./.WORLD TRADE
ORGANIZATIONWT/WGTI/W/68
30 November 1998
(98-4798)
Working Group on the Relationship
between Trade and InvestmentOriginal:  Spanish
COMMUNICATION FROM COSTA RICA
The following communication, dated 27 November 1998, has been received from the
Permanent Mission of Costa Rica with the request that it be circulated to Members.
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The Government of Costa Rica submits to the Working Group on the Relationship between
Trade and Investment the following document as a contribution to the discussions on Item IV of the
Checklist of Issues Suggested for Study.
Treatment of Investment and Investors:  National Treatment
and Most-Favoured-Nation Treatment
The legal treatment applicable to investment  and investors in the host country of the
investment is one of the key elements of investme nt agreements, whether bilateral investment treaties
or trade integration agreements containing an investment chapter.  As a general rule, these agreements
include the national treatment principle and the most-favoured-nation principle.
A. NATIONAL TREATMENT PRINCIPLE
Under the national treatment principle, the aim is  to avoid discriminatory treatment.  In this
case, the host country of the investment grants investment from another State Party and, in many
cases, investors too, treatment no less favourable than that afforded to investments of its nationals and
to its investors.
A point to be determined is whether the guarantee of national treatment is granted both to
investment and to investors.  This  means that it is necessary to clarify whether the host country of the
investment undertakes to grant national treatment to investors who have not yet established an
investment but intend to do so, as well as to investment already established in its territory.
In investment agreements where national treatment is guaranteed at all stages of investment,
i.e. during both the pre-establishment and the post-establishment stages, a schedule of specific
reservations is generally annexed to the agreement.  This schedule of reservations usually takes a
"negative list" approach, under which the State undertakes to grant national treatment in all
investment stages and with respect to all laws, regulations and sectors, with the exception of the
reservations expressly included in the schedule.  These agreements usually also include a standstillundertaking with respect to existing laws and regulations and a prohibition on the introduction of laws
or regulations infringing the national treatment principle.
In the Free Trade Agreement between Costa Rica and Mexico, which includes a chapter on
investment, the Parties undertook to grant national treatment not only to investment alreadyWT/WGTI/W/68
Page 2
established in their territory but also to potential investors.  A potential investor was defined as an
investor carrying out legal acts aimed at realizing an investment, being in the process of committing a
large amount of capital.  Nevertheless, potential investors were denied the possibility of resorting to
the dispute settlement procedure included in the investment chapter, under which investors may
submit claims against the host State of the investment to international arbitration.  In addition, CostaRica and Mexico undertook a standstill commitment as from 1 January 1995, the date of entry into
force of the Agreement.  Lastly, the Parties undertook to draw up a list of measures that were not in
conformity with the basic principles included in the chapter, in the form of a "negative list".
B. 
MOST -FAVOURED -NATION TREATMENT
Like the national treatment principle, the most-favoured-nation treatment principle is a basic
component of any investment agreement.  The principle takes the form of the obligation entered intoby a State Party that it will grant to investments and, possibly, investors of the other Parties treatment
no less favourable than the treatment it grants the investments and investors of a third country.
States Parties to an investment agreement may adopt a standstill commitment and also draw
up a list of specific reservations which will include the measures or regulations that are notcompatible with most-favoured-nation treatment.  The most frequent exceptions to most-favoured-
nation treatment principle contained in investment agreements are:
(a) Excluding from most-favoured-nation treatment the privileges that one of the Parties
has granted to investors from other States owing to their membership of a free-tradearea, customs union or regional agreement;  and
(b) excluding from MFN treatment preferences stemming from an agreement signed by
some States on tax matters.
In the Free Trade Agreement between Costa Rica and Mexico, the Parties undertook to grant
most-favoured-nation treatment during both the pre-establishment stage of investment and also thepost-establishment stage, i.e. once the investment has already been established.  The Parties also
agreed to exclude from MFN treatment privileges or advantages granted to investors or investments of
a third country under bilateral investment treaties, free-trade agreements, agreements establishing
customs unions, common markets or other similar economic integration institutions.
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