too, there was a close relationship between trade and 
finance.  Switzerland agreed that certain pure financ ial flows might not have a direct link with the real 
economy.  But many billions of dollar s of financial flows were directly tied to the real economy – that 
is to say, with goods, services and also foreign direct investment. 
126. Finally, Switzerland agreed with Pakistan that the issue of exceptions needed to be viewed 
from a wider perspective.  He also concurred full y with the European Communities about the need to 
build flexibility into the overall structure of any pr ospective investment framework.  Indeed in that 
respect, he urged the Working Group to refer to the report of the last meeting (WT/WGTI/M/18, 
paragraph 66) where the European Communities in particular developed its concept of flexibility.  
The issue of exceptions and balance-of-payments safeguards again demonstrated how closely inter-WT/WGTI/M/19 
Page 30  
 
linked the different paragraph 22 subjects were and also how important it was for the Working Group 
to have a clear picture on how the various elements related to one another. 
127. The representative of Australia
 stressed that any exceptions to the content of an IIA must 
contain provisions to ensure that  they did not involve arbitrary or unjustifiable discrimination or 
create disguised restrictions to inve stment.  Australia's approach to ex ceptions, in the bilateral context, 
had been to adopt the OECD draft MAI and Energy Charter Treaty approaches which limited 
exceptions to "expropriation and nationalization"  and "compensation for losses".  In doing so, 
Australia had sought to extend protection to the opera tions of Australian investors in host countries.  
Australia concurred with the position set out in para graph 2 of the Secretariat Note that general and 
security exceptions were not normally included in IIAs because such agreements did not intend to limit a host-country's right to pursue public policy objectives by regulating pre- and post-
establishment foreign investment through domestic legislation.  However, in the context of any 
agreement with a broader scope or purpose (i.e. an FTA or a GATS-type multilateral agreement), it 
was important that such exceptions were included.  Australia also concurred with the position put 
forward in paragraph 7 of the Secretariat's Note which called for the sector-specific GATS transparency provisions, subject to  general exceptions to protect confidential information.  He noted 
that there was some logic in including a statement similar to the OECD MAI transparency provision 
in any prospective WTO investment framework agreement.  The MAI transparency provision did not 
require a contracting party to "furnish full access to  information related to the financial affairs or 
accounts of individual customers of particular inve stors or investments;  or any confidential or 
proprietary information, including information co ncerning particular investors or investments".  
Australia believed that, in respect to balance-of -payments safeguards, any obligations undertaken in 
an international investment agreement must be co nsistent with the IMF Articles of Agreement.   
128. The representative of Colombia
 suggested that any exceptions  in a prospective multilateral 
investment framework would need to meet the concerns  raised by developing countries.  In particular, 
she felt that concerns regarding limitations on the regulatory capacity of states could be addressed 
through the introduction of exceptions.  Regarding Japan's proposals for avoiding major differences between exceptions in an  investment framework  and other WTO agreements, her delegation believed 
that, given the specific nature of these issue, it wo uld be difficult to adopt a standardized approach.  
As regards balance-of-payments safeguards, he r delegation highlighted paragraph 54 of the 
Secretariat Note which stated that one way of ap proaching balance-of-payments problems would be 
through limiting the definition of covered "investments".   
129. Regarding the issue of exceptions, the representative of Brazil
 emphasized the considerations 
contained in paragraph 26 of the Secretariat Note, where it was stated that general and security 
exceptions were not usual features of IIAs, particul arly bilateral agreements.  This was explained by 
the fact that most IIAs treated the entry of FDI by requiring a Party to “admit it in accordance with its 
laws and regulations”.  This approach did not circum scribe the extent to which the Party was able to 
control the entry of FDI when regulating in the public  interest.  Furthermore, this approach subjected 
FDI to all domestic laws and regula tions once the investment had been established in the host country. 
In other words, this approach clearly limited the no n-discrimination disciplines of an IIA to the post-
establishment phase – hence, perhaps, the perceived lack of need for general and security exceptions 
of the kind that was found in GATT Articles XX and XXI and GATS Articles XIV and XIV bis.  His 
delegation noted, however, that there were also a number of bilateral and some regional agreements 
that not only established a standa rd of treatment “no less favorable  than that accorded to the host 
country’s own like domestic investments and investor s”, but also required specific treatment to be 
granted to foreign investors unde r the disciplines of the agreement.  These obligations sometimes 
applied to the pre-establishment phase of investment , but also to matters regarding expropriation and 
performance requirements and they could not be adapted to specific needs arising from the evolution 
of a host-country’s economy or its regulatory framework .  This situation, in turn, created the need to 
include in the agreements clauses providing for general exceptions and also for specific exceptions 
and reservations.  WT/WGTI/M/19 
 Page 31 
 
 
130. In this regard, Brazil wished to introduce a word of caution regarding any possible 
multilateral investment framework that attempted to be too rigid in terms of Members' right to 
regulate.  This scenario could ne gatively affect all stakeholders, including foreign investments and 
investors.  It was interesting to recall that concerns  about preservation of a Members' right to regulate 
also surfaced during the final stages of the negotiations on the failed MAI.  In April 1998, 
immediately before the suspension of negotiations, Ministers recognized that “the MAI must be 
consistent with sovereign responsibility of governments to conduct domestic policies.  The MAI 
would establish mutually beneficial international rules which would not inhibit the normal, non-
discriminatory exercise of regulatory powers by governments and such exer cise of regulatory powers 
will not amount to expropriation”.  Finally, his dele gation noted that the discussion at this meeting 
was limited to general, security, and RTA excepti ons.  Despite the fact that the other kinds of 
exceptions had already been initially examined at a previous meeting, on the basis of a Secretariat 
Note on non-discrimination, his delegation felt that fu rther consideration should be given to specific 
exceptions and reservations in future discussions in the Working Group. 
131. With regard to balance-of-payments safeguards, the Secretariat Note correctly pointed out 
that there was no standard formula for the treatment of  this issue in IIAs, since specific content of this 
kind of provision depended on the characteristics of the agreement itself, particularly as regards its 
scope and definition.  In that connection, it was in teresting to note, as mentioned in paragraph 37 of 
the Secretariat Note, that most IIAs were not aime d at the removal of impediments to cross-border 
capital flows and therefore they did not contain obligations regarding the admission of foreign 
investment.  So again, this would seem to point to the fact that the formulation of a balance-of-payments safeguard provision would have to be consid ered in the light of the overall characteristics of 
any possible multilateral framework.   
132. The representative Argentina
 emphasised that his delegation attached particular importance to 
the issue of exceptions, especially balance-of-payments safeguards.  He also agreed that an analysis of 
exceptions and balance-of-payments safeguards was incomplete without a clear understanding of the 
overall scope and coverage of an agreement.  He noted that Argentina's bilateral investment agreements included both general exceptions and balance-of-payments safeguards.  These agreements 
covered post-establishment investment only, leaving investment flows subject to national laws and 
regulations – and meaning that exceptions had on ly limited relevance.  As regards balance-of-
payments safeguards, Argentina's agreements stipul ated that in the case of a balance-of-payments 
difficulties, the government could impose restrictions  on the free transfers of funds or even exchange, 
as long as such restrictions were non-discriminatory and time limited.   
133. The representative of Hong Kong, China
 agreed with Japan about the logic of using the 
general exceptions in GATS as a basis for discussion in the Working Group, as investment in services was already covered by GATS.  His delegation also agreed with Canada that the issue of exceptions 
was closely linked to other elements in an ag reement, such as the scope and definition and 
development provisions. In this regard, he suggested that the Working Group might need to revisit the various issues in a more integrated way after completing the first round of discussions of the seven 
elements.  With respect to balance-of-payment s safeguards, his delegation felt that the GATS 
approach was of particular relevance – as it already covered investment in services – should serve as a 
basis for discussion.  His delegation agreed w ith Brazil that need for the balance-of-payments 
provisions would also depend on the scope and ch aracteristics of the possible multilateral investment 
framework.  Hong Kong, China supported the princi ple that any balance-of-p ayments safeguard that 
might be developed must be consistent with the rele vant Articles in the IMF Agreement.  Finally his 
delegation agreed with Canada that the Working Group could benefit from contributions from 
financial services or intern ational monetary experts, in order to deepen the discussion of this subject.   
134. The representative of Hungary
 joined those delegations which considered the issue of general 
exceptions and balance-of-payments safeguards in a somewhat restricted sense – at least for the purpose of the current discussion – since country-s pecific exceptions had already been discussed in WT/WGTI/M/19 
Page 32  
 
detail under non-discrimination and modalities for pr e-establishment treatment.  Both the general 
exceptions and balance-of-payments safeguards could be found in a number of international 
agreements, and more specifically in the GATT and GATS.  It was also clear that the context in which 
exceptions or safeguards for FDI was considered was somewhat different from the context for trade in 
goods or services.  Despite the special character of  investment flows, Hungary still believed that both 
general exceptions and balance-of-payments safeguards  would have a role to play in a prospective 
investment agreement. 
135. Regarding balance-of-payments safeguards, his delegation found the paper submitted by 
Japan particularly useful, as it pointed out th e major differences between balance-of-payments 
difficulties related to trade and possi ble balance-of-payment crises rela ted to capital flows.  Hungary 
shared the paper's conclusion that, in case of investment, any balance-of-payment-related restrictions 
might have a counter-productive effe ct and create additional long-ter m problems for the host country 
by discouraging inflows of new investment.  His delegation could foresee that a crisis situation might 
arise such that, despite possible long-term counter-p roductive effects, countries might still be forced 
to impose safeguards in order, for instance, to avoid an immediate collapse of the balance-of-payments situation.  Hungary also agreed with the paper's emphasis on differentiating between, on the 
one hand, possible measures related to short-term transfers and payments, and, on the other hand, 
possible measures aimed at preventing the withdr awal of existing investment.  Despite these 
complications, however, Hungary still felt that balance-of-payments safeguards might be unavoidable. 
136. His delegation also felt it important to keep in mind when discussing investment-related 
measures in the WTO – including general exceptions and balance-of-payments safeguards – that Members were not starting from scratch, as there were already important linkages between the GATS 
disciplines and any prospective agreement on investment.  Moreover, it was his delegation's view that 
any prospective investment agreement should build  upon what had already been achieved in the 
GATS.  As the Working Group was aware, the GATS contained specific provisions for balance-of-
payments difficulties (Article XII) and for genera l exceptions (Article XI V).  Article XII referred 
specifically to payments and transfers as possible ta rgets of balance-of-payment s-related restrictions.  
This was one reason why his delegation believed th at similar provisions were unavoidable in any 
prospective investment framework.  Different rules in these areas risked creating conflicts between 
the two agreements and causing imbalances between th e treatment of investment in the services and 
manufacturing sectors – even though one objective of an investment agreement was presumably to 
redress such imbalances. 
137. Another important consideration was the issue of the eventual scope of an investment 
agreement.  Hungary was among those delegations wh ich consistently argued for a focus on FDI and 
longer-term capital flows, excluding from the ag reement short-term portfolio investment.  His 
delegation believed that if short- term investments were included in  the coverage of the agreement 
then the safeguards would need to be totally different .  It was not without reason that governments, in 
their policies related to financial flows, made a di stinction between long- and short-term investment.  
In conclusion, he quoted George Soros who remarked that "financial markets behaved more like a 
wrecking-ball, swinging from country to country, an d knocking over the weaker ones".  This was his 
evaluation of the recent history of financial mark ets and the effects of short-term capital flows. 
138. The representative of Malaysia
 suggested that exceptions and balance-of-payments 
safeguards, at this stage of the clarification process, needed to be considered in a broader perspective.  On exceptions, his delegation viewed them as an  important component of any multilateral framework 
on investment.  At the last meeting of the Wo rking Group, Malaysia ha d called for exceptions 
including permanent carve-outs from investment di sciplines for developmental purposes.  He noted 
that Japan's paper had proposed  that universality was a basic criteria for general exceptions.  
Malaysia's view was that developmental concerns were  universal concerns, just as protection of public 
morals, national security, protection of animal an d plant life, health and safety were universal  WT/WGTI/M/19 
 Page 33 
 
 
concerns.  Therefore, developmental exceptions shou ld be allowed as a general exception.  Several 
Members had voiced their concerns on the impacts of FDI flows. 
139. It had been recognized that FDI inflows and outflows had both positive and negative effects.  
The positive effects included their catalytic role in industrialization and, bridging of the savings gap.  
The negative effects included the crowding out of domestic investment and potentially adverse 
impacts on the balance-of-payments of developi ng countries.  While Malaysia recognized the 
importance and benefits of FDI in the process of economic development, it also shared the same 
concerns expressed by some other delegations re garding the possibilities of unfair crowding out of 
indigenous domestic firms and indust ries.  Hence, the need for a balanced approach to maximize the 
benefits of FDIs and to minimize the negative e ffects.  This would ensure that the development 
objectives of developing countries were met.  Mala ysia had on many occasions reiterated the need for 
flexibility and the right for development to be an  integral feature in any proposal for multilateral 
investment rules.  His delegation was of the view that the primary thrust sh ould be that any eventual 
multilateral framework should have flexibility at its core – i.e., the recognition and the commitment, 
in terms of substantive provisions, of flexibility for development – granting developing countries the 
policy space to pursue policies for the fulfilment of their development goals and targets.  This could not exclude policies to both stabilize and avoid ba lance-of-payments volatility.   Indeed balance-of-
payments stability had inevitably become a vital ba rometer of a country’s economic credibility and 
thus its ability to attract sustained inflows of FDI.   On balance-of-payments safeguards, Ma laysia was 
of the view that this could be a useful provision, especially in the context of an emergency situation, 
and, to allow countries to take pre-emptive meas ures to safeguard their balance-of-payments from 
adverse impacts. 
140. The representative of India
 wished to clarify several issues arising from the debate.  One 
related to the distinction between investment, as a financial flow, and trade in goods and services.  It 
was clear that money played a central role as a medium of exchange in trade in goods and services.  
That was not quite the same as the financial flows involved in investme nt.  So far as investment flows 
were concerned, it might in fact be difficult to distinguish clearly between short-term and long-term 
financial flows – as several delegations had pointed out.  Money may enter a country in the form of 
portfolio investment or short-term financial flows, but  then go into long-term investment.  From there, 
again, in the form of derivatives or some other form, it could flow back into the home country, or be 
used in some other way.   The point was that these flows were quite distinct from the kind of issues 
handled by trade negotiators.  Even in India, such is sues were not dealt with by trade ministries.  This 
issue was dealt with by the central banks, the Ministri es of Finance, and Treasuries.  Of course larger 
delegations would be in a position to supplement their missions here with additional manpower 
capable of handling these issues, bu t smaller delegations faced a problem. 
141. His second point related to flexibility.  It was comforting to know, from listening to certain 
proposals, that all Members would have as much fl exibility as they wanted, where each country could 
determine the level of flexibility that it was willing to give.  But if this were the case, it was difficult 
to understand why a multilateral fr amework was needed at all.  Perhaps the objective could be 
achieved far better through the existing framework that was already in place in the form of domestic 
laws and regulations, as well as the bilateral a nd regional agreements that were in place.   
142. The representative of Japan  noted that so-called "flexibility" had been a keyword in the 
current discussion of exceptions a nd balance-of-payments safeguards.   There was a risk of confusion 
with other elements under paragraph 22  of Doha Declaration.  It was true that exceptions and balance-
of-payments safeguards introduced some flexibility into an agreement in the sense that they set out 
certain exceptions to discip lines and rules, but it seemed to Japan that this was distinct from flexibility 
associated with preserving policy autonomy or options for country-specific development purposes.  
These were issues best discussed under the he ading of development provisions and modalities for 
scheduling commitments.   It was Japan's view that , given Members' different stages of development 
and different policy priorities, the GATS-type approach to undertaking commitments allowed WT/WGTI/M/19 
Page 34  
 
Members the flexibility to reconcile their interest  in development with their interest in having 
multilateral rules.  Egypt, Malaysia and other delega tions had suggested that certain exceptions were 
necessary to protect domestic and indigenous indust ries, particularly SMEs.  But again Japan believed 
that this was not the nature of exceptions.  If a de veloping country wanted to protect a particular 
sector, that could be discussed in the context of the negotiation of liberalization commitments.  
Likewise, the need for balance-of-payments adjustment  was an issue to be addressed in the context of 
macroeconomic or monetary policies, not safeguards. Japan wanted to reiterate the need to focus on 
generic exceptions which were universal for all Members. 
143. Regarding remarks about the negative impact of FDI, Japan agreed with the European 
Communities' observation that in the current context countries were actually co mpeting to attract FDI, 
not to shield themselves from it, suggesting that they  perceived a net positive effect of FDI.  India had 
indicated that investment was a financial flow and,  therefore, beyond the purview of trade negotiators 
and not appropriately addressed in the WTO.  However, Japan shared the view expressed by 
Switzerland and other delegations that investment  was an appropriate subject for the WTO – with 
proper consideration paid to the consistency of any rules with IMF provisions – given the close interlinkages between investment and trade flows.  As to the suggestion that developing countries be allowed to introduce local content requirements from the point of trade ba lancing, his delegation 
pointed out that local content re quirements were already inconsistent with the TRIMs Agreement. 
144. Japan shared the view expressed in the Secretar iat Note about the need to avoid abuses of 
exceptions and safeguards, and said that provision s should be introduced clarifying the temporary 
nature of such measures.  Appropriate rules for invoking exceptions and balance-of-payments 
safeguards was a major issue.  In that regard, the Secretariat's analysis would be useful, particularly as 
regards the issue of consistency with the IMF Arti cle of Agreement.  Japan also shared the view 
expressed in the Korean paper that provisions on the free transfers of payments would be an important 
element of any investment rules.  His delegation believed that guaranteeing the free flow of capital 
was an essential element of any investment agreement – as was the right of host countries to safeguard their balance-of-payments.  Japan concurred with Korea's point regarding the potential damage to 
market confidence – and long-term FDI inflows – that could result from the imposition of restrictions 
on capital transactions.  For the purpose of future an alysis, Japan shared Canada's view that the issues 
of exceptions and balance-of-payments safeguards needed to be viewed in the context of the wider 
agreement, particularly with  regard to scope and definition.  Finally, Japan agreed with the point made 
by Chinese Taipei that financial flows had different characteristics from the flows of goods and services, and that consideration might need to be give n to investment-specific provisions in this area.   
145. The representative of the Korea
 agreed with Malaysia that it was imperative for the Working 
Group to seek ways to maximize the positive impact of FDI and to minimize its negative impact.  It 
was Korea's view that any prospective balance-of-p ayment safeguard should pertain to hard money, 
short-term investment and so on, but not to FDI as  such.  Experience had shown that restrictions on 
FDI-related current transactions, paradoxically, could lead to a de crease in FDI, exacerbating a 
balance-of-payments crisis.  Regarding flexibility, his delegation wished to echo Japan's view, while 
adding that it was important to emphasize a host-count ry's right to take bala nce-of-payment safeguard 
measures.  Nevertheless, his delegation did not think that safeguard measures applied to the pursuit of 
development policies by host countries. 
146. The representative of Chinese Taipei  emphasised the need for balance in designing 
exceptions.  It would not be desirable to have too loose provisions which allowed Members to act in a 
discretionary or discriminatory way – emphasis needed to be placed on the precise criteria for 
invoking exceptions, similar to those provisions found  in the preamble to GA TT Article XX  requiring 
Members to avoid discriminatory treatment and usi ng restrictions as disguised barriers.  Members 
need for flexibility should be addressed, but not in the context of exceptions.  Instead flexibility was 
best accommodated in the process of making commi tments to pre-establishment treatment.  As  WT/WGTI/M/19 
 Page 35 
 
 
indicated in previous discussions, developing countri es should be allowed to make this commitment 
based on their needs and on their level of development. 
147. Chinese Taipei had difficulty with the view that FDI could cause balance-of-payments 
difficulties, as a matter of principle.  If the issu es concerned domestic ente rprises investing abroad, 
naturally there would be capital outflow and thus bala nce-of-payments issues might arise.  But in this 
context the focus was on foreign investors bringing capital into a host country – which presumably 
had a positive effect on the balanc e-of-payments.  Of course forei gn investors might illegally transfer 
money to foreign countries.  But the repatriation of  profits inappropriately earned was a matter to be 
dealt with by domestic legislation or other meas ures, not balance-of-payments safeguards.  His 
delegation believed that a clear distinction should be draw between safeguards for the purpose of 
addressing low monetary reserves and measures aimed at multinational enterprises which were 
inappropriately earning money or exploiting host countries. 
148. His delegation concurred with the view of that speculation or "hot" money needed to be dealt 
with.  But again this was not a matter relevant to balance-of-payments safeguards.  Speculative 
investment was an issue that needed to be resolved whether or not a Member had low monetary reserves.  In other words, the issue of "hot" money or speculation was an independent subject not to be mixed up with the issue of balance-of-payments.  Chinese Taipei was still of the view that balance-
of-payments safeguards under an investment framework should be strictly and clear defined, in order 
to avoid misuse.  And since exceptions and bala nce-of-payment safeguards in an investment 
agreement were different in nature from those in  a trade agreement, his delegation suggested that 
further thinking would be required as to appropriat e tests and criteria.  Memb ers might also want to 
explore more closely the type of measures allowed under a balance-of-payments safeguard.  It should 
not be taken for granted that there were  no potential problems in this area. 
149. The representative of Egypt
 asked Japan to clarify its point about the protection of SMEs not 
being a matter that should be addressed throug h exceptions.  His delegation believed that this 
underscored the importance of developing countries having every flexibility in applying domestic laws and regulations, and that any prospective agreem ent should not limit this flexibility.  According 
to this logic, developing countries should be provided with exceptions from, for example, the rule of 
non-discrimination.   
150. The representative of Canada
, responding to comments about the negative effects of FDI and 
multilateral rules, reminded delegates that in Doha Ministers had "recognized the case for securing a 
transparent, predictable and stab le framework for cross-border investment". Certainly Canada 
accepted the need – and indeed had argued for the need – for exceptions, but it should be recalled that 
the context in which the Working Group was discussing this subject was improving FDI flows, and 
the benefits accruing from FDI in terms of capita l, job opportunities, management expertise, and 
technology.  His delegation became concerned when some of these attributes were characterized as 
"crowding out" domestic investment, because in doi ng so it characterized as problematic precisely 
those characteristics of FDI that were beneficial and which many Members were seeking.  So in some cases, there was an element of cross purposes. What had been characterized as "crowding out" was 
often part and parcel of a dynamic and changing economy. 
151. The representative of Malaysia
 wished to clarify that his delegation was not in any way 
doubting the importance and role of FDI- whic h had contributed tremendously to Malaysia’s 
economic development.  Malaysia welcomed high qu ality FDI.  What his delegation had meant in its 
earlier intervention subject was simply that FDI could also have negative effects in terms of crowding 
out of domestic investment.  The fact that Malays ia had not experienced any serious crowding-out of 
domestic investments was precisely because it had the right policies in place and the policy flexibility 
to channel FDI into areas where it was needed mo st.  It was this policy flexibility – the maximum 
policy options – that Malaysia was asking for in any eventual multilateral framework on investment. WT/WGTI/M/19 
Page 36  
 
(ii) Consultation and the settlement of disputes between Members 
152. The Chairman
 drew attention to a Note by the Secret ariat on "consultation and the settlement 
of disputes between members" (WT/WGTI/W/134), as well as to written contributions on the same 
subject that had been received from Japan (WT/WGTI/W/139), the European Communities 
(WT/WGTI/W/141), the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu 
(WT/WGTI/W/145), and Canada (WT(WGTI/W/147). 
153. The representative of the Japan  introduced its submission (WT/WGTI7W/139). He noted the 
importance of having a reliable dispute settlement  mechanism for disputes  arising out of an 
investment agreement.  All WTO agreements, in cluding the GATS and TRIMs Agreement, were 
subject to the current WTO dispute settlement mech anism, and most bilateral investment treaties had 
dispute settlement mechanism as well.  A well established dispute settlement mechanism would 
underpin the effectiveness, stability, predictability and objectivity of the rules.  Moreover, the 
development of case laws would give investors even  greater predictability in the future management 
of their investment affairs.  It would also provide WTO Members with the opportunity to seek an 
objective and a fair adjustment without recourse to multilateral actions.  He noted that the current 
WTO dispute settlement mechanism was not perfect  – and aspects of the DSU (dispute settlement 
understanding) were currently under discussion – but on the whole it had fulfilled the purpose for 
which it was initially created. 
154. The fact that the DSU already covered all exis ting WTO investment-related provisions was a 
clear argument for covering future investment rule s as well.  If disputes relating to commercial 
presence in the service sector under the GATS and di sputes relating to investment in the manufacture 
sectors were to go to different dispute settlement  mechanisms signficant ambiguities and conflicts 
could emerge.  A single dispute settlement mechanis m covering both investment rules and other WTO 
agreements was essential to coherence.  For these reasons, Japan believed that the existing mechanism 
should apply to disputes arising from any prospective investment agreement.  His delegation would 
add that flexibility was important to dispute settlement and that particular emphasis should be placed on consultation and arbitration.  Japan also rec ognized that the DSU included a number of provisions 
related to special treatment for developing and le ast-developed countries.  Based on the assumption 
that the existing mechanism should be applied to  a future investment framework, his delegation 
believed that similar issues deserv ed consideration – and improvement – in the context of investment. 
155. If provisions on investment protection and compensation for expropriations were to be 
included in a future investment framework, the qu estion arose as to how issu es would be dealt with 
under the existing WTO dispute settlement mechanism.  A number of bilateral investment treaties 
incorporated investor-to-State dispute settlement m echanisms which allowed investors of one Party to 
bring another Party to arbitration wh en disputes arose.  However, given the inter-governmental nature 
of the WTO, Japan was of the view that the disput e settlement mechanism must be limited to State-to-
State disputes. 
156. He noted that, depending on the scope of a future investment framework, certain measures 
taken by the host country might be covered by both WTO provisions and other international 
investment treaties.  Whether "forum shopping" for dispute settlement should be allowed – or not – 
would need to be carefully considered.  Although some issues required further discussion and 
clarification, Japan wanted to be clear that th e existing WTO dispute settlement mechanism should 
apply to a possible WTO investment agreement.  At  the same time, special and differential treatment 
for developing and least-developed countries under the DSU must be improved.   
157. The representative of the European Communities
 introduced its submission 
(WT/WGTI/W/141).  In line with all WTO agreements , his delegation believed that any prospective 
multilateral investment framework should include the possibility of Members resorting to the WTO 
dispute settlement mechanism when they considered  that other Members had failed to observe the  WT/WGTI/M/19 
 Page 37 
 
 
obligations under the agreement. As far as existin g dispute settlement mechanisms in IIAs were 
concerned, unless agreed otherwise, local courts were considered competent to decide on disputes 
involving the treatment of foreign investors.  In or der to provide additional legal protection to foreign 
investors, most bilateral investment treaties also in cluded the possibility for private investors to resort 
to international arbitration in cases of disputes with the host state.  Most BITs included a dispute 
settlement mechanism involving investors-to-States as well as provisions on disputes between the 
Contracting States.  As far as investor-to-State di spute settlement was concerned, most BITs did not 
establish new mechanisms but allowed private investor s to resort to binding international arbitration 
under either the ICSID convention or the ad hoc  international commercial arbitration set up under the 
rules of UNCITRAL or the International Chamber of Commerce, for instance.  It should be noted that 
recourse to ICSID arbitration was only possible when the host government had voluntarily given its written prior consent; and also that the jurisdiction of  ICSID covered any legal dispute arising directly 
out of an investment between a Contracting State of the ICSID Convention and a national of another 
Contracting State. 
158. As regards the dispute settlement system in the WTO, he recalled that the system was 
designed first of all to encourage the resolution of disputes through consultations, which were always a possibility throughout the proceedings up to the final ruling.  His delegation felt that it was 
particularly important to underline that dispute settlement represented a crucial element of the 
multilateral trading system – which, by preventing uni lateral actions, was an es sential guarantee of the 
rights of all WTO Members regardless of their size  or level of development. His delegation also 
believed that the logic or usefulness of a pros pective WTO investment framework hinged on the 
guarantees of fairness and equalit y offered by WTO dispute settlement for all Members and in 
particular for developing countries.  He noted that GATS Article XXII required each Member to 
accord first of all sympathetic consideration – and to allow other Members to consult with them in 
accordance with the DSU procedures – on any matter affecting the operation of the Agreement.  
Following that, GATS Article XXIII allowed resort  to the dispute settlement mechanism where a 
Member considered that any other Member had failed to carry out its obligations under the 
Agreement, or when it considered that possible be nefits under the Agreement had been nullified or 
impaired.  To conclude, the European Communities  argued that because the GATS already covered 
approximately half of world FDI flows under mode 3, as a matter of consistency, any prospective 
multilateral framework should also be covered by the existing WTO dispute settlement mechanism.  
At the same time, the relationship between the DS U and other dispute settlement provisions included 
bilateral or regional investment tr eaties might need to be addressed. 
159. The representative of Chinese Taipei
 introduced its submission (WT/WGTI/W/145). He then 
read excerpts from the paper. 
160. The representative of Canada  introduced its submission (WT/WGTI/W/147).  Her delegation 
felt that which the issue of dispute settlement could be  addressed in a preliminary fashion only at this 
stage, there were some basic considerations that migh t serve to orient further work in this area.  The 
first point was that the question of what kind of dispute settlement mechanisms should be available to 
address investment-related disputes in the WTO was inextricably linked to architectural 
considerations.  Her delegation felt that a pros pective WTO framework agreement on investment 
should ensure a high degree of coherence or complementarity among the various WTO agreements 
that included investment-related provisions.  To the extent that existing WTO agreements, such as the 
GATS, the TRIMs and the TRIPS, include investment-related provisions, the WTO provisions on dispute settlement were already applicable to investme nt.  Canada was of the view, therefore, that the 
DSU should also apply to any prospective framework  on investment, and agreed with Japan that this 
would be important for the transparency, predictab ility, stability and efficacy of such a framework. 
161. Precisely how the DSU might apply to the framew ork on investment would be determined in 
the course of negotiations, and would reflect the shape and scope of any eventual framework.  Considerations regarding complementarity, predictability and efficacy, likewise argued against WT/WGTI/M/19 
Page 38  
 
including an alternative dispute settlement mechanism – such as investor-to-State – that would, in all 
likelihood, be applicable only to the multilateral fr amework on investment.  Ot herwise, the provisions 
of such a framework could be governed by fundamen tally different dispute se ttlement provisions than 
investment-related provisions under other WTO agreements, such as the GATS, the TRIPs and the 
TRIMs.  Her delegation felt that this would result in  an arbitrary and artificial distinction being drawn 
between, for example, services- and manufacturin g-related investment, and would not reflect the 
reality of investment activity.  Architectural consid erations aside, there was also the question of how 
an investor-state mechanism would function in the co ntext of an intergovernmental institution such as 
the WTO.  A further advantage of subjecting a pros pective multilateral framework on investment to 
the existing WTO dispute settlement mechanism was that Members had considerable familiarity and experience with the DSU.  Finally, the DSU includ ed provisions on special and differential treatment 
for developing and least-developed countries.  He r delegation believed that this was an important 
consideration in terms of how Members envisaged an  eventual multilateral investment framework.   
162. The Secretariat
 introduced its background Note on consu ltation and the settlement of disputes 
between Members (WT/WGTI/W/134). The purpose of the Note was to take stock of the Group's 
deliberations on this topic and to provide background material on the types and nature of dispute settlement provisions in international investment  agreements, including those contained in the 
investment chapters of economic integration or free trade agreements.  Although paragraph 22 
referred only to consultation and the settlement of disputes between  Members , given that most 
international investment agreements provided for in vestor-to-State arbitration, in order to present 
Members with a full picture of how international inve stment disputes were dealt with, the Secretariat 
considered it useful to also address this type of dispute resolution mechanism.  The Secretariat stressed, however, that this had been done for in formation purposes only and that the wording in 
paragraph 22 was fully recognized.  The Note also pr ovided a brief description of the main features of 
the WTO dispute settlement system and highlighted  some important differences with respect to 
dispute resolution under IIAs.  
163. A survey of IIAs showed that provisions on consultation and dispute settlement were a core 
element in the structure of such agreements, their main purpose being to ensure that an agreement's 
substantive obligations were effectively implemente d and enforced, thus contributing to secure and 
stable international investment re lations.  As the paper noted, international investment agreements -
bilateral, regional or multilatera l- normally contained two types of  dispute settlement provisions:  
those regulating disputes between the State contract ing parties, and those governing disputes between 
a State party and an investor of another State party.  Under both types of provisions, the disputing parties were required to attempt to settle their disp ute amicably, before initia ting formal proceedings.  
Provisions relating to disputes between States  normally called for settlement through binding ad hoc  
arbitration and were relatively st andard, although some free trad e and economic inte gration treaties 
provided for institutional arrangements of their own.  Under investor-State dispute settlement, 
individual investors were allowed to submit claims against a host State to binding international 
arbitration.  In most cases, dis putes were referred to arbitration under the ICSID Convention or its 
Additional Facility.  However, the current trend was for international investment agreements to 
provide for a choice between different arbitral regi mes, including, in addition to ICSID's facilities, 
arbitration under the UNCITRAL Rules, the International Chamber of Commerce and other 
commercial arbitration institutions.  Without pretending  to be exhaustive, the paper described in some 
detail the main features of both State-to-State and investor-to-State dispute settlement provisions as 
contained in different international investment agreements.  It should be noted that UNCTAD's 
Compendium on International Investment Instruments had served as a valuable tool in this regard. 
164. The paper concluded by pointing to some of the key differences between dispute settlement 
provisions in international investment agreements  and in the WTO system in areas relating to the 
scope of application and the applicable law; the natu re of the arbitral awards as opposed to that of 
panel recommendations; the mechanisms used for ensuring compliance, and the legal remedies 
available to the parties in cases of non-compliance.  Given the intergovernmental nature of the WTO,  WT/WGTI/M/19 
 Page 39 
 
 
a fundamental difference between the DSU and inve stor-to-State dispute resolution concerned the 
issue of access of private actors to dispute settlement .  Clearly, investor-State arbitration represented a 
major shift from the WTO system, where only Member States could have resort to dispute settlement 
proceedings. 
165. The observer representative of UNCTAD  highlighted a few points that might be useful when 
considering the subject of consulta tion and the settlement of investment disputes from a development 
perspective.  These points were based on the findings of the recent UNCTAD Expert Group Meeting 
on "Experiences with bilateral an d regional approaches to multilateral cooperation in the area of long-
term cross-border investment, particularly forei gn direct investment", held in June 2002, and 
UNCTAD's research in this area, most notably the UNCTAD Series on Issues in International 
Investment Agreements .  He noted that the subject was of gr eat importance, since the developmental 
outcome of an IIA was intimately related to the arrangem ents the parties made for its application.  
Both matters were a central part of monitoring and follow-up mechanisms of IIAs and, as such, could 
have a significant influence on their development effects. 
166. As regards consultation mechanisms, he suggested that they provided useful and flexible 
means for dealing with problems and situations relate d to treaty application and interpretation that had 
not yet crystallized into disputes.  As such, they could perform an important development function in 
as far as they could prevent recourse to dispute settlement.  As pointed out in the Working Group's 
discussion on development provisions, consultations were also an important tool for ensuring 
coherence between the development objectives of an IIA and the actual implementation of its 
provisions.  Furthermore, consultation mechanisms could provide for a more precise and action-oriented application of development-oriented provi sions that were otherwise vague or ineffective, 
including through measurable criteria for the eval uation of the developmen t-related commitments. 
167. Given this developmental function, it appeared im portant to ensure not only that consultation 
mechanisms were provided for in internationa l investment agreements, but also, and more 
importantly, that developing countries could make  the best use of these means.  An important 
consideration in this respect con cerned the difficulties that many de veloping countries experienced in 
participating fully and effectively in these arrangeme nts owing to lack of adequately skilled personnel 
and resources.  To addr ess such difficulties, IIAs could make special provisions for technical and 
financial assistance.  In the same vein, it was impo rtant to ensure full participation of developing-
country experts in consultative and decision-making panels. 
168. As regards the settlement of disputes, he noted that this was another key element arising out 
of the functioning of an IIA.  From a developing -country perspective, several important development 
connotations came to mind.  First, a distinction needed to be made between disputes between State 
parties of an agreement and disputes between States and foreign investors.  It was noteworthy in this 
regard that Ministers in Doha had explicitly re ferred to "disputes between Members" in their 
annotations of paragraph 22 of the Doha Ministerial Declaration.  Although that Declaration appeared 
to speak only about disputes between States, it should be noted that many IIAs now provided for both types of disputes settlement.  While in most cases, investor-to-State dispute settlement by the national 
courts of the host country was provided for in IIA s, the possibility of recourse to international 
arbitration had been established through investment tr eaty practice, and, over the years, had given rise 
to considerable debate.  This had been an issue also in the context of treaties involving developed 
countries.  An important point was therefore to  delineate the relationship between both types of 
dispute and their interactivity in current and future treaty practice. 
169. In this context, it was also important to bear in  mind the similarities and differences in scope 
and substantive content between IIAs at various levels, and how their respective obligations might 
relate to one another.  This, together with the av ailability of various means of dispute settlement under 
these agreements could also give rise to different – even conflicting rulings – on the same issue.  This 
was due, for example, to overlapping membership of  different agreements and had indeed become a WT/WGTI/M/19 
Page 40  
 
real issue, as had been witnessed in recent arbitration cases.  In particular, there might be a need to 
consider how to deal with such potential conflicts.  Whatever the method, the resolution of investment 
disputes typically was technically complex and co stly.  He suggested that it appeared therefore 
important that IIAs made provisions for financ ial and technical legal assistance for developing 
countries to bear the costs of disputes. 
170. Another question that might need attention from a developing-country perspective related to 
the scope of a dispute.  More specifically:  (i) where an IIA provided some kind of right of 
establishment, the question arose as to the co verage of pre-establishment disputes under the 
agreement.  Even if they were covered, these type s of disputes might need to be treated differently 
from disputes arising after establishment, in the sens e that, for example, in order to be receivable, they 
might need to be circumscribed to very specific and clearly defined types of issues;  (ii) some issues 
that were addressed in the provisions of an investment agreement – be that directly or indirectly (e.g., 
through a national treatment clause, or in recognition of the right to regulate in the public interest) – 
might nevertheless be excluded from the coverage of its dispute settlement provisions on the grounds 
that they might be more appropriately dealt with  by other national or international tribunals.  
Examples included taxation, the environment and nati onal security;  (iii) more generally, it was useful 
to define clearly the types of matters that coul d be subject to the agreed upon dispute settlement 
mechanism of an IIA.  For example, whether covera ge was extended only to issues arising out of the 
interpretation and application of the particular agreement, or to  any matter arising out of an 
investment relationship concerning the parties to the agreement.  Finally, and more specifically, the 
implications of extending the current WTO system of settlement of disputes to the area of investment – should multilateral rules on investment be negotia ted if a decision on modalities was taken in this 
respect – would need to be studied carefully.  In pa rticular, issues such as extending cross-retaliation 
and cross-compensation to the investment area, the cu rrent legal status of tran snational corporations in 
WTO adjudicative bodies, the interaction of investme nt rules with other subs tantive rules in existing 
WTO agreements and the relationship with other type s of investment dispute settlement (i.e., investor-
to-State) might need to be addressed.   
171. The representative of Hungary
 stated that, from his delegation's point of view, the issue of 
consultation and dispute settlement seemed to be st raight forward.  The WTO had a well-functioning 
dispute settlement mechanism at its disposal, and, as Members were aware, there was even further 
refinement processes under way with a mandate to  clarify and improve the existing DSU.  As had 
been pointed out in a number of submissions, the existing DSU uniformly covered WTO agreements with quite different characters, such as the GA TT, the GATS and the TRIPS.   In spite of this 
diversity, problems had not arisen and the fact that a uniform dispute settlement system existed 
provided for an overall balance of rights and obligati ons, including the possibility of cross-retaliation.  
His delegation believed that the Working Group had to  look at the specific i ssue of the GATS, which 
contained investment-related elements in mode 3, and was covered by the DSU.  If the goal was to 
have a uniform system for the consultation and se ttlement of disputes, Hungary shared Canada's 
concerns about  the utility of having separate disciplines.  It had also been pointed out that the DSU 
contained a number of S&D provisions.  While it was cl ear that some of these provisions might not be 
sufficient, there were discussion underway to reinforce these measures, including, for instance, 
providing for technical assistance and the capacity-building in developing countries. 
172. With respect to monetary compensation, his delegation understood the thinking behind this 
idea and recognized that in the case of investment the issue of monetary compensation could arise when rights were infringed.  However, this issue was not unique to investment.  The issue of 
monetary compensation had also arisen in other fi elds, and there were discussions currently underway 
on how to strengthen the incentives for compensation in general under the DSU.  So his delegation 
did not consider that investment issues in princi pal were so unique that they required separate 
treatment.  An even more contr oversial idea was raised in the submission by Chinese, Taipei 
regarding investor-to-State disputes.   Like other de legations, Hungary noted that changes to the basic 
state-to-state character of the existing DSU woul d be of such a profound nature as to have  WT/WGTI/M/19 
 Page 41 
 
 
implications for the overall functioning of the syst em.  Again his delegation referred to the GATS 
where, with respect to establishment, there seemed to be no need for a specific role for the owners of 
established entities in other countrie s.  As regards the protection of investors, as raised in Japan's 
paper, Hungary thought that this was a valid issue.  It was not without cause that most international 
investment agreements and especially bilateral inve stment treaties dealt in a detailed manner with the 
issues of expropriation or nationalization.  But agai n it was an open question – and his delegation had 
some doubts as to whether this specific issue should be dealt with under a possible WTO investment 
framework.  Established services  suppliers could in principle be subject to expropriation or 
nationalization, yet it was perhaps also possible to interpret the GATS in a way that addressed such 
problems without specific disciplines in this regard.  Hungary also thought that when it came to the particular case of expropriation or  nationalization, existing internatio nal mechanisms could be used.   
173. The representative of Colombia
 drew attention to two issues.  The first was the issue of 
disputes which did not involve a direct violation of obligations.  The rules on non-violation were 
originally drawn up to ensure that tariff advantag es would not be nullified by other policy measures.  
She suggested that applying non-violation complaints to investment-related disputes could introduce greater uncertainty into the process.  For this reas on, her delegation believed that any analysis of the 
scope of dispute settlement should begin with the exclusion of non-violation complaints.  A second 
important issue the needed further consideration wa s whether binding dispute settlement would apply 
to the pre- as well as the post-e stablishment phase of investment. 
174. The representative of Korea
 agreed with the emphasis in the European Communities' paper on 
the importance of GATS consistency.  According to one estimate, the services sector now accounted for more than 60 per cent of FDI world-wide – a sector which was now more or less dealt with by the 
GATS.  By extension, this sector was also fully covered by the WTO dispute settlement mechanism.   
So it seemed logical to emphasise the need for consistency in dispute settlement in any prospective 
investment agreement.  An additional point worth considering was that some 20 per cent of world-
wide FDI had both a services and a manufacturing co mponent, and this trend was increasing, further 
reinforcing the need for consiste ncy and coherence in dealing inve stment-related dispute settlement. 
175. With respect to investor-to-State dispute settlement, he noted that although different views 
had been expressed in the Working Group there was a clear message regarding the need for 
consistency.  On the one hand, the GATS had no provisions for investor-to-State dispute settlement.  
On the other hand, many other IIAs contained such provisions.  His delegation felt it was important at 
this stage to gauge investors' desire for compensati on.  As a consequence, the subject required further 
elaboration, discussion and clarification.   
176. The representative of the United States
 noted that one of the primary reasons that the United 
States began negotiating BITs was to provide a mechanism to de-politi cise disputes between 
governments and investors, and to remove the role of the home government.  In addition, she noted 
that investor-to-States dispute settlement had had the added benefit of being a highly effective compliance tool for investment obligations.  While the United States had significant experience with this procedure in bilateral arrangements, and it had proven a useful and effective mechanism in that 
context, there were a significant number of comple x questions that had not been thoroughly explored 
in a multilateral context.  Accordingly, her delegati on held its views in reserve for now, but noted that 
investor-to-State dispute settlement merited thor ough consideration before  either accepting or 
rejecting it in the WTO.   
177. The representative of India
 suggested that the move by certain Members to bring investment 
on to the agenda of the WTO was not prompted by the extent of the investment-trade linkage – nor by 
assumptions about the benefits it would bring to the multilateral trading system – but by the unique 
dispute settlement procedure available under the WTO.  The proponents were all the more encouraged 
by the fact that in the context of a "single undertaking", dispute settlement processes and the consequent retaliation provisions could be employed across sectors.  However, the issue was not that WT/WGTI/M/19 
Page 42  
 
simple. First, investment as such was not a trade issue and did not belong in the WTO.  Any possible 
multilateral rules on investment, therefore, would no t fit in with the rules governing the multilateral 
trading system. Second, foreign investment was an issue that belonged to the domestic domain of host 
countries and binding international rules might not be appropriate. 
178. It was important for the Working Group to comprehend fully the implications of any binding 
multilateral framework on investment for the fast-moving "autonomous" liberalization drive by 
developing and least-developed countries. The fore ign investment regimes of most countries were 
very liberal already.  India, for example, had been  liberalizing its foreign investment regime at an 
unmatched pace and all except a very limited number of sectors were now open to foreign investment 
without equity ceilings.  However, any obligations to bind such liberal policies would make India 
cautious about undertaking any further liberalization.  This was because there was always an element 
of policy risk involved while autonomously liberaliz ing an investment regime. However, while daring 
governments might be with such reforms they also kne w that in cases of extreme difficulty they could 
reverse these reforms. The prospects of binding any such liberalization measures would make 
Members reluctant to move ahead with the reform drive at fast pace.  Thus one of the major objectives of a multilateral framework envisaged by the proponents – that of liberalization – might be hindered if 
there was a binding framework subject to dispute settlement.  
179. In addition, the present DSU did not provide for private parties to take States to dispute.  This 
should continue unchanged. But when looking at litigation issues relating to investment the basic 
issue was the relevance and the appropriateness of foreign investment contracts being subjected to 
international law.  International law on foreign investment contracts did not exist at present because 
such contracts did not fall under the purview of international law. The rules developed by Arbitration 
tribunals could not, therefore, be tr eated as part of international law.  There have also been allegations, 
supported by evidence, for example, as argued by Professor Sornarajah, that Arbitration tribunals 
"discovered rules favourable to mu ltinational corporations and applied them as international law, thus 
seriously prejudicing the idea that arbitration provides a “neutral” forum for the settlement of 
disputes” (Protection and guarantees, settlement of disputes: M. Sornar ajah; p. 6). Professor 
Sornarajah further argued that “the idea is further hallowed by the suggestions that all domestic 
contract law systems recognize the sanctity of contr acts and that this being a general principle is a 
principle of international law. Both assumptions rest  on shaky foundations”. He argued that there was 
thus a strong case for localising the contracts so that  all decisions, including the resolution of disputes, 
would be made within the host state. In his word s, the “screening laws which imposed conditions for 
entry [were] intended to be supervised by an administrative agency. Likewise, the existence of 
licensing requirements and environmental and other cl earances ensure[d] that the foreign investment 
[was] cocooned within the regulatory framework of th e host state. Since many of the disputes in the 
future [would] concern not the direct legislative interf erence to effect an outright expropriation but the 
regulatory interference of the different administrative agencies, the state [would] argue that the 
exclusive competence to decide these matters should rest with its regulatory agencies. The 
multinational corporation in complying with th ese procedures was aware of and accepted the 
exclusive competence of these administrative agencies”  
180. The determination of the nationality of the invest or firm was another important issue. In most 
countries there was a stipulation that investment should be made on a joint venture basis. Firms 
incorporated under the corporate laws of the host country were normally treated as belonging to the 
host country. The claim of the foreign investor firm for treatment as a foreign firm for benefits of 
international arbitration and dispute settlement under an agency outside the host country’s own 
domestic jurisdiction was not easy to justify.  
181. He noted that it might be argued that regional and bilateral investment treaties provided for 
international arbitration of foreign investment disp utes. The response to this was two-fold: first a 
number of sectors were exempted from the provisions  of the agreements at regional levels, making the 
agreement partial. Second, and more important, such  agreements were applicab le only to investment  WT/WGTI/M/19 
 Page 43 
 
 
duly approved by the host country, and in most cases were subject to its domestic laws and 
regulations, thus indicating in unequivocal terms that control rested with the host country as far as 
foreign investment was concerned.  He suggested that the investing firm was aware, at the time of 
investment, about the level and extent of protection available to investment and to the 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. 
In a bilateral investment agreement framework, wher e the domestic laws and regulations of the host 
country were supreme, this obje ctive was protected and guaranteed.  This was the reason why India 
had consistently taken the position in the Working Gro up that the Bilateral Investment Promotion and 
Protection Treaties (BIPAs/BITs) were currently performing the function of providing adequate 
protection to foreign investment while at the same time allowing policy flexibility to the host developing countries and recognizing their sovereig n power to determine investment activity within 
their respective territories. 
182. One of the justifications for inte rnational arbitration in the area of investment was that foreign 
investment brought only benefits to the host country. The fact, however, was that while foreign investment had a number of advantages, whic h India acknowledged in most of its earlier 
interventions, it could also have a number of ne gative effects on a host country in the form of 
restrictive trade practices by investors, enviro nmental hazards for the hos t country, balance of 
payment crises, crowding out effects, and so on.  Fo reign investment could also have negative effects 
on the culture and the way of life of the people of the host country. This necessitated screening of 
investment at the entry stage, and the stipulation of conditionalities, where necessary, to ensure that 
the negative effects were minimize d and positive effects were maximi zed.  Any system of external 
dispute settlement would leave the host country unar med to protect itself against the negative effects 
of foreign investment.  Analysis of decisions by in ternational tribunals by experts had indicated that 
such tribunals had taken into account largely the issue of whether or not the interests of investors had 
been protected, with the result that their verdicts were biased in favour of investors, and to the 
detriment of host-co untry interests. 
183. He noted that Japan had referred to compensation for "expropriation".  Japan was no doubt 
aware of the different innovative interpretations  given to the term "expropriation" by various 
Tribunals. This was something which the Working Group needed to discuss at some stage. 
184. He also observed that many delegations had mentioned that GATS provided for dispute 
settlement for mode 3 related investment. They argued  the case for parity.  His delegation had said on 
many occasions said that investment as a result of mode 3 could not be compared with the sort of investment the Working Group was discussing.  Even  if one accepted the need for parity between 
goods and services, this could be established in many ways: one could be the way suggested by some delegations – i.e., extending the existing DSB mech anism to investment; the other could be from the 
diametrically opposite direction.  The Working Group needed to look at all the options. 
185. He concluded by emphasising that it was impo rtant that the Working Group deliberated on 
the above issues vis-à-vis  the incompatibility of possible international investment rules with 
multilateral trade rules, the non-feasibility and undesirability of aiming to build international 
investment rules on to the platform of the multilate ral trading system, as well as the need for control 
over entry, establishment, promotion and protection of foreign investment re sting within the domain 
of host country jurisdiction.  
186. The representative of the Czech Republic
 noted the WTO's dispute settlement mechanism was 
the backbone of the multilateral trading system.  Although far from perfect, her delegation believed 
that it had proved its value in settling, on the basi s of agreed rules and procedures, disputes among 
Members relating to the application of the WTO agreem ents.   It was her delegation's view that any 
disputes arising from the implementation of a future multilateral investment framework should be addressed through the WTO dispute settlement mechanism, and be improved and clarified in WT/WGTI/M/19 
Page 44  
 
accordance with expected provisions of the Doha  Development Agenda.  Regarding proposals to 
clarify the relationship between dispute settlement pr ocedures in existing international investment 
agreements and the DSU, the Czech Republic gave its full support to this idea, as it would help to 
enhance Member's understanding of certain standards and procedures applied in other investment 
treaties and instruments, and to consider whether any amendments to the DSU were needed.  Her 
delegation was well aware that the mandate given to the Working Group by Ministers in Doha talked 
of "consultation and the settlement of disputes between Members".  Noneth eless her delegation was 
prepared to discuss all issues regarding investor-to-State disputes, provided that Members showed 
interest in exploring in more detail this domain.  It went without saying that that any possible 
exchanges on this subject should be undertaken in  a manner which would pres erve the integrated and 
inter-governmental character of the DSU. 
187. The representative of New Zealand
 recalled that the mandate from Ministers in Doha talked 
about a multilateral framework to se cure transparent, stable and predictable conditions for long-term 
cross-border investment, particularly  for FDI, that would contribute to the expansion of trade.  His 
delegation's interventions had reflected a sens e that a WTO framework would most obviously add 
value in that area of governance that was implied by the mandate.  The issue of governance was distinct, in his delegation's view, from market ac cess or liberalization concerns which had also been 
read into the mandate by some members.  The implications of this emphasis on governance for 
dispute settlement was straightforward.  If the objective was a multilateral framework to secure 
transparent, stable and predictable conditions for investment, the rules within that framework would 
have to be enforceable and that, in New Zealand's view, pointed the Working Group in a fairly straightforward way to the conclusion that WTO di spute settlement must apply.  That judgement was 
reinforced by the fact that, as noted by Canada and the European Communities, among others, a large 
share of cross-border investment was already subj ect to WTO dispute settlement under the GATS and 
other provisions. 
188. Regarding investor-to-State dispute settlement, he noted that, apart from the fact that the 
Doha mandate specifically asked the Working Group to look at the settlement of disputes between Members, New Zealand would have strong reservations about moving in that direction.  A number of 
delegations had already noted the fundamentally different character of WTO Member-to-Member 
dispute settlement, which sat squarely within the framework of international public law, and any 
arrangements involving investor-to-State disputes which his delegation perceived as having a quite 
different character.  Extending a WTO framework to  include investor-to-State disputes would be to 
introduce unnecessary complexity and controversy in to an exercise which was already set to be an 
extremely difficult one.  It would, moreover, run the risk of cutting across efforts to define or develop 
complementary roles for multilateral frameworks an d for bilateral investor frameworks, and to 
minimize contradictions between the two.  This was not an insignificant issue.  A number of 
delegations had already highlighted concerns which included "forum shopping" and potential conflicts 
between provisions in a multilateral framework and that of bilateral investment treaties.  It seemed to 
his delegation important to make every effort to establish a complementary relationship between any 
prospective WTO framework and existi ng bilateral investment treaties. 
189. The representative of Hong Kong, China
 noted that FDI in services was already largely 
covered under the GATS mode 3, and was therefore subject to the WTO's existing dispute settlement 
mechanism.  His delegation saw no compellin g reason why a possible multilateral investment 
framework should not be subject to the same mechan ism.  As Canada had rightly pointed out, efforts 
should be made to ensure a high degree of cohe rence or complementarity among the various WTO 
agreements that include investment-related prov isions if a multilateral framework were to be 
developed. 
190. Nevertheless, his delegation shared Japan's view that the special nature of investment had to 
be taken into account when considering the applic ation of the existing dispute settlement mechanism 
in detail.  UNCTAD had mentioned the implica tions of the coverage of pre-establishment  WT/WGTI/M/19 
 Page 45 
 
 
commitments in a possible multilateral framework and Colombia had draw n the Working Group's 
attention to the question of applying non-violation complaints to disputes in investment.  These issues 
might require further consideration when the Working Group had a clearer picture of the 
characteristics of the possible framework. 
191. His delegation shared the concerns expressed by  Hungary about Chinese Taipei's proposal to 
extend the dispute settlement mechanism to cover investor-to-State disputes.  As Hungary, Japan and 
other delegations had pointed out, in view of the inter-governmental nature of the WTO, the dispute 
settlement mechanism should remain focused on disput es between Members.  The proposal could also 
be perceived as going beyond the mandate set out in  paragraph 22 of the Doha Ministerial Declaration 
which asked the Working Group to clarify issues  related to "consultation and the settlement of 
disputes between Members".  Chinese Taipei's pape r had cited the example of the independent review 
procedures under the Agreement on Preshipment Inspection to justify the idea of establishing an 
independent procedure to deal with disputes between investors and host countries.  His delegation did 
not think that the procedures under the Agre ement on Preshipment Inspection were entirely 
comparable to the issue under discussion.  It was a requirement for Members to set up an independent review mechanism to deal with disputes arising be tween two private parties, namely an exporter and a 
preshipment inspection entity.  The idea of an  investor-state dispute settlement system was 
fundamentally different as it would give a foreign investor the right to take a Member to dispute 
settlement.  This might not be acceptable to many developing countries.  Hungary believed investor-
to-State disputes should continue to be governed by other international investment agreements, and 
under other dispute settlement arrangements such as ICSID.  It might also not be appropriate for a multilateral investment framework to duplicate th e arbitral process and provide investors with 
alternate and potentially conflicting mechanisms. 
192. The representative of Pakistan
 believed that it was rather premature to talk about any dispute 
settlement mechanism in the context of an invest ment framework when the Working Group was not 
yet any closer to achieving conceptual clarity as to  how "investment" or "investors" would be defined.  
His delegation felt that the Working Group should keep the following points in mind when discussing the issue of dispute settlement mechanism in relati on to an investment framework:  Most foreign 
investment originated in developed countries, whil e developing countries were largely recipients.   
There were inherent asymmetries in the level of ownership of investment and the level of 
development.  In the presence of such asymmetries,  there could not be a balanced and reciprocal give-
and-take in any multilateral framework on invest ment.  Any prospective multilateral agreement on 
investment would likely be heavily tilted in favour of foreign investors' interest, especially if the 
principles of MFN and national treatment were a pplied.  Such an agreement would result in the 
erosion of policy options and autonomy for developing countries, and constrain their ability to pursue 
or adopt measures that increased the positive effe cts of FDI.  In this situation, any multilateral 
framework on investment was unlikely to be a balanced one.  Any proposals for a framework 
agreement would be one-sided and would pave the way for the unrestrained flow of investments from 
developed to developing countries.  This would only add to the already unbalanced nature of the 
WTO and make the multilateral trading system furthe r biased against developing-country Members.  
This would be contrary to the objectives of the Doha Development Agenda in general, and the second 
and third sentences of paragraph 22  in particular – i.e., that "any framework should reflect in a 
balanced manner the interests of home and host countries and take due account of the development 
policies and objectives of the host governments as well as their rights to regulate in the public interest. The special development, trade and financial ne eds 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 commen surate with their individual needs and 
circumstances". 
193. He also noted that a dispute settlement mechanism would in fact enforce these unbalanced 
rules – resulting in, or putting into effect, an out come that was generally against the interests of 
developing countries, which represented the majority of WTO Members.  These dangers were made WT/WGTI/M/19 
Page 46  
 
worse by the fact that the WTO's integrated dispute settlement mechanism – linking the various 
agreements – enabled cross-sectoral retaliation.  This point had already been touched upon by 
UNCTAD, as well as by India and others.  Should the existing WTO system be used to enforce an 
investment framework it would have the potential to inflict grave damage on developing countries.  In 
conclusion, his delegation believed that the Working Group must first be clear about the role of FDI 
in the economic development before starting to di scuss any possible dispute settlement mechanism. 
194. The representative of Australia
 supported in principle the notion that a WTO dispute 
settlement system should apply to disputes aris ing in the context of a multilateral framework on 
investment.  This was particularly tr ue in view of the fact that these provisions were already relevant 
to investment-related disputes under the GATS and the TRIMs Agreements.  Australia, however, 
recognized that any discussion about the prefer red structure of any dispute settlement mechanism 
would be inconclusive until the main elements of a prospective multilateral investment framework 
were finalized.  Moreover, any decision or ag reement on a dispute settlement mechanism would 
largely depend on the finalization of other related arti cles in any text, particularly articles relating to 
scope and definition, treatment provisions and mo dalities for listing exceptions.  Consistent with 
paragraph 22 of the Doha Declaratio n, Australia supported limiting any work on dispute settlement to 
the consultation process and the settlement of disput es between members.  Fi nally, Australia wished 
to point out that the Secretariat Note did not dis tinguish between the settlement of pre-establishment 
disputes and post-establishment disputes.  His understanding was that the Secretariat Note had 
assumed that both pre- and post-establishment disp utes came within the scope of the discussions of 
the Working Group on the premise that the WTO dispute settlement mechanism was based on GATT Article XXII and GATS Article XXIII which covered pre-establ ishment disputes we well. 
195. The representative of Chile
 shared the view put forward by other delegations that the present 
WTO dispute settlement system was entirely rele vant and applicable to a future multilateral 
framework on investment. She noted that the Unde rstanding on Rules and Procedures Governing the 
Settlement of Disputes and the WT O agreements provided for specific conditions for certain issues, 
which were necessary because of the very nature of those issues.  In this context, providing for specific conditions in relation to investment was feasible; any special rules would depend on how 
ambitious the multilateral investment framework was in terms, not only of scope and definition, but 
also of the disciplines included.  With regard  to the relationship between the WTO's dispute 
settlement system and dispute settlement systems under bilateral investment treaties, she noted that 
this problem was nothing new.   Members currently had commitments under mode 3 of the GATS. These  commitments were subject to both DSU rule s and the bilateral disput e settlement rules laid 
down in bilateral investment treaties. In any case, and depending on the type of multilateral 
framework established, this issue would re quire ongoing analysis since, as the UNCTAD 
representative had mentioned, ther e were potential conflicts between these two sets of provisions 
which would require further reflection.  Finally, he r delegation again drew attention to the existing 
imbalances or inconsistencies in the WTO agreements .  At present, disputes related to commercial 
presence in the services sector might be brough t before the WTO dispute settlement mechanism, 
while disputes related to investment in the goods sectors had no such recourse. 
196. The representative of Argentina
 suggested that, for reasons of consistency and 
complementarity, a possible multilateral investment framework should include covered agreements 
and the present dispute settlement system should therefore be applicable. And like Hungary, his 
delegation felt that it might be imprudent to carry ou t a major reform of the existing system, or to try 
to stretch it to include certain spec ific requirements relating to invest ment.   Therefore, if the Working 
Group started from the premise that the dispute settle ment system as it presently existed should be 
applied to a prospective investment framework, th en it was important to assess the implications, 
especially for developing countries.  For instance , Argentina shared Colombia's concerns about non-
violation cases.  Bilateral investment agreements ev olved in order to protect investors against political 
risks – in other words, those risks which were basi cally not commercial in nature – including, in 
particular, expropriation.  An exam ination of the jurisprudence in this area demonstrated that the  WT/WGTI/M/19 
 Page 47 
 
 
concept of expropriation included not only direct  expropriation, but also indirect or "creeping" 
expropriation.  If Members were to apply the system as it existed at present – and if it included the 
concept of non-violation – a prospective invest ment framework would have quite far-reaching 
implications.  Concepts such as the legitimate expect ations of investors or the legitimate expectations 
of an investment could have very wide parameters.  What would be the legitimate expectations of an 
investor as regards the yield from his investment? 
197. A second implication of applying the existing WTO dispute settlement mechanism concerned 
its relationship to the dispute settlement systems in other investment agreements, and the possibility 
that the bilateral commitments would be adjudicate d multilaterally.  He recalled that the relevant 
Articles of the Vienna Convention on the Law of Trea ties state that in the case of a dispute between 
two states which were linked by a bilateral agre ement and which might be Members of a possible 
multilateral agreement as well, the acting state woul d try and solve the dispute within the multilateral 
framework.  The final interpretation of existing bilateral agreements mi ght in fact be turned over to 
the WTO dispute settlement mechanism.  With this reference, he was merely attempting to underline 
the complexity of the process of making a multilat eral dispute settlement system compatible with 
existing systems in bilateral and regional agreements. 
198. Argentina shared the view that it would be diffi cult to make room in existing WTO system for 
the settlement of investor-to-State disputes without undertaking a substantial reform of the system.  
Quite obviously, because at present the nature of the system was essentially intergovernmental.  Here, 
too, there was room for conflicts.  Confronted with an investor-to-state dispute, the investor would 
recourse only to the ICSID.  But the State would also  have recourse to the WTO system.  It would be 
very difficult to identify whether the two systems we re dealing in fact with the same complaint.  
Claimants – on the one hand the investor, and on the other hand the state – would both be making the 
same type of claim.  The question would also arise as to which rules were ap plicable.  The investor 
would invoke the bilateral rules whereas the state would invoke the multilateral framework 
agreement.  He offered these examples simply to demonstrate the complexity of the situation that needed to be analysed in order to ensure even a minimal level of compatibility  amongst the different  
agreements . 
199. The representative of Norway
 agreed with most other delegatio ns that there was no need for a 
new dispute settlement system. The current DSU, while  perhaps not perfect, had proven its value. It 
was also a system that already applied to investment under the GATS. It should therefore also apply 
to a WTO multilateral framework on investment.  Some concerns had been raised on the possible 
conflict between a dispute settlement system under th e WTO and those of other agreements. This was, 
however, no different from the possible conflicts of  jurisdiction existing in many other areas, and 
should be possible to solve with complementarity and harmony in mind.  The issue of investor-to-state dispute settlement had also been raised.  No rway had serious concerns in this respect. His 
delegation did not support such a change to the DSU, and did not see it as appropriate in a WTO context.  Finally, he noted that a number of de legations had referred to the need to contemplate 
specific rules or adaptations for investment di sputes.  Members were already engaged in such 
discussions, but he cautioned that most such specific rules should be dealt with as substantive rules in 
an investment agreement and not as departures from the procedural rules of the DSU.   
200. The representative of Switzerland
 agreed with Canada that to the extent that the GATS and 
the TRIMs Agreement included investment-related  provisions, then the WTO DSU was already 
applicable to investment.  Switzerland's position  was that the WTO's DSU should be the relevant 
system for handling these agreements and conflict  in a future framework for investment between 
Member states, as spelt out in paragraph 22 of the Doha Ministerial Declaration.  In addition, the 
adoption of the DSU would set any prospective investment framework on an equal footing with other 
investment-related agreements in the WTO system, pa rticularly the GATS and the TRIMs Agreement.   
His delegation strongly opposed investor-to-State dispute settlement because it was not compatible with the WTO framework.  The WTO should remain an  institution at the member-state level. Finally, WT/WGTI/M/19 
Page 48  
 
Switzerland agreed with ot her delegations that the relationship be tween the application of the DSU in 
a multilateral investment framework and the applica tion of dispute settlement regimes in bilateral 
investment treaties would need to be further ex plored.  However, referring to the comment by 
Argentina, his delegation also agreed with Norway  that potential conflicts already existed and that 
they had not proved insurmountable.  For instance, in  the area of public procurement, a company  had 
the option of going through national courts in order to seek remedies if it felt it had been treated 
properly.  At the same time, there was the opportunity for Member governments to use the WTO 
dispute settlement system. 
201. The representative of Brazil
 pointed out that the Secretariat Note raised three important 
questions for consideration: (i) whether the WTO dispute settlement system should be applied to 
disputes arising from any possible multilateral framew ork on investment;  (ii) if that were the case, 
whether the DSU provision should be modified or not for that purpose; and (iii) how the provisions of 
the WTO DSU system would coexist and relate with the ones contained in existing IIAs.  In Brazil's 
view, the answer to these questions depended on havi ng a clearer idea of the characteristics of any 
possible future agreement, as regards for example, its general balance, its scope and the nature of the obligations undertaken by Members.   On a preliminary note, it would seem to his delegation that any possible future multilateral framework should be covered under the DSU for a number of reasons. It 
was a structured and comprehensive system that cont emplated all the different stages of due process. 
Also there was the fact that the DSU already applie d to investment-related disputes arising from the 
GATS and the TRIMs and TRIPs agreements.  As regard s the need or not to modify provisions of the 
DSU, one important issue that required examin ation was the provisions on compensation and the 
suspension of concessions, including cross-retalia tion.  As for the relationship between the WTO 
dispute settlement system and the dispute settle ment provisions of international investment 
agreements, again this was a topic whose clarification would depend on the definition of the 
characteristics of any possi ble multilateral framework.  
202. As regards investor-to-State dispute settlement – as well as the issue of investment protection 
– his delegation made the obvious point that there was no such thing as investor-to-State dispute settlement in the WTO.  That aside, Brazil caut ioned against any legal framework that could be 
interpreted as providing foreign investments or in vestors greater substantive rights, including with 
regard to protection, than those accorded to a host country’s own domestic investments or investors.  
It would seem doubtful that such kind of agreement could be ratified by national congresses of many 
of the Members of this Organization.  
203. The representative of Mexico
 affirmed that the objective of a prospective multilateral 
framework on investment was to assure investors of security and predictability and to foster an 
investment-friendly atmosphere.  That objective was not achievable without targeted rules to 
safeguard the rights and obligations of each party, as the success or failure of any multilateral 
agreement would depend by and large on the effectiveness of its dispute settlement mechanism.  Her delegation believed that at this stage in the discu ssions, the elements of an eventual agreement were 
not clear enough to enable the Working Group to determine the kind of dispute settlement mechanism 
that should be adopted.  As regards the relationship between dispute settlement provisions under a 
multilateral investment agreement and those cont ained in existing international agreements on 
investment, her delegation saw two possible scen arios:  Under an agreement with exclusive 
liberalization arrangements, the provisions in both  contexts would be fully compatible, as any 
problem of market access would be dealt with in the multilateral framework, while problems of 
protectionism would be addressed un der the relevant bilateral agreemen t.  On the other hand, under a 
mechanism that included topics additional to liberal ization issues, Mexico believed that the Working 
Group could indeed run into a problem of coexiste nce of agreements, which was a matter that merited 
further study. 
204. The representative of Egypt
 recalled that the Doha Ministerial Declaration mandated the 
Working Group to focus its work in the lead up to the 5th Ministerial Conference on a clarification of  WT/WGTI/M/19 
 Page 49 
 
 
a number of issues, among which was the issue of  consultation and settlement of disputes between 
Members.  It was also specific in calling for any framework to reflect in a balanced manner the 
interests of home and host countries and to take account of the development policies and objectives of 
host governments.  The mandate was clear that th is Working Group should base its deliberations on 
the State-to-State disputes. 
205. As regards the dispute settlement  mechanism and developing countries,  the Secretariat's 
statistics revealed that developing countries were  using the dispute settlement system actively.  
Nevertheless, while the DSU set out certain special and differential treatment for developing countries 
throughout its various articles, it should be noted that, with the exception of Article 8, developing 
countries were not yet able to benefit from th ese provisions.  Non-utilisation could be due to 
systematic problems or to difficulties in assessing special needs as called for in such provisions.  The 
experience of developing countries with the implem entation of the DSU so fa r indicated a number of 
problems.  These problems could be put into three broad categories relating to: first, the cost of 
recourse to the dispute settlement;  second, the im plementation of decisions regarding cases brought 
by developing countries against developed countries and the related issue of compensation;  and third, 
the effective implementation of provisions of sp ecial and differential treatment in favour of 
developing countries due to lack of effective implementation mechanism. 
206. Despite current problems, developing countries were able to use this mechanism against 
developed countries since back and forth trade existed, though in varying degrees, between all 
nations, developing and developed.  However, th e case with investment  was very different.  
Developing countries were clearly sources of FDI, and as such could be de facto  deprived of the right 
of using such a mechanism against other countries.  Meanwhile, home countries would have the right 
to sue developing host countries who would thus be victimised without having any way to defend 
their development objectives.  Egypt shared the c oncerns expressed by some delegations regarding 
cross-retaliation in trade matters.  In other words, liberalizing and protecting investment through the 
WTO dispute settlement mechanism would hand back th e benefits developing countries had gained in 
the Uruguay Round and, as mentioned by Pakistan and others, institute and exaggerate the current imbalances implicit in the multilateral trading system  by allowing Members who were able to invest 
abroad the chance to sue host countries and seek compensation or retaliation in trade mattes due to 
violation of investment matters.  It was in this  regard that his delegation was concerned about 
applying the current DSU to investment disputes – and Egypt wondered how this could aid in striking 
a balance between home- and host-countries' rights and obligations.   
207. Regarding investor-to-State regimes, Egypt was, like most other delegations, opposed to the 
idea.  Not many international investment agreemen ts included provisions allowing investors to sue 
governments.  Experience had shown that host countries could face major problems when private firms were allowed to sue them internationally.  A number of recent cases in the context of the 
NAFTA had resulted in governments paying compensation to investors when they wished to regulate for health or environmental reasons.  If simila r provisions were introduced in a prospective 
multilateral framework, the costs to governments, especially the developing amongst them, would be 
burdensome and anti-development.  Second, allowing investors the right to sue governments could 
pose a threat to national sovereignty as it woul d discourage governments and law makers from 
considering new regulations.  As was noted by Brazil, provisions for investor-to-State dispute 
settlement would be to the detriment of local pr oducers who would not enjoy the same rights.  
Moreover, data revealed that develo ping countries were almost always the victims of investor-to-State 
disputes.  Limited experience with dispute se ttlement bodies – their rules, procedures and 
jurisprudence – and even more limited resources, pr ecluded the full integration of many developing 
countries and economies in transition into the glob al trading system.  He noted as well that the 
availability of training in this area was limited, diffused and not always easily accessible.  
Consequently, many countries were forced to seek recourse to law firms in  developed countries to 
prepare and argue their cases before the WTO, the WIPO and the ICSD.  This was costly and 
accounted, in part, for the low of participation by developing countries in dispute settlement cases WT/WGTI/M/19 
Page 50  
 
brought before the WTO and other bodies.  Deve loped countries needed to promote a better 
understanding of the issue at stake and to provide participants with the knowledge and skills required 
to ensure their participation in inte rnational dispute settlement activities. 
208. The issue of a possible conflict between a pr ospective multilateral framework and bilateral 
investment treaties raised a number of important questions for the Working Group:  How could a 
prospective multilateral agreement on investment ha ndle the diversity of such arrangements?  Could 
bilateral or regional agreements on investment be regarded as a derogation from the non-
discrimination principle?  Ministers had called for a balanced framework that reflected the interests of 
both home and host countries.  How would this objective be realized in the dispute settlement 
provisions of a prospective agreement on invest ment?  Should the non-discrimination principle be 
applied in different manners at the pre- and the post-establishment phase of investment?  And would 
this require having two sets of provisions? 
209. The representative of Morocco
 felt that a detailed discussion of dispute settlement provisions  
seems a bit premature at this stage.  His delegation felt that such a mechanism should have a limited 
scope, given the financial burden this would entail for developing countries.  Furthermore, applying the dispute settlement system to investment issu es could have negative consequences, and would 
necessitate certain leeway for developing countries .  His delegation believed that the existing legal 
framework provided by the GATS, the TRIMs Agreemen t and the many BITs were largely sufficient 
for the time being. 
210. The representative of China
 noted that investment issues were different from – and much 
more complicated than – trade issues.   While it was true that the DSU was applicable to a wide range 
of agreements under the WTO, his delegation ca utioned against drawing any quick or simple 
conclusions about its applicability to investment disputes.  The fact that the DSU applied to the GATS 
– including FDI in the services sectors through commercial presence – did not imply that it was 
adaptable to a more comprehensive investment agreement.  For instance, most international 
investment agreements contained  provisions rega rding investment protection – and area where most 
international investment disputes arose.  Since the GATS did not include investment protection provisions, it had no need for the kind of disput e settlement mechanism found in many investment 
agreements.  The fact that investor-to-State disputes invariably arose, the question of how to treat such 
issues appropriately was a comp licated and sensitive one, which needed further exploration, 
particularly regarding the implications for developing  countries.  Finally, he wished to make a small 
clarification to the last sentence of paragraph 43 in  the Secretariat Note which suggested that China's 
model text BIT before 1997 outlined domestic re medies as the only option available for dispute 
settlement between investor and states, with the excep tion for the disputes concerning the amount of 
compensation for expropriation wh ich was subject to the internatio nal arbitration.  However, he 
pointed out that since 1997, China had adopted the provisions in its state model text such that any 
dispute between an investor and state might be subject to international arbitration with the 
precondition of exhausting the local  administrative review procedures. 
211. The representative of the Slovak Republic
 agreed that a future multilateral investment 
framework should be seen in coherence with other WTO agreements, and that disputes arising from 
new investment rules should be addressed within the WTO dispute settlement mechanism.  Moreover, 
the WTO dispute settlement mechanism would enha nce more stable and predictable investment 
environment and the proper implementation of new investment rules.  However, the Working Group should also see if the current dispute settlement mechanism, which went through a review process within another body of the WTO, did not need to  reflect on new investment rules, or if it was 
sufficient to serve their purposes as it was.  Her delegation was also of the view that the Working 
Group should elaborate on the relationship betw een dispute settlement provisions within the WTO 
framework and dispute settlement mechanisms in international investment agreements.  WT/WGTI/M/19 
 Page 51 
 
 
212. The representative of Poland  suggested that although the Doha Ministerial Declaration did not 
address the issue of investor-to-State disputes spec ifically, his delegation di d not see any particular 
reason for preventing Members from exploring this issue further.  However, he felt there was no need 
for another investor-to-State dispute settlement mechanism in the framew ork of the WTO because 
private investors could resort to other arbitration institutions such as the Washington Convention or 
UNCITRAL rules, the International Chamber of Commerce, and so forth.  The private investor had 
the choice between different intern ational arbitration regimes and it was not mandatory for him to use 
the WTO system. 
213. The representative of Indonesia  observed that the need to clarify the issue of consultation and 
settlement of disputes between Members was clearly set out in paragraph 22 of the Doha Ministerial 
Declaration.  His delegation underlined the word "between Members" as Indonesia was of the view 
that the Declaration's wording was carefully construc ted by Ministers in Doha in order to confine the 
mandate of the Working Group's discussion only to St ate-to-State dispute resolution.  Therefore, his 
delegation felt that the Working Group should not ev en embark on the discussion of investor-to-State 
dispute resolutions. 
214. Paragraph 22 of the Doha Ministerial Declarat ion contained two issues related to dispute 
resolution:  first, consultation and second, the settleme nt of disputes.  There were different issues, but 
quite closely inter-linked.  He noted that while c onsultation required a more political and diplomatic 
approach, through negotiations, the settlement of disput es usually required a mo re legalistic approach.  
In Indonesia's view, settlement thro ugh consultation was much preferable to formal dispute settlement 
which could entail high litigation cost over comple x legal issues.  The Working Group's task should 
be to strengthen consultation in the context of dispute resolution in the investment area, in a way that 
would serve both home- and host-countries' interests.  Although rarely employed, the DSU actually 
established an excellent mechanism for mediation. 
215. Given the existence of dispute settlement me chanism in many international investment 
agreements, the need to develop a new framew ork embodying WTO dispute settlement could be 
questioned.  Another valid question was whether disp utes in the area of trade were comparable to 
disputes in the area of investment – and whether in vestment disputes could be easily fitted into a 
WTO dispute settlement mechanism that was designed for trade. Bring a prospective investment 
framework under the umbrella of the WTO's dispute settlement mechanism would also create a heavy 
burden for the system – a burden that would be further increased were a WTO framework to include 
investment protection provisions. 
216. His delegation also wished to note some of the complex issues that could arise when applying 
the WTO dispute settlement mechanism to investment  disputes.  As Japan had pointed out, various 
issues required further examination, such as co mpliance, compensation and the possibility of "forum 
shopping" among various dispute settlement systems.  With respect to non-co mpliance, Japan raised 
the potential difficulty of determining the level of nullification and impairment.  An even bigger 
problem emerged when calculating compensation and re taliation, especially if the principle of cross-
retaliation were accepted.  Regarding monetary co mpensation for expropriation, Indonesia had great 
difficulty in accepting this notion.  His delegation beli eved that this issue had already been dealt with 
in many international investment agreements.  Nor was the idea of monetary compensation in 
accordance with the existing remedies provided by the WTO dispute settlement mechanism.  If 
accepted, it would change fundamentally the nature WTO dispute resolution.  Indonesia also foresaw 
the potential confusion that could arise from "f orum shopping" among various dispute settlement 
mechanisms.   In Indonesia's view, if disputes ar ose between parties to a BITs or RTAs, then the 
issues should be settled in those fora.  Having said that, his delegation believed that all of the issues 
related to incorporating the WTO dispute settl ement process in any prospective multilateral 
framework required further examination. WT/WGTI/M/19 
Page 52  
 
217. The representative of Chinese Taipei
 noted the concerns raised by many delegations about the 
discussion of investor-to-State dispute settlement.  With regard to the mandate of the Working Group, 
his delegation certainly noted that that the Doha Ministerial Declaration did not mention investor-to-
State dispute settlement matters.  Ho wever, State-to-State and investor-to-State dispute matters were 
closely linked with one another, and there was benefit to the Working Group in clarifying the 
implications of adopting such a scheme in a future investment framework.  Discussion on this issue 
could provide Members with a more sound and comprehensive foundation for deciding their future 
direction with regard to this topic.  With respect to  the different nature of State-to-State and investor-
to-State disputes, his delegation did not disagree with the existence of such differences.  That was 
why Chinese Taipei had drafted its paper in such a wa y as to avoid proposing change to the nature of 
the current WTO dispute settlement mechanism, while still allowing Members to consider the possibility of helping to resolve disputes between investors and host countries.  As explained in the 
paper, State-to-State dispute settlement would st ill be dealt with by the DSU, while a future 
investment agreement should consider including a provision requiring Members not to refuse a 
dispute settlement initiative from the investors.  The independent review mechanism in the pre-
shipment investment agreement was cited to illustr ate the possibility that, in addition to the dispute 
settlement understanding, there could be an additio nal mechanism in parallel with the DSU.  There 
needed to be no more complicated provision in the DSU, and his delegation did not foresee the 
creation of complex situations or changes of the basic characteristic of the current DSU.  
218. Nor did Chinese Taipei accept that an investor-to- State dispute was contrary to the interests of 
developing-country Members.  He suggested that pr oviding opportunities for an effective solution for 
disputes between investors and States would enhance the investment environment of host countries, and would help them to attract high-quality investment  from abroad.  He urged delegates to revisit the 
idea of incorporating an investor-to-State disp ute settlement mechanism in any future multilateral 
investment framework.  With regard to monetary compensation, his delegation's intention was merely 
to provide additional input for delegates to consider , and to suggest that it was an issue that merited 
further discussion in the Working Group. 
219. The representative of Japan
 reiterated his delegation's view that all WTO provisions – 
including any provisions in a prospective investment framework – must be under the coverage of the 
WTO dispute settlement mechanism without exceptions.  This was the foundation which sustained the 
credibility of the dispute settlement mechanism.  Wi th regard to suggestions that investment was 
different from trade, he again stressed that ther e were many investment-rela ted provisions contained 
in the various WTO agreements that already fell under the coverage of the current dispute settlement mechanism.  Regarding distinctions between post- an d pre-establishment, this was an issue related to 
the scope an agreements substantiv e provisions – not its dispute settlement system, from which there 
should be no exceptions.  Regarding non-violation cases, he agreed that the issue was a potentially 
difficult one but his delegation saw no reason why non-violation cases should be excluded from WTO 
dispute settlement.  Regarding the protection a nd the compensation, he had listened to other 
delegations carefully – especially China's point that the GATS did not have such provisions – but he 
still wondered whether the Working Group could draw a complete picture of any future investment 
framework without an in-depth discussion on these important issues.  As regards "forum shopping", 
Japan agreed that the issue needed to be further explored. 
220. The representative of Malaysia
 stated that any eventual multilateral framework on investment 
should not be linked to the dispute settlement system of the WTO. Given the apprehension of a large number of developing-country Members towards a multilateral framework, and the uncertainties 
which would be introduced, it would be inappropriate to have binding rules in this new area.  With 
respect to investor-to-State disputes, he reminded the Working Group that the Doha Mandate did not 
include this concept – and thus, it would be a waste of time to engage in any such debate.  It was also 
worthwhile recalling that one of the reasons for the failure of the OECD's MAI was the proposed 
inclusion of investor-to-State dispute settlement.  WT/WGTI/M/19 
 Page 53 
 
 
(iii) "Development Provisions" and "Scope and Definition" 
221. The Chairman  drew attention to written contributions on "development provisions" that had 
been received from Switzerland (WT/WGTI/W/133) and the European Communities 
(WT/WGTI/W/140) and to a written contribution that  had been received from the United States on 
FDI and portfolio investment (WT/WGTI/W/142). 
222. The representative of the European Communities  reiterated that his delegation did not 
consider development provisions as  a separate subject as such in a multilateral investment framework, 
but a horizontal concern that should be in-built and incorporated in the whole of the multilateral 
investment framework, as agreed by Ministers. W ith respect to the relationship between investment 
and development, attracting FD I had become an objective of particular importance for many 
developing countries.  Thus, in parallel to unilate ral domestic reforms, most countries had concluded 
bilateral and regional investment treaties, and c ontinued to do so, for the purpose of promoting and 
protecting investment flows with their partners.  More than 2000 BITs had been concluded – and 
continued to be concluded.  The same logic explained why the Working Group was talking about a 
multilateral framework. 
223. While most countries recognized the merits of providing an open and transparent investment 
climate in order to attract FDI, some also felt th e need to maintain certain investment policies and 
measures aimed at promoting the development of specific sectors or regions, in order to fill 
technology gaps or to protect minorities and cultur al heritage.  Regardless of the effectiveness or 
appropriateness of any of these specific policies, it was his delegation's firm conviction that any 
development policy or measure co uld, and should be, compatible with a multilateral investment 
framework.  In saying this, he believed that  a multilateral framework could actually support 
development objectives and policies.  In the end, developing countries were those who most needed 
FDI in order to make up for a lack of domestic  capital and technology.  As to why a multilateral 
framework would be useful, the European Commun ities believed that it would benefit developing 
countries in particular by improv ing the legal security, transparency and credibility of their domestic 
framework. 
224. Flexibility was a particularly important concept that should be incorporated in any 
development-friendly multilateral framework.  However, flexibility should not be understood as the 
right of a government to discriminate among investor s.  His delegation did not believe that this would 
be an effective tool to enhance development.  Flexibility, on the contrary, should be seen as a broader 
concept which combined an appropriate policy space that governments required to pursue their 
national development objectives with, on the othe r hand, a request for an appropriate, stable, 
predictably and transparent framework through wh ich firms were encouraged to operate.  His 
delegation could see flexibility incorporated th rough several provisions in the different WTO 
agreements and in other agreements that involved developing countries. 
225. Flexibility was the underlying principle in, for instance, the GATS.  This was why his 
delegation often mentioned the GATS as a useful example.  His delegation believed that the GATS 
was probably one of the most development-friendly agreements in the WTO system because of its 
structure.  The GATS architecture had a built-in mechanism which provided complete flexibility for 
Members in making commitments.  It was observed in the Secretariat Note that "the GATS does not 
adopt the traditional concept of special and differenti al treatment according to which to a large extent 
all developing countries are treated the same.  It, rather, addresses the concerns and needs of 
developing countries through providing appropriate flexibility on an individual basis.  Such flexibility 
is reflected in numerous provisions of the agreemen t as well as in its basic structure which allows 
each Member to undertake liberalization commitments in a manner consistent with its development 
needs.  Such commitments are always negotiated on a case-by-case basis".  This was why the 
European Communities supported the GATS-type approach as a useful model.  Evidence that the GATS provided for appropriate flexibility for all countr ies at all levels of de velopment could be found WT/WGTI/M/19 
Page 54  
 
in the fact that most developing countries had made ample use of the flexibility provided by GATS 
Article XIX by taking fewer and less comprehensiv e commitments than deve loped countries.  He 
noted that under this system, which could also be used in a multilateral investment framework, each 
country drew its own balance between the need to offer a stable, predictable and transparent policy 
framework to foreign investors, and the need to reta in a margin of flexibility necessary to pursue its 
specific national develo pment objectives.   
226. Technical assistance was also an essential element of the development dimension, as the 
European Communities had noted in a previous submission to the Working Group 
(WT/WGTI/W/102).  Technical assistance could also be useful for the preparation, the negotiation, 
and the implementation of a multilateral investment framework. 
227. As far as the coverage was concerned, his delegation believed that the agreement should focus 
on FDI which was the most stable form of capital.  It was widely acknowledged  to be essential for 
development and it was one of the main engines of  world trade and growth.  Through a GATS-type 
approach based on positive commitments for market  access and national treatment provisions at the 
pre-establishment phase, the structur e would incorporate flexibility.  The right of Members to regulate 
in order to meet national policy objectives shou ld be specifically recognized, as well as possible 
exceptions for public interest – security, protection  of public morals, public order and consumers' 
safety, and safeguards for balance-of-payments, in  full accordance with the IMF rules.  Finally, 
another element his delegation believed deserved a ttention was the investors' behaviour and their 
responsibility vis-à-vis  host countries.  As mentioned in a previous submission (WT/WGTI/W/81), 
developing countries had an interest in ensuring that  multilateral enterprises applied high standards of 
behaviour so that, as host countries, they could reap  the benefits from FDI.  Developed countries also 
had this interest.  In his delegation's view, the OE CD guidelines for multinational enterprises provided 
a useful example of how to ensure that MNEs c onducted their activities in a responsible manner and 
in harmony with the policies of the countries in which they operated. 
228. The representative of Switzerland
 introduced its submission (WT/WGTI/W/133). He noted 
that the paper addressed the relationship between investment, trade and development.  The opening section contained four messages:  first, that FD I was closely linked with trade and development. 
About one-third of world trade was now being undertaken within – and another third between – 
multinational corporations.  This clearly implied that policies affecting trade had an impact on 
investment and, conversely, policies affecting investment had an impact on trade.  It followed that 
trade had become so closely intert wined with investment that further progress in the trade area could 
not ignore investment regimes.  The second messag e was that investment was essential for economic 
growth, and for increasing the well- being of nations and their people.  The third message referred how 
FDI contributed to growth and the well-being of deve loping countries, in particular by adding to local 
savings.  The fourth message was that developing countries were encountering more difficulty in 
accessing international capital markets than FDI as  such.  UNCTAD's World Investment Reports had 
shown that FDI flows to developing countries had re mained fairly stable while long-term borrowing 
had decreased. 
229. The next section addressed the policy dimension of development.  The paper focussed on 
investment, but investment as such was only one element among a whole set of other policies that 
affected a country's development.  Investment wa s influenced by the basic fundamentals of an 
economy such as stable macro-economic policy, distortion-free labour and product markets, as well as given levels of human, capital and infrastructure.  There were also flanking policies which played a 
significant role in influencing investment – i.e., rules and standards, such as non-discrimination, 
national treatment, property rights, competition po licy, anti-corruption policies, or environment 
standards.  The point was that FDI was a catalyst, but not a prime mover, of development. 
230. In paragraph 14 of the paper, Switzerland emphasized the fact that governments also had 
certain particular objectives which might lead them  to protect local markets from foreign investment  WT/WGTI/M/19 
 Page 55 
 
 
for legitimate national interests.  There were also  certain strategic sectors which governments might 
want to reserve for nationals – or where foreigne rs' participation might be limited to minority 
holdings. 
231. The last section of the paper dealt with flexibilit y for development.  Here the paper underlined 
that the WTO in general, and the GATS in particular, contained a host of development-friendly 
provisions which his delegation believed could serve as basic idea s or elements in a multilateral 
framework for investment.  He referred in particular  to GATS Article XII:2 which stipulated that the 
liberalization process would duly respect national policy objectives and the development levels of 
Members.  The paper also referred  to transitional arrangements and the use of positive lists, focussing 
on GATS Article XVI which illustrated the flexibility inherent in the WTO. 
232. Finally, the paper emphasised the fact that a multilateral framework would have to include 
provisions allowing developing countries to take commitments matching their overall policy 
objectives and their level of development, st riking a balance between the adoption of common 
principles, and the ability of Members to pursue essen tial regulatory policies.  In  this respect, he noted 
that one major difference between a proposed multilateral framework and existing bilateral and 
regional approaches to investment rules was that th e former would set up basic principles and a basic 
framework of rules, thus contributing to creating a much clearer and more transparent overall regime 
for investment world-wide. 
233. The representative of the United States  introduced its submission (WT/WGTI/W/142).  She 
outlined a number of reasons why investment agreem ents should have a broa d, open-ended definition 
of investment that included all types of investme nt, including portfolio.  Long-standing US practice 
was to have the broadest definiti on covering both types of investment. European bilateral investment 
treaties also covered both direct and portfolio investment. 
234. She suggested that one question to be answered was what was portfolio investment.  The 
principle difference between FDI and portfolio invest ment was the extent of c ontrol.  There tended to 
be a controlling characteristic to FDI that did not exist with portfolio investment.  For statistical purposes governments and international organizati ons might require a minimum level of ownership – 
for example, 10 per cent ownership was often us ed as a proxy for conferring control over the 
investment.  However, the 10 per cent rule, while useful for statistical categorization, might be too 
rigid for practical use in a legal agreement. 
235. The second part of the paper focused on why investment agreements should cover portfolio 
investment as well as FDI.  There were many re asons why this was the case.  First, portfolio 
investment was vital for economic growth and develo pment.  Portfolio investment, as international 
savings, helped to broaden and deepen financial ma rkets in developing countries, to mobilize capital 
more efficiently, to broaden the array of lending available to domestic business, to promote large-
scale investments that captured economies as scal e, and to stabilize the local economy by spreading 
credit risk. 
236. Second, portfolio investment was key to financ ial-market deepening.  Relegating portfolio 
investment to second-class status discouraged the creation of sound financial markets, and granting 
fewer rights to the holders of portfolio capital than to direct investors in a host country would only 
create a bias against portfolio investment and sta ll the development of an efficient and diversified 
capital market. 
237. Third, the definition of portfolio investment cove red a broad range of investments that were in 
common use world-wide.  Just to list some of those, denying the benefits of an investment treaty to 
portfolio investment would mean leaving out such standard investments as minority equity holdings 
such as shares in stocks, bonds, debentures and other forms of debt interests in a company, contractual 
rights such as under turnkey contracts, production or revenue sharing contracts and concession, rights WT/WGTI/M/19 
Page 56  
 
conferred pursuant to law such as licences and permits, and other investments such as leases, 
mortgages, leans and pledges. 
238. A fourth important reason to include portfolio investment in the definition was that offering 
fewer protections to portfolio investors than direct investors increased the risks associated with 
portfolio investment, thus raising the cost of bor rowing foreign capital which was a drag on the 
economy.  Developing countries already contending, with scarce economic resources in many cases, 
could little afford to worsen term spacing domestic  borrowers who wished to  raise capital abroad. 
239. A fifth reason why her delegation believed that portfolio investment should be included in the 
definition of investment was that it was simply not always possible to determine what constituted a 
portfolio investment.  There was simply no easy wa y to distinguish between them.  And because they 
were not always easily distinguished, removing portfolio investment from a definition of investment 
would require case-by-case analysis to determine whic h kind of investment a given investor had made 
or intended to make and whether it was covered by th e investment agreement.  Certainly this would 
complicate matters and make it ha rder to negotiate and implemen t an investment agreement. 
240. A sixth reason why the United States believed th e definition must cover portfolio investment 
was that portfolio investment was a concomitant of  direct investment.  Direct investors would be 
engaged in portfolio investment as they manage th eir cash flows.  This was true in particular for 
companies with international operations. 
241. A seventh reason was that restrictions on portf olio capital flows to capital-starved countries 
was not a long-term solution to financial instability.  In  the aftermath of the financial crises of the late 
1990s, there had been much criticism of capital market  liberalization for promoting short-term capital 
inflows – which were sometimes referred to as specula tive capital – into emerging market economies.  
But the problem was not so much with capital market liberalization or with short-term capital flows.  
Empirical research demonstrated that in the long-run volatility tended to decrease following 
liberalization and the integration of a host-countr y with world financial markets.  However, the 
process of capital account opening had been shown to raise temporaril y the danger of volatility.  Her 
delegation believed this argued for a careful approach  to financial liberalization itself, and for the 
establishment of supportive macro-economic and stru ctural policies, in particular improved bank 
regulations, prudential standards, and other safeguards. 
242. An eighth reason why the United States belie ved that including portfolio investment was 
critical for the definition of investment was quite si mply that if it were excluded it would defeat the 
purpose of an international investment agreement.  There was general agreemen t about the role of all 
kinds of investment in promoting sustainable growth in developing economies.  This was true of both 
direct and portfolio investment flows.  Pote ntial investors could question the commitment to 
liberalization and protection of a country that would not agree to extend treaty rights to its portfolio 
investors. 
243. In conclusion, the United States favoured a broa d definition of investment that included direct 
and portfolio investment.  Her delegation believed that  covering portfolio investment in the definition 
would contribute to the development agenda of  this Round by making developing and emerging-
market countries more attractive hosts to foreign cap ital, by deepening local financial markets, and by 
furthering global economic integration.  The task  ahead was to build on shared experience, as WTO 
Members, with bilateral treaties co vering portfolio investment, and to internationalize this in a high-
standards investment agreement from which all WTO Members might benefit. 
244. The representative of Korea
 made several points regardin g the papers submitted by the 
European Communities and Switzerland.  With respect  to the GATS-type approach, Korea agreed that 
it was a useful and meaningful way to achieve developmental objectives.  Korea also welcomed the 
European Communities' suggestions regarding the OECD guidelines for multinational corporations  WT/WGTI/M/19 
 Page 57 
 
 
and investors.  Such an approach could strike an important balance between th e rights and obligations 
of investors.  With regard to the paper by the Un ited States, his delegation reiterated that Korea was 
still uncomfortable with including portfolio investme nt under the coverage of the agreement.  He 
agreed with the point that the 10 per cent thre shold was perhaps sometimes too rigid, and Korea 
reserved the right to return to this issue. 
245. The representative of Japan  wanted to share two perspectives on the issue of development 
provisions.  First, his delegation believed that an  investment framework itself should be flexibile 
enough to serve the interests of different Member s at different development stages.  Second, the 
investment rules themselves should contain cert ain development provisions.  The overall balance 
between disciplines and flexibility was important.  In that respect, his delegation quoted paragraph 9 
of the European Communities' paper to  the effect that "if flexibility is understood as the right of the 
government to discriminate among investors it will not be effective as a means to enhance 
development."  Likewise, paragraph 25 of the pa per by Switzerland note d that "a multilateral 
agreement should strike a balance between adop tion of common basic principles, recognition of 
today's FDI regimes, and the ability of Members to pursue essential regulatory policies".  These were 
perspectives that Japan fully shared.  Japan also ag reed with the appropriateness of referring to the 
OECD guidelines for multinational enterprises when discussing the ob ligations of investors in host 
countries.  
246. As regards scope and definition, Japan agreed with the United States that the Doha Ministerial 
Declaration did not preclude an examination of catego ries of investment other than FDI.  However, 
his delegation underlined the importance of practical ity and statistical clarity when defining portfolio 
investment.  Members might agree on the positive impact that portfolio investment could have on 
development, but equally his delegation noted the concerns that many developing countries had 
expressed regarding the negative impact of volatile  and speculative financial flows which were not 
trade-related.  The practical qu estion was whether or not such volatile flows could be excluded if 
portfolio investment were included in the definition.   As the United States rightly pointed out, the 10 
per cent rule was itself artificial.  It was also true that there were certain enterprises where less than 10 
per cent ownership still implied a lasting influence.  If there were a growing number of such cases, 
and if the 10 per cent rule was not consistent with  the reality, then the Working Group might want to 
consider a modification of the rules.  However,  his delegation did not see any practical and 
implementable alternative to the 10 per cent rule at present – and Japan still felt it was a useful 
starting-point for discussions. 
247. The representative of Canada  reminded delegations that ther e were other ways to encompass 
flexibility in agreements – not only with respec t to the GATS, but also as regards other WTO 
agreements that encompass flexibility for developmen t.  Canada had addresse d these other approaches 
in a previous submission (WT/WGTI/W/130). 
248. The representative of Malaysia  wished to comment on paragraph 27 of the European 
Communities' paper which recognized Members' righ t to regulate in order to meet national policy 
objectives.  In this regard, his delegation reiterate d its position that the investment control approach, 
which gave host governments the right to regulate and to determine the entry of FDI, was the most 
flexible approach to development.  Regarding the paper by the United States, his delegation was of 
the view that although portfolio investment was a source of investment funding, it should not be 
included in the coverage of a multilateral framew ork on investment.  This was because of the 
speculative and volatile nature of portfolio investme nt, as opposed to FDI which was more stable and 
therefore essential for development.  A framework based on a broad definition of investment, 
including portfolio investment, introduced unnecessary uncertainties, and could expose developing 
host countries to higher risk of disputes with foreign investors.  Given that there did not seem to be 
consensus on this issue, it would be more prudent to limit the coverage of any eventual framework to 
FDI and exclude portfolio investment.  Malaysia agreed that the 10 per cent rule for defining FDI was too rigid and that there was a need to find a more su itable approach to defining a lasting or controlling WT/WGTI/M/19 
Page 58  
 
interest.  His delegation had suggested to the Wo rking Group that each Member should define FDI 
according to its own national legislation.  Propone nts of a multilateral framework on investment must 
be clear on the issue of definitions before proposing the need for multilateral disciplines on such 
investments.  The scope and definition of  investment was still subject to debate. 
249. The representative of Mexico
 reiterated her delegation's support for a possible multilateral 
investment framework that addressed the liberalizatio n of long-term productive investment flows, in 
other words FDI.  Because it was much more controllable and predictable, FDI yielded clear, long-
term benefits.  These included serving as a catalyst for transfers of technology and know-how, 
supporting the formation of human capital, encour aging competition, and th e transfer of modern 
administrative and management systems.  Furthermore, as Mexico had previously stated, FDI was the kind of investment referred to in the Doha mandate.  Moreover, given the short time remaining until 
the Fifth Ministerial Conference, her delegation believed that the Working Group should focus its 
efforts on a topic with which everyone was familiar an d more at ease.  FDI matc hed this profile.  With 
respect to corporate responsibility, her delegation re iterated that extreme care must be exercised in 
dealing with this subject.  This was not a matter c ontemplated in paragraph 22 of the Doha Ministerial 
Declaration and it was risky to begin including topics that would overburden the agenda of the Working Group. 
250. On the subject of flexibility, the representative of India
 recalled the words of his former 
Ambassador that most flexibility that developing coun tries could achieve was to have no investment 
agreement at all in the WTO.  On the question of pr edictability, there were alre ady over 2000 bilateral 
and regional agreements on investment, and one of  the elements that was being discussed by the 
Working Group was the relationship between those agreements and any possible new agreement on 
investment.  Some delegations made the point that  these two types of agreements would co-exist 
simultaneously, which was understandable given that the bilateral agreements provided for more than 
what a multilateral agreement could provide.  I ndia's question was how would this multi-layered 
system create predictability for investors when an investor would not necessarily know which agreement applied.  An investor faced three opti ons.  One was a bilateral agreement, the second a 
regional agreement and the third a multilateral agre ement.  His delegation was not sure that a 
multilateral agreement would indeed be conducive to creating more predictability for investors. 
251. As regards portfolio investment, India reitera ted that the Doha mandate focused on  "long-
term cross-boarder investment particularly forei gn direct investment that will contribute to the 
expansion of trade."  This mandate had two main elements in India's view.  One was that investment should be long-term in nature, and second that it should contribute to the expansion of trade.  He was not sure whether portfolio investment contributed to the expansion of trade, and his delegation had 
reservations as to whether it was indeed long-term in  nature.  He conceded that the words "long-term" 
could be interpreted in many ways – maybe 144 different ways.  He was reminded of a famous remark 
by a Chinese leader who, when asked about the impact of the French Revolution, said that it was too soon to tell.  Given the wide divergence of views in the Working Group, long-term might be anything from a few weeks to several years. 
252. The representative of Brazil
 recalled that, like many other delegations, Brazil favoured 
limiting the definition of "investment" in any prospe ctive agreement to FDI.  Having said this, and 
turning to the issues raised by the United States in their paper, his delegation wondered whether the 
issue of portfolio investment versus FDI might not be  a forced dilemma.  He drew Members' attention 
to the rules already in place in the WTO agreements , particularly in the GATS Annex on Financial 
Services.  As Members recalled, the GATS not on ly regulated FDI in services via commercial 
presence or establishment – in other words mode 3 services trade.  It also covered the cross-boarder 
supply of services from the territory of one member into the territory of another member – or mode 1 
of services trade.  Against this background, it was interesting to note that paragraph 5 of the financial 
services Annex listed the definitions and classifications  of the financial services that were covered by 
the GATS.  Under the heading of Banking and other financial services,  there were listed a number of  WT/WGTI/M/19 
 Page 59 
 
 
activities including, for instance: lending of all type s, including consumer credit, mortgage credit; 
factoring and financing of commerci al transactions; financial leasing; derivative products (including 
but not limited to futures and options); transferab le securities (which would seem to include debt 
bonds, shares and other instruments); asset manageme nt such as cash or portfolio management, all 
forms of collective investment management, and so forth.  Given the fact that Members could make 
commitments under mode 1 of the GATS to liberaliz e fully the provision of such banking and other 
financial services, the question arose as to whet her this encompassed the coverage of portfolio 
investment and – even going on a bit further – the liberalization of capital movements. 
253. The representative of Hungary  agreed that the development dimension was a horizontal issue 
that should be incorporated in a future multila teral framework on investment.  His delegation 
recognized explicitly that the development, trade an d finance needs of developing and least-developed 
countries should be taken into account as an integral  part of the framework, and that Members should 
be free to undertake commitments commensurate with their individual needs.  The GATS-type 
positive list approach provided the ne cessary flexibility for these objectives, as noted in the paper 
submitted by the European Communities.  At the sa me time, an appropriate balance needed to be 
struck between flexibility for developing countr ies to pursue their development policies and the 
provision of transparent, stable and predictable ru les for investors.  As to the issue of investor 
obligations, he concurred with those delegations who viewed the OECD guidelines for multinational 
enterprises as a useful model.  Regarding portfol io investment, his delegation did not favour its 
inclusion in a definition of investment in a future  multilateral agr eement.  Although the long-standing 
practice of some of the more developed countries might be to adopt the broadest definition of investment in their bilateral or regional treaties,  this proposition had not been accepted by a large 
number of developing and also transition countries.  This sentiment should be taken into account if 
Members wanted to succeed in creating a multilatera l agreement on investment within the time-frame 
available.  Finally, Hungary  agreed with Japan th at while the 10 per cent threshold for defining FDI 
might need to be re-examined, it nevertheless prov ided a useful starting-point for the Group's work. 
254. The representative of China 
doubted the feasibility and practicability of including portfolio 
investment in a possible negotiation of a multilateral investment agreement in the foreseeable future.  
Discussing issues related to trade and investment in this Working Group, did not prejudge whether 
there would – or should – be negotiations within the WTO on a multilateral agreement on investment.  
China did not see the need for such an agreement because even without such an agreement, a country 
could definitely absorb the FDI it needed if it provided, among other things, a favourable environment for investors.  However, since the Doha Minist erial Declaration mandated Members to reach an 
explicit consensus on modalities, Ch ina believed the membership coul d launch negotiations of such 
an instrument, and his delegation was ready to par ticipate in the exploration of possibilities for such 
negotiations.  If members really wanted such a multi lateral  agreement, the fi rst issue to be resolved 
was scope and definition.  In this  connection, his delegation firmly believed that an agreement should 
be limited to FDI.  Anything beyond that would be  impossible for developing countries to accept – 
and therefore made it impossible to reach a cons ensus on the modalities for negotiations.  Having 
listened to the debates in the Working Group, it seemed  to him that even if negotiations were limited 
to FDI, it would still be difficult for many developi ng-country Members to agree to the negotiation of 
an international investment agreement.  Besides scope and definition, there were also other basic 
issues on which Members' views were far apart.  On the question of modalities for pre-establishment 
treatment, he believed that this was an extremely sensitive and complicated issue.  There was simply 
no possibility that most developing countries, incl uding China, would accept the integration of such 
an issue into the negotiation process, at least by th e time of the Cancún Ministerial conference.  So the 
Working Group should rule it out before conditions  matured. Finally, if any negotiations for an 
investment agreement were to be launched, as a gene ral principle, there must be an overall balance of 
interests between the devel oped and developing countries, taking into account the potential difficulties 
faced by the developing countries, as well as th eir national development policies and objectives.   WT/WGTI/M/19 
Page 60  
 
255. The representative of New Zealand
 recalled the Working Group's earlier discussion on the 
implications of covering short-term or speculative capital flows in the definition of investment.  He 
felt that this was one area wher e the Working Group might want further discussion to examine the 
different ways of meeting the objectives and respondi ng to the concerns that had been identified.  His 
second point was that on this issue – and on a number of others – there was a complex inter-play 
between the scope of the agreement and other elemen ts such as whether portfolio investment should 
be covered.  He had in mind, in particular, the question of whether any perspective agreement went 
beyond elements such as transparency and non-discrimination into areas such market access.  This 
issue had a direct bearing on the current discussion of portfolio investment versus FDI.  The 
conclusion he thought the Working Group might draw was that it would be premature to reach a judgement that an agreement should limit itself to FDI in future discussions.  The question of inter-relationships was one that might usefully be expl ored further when the Working Group reported to the 
General Council at the end of the year. 
256. The representative of the European Communities
 responded to the suggestion that the dispute 
settlement mechanism should not be linked to any pr ospective multilateral investment framework. His 
delegation believed that a main value-added of the WTO was its dispute settlement system, and 
indeed this was one reasons why the WTO was the right forum to discuss a multilateral investment 
framework.  As regards the point that no agreement at all was the most flexible approach for 
developing countries, he suggested that there would be no discussion of a possible investment 
agreement in the WTO if it were not for the fact that Members, including developing countries, 
recognized the value of securing a transparent, stable, and predictable framework for cross-border investment.  He also agreed with the point that the issue of rules for entry and establishment was 
perhaps the most sensitive question facing not only  developing countries, but also developed 
countries.  That was why the European Communities favoured a flexible approach based on a GATS-
type positive list of commitments, sector by sector and country by country.  
C. O
THER RELATED ISSUES  
257. The observer representative of UNCTAD  presented UNCTAD's latest World Investment 
Report.  The Report's first principal finding was that  FDI inflows in 2001 declined to US$735 billion, 
less than half the 2000 figure. Behind this decline was the slowdown in the world economy and a 
weakening of business confidence, both of which were accentuated by the 11 September events in the 
United States, and both of which contributed to a sharp reduction of the cross border mergers and 
acquisitions that took place predominantly among indust rialized countries.  In light of the prolonged 
economic recession and the slow recovery of business confidence, especially in the United States, UNCTAD did not expect a rebound of FDI flows this year. 
258. Despite the decline in FDI flows, the expans ion of international production continued, 
although at a slower pace.  However, developments  differed markedly between various parts of the 
world.  The FDI downturn was concentrated in deve loped countries (-59 per cent), with only modest 
declines in flows to developing countries (-14 per cent) and even a small increase in flows to Central 
and Eastern Europe (2 per cent).  There were also significant variations within the developing world, 
with lower levels of inflows to Asia and Latin Am erica but an increase to Africa.  Africa, however, 
still remained a marginal recipient of FDI.  Great vari ations could also be found at the country level.  
Whereas only three developed countries reported in creased inflows last year, FDI flows grew in a 
majority of countries in the developing world (77 out of 146) and in most of Central and Eastern 
Europe (13 out of 19 countries).  In fact, among the top 10 country gainers in terms of absolute increases, eight were developing countries, led by Mexico, China and South Africa.  China's role as 
the largest developing country recipient was furthe r strengthened by the country's accession to the 
WTO. 
259. It was against the backdrop of the fall in FDI flows and the different performance of regions 
and countries that UNCTAD had developed the FD I Performance and FDI Potential indices.  While,  WT/WGTI/M/19 
 Page 61 
 
 
like all indices, they were not perfect, they did allo w countries to evaluate their performance over time 
and against that of other countries in terms of a ttracting FDI.  Moreover, actual FDI flows could be 
assessed against what could be considered as a c ountry's investment potential, given a number of 
statistical indicators.  Benchmarking national econ omies had become a widely used tool for policy 
analysis.  Given the importance of FDI as a policy c oncern for countries at all levels of development, 
the new UNCTAD indices provided useful information. 
260. The special topic of this year's report – transnational corporations (TNCs) and export 
competitiveness – was timely.  In a globalizing world economy, it responded to the need for a better 
understanding of how government policy could help developing countries and economies in transition 
take advantage of the evolving international produc tion systems of TNCs in order to advance their 
own economic development.  The principal findings of the analysis in the World Investment Report in 
this regard were thought-provoking.  While the lis t of the top exporting countries of the world was 
dominated by developed countries,  developing countries and economies in transition accounted for 
the main gains in world export market shares between 1985 and 2000.  The role of TNCs in world 
trade was pervasive, and this was especially true in  most countries that had boasted substantial export 
increases.  The report included six case studies – China, Costa Rica, Hungary, Ireland, Mexico and the Republic of Korea – for which it examined the link be tween TNCs and exports down to the firm level.  
For example, in China – the star performer in terms of export growth – the share of foreign affiliates 
in the country's exports increased from 17 per cent in 1991 to 50 per cent in 2001.  TNCs affected 
export patterns in all sectors, from the most dynami c manufacturing products to internationally traded 
services as well as natural resources and agriculture.  In Kenya, for example, rapid growth in the exports of flowers had made the country the leading flower supplier of the European Union, with foreign affiliates producing most of these exports.  The role of foreign affiliates in exports from 
different countries varied greatly, however, from 4 per cent in Japan to 45 per cent in Malaysia and 
80 per cent in Hungary. 
261. Changing corporate strategies were driving the most dynamic parts of world trade, especially 
in the electronics, automotive and apparel indust ries.  The motivations behind these efficiency-
seeking investments appeared to be even stronger now than they were before the global economic 
downturn.  Increased competition was at the root of this change.  To take advantage of the evolving 
international production systems of TNCs for their own national priorities, host countries needed to 
understand the nature of changing corporate strategies and the forces driving them. 
262. Given the role that the TNCs played in exports , countries were scaling up their efforts to 
attract export-oriented FDI and benefit from it;  esp ecially as such FDI was perceived to offer major 
development gains.  The intense competition for th is investment was leading countries to adopt a 
more targeted approach to FDI promotion.  Successful targeting required an informed analysis of a location's relative strengths and weaknesses, in the light of the corporate strategies driving location 
decisions.  Such an approach could also increase the chances of attracting the type of investment that furthered a country's own development objectives. 
263. This led to the last principal message of the 2002 World Investment Report:  to reap 
maximum development gains from export-oriented FD I, government policy was key.  TNCs normally 
focused on existing comparative advantages of host countries, especially low labour costs, existing 
skills, technological capabilities and supplier networks and logistical considerations, when locating 
their export-oriented activities in developing countrie s.  For host countries to capitalize fully on static 
benefits and transform them into dynamic and sust ainable advantages, pro-active government policies 
were needed.  To enhance the convergence between corporate goals and national development 
objectives, FDI policies also needed to be consistent  with the overall national priorities and strategies. 
264. It was clear that the degree to which a country benefited from export-oriented FDI relied 
critically on its ability to develop its domestic ca pabilities.  In boosting export competitiveness and 
leveraging export-oriented FDI, a two-pronged approach based on upgrading domestic capacities WT/WGTI/M/19 
Page 62  
 
while at the same time targetin g foreign resources and assets had proven successful.  Continuous 
efforts were needed (as had also been emphasiz ed in UNCTAD's Trade and Development Report) to 
root TNC activities more in host economies, to rais e the level of local content, to increase the value 
added by these activities, to upgrade them into more sophisticated areas and to make them sustainable. 
265. The developed countries could also help promote the export prospects of developing 
countries.  They could provide more assistance  for the development of institutional capacity, 
disseminate information about export-oriented inve stment opportunities in developing countries and 
dismantle barriers to exports from developing countries.  Access to rich country markets for goods 
and services produced in the developing world was crucial.  The growing use by developed countries 
of anti-dumping measures, increased tariffs on certain products, tariff peaks, and targeted subsidies in 
developed countries, were all caus e for concern in this context. 
266. To conclude, a number of developing countries and economies in transition had done well by 
using TNCs to improve their export competitive ness and, more generally, expand exports.  
Meanwhile, many of these countries still had substa ntial potential to participate even more in the 
expanding international production systems of firms and benefit from them;  and even in successful exporting countries, there was potential for developing more dynamic interaction between the foreign and domestic enterprise sectors.  The task was to ensure that the nature of that success could be 
improved upon and extended to other countries.  Helping  developing countries to integrate their 
national economies into the globalizing world economy better and more beneficially through 
investment and trade was a key element in efforts to fight poverty.  The World Investment Report 
2002 offered a modest contribution to that process. 
267. The representative of the European Communities
 felt it was interesting to note, based on the 
latest World Investment Report, that among the to p ten winners in 2001, in the sense of attracting 
more FDI, were a number of developing countrie s, while the top losers were mostly developed 
countries.  It was also interesting to note the role that foreign-owned companies played in providing 
an export catalyst for local firms.  Among the policy recommendations of the World Investment Report, his delegation took special note of the impor tance of pro-active policies aimed at upgrading 
domestic capacities and targetti ng foreign resources and assets. 
D. O
THER BUSINESS  
(i) Annual Report 
268. The Chairman  suggested that the Working Group use the time available to discuss – and make 
suggestions on – the approach that should be followed in preparing the Annual Report.  The Chairman 
expressed the view that the Working Group should aim for a matter-of-fact  Report.  It should in 
principle convey to the General Council the contents  and the breadth of discussion on the items listed 
in paragraph 22 and others that had been raised, wh ile at the same time presenting the results of the 
activities carried out under paragraph 21 on technical assistance and capacity building. 
269. The Chairman noted that the Working Group might also usefully focus on its programme of 
activities for the next year, and he invited delegati ons to put forward their ideas or proposals.  
Regarding paragraph 21 issues, the Chairman suggeste d that the Secretariat prepare for the December 
meeting an evaluation or assessment of technical assistance and capacity-b uilding activities for 2002, 
taking into account any comments or suggestions made  by delegations in order to help plan a focussed 
programme of activities for 2003.  As  far as paragraph 22 issues were concerned, the Chairman shared 
the view that there would not be time to have mo re than two meetings of the Group before the 5th 
Ministerial Conference in September.  One of the lines that the Working Group could follow would be 
to revisit in a more compact and coherent way the t opics outlined in paragraph 22, bearing in mind the 
various comments made in the course of discussion about the inter-linkages among these and other 
issues, and in light of existing – and any additio nal – papers prepared by delegations, the WTO  WT/WGTI/M/19 
 Page 63 
 
 
Secretariat, and by UNCTAD, so laying the groundwo rk for the decision that would eventually be 
taken by Ministers in Cancún regard ing the future work of the Grou p.   The Chairman emphasized 
that he was not asking the Working Group to make a decision on this at the present time, as he 
understood that time would be required to reflect on these proposals and to consult with capitals.  He 
said he would be at the disposal of delegations should they wish to explore these ideas further.    
270. The representative of New Zealand  said that the Chairman's approach struck his delegation as 
a sensible and realistic one.  As Members were well  aware, the preparation of  the draft text for the 5th 
Ministerial Conference would be undertaken in the General Council.  Given the extent to which 
investment remained a sensitive issue, his delegati on expected that the debate on how it would be 
treated in Cancún would go well beyond the technical focus of the work that had been undertaken in 
the Working Group.  It was his delegation's assumption that the rather political dimension of the 
investment issue would stand in the way of an effort to produce anything in the Working Group by 
way of conclusions or recommendations for Ministers in Cancún.  This was something that would 
have to be taken up in the General Council process.   That raised the question of what the Working 
Group could – and should – realistically aim to achieve in the following year. 
271. His delegation felt that the Work ing Group's task was to ensure that the decisions taken by 
Ministers in Cancún were based, as far as poss ible, on a common understanding by Members of the 
options – in particular the technical options – that  were available to them in order to realize the 
objectives set out in the Doha mandate.  This was not simply a matter of discussing the seven subjects 
listed for clarification in paragraph 22 and then su mmarizing the discussion.  As the Chairman noted, 
there were a number of occasions during these discussions when Members drew attention to the inter-play and inter-relationship between  the different elements in paragraph 22.  For example, Canada 
flagged in its paper – and a number of delegations also noted – the linkage between the scope of any 
prospective agreement and the need for balance-of-payments clauses.  There were quite a number of 
similar issues raised in the papers or the discussions .  It therefore seemed reasonable to his delegation 
that in developing a range of options for decisions in Cancún and beyond, the Working Group would need to examine the issues in more than one di mension in order to understand better the complex 
relationships and trade-offs that would need to be  explored.  His delegation shared the Chairman's 
sense that it would be useful if an annual report covered, not only those seven elements, but also their 
inter-relationships and perhaps above all, the horizontal issues that had been flagged by delegations.  
So, if the Chairman was requested to invite the Secr etariat to include in a factual report the key points 
of that nature his delegation thought that that woul d be extremely useful.  It would also provide the 
Working Group with a more solid basis for resuming its discussion next year. 
272. The representative of Morocco
 asked the Secretariat to explain how preparations were made 
for technical assistance in 2003.  Was there some coordination between the investment and technical 
assistance divisions?  Would a document be circ ulated that could help Members prepare their 
requests? 
273. The representative of the Secretariat  confirmed that the Trade and Finance Division was 
providing input to the consolidated technical assi stance programme for next year which was being 
drawn up by the Technical Cooperation Division, a draft of which would be discussed in the 
Committee on Trade and Development.   The Secretariat foresaw the need for some changes to the 
investment proposals in that draft.  Delegations wo uld receive a consolidated programme in the near 
future for discussion in the Commi ttee on Trade and Development.  In addition, the Secretariat was 
preparing a paper assessing the investment-related t echnical assistance programme for 2002.  It would 
also be useful for the Working Group to discuss what  was intended for next year and for delegations 
to provide guidance while there was still time for adjustments to be made. 
274. The representative of Japan  thought that the Chairman's suggestion was sensible and 
reasonable.  Regarding the annual report to the Gene ral Council, his delegation believed that it should 
provide a factual and objective summary of discussi ons on the critical issues in the Working Group.  WT/WGTI/M/19 
Page 64  
 
The question remained open as to whether the S ecretariat should provide an analysis of these 
discussions which the Working Group could discuss at its next meeting.  The process itself might 
prove quite useful as a stocktaking exercise.  Japan also felt that an assessment of WTO capacity-
building and technical assistance activities was extr emely important in order to make the future 
programme more meaningful.  For example, the WT O might want to consider diversifying the scope 
of the audience and narrowing the focus of the programme to those issues that were closely linked to a 
prospective WTO framework on investment.  Given th e resource constraints, his delegation felt that 
because similar activities were taking place in various  parts of the world – either on a bilateral, 
regional or multilateral basis – every effort should be made to avoid the duplication of activities.  In 
light of this, Japan welcomed the Secretariat initiati ve to complete the draft consolidated programme 
of technical assistance and capacity-building for 20 03 as a basis of discussion in the next Working 
Group meeting.  Regarding the substance of futu re discussions, Japan supported the Chairman's 
initiative to revisit the elements listed in paragraph 22, but with a focus on the close linkages between 
the seven elements.  In particular,  the Working Group needed a clearer picture of the landscape as a 
whole.  For example, developmental considerations could be revisited as a horizontal issue cover all 
seven elements.  With that footnote, Japan associ ated itself with the suggestion to continue the 
substantive discussions in greater depth next year , with appropriate attention to the relationship 
between these items. 
275. The representative of the European Communities
 believed that the approach the Chairman 
had outlined seemed sensible and realistic.  His dele gation also agreed with the suggestion that the 
Secretariat carry out an assessment of technica l assistance and capacity-building activities for 2002. 
276. The representative of Switzerland  said that his delegation also supported the Chairman's 
suggestion, as well as the suggestion made by Ne w Zealand.  Switzerland believed that the report 
should be short.  It should highlight the major positions expressed by Members, as well as the 
interdependence among the various items.  The repo rt should allow delegations to see at a glance 
where major differences remained.  He recalled that  the Chairman had said, at the beginning of the 
year, that the Working Group had a puzzle before it.  Now the Working Group needed to consider how the various pieces of this puzzle fitted together. 
277. The Chairman
 informed delegations that the next meeting of the Working Group would 
take place on 2-3 December. At that meeting, th e Group would, among other things, be invited to 
discuss and adopt its Annual Re port to the General Council. 
278. He then recalled the Secretariat's statement regarding technical assi stance, and reminded 
Members that the Secretariat would hold its second Technical Workshop for Spanish-speaking 
Geneva-based delegations and officials on 15 November. 
279. The meeting was adjourned .      
__________