WORLD TRADE
ORGANIZATIONWT/WGTI/W/122
27 June 2002
(02-3585)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 26 June 2002, has been received from the Permanent
Delegation of the European Commission.
_______________
CONCEPT PAPER ON NON-DISCRIMINATION
Note by the Secretariat
1. WTO Ministers have recognized at the Doha Ministerial Conference the case for a
multilateral framework to secure transparent, stable and predictable conditions for long-term cross-
border investment, particularly foreign direct inve stment, that will contribute to the expansion of
trade.  Paragraph 22 of the Doha Ministerial Declaration mentions, inter alia, “non-discrimination” as
one of the issues to be clarified in the Working Group on the Relationship between Trade and
Investment, in the period until the Fifth Ministerial Conference.
2. Non-discrimination is one of the basic principles of the WTO system and has been addressed
in relation to investment during several meetings of this working group since 1997.1  This submission
aims at outlining the EC and its Member States vi ew on how the principle of non-discrimination could
be addressed in a multilateral framework on FDI.
3. In this paper we will focus on the 2 principles of MFN and NT treatment, without addressing
other standards included in international invest ment agreements such as “fair and equitable
treatment”.  The concept paper on modalities for pre-establishment already presented by the EC tothis working group addresses the principle of non-discrimination in the pre-establishment stage of
investment.
I. WHY NON-DISCRIMINATION?
4. Host countries may wish to treat different investors in different ways, for legitimate reasons.
Customary international law does not require any host country to guarantee a non-discriminatory
                                                     
1 See, for instance WT/WGTI/W/19, W/22, W/23, W/28, W/29, W/30, W/33, W/34, W/36, W/37,
W/42, W/51, W/54, W/68, W/71, W/75, W/79, W/84, W/89, and W/104.This concept paper is intended as a suggestion on the non-
discrimination  provisions that could be included in a Multilatera l
Investment Framework. It should not be read as a text proposal.WT/WGTI/W/122
Page 2
treatment to foreign investors wishing to establish th eir activities in its territory or even to those
already established.  Nevertheless, host countries are consistently removing discriminatory barriers to
the entry and operation of foreign investors in their territory.  Given the fierce international
competition to attract FDI, some countries have even decided to provide specific incentives for
foreign investments creating a sort of reverse discrimination against their own local companies,although most countries make the incentives available to both domestic and foreign investors on a
non-discriminatory basis.
5. The non-discriminatory treatment of international investment is a necessary condition for the
development of a level playing field for FDI worl dwide which would improve the allocation of capital
and minimize distortions, releasing additional resources.  Discrimination on the basis of the
nationality of the (ownership, control, or place of residence) investor does not make much sense given
the complex organizational structure of today’s multinational companies.  Moreover, all countrieshave realized that in order to attract foreign in vestors they need to provide, as a pre-condition, a
predictable, transparent and non-discriminatory regulatory framework, beyond macroeconomic and
political stability, infrastructure, labour skills, etc.  This is why more than 2000 bilateral investment
treaties and a number of other regional and multilateral investment agreements, all including
non-discrimination standards to a certain extent, have been concluded.  This is also why the EC andits Member States believe that the time is ripe for the consolidation of basic non-discriminatory
provisions in a truly multilateral investment framework.
II. MOST-FAVOURED-NATION PRINCIPLE (MFN)
6. The MFN principle is one of the fundamental elements of international investment
agreements and of the WTO system.  Under the MFN rule host countries must extend to investorsfrom one foreign country treatment no less favourable than they accord to investors from any other
foreign country.
7. The stocktaking exercise of existing agreements involving investment has shown that the
MFN principle has been widely included in most bilateral, regional and multilateral agreements.
8. Since Bilateral Investment Treaties (BITs) typically cover investments established in
accordance with the laws of the host country, the MF N clause applies, as a general standard, to post-
establishment treatment of foreign investments.  Some other BITs, for instance those concluded by the
US and Canada, as well as the NAFTA, also in clude the MFN principle with respect to the
establishment (or admission) of foreign investments.
9. The MFN provision is often included in combination with the national treatment principle.
The combined national treatment/MFN obligation usua lly accords to investors and their investments the
better of national treatment or MFN in order to allo w them, for instance, to benefit from incentives for
FDI.
10. In the GATS, the MFN obligation applies across the board (pre- and post-establishment) to all
services sectors unless an exception is contained in the country list of MFN exemptions.
III. NATIONAL TREATMENT (NT)
11. According to the NT principle, the host countr y is required to treat the foreign investor and
his investment operating in its territory in the same or comparable way as a domestic investor or
investment.
12. As for the MFN principle, most of the 2000+ existing BITs require host c ountries to apply the
NT standard for the treatment of foreign invest ments, once these foreign investments have beenWT/WGTI/W/122
Page 3
admitted.  The NT principle is regularly included in BITs involving both developed and developing
countries, in general without sectoral exceptions, since it only covers foreign investments established
in accordance with the host country’s laws and regulations.2
13. In the US and Canadian BITs, the NAFTA, the MERCOSUR Colonia protocol, and other
recent agreements, the NT (and MFN) standard applies to the establishment of foreign investors inaddition to post-establishment treatment.  In these agreement the parties usually include their sectoral
exceptions to NT (and or MFN) in an annex.
14. In the GATS the NT principle is a specific commitment which only applies to the sectors
listed in each member’s schedule.  The NT obligation refers to treatment, in respect of measures
affecting the supply of services, which should be “no less favourable” than that of like national
services and service suppliers.  The schedule of commitments also enumerates the possible limitations
to NT that each Member maintains on each sector. Thus, in the case of “commercial presence”(i.e. mode 3), the NT principle applies to both the pre-establishment and post-establishment stage of
investments in the sectors included in each country’s schedule.
IV. EXCEPTIONS TO MFN AND NT
15. The coverage of the MFN and NT provisions in any international agreement depends on the
extent of the exceptions attached to them.  These exceptions can be divided in 3 categories: generalexceptions; sector-specific exceptions, and; country-specific exceptions.
1. General Exceptions
16. General exceptions do not usually apply only to MFN/NT provisions but to the whole
agreement.  The most common exceptions of this ty pe allow the parties to the agreement to derogate
from the provisions of the agreement on grounds of public health, order and morals, national securityand protection of the environment.
2. Subject-Specific Exceptions
17. Many investment agreements exclude the application of NT/MFN standards on taxation.
Some agreements exclude intellectual property or public procurement from their coverage, taking into
account that MFN and/or NT obligations already exist in these areas.  Moreover, all agreementsinvolving parties which are members of regional integration organizations exclude the application of
the MFN principle to measures taken in the framework of regional integration.
3. Country and Sector-Specific Exceptions
18. Some investment agreements include in an annex the sectors with respect to which each party
reserves the right to deny NT/MFN (eg. NAFTA, OECD codes of liberalization, etc.).
19. The GATS allows one-off exceptions to the general obligation of MFN by members, which
are notified in their country-specific annex.  As for NT, members only apply the principle in thesectors included in their scheduled commitments, where they can also specify the conditions and
qualifications to NT.
                                                     
2 As stated, for instance, in India’s written submission WT/WGTI/W/71, para. 6.WT/WGTI/W/122
Page 4
V. CONCLUSION
20. The EC and its Member States support the inclusion of the MFN and NT principles in a
multilateral investment framework.  The stocktaking of existing provisions in international investment
agreements and the discussions in this working group lead us to believe that multilateral investment
rules in the primary (i.e. agriculture, fisheries and mining) and secondary (i.e. manufacturing) sectors,which should not stay behind the level of treatment granted to investments in the services sectors by
the GATS, could incorporate:
• a general MFN obligation (including possible exceptions) for foreign investments across the
board and on all sectors;
• a general NT obligation (including possible exceptions) for all foreign investments established in
accordance with the laws and regulations of the host country (as provided for in most existing
BITs);
• specific NT obligations for the establishment (i.e. admission) of foreign investments in those
sectors listed in each country’s schedule of commitments.  The schedule of commitments wouldalso enumerate each member’s limitations to NT.
21. As in other international investment agreements, especially those covering the pre-
establishment stage, general exceptions to MFN/NT, as well as subject- and country-specific
exceptions could also be envisaged.
22. It is understood that the relationship with existing non-discrimination provisions covering FDI
in the services sectors (i.e. GATS mode 3) as well as with non-discrimination provisions included inbilateral and regional agreements will need to be carefully assessed.
23. The discussions and analyses carried out in this working group seem to confirm that while on
the one side the above provisions would go a long way towards improving the legal security and
coherence of international investment rules on the other side they would not prevent host countries
and in particular developing countries from pursuing their domestic policies.
24. We look forward to hearing other members’ views on these and other possible options
available to address the question of non-discrimination in the context of a multilateral investment
framework.
__________