WORLD TRADE
ORGANIZATIONWT/WGTI/W/106
27 July 2001
(01-3766)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM UNCTAD
Reproduced hereunder is the statement made by the observer representative of UNCTAD at
the meeting of 13 and 14 June 2001.
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Recent work undertaken within
UNCTAD’s work programme on international investment agreements
1. Thank you very much for this opportunity to bring you and the Working Group up-to-date on
UNCTAD’s activities within the work programme on investment policies and international
investment agreements since your last session in  March 2001.  My brief remarks will concentrate on
two items: first, the outcome of the Third United Nations Conference on the Least Developed
Countries (LDCs), relevant for this area of work ; and second, the activities implemented under the
purview of our international investment agreemen ts (IIA) work programme, namely the bilateral
investment treaties (BITs) facilitation round for Croatia, the currently ongoing intensive training
course on issues in IIAs for francophone LDCs in  Alexandria, Egypt, and the recently issued IIA
paper on Host Country Operational Measures  (HCOMs).
2. First, the Third United Nations Conference on the LDCs, held in Brussels from 14-20 May
2001. At the Conference a number of concrete deliverables were announced in the area of investment
and enterprise development which were supported financially by different donors.  These deliverables
are aimed at assisting LDCs in enhancing their productive capacity, the bedrock of their sustainedeconomic growth and development and the basis of th eir expanding trade.  Growth in LDCs requires,
in addition to official development assistance, enterprise development and especially investment,
including foreign investment, in particular of the kind that brings employment, technology, skills, and
access to markets and diffuses these assets through backward linkages to host economies.  Therefore,
the deliverables, which have been developed in consultation with LDCs, reflect UNCTAD'sexperience of providing technical assistance in the areas of investment and enterprise development,
and have benefited from symposia held with LDCs in Oslo (at the end of January 2001) and Bonn (in
March 2001).  While some of the deliverables complement on-going activities, others relate to
activities, which are important to LDCs but have not found reflection in our on-going activities.
3. The various deliverables form part of an International Investment Initiative for LDCs
announced at the Conference.  The Initiative combines the investment-related parts of the Programme
of Action negotiated by governments for the Conference with a number of flagship projects that were
launched at the time of the Conference because concrete commitments have been obtained.  The
deliverables comprise two programmatic areas.WT/WGTI/W/106
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• First, attracting foreign direct investment (FDI) and benefiting from it.  The heart of this
programmatic area is a multi-agency technical assistance programme on Facilitating
FDI in LDCs  by UNCTAD, the World Bank Group (MIGA, FIAS) and UNIDO, which
will in a pilot phase include five LDCs.  Investment Policy Reviews   will be undertaken
in four to five LDCs and assistance will be extended to a number of LDC investment
promotion agencies, including for the purpose of good governance in these institutions.Another programme is assisting LDCs in participating as effectively as possible in
discussions and negotiations of IIAs, including intensive training seminars, negotiation
of bilateral treaties and double taxation treaties.  Two programmes will be implemented
together with the International Chamber of Commerce: (i) Investment Guides  for a
number of LDCs; (ii) Investment Advisory Council  which will bring together senior
government and corporate leaders to advice LDC Governments on issues related to
investment.
• Second, promoting enterprise development.  The key issues here are support for the
emergence of small and medium-sized enterprises in LDCs and the promotion of
linkages between foreign affiliates of transnational corporations and domestic firms in
LDCs.  For this purpose, our Empretec  programme will be implemented in Uganda thus
contributing to an Eastern-African enterprise corridor.  The link between the investmentand enterprise development areas is the Linkage Promotion Programme  which will be
established in LDCs to promote linkages between foreign affiliates and domestic
enterprises, paying special attention to the promotion of women entrepreneurs  and
Empretec enterprises.
4. Let me now turn to the activities implemented since your last session in March 2001 within
our work programme on IIAs.  Here, three events are noteworthy.
5. First, UNCTAD has implemented another round of BITs negotiation facilitation events from
19-28 April in Dubrovnik, Croatia, within the frame work of the Balkan Stability Pact.  This round
involved Belarus, Croatia, Latvia, Malta, Moldova and Pakistan, and resulted in 8 BITs.  Belarus andCroatia utilized this round to also discuss a general trade agreement.  A report on this round of
negotiations can be made available.  Like earlier rounds, the Croatia event was meant to provide a
platform for developing countries to negotiate BITs with other interested countries, and among
themselves.  UNCTAD does not participate in the negotiations as such.
6. In this context it is noteworthy that 29 BITs negotiated during the round organized for
francophone least developed countries (LDCs) that was held in Geneva from 24 January to 3 February
2001 were officially signed during the Third United Nations Conference on the Least Developed
Countries in Brussels.  The signing ceremony, which took place on 18 May 2001, was presided over
by Boutros Boutros-Ghali, Secretary-General of th e Organisation internationale de la Francophonie,
and Rubens Ricupero, Secr etary-General of UNCTAD.
7. Second, the first intensive training course on issues in IIAs for francophone African countries.
This course is currently underway in Alexandria, Egypt, in cooperation with Senghor University andl’Agence pour la Francophonie. Scheduled to last until 16 June 2001, the course has brought together
21 participants and speakers from Northern African countries (as well as the People’s Republic of
Laos).  For your information, we have made available (outside at the documents counter) a copy of
the programme and curriculum for this course.  Please note that similar courses for anglophone Asia
and for anglophone Africa are currently in their planning stage, with the Asian course scheduled totake place in November this year.WT/WGTI/W/106
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8. Third, UNCTAD has since your last meeting finalized work on the issues paper on Host
Country Operational Measures.  As this subject is relevant to your current discussion, allow me to
elaborate on its content in more detail.
9. The paper deals with the vast array of measures implemented by host countries concerning
the operation of established foreign affiliates. Covering all aspects of an investment (such asownership and control, hiring of personnel, procurement of inputs, sales conditions, etc.), these
measures (which usually take the form of restrictions or performance requirements) are meant to
influence the location and character of FDI with a view  to increase its benefits in the light of national
objectives and to correct actual or perceived market distortions.
10. Noting that HCOMs have rarely been considered as a separate issue in IIAs, the paper singles
out the WTO Agreement on TRIMs as the only existing agreement specifically dealing with a number
of HCOMs. It notes that the more recent IIAs that regulate HCOMs tend towards the restriction ofsome of these measures. However, the majority of IIAs, especially most BITs, adopt an approach to
investment that does not explicitly address the use of operational restraints as a specific issue on its
own.
11. For its analysis, stocktaking and discussion of the development and economic policy
considerations, the paper groups HCOMs  into three categories and proceeds with discussing them in
the context of some of their restrictions at different international levels:
• First, measures that are explicitly prohibited  at the multilateral level, i.e. by the TRIMs
Agreement. A number of interregional, regional and bilateral agreements also explicitly
prohibit the same HCOMs (or, where these agreements are in a draft form, envisage
their prohibition). To use a traffic light analogy, these are “red light” HCOMs, i.e.
measures that the international community  as a whole (or, more precisely, as
represented in the WTO) has agreed should not be employed (although not all countries
feel comfortable with the implementation of this agreement).
• Second, additional measures that are explicitly prohibited, conditioned or discouraged
by interregional, regional or bilateral (but not by multilateral) agreements (or drafts
thereof). These are “yellow light” HCOMs in the sense that negotiators of IIAs ought tobe aware that some countries (or groups of countries) have indeed prohibited them in
some IIAs. Categorising these measures as yellow light HCOMs should not suggest that
they are not as legally binding as the red light HCOMs. Indeed both derive from
instruments governed by international law, and which, among the parties, create binding
legal obligations. The point of emphasis is that the red light HCOMs have, in terms ofparties, a wider application.
• And third, all other measures. These are “green light” HCOMs. Such measures are
generally not subject to control through IIAs although their use may be subject to otherinternational obligations, e.g. to apply national treatment.
12. The paper suggests that countries negotiating inte rnational investment rules in the future need
to take into account the TRIMs Agreement.  Negotiations ÿ should they at all include HCOMs ÿ arelikely to pay special attention to “yellow light” HC OMs.  However, the paper concludes that options
go beyond either covering or not covering certain HCOMs. For example, the extent to which certain
HCOMs are tied to certain conditions (e.g. incentives) or the legal nature of any coverage (e.g.
best-efforts clauses) can introduce some flexibility. In fact, even when it comes to the TRIMs
Agreement, the paper identifies various options as to its further development.WT/WGTI/W/106
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13. In all, the paper’s analysis shows that the scope for an unconditional use of HCOMs has
narrowed over the past two decades. At the same time, the debate remains open as to which, how and
under what circumstances HCOMs do or do not contribute to the development process. Ideally,
therefore, any such regulation should be preceded by careful study and determination of the
contribution by a specific HCOM to the development efforts of developing countries, and how acertain flexibility can be maintained in IIA provisions related to their use in the interest of
development.
14. Allow me to close my remarks with a refere nce to the forthcoming expert group meeting on
“International arrangements for transfer of technology: best practices for access to and measures to
encourage transfer of technology w ith a view to capacity-building in developing countries, especially
in least developed countries”.  The meeting, scheduled for 27-29 June 2001, is expected to the
coverage of agreements, particularly as regards the spread of provisions on transfer of technology, theeffectiveness of their implementation (how are they operationalized?), and possible improvements in
terms of what can be done to enhance their impact on transfer of technology.  The main questions are
how to ensure the effectiveness of international arrangements for transfer of technology and capacity
building and what are the best mechanisms for their successful implementation.
15. To conclude, I would like to emphasize that we welcome the opportunity to continue to share
our experiences with this Working Group and to continue to make our expertise available, if so
desired.
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