WORLD TRADE
ORGANIZATIONWT/WGTI/W/145
16 September 2002
(02-4903)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM THE SEPARATE CUSTOMS TERRITORY OF TAIWAN,
PENGHU, KINMEN AND MATSU
The following communication, dated 13 September 2002, has been received from the
Permanent Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu.
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DISPUTE SETTLEMENT MECHANISM
1. One of the issues amongst the terms of the Doha Ministerial Declaration requiring
clarification by the WGTI relates to the dispute settlement mechanism between Members as regardsinvestment matters.  Prior to the Doha Declaration, there were actually extensive discussions by the
WGTI on this issue.  One of the main focuses of these discussions was the form of dispute settlement
to be adopted in the possible future multilateral framework on investment.  As the WTO already has a
dispute settlement mechanism in place, which in all fairness has been operating to a very high
professional standard in resolving disputes between Members, it will undoubtedly raise the question
as to the necessity and appropriateness of buildin g a separate mechanism for investment matters that
will co-exist alongside the present DSU. Irrespective of whether the possible future investmentframework adopts the existing DSU or builds a separate mechanism, one of the issues of concern will
be the position of investors in the dispute settlement process.  Should investors be conferred with a
status that allows them to participate in the future dispute settlement process?  Against this
background, we would like to submit our views for Members to consider.
2. In relation to the question of whether the existing DSU should be made applicable for dispute
settlement under the possible future multilateral framework on investment:  Since investment issues
relating to services are already covered under the GATS, which effectively means that any dispute in
connection with issues on investment in services will be dealt with under the framework of the DSU,
and as the present dispute settlement on investment matters under the GATS poses no particular
problem, we do not consider it necessary to have a separate dispute settlement mechanism for thepossible future multilateral investment framework. We are of the view that the DSU will suffice for
this purpose.
3. We consider that the question of the viability of conferring on the dispute settlement body the
authority to award monetary compensation to the home country of investors merits further discussion.
Members may agree that losses in trade may be adequately compensated by additional concessions bythe host country;  however, losses by investors may often be losses of property, especially in the event
of expropriation by the host country, compensation in a form similar to trade concessions or
investment concessions seems greatly insufficient to redress them.WT/WGTI/W/145
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4. Although the DSU in its present form may be made applicable to the future multilateral
framework on investment, we consider it equally appropriate for a special provision to be
incorporated into the possible future multilateral framework on investment, the application to dispute
settlement of which would take precedence over that of the DSU.  This is in line with the current
practices of the WTO, under which most of the agreements have their own dispute settlementprovisions.  If there are such additional dispute settlement provisions in the possible future
multilateral investment framework, monetary compensation mentioned in the preceding paragraph
may be included therein.
5. Regarding whether the dispute settlement mechanism under the possible future multilateral
framework should include a scheme for resolving disputes between Members and private investors:
As Members are aware, the existing WTO dispute settlement framework under the DSU does not deal
with disputes between Members and private part ies.  However, it is common to find in many
investment agreements provisions providing for a mechanism to settle disputes between the State and
private parties. Although the Doha Declaration does not address this issue specifically, we do not see
any particular reason to prevent Members from expl oring this issue further.  We consider that the
following suggestions may be a useful reference to Members.
6. The mechanism provided in the Agreement on Preshipment Inspection (PSI Agreement) for
resolving disputes between an exporter (a private party) and a preshipment inspection entity (also a
private party), i.e. the independent review procedures, is an example which may demonstrate that
some form of dispute settlement for private parties is not an absolute impossibility under the existing
WTO framework.  Paragraph 21 of Article 2 of the Agreement does provide for an appeal procedure
against the determination of the preshipment inspection entity;  but this is an internal procedure within
the inspection entity itself, and may not be wholly impartial in so far as the exporters are concerned.
There is, therefore, provided in Article 4 of the Agreement,  an independent review procedure which
aims to encourage preshipment inspection entities and exporters to resolve their disputes through the
help of a third party.  Article 4 provides that any aggrieved party may refer a dispute for independent
review two working days after submission of its grievance in accordance with paragraph 21 ofArticle 2.  The independent review procedures are established by the Members pursuant to the
principle set out in Article 4 of the Agreement.  These procedures shall be administered by an
independent entity constituted jointly by the preshipment inspection entity and the exporter.  The
independent entity establishes a list of experts which consists of three sections of experts nominated
respectively by the preshipment inspection entity, the exporter, and the independent entity itself.  The
preshipment inspection entity or the exporter may request the formation of a panel to make the
decisions necessary to ensure an expeditious settlement of the dispute. More important is that,according to item (h) of Article 4, the decision by the panel is binding on the preshipment inspection
entity and the exporter.  It is obvious that although the WTO DSU mechanism does not deal with this
type of issue, the PSI Agreement sets up an additional scheme to solve problems that exporters really
need to solve.  Our observation is that the poss ible future multilateral investment agreement could
also have such an additional scheme so as to provide ways to resolve disputes between investors andhost countries;  however, this independent proce dure should exist in parallel with the existing
procedure under the ICSID, and should allow investors to decide the venues they wish to choose.
7. Members may also consider including in the possible future multilateral investment
framework a provision to the effect that whenever an investor requests dispute settlement, the host
country will be required, at the choice of the invest or, to agree with using either the procedure of the
ICSID (on the premise that such host country is a member to the ICSID), the Additional FacilityWT/WGTI/W/145
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under the ICSID, the UNCITRAL dispute settlement rules, or the ICC Rules, to resolve the dispute in
question.  This particular form of provision in the possible future multilateral investment framework
may obviate the need to establish a separate mechanism under the framework mentioned above, and
will be in line with the existing DSU which does not deal with matters involving private parties.
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