./.WORLD TRADE
ORGANIZATIONWT/WGTI/W/60
28 October 1998
(98-2257)
Working Group on the Relationship
between Trade and InvestmentOriginal:  Spanish
COMMUNICATION FROM COSTA RICA
The following communication, dated 1 October 1998, has been received from the Permanent
Mission of Costa Rica with the request that it be circulated to Members.
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I. DEFINITION OF INVESTMENT
A. DEFINITION OF INVESTMENT IN INTERNATIONAL TREATIES SIGNED BY COSTA RICA
The international treaties signed by Costa Rica relating to investment have employed quite a
broad and comprehensive definition of investment, which includes any good capable of being
invested.
1. Bilateral investment treaties
As mentioned in an earlier communication (WT/WGTI/W/31) Costa Rica has signed bilateral
investment treaties with Argentina, Canada, Chile, France, Germany, Great Britain, Paraguay, Spain,
Switzerland and Venezuela.  The definition of investment used in these agreements covers any good
owned or controlled by a foreign investor.  This is quite a wide-ranging definition which protects both
direct investment and portfolio investment, and it is supplemented by an illustrative, non-exhaustive
list of everything that could be considered investment under the agreement concerned.
2. Free trade agreements
Costa Rica has signed a free trade agreement with Mexico which includes a chapter on
investment.  In this agreement too, investment is defined in a comprehensive manner, covering any
good capable of being invested, and this definition is supplemented by an illustrative list.
Despite the breadth of this definition, it is specified that it does not include capital movements
that are mere financial transactions for speculative purposes, commercial contracts for the sale of
goods or services, credits granted to a State, or loans that are not directly related to an investment.
B. COMPREHENSIVE DEFINITION OF "INVESTMENT "
The definition of the term "investment" should be broadened to include any kind of good
capable of being invested and used in activities cap able of generating income or an economic benefit.
Nevertheless, the definition should be sufficiently precise so as to cover any type of capital flow,
whether direct investment or portfolio investment , but not include capital movements that are not
really investments but mere financial transactions for speculative purpose or else loans not directly
related to an investment.WT/WGTI/W/60
Page 2
It could also be very useful if the definition of investment included an illustrative list of
examples clarifying what may be considered to be covered by the definition, as well as what should
be considered to be excluded from it.
For the purposes of this definition, consideration should also be given to the criteria that
would characterize investment as being foreign.  The basic elements to be taken into account to
determine that a good is a foreign investment are:
- That the good in question is owned or controlled by a foreign investor;  and- that it has been acquired or is the product of a transfer of capital from outside the host
country of the investment or, otherw ise, the product of reinvestment.
These elements in turn call for a more precise definition of some other concepts.  For
example, the terms "owned" and "controlled", whether directly or indirectly, should be clarified.  For
these purposes, the definitions used in the General Agreement in Trade in Services could be a major
reference.
Without prejudice to the above, while the definition of "control" given in the General
Agreement on Trade in Services could be the starting-point, it will be necessary to supplement it by
defining the two types of control that may be exercised:  direct control and indirect control.
II. DEFINITION OF INVESTOR
Definition of investor in international agreements signed by Costa Rica
Virtually all the bilateral investment treaties and the corresponding investment chapters in
free trade agreements or regional integration agreements signed worldwide include the definition of"investor".  This definition covers both natural and juridical persons who will enjoy the protection of
these agreements.
Both the various bilateral investment treaties which Costa Rica has signed as well as its free
trade agreement with Mexico draw a distinction in the definition of investor between natural and
juridical persons.  In most of these agreements natural persons have been defined as persons having
the nationality of one of the contracting parties, in accordance with the respective domesticlegislation.
In the case of juridical persons, the great majority of the treaties signed by Costa Rica
concerning investment refer to two specific criteria to determine the nationality of juridicial entities.
Basically, a juridical person is considered an "investor" of a party if it is constituted or organized inaccordance with the legislation of a party and is based in that same contracting party.  In some cases
these two criteria – that of the place where the juridical person is constituted and the place where it is
based – are combined with the requirement that th e juridical entity should actually be engaged in
genuine economic activity in its country of origin.
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