WORLD TRADE
ORGANIZATIONWT/WGTI/W/130
2 July 2002
(02-3690)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 1 July 2002, has been received from the Permanent
Mission of Canada.
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NON-DISCRIMINATION AND
MODALITIES FOR PRE-ESTABLISHMENT COMMITMENTS
BASED ON A GATS-TYPE, POSITIVE LIST APPROACH
EXECUTIVE SUMMARY
Canada continues to believe in the benefit of agreeing to a general approach  to issues in the
WGTI with a view to clarifying  options for Ministers in the run-up to Cancun.  Any prospective
international investment agreement (IIA) in the WTO must be consistent with the Doha mandate,
including balancing the interests of home and host countries, and taking due account of the
development policies and objectives of host governments as well as their right to regulate in the
public interest.
With respect to the fundamental concept of non-discrimination, as well as modalities for
commitments in this regard, architectural considerations remain paramount.  An IIA in the WTO will
also have to be thoughtfully integrated into th e existing family of WTO agreements, including the
GATS as well as agreements affecting trade in goods.  Many of these agreements already have
provisions affecting the investment behaviour of foreig n investors, particularly in so far is it is trade
related.
Two of the cornerstones of a non-discriminatory trading system, national treatment and most-
favoured-nation (MFN) treatment, are complementary and closely related.  This is not strictly true of
the GATS partly because it deals with the supply of services from outside the territory of a Party.
IIAs, however, generally include similar provisions on national treatment and MFN.  This is usuallybecause such treatment is deemed necessary to  reassure foreign investors concerning their
commitment of capital in the territory of a Party for the long term.
In order to be of interest to governments, inve stors, and the interested public, an IIA in the
WTO should seek to minimise differences in treatment of investors in goods industries vs. investors inservices industries, as well as between foreign and domestic investors seeking to make investments in
the first place – subject to agreed upon exceptions and reservations.
Both “selective liberalization” (GATS-type) and “MFN/national treatment” (negative list)
agreements tend to embody pre-establishment commitments with respect to non-discrimination
provisions.  Indeed, drawing a distinction betw een pre- and post-establishment may undermine the
concepts of non-discrimination and market access.  However both selective liberalization andWT/WGTI/W/130
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MFN/national treatment agreements do facilitate limitations to the scope of non-discrimination
provisions in a number of ways.  This attribute should be retained in any prospective IIA in the WTO.
An MFN/national treatment agreement is predicated on general applicability with defined
exceptions or reservations to certain provisions.  This is inherently a more transparent approach thanan agreement predicated on commitments undertaken with respect to selected obligations only.
Whatever the approach taken in the WTO, developing countries and LDCs may require more
focused technical assistance and capacity building from developed countries in order to compile
commitments, exceptions, and/or reservations.  This would be a constructive means of fulfilling the
Doha mandate with respect to productive and meaningful further integration of non-developed
countries in the world economy.
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I. INTRODUCTION
1. This paper is based on the same premise as Canada’s previous submission
[WT/WGTI/W/113] on scope and definition:  we believe that our work in the WGTI would benefit
from focussing on a general approach  to issues that Ministers asked us to consider at Doha.  In turn,
this can help us to continue clarifying specific concepts with a view to providing a basis for a decision
on the modalities of negotiations, without pre-judging outcomes.  It is understood that our work mustalso be consistent with the Doha mandate, particul arly with respect to the importance of balancing
“the interests of home and host countries, and to take due account of the development policies and
objectives of host governments as well as their right to regulate in the public interest” as indicated in
para. 22 of the Doha Declaration.
2. It also bears repeating that in order for our work to be effectively anchored and as relevant as
possible to the rapidly evolving international economy, Canada believes that important considerations
in determining our approach to non-discrimination and related modalities for commitments include:
(a) supporting the principles and objectives of the WTO as outlined in the Doha Declaration and at
Marrakesh;  (b) reflecting business realities and assisting in the development of a multilateral
rules-based framework for evolving relationships between the state on the one hand and investors and
investments on the other;  and (c) providing for “flexibility” in the scope of any prospective
agreement, including with respect to the development needs of members.
3. Finally, the submission is also based on a belief in the utility of a prospective investment
agreement in the WTO.  Ultimately, such an agreement must be consistent with a legally and
administratively enhanced trade and investment framework, and thereby be a positive contribution to
the activities of investors and governments, and be seen to be so by the interested public.
II. THE IMPORTANCE OF ARCHITECTURAL CONSIDERATIONS TO ANY
PROSPECTIVE INVESTMENT AGREEMENT IN THE WTO
4. In order to attain all of the objectives outlined  above, architectural considerations, namely the
way in which any provisions in a prospective investment agreement will interact with each other, as
well as the way they will interact with other agreements of the WTO system, loom large in WGTI
work.  This is particularly true for any provisions on non-discrimination and the way in which anyreservations or commitments, including “pre-establishment” ones, are set out with respect to this
fundamentally important concept.  The Secretariat paper on modalities for pre-establishment
commitments [WT/WGTI/W/120] sets out a useful taxonomy of three types of agreementsWT/WGTI/W/130
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(“investment control”, “MFN/national treatment”, a nd “selective liberalization” (or GATS) approach)
in this regard.
5. “Non-discrimination” and “modalities for pre-establishment commitments” with respect to
these provisions are addressed together in this submission.  These subjects are inextricably linked.  As
the Secretariat paper on non-discrimination [WT/WG TI/W/118] points out in a number of places, the
extent of non-discriminatory treatment of foreign investors and their investments is in many respects
determined by how exceptions to this treatment are determined.1  In addition, linkages between the
two issues are explicitly noted in section IV.B.1 on pre-establishment and post-establishment
treatment (paras. 47-52) of the Secretariat paper, where it is correctly pointed out that pre-
establishment market access is increasingly important for countries wishing to attract FDI.2
6. Following from this, our approach to these issues should also be consistent with the other
conceptual consideration that underlies the agreements of the WTO, namely transparency, whichMinisters at Doha also emphasized.  This issue was partly addressed at the previous WGTI meeting
(see paras. 118-155 of WT/WGTI/M/17), where it became apparent that the primary objective of
transparency could be considerably furthered through the way in which a prospective agreement is
structured.  Architectural considerations are therefore fundamentally important to the scope and
coverage of any prospective provisions, including reservations and/or commitments, in anyagreement, as well as how any prospective investment agreement would interact within the WTO
family of agreements.
III. NON-DISCRIMINATION AND TRANSPARENCY:  FUNDAMENTAL PROVISIONS
IN INTERNATIONAL INVESTMENT AGREEMENTS
A. N
ON-DISCRIMINATION :  MFN AND NATIONAL TREATMENT
7. Two of the cornerstones of non-discrimination provisions in both the WTO system and in
international investment agreements are nati onal treatment and most-favoured-nation (MFN)
treatment.
8. Provisions on these powerful principles underlying a non-discriminatory trading system
reinforce each other, and there are several considerations with respect to investment behaviour thatsuggest that they should remain complementary and closely related.  Where market access is unclear,
for instance, or not as transparent as it could be (which itself can depend on the approach to
exceptions or scheduling commitments – see below) investors will seek in the first instance to be
treated at least as well as other foreign investors (i.e. enjoy MFN treatment).  Where market access
conditions are more clear-cut, it becomes important for investors to seek national treatment, i.e. to be
treated in the same way as domestic investors.  Parties seeking to offer an optimal investment
environment with a view to maximizing investment  flows will also seek to provide this sort of
treatment.
9. MFN and national treatment are treated differently in the GATS of course.  The MFN article
(Article II) is a general obligation, i.e. it applies to all sectors and measures, unless otherwise
specified through exemptions.  A negative list approach is thus adopted in the GATS with respect to
this obligations.  The concept of MFN would make little sense under a positive list approach, whichwould allow unlimited and unspecified discrimination between and among WTO members in sectors
where no commitments are made.
                                                     
1 See 5th and 9th paras to the Executive Summary of WT/WGTI/W/118, as well as paras. 5-9, sections
III.C (paras. 25-32), IV.B.2 (paras. 53-56), and V.C (paras. 84-86).
2 Para. 51 of WT/WGTI/W/118; as noted by UNCTAD in the International Investment Agreement
Series booklet on Most-Favoured-Nation Treatment – UN Publications Sales no. E.99.II.D.11.WT/WGTI/W/130
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10. The positive list aspects of the GATS concern national treatment and market access (Articles
XVI and XVII), whereby these disciplines are only relevant with respect to listed (scheduled)
commitments.  Even here, however, a partly negative list approach is taken, since limitations with
respect to these commitments in each of four modes of service delivery are listed, as the Secretariat
paper points out.
11. The possible applicability of the GATS for in vestment activity in both goods and services
industries may be problematic however.  Under the GATS national treatment, and indeed market
access in general, are concepts that arguably had to be treated with a degree of circumspection with
respect to trade in services through modes 1 (cross-border supply) and 2 (consumption abroad) of
service delivery, whereby services are supplied from outside the territory of a Party (see also para. 39
of WT/WGTI/W/120).
12. However the GATS has attributes of clear interest to investors, as well as Parties seeking to
encourage investment consistent with broader societal  goals.  One of these is the implicit recognition
that pre-establishment  restrictions on foreign investments (not only in terms of equity, but also with
respect to licensing, numerical quotas and other restrictions) are encompassed within the agreement.
Thus any Party outlining limitations with respect to market access commitments (or indeed MFN
exemptions) should include pre-establishment restrictions among them.  Importantly, then, even undera selective liberalization agreement such as the GATS, pre-establishment commitments are not “off
the table”, and Canada believes that this understanding should be retained in any IIA in the WTO.
13. This is increasingly the case in international investment agreements.  There is indeed little
conceptual justification for discriminatory treatment of foreign investors pre- or post- establishment.
3
Non-discrimination with respect to post-establishmen t is, in addition, already provided for in many
IIAs, often through a negative list approach.
14. In dealing with discrimination against foreign investors, to draw an a priori  distinction
between pre- and post-establishment national treatment, could be seen to undermine the meaning of
national treatment and market access.  To foreign investors, the right of establishment (or
pre-establishment market access) effectively determines whether in fact non-discriminatory marketaccess exists.  In an era of declining tariffs, this is an increasingly important consideration for
international investors.  In increasingly competit ive markets, investors are less inclined to make
investments for reasons attached to import substitution only, but rather to respond to market
conditions extending beyond the host (or home) market.  Thus there is an increasing dynamic
established between investment conditions in the host market and trade possibilities, which militates
against pre-establishment discrimination against foreign investment in the same way that such
discrimination is addressed in the trading system.
15. It would therefore be a missed opportunity to consider designing an IIA in the WTO
agreement whereby MFN and national treatment would be treated differently ab initio .
16. Of course it also must be acknowledged that pre-establishment market access will not be
permitted by the host country in all cases in all sectors.  For political or other reasons it will not
always be possible, or even desirable, to do so, and even where it may make economic sense toexpose domestic investors to competition from more efficient foreign investors, vested interests may
make it difficult to do so.  This realization is implicitly embodied in MFN/national treatment (or
negative list-type) agreements, and is an important illustration of “flexibility” that is often overlooked
in these sorts of agreements.  Indeed MFN exempti ons for bilateral and regional agreements are also a
feature of investment agreements to which Canada is a party – and of the GATS itself (Article V).
                                                     
3 Indeed “post-establishment discrimination” can sometimes effectively amount to expropriation, and
dealt with through investment protection provisions or agreements.WT/WGTI/W/130
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And in the NAFTA an annex also exists for Mexico which exempts several broad sectors such as
petroleum, electricity, railroads, and others, from MFN, national treatment, and other provisions in the
agreement.
17. Thus, from the perspective of both foreign investors and Parties to an agreement in the WTO,
it could be a less than optimal approach to seek to finesse non-discrimination to allow Parties tomaintain discriminatory treatment of foreign investors without taking the opportunity of describing it.
Again, it must be stressed that flexibility for development or other purposes under an MFN/national
treatment agreement permits discrimination under specified circumstances.  Subject to negotiations,
the “right to discriminate” is retained – even, in some case, for horizontal measures such as
investment screening or review; what is required, however, is for Parties to state how or in which
sectors or sub-sectors this discrimination occurs.
B. T
RANSPARENCY
18. As noted at the last WGTI meeting, transparency is a crucially important principle that
underlies and open and non-discriminatory multilateral trading system.  It thus follows that
commitments and/or exceptions or reservations to non-discrimination should be transparent.  The
GATS includes comprehensive transparency obligations, both with respect to informational
requirements (publication, notification, enquiry and counter notification in Article III - Transparency)and procedural transparency (Article VI – Domestic Regulations).  The possible applicability of these
types of obligations to a comprehensive investment agreement was discussed at the last WGTI
meeting.  Another approach to transparency, raised by Canada, was the possibility that the goal of
transparency can also be furthered in the way in which an investment agreement could be structured,
including with respect to the way in which rese rvations and/or commitments to obligations are
delineated.
19. From Canada’s perspective, it remains evident that without transparency, it is difficult to
speak of – let alone achieve – stable and predictable conditions for long-term cross-border investment.
Architectural considerations furthering the tran sparency inherent in MFN/national treatment type
agreements thus become important.  An MFN/national treatment approach, predicated on generalapplicability, with defined exceptions or reservations, is inherently more transparent than an
agreement predicated on commitments undertaken only with respect to selected obligations.  It tends
to be the latter approach that necessitated an additional complex transparency obligations, coupled
with other obligations and ongoing negotiations as well.  Another possible problem with a selective
liberalization approach in the investment domain could be a tendency to “freeze” non-discriminatory
treatment at relatively low levels of commitments, taking no account of further liberalization in the
host country.  An MFN/national treatment type agreement, however, simply lists exceptions andreservations, whether they be horizontal, broad, or specific.  In this context, it should also be noted
that developing countries tend to enjoy broader exemptions to non-discrimination provision than
developed countries in these kinds of agreements.
IV. MODALITIES FOR SCHEDULING IN A PROSPECTIVE INTERNATIONAL
INVESTMENT AGREEMENT:  FURTHER IMPLICATIONS FOR THE WTO
20. Differences between MFN/national treatment vs. GATS-type modalities for pre-establishment
commitments can be  more apparent than real.  Canada, which has experience of both types of
agreements in, for example, the Canada-Chile Free Trade Agreement (CCFTA) and the GATS,
includes comprehensive lists in both.
4  The first lists those sectors and/or subsectors – including
                                                     
4 The text and annexes to this agreement are available on the Canadian Department of Foreign Affairs
and International Trade (DFAIT) website at:  http://www.dfait-maeci.gc.ca/tna-nac/cda-chile/menu.asp .WT/WGTI/W/130
Page 6
horizontal measures – to which non-discrimination and other specified provisions in the agreement do
not apply.  This can also extend to future measures (Annex II):  in specified negotiated sectors, some
of which are relatively broad (in Canada, with respect to any measure affecting aboriginal affairs, for
example, or to the foreign ownership of ocean fron t land), Parties are free to retain or indeed adopt
more restrictive measures in the future.  Nonetheless, they are listed, and both investors andgovernments can tell at a glance where discriminatory treatment is still extant and permitted.  And it
must also be noted that horizontal exceptions for all Parties with respect to national security, taxation,
balance of payments, as well as environmental measures and transfers can also feature in these sorts
of agreements.
21. Adopting an approach to scheduling commitm ents which may not sufficiently encourage
transparency does not facilitate the Doha mandate.  On the other hand, with a commitment on the part
of developed countries for technical assistance in the drafting of reservations and schedules, as well asa recognition, again consistent with Doha (para. 22), that developing country obligations and
commitments will be commensurate with their individual needs and circumstances, we would
maintain that it is premature to close the door to pro-transparency scheduling mechanisms.
V. CONCLUSION
22. As it is in most IIAs and the WTO system already, non-discrimination must remain the
cornerstone of any prospective investment agreement in the WTO.  There is a strong case for treating
national treatment and MFN in tandem.  Exceptions to this treatment in specified sectors for
development or other purposes would be permitted.
23. Canada is flexible with respect to how exceptions and commitments to non-discrimination are
structured.  In this paper we have sought to illustrate some of the practical advantages of anMFN/national treatment-type list approach, particularly with respect to non-discrimination,
transparency, and the approach to reservations and exceptions.  Nonetheless, whatever option is
ultimately chosen, we must do so fully cognisant of its implications for the WTO system.  The
architecture embodied in an MFN/national treatment type agreement offers a number of advantages
and can assist in the development of a WTO agreement on investment, as well as the integration ofdeveloping countries more fully into the international trade and investment framework in the WTO.
24. Finally, it is acknowledged that scheduling commitments and exceptions for developing
countries under an MFN/national treatment type agreement will require technical assistance from
developed countries.  This would be a highly productive means of assisting developing countries in
becoming more integrated participants in the world economy as envisioned at Doha.  Ultimately, such
an approach could also assist in the development of an investment agreement fully consistent with
existing WTO disciplines, including those agreemen ts within it with a direct bearing on investment
behaviour already.
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