WORLD TRADE
ORGANIZATIONWT/WGTI/W/96
6 March 2001
(01-1099)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM KOREA
The following communication, dated 6 March 2001, has been received from the Permanent
Mission of Korea.
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The General Agreement on Trade in Services (GATS)
and its Implications for an Investment Agreement
I. INTRODUCTION
1. In the written contribution dated 2 June 1999 (WT/WGTI/W/79), Korea expressed its view on a
multilateral framework on investment (MFI), suggestin g that an approach to a possible MFI should be
based on two pillars: investment protection and liberalization. More specifically, Korea proposed a
pragmatic approach for an MFI in the WTO by which reasonably high standard of investment
protection would be guaranteed by adopting common el ements of existing bilateral investment treaties
(BITs). Investment liberalization would be achieved by applying the GATS model to non-services
sectors.
2. Keeping this in mind, this paper briefly introduces the main elements and characteristics in
the GATS that relate to investment rules and highlights the elements in the GATS structure that couldbe reviewed in-depth in this Working Party fo r further discussion and application for the MFI.
II. MULTILATERAL TRADING SYSTEM AND INVESTMENT RULES
3. When introducing investment rules in the WT O, such rules should conform to the basic
principles of the WTO agreements, although some variations may be allowed.  The five of the most
basic principles for the multilateral trading system are trade without discrimination, freer trade,predictability, promotion of fair competition, en couragement of development and economic reform.
The major elements of investment rules related to each principle of the multilateral trading system can
be summarized as follows:
Principles for the multilateral
trading systemMajor elements of investment rules related to the
principles of the multilateral trading system
1. Non-Discrimination - MFN treatment
- National treatment
2. Freer Trade - Progressive liberalization mechanism
- Free transfer of paymentsWT/WGTI/W/96
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Principles for the multilateral
trading systemMajor elements of investment rules related to the
principles of the multilateral trading system
3. Predictability - Transparency
- Standstill
- Expropriation, compensation and other investment 
protection measures
4. Promoting Fair Competition - Performance requirements
- Investment incentives
5. Encouraging Development and 
Economic Reform- Special provisions for developing countries
- Technical assistance
III. GATS AND INVESTMENT RULES: GATS AS A BOTTOM LINE
1. The main elements of investment rules and related elements of GATS
4. The GATS contains most of the major elements of investment rules mentioned above,
including MFN treatment, national treatment, progressive liberalization, free transfer of payments,
transparency, standstill, special provisions for developing countries and technical assistance.
- MFN treatment:  This general principle applies irrespectively of specific commitments made
by Members for liberalization of services sectors.  However, some flexibility is allowed,
unlike in the GATT, by permitting temporary exemptions subject to review every 5 years.
- National treatment:  This principle applies in the GATS only where a specific commitment is
made by Members, unlike in the GATT where it exists as a general obligation. This is one ofthe core elements of the GATS that provides flexibility to Members.
- Progressive liberalization:  GATS provides that increase in the level of commitments and
reduction of adverse effects on trade in services is to be achieved progressively through
additional negotiations for liberalization. In particular, the process of liberalization is to take
place with due respect of national policy objectives and the level of development of
individual members. Developing country members are given appropriate flexibility in termsof opening of individual sectors.
- Free Transfer of Payments:  Once a government has made a commitment to open a service
sector to foreign competition, it must not normally restrict money being transferred out of the
country as payment for services supplied in that sector. The only exception is when there arebalance-of-payments difficulties.
- Transparency: Governments must publish all relevant laws and regulations regarding trade in
services and set up inquiry points.
- Standstill:  The standstill applies only in the sectors under specific commitments. The
commitments can only be modified or withdrawn after negotiation with the affected
countries.
- Special Provisions and Technical Assistance for Developing Countries:  GATS encourages
competitiveness of developing countries’ domestic services, liberalization of market access inWT/WGTI/W/96
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the sectors in which developing countries anticipate export benefits, and technical assistance
for developing countries at the multilateral level.
5. It should be kept in mind that expropriation, compensation and other investment protection
measures, performance requirements, and investment incentives are not specifically provided in theGATS, even though provisions on domestic regulations, monopolies/exclusive services suppliers, and
business practices could be said to regulate investment protection.
2. GATS as a bottom-line
6. The GATS could serve as a benchmark when formulating multilateral investment rules in the
WTO.  As explained above, the GATS is an agreement with extensive exceptions and flexibility.  The
GATS represents the “bottom-up” approach, where the principles and requirements provided in the
agreement are applied only to those sectors subject to specific commitments.
7. In addition, the GATS, compared to other agreements, includes a wide range of contents
concerned with development issues.   
8. Most important, the GATS cover most of the investment-related rules and principles that
could be applied to non-services sectors.
9. The GATS model has some drawbacks, however. Most of all, the GATS was built at a time
when there were no frameworks for services. Now, discussions of an MFI are conducted under
circumstances where there already exist BITs, regional investment agreements, OECD investment
rules and plurilateral agreements such as the Energy Charter Treaty.  Moreover, some of these
agreements even contain higher standards and conditions than the levels required in the GATS.
Building investment rules at GATS level might not satisfy investor expectations and may beconducive to stricter bilateral or plurilateral agreements. That is why an MFI should address issues not
included in the GATS such as expropriation, compensation, dispute settlement and disciplines on
performance requirements.
10. Despite these problems, the GATS model can be a good starting point. A minimum common
ground to build a consensus among all WTO member countries is important in the discussion ofinvestment rules if the future investment rules are to be implemented by a majority of participants.   
IV. SUGGESTIONS FOR FURTHER WORKS
11. At the technical level, intensive work can be done in the Working Group if we are to apply
the GATS model. The following questions could be appraised:
- Should we incorporate the services sector in the new investment rules or should we only
include the non-services sectors?
- How should we bridge the differences in the definition of investment between the MFI and
the GATS in which investment is defined as a “commercial presence.”
- How should we treat and define the scope of the specific market access commitments in the
GATS?
- How would the GATS provisions related to transparency, domestic regulation, monopoly
suppliers, business practices, safeguard measures, transfer of funds, and BOP measures beapplied? Should they be applied equally to the pre-establishment and post-establishment
stages, as in the GATS?  Should they be defined as conditional and unconditional principles?WT/WGTI/W/96
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12. In addition, the discussions on how other elements  of investment rules not provided in the
GATS, such as incentives, performance requirements, and expropriation and compensation issues,
could be dealt with in the Working Group.  As for incentives and performance requirements, the
Agreements on SCM and TRIMS could be starting points for further discussions.
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