WORLD TRADE
ORGANIZATIONWT/WGTI/W/54
2 September 1998
(98-3363)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 28 August 1998, has been received from the Permanent
Delegation of the European Commission with the request that it be circulated to Members.
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CHECKLIST OF ISSUES, AGENDA ITEM IV:  IDENTIFICATION OF
COMMON FEATURES AND DIFFERENCES IN INTERNATIONAL
INVESTMENT INSTRUMENTS
Existing Concepts on the Admission of Inve stment, in particular Non-Discrimination
I. INTRODUCTION
1. The last submission of the Community to this Working Group, i.e. document
WT/WGTI/W/30 of 27 March 1998, already contains a short chapter on the pre-entry questions.
From that document it already appears that the bilateral investment treaties concluded by the member
States of the European Community do not affect the right of Parties to regulate the admission ofinvestors.  However, both the EC Treaty itself and some other important instruments the Community
and its member States have adhered to put obligations on the participant in this respect.  Taken
together, these obligations amount to a very open regime for access of investors to the European
Single Market.  In all of these instruments, however, horizontal or sectoral exceptions allow
participants to safeguard important interests, such as national security or public order.
2. The Community recognizes that legal obligatio ns on the admission of investment can raise
political concerns, some of which have been or will be debated in the WGTI.  This note does not take
a view on these issues.  It attempts a mere description of the concepts used, in particular regarding the
central obligations of national treatment and most-favoured-nation treatment .
II. THE INTERNATIONAL LAW SITUATION
3. A brief look at the international law situation rev eals that there is no  right to invest or right of
admission as such for foreign investors under customary international law.  This means that any rights
and obligations in this field are the result of the treaties and other international law instruments that a
particular State has chosen to enter in.  With regard  to the WTO, this does not mean that there is a
tabula rasa  from which to start.  It should be recalled here that under the GATS many countries have
included market access commitments for commercial presence, i.e. investment.WT/WGTI/W/54
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III. THE MAIN CONCEPTS USED
(i) "Right to invest".  This would be a far-r eaching concept allowing for an absolute right
for investors for direct or portfolio investment.  While this concept may be found in
academic papers, it is not part of current practice of any WTO Member, and should
not be discussed here.
(ii) "Right of establishment".  This is a narrower concept creating a subjective right of
establishment in a country (which very often does take the form of an investment),
including by natural persons.  This right has been granted, subject to a number of
horizontal and sectoral limitations, within the European Community and in the
Community’s relations to the accession candidates.  It usually is part of a larger
agenda of economic integration.
(iii) Non-discrimination:  national treatment and most-favoured-nation treatment.  These
are the most common forms of obligations taken on in the multilateral fora (and, inter
alia, in the OECD instruments, NAFTA, the draft MAI, the Energy Charter Treaty, as
well as in the GATS in combination with "market access" (see below (iv))).
(iv) Market-access commitments.  This is a concept used in the GATS, which allows
GATS Members to make liberalization commitments regarding market access insectors inscribed in a GATS Member’s schedule.
4. What follows is a closer look at the non-discrimination concept.  It should be noted that some
instruments (as in NAFTA, MAI) comprise the pre- and post-establishment "life" of an investment by
a single provision, thus taking into account that it  is sometimes difficult to distinguish between pre-
and post-entry of an investment.  This is in particular true when an agreement operates a broaddefinition of investment, including portfolio tr ansactions.  This fact explains why also non-
discrimination concepts developed (e.g. the OECD National Treatment Instrument) in a post-
establishment context have been included where this was deemed useful.
The OECD instruments
5. Within the OECD, the admission of investment is currently regulated by the Codes of
Liberalisation, but a valuable interpretation of its central concepts of non-discrimination and national
treatment is also given in the National Treatm ent Instrument which, in general, applies once
investment has been admitted.
6. The wording used in Art. 9 of the Codes actu ally is based on MFN:  "A Member shall not
discriminate as between other Members in authorising the conclusion or execution of transactions or
transfers …", contained in a list of operations which the Codes’ Members agreed to liberalize.  Theconcept was very narrow (pertaining to authorizations only), but was subsequently enlarged by a 1984
decision, and it now amounts to national treatment re garding FDI.  The scope of measures covered in
this respect is a broad "regulation or practices … affecting the operation of enterprises … and raise
special barriers or limitations with respect to non-residents".
7. Later instruments are even broader, in that they  simply refer to the "treatment" of investors
(e.g. ECT, NAFTA, MAI, see below).
8. The National Treatment Instrument defines natio nal treatment as "treatment consistent with
international law and no less favourable than that acco rded in like situations to domestic enterprises".
What is interesting in this context are some of the clarifications given at a later stage.WT/WGTI/W/54
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9. It was recognized in 1991 that situations existed in which it would not be possible to accord
identical treatment in, for example, the financial or insurance sectors due to the special nature of these
sectors.  The treatment to be accorded in these cases would be "equivalent" treatment, which meant
that differences could exist in the treatment accorded (justified in certain circumstances) while the
overall competitive opportunities of foreign owned or controlled enterprises in the market would be
maintained.  Thus there should be no inequality wh ich could result in an unfavourable situation for the
foreign investor/investment.
10. The "in like situations" criterion is valid only if the comparison is made between firms
operating in the same sector.  The OECD explanat ion of the NT Instrument also suggests that the
policy objectives of the member countries could be taken into account to define the circumstances in
which such a comparison is made, such objectives not being otherwise contrary to the NT principle.
11. The instrument addresses all measures which result in discriminatory treatment towards a
foreign enterprise, regardless of whether they are formally discriminatory, or whether the impact only
leads to "de facto" discrimination.  These measures may take the form of laws, regulations and/or
administrative practices.
The provisions of the draft MAI, modelled after NAFTA
12. The national treatment obligation is that of acco rding to investors and their investments of a
contracting party to the MAI "treatment no less fav ourable" than that accorded to the host country’s
own investors, [in like circumstances] with respect to the "establishment, acquisition, expansion,
operation, management, maintenance, use, enjoyment, and sale or other disposition" of investments.
It is obvious that the definition for non-discrimination used here is an attempt to cover all aspects ofeconomic activity of an investor and its investments.  Such an open list of investment activities which
can be undertaken by the investor is meant to cover all activities of investors and their investment at
the pre- and post-establishment stages.
13. The MFN obligation in the MAI is that of "treat ment" to be accorded to investors and their
investments of a contracting party "no less favourable" than that accorded to investments of investorsof another contracting party or non-contracting party, in regard to the same areas of activity as
mentioned in relation to NT.
14. In the MAI discussions, there was some s upport for the term "same" or "comparable"
treatment instead of the phrase "no less favourable" treatment.  But most delegations considered this
to be a weaker standard of treatment for investors than the "no less favourable" standard.  It is also
obvious that the formula used allows for positive discrimination, for example a better treatment for
foreign investors than for domestic ones in order to attract investment.
15. Consideration was given to the inclusion of the term "in like circumstances", in relation to
which it was pointed out that NT and MFN are relative and comparative terms.  On the one hand,
some have argued that the provision would permit fair and equitable difference in treatment justified
by relevant differences of circumstances even without specific wording. This qualification, however,
would only allow for discrimination if justified by "different circumstances".  On the other hand,those favouring the inclusion of the term "like circumstances" consider that the goal of these standards
is to prevent discrimination in fact or law as compared with domestic or third country investors or
investments.  The "like circumstances" proviso, however, should be included to ensure that
comparisons are made on the basis of relevant criteria, allowing governments to accord differential
treatment for legitimate policy reasons.
16. The NT/MFN standards are of course intended to cover situations of both de facto and de jure
discrimination.WT/WGTI/W/54
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The GATS provisions
17. The GATS is not an investment treaty as such, but the Working Group has already discussed
that in particular the mode of supply "commercial presence" is relevant for investment.
18. The GATS MFN obligation applies across the board to all services sectors unless an
exception is contained in the country schedules, whereas the market access and NT obligations apply
only in the sectors where commitments have been made.
19. The MFN obligation in GATS is worded in the familiar "no less favourable" standard
applicable to both the service and the service supplier of another Member.  Most-favoured-nation
treatment has been interpreted to mean the prohibition of "de facto" as well as " de jure "
discriminatory treatment.
20. In addition to MFN, the GATS operates a mixed approach for pre-entry obligations:  market
access combined with national treatment.
21. Market access for services in the sectors in which a Member has undertaken commitments
provides that these services and service suppliers can be treated no less favourably than specified in
the Member’s schedule.  The possible limitations are enumerated (Art. XVI GATS), and are mostly
not discriminatory as such (e.g. numerical restrictions can also apply to domestic firms).  The result isthat there is little national treatment for the foreig n service or service supplier in the pre-establishment
phase under the market access provision of the GATS.
22. However, the GATS contains an additional national treatment provision (Art. XVII GATS)
which applies also to pre-establishment if the sector is inscribed in the Member’s schedule.  The NT
obligation refers to treatment, in respect of measures affecting the supply of services, which should be"no less favourable" than that of like national services and service suppliers.  This does not always
mean formally identical treatment, as long as it is ensured that the treatment applicable does not result
in less competitive market conditions for the foreign service or service supplier.  This concept is in
essence an economic approach, and differs from the more legal approaches discussed above.
23. It should also be noted that there is a significant difference in the GATS NT provision in
relation to the GATT provision on national treatment, applicable to goods, which is only applicable to
the products in question and not the competitive conditions imposed on the producer.
24. With respect to market access and NT the GATS obligation refers to measures "affecting the
supply of services".  This is intended to cover a broad range of measures, insofar as any measure
affecting the conditions under which the service supplier supplies the service, while not directly
pertaining to the service itself, could be considered to be contrary to the GATS if it is inconsistent
with the general obligations and specific commitments of a GATS Member.
IV. CONCLUSION
25. The predominant instrument used to regulate the admission of investment in existing
multilateral instruments is a combination of nationa l treatment/most-favoured-nation treatment.  Two
conclusions are evident:
- The scope of the non-discrimination clauses (MFN and national treatment) has been
constantly enlarged and now covers the "tre atment" of investors as regards the entire
life of the investment, while initially pertaining only to limited measures such as
authorizations.WT/WGTI/W/54
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- One multilateral agreement has chosen a different concept than non-discrimination for
the admission of investment: the GATS operates a market access criterion backed up
by national treatment in sectors scheduled, but MFN applies across the board.  This
shows that existing concepts allow for modulation according to the participants’
needs.
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