WORLD TRADE
ORGANIZATIONWT/WGTI/W/113
12 April 2002
(02-2016)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 11 April 2002, has been received from the Permanent
Mission of Canada.
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SCOPE AND DEFINITION
EXECUTIVE SUMMARY
In a globalized economy it is increasingly difficult to divorce trade-related from non-trade-
related investment activity.  Given this dynamic we need to examine the issue of scope and definition
in a manner that will enhance the relevance of our work to the development of a framework for the
contemporary global economy and international investment’s contribution to it.
Consistent with the Doha Declaration, Canada believes that our work in the WGTI would
benefit from focussing on a general approach  to scope and definition.  In particular, this would
provide a solid basis on which to continue clarifying specific concepts with a view to providing a
basis for a decision on the modalities of negotiations, without pre-judging outcomes.
The Secretariat note [WT/WGTI/W/108] does an excellent job of placing our work on scope
and particularly definitions in context.  It rightly notes that the scope of any prospective definitions –
and indeed any treaty itself – is shaped thro ugh the interplay among definitions of key terms,
substantive provisions, and specific commitments.  We would also add that the coverage of some
international investment agreements (IIAs) benefits from the clarification provided by a “scope”
article that sketches out in general terms the coverage of the agreement.
It must also be recalled that any prospective investment agreement in the WTO would need to
be properly anchored by virtue of the fact that it would co-exist and interact with a number of otheragreements within the WTO system.  These include TRIMs, TRIPs, the ASCM, and of course GATS,
all of which contain provisions that to a greater or lesser degree already pertain to investment
behaviour in so far as it is trade-related.  The reach of the NAFTA definition of investment as outlined
in Annex 2 of the Secretariat note is similarly limited, as would the scope of some of the categories of
investment in the WTO context as outlined in Annex 1 of the Secretariat note.
It will be important for such a definition to embody flexibility, both for development and
other policy objectives.  This should be possible not only because of inherent limitations on its scope
as identified above, but also the possibility of shaping it through the way it would interact with the
other provisions, commitments, and exceptions of any prospective investment agreement itself.   ThisWT/WGTI/W/113
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flexibility would also be consistent with the right of governments to regulate in their economies in the
public interest.
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I. INTRODUCTION
1. Canada’s approach to “scope and definition” is in the context of paragraph 22 of the Doha
declaration, particularly with respect to 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”.  In this vein, Canada regards the Secretariat’s note
[WT/WGTI/W/108] as an excellent contribution in summarising issues related to scope and definition
for discussion.
2. The following outlines in general terms Canada’s examination of relevant considerations
regarding the scope of a possible agreement and definitions within it, particularly of investment and
investor.  Our preference is to proceed on the basis of a general approach  with respect to these issues.
This is with a view to assisting the Working Gr oup to provide a basis for an eventual decision on
modalities of negotiations without pre-judging specific outcomes on detailed issues.  Nonetheless, it
should be noted that adopting a general approach should in itself help to address the issues identifiedin paragraphs 64-66 of the Secretariat note.  This will occur partly by virtue of the scope of any
prospective agreement that emerges as a result of our approach to definitions.
II. THE RELATIONSHIP BETWEEN “SCOPE” AND “DEFINITION OF
INVESTMENT”
3. 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 the
definition of investment include:  (a) support the principles and objectives of the WTO as outlined in
the Doha Declaration and at Marrakesh; (b) reflect business realities and assist in the development of
a multilateral rules-based framework for evolving relationships between the state on the one hand andinvestors and investments on the other; and (c) provide for “flexibility” in the scope of any
prospective agreement, including with respect to the development needs of members.
4. It should be pointed out at the outset, however, that the issues of scope and definitions of
investment and investors are closely intertwined.  Th is point is illustrated well in the recent UNCTAD
study on “Scope and Definition”, whereby mechanisms limiting a broad-asset based definition of
investment are addressed.
1
5. Definitions are not the only way in which the scope of a treaty may be limited.  Many treaties
also contain an article or provision on “scope” itself, whereby the scope and coverage of the
agreement is delineated.  It is also the relevant place to make clear the extent of obligations is limited
to government “measures” that affect or relate to investment.  This is part of the approach with respect
to scope taken under article I.1 of the GATS, which states that the Agreement applies to “…measures
by Members affecting trade in services”.  (Measures affecting market access commitments are thenfurther defined under article XVI, many of which affect trade in services through commercial
presence, including with respect to establishment.)  It is also the approach of chapter 11 of the
                                                     
1 See “Scope and Definition”, section 2, pp. 23-30 (booklet in UNCTAD’s Series on Issues in
International Investment Agreements”, UN Sales no. E.99.II.D.9, 1999).  This paper also observes (p. 17):“Recent practice in international investment agreements th at seek both to liberalize investment regulations and
to protect foreign investment seems to move in the direction of broad definitions.”WT/WGTI/W/113
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NAFTA under article 1101.1. (and article 201 for a definition of “measure”).2  Thus, whatever the
underlying architecture of the agreement, or approach to commitments and/or exceptions, a scope
article, as well as definitions of relevant terminology, can be helpful in setting out the framework for
an agreement.
6. Moreover, investment is a horizontal concept of general application to basically all economic
activities, as is reflected in other WTO agreements that already deal with elements of it in different
ways.  In considering the scope of any prospective agreement, including with respect to definitions,
we would need to nonetheless avoid too artificial a “compartmentalisation” of activities, as well as to
ensure consistency among these agreements.
7. The chief point to be made in this regard is that any prospective investment agreement in the
WTO would be anchored within a larger trade and investment framework.  NAFTA investment
provisions also operate within such a context, and several provisions limit the scope of the investmentprovisions (chapter 11) vis-à-vis  other chapters.  Some of these lie within chapter 11 itself; others
exist elsewhere.
3  This is a fundamentally important constraint on the scope of any definition of
investment that – at least with respect to provisions lying outside an investment agreement – does not
enter into consideration in stand alone bilateral investment treaties (BITs).
8. All these NAFTA-type provisions are relevant to our discussion on the scope of any
prospective comprehensive investment framework elsewhere.  Indeed, given investment-related
provisions in other WTO agreements, including GATS, TRIPs, TRIMs and the ASCM, they would
presumably be necessary.  Thus, for instance, there would be a need for appropriate rules of
precedence in instances of potentially overlapping issues.
9. Investment activity by foreign firms supplements domestic sources of capital and know-how,
and in general is of net benefit to the host economy.  While we therefore believe that the international
framework should not in general provide for discrimination nor capricious activity, at the same time it
should accommodate sufficient flexibility for the state to regulate in the public interest.  Companies
should also of course continue to be obliged to obey domestic law.  Finally, it would be appropriate to
limit the scope to economic activities so as to cover only investments acquired in the expectation orused for the purpose of economic benefit or other business purposes.  This effectively serves to limit
the coverage of any prospective agreement with respect to real estate and other property.
Complementary reservations reinforcing this could also be appropriate.
III. DEFINITION OF INVESTOR
10. Briefly, as far as the definition of an investor is concerned, Canada believes that it would need
to be sufficiently broad so as to cover the investor’s  act of investing.  In other words, any prospective
agreement should apply to the investor while in th e process of investing (before and after the point in
                                                     
2 Article 201 of the NAFTA also defines measure as including “any law, regulation, procedure,
requirement or practice”.
3 For example, Article 1112.1 of the NAFTA states that in the event of any inconsistency between the
investment chapter and another chapter, the other chap ter shall prevail to the extent of the inconsistency.
Article 1101.3 states that chapter 11 does not apply to measures adopted or maintained by a Party to the extent
that they are covered by chapter 14 on financial services.  Article 1108.5 states that the chapter 11 provisions on
national treatment and most-favoured-nation treatment do not apply to any measure that is an exception to, or
derogation from, the obligations under Article 1703 (the national treatment article of the  chapter on Intellectual
Property) as specifically provided for in that article.  There are other examples, including chapter 12 on cross-
border trade in services, (roughly analogous in terms of underlying coverage to mode 1 and 2 coverage underthe GATS), and chapter 16, on temporary entry for business persons (roughly analogous to GATS mode 4).WT/WGTI/W/113
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time at which the act takes place) as well as during the life of the investment.  Since presumably there
would be an MFN obligation, there is no a priori  reason to examine issues of ownership or control by
nationals of a particular WTO member (except to the extent that there is a need to deny benefits in
some well-defined circumstances).
11. In addition, since the Canadian constitution protects the rights of both citizens and permanent
residents, Canada would in principle support no dist inction between these two entities.  This would be
roughly analogous to the approach under article XXVIII(k) of the GATS.  We also recognise,
however, that for constitutional and other reasons country-specific exceptions or reservations may
need to be accommodated.  Moreover, the issue of the treatment of dual nationals would have to be
taken into consideration.
IV. DEFINITION OF INVESTMENT
12. As has been pointed out in other submissions to this group as well as the Secretariat note,
limiting ourselves to an FDI or an enterprise ba sed definition, or relying on tests of ownership and
control of an investment, can be arbitrary and would not capture the way in which businesses operate.
It can effectively exclude from the scope of an agreement an investment as traditional as a 9%
(controlling) interest in an enterprise, let alone any of the newer forms of investment such as strategic
alliances sometimes used as a means for companies to adapt quickly and compete under rapidlychanging market conditions.  Nor would a narrow FDI-based definition necessarily include equity or
other means of financing enterprises use to finance their investments.
13. This would decrease the utility of any prospective investment agreement considerably.
Controlling interests in foreign enterprises represents considerably less than 50% of the investments
held by Canadian investors abroad, as well as those held by foreign investors in Canada.
4  However
this is not to say that we believe that all or any types of investments should fall under the scope of an
investment agreement, nor even that all assets th at do fall under the umbrella of such an agreement
should be covered with respect to all provisions at all times.  This will be addressed in further detail
below.
14. Thus, if we start with the premise that a definition of investment based on FDI only is
insufficient, the issue then becomes what else should be included.  The most obvious category would
be other kinds of investment associated with enterp rises – e.g. any equity participation, debt security
or other kinds of interests that entitles the “investor’ to have access to the profits of the enterprises or
to some part of the liquidation value of an enterpri se.  By including these elements in the definition of
investment, we believe that this would work to ensure that the coverage in goods industries, or indeed
any “tradable” more tangible than cross-border trade in services, is at least as secure as investment in
services industries through the GATS.
15. Beyond concepts of FDI and enterprise are other elements that reflect the way international
investment takes place.  In this regard the next “tranche” of elements that could be considered in the
context of a broader definition of investment would be other kinds of assets.  On its own terms, a
broad asset-based definition can encompass new forms of investment such as strategic alliances which
may not demand traditional ownership of an enterpri se.  It simply more closely approximates the way
in which investors consider their assets when making investment decisions.  It must after all be
recalled that one of the reasons we are contemplating investment rules is to provide an appropriate
framework under which international investment can take place.
                                                     
4 The conceptual framework for Canada’s international investment position is consistent with the
international conventions and standards of the International Monetary Fund’s Balance of Payments Manual(1993).  See the Statistics Canada’s quarterly series Canada’s International Investment Position .WT/WGTI/W/113
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16. For clarity with respect to any prospective dispute settlement facilities, and in the interests of
clearly delineating the potential scope of the agreement, it may be preferable to envisage an
exhaustive (i.e. closed) list of inclusion and exclusion from coverage.
17. An examination of the NAFTA definition of investment in Annex 2 of the Secretariat note
provides a number of indications as to how many of the issues identified in paragraph 64 of theSecretariat note can be addressed.  Since this definition is included in the Secretariat note, we would
like to address a few aspects of it in order to increase understanding and perhaps reduce
misconceptions about the scope of an investment agreement that includes assets in its definition of
investment.
18. It should also be stated at the outset that although the NAFTA framework is tailored to the
NAFTA context, the WTO context is of course different and demands an approach specifically suited
to WTO purposes.  On the other hand, as far as Canada is concerned the economic context withinwhich investment takes place under both agreements is similar; we would also argue that the
flexibility inherent in the NAFTA approach could be of interest to our work in this group.
19. More specifically, as noted in the Secretariat note, neither loans to a state enterprise, loans to
an enterprise not an affiliate of the investor, nor loans with a maturity of three years or less are
included in the NAFTA definition (paragraph d).  Similarly, under paragraph (i) it is expressly statedthat among the things investment does not mean is, among other things, the extension of credit in
connection with a commercial transaction.  Under paragraph h.i and ii, specified contracts, including
concessions necessitate “a commitment of capital or other resources in the territory of a Party to
economic activity in such territory”.
5  All of these provisions, in addition to other articles both within
and without NAFTA’s investment chapter, complement each other.  There is no reason to believe thatthe same sort of complementarities and circumsc riptions would not apply to a broad definition of
investment in a multilateral context in the WTO with its own network of agreements and provisions
within them that already pertain to investment activity.
20. More broadly (and with respect to some of the points raised in paragraph 64 of the Secretariat
note), it is important to realise that financial transactions only fall under the rubric of Chapter 11 ofthe NAFTA subject to a number of qualifications.  NAFTA contains a separate chapter on Financial
Services (chapter 14), under which prudential measures are also addressed.  There are complementary
provisions in the investment chapter as well as in other chapters.
6  In the GATS, articles XI (Payments
and Transfers) and XII (Restrictions to Safeguard the Balance of Payments), as well as the Financial
Services Annex, are relevant to this issue as well.
21. Added attention to this and related issues (including a balance of payments clause in any
prospective investment accord) would require the assistance of international finance experts in ourwork in the future.  The issue of short-term capital movements is not primarily one of discrimination
but rather volatility and hence is not one that the WTO oversees in any case.  We would note that the
work of the Working Group on Trade, Debt and Finance could be relevant to these issues.  In any
                                                     
5 Thus, services as understood under Modes I, II, and IV of the GATS effectively lie outside the scope
of NAFTA’s chapter 11 coverage.  NAFTA has a separate chapter on Cross-Border Trade in Services, however(Chapter 12), and definitions under article 1213.2 further elucidate on the difference in scope and coveragebetween the two chapters.  However NAFTA implicitly recognises linkages between investment and services
through the structure of NAFTA reservations to the agreement, which are outlined with respect to specified
articles under both Chapter 11 and 12.
6 For instance, chapter 11 contains an article on “Transfers”, which outlines several means of
preventing of transfers related to existing or future measures pertaining to bankruptcy, dealing in securities,criminal offences, etc.  A chapter on exceptions (chapt er 20) also contains a detailed article on Balance of
Payments (Article 2104).WT/WGTI/W/113
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case, we would maintain that considering the inclusion of some financial or other assets in the
definition of investment does not open the door to no control over untrammelled short-term capital
flows with no connection to a foreign investment.
22. Finally, Canada also fully endorses the notion of “flexibility” in investment agreements,
whether for development or other reasons – and which parenthetically is the first issue identified inparagraph 64 of the Secretariat’s paper.  There is no a priori  reason why the definition of investment
cannot be circumscribed in the agreement, including with respect to pre-establishment market access,
particularly in some sectors.  One way in which this is possible is through the way in which other
relevant commitments, reservations or exceptions are worded.
23. Conversely, Canada recognises that in no treaty do all parties undertake exactly the same
commitments in exactly the same manner.  While a realistic definition of investment should be
compatible with restrictions on the scope of an investment agreement, it should also be flexibleenough to encompass new forms of investment apart from tradition ownership and control.
V. CONCLUSION
24. The scope and definition of any prospective investment framework in the WTO would likely
be considerably circumscribed by a number of other agreements and understandings affecting
international investment behaviour already embodied within WTO agreements.  This is an importantfactor that does not enter into consideration in stand alone bilateral investment treaties.  However it
can be expected to limit the scope of an agreement on investment within the WTO family of
agreements that already affect investment, such as TRIMs, TRIPS, the ASCM and of course GATS.
25. The NAFTA provides one example of how an investment agreement has been drafted to co-
exist with other chapters on cross-border trade in services, temporary entry for business persons,telecommunications, trade in goods, and financial services, among others.  The relationship of any
prospective WTO investment accord to the framew ork of other investment-related provisions in
existing WTO agreements will more sharply emerge as we continue our work.
26. This dynamic needs to be taken into account whenever scope and definitions in an investment
accord within the WTO are considered.  In addition, definitions are circumscribed through the way inwhich they interact with substantive provisions within  any investment agreement, including a “scope”
article, as well as exceptions, reservations or commitments.
27. Therefore, given this context, a definition of investor should be flexible enough to encompass
the investor’s act of investing, including before and after the point in time at which the act takes place.
Similarly, any definition of investment should be realistic, practical, and indeed flexible enough to
encompass the contemporary business dynamics associated with investing, while providing sufficient
policy space for all WTO members to pursue regulatory, development, prudential, and other goals inthe public interest.  Canada believes these to be realistic and achievable aims.
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